<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, 2001

                                       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)

<TABLE>
<S>                                         <C>
         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)
</TABLE>

               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 XX No

The aggregate market value as of March 1, 2002 of the Common Stock and Class A
Stock held by non-affiliates of the registrant was $16,887,647.

As of March 1, 2002 there were 553,355 shares of the registrant's Common Stock
and 1,827,019 shares of registrant's Class A Stock, each without par value,
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:  None
<PAGE>
                                     PART I

<TABLE>
<S>                                                                                 <C>
Item 1.  Business                                                                    3
       General                                                                       3
       Financial Information about Operating Segments                                3
                United Coastal Liability Insurance                                   3
                ACSTAR Bonding                                                       5
                Insurance and Bonding Performance Ratios                             5
                Underwriting                                                         6
                Reinsurance                                                          6
                Claims                                                               6
                Reserves for Losses and Loss Adjustment Expenses                     6
                IRIS Ratios                                                          9
                A.M. Best Ratings                                                    9
                Risk-Based Capital                                                   9
         ACMAT Contracting                                                           9
                General                                                              9
                Backlog                                                              9
                Materials                                                           10
                Contract Acquisition                                                10
                Warranty                                                            10
                Asbestos Abatement Operations                                       10
         Marketing                                                                  10
         Competition                                                                11
         Regulation                                                                 11
         Investments                                                                12
         Environmental Compliance                                                   14
         Employees                                                                  14

Item 2. Properties                                                                  14

Item 3. Legal Proceedings                                                           14

Item 4. Submission of Matters to a Vote of Security Holders                         14

                                     PART II

Item 5. Market for the Registrant's Common Stock and Related Stockholder matters    15

Item 6. Selected Financial Data                                                     15

Item 7. Management's Discussion and Analysis of Financial Condition and
            Results of Operations                                                   16
         Reserves for Losses and Loss Adjustment Expenses                           18
         Liquidity and Capital Resources                                            18
         Regulatory Environment                                                     20

Item 7a. Quantitative and Qualitative Discussions about Market Risk                 20

Item 8. Financial Statements and Supplementary Data                                 22

Item 9. Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure                                                      49

                                    PART III

Item 10. Directors and Executive Officers of the Registrant                         49

Item 11. Executive Compensation                                                     52

Item 12. Security Ownership of Certain Beneficial Owners and Management             54

Item 13. Certain Relationships and Related Transactions                             55

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K            55
</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 and remediation operations. Through United
Coastal Insurance Company ("United Coastal Insurance"), the Company provides a
broad line of general products, professional, environmental and other liability
insurance primarily to general contractors and specialty trade contractors,
manufacturers and distributors and architects, engineers and other
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 and asbestos abatement services for commercial,
industrial and institutional buildings.

Financial Information about Operating Segments

Financial information relating to the three business segments is set forth in
Note 15 to the consolidated financial statements on page 40 of 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-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.

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, which consist primarily of
contractor general liability policies, professional liability policies, and
product liability policies 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.


                                       3
<PAGE>
  -      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, 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
         on either a claims-made or occurrence 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. Combined policies insuring multiple exposures under one
policy form and one combined policy limit are available.

                                 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. Many 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.

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.

Insurance and Bonding Performance Ratios

The following table sets forth the combined ratios of the Company, prepared in
accordance with generally accepted accounting principles and statutory
accounting principles prescribed or permitted by state insurance authorities.
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.

<TABLE>
<CAPTION>
                                                                   Year
                                                            Ended December 31,
                                                     --------------------------------
                                                     2001          2000          1999
                                                     ----          ----          ----
<S>                                                  <C>           <C>           <C>
GAAP Ratios:
    Loss ratio                                       20.3%         16.4%         17.6%
    Expense ratio                                    69.3          58.9          56.6
                                                     ----          ----          ----
    GAAP combined ratio                              89.6          75.3          74.2
                                                     ====          ====          ====
Statutory Ratios:
   Loss ratio                                        20.3          16.4          17.6
   Expense ratio                                     77.3          63.6          63.3
                                                     ----          ----          ----
   Statutory combined ratio                          97.6%         80.0%         80.9%
                                                     ====          ====          ====
</TABLE>

The increase in the combined ratios over the past year results primarily from
the decline in written premiums due to selective underwriting while expenses
remained flat. See Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations."


                                       5
<PAGE>
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 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. Historically, the Company has issued policies and bonds to fewer
than twenty-five percent of its applicants.

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%.
The Company has a conservative underwriting philosophy which, in the opinion of
management, is one of the primary reasons for the favorable loss ratios relative
to the property and casualty insurance industry over the last three years.

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

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. The
Company participates in assumed quota share reinsurance arrangements covering
marine and property catastrophe risks with one of its excess of loss reinsurers.

Effective May 1, 2000, the Company cedes significantly more of its bond exposure
than under its previous reinsurance treaties. Such reinsurance is applicable on
a per principal basis for losses in excess of $1,000,000 up to $13,000,000.
Prior to May 1, 2000, reinsurance was applicable to losses in excess of
$2,000,000 on a per bond basis with the Company retaining approximately
$5,000,000 of losses up to $13,000,000.

The availability and price of reinsurance fluctuates according to market
conditions. 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.

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, 2001 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.


                                       6
<PAGE>
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.
Reserves are monitored and recomputed periodically using new information on
reported claims.

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>
                                     2001             2000             1999
                                 ------------     ------------     ------------
<S>                              <C>              <C>              <C>
Balance at January 1             $ 29,310,606     $ 38,544,491     $ 43,115,062
 Less reinsurance recoverable       2,580,388        3,924,064        2,224,116
                                 ------------     ------------     ------------
 Net balance at January 1          26,730,218       34,620,427       40,890,946

Incurred related to:
          Current year              4,144,000        2,441,000        3,091,120
          Prior years              (2,607,978)        (934,092)      (1,418,233)
                                 ------------     ------------     ------------
Total incurred                      1,536,022        1,506,908        1,672,887
Payments related to:
          Current year              1,723,000          791,546           81,569
          Prior years               6,730,282        8,605,571        7,861,837
                                 ------------     ------------     ------------
Total Payments                      8,453,282        9,397,117        7,943,406

Net balance at December 31         19,812,958       26,730,218       34,620,427
 Plus reinsurance recoverable       2,772,668        2,580,388        3,924,064
                                 ------------     ------------     ------------
 Balance at December 31          $ 22,585,626     $ 29,310,606     $ 38,544,491
                                 ============     ============     ============
</TABLE>

The decrease in loss and loss adjustment expense reserves continues due to
significant loss payments for surety and general liability claims, the release
of net favorable development in surety loss reserves relating to older years
that are no longer required partially offset by an increase in current year
incurred loss and loss adjustment expenses. This increase reflects large surety
losses which occurred during the year. While management continually evaluates
the potential for changes in loss estimates, due to the uncertainty inherent in
the surety business, the emergence of net favorable development may or may not
continue to 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.

As of December 31, 2001, 2000 and 1999 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 $19,812,958,
$29,375,218, and $40,715,475, respectively. As of December 31, 2001, 2000 and
1999 reserves determined in accordance with generally accepted accounting
principles ("GAAP basis reserves") were $22,585,626, $29,310,606 and
$38,544,491, respectively. The difference between the Statutory basis reserves
and the GAAP basis reserves result from the minimum statutory, or "Schedule P",
loss reserves required to be maintained by the Company's insurance subsidiaries,
partially offset by the netting of reinsurance recoverable against losses and
loss adjustment expense reserves for statutory purposes for 2000 and 1999. In
2001, revised statutory accounting principles removed the requirement for
minimum statutory, or "Schedule P" reserves.

The following losses and loss adjustment expense reserve runoff table is for the
combined insurance operations of the Company's insurance subsidiaries. The data
for 1992 and prior periods are presented on a net basis in the reserve run-off
table. Restatement of prior periods is not practicable.

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.


                                       7
<PAGE>
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>
                          1991     1992     1993     1994    1995     1996     1997     1998    1999     2000      2001
                          ----     ----     ----     ----    ----     ----     ----     ----    ----     ----      ----
                                        (thousands)
<S>                      <C>      <C>      <C>      <C>     <C>      <C>      <C>      <C>     <C>      <C>        <C>
Liability for unpaid
 losses and loss
 adjustment expenses     26,234   29,240   30,437   36,726  41,363   44,119   45,423   40,891  34,620   26,730     19,813

Liability reestimated
 as of:
 One year later          26,234   29,240   30,437   35,825  40,193   43,282   43,106   37,816  33,503   26,735
 Two years later         26,234   29,240   28,337   34,659  37,872   40,865   35,698   36,741  27,656
 Three years later       26,234   26,000   27,170   29,913  35,354   33,359   33,735   31,108
 Four years later        22,094   24,833   23,550   27,193  28,149   30,999   27,004
 Five years later        20,927   22,284   20,880   19,486  25,057   25,663
 Six years later         18,841   19,914   13,673   16,254  21,499
 Seven years later       16,932   13,148   11,915   14,125
 Eight years later       11,761   11,163   10,819
 Nine years later        10,412   10,407
 Ten years later         10,152

Cumulative Redundancy
 (deficiency):           16,082   18,833   19,618   22,601  19,864   18,456   18,419    9,783   6,964     (5)
Paid (cumulative) as of:

 One year later           3,216    6,142    1,560    2,361   3,067    2,942    6,703    7,903   8,610    6,663
 Two years later          8,699    7,574    3,655    4,582   5,256    8,951   13,928   14,843  13,766
 Three years later        9,576    8,603    5,022    6,412   8,922   16,047   16,655   19,920
 Four years later        10,488    9,554    6,189    7,969  15,601   18,597   20,208
 Five years later        10,816    9,818    6,869   12,425  17,564   21,791
 Six years later         10,856   10,034    9,723   13,094  19,885
 Seven years later       10,949   10,761   10,296   13,902
 Eight years later       11,445   10,787   11,058
 Nine years later        11,449   11,357
 Ten years later         11,579

Gross liability - end of year              34,730   40,955  45,235   47,960   48,901   43,115  38,544      29,311   22,586
Reinsurance recoverable                     4,293    4,229   3,872    3,841    3,478    2,224   3,924       2,581    2,773
                                           ------   ------  ------ --------    -----    ----- -------      ------  -------
Net liability - end of year                30,437   36,726  41,363   44,119   45,423   40,891  34,620      26,730   19,813
</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.


                                       8
<PAGE>
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 eleven 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, 2001, none of the Company's
insurance subsidiaries' IRIS ratios were designated an "unusual value".

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 2001 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).

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, 2001 was above the level which might require
regulatory action.

                                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

Backlog

The following table sets forth the Company's backlog of unbilled contract
amounts, the total number of contracts and the number of contracts with unbilled
amounts in excess of $400,000 as of December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                       December 31, 2001                  December 31, 2000
                                                       -----------------                  -----------------
<S>                                                    <C>                                <C>
Total Number of Contracts.                                    7                                  20
Total unbilled contract amounts.                          $14,000,000                        $16,800,000
Number of contracts with unbilled amounts in
excess of $400,000.                                           5                                   3
Aggregate unbilled amount of contracts in
excess of $400,000.                                       $13,946,000                        $15,900,000
</TABLE>

The Company estimates that all of the December 31, 2001 backlog will be
completed prior to December 31, 2002.


                                       9
<PAGE>
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 never
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 both a claims-made and occurrence 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 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 is
thought by some to 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 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 claims will not be made in the future.

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, although no assurances can be given, that workers'
compensation insurance sufficient to cover all future claims will remain
available in accordance with applicable state laws.

                                    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 a non-admitted insurer
in forty-six states, the District of Columbia, Puerto Rico and the Virgin
Islands.

ACSTAR Insurance offers payment and performance bonds through carefully selected
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 products are marketed in all 50 states.


                                       10
<PAGE>
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
which is intended to emphasize ACMAT's packaged interior renovation capability.
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, Design Professionals
Insurance Company, CNA Insurance Companies 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., AIG 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.

                                   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 a 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.


                                       11
<PAGE>
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, 2001, the Company's insurance subsidiaries had securities with an aggregate
book value of approximately $10.4 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. United Coastal Insurance is restricted by the Arizona
Insurance Holding Company Systems Act as to the amount of dividends it may pay
without the prior approval of the Arizona Department. During 2001, United
Coastal Insurance paid $6,000,000 in dividends. At January 1, 2002,
approximately $2,245,000 is available for the payment of dividends by United
Coastal Insurance in 2002 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 2001, ACSTAR paid
$2,500,000 in dividends to ACSTAR Holdings. At January 1, 2002, approximately
$3,685,000 is available for the payment of dividends by ACSTAR Insurance in 2002
without the prior approval of the Illinois Insurance Department.

New regulations and legislation are being proposed to limit damage awards, to
control plaintiffs' counsel fees, to bring the industry under regulation by the
federal government and to control premiums, policy terminations and other policy
terms. It is not possible to predict whether these proposals will be adopted or
their likely effect, if any, on the Company.

                                   INVESTMENTS

The Company's investment strategy is to maintain a conservative investment
policy by generally acquiring high quality securities, primarily bonds, with
fixed effective maturities of approximately three years or less. The investment
portfolio is well 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.


                                       12
<PAGE>
The Company invests in tax-exempt securities as part of its strategy to maximize
after-tax income. Such strategy considers, among other factors, the impact of
the alternative minimum tax. The following table summarizes the fair value fixed
maturity investments portfolio at December 31, 2001 and 2000 (dollars in
thousands):

<TABLE>
<CAPTION>
                                                        December 31,
                                            ----------------------------------
                                                  2001               2000
                                            ---------------    ---------------
                                                     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               $21,112    31.3%   $17,271    22.7%
   State and political subdivisions          12,297    18.2     28,341    37.2
   Industrial and Miscellaneous               9,082    13.5     19,825    26.0
   Mortgage-backed securities                19,720    29.2      4,934     6.5
                                            -------   -----    -------   -----
Total fixed maturities available for sale    62,211    92.2     70,371    92.4
Equity securities(2)                          4,917     7.3      2,221     2.9
Mortgages (3)                                  --      --          290      .4
Short-term investments (4)                      372      .5      3,249     4.3
                                            -------   -----    -------   -----
Total investments                           $67,500   100.0%   $76,131   100.0%
                                            =======   =====    =======   =====
</TABLE>

(1)  Fixed maturities available for sale are carried at fair value. Total cost
     of fixed maturities was approximately $61,841,000 at December 31, 2001 and
     $70,488,000 at December 31, 2000.

(2)  Equity securities are carried at fair value. Total cost of equity
     securities was approximately $5,065,000 at December 31, 2001 and $2,560,000
     at December 31, 2000.

(3)  Mortgages are carried at amortized cost which approximates fair value at
     December 31, 2000.

(4)  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, 2001
and 2000 (dollars in thousands):

<TABLE>
<CAPTION>
                                                     December 31,
                                      ---------------------------------------
                                             2001                  2000
                                      -----------------     -----------------
                                                Percent               Percent
                                                  Of                    Of
                                      Amount     Total      Amount     Total
                                      ------     ------     ------     ------
<S>                                   <C>        <C>        <C>        <C>
Due in (1):
----------
One year or less                      $18,750      30.1%    $23,926      34.0%
After one year through five years     30,545       49.1     39,014       55.4
After five years through ten years     2,922        4.7      3,132        4.5
After ten years                        9,994       16.1      4,299        6.1
                                      ------     ------     ------     ------
                                      $62,211     100.0%    $70,371     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.

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, 2001, the Company's
investments complied with such laws and regulations.


                                       13
<PAGE>
Investment results for the years ended December 31, 2001, 2000 and 1999 are
shown in the following table (dollars in thousands):

<TABLE>
<CAPTION>
                                        2001             2000             1999
                                      --------         --------         --------
<S>                                   <C>              <C>              <C>
         Invested assets (1)          $ 83,403         $ 90,619         $111,559
         Investment income (2)        $  4,032         $  4,571         $  5,390

         Average yield                    4.83%            5.04%            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.

The yields reflect the Company's investment strategy of investing in high
quality securities. In 2001, 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.

                            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, 2001, the Company employed approximately 30 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 67% 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 2001.


                                       14
<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. 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>
                             2001                               2000
                    HIGH              LOW               HIGH              LOW
<S>                 <C>              <C>              <C>               <C>
COMMON STOCK

  1st Quarter        20              19.25               19               19
  2nd Quarter        25                19                19               19
  3rd Quarter        19                19                19               17
  4th Quarter        19                19                26               19

CLASS A STOCK

  1st Quarter       11.88             7.38            13-1/16            6-1/8
  2nd Quarter        9.98             7.85              8-3/4            7-1/8
  3rd Quarter       11.20             7.15             8-3/8             6-1/2
  4th Quarter        7.88             7.0                10             6-13/16
</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, 2002, there were 280 Common
Stock shareholders of record and 600 Class A Stock shareholders of record.

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                  2001             2000             1999             1998             1997
                                  ----             ----             ----             ----             ----
<S>                           <C>                <C>              <C>              <C>              <C>
Revenues                      $ 26,962,807       $26,341,755      $25,500,249      $28,752,273      $33,552,135
Total Assets                   109,463,456       112,216,369      125,855,611      146,126,465      176,208,762
Long-Term Debt                  24,550,361        27,696,587       30,792,720       37,200,000       48,212,727
Stockholders'  Equity           37,972,175        37,483,665       36,126,992       37,622,926       39,577,739

Net Earnings                     1,706,588         2,224,317        3,013,723        2,120,529        4,456,949
Basic Earnings Per Share               .70               .80             1.02              .66             1.29
Diluted Earnings Per Share             .68               .78              .99              .65             1.12
</TABLE>

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


                                       15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS:

CONSOLIDATED RESULTS OF OPERATIONS:

Net earnings were $1,706,588 in 2001, $2,224,317 in 2000 and $3,013,723 in 1999.
The decrease in 2001 net earnings compared to the 2000 net earnings was due
primarily to a decrease in earned premiums and an increase in the loss ratio
partially offset by an increase in realized capital gains. The decrease in 2000
net earnings compared to the 1999 net earnings was due in part to realized
capital losses in 2000 compared with capital gains in 1999.

Revenues were $26,962,807 in 2001, $26,341,755 in 2000 and $25,500,249 in 1999.
The increase in 2001 revenues compared to the 2000 revenues is due primarily to
an increase in contract revenues and realized gains offset in part by a decrease
in earned premiums and net investment income. Earned premiums were $7,581,276 in
2001, $9,215,904 in 2000 and $9,414,192 in 1999. The decrease in earned premiums
over the past two years reflects the Company's strategy to selectively
underwrite during uncertain economic times. Contract revenues were $14,074,878
in 2001, $11,790,207 in 2000 and $9,223,457 in 1999. Contract revenue depends
greatly on the successful securement of contracts bid and execution.

Investment income was $4,031,793 in 2001, $4,570,927 in 2000 and $5,389,732 in
1999. The decrease in investment income was primarily related to a continued
decrease in invested assets as the Company continues to reduce long-term debt.
Net realized capital gains (losses) were $374,301 in 2001, ($123,125) in 2000
and $252,190 in 1999.

Other income was $900,559 in 2001, $887,842 in 2000 and $1,220,678 in 1999.
Other income consists primarily of rental income. The increase in 2001 other
incomes compared to 2000 reflects an increase in construction administration
fees in 2001 offset by a lease termination fee received from a tenant in 2000.
Other income in 1999 included a one-time benefit of approximately $330,000.

Losses and loss adjustment expenses were $1,536,022 in 2001, $1,506,908 in 2000
and $1,672,887 in 1999. The increase in losses and loss adjustment expenses for
2001 are attributable to an increase in surety loss ratio offset in part by a
decrease in current year earned premiums.

Amortization of policy acquisition costs were $2,049,946 in 2001, $2,375,038 in
2000 and $2,223,918 in 1999. The decrease in amortization of policy acquisition
costs in 2001 is primarily attributable to the decrease in commission rates for
agents and decrease in earned premium.

Costs of contract revenues were $13,183,057, in 2001, $11,006,382 in 2000 and
$8,261,408 in 1999. The gross profit margins on construction projects were 6.3%
in 2001, 6.6% in 2000 and 10.4% in 1999. Gross margins fluctuate each year based
upon the profitability of specific projects.

General and administrative expenses were $4,856,785 in 2001, $4,997,849 in 2000
and $5,385,409 in 1999. The decrease in general and administrative expenses in
2001 compared to 2000 is due primarily to a decrease in salary expense offset in
part by an increase in depreciation expense. The decrease in general and
administrative expenses in 2000 compared to 1999 is due primarily to the
decrease in intangible amortization expense.

Interest expense was $2,723,052 in 2001, $2,982,824 in 2000 and $3,738,740 in
1999. The decrease in interest expense is due to the decrease in long-term debt.

Income tax expense was $907,357 in 2001, $1,248,437 in 2000 and $1,204,164 in
1999, representing effective tax rates of 34.7%, 35.9% and 28.6%, respectively.
The fluctuation in the effective tax rate reflects a one-time charge related to
an IRS examination completed in 2000.

Results of Operations by Segment:

<TABLE>
<CAPTION>
ACSTAR BONDING:                      2001             2000             1999
                                  ----------       ----------       ----------
<S>                               <C>              <C>              <C>
         Revenue                  $5,487,683       $6,284,212       $6,227,462

         Operating Earnings       $2,098,548       $2,436,708       $2,968,882
</TABLE>

Revenues for the ACSTAR Bonding segment were $5,487,683 in 2001, $6,284,212 in
2000 and $6,227,462 in 1999. The 2001 decrease in revenue is primarily due to a
24% decrease in earned premiums and partly offset by


                                       16
<PAGE>
an increase in investment income and realized gains. The 2000 increase in
revenue reflects a slight increase in earned premium compared to 1999.

Investment income was $1,560,080 in 2001, $1,253,329 in 2000 and $1,268,175 in
1999. The increase in 2001 investment income was primarily related to a decrease
in investment expenses. The slight decrease in 2000 investment income was
primarily related to a continued decrease in invested assets offset in part by
an increase in the effective yield on those invested assets. Net realized
capital gains (losses) were $191,670 in 2001, ($5,622) in 2000 and $51,616 in
1999.

Operating earnings for the ACSTAR Bonding segment were $2,098,548 in 2001,
$2,436,708 in 2000 and $2,968,882 in 1999. The decrease in operating earning in
2001 is primarily related to lower earned premium and higher loss ratios
partially offset by higher net investment income and capital gains. The decrease
in operating earnings reflects the Company's new reinsurance program and an
increase in the losses and loss adjustment expense.

Losses and loss adjustment expenses were $404,260 in 2001, $251,876 in 2000 and
$238,520 in 1999. The increase in 2001 losses and loss adjustment expense
compared to 2000 reflects an increase in the loss and loss adjustment expense
ratio, offset in part by a decrease in current year earned premiums and the
release of net favorable development in surety loss reserves relating to older
years.

Amortization of policy acquisition costs were $1,601,377 in 2001, $2,001,561 in
2000 and $1,543,783 in 1999. The change in amortization of policy acquisition
costs is primarily attributable to the change in direct written premiums and a
change in the average commissions paid to agents.

General and administrative expenses were $1,383,498 in 2001, $1,594,067 in 2000
and $1,476,277 in 1999. The decrease in general and administrative expenses in
2001 is primarily due to reduced funds control expenses in 2001 compared to
2000. The increase in general and administrative expenses in 2000 compared to
1999 is due primarily to the implementation of a Funds Control Agreement with
ACMAT in 2000. Under this agreement, ACMAT collects funds from certain obligees
of ACSTAR and makes payments directly to the vendors and subcontractors of
selected principals for certain bond obligations for a fee.

<TABLE>
<CAPTION>
UNITED COASTAL LIABILITY
 INSURANCE:                          2001             2000             1999
                                  ----------       ----------       ----------
<S>                               <C>              <C>              <C>
         Revenues                 $6,363,392       $7,080,714       $8,529,279

         Operating Earnings       $2,810,000       $3,549,472       $4,578,802
</TABLE>

Revenues for the United Coastal Liability Insurance segment were $6,363,392 in
2001, $7,080,714 in 2000 and $8,529,279 in 1999. The 2001 decrease in revenue
reflects a 10% decrease in earned premiums and a 21% decrease in investment
income compared to 2000. The 2000 decrease in revenue reflects a 12% decrease in
earned premiums and a 16% decrease in investment income compared to 1999. The
decrease in revenues over the past two years reflects the Company's strategy to
selectively underwrite during uncertain economic times and a reduction in
invested assets to pay dividends to pay parent to reduce corporate debt.

Investment income was $2,385,377 in 2001, $3,001,161 in 2000 and $3,557,332 in
1999. The decrease in investment income was primarily related to a decrease in
invested assets as a result of dividends distributed to the parent company to
reduce corporate debt. Net realized capital gains (losses) were $182,631 in
2001, ($117,503) in 2000 and $200,574 in 1999.

Operating earnings for the United Coastal Liability Insurance segment were
$2,810,000 in 2001, $3,549,472 in 2000 and $4,578,802 in 1999. The decrease in
operating earnings is due primarily to a decrease in earned premiums and
investment income.

Losses and loss adjustment expenses were $1,131,762 in 2001, $1,255,032 in 2000
and $1,434,367 in 1999. The decrease in losses and loss adjustment expenses is
attributable to the decrease in earned premiums.

Amortization of policy acquisition costs were $1,286,409 in 2001, $1,303,916 in
2000 and $1,528,179 in 1999. The decrease in amortization of policy acquisition
costs is primarily attributable to the decrease in earned premiums.

General and administrative expenses were $1,135,221 in 2001, $972,294 in 2000
and $987,931 in 1999. The increase in general and administrative expenses is due
primarily to an increase in expenses related to our tri-annual statutory audit
in 2001.


                                       17
<PAGE>
<TABLE>
<CAPTION>
ACMAT CONTRACTING:                  2001             2000              1999
                                 -----------      -----------      -----------
<S>                              <C>              <C>              <C>
         Revenues                $17,540,369      $15,898,910      $13,154,753

         Operating Earnings      $   912,376      $ 1,111,731      $   907,228
</TABLE>

Revenues for the ACMAT Contracting segment were $17,540,369 in 2001, $15,898,910
in 2000 and $13,154,753 in 1999. The 2001 increase in revenue reflects a 19%
increase in contract revenues compared to 2000. The 2000 increase in revenue
reflects a 28% increase in contract revenues compared to 1999. Contract revenue
depends greatly on the successful securement of contracts bid and execution.

Operating earnings for the ACMAT Contracting segment were $912,376 in 2001,
$1,111,731 in 2000 and $907,228 in 1999. The decrease in 2001 operating earnings
compared to 2000 operating earnings is due primarily to a decrease in funds
control income and lower gross profit on contracts in 2001. The increase in 2000
operating earnings compared to 1999 operating earnings is due to implementation
of the Funds Administration Agreement with ACSTAR offset in part by lower gross
margins on 2000 projects.

Cost of contract revenues were $13,183,057 in 2001, $11,006,382 in 2000 and
$8,261,408 in 1999. The gross profit margin on construction projects was 6.3% in
2001, 6.6% in 2000 and 10.4% in 1999. Gross margin fluctuations each year based
upon the profitability of specific projects.

General and administrative expenses were $3,444,936 in 2001, $3,780,797 in 2000
and $3,886,117 in 1999. The decrease in general and administrative expenses in
2000 compared to 1999 is due primarily to the decrease in amortization of
intangibles. The decrease in general and administrative expenses in 2001
compared to 2000 is due primarily to a decrease in salary expense in 2001.

RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES:

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.
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, 2001 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.

The combined ratio is one means of measuring the underwriting experience of a
property and casualty insurer. The combined ratio, consisting of the ratio of
losses and loss adjustment expenses to premiums earned (the "loss ratio") plus
the ratio of underwriting expenses to premiums written (the "expense ratio")
reflects relative underwriting profit or loss. The Company's insurance
subsidiaries' loss ratios under generally accepted accounting principles
("GAAP") were 20.3%, 16.4% and 17.6% for the years ended December 31, 2001, 2000
and 1999, respectively. These loss ratios are below industry averages and are
believed to be the result of conservative underwriting. The increase in the 2001
loss ratios is due to an increase in surety loss ratio. There can be no
assurance that such loss ratios can continue. The Company's insurance
subsidiaries' expense ratios under GAAP were 69.3%, 58.9% and 56.6% for the
years ended December 31, 2001, 2000 and 1999, respectively. The increase in the
expense ratios is due to the decline in premiums. The Company's insurance
subsidiaries' combined ratios under GAAP were 89.6%, 75.3% and 74.2% for the
years ended December 31, 2001, 2000 and 1999, respectively.

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. This is a critical accounting policy for the ACMAT
construction segment.

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


                                       18
<PAGE>
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 $1,465,272 in
2001, compared to cash flow used from other sources to support operations of
$8,190,436 in 2000 and $7,065,427 in 1999. The cash flow from operations is due
primarily to the increase of cash collateral partially offset by the payment of
claims. Substantially all of the Company's cash flow is used to repay short-term
and 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 $8,821,721 in 2001, $14,008,674 in
2000 and $20,580,662 in 1999.

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 payment of future cash dividends and the re-acquisition
of shares are restricted each to amounts of an available fund ("Available
Fund"). The Available Fund is a cumulative fund which is increased each year by
20% of the Consolidated Net Earnings (as defined). The Company is in compliance
with all of these covenants at December 31, 2001, except for the ratio of
Earnings Before Interest Expense, Taxes, Depreciation and Amortization to Fixed
Charges. The Company has received a waiver for this covenant.

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, 2001.

During 2001, the Company purchased, in the open market and privately negotiated
transactions, 234,235 shares of its Class A Stock at an average price of $7.80.

The Company's principal source of cash for repayment of long-term debt is
dividends from its two insurance companies. During 2001, ACMAT received
$6,460,000 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 2002, the amount of
dividends ACMAT's insurance subsidiaries may pay, without prior approval of
their domestic state insurance departments, is limited to approximately
$5,930,000.

In 2002, the Company anticipates that internally generated funds and short-term
borrowings will be utilized for repayment of long-term debt. Principal
repayments on long-term debt is scheduled to be $2,589,256 in 2002.

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, 2001 was above the level which might require
regulatory action.

CONTRACTUAL CASH OBLIGATIONS AND COMMITMENTS

<Table>
<Caption>
Contractual Obligations at December 31, 2001 include the following:

-----------------------------------------------------------------------------------------------------
                                                  Less
Payments due by Period                           than l          1 to 3         4 to 5        After 5
(in thousands)                     Total          Year           Years          Years          Years
-----------------------------------------------------------------------------------------------------

<S>                                <C>           <C>             <C>            <C>           <C>
Long-Term Debt (principal)          24,550        2,589           3,780          3,758        14,423
</Table>

The Company also has cash collateral of $15,948,636 at December 31, 2001 which
it would be required to return at the end of expiration of applicable bond
period subject to any claims.

ITEM 7a. QUANTITATIVE 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


                                       19
<PAGE>
the Company's primary market risk exposures and how those exposures are
currently managed as of December 31, 2001. 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, 2001
was $67,499,567, 92% 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, 2000. 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.

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, 2001.

The sensitivity analysis model used by the Company produces a loss in fair value
of market sensitive instruments of $1.9 million based on a 100 basis point
increase in interest rates as of December 31, 2001, 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 62% 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.


                                       20
<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,
          2001, 2000 and 1999

          Consolidated Balance Sheets as of December 31, 2001 and 2000

          Consolidated Statements of Stockholders' Equity for the years ended
          December 31, 2001, 2000 and 1999

          Consolidated Statements of Cash Flows for the years ended December 31,
          2001, 2000 and 1999

          Notes to Consolidated Financial Statements - December 31, 2001, 2000
          and 1999

          Consolidated Schedules included in Part II of this Report - Years
          ended December 31, 2001, 2000 and 1999

                  I  - Condensed Financial Information of Registrant
                  II - Valuation and Qualifying Accounts and Reserves
                  V  - Supplemental Information Concerning Property-Casualty
                       Insurance Operations


                                       21
<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, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001 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.

KPMG LLP

Hartford, Connecticut
March 4, 2002


                                       22
<PAGE>
                       ACMAT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Earnings
Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                 2001             2000              1999
                                              -----------      -----------       -----------
<S>                                           <C>               <C>               <C>
Contract revenues                             $14,074,878       11,790,207         9,223,457
Earned premiums                                 7,581,276        9,215,904         9,414,192
Investment income, net                          4,031,793        4,570,927         5,389,732
Net realized capital gains (losses)               374,301         (123,125)          252,190
Other income                                      900,559          887,842         1,220,678
                                              -----------      -----------       -----------
                                               26,962,807       26,341,755        25,500,249


Cost of contract revenues                      13,183,057       11,006,382         8,261,408
Losses and loss adjustment expenses             1,536,022        1,506,908         1,672,887
Amortization of policy acquisition costs        2,049,946        2,375,038         2,223,918
General and administrative expenses             4,856,785        4,997,849         5,385,409
Interest expense                                2,723,052        2,982,824         3,738,740
                                              -----------      -----------       -----------
                                               24,348,862       22,869,001        21,282,362
                                              -----------      -----------       -----------

Earnings before income taxes                    2,613,945        3,472,754         4,217,887

Income taxes                                      907,357        1,248,437         1,204,164
                                              -----------      -----------       -----------

Net earnings                                  $ 1,706,588        2,224,317         3,013,723
                                              ===========      ===========       ===========


Basic earnings per share                      $       .70              .80              1.02
                                              -----------      -----------       -----------

Diluted earnings per share                    $       .68              .78               .99
                                              -----------      -----------       -----------
</TABLE>

See Notes to Consolidated Financial Statements.


                                       23
<PAGE>
                       ACMAT CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets
December 31, 2001 and 2000

<TABLE>
<CAPTION>
ASSETS                                                                                 2001                              2000
                                                                                  --------------                    --------------
<S>                                                                               <C>                               <C>
Investments:
 Fixed maturities - available for sale at fair value
  (Cost of $61,841,391 in 2001 and $70,487,764 in 2000)                           $   62,210,923                        70,370,912
 Equity securities - available for sale at fair value
  (Cost of  $5,065,262 in 2001 and $2,561,512 in 2000)                                 4,916,900                         2,220,936
 Mortgages                                                                                  --                             289,625
 Short-term investments, at cost which approximates fair value                           371,744                         3,249,065
                                                                                  --------------                    --------------
  Total Investments                                                                   67,499,567                        76,130,538

Cash and cash equivalents                                                             12,784,806                         7,446,941
Accrued interest receivable                                                              750,078                         1,033,411
Receivables, net of allowance for doubtful accounts of
  $82,355 in 2001 and $147,346 in 2000                                                 4,839,559                         4,140,363
Reinsurance recoverable                                                                2,772,668                         2,580,388
Prepaid expenses                                                                         125,731                           133,018
Deferred income taxes                                                                    450,303                           833,865
Property and equipment, net                                                           12,273,656                        12,624,792
Deferred policy acquisition costs                                                      1,165,556                         1,438,747
Other assets                                                                           4,881,172                         3,612,239
Intangibles, net                                                                       1,920,360                         2,242,067
                                                                                  --------------                    --------------
                                                                                  $  109,463,456                       112,216,369
                                                                                  ==============                    ==============

Liabilities & Stockholders' Equity

Accounts payable                                                                  $    3,480,204                         2,407,958
Reserves for losses and loss adjustment expenses                                      22,585,626                        29,310,606
Unearned premiums                                                                      4,155,197                         5,442,777
Collateral held                                                                       15,948,636                         8,673,378
Income taxes                                                                              13,592                            22,582
Other accrued liabilities                                                                757,665                         1,178,816
Long-term debt                                                                        24,550,361                        27,696,587
                                                                                  --------------                    --------------
 Total Liabilities                                                                    71,491,281                        74,732,704

Commitments and contingencies

Stockholders' Equity:
  Common Stock (No par value; 3,500,000 shares authorized;
   557,589 and 557,589 shares issued and outstanding)                                    557,589                           557,589
  Class A Stock (No par value; 10,000,000 shares authorized;
   1,827,019 and 2,057,254 shares issued and outstanding)                              1,827,019                         2,057,254
  Retained earnings                                                                   35,460,226                        35,326,305
  Accumulated other comprehensive income (loss)                                          127,341                          (457,483)
                                                                                  --------------                    --------------
     Total Stockholders' Equity                                                       37,972,175                        37,483,665
                                                                                  --------------                    --------------

                                                                                  $  109,463,456                       112,216,369
                                                                                  ==============                    ==============
</TABLE>

See Notes to Consolidated Financial Statements.


                                       24
<PAGE>
                       ACMAT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity
December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                                        Accumulated
                                                  Common        Class A     Additional                     other          Total
                                                 Stock par     Stock par      paid-in       Retained   comprehensive  stockholders'
                                                   value         value        capital       earnings   income (loss)     equity
                                                -----------   -----------   -----------   -----------   -----------   -----------
<S>                                             <C>           <C>           <C>            <C>         <C>             <C>
Balance as of December 31, 1998                 $   592,088     2,460,808          --      34,074,538       495,492    37,622,926

Comprehensive income:
    Net unrealized losses on debt and
      equity securities, net of
      reclassification adjustment                      --            --            --            --      (2,409,881)   (2,409,881)
    Net earnings                                       --            --            --       3,013,723          --       3,013,723
                                                                                                                      -----------
Total comprehensive income                                                                                                603,842

    Acquisition and retirement of 7,260 shares
      of Common Stock                           $    (7,260)         --            --        (144,658)         --        (151,918)
    Acquisition and retirement of 189,221
      shares of Class A Stock                          --        (189,221)     (388,500)   (1,791,637)         --      (2,369,358)
    Issuance of 15,000 shares of Class A Stock
      pursuant to investment agreement                 --          15,000       206,250          --            --         221,250
    Issuance of 18, 000 shares of Class A
Stock pursuant to stock options                        --          18,000       182,250          --            --         200,250
                                                -----------   -----------   -----------   -----------   -----------   -----------
Balance as of December 31, 1999                 $   584,828     2,304,587          --      35,151,966    (1,914,389)   36,126,992

Comprehensive income:
    Net unrealized losses on debt and
      equity securities, net of
reclassification adjustment                            --            --            --            --       1,456,906     1,456,906
    Net earnings                                       --            --            --       2,224,317          --       2,224,317
                                                                                                                      -----------
Total comprehensive income                                                                                              3,681,223

Acquisition and retirement of 27,239 shares of
Common Stock                                        (27,239)         --         (38,025)     (454,566)         --        (519,830)
Acquisition and retirement of 253,833 shares
of Class A Stock                                       --        (253,833)         --      (1,595,412)         --      (1,849,245)
Issuance of 6,500 shares of Class A Stock
    pursuant to stock options                          --           6,500        38,025          --            --          44,525
                                                -----------   -----------   -----------   -----------   -----------   -----------
Balance as of December 31, 2000                 $   557,589     2,057,254          --      35,326,305      (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          --       1,706,588
                                                                                                                      -----------
Total comprehensive income                                                                                              2,291,412

Acquisition and retirement of 234,235
    shares of Class A Stock                            --        (234,235)      (20,000)   (1,572,667)         --      (1,826,902)
Issuance of 4,000 shares of Class A Stock
    pursuant to stock options                          --           4,000        20,000          --            --          24,000
                                                -----------   -----------   -----------   -----------   -----------   -----------
Balance as of December 31, 2001                 $   557,589     1,827,019          --      35,460,226       127,341    37,972,175
                                                ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>

See Notes to Consolidated Financial Statements.


                                       25
<PAGE>
                       ACMAT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows
Years ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                              2001                  2000                  1999
                                                                          ------------          ------------          ------------
<S>                                                                       <C>                   <C>                   <C>
Cash Flows From Operating Activities:
    Net earnings                                                          $  1,706,588             2,224,317             3,013,723
    Adjustments to reconcile net earnings to net cash provided by
         (used for) operating activities:
         Depreciation and amortization                                       1,535,057             1,547,144             1,829,646
         Net realized capital (gains) losses                                  (374,301)              123,125              (252,190)
         Deferred income taxes                                                 383,562               726,459               428,918
    Changes In:
         Accrued interest receivable                                           283,333               290,945                27,978
         Receivables, net                                                     (699,196)           (1,316,982)              914,246
         Reinsurance recoverable                                              (192,280)            1,343,676            (1,699,948)
         Deferred policy acquisition costs                                     273,191              (114,967)              226,309
         Prepaid expenses and other assets                                  (1,261,646)           (1,293,362)              741,366
         Accounts payable and other liabilities                                651,095               412,388              (874,280)
         Collateral held                                                     7,275,258            (3,281,176)           (5,389,822)
         Reserves for losses and loss adjustment expenses                   (6,724,980)           (9,233,885)           (4,570,571)
         Income taxes                                                         (102,829)              201,573                72,165
         Unearned premiums                                                  (1,287,580)              180,309            (1,532,967)
                                                                          ------------          ------------          ------------
             Net cash provided by (used for) operating activities            1,465,272            (8,190,436)           (7,065,427)
                                                                          ------------          ------------          ------------

Cash Flows From Investing Activities:
    Proceeds from investments sold or matured:
          Fixed maturities - sold                                           25,677,741            16,465,522            63,593,712
          Fixed maturities - matured                                        28,261,000            13,431,000            11,692,000
          Equity securities                                                  3,568,173               325,000                24,405
          Mortgages                                                            289,625                  --                    --
          Short-term investments                                            23,704,426            21,932,313           143,866,543
  Purchases Of:
          Fixed maturities                                                 (45,430,756)          (11,821,523)          (66,790,040)
          Equity securities                                                 (6,000,000)             (821,250)              (24,405)
          Mortgages                                                               --                (289,625)                 --
          Short-term investments                                           (20,827,105)          (24,662,821)         (131,437,187)
  Capital expenditures                                                        (421,383)             (549,942)             (344,366)
                                                                          ------------          ------------          ------------
            Net cash provided by investing activities                        8,821,721            14,008,674            20,580,662
                                                                          ------------          ------------          ------------

Cash Flows From Financing Activities:
    Borrowings under line of credit                                               --                    --               9,000,000
    Repayments under line of credit                                               --                    --              (9,000,000)
    Repayments on long-term debt                                            (8,146,226)           (3,096,133)          (10,907,280)
    Issuance of long-term debt                                               5,000,000                  --               4,500,000
    Issuance of Class A Stock                                                   24,000                39,000               162,000
    Payments for acquisition and retirement of stock                        (1,826,902)           (2,369,075)           (2,521,276)
                                                                          ------------          ------------          ------------
            Net cash used for financing activities                          (4,949,128)           (5,426,208)           (8,766,556)
                                                                          ------------          ------------          ------------

Net change in cash and cash equivalents                                      5,337,865               392,030             4,748,679

Cash and cash equivalents, beginning of year                                 7,446,941             7,054,911             2,306,232
                                                                          ------------          ------------          ------------

Cash and cash equivalents, end of year                                    $ 12,784,806             7,446,941             7,054,911
                                                                          ============          ============          ============
</TABLE>

See Notes to Consolidated Financial Statements.


                                       26
<PAGE>
                       ACMAT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

(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.

(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-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.

During 2001, 2000 and 1999, customers who individually accounted for more than
10% of consolidated construction contracting revenue are as follows; in 2001 -
three customers provided 33%, 27%, and 20%, respectively. In 2000 - three
customers provided 33%, 22% and 19%, respectively. In 1999 - two customers
provided 51% and 24%, 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 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 through a charge to income.

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.

Reinsurance recoverable 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 voluntary reinsurance arrangements to minimize its exposure to
significant losses from reinsurer insolvencies.


                                       27
<PAGE>
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(d) Deferred Policy Acquisition Costs

Deferred policy acquisition costs, representing commissions and certain
underwriting costs, are deferred and amortized on a straight-line basis over the
policy term.

(e) Property and Equipment

Property and equipment are stated at cost. 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

Prior to adoption of SFAS No. 142, "Goodwill and Other Intangible Assets",
intangibles are stated at amortized cost and are being 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 are amortized over periods ranging from
15 to 25 years. The carrying amounts of these intangibles are regularly reviewed
for indicators of other-than-temporary impairments in value. Amortization
expense included in the consolidated statement of income was $321,707, $326,652
and $632,339 for the years ended December 31, 2001, 2000 and 1999, respectively.

Upon adoption of SFAS No. 142, the Company will stop amortizing intangible
assets related to licenses which is deemed to have an indefinite useful life.
Instead, this asset will be subject to an annual review for impairment. See Note
1, Summary of Significant Accounting Policies, Accounting Standards Not Yet
Adopted.

(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. The carrying amount of collateral held
approximates its fair value because of the short maturity of these instruments.


                                       28
<PAGE>
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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. The Company participates in assumed quota
share reinsurance arrangements covering marine and property catastrophe risks
with one of its excess of loss reinsurers.

Effective May 1, 2000, the Company cedes significantly more of its bond exposure
than under its previous reinsurance treaties. Such reinsurance is applicable on
a per principal basis for losses in excess of $1,000,000 up to $13,000,000.
Prior to May 1, 2000, reinsurance was applicable to losses in excess of
$2,000,000 on a per bond basis with the Company retaining approximately
$5,000,000 of losses up to $13,000,000.

Reinsurance recoverables include ceded reserves for losses and loss adjustment
expenses. Ceded unearned premiums of $600,174 and $938,797 at December 31, 2001
and 2000, 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
                      --------------------------------------------------       --------------------------------------------------
                          2001              2000               1999                2001               2000               1999
                      ------------       ------------       ------------       ------------       ------------       ------------
<S>                   <C>                  <C>                <C>              <C>                  <C>                <C>
         Direct       $  8,350,916         10,453,335          8,968,024       $  9,639,764         10,247,698         10,528,702
         Assumed            47,491             12,743            124,763             32,795             40,897             97,052
         Ceded          (1,766,087)        (1,555,074)        (1,002,787)        (2,091,283)        (1,072,691)        (1,211,562)
                      ------------       ------------       ------------       ------------       ------------       ------------
             Totals   $  6,632,320          8,911,004          8,090,000       $  7,581,276          9,215,904          9,414,192
                      ============       ============       ============       ============       ============       ============
</TABLE>

Ceded incurred losses and loss adjustment expenses totaled $423,709, $175,397
and $215,292 for the years ended December 31, 2001, 2000 and 1999, respectively.

(j) 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.

(k) 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.

(l) Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles 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.


                                       29
<PAGE>
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(m) Comprehensive Income (Loss)


The following table summarizes reclassification adjustments for other
comprehensive income (loss) and the related tax effects for the years ended
December 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                                         2001             2000              1999
                                                                                      ----------       ----------        ----------
<S>                                                                                   <C>               <C>              <C>
         Unrealized gains (losses) on investments:
         Unrealized holding gain (loss) arising during period net of income tax
         expense                                                                      $  831,863        1,373,644        (2,243,436)
         Less reclassification adjustment for gains included in net earnings,
         net of income tax expense (benefit) of $127,262, ($41,863) and $85,745
         for 2001, 2000 and 1999, respectively                                           247,039          (81,262)          166,445
                                                                                      ----------       ----------        ----------
         Other comprehensive income (loss)                                            $  584,824        1,456,906        (2,409,881)
                                                                                      ==========       ==========        ==========
</TABLE>

(n) Accounting Changes

Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", (FAS 133 was issued in June 1998 and
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The cumulative effect of adopting FAS 133, as amended, on January
1, 2001 had no effect. There were no derivative transactions during 2001.

(o) Accounting Standards Not Yet Adopted

In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" (FAS 142). 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 SFAS No. 142, on January 1, 2002 the Company is required to
evaluate its existing intangible assets and goodwill that were acquired in
purchase business combinations, and to make any necessary reclassifications in
order to conform with the new classification criteria in SFAS No. 141 for
recognition separate from goodwill. The Company will be required to reassess the
useful lives and residual values of all intangible assets acquired, and make any
necessary amortization period adjustments by the end of the first interim period
after adoption. If an intangible asset is identified as having an indefinite
useful life, the Company will be required to test the intangible asset for
impairment in accordance with the provisions of SFAS No. 142. Impairment is
measured as the excess of carrying value over the fair value of an intangible
asset with an indefinite life. Any impairment loss will be measured as of the
date of adoption and recognized as the cumulative effect of a change in
accounting principle.

As of January 1, 2002, the Company has an unamortized intangible asset in the
amount of $1,920,360 which will be subject to the transition provisions of SFAS
No. 142. Amortization expense related to goodwill was $321,707 for the year
ended December 31, 2001. the Company will cease amortization of goodwill,
effective January 1, 2002. This would reduce general and administrative expenses
and increase earnings before tax by $152,290 in 2002. 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.

In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" (FAS 143). FAS 143 changes
the measurement of an asset retirement obligation from a cost-accumulation
approach to a fair value approach, where the fair value (discounted value) of an
asset retirement obligation is recognized as a liability in the period in which
it is incurred and accretion expense is recognized using the credit-adjusted
risk-free interest rate in effect when the liability was initially recognized.
The associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset and subsequently amortized into expense. The
pre-FAS 143 prescribed practice of reporting a retirement obligation as a
contra-asset will no longer be allowed. The Company is in the process of
assessing the impact that will take effect on January 1, 2003.


                                       30
<PAGE>
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (FAS 144).
FAS 144 establishes a single accounting model for long-lived assets to be
disposed of by sale. A long lived asset classified as held for sale is to be
measured at the lower of its carrying amount or fair value less cost to sell and
depreciation (amortization) is to cease. Impairment is recognized only if the
carrying amount of a long-lived asset is not recoverable from its undiscounted
cash flows and is measured as the difference between the carrying amount and
fair value of the asset. Long-lived assets to be abandoned, exchanged for a
similar productive asset, or distributed to owners in a spin-off are considered
held and used until disposed of. Accordingly, discontinued operations are no
longer to be measured on a net realizable value basis, and future operating
losses are no longer recognized before they occur.

The Company is required to adopt FAS 144 effective January 1, 2002. The
provisions of the new standard are generally to be applied prospectively and are
not expected to significantly affect the Company's results of operations,
financial condition or liquidity.

(p) Subsequent Event

On January 13, 2002, the Founder, Chairman, President and Chief Executive
Officer of the Corporation died at the age of 82. At the time of his death, Mr.
Nozko, Sr. owned of record or beneficially shares of the Corporation's Common
Stock and Class A Stock having approximately 53% of the total voting power of
the Corporation's voting capital stock. During the pendency of Mr. Nozko's
estate, such voting power has been vested in the executors of the estate who are
his son, Henry W. Nozko, Jr., the current Chairman, President and Chief
Executive Officer of the Corporation, and his daughter Pamela N. Cosmas.

In connection with the passing of Henry W. Nozko, Sr., the Company incurred
certain obligations to his estate and spouse that are payable only from the
proceeds of several key-man life insurance policies held by the Company. ACMAT
Corporation is the beneficiary of approximately $8,900,000 from these life
insurance policies.

After payment of such obligations, the Company expects that earnings for the
quarter ending March 31, 2002 will reflect a one-time, net after-tax benefit of
approximately $3,100,000 attributable to the portion of such insurance proceeds
which the Company will retain.


                                       31
<PAGE>
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(2)  INVESTMENTS

<TABLE>
<CAPTION>
        INVESTMENTS AT DECEMBER 31, 2001 AND 2000 FOLLOWS:         AMORTIZED        ESTIMATED
                                                                     COST           FAIR VALUE
                                                                  -----------       -----------
<S>                                                               <C>               <C>
        2001
        Fixed maturities - available for sale:
        Bonds:
          States, municipalities and political subdivisions       $12,182,673        12,296,763
          United States government and government agencies         20,948,080        21,111,908
          Mortgage-backed securities                               19,658,127        19,720,478
          Industrial and miscellaneous                              9,052,511         9,081,774
                                                                  -----------       -----------
           Total fixed maturities                                  61,841,391        62,210,923
         Equity securities - common stocks:
          Banks, trusts and insurance                                   5,262            18,100
         Equity securities - redeemable preferred stocks:
          Banks, trusts and insurance                               1,560,000         1,481,000
          Industrial and miscellaneous                              3,500,000         3,417,800
                                                                  -----------       -----------
           Total equity securities                                  5,065,262         4,916,900
         Short-term investments                                       371,744           371,744
                                                                  -----------       -----------
           Total investments                                      $67,278,397        67,499,567
                                                                  ===========       ===========

         2000
         Fixed maturities - available for sale:
         Bonds:
          States, municipalities and political subdivisions       $28,385,622       $28,340,477
          United States government and government agencies         17,215,078        17,270,789
          Mortgage-backed securities                                4,938,654         4,934,265
          Industrial and miscellaneous                             19,948,410        19,825,381
                                                                  -----------       -----------
           Total fixed maturities                                  70,487,764        70,370,912
         Equity securities - common stocks:
          Banks, trusts and insurance                                   5,262            15,926


         Equity securities - redeemable preferred stocks:

          Banks, trusts and insurance                               1,060,000           908,760
          Industrial and miscellaneous                              1,496,250         1,296,250
                                                                  -----------       -----------
           Total equity securities                                  2,561,512         2,220,936
         Mortgage                                                     289,625           289,625
         Short-term investments                                     3,249,065         3,249,065
                                                                  -----------       -----------
           Total investments                                      $76,587,966        76,130,538
                                                                  ===========       ===========
</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, 2001, the Company's insurance subsidiaries had securities with
an aggregate book value of approximately $10.4 million on deposit with various
state regulatory authorities.


                                       32
<PAGE>
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amortized cost and fair value of fixed maturities at December 31, 2001 and
2000, by effective maturity, follows:

<TABLE>
<CAPTION>
                                                                       2001                                      2000
                                                         ---------------------------------          --------------------------------
                                                          Amortized Cost        Fair Value           Amortized Cost       Fair Value
                                                         ------------------    -----------          -----------------     ----------
<S>                                                      <C>                   <C>                  <C>                  <C>
         Due in one year or less                         $18,640,246           18,750,095           24,468,676           23,925,468
         Due after one year through five years            30,157,413           30,545,391           38,570,751           39,014,149
         Due after five years through ten years            2,966,530            2,921,982            3,125,942            3,131,895
         Due after ten years                              10,077,202            9,993,455            4,322,395            4,299,400
                                                         -----------          -----------          -----------          -----------
             Total                                       $61,841,391           62,210,923           70,487,764           70,370,912
                                                         ===========          ===========          ===========          ===========
</TABLE>

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

A summary of gross unrealized gains and losses at December 31, 2001 and 2000
follows:

<TABLE>
<CAPTION>
                                                                  2001                                           2000
                                                    -------------------------------                -------------------------------
                                                     Gains                  Losses                   Gains                 Losses
                                                    --------               --------                --------               --------
<S>                                                 <C>                    <C>                     <C>                   <C>
        States, municipalities and
           political subdivisions                   $116,027                 (1,937)                 33,854                (78,999)
         United States government and
           government agencies                       261,299                (97,471)                 77,320                (21,609)
         Industrial and miscellaneous                 32,518                 (3,255)                   --                 (123,029)
         Mortgage-backed securities                  158,973                (96,622)                  6,356                (10,745)
                                                    --------               --------                --------               --------
             Total                                   568,817               (199,285)                117,530               (234,382)
         Equity securities                            33,838               (182,200)                 10,664               (351,240)
                                                    --------               --------                --------               --------
         Total                                      $602,655               (381,485)                128,194               (585,622)
                                                    ========               ========                ========               ========
</TABLE>

(3)  INVESTMENT INCOME AND REALIZED CAPITAL GAINS AND LOSSES

A summary of net investment income for the years ended December 31, 2001, 2000
and 1999 follows:

<TABLE>
<CAPTION>
                                                             2001                           2000                            1999
                                                          -----------                    -----------                    -----------
<S>                                                       <C>                             <C>                            <C>
         Tax-exempt interest                              $   851,666                      1,268,898                      1,680,051
         Taxable interest                                   3,050,142                      3,279,902                      3,680,987
         Dividends on equity securities                       156,067                        112,639                        112,130
         Investment expenses                                  (26,082)                       (90,512)                       (83,436)
                                                          -----------                    -----------                    -----------
           Net investment income                          $ 4,031,793                      4,570,927                      5,389,732
                                                          ===========                    ===========                    ===========
</TABLE>

Realized capital gains (losses) for the years ended December 31, 2001, 2000 and
1999 follows:

<TABLE>
<CAPTION>
                                                                     2001                        2000                         1999
                                                                   --------                    --------                     --------
<S>                                                                <C>                         <C>                           <C>
         Fixed maturities                                          $302,378                    (123,125)                     252,190
         Equity securities                                           71,923                        --                           --
         Other                                                         --                          --                           --
                                                                   --------                    --------                     --------
            Net realized capital gains (losses)                    $374,301                    (123,125)                     252,190
                                                                   ========                    ========                     ========
</TABLE>


                                       33
<PAGE>
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Gross gains of $314,351, $14,162 and $349,413 and gross losses of $11,973,
$137,287 and $97,223 were realized on fixed maturity sales for the years ended
December 31, 2001, 2000 and 1999, respectively. Gross gains of $71,923 were
realized on the sale of equity securities and no losses were realized on equity
security sales for the year ended December 31, 2001. There were no gross gains
or losses realized on equity security sales for the years ended December 31,
2000 and 1999.

(4)  RECEIVABLES

A summary of receivables at December 31, 2001 and 2000 follows:

<TABLE>
<CAPTION>
                                                                                               2001                        2000
                                                                                            -----------                 -----------
<S>                                                                                         <C>                         <C>
         Insurance premiums due from agents                                                 $   863,260                   1,531,017
         Receivables under construction contracts:
            Amounts billed                                                                    1,927,100                   2,162,875
            Recoverable costs in excess of billings on uncompleted contracts                    846,037                     152,897
            Billings in excess of costs on uncompleted contracts                                (74,430)                   (294,055)
            Retainage, due on completion of contracts                                         1,198,486                     552,624
                                                                                            -----------                 -----------
                 Total receivables under construction contracts                               3,897,193                   2,574,341
         Other                                                                                  161,461                     182,351
                                                                                            -----------                 -----------
                 Total receivables                                                            4,921,914                   4,287,709
         Less allowances for doubtful accounts                                                  (82,355)                   (147,346)
                                                                                            -----------                 -----------
                 Total receivables, net                                                     $ 4,839,559                 $ 4,140,363
                                                                                            ===========                 ===========
</TABLE>

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 2002.

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

Useful lives for depreciation purposes are as follows:

        Equipment and vehicles                    5 years
        Building                                 40 years
        Furniture and fixtures                   15 years

A summary of property and equipment at December 31, 2001 and 2000 follows:

<TABLE>
<CAPTION>
                                                   2001                  2000
                                                -----------          -----------
<S>                                             <C>                  <C>
         Building                               $15,268,423           15,039,038
         Land                                       800,000              800,000
         Equipment and vehicles                   1,279,360            1,512,260
         Furniture and fixtures                     843,380              840,114
                                                -----------          -----------
                                                 18,191,163           18,191,412
         Less accumulated depreciation            5,917,507            5,566,620
                                                -----------          -----------
                                                $12,273,656          $12,624,792
                                                ===========          ===========
</TABLE>

Future minimum rental income to be generated by leasing a portion of the
building under non-cancelable operating leases as of December 31, 2001 are
estimated to be $549,890 for 2002, $428,690 for 2003 and $53,200 for 2004.
Rental income earned in 2001, 2000 and 1999 was $593,573, $768,496 and $688,102,
respectively.

(6) INTANGIBLES

A summary of intangibles, acquired primarily in connection with purchases of the
Company's insurance subsidiaries, at December 31, 2001 and 2000 follows:

<TABLE>
<CAPTION>
                                                     2001               2000
                                                  ----------         ----------
<S>                                               <C>                 <C>
         Insurance licenses                       $4,188,926          4,188,926
         Goodwill                                       --            2,441,310
                                                  ----------         ----------
                                                   4,188,926          6,630,236
         Less accumulated amortization             2,268,566          4,388,169
                                                  ----------         ----------
                                                  $1,920,360          2,242,067
                                                  ==========         ==========
</TABLE>

         Intangible assets are written off when they become fully amortized


                                       34
<PAGE>
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7)  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>
                                                              2001                         2000                         1999
                                                          ------------                 ------------                 ------------
<S>                                                       <C>                          <C>                          <C>
          Balance at January 1                            $ 29,310,606                   38,544,491                   43,115,062
              Less reinsurance recoverable                   2,580,388                    3,924,064                    2,224,116
                                                          ------------                 ------------                 ------------
         Net balance at January 1                           26,730,218                   34,620,427                   40,890,946

         Incurred related to:
            Current year                                     4,144,000                    2,441,000                    3,091,120
            Prior years                                     (2,607,978)                    (934,092)                  (1,418,233)
                                                          ------------                 ------------                 ------------
         Total incurred                                      1,536,022                    1,506,908                    1,672,887

         Payments related to:
             Current year                                    1,723,000                      791,546                       81,569
             Prior years                                     6,730,282                    8,605,571                    7,861,837
                                                          ------------                 ------------                 ------------
             Total payments                                  8,453,282                    9,397,117                    7,943,406

             Net balance at December 31                     19,812,958                   26,730,218                   34,620,427
             Plus reinsurance recoverable                    2,772,668                    2,580,388                    3,924,064
                                                          ------------                 ------------                 ------------
         Balance at December 31                           $ 22,585,626                   29,310,606                   38,544,491
                                                          ============                 ============                 ============
</TABLE>
The decrease in loss and loss adjustment expense reserves continues due to
significant loss payments for surety and general liability claims, the release
of net favorable development in surety loss reserves relating to older years
that are no longer required partially offset by an increase in current year
incurred loss and loss adjustment expenses. This increase reflects large surety
losses which occurred during the year. While management continually evaluates
the potential for changes in loss estimates, due to the uncertainty inherent in
the surety business, the emergence of net favorable development may or may not
continue to 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.

(8)  NOTES PAYABLE TO BANKS

At December 31, 2001, the Company has a $10,000,000 bank line of credit with a
financial institution. 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, 2001 and 2000. 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.

(9)  LONG-TERM DEBT

A summary of long-term debt at December 31, 2001 and 2000 follows:

<TABLE>
<CAPTION>
                                                2001                  2000
                                             -----------           -----------
<S>                                          <C>                   <C>
         Term Loan due 2004                  $ 2,250,000             3,250,000
         Senior Notes due 2005                   900,000             2,400,000
         Term Loan due 2009                    5,000,000                  --
         Mortgage Note due 2009                6,005,361             6,646,587
         Convertible Note due 2022            10,395,000            15,400,000
                                             -----------           -----------
                                             $24,550,361            27,696,587
                                             ===========           ===========
</TABLE>


                                       35
<PAGE>
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2001. 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
$2,250,000 at December 31, 2001. 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 $6,005,361 at December 31,
2001. The loan agreements contain certain limitations on borrowings, minimum
statutory capital levels and require maintenance of certain ratios. The proceeds
were used to repay the existing mortgage note.

On February 5, 1997, ACMAT Corporation purchased 1,099,996 shares of Class A
Stock which AIG Life Insurance Company (366,663 shares) and American
International Life Assurance Company of New York, (733,333) had acquired over
the last three years through conversion options (See Note 12). The shares were
purchased at an average price of $14.70 per share, for a total purchase price of
$16,174,942. The purchase price of $16,174,942 consisted of $4,174,942 in cash
and promissory notes totaling $12,000,000. The promissory notes are with AIG
Life Insurance Company and American International Life Assurance Company of New
York and are payable over eight years with annual payments of $1,500,000 which
commenced on January 31, 1998, with interest at prime rate (7-1/4%). The Company
voluntarily prepaid the installments due January 31 on December 31 in 2001, 2000
and 1999. The Company also made a voluntary prepayment of $3,600,000 on December
31, 1999. The interest rate is equal to the prime rate, however, the interest
rate shall not exceed 9-1/4% and it shall not be less than 7-1/4%. The senior
notes have a balance of $900,000 at December 31, 2001.

The terms of the note agreements with AIG Life Insurance Company and American
International Life Assurance Company of New York contain limitations on payment
of cash dividends, re-acquisition of shares, borrowings and investments and
require maintenance of specified ratios and a minimum tangible net worth of
$12,000,000. ACMAT may also require its insurance subsidiaries to pay dividends
to the extent of funds legally available therefore, in order to enable ACMAT to
have funds to pay on a timely basis all amounts due with respect to the notes.
The Company is in compliance with all of these covenants at December 31, 2001,
except for the ratio of Earnings Before Interest Expense, Taxes, Depreciation
and Amortization to Fixed Charges. The Company has received a waiver for this
covenant.

On July 1, 1992, the Company issued a 30-year unsecured $16,500,000, 11.5%
subordinated Convertible Note to the Sheet Metal Workers' National Pension Fund
("Fund") to purchase 3,000,000 shares of United Coasts Corporation's outstanding
common stock held by the Fund. Annual principal payments of $1,650,000 per year
for ten years are due beginning on July 1, 2012. The note is convertible into
ACMAT Class A stock at $11 per share. The conversion price of $11 per share
would be adjusted at the time of conversion to reflect any stock dividends,
recapitalizations or additional stock issuance. The Company can prepay the note
and the Fund has the option to accept the prepayment or convert the note to
stock. The Company made voluntary principal payment of $1,100,000 on July 31,
1998 and $5,005,000 on December 31, 2001. At December 31, 2001, the Company had
reserved 945,000 shares of Class A Stock for issuance pursuant to such
conversion option. The unsecured debenture has a balance of $10,395,000 at
December 31, 2001.

Principal payments on long-term debt are $2,589,256, $1,738,716, $2,041,724,
$1,848,536, $1,909,425 and $1,974,682 for the years 2002 through 2006,
respectively. Interest expense paid in 2001, 2000 and 1999 amounted to
$2,804,927, $2,815,876 and $3,751,313, respectively.

The fair value at December 31, 2001 of the mortgage, the term loan and the
senior notes approximate carrying value. It is not practicable to estimate the
fair value of convertible note at December 31, 2001 because of the complex and
unique terms associated with this debt instrument.


                                       36
<PAGE>
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(10)  INCOME TAXES

The components of income tax expense for each year follows:

<TABLE>
<CAPTION>
                                   2001               2000              1999
                                 ---------         ---------         ---------
<S>                              <C>               <C>               <C>
        Current Taxes:
            Federal              $ 542,635           456,978           725,246
            State                   75,000            65,000            50,000
                                 ---------         ---------         ---------
                                   617,635           521,978           775,246
                                 ---------         ---------         ---------
         Deferred Taxes:
            Federal                289,723           726,459           428,918
                                 ---------         ---------         ---------
         Total                   $ 907,358         1,248,437         1,204,164
                                 =========         =========         =========
</TABLE>

The effective income tax rate, as a percentage of earnings before income taxes
follows:

<TABLE>
<CAPTION>
                                               2001          2000         1999
                                               ----          ----         ----
<S>                                            <C>           <C>          <C>
         Federal statutory tax rate            34.0%         34.0%        34.0%
         State income tax                       1.9           1.2           .8
         Effect of tax-exempt interest         (9.0)         (10.6)       (11.5)
         Amortization of goodwill               4.2           3.4          2.8
         Officers life insurance premiums       2.4           2.6          2.0
         Other, net                             1.2           5.3           .5
                                               ----          ----         ----
           Effective income tax rate           34.7%         35.9%        28.6%
                                               ====          ====         ====
</TABLE>

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 2001 and
2000 are presented below:

<TABLE>
<CAPTION>
                                                                                                   2001                    2000
                                                                                                 ----------             ----------
<S>                                                                                              <C>                    <C>
        Deferred Tax Assets:
           Reserves for losses and loss adjustment expenses,
                 Principally due to reserve discounting                                          $1,105,700              1,404,681
             Unearned premiums                                                                      241,742                306,271
             Accounts receivable, principally due to allowance for doubtful accounts                 28,001                 50,098
             Unrealized losses on investments                                                          --                  155,544
             State net operating loss carryforward                                                6,027,401              6,717,085
             Other                                                                                   62,436                 77,476
                                                                                                 ----------             ----------
                Total gross deferred tax assets                                                   7,465,280              8,711,155
                Less valuation allowance                                                          6,027,401              6,872,629
                                                                                                 ----------             ----------
                Net deferred tax assets                                                          $1,437,879              1,838,526
         Deferred Tax Liabilities:
             Plant and equipment                                                                    497,448                515,487
             Deferred policy acquisition costs                                                      396,289                489,174
             Unrealized gains on investments                                                         93,839                     --
                                                                                                 ----------             ----------
                  Total gross deferred tax liabilities                                              987,576              1,004,661
                                                                                                 ----------             ----------

         Net deferred tax assets                                                                 $  450,303                833,865
                                                                                                 ==========             ==========
</TABLE>

In 2001 and 2000, a valuation allowance is provided to offset the deferred tax
asset related to the state net operating loss carryforward as management
believes it is more likely than not that the deferred tax asset is unrealizable.
Also, in 2000, a valuation allowance was provided to offset the deferred tax
asset related to net unrealized losses which are a component of stockholders'
equity. Due to the reversal of net unrealized losses during 2001, this valuation
allowance has been eliminated. 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 difference 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, 2001.

State net operating loss carryforwards as of December 31, 2001, 2000 and 1999
are $17,727,650, $15,634,692 and $13,448,084 expiring through 2021, 2020 and
2003, respectively.

Taxes paid in 2001, 2000 and 1999 were $626,625, $320,405 and $703,081,
respectively.


                                       37
<PAGE>
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(11)  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 2001 and 2000. The Thrift, Profit Sharing and Retirement Plan was
terminated on February 29, 2000. The Company's contributions, established by the
Board of Directors, were $85,000 in 1999.

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, 2001.

(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 2000 and 1999, ACMAT repurchased, in open market and privately negotiated
transactions, 27,239 and 7,260, respectively, shares of its Common Stock at an
average price of $19.08 and $20.93 per share, respectively. The Company also
repurchased during 2001, 2000 and 1999, in open market and privately negotiated
transactions 234,235, 253,833 and 189,221, respectively, shares of its Class A
Stock at an average price of $7.80, $7.29 and $12.52 per share, respectively.

On April 1, 1999, the Company purchased a 40% interest in Allied Surety Agency,
Inc. The Company issued 15,000 shares of Class A Stock for the ownership
interest. The purchase was a non-cash transaction and is not reflected in the
Consolidated Statements of Cash Flow.

The stockholders have periodically approved the distribution 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>
                                                                         2001                  2000                  1999
                                                                        -------               -------               -------
<S>                                                                     <C>                   <C>                   <C>
         Options outstanding at December 31                             333,500               337,500               274,000
         Weighted average price per share of
            options outstanding                                         $  8.30               $  8.27               $  8.48
         Expiration dates                                                                     1/2001-12/2010        1/2001-7/2006
         Options exercisable at December 31                             333,500               267,500                  --
         Options granted                                                   --                  70,000                  --
         Options exercised or surrendered                                 4,000                 6,500                18,000
         Price ranges of options exercised or surrendered               $  6.00               $  6.00               $  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. The options vest six
months after the date of grant. The Board of Directors granted 70,000 options to
certain directors and officers on December 16, 2000. There were no stock options
granted in 2001 or 1999, however, the exercise price of the Class A Stock
options were re-priced at $7.25 on December 16, 1999.


                                       38
<PAGE>
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 $5,930,000
in 2002.

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. In 2001, United
Coastal Insurance paid dividends of $6,000,000, a portion of which is considered
extraordinary. United Coastal Insurance applied and received approval from the
Arizona Insurance Department for the extraordinary portion of dividends paid.

In accordance with statutory accounting principles, ACMAT's insurance
subsidiaries' statutory capital and surplus was $50,735,332, and $50,646,755 at
December 31, 2001 and 2000, respectively, and their statutory net income for the
years ended December 31, 2001, 2000 and 1999 was $6,048,222, $7,641,075 and
$11,231,410, respectively. Effective January 1, 2001, the insurance subsidiaries
began preparing its statutory basis financial statements in accordance with the
revised manual subject to any deviation prescribed or permitted by its
domicilary insurance commissioner. The impact of this change was an increase to
the statutory capital and surplus of approximately $3.9 million. The primary
differences between amounts reported in accordance with GAAP and amounts
reported in accordance with statutory accounting principles 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.

Pursuant to various debt covenants, previously described, ACMAT is restricted
from purchasing treasury stock and paying dividends greater than 20% of
consolidated net earnings.

(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, 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                                            Average
                                                                                             Shares                   Per-Share
         2001:                                                   Earnings                 Outstanding                   Amount
                                                                ----------                 ----------                 ----------
<S>                                                             <C>                       <C>                         <C>
         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
                                                                ==========                 ==========                 ==========

         2000:

         Basic EPS:
             Earnings available to stockholders                 $2,224,317                  2,796,654                        .80

         Effect of Dilutive Securities:
             Stock options                                            --                       38,554
                                                                ----------                 ----------

         Diluted EPS:
             Earnings available to stockholders                 $2,224,317                  2,835,208                        .78
                                                                ==========                 ==========                 ==========
</TABLE>


                                       39
<PAGE>
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                            Average
                                                                                            Shares                    Per-Share
         1999:                                                   Earnings                 Outstanding                   Amount
                                                                ----------                 ----------                 ----------
<S>                                                             <C>                       <C>                         <C>
         Basic EPS:
             Earnings available to stockholders                 $3,013,723                  2,961,817                 $     1.02

         Effect of Dilutive Securities:
             Stock options                                            --                       80,323
                                                                ----------                 ----------

         Diluted EPS:
             Earnings available to stockholders                 $3,013,723                  3,042,140                 $      .99
                                                                ==========                 ==========                 ==========
</TABLE>

The Convertible Notes were anti-dilutive in 2001, 2000 and 1999.

(14)  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.

(15)  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.


                                       40
<PAGE>
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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>
                                                                  2001                       2000                       1999
                                                              ------------               ------------               ------------
<S>                                                           <C>                        <C>                        <C>
        Revenues:
             ACSTAR Bonding                                   $  5,487,683                  6,284,212                  6,227,462
             United Coastal Liability Insurance                  6,363,392                  7,080,714                  8,529,279
             ACMAT Contracting                                  17,540,369                 15,898,910                 13,154,753
                                                              ------------               ------------               ------------
                                                              $ 29,391,444                 29,263,836                 27,911,494
                                                              ============               ============               ============
         Operating Earnings:
             ACSTAR Bonding                                   $  2,098,548                  2,436,708                  2,968,882
             United Coastal Liability Insurance                  2,810,000                  3,549,472                  4,578,802
             ACMAT Contracting                                     912,376                  1,111,731                    907,228
                                                              ------------               ------------               ------------
                                                              $  5,820,924                  7,097,911                  8,454,912
                                                              ============               ============               ============

         Depreciation and Amortization:
             ACSTAR Bonding                                   $    578,967                    535,913                    451,506
             United Coastal Liability Insurance                    299,353                    371,721                    385,502
             ACMAT Contracting                                     656,737                    639,510                    992,638
                                                              ------------               ------------               ------------
                                                              $  1,535,057                  1,547,144                  1,829,646
                                                              ============               ============               ============

         Identifiable Assets:
             ACSTAR Bonding                                   $ 48,282,555                 41,801,164                 44,594,402
             United Coastal Liability Insurance                 42,801,086                 52,781,561                 63,335,872
             ACMAT Contracting                                  18,379,815                 17,633,644                 17,925,337
                                                              ------------               ------------               ------------
                                                              $109,463,456                112,216,369                125,855,611
                                                              ============               ============               ============

         Capital Expenditures:
             ACSTAR Bonding                                   $     55,596                    298,558                    250,475
             United Coastal Liability Insurance                    105,678                     92,143                      6,969
             ACMAT Contracting                                     260,109                    159,241                     86,922
                                                              ------------               ------------               ------------
                                                              $    421,383                    549,942                    344,366
                                                              ============               ============               ============
</TABLE>

        The components of revenue for each segment are as follows:

<TABLE>
<CAPTION>
                                                                          2001                   2000                   1999
                                                                      ------------           ------------           ------------
<S>                                                                   <C>                    <C>                    <C>
         ACSTAR Bonding:
             Premiums                                                 $  3,808,737              5,032,465              4,770,401
             Investment income, net                                      1,560,080              1,253,329              1,268,175
             Capital gains (losses)                                        191,670                 (5,622)                51,616
             Other                                                         (72,804)                 4,040                137,270
                                                                      ------------           ------------           ------------
                                                                      $  5,487,683              6,284,212              6,227,462
                                                                      ============           ============           ============
         United Coastal Liability Insurance:
             Premiums                                                 $  3,772,539              4,183,439              4,743,791
             Investment income, net                                      2,385,377              3,001,161              3,557,332
             Capital gains (losses)                                        182,631               (117,503)               200,574
             Other                                                          22,845                 13,617                 27,582
                                                                      ------------           ------------           ------------
                                                                      $  6,363,392              7,080,714              8,529,279
                                                                      ============           ============           ============
         ACMAT Contracting:
             Contract revenues                                        $ 14,074,878             11,790,207              9,223,457
             Investment income, net                                         44,707                 91,655                 78,702
             Inter-segment revenue:
                Rental income                                            1,277,794              1,260,434              1,258,637
                Underwriting services and agency commissions             1,192,472              1,596,960              1,538,131
             Other                                                         950,518              1,159,654              1,055,826
                                                                      ------------           ------------           ------------
                                                                      $ 17,540,369             15,898,910             13,154,753
                                                                      ============           ============           ============
</TABLE>


                                       41
<PAGE>
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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>
         Revenue:                                                            2001                  2000                  1999
                                                                         ------------          ------------          ------------
<S>                                                                      <C>                     <C>                   <C>
                 Total revenue for reportable segments                   $ 29,391,444            29,263,836            27,911,494
                 Inter-segment eliminations                                (2,428,637)           (2,922,081)           (2,411,245)
                                                                         ------------          ------------          ------------
                                                                         $ 26,962,807            26,341,755            25,500,249
                                                                         ============          ============          ============

         Operating Earnings:
                Total operating earnings for reportable segments         $  5,820,924             7,097,911             8,454,912
                 Interest expense                                          (2,723,052)           (2,982,824)           (3,738,740)
                 Intersegment interest expense                               (128,188)             (207,194)                 --
                Other operating expenses                                     (355,739)             (435,139)             (498,285)
                                                                         ------------          ------------          ------------
                                                                         $  2,613,945             3,472,754             4,217,887
                                                                         ============          ============          ============
</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.

(16)  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

A summary of the unaudited quarterly results of operations for 2001 and 2000
follows:

<TABLE>
<CAPTION>
                                                 MARCH 31               JUNE 30              SEPTEMBER 30            DECEMBER 31
                                                ----------             ----------             ----------             ----------
<S>                                             <C>                    <C>                   <C>                     <C>
        2001
         Operating Revenues                     $5,976,915              7,195,080              7,290,131              6,500,681
                                                ----------             ----------             ----------             ----------
         Operating Earnings                     $1,458,592              1,477,871              1,254,539              1,145,995
                                                ----------             ----------             ----------             ----------
         Net Earnings                           $  518,899                502,964                418,630                266,095
                                                ----------             ----------             ----------             ----------
         Basic Earnings Per Share               $      .21                    .21                    .17                    .11
                                                ----------             ----------             ----------             ----------
         Diluted Earnings Per Share             $      .20                    .20                    .17                    .10
                                                ----------             ----------             ----------             ----------
        2000
         Operating Revenues                     $6,081,307              6,775,713              7,664,456              5,820,279
                                                ----------             ----------             ----------             ----------
         Operating Earnings                     $1,619,190              1,520,220              1,715,735              1,600,433
                                                ----------             ----------             ----------             ----------
         Net Earnings                           $  610,307                562,609                547,359                504,042
                                                ----------             ----------             ----------             ----------
         Basic Earnings Per Share               $      .21                    .20                    .20                    .19
                                                ----------             ----------             ----------             ----------
         Diluted Earnings Per Share             $      .21                    .19                    .20                    .18
                                                ----------             ----------             ----------             ----------
</TABLE>

Operating earnings represent operating revenues less the cost of contract
revenues, losses and loss adjustment expenses and amortization of policy
acquisition costs and selling, general and administrative expenses.


                                       42
<PAGE>
Schedule I

                       ACMAT CORPORATION AND SUBSIDIARIES

                  Condensed Financial Information of Registrant

                  As of December 31, 2001 and 2000 and for the

                  years ended December 31, 2001, 2000 and 1999


The following presents the condensed financial position of ACMAT Corporation
(parent company only) as of December 31, 2001 and 2000 and its condensed
statements of earnings and cash flows for the years ended December 31, 2001,
2000 and 1999.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                    Assets                      2001            2000
                                                             -----------    -----------
<S>                                                          <C>            <C>
Current assets:
      Cash                                                   $   434,640    $ 1,058,211
      Receivables                                              4,053,259      2,751,297
      Other current assets                                       677,108        493,003
                                                             -----------    -----------
                     Total current assets                      5,165,007      4,302,511

Property and equipment, net                                   11,770,910     11,998,123
Investments in and advance from subsidiaries                  47,521,294     50,630,763
Intangibles                                                       54,810        214,912
Other assets                                                   2,261,974      1,836,562
                                                             -----------    -----------
                                                             $66,773,995    $68,982,871
                                                             ===========    ===========

                      Liabilities and Stockholders' Equity

Current liabilities:
      Current portion of long-term debt                      $ 2,589,256      3,143,108
      Other current liabilities                                4,251,459      3,802,619
                                                             -----------    -----------
                     Total current liabilities                 6,840,715      6,945,727
Long-term debt                                                21,961,105     24,553,479
                                                             -----------    -----------
Total liabilities                                             28,801,820     31,499,206

Commitments and contingencies

Stockholders' equity                                          37,972,175     37,483,665
                                                             -----------    -----------


                                                             $66,773,995    $68,982,871
                                                             ===========    ===========
</TABLE>

See Notes to Condensed Financial Statements.


                                       43
<PAGE>
                                                           Schedule I, continued

                       ACMAT CORPORATION AND SUBSIDIARIES

            Condensed Financial Information of Registrant, Continued

                              STATEMENT OF EARNINGS

<TABLE>
<CAPTION>
                                                                         2001                    2000                    1999
                                                                     ------------            ------------            ------------
<S>                                                                  <C>                     <C>                     <C>
Contract revenues                                                    $ 14,074,878            $ 11,790,207               9,223,457
Cost of contract revenues                                              13,183,057              11,006,382               8,361,408
                                                                     ------------            ------------            ------------
        Gross profit                                                      891,821                 783,825                 862,049


Selling, general and administrative expenses                            3,674,476               4,096,369               4,206,660
                                                                     ------------            ------------            ------------
        Operating loss                                                 (2,782,655)             (3,312,544)             (3,344,611)


Interest expense                                                       (2,851,240)             (3,190,018)             (3,738,740)
Interest income                                                            44,707                  91,655                  78,622
Underwriting fees                                                         836,694               1,268,243               1,214,697
Other income                                                            2,228,312               2,420,088               2,335,099
                                                                     ------------            ------------            ------------
        Loss before income taxes and equity in net
              earnings of subsidiaries                                 (2,524,182)             (2,722,576)             (3,454,933)


Income tax benefit                                                       (695,000)               (585,000)             (1,010,000)
                                                                     ------------            ------------            ------------

        Loss before equity in net earnings of subsidiaries             (1,829,182)             (2,137,576)             (2,465,569)

Equity in net earnings of subsidiaries                                  3,535,770               4,361,893               5,479,292
                                                                     ------------            ------------            ------------

        Net earnings                                                 $  1,706,588            $  2,224,317               3,013,723
                                                                     ============            ============            ============
</TABLE>

See Notes to Condensed Financial Statements.


                                       44
<PAGE>
                                                           Schedule I, Continued


                       ACMAT CORPORATION AND SUBSIDIARIES

            Condensed Financial Information of Registrant, Continued

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Cash flows from operating activities:                                   2001                    2000                  1999
                                                                     -----------            -----------            -----------
<S>                                                                  <C>                    <C>                    <C>
          Net earnings                                               $ 1,706,588              2,224,317              3,013,723
          Depreciation and amortization                                  656,737                650,304                990,461
          Equity in undistributed earnings of subsidiaries            (3,535,770)            (4,361,893)            (5,479,292)
          (Increase) decrease in accounts receivable                  (1,301,962)            (1,264,338)                62,054
          (Increase) decrease in other assets                           (528,767)              (548,201)               (51,879)
          Increase (decrease) in other liabilities                       448,840                614,632               (659,180)
                                                                     -----------            -----------            -----------
                 Net cash used for operating activities               (2,554,334)            (2,685,179)            (2,124,113)
                                                                     -----------            -----------            -----------

Cash flows from investing activities:

          Capital expenditures                                          (260,109)              (159,241)               (86,922)
          Decrease in investment in subsidiaries                       7,140,000              6,910,000             13,000,000
                                                                     -----------            -----------            -----------
                 Net cash provided by investing activities             6,879,891              6,750,759             12,913,078
                                                                     -----------            -----------            -----------

Cash flows from financing activities:

          Borrowings under lines of credit                                  --                     --                9,000,000
          Repayments of lines of credit                                     --                     --               (9,000,000)
          Repayment of long-term debt                                 (8,146,226)            (3,096,133)           (10,907,280)
          Issuance of long-term debt                                   5,000,000                   --                4,500,000
          Issuance of Class A stock, net of taxes                         24,000                 39,000                162,000
          Payments for acquisition and retirement of stock            (1,826,902)            (2,369,075)            (2,521,276)
                                                                     -----------            -----------            -----------
                 Net cash used for financing activities               (4,949,128)            (5,426,208)            (8,766,556)
                                                                     -----------            -----------            -----------

Net change in cash                                                      (623,571)            (1,360,628)             2,022,409

Cash, beginning of year                                                1,058,211              2,418,839                396,430
                                                                     -----------            -----------            -----------

Cash, end of year                                                    $   434,640              1,058,211              2,418,839
                                                                     ===========            ===========            ===========
</TABLE>

See Notes to Condensed Financial Statements.


                                       45
<PAGE>
                                                           Schedule I, Continued


                       ACMAT CORPORATION AND SUBSIDIARIES

                         Condensed Financial Information

                     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
2001 Annual Report.

(1)      SUPPLEMENTAL CASH FLOW INFORMATION

         Income taxes received from subsidiaries during the years ended December
         31, 2001, 2000 and 1999 were $516,173, $118,150, and $1,157,813,
         respectively. Interest paid during the years ended December 31, 2001,
         2000 and 1999 was $2,933,115, $3,023,070 and $3,751,313, respectively.
         Interest paid in 2001 and 2000 included $128,188 and $207,194,
         respectively, paid to subsidiaries for intercompany loans.

 (2)     LONG-TERM DEBT

         A summary of long-term debt at December 31, 2001 and 2000 follows:

<TABLE>
<CAPTION>
                                               2001                  2000
                                            -----------           -----------
<S>                                         <C>                   <C>
        Term Loan Due 2004                  $ 2,250,000             3,250,000
        Senior Notes Due 2005                   900,000             2,400,000
        Term Loan Due 2009                    5,000,000                  --
        Mortgage Note Due 2008                6,005,361             6,646,587
        Convertible Note Due 2022            10,395,000            15,400,000
                                            -----------           -----------
                                            $24,550,361            27,696,587
                                            ===========           ===========
</TABLE>

         See Note 9 to the Consolidated Financial Statements in the Annual
         Report for a description of the long-term debt and aggregate maturities
         for 2002 to 2006 and thereafter.

(3)      INCOME TAXES

         See Note 10 to the Consolidated Financial Statements in the Annual
         Report for a description of income taxes.

(4)      COMMITMENTS AND CONTINGENCIES

         See Note 14 to the Consolidated Financial Statements in the Annual
         Report for a description of the commitments and contingencies.


                                       46
<PAGE>
                                                                     SCHEDULE II


                       ACMAT CORPORATION AND SUBSIDIARIES

                 Valuation and Qualifying Accounts and Reserves

                  Years ended December 31, 2001, 2000 and 1999

<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:

        2001        $147,346         (69,312)          (4,321)        $ 82,355
                    ========        ========         ========         ========


        2000        $195,118         (21,702)          26,070         $147,346
                    ========        ========         ========         ========


        1999        $257,617         180,000          242,499         $195,118
                    ========        ========         ========         ========
</TABLE>

(a) Deductions represent accounts written off.


                                       47
<PAGE>
                                                                      Schedule V

                       ACMAT CORPORATION AND SUBSIDIARIES

   Supplemental Information concerning property-casualty insurance operations

         As of and for the years ended December 31, 2001, 2000 and 1999

<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:

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


     2000       $700,835           21,367,394        -            3,061,557      4,183,439     3,001,161
                ========           ==========    ==========       =========      =========     =========


     1999       $692,351           27,889,335        -            3,290,024      4,743,791     3,557,332
                ========           ==========    ==========       =========      =========     =========




ACSTAR
Bonding:

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


     2000       $737,912            7,943,212        -            2,831,843      5,032,465     1,253,329
                ========           ==========    ==========       =========      =========     =========


     1999       $631,429           12,571,156        -            2,193,118      4,770,401     1,268,175
                ========           ==========    ==========       =========      =========     =========
</TABLE>

<TABLE>
<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:

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


     2000              1,070,000         185,032      1,303,916   7,252,037      3,887,000
                       =========      ==========      =========   =========      =========


     1999              1,660,000        (225,633)     1,528,179   5,315,006      3,544,657
                       =========       =========      =========   =========      =========




ACSTAR
Bonding:

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


     2000              1,371,000     (1,119,124)      2,001,561   2,145,080      5,024,005
                       =========    ============      =========   =========      =========


     1999              1,431,120     (1,192,600)      1,543,783   2,669,290      4,645,343
                       =========     ===========      =========   =========      =========
</TABLE>



                                       48
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE:  None

                                    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)                55          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)                  83          1982      Housewife during past five years.

    JOHN C. CREASY                         82          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                        68         1999       Former General President of Sheet Metal Workers'
                                                                 International Association.  Member of the Audit
                                                                 Committee.

    ALFRED T. ZLOTOPOLSKI                  55         1999       General Secretary-Treasurer of the Sheet Metal
                                                                 Workers' International Association as of March 1,
                                                                 1999.  Previously was the Business Manager and
                                                                 President of Local 36 of the Sheet Metal Workers'
                                                                 International Association.  Member of the Audit
                                                                 Committee.
</TABLE>

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


                                       49
<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.           55         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              55         Vice President since 1982.
                                                  Secretary since 1992. General
                                                  Counsel since 1977.

         Michael P. Cifone             43         Senior Vice President and
                                                  Chief Financial Officer since
                                                  March 2002.  Vice
                                                  President-Finance since 1990.
                                                  Corporate Controller since
                                                  1989.
</TABLE>


                                       50
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION

Directors who are not employees of the Company are paid an annual fee of $4,000.

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

<TABLE>
<CAPTION>
NAME AND PRINCIPAL                                ANNUAL            ALL OTHER
POSITION                                      COMPENSATION(A)    COMPENSATION(B)

                                  YEAR      SALARY        BONUS
<S>                               <C>      <C>          <C>          <C>
Henry W. Nozko, Sr                2001     $466,833     $   --       $  8,633
Chairman, President               2000     $460,700     $200,000     $ 10,432
And Chief Executive Officer       1999     $447,200     $395,000     $ 10,532


Henry W. Nozko, Jr                2001     $337,833     $   --       $  8,633
Executive Vice President and      2000     $332,000     $150,000     $ 10,432
Chief Operating Officer           1999     $322,500     $315,000     $ 10,430


Michael P. Cifone                 2001     $160,333     $   --       $  8,633
Vice President-Finance            2000     $154,500     $100,000     $ 10,432
                                  1999     $150,000     $155,000     $ 10,289


Robert H. Frazer, Esq             2001     $115,185     $   --       $  4,987
Vice President, Secretary and     2000     $136,069     $   --       $  6,648
General Counsel                   1999     $171,600     $ 25,000     $ 10,392
</TABLE>

(A) Amounts shown include cash compensation earned and received by the executive
officers. There are no other forms of non-cash compensation or other perquisites
for any executive officer. Individual discretionary bonuses are paid to various
officers and employees.

(B) The amounts shown in this column represent contributions made by the Company
to the Company's 401(k) Plan and Thrift, Profit Sharing and Retirement Plan
("Plan"). The Plan was terminated on February 29, 2000. On January 1, 2000, the
Company adopted the ACMAT 401(k) Plan for all nonunion employees. 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.


                                       51
<PAGE>
The following table provides information on options during 2001 by the named
Executive Officers and the value of their unexercised options at December 31,
2001.

               AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                       FISCAL YEAR END 2001 OPTION VALUES

<TABLE>
<CAPTION>
                                                       Number of
                                                      Unexercised                  Value of Unexercised
                                                       Options at                   In-the-Money Options
Name                                                  12/31/01 (1)                    at 12/31/01 (2)
                                               -------------------------          -------------------------
                                               Exercisable/Unexercisable          Exercisable/Unexercisable
<S>                                            <C>                                <C>
Estate of Henry W. Nozko, Sr.
    - ACMAT Class A Stock Options                          56,000/-                            -/-
    - ACMAT Common Stock Options                           50,000/-                       $412,500/-

Henry W. Nozko, Jr.
    - ACMAT Class A Stock Options                          51,000/-                            -/-
    - ACMAT Common Stock Options                           50,000/-                       $412,500/-

Robert H. Frazer

    - ACMAT Class A Stock Options                          35,000/-                            -/-

Michael P. Cifone

    - ACMAT Class A Stock Options                          20,000/-                            -/-
</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.


                                       52
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:

As of March 1, 2002, 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 (15)
   ----------------                  --------              ----------------------           -----------            -----------------
<S>                                  <C>                   <C>                              <C>                    <C>
Estate of
Henry W. Nozko, Sr.                   Common                    417,605 (4)                    67.56%                     51.88%
                                      Class A                    61,000 (3)                     3.24
Henry W. Nozko, Jr.                   Common                    198,099 (2)(4)                 32.83                      26.91
                                      Class A                   163,674 (2)(5)                  8.72
Victoria C. Nozko                     Class A                    52,000 (6)                     2.81                        .70
John C. Creasy                        Class A                    19,000 (7)                     1.03                        .26
Arthur R. Moore                       Class A                    10,000 (8)                      .51                        .13
Alfred T. Zlotopolski                 Class A                    10,000 (8)                      .51                        .13
Sheet Metal Workers'
   National Pension Fund              Class A                   945,000 (9)                    34.09                      11.30
Franklin Resources, Inc.              Class A                   443,500 (10)                   22.72                       5.89
Queensway Financial
   Holdings Limited                   Class A                   204,814(11)                    11.21                       2.76
EQSF Advisors, Inc.                   Class A                   200,678 (12)                   10.98                       2.70
First Manhattan Co.                   Class A                   165,513 (13)                    9.06                       2.23
Old Kent Financial Corp.              Class A                   130,000 (14)                    6.66                       1.73
All Directors and
   Officers (8 persons)
   As a Group                         Common                    605,704                        92.71                      74.40
                                      Class A                   375,090                        18.27
</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 5,925 shares of Common
     Stock held by his wife, Gloria C. Nozko.
(3)  Includes options to purchase 56,000 shares of Class A Stock.
(4)  Includes options to purchase 50,000 shares of Common Stock.
(5)  Includes options to purchase 51,000 shares of Class A Stock.
(6)  Includes options to purchase 25,000 shares of Class A Stock.
(7)  Includes options to purchase 19,000 shares of Class A Stock.
(8)  Includes option to purchase 10,000 shares of Class A Stock.
(9)  Assumes the full conversion of $10,395,000 principal amount of 11.5%
     Convertible Note into 945,000 shares of Class A Stock. The Address of the
     Fund is Suite 500, 601 North Fairfax Street, Alexandria, VA 22314.
(10) Address of Franklin Resources, Inc. is 777 Mariners Island Blvd. San Mateo,
     CA 94404
(11) Address of Queensway Financial Holdings Limited is 90 Adelaide Street West,
     Toronto, Ontario M5H3V9.
(12) Address of EQSF Advisors, Inc. is 767 Third Avenue, New York, NY
     10017-2023.
(13) Address of First Manhattan Co. is 437 Madison Avenue, New York, NY 10022.
(14) Address of Old Kent Financial Corp. is 111 Lyon Street N.W., Grand Rapids,
     MI 49503.
(15) Based upon one vote for each share of Common Stock and one-tenth vote for
     each share of Class A Stock.


                                       53
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

Sheet Metal Workers' National Pension Fund

The Pension Fund has the right to convert indebtedness of ACMAT to the Pension
Fund in the principal amount of $10,395,000 into shares of Class A Stock at the
current conversion price of $11.00 per share pursuant to the terms of a 30-year
unsecured, subordinated debenture dated July 1, 1992 and bearing interest at the
annual rate of 11.5%.

The estate of Henry W. Nozko, Sr., Henry W. Nozko, Jr. and the Pension Fund are
parties to a voting agreement pursuant to which the parties have agreed to vote
their respective shares of Class A Stock in favor of the Pension Fund's nominees
to the ACMAT Board of Directors.

AIG Life Insurance Company

On February 5, 1997, ACMAT Corporation purchased 1,099,996 shares of its own
Class A Stock from AIG Life Insurance Company (366,663 shares) and American
International Life Assurance Company of New York (733,333 shares). The 1,099,996
shares of Class A Stock were acquired throughout the past two years by AIG Life
Insurance Company and American International Life Assurance Company of New York
pursuant to the conversion options of the Convertible Senior Notes. The shares
were purchased by the Company at an average price of $14.70 per share for a
total purchase price of $16,174,942.

The purchase price of $16,174,942 consisted of $4,174,942 in cash and promissory
notes totaling $12,000,000. The promissory notes are with AIG Life Insurance
Company and American International Life Assurance Company of New York and are
payable over eight years with interest at prime rate. The interest rate is equal
to the prime rate, however, it shall not exceed 9-1/4% and it shall not be less
than 7-1/4%.

American International Group, Inc., a holding company for AIG Life Insurance
Company and American International Life Assurance Company of New York, is a
substantial owner of Transatlantic Reinsurance Company, a reinsurer to which the
Company, through Coastal Insurance and ACSTAR Insurance, ceded approximately
$394,000 in reinsurance premiums in the year ended December 31, 2001.

Other Relationships

During the year ended December 31, 2001, the Company paid to Dr. Arthur Cosmas
$156,075 in fees in connection with consulting services rendered by Dr. Cosmas
with respect to inspection and engineering services relating to ACMAT's asbestos
abatement activities. Dr. Cosmas is the son-in-law of Victoria C. Nozko and the
brother-in-law of Henry W. Nozko, Jr.

                                     PART IV

ITEM 14. 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, 2001, 2000 and 1999
                  Consolidated Balance Sheets as of December 31, 2001 and 2000
                  Consolidated Statements of Stockholders' Equity for the years
                  ended December 31, 2001, 2000 and 1999
                  Consolidated Statements of Cash Flows for the years ended
                  December 31, 2001, 2000 and 1999
                  Notes to Consolidated Financial Statements - December 31,
                  2001, 2000 and 1999


                                       54
<PAGE>
                  2. Financial Statement Schedules

                  Consolidated Schedules included in Part II of this
                  Report-Years ended December 31, 2001, 2000 and 1999:

                     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 2001.

         (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.
                           (4b)     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.
                           (4c)     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.
                           (4d)     Amended and Restated Commercial Credit
                                    Agreement between ACMAT Corporation and
                                    Webster Bank is attached hereto as Exhibit
                                    4(d).
                           (4e)     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, 1999 is incorporated
                                    by reference.
                           (4f)     Term 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, 1999 is incorporated by
                                    reference.
                           (4g)     Term Note II between ACMAT Corporation and
                                    Webster Bank is attached hereto as Exhibit
                                    4(g).
                           (10b)    Stock Purchase Agreement dated as of July 1,
                                    1992 between ACMAT Corporation and the Sheet
                                    Metal Workers' National Pension Fund
                                    together with Note Agreement Re: 11 1/2%
                                    Convertible Subordinated Notes due 2012
                                    filed as Exhibit 10g to the Company's Form
                                    10-K for the year ended December 31, 1992 is
                                    incorporated herein by reference.

                           (21)     Subsidiaries of ACMAT.



                                       55
<PAGE>
                                   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 29, 2002                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.

<TABLE>
<S>                                             <C>                                         <C>
                                                Chairman of the Board,
                                                President, Chief Executive
/s/ Henry W. Nozko, Jr                          Officer and Director                        March 29, 2002
------------------------------
Henry W. Nozko, Jr.


                                                Senior Vice President and
                                                Chief Financial Officer
                                                (Principal Financial and
/s/ Michael P. Cifone                           Accounting Officer)                         March 29, 2002
----------------------
Michael P. Cifone

/s/ Victoria C. Nozko                           Director                                    March 29, 2002
----------------------
Victoria C. Nozko

/s/ John C. Creasy                              Director                                    March 29, 2002
-------------------
John C. Creasy
</TABLE>


                                       56
<PAGE>
                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
    Regulation S-K Exhibit                    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 and Webster Bank      Page 58

    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                                          Page 98

    Exhibit 10b               -  Stock Purchase and Note Agreement              Incorporated by Reference
                                  between ACMAT Corporation
                                  and The Sheet Metal Workers'
                                  National Pension Fund

    Exhibit 21                -  Subsidiaries of ACMAT                          Page 104
</TABLE>


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