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

                                   Form 10-KSB

[x]  ANNUAL REPORT UNDER SECTION 13 (OR)15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934

                   For the fiscal year ended December 31, 2002

[ ]  TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                For the transition period from 1/1/02 to 12/31/02
                        Commission file number 000-32311

                             SURETY HOLDINGS CORP.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)

              DELAWARE                                  52-222-9054
       State of Organization                        IRS Employer ID No.

4400 Rt. 9 South, Freehold, N.J. Suite 3000               07728
(Address of principal executive office)                 (Zip code)

                         Registrant's Telephone Number,
                       Including area code: (732) 762-1351

      Securities registered under Section 12(b) of the Exchange Act: None

                              Title of each class:

                   Name of each exchange on which registered:

                        Securities registered under 12(g)
                        of the Exchange Act: Common stock

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days [x] yes [ ]No


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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [ ]

                          The issuer's revenues for the
                     most recent fiscal year was $5,037,000

The aggregate market value of Surety Holding Corp.'s voting common equity held
by non-affiliates was approximately $481,000 at April 2, 2003 based on the
average bid and asked price.

As of April 1, 2003 6,738,000 shares of Surety Holdings Corp. Common Stock @
$.001 par value were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

None
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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

(a) BUSINESS DEVELOPMENT

         In June 1999, Surety Holdings Corp., a Florida corporation incorporated
in December 1995), merged with Surety Holdings Corp., a Delaware corporation
(incorporated in May 1999). The surviving Delaware corporation ("Surety")
continued the Florida corporation's endeavors of pursuing business
opportunities. Surety Kohala Corporation, ("Surety Kohala"), a subsidiary of
Surety, was incorporated in Hawaii in December 1988 under the name Chalon
International of Hawaii, Inc. for the primary purpose of real estate
development, including the acquisition of fee simple land or leaseholds, and the
construction of improvements thereon.

         In December 1999, Surety issued 2,000,000 shares (retroactively
restated to 6,000,000 shares to give effect to a February 2002 two hundred
percent (200%) stock dividend) of its common stock in exchange for 100% of
Surety Kohala's outstanding shares in a recapitalization transaction accounted
for as a reverse acquisition with a "shell" company. Surety Kohala was deemed
the accounting acquirer and Surety was deemed the legal acquirer. Control of a
shell company, Surety, the Florida corporation, was previously acquired from an
existing shareholder by Yoshihiro Kamon who received 90% of the then issued and
outstanding shares of Surety, the Florida corporation for $150,000. After the
issuance by Surety, the Delaware corporation of 2,000,000 shares (retroactively
restated to 6,000,000 shares as discussed above) of its common stock in December
1999 in exchange for 100% of Surety Kohala's outstanding shares, Yoshihiro Kamon
owned and currently owns directly 90,000 of Surety's issued and outstanding
shares (retroactively restated to 270,000 shares as discussed above) and
indirectly through Mahukona Holdings Corp. an additional 2,000,000 shares
(retroactively restated to 6,000,000 shares as discussed above). Accordingly,
Kamon may be deemed to own directly and indirectly 93% of the issued and
outstanding shares of Surety. The purpose of the acquisition was to facilitate
the entry of the Company into the public arena, as Surety was at the time a
public company, whose shares were included on the National Association of
Securities Dealers bulletin board.

         Surety and its wholly owned subsidiaries (collectively, the "Company")
are primarily engaged in the development of a property on approximately 642
acres of land in the Mahukona Section of the North Kohala district of Hawaii
Island in the state of Hawaii (the "Kohala Preserve development project"). The
development was initially intended to be a hotel, 18-hole golf course and resort
homes. However, the Company is considering other avenues of development for the
642 acres, most notably, an all-inclusive fractional interest club community.

         During the past four (4) years, the Company's income was derived
primarily from real estate sales, with minimal revenues derived from rental
income of property and from cattle and other revenues. The Company has an
accumulated deficit, specifically $6.6 million as of December 31, 2002. In
addition, the Company refined the Kohala Preserve development project, the
approvals for which had been obtained years


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earlier. In the future, however, the Company may not be able to maintain
compliance with all applicable conditions of the approvals. The Company has
twelve (12) full time employees and one (1) part time employee excluding
executive officers and directors. The Company does not have any franchises,
concessions, royalty agreements or labor contracts.

         The Company will, of course, be required to, and intends to seek to,
comply with federal and state regulations, if any, governing hotels, resorts and
golf courses in connection with the Company's proposed operations. The costs and
effects of compliance with environmental laws, federal, state and local are not
deemed to be material by the Company. In connection with the construction of the
hotel, resort and golf course, environmental issues may arise, as well as in
connection with the maintenance of the golf course. The Company will, of course,
seek to comply with such environmental laws or seek necessary alternatives. The
Company does not believe that compliance with existing or probable government
regulations will have a material affect on its proposed business.

         Although the Company believes that the Kohala Preserve development
project is unique, it will, nevertheless, face competition from existing hotels,
resorts and golf courses, as well as any others that may be constructed in the
future. The competing hotels, resorts and golf courses will have been previously
established and may be better financed. In that context, it is difficult to
assess the impact on the Company's proposed Kohala Preserve development project
by the existing and potential competition. The Company operates in a highly
competitive market with extremely high barriers to entry.

         In addition, the Company's business and its proposed development are
subject to various other risk factors including but not limited to general
economic conditions, available financing conditions specific to the property,
unfavorable local, regional, national and international developments, weather
condition, federal, state and local regulations pertaining to property
development.

(b) BUSINESS OF SURETY

SURETY KOHALA

         Surety Kohala owns approximately 14,800 acres of fee simple land in
North Kohala district of Hawaii Island (The Big Island), in the State of Hawaii,
USA.

         In December 1988, Surety Kohala was established in Hawaii. Surety
Kohala was established to acquire, own and develop the vacant land in North
Kohala, (Kohala Land). The Kohala Land consisted of about 19,384 acres, the
majority which is zoned for agriculture. The land had been used for sugar cane
production for approximately 100 years until the early 1970's when the facility
was closed. After the cessation of the sugar cane operations there were no major
activities on the land, which was left vacant. In December 1988, Surety Kohala
acquired the Kohala Land. In addition, Surety Kohala acquired 235 acres in
September 1989, and 164 acres in December 1991 for the expansion of the Kohala
Preserve. Surety Kohala has, since 1989, worked with the


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local Kohala community for the master planning of the development and is
intending to develop a New Style Health community, utilizing eco-management of
the excellent natural environment. The plan is more than just building a resort
area; it is a plan to integrate an existing community with a new development
plan for the 15,000 acres of land, which is expected to include housing,
recreational facilities, farming, historical assets and commercial business
institutes.

         The Kohala Preserve property consists of approximately 642 acres of
land. Surety Kohala has already acquired the necessary governmental permits for
the developments of a hotel and 18-hole golf course. Located on the leeward
(dry) side of the island, with resort permitting in place, and general community
and government acceptance as a resort location, Kohala Preserve is a valuable
and critical component of the overall master plan strategy. In keeping focused
on an eco-based theme for the master plan, and working towards Surety Kohala
corporate goals, the Kohala Preserve will:

         1. Emphasize sensitivity to the Hawaii environment, culture, human,
physical and spiritual health, practicality, comfort and quality accommodations.

         2. Provide access to the unique, semi-exclusive Hawaiian eco-activities
on the Surety Kohala land.

         Although there is no assurance that this will, in fact, be the actual
total cost, it is expected that the total current cost for the Kohala Preserve
Development will be approximately $214,000,000. This estimated cost includes
infrastructure and amenities, 3 and 2 bedroom fractional homes, cottages 3 and 2
bedroom condos, home lots and a hotel.

         The Company believes Kohala Coast Resort Area is one of the most
luxurious resort areas in the US. Kohala Preserve is approximately a 20 minute
drive from the north point of the Kohala Coast Resort Area. The relation between
Kohala Preserve and Kohala Coast Resort is similar to Kapalua Resort and
Kaanapali Resort in Maui. This means the Kohala Preserve is more isolated and an
eco-related facility compared to Kohala Coast Resort Area. Our strategy is to
utilize Kohala Coast's luxury image and price range without competing with their
resorts. We expect to emphasize a "New Style of Development", which is beyond
the regular resort development. Surety Kohala has acquired necessary zonings.
SMA (Special Management Area) Use permit and Golf Course Use Permits. In order
to complete the construction, Surety Kohala will, however, require various
governmental permits. It is anticipated, although there can be no assurance
because of various factors beyond the Company's control, that permits will be
obtained and construction may be completed in approximately four years. The
estimated completion date is predicated upon the satisfaction of a number of
contingencies which are beyond the Company's control including, but not limited
to financing etc. The following is an estimated time frame subject to the
fulfillment of various conditions.


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HOTEL/BUNGALOWS

Plan Approvals            6-18 months
Building Permits           2-4 months
Construction             12-24 months

GOLF COURSE

Grading Permits          Completed
Permit to utilize state lands for a cart underpass service: Discussion Stage:
Questionable
Construction             12-24 months

HOUSE LOTS

Engineering Drawings     10-12 months
Final Subdivision          3-4 months
Construction             12-24 months

LOCATION.

         The State of Hawaii (the Aloha State) was admitted as the nation's 50th
state in 1959. It consists of eight major islands and 124 minor islands which
form a chain extending over 1,600 miles across the mid-Pacific Ocean.

         With more than twice the landmass of all other Hawaiian Islands
combined, the nickname Hawaii's "Big Island" fits perfectly. At 4,028 square
miles in size, the Big Island is larger than the State of Connecticut, USA.
Hawaii is the youngest island in the chain (being 35 million years old) and the
southernmost point of the United States is on this island. The Big Island was
formed by five volcanoes, the world's most active and safest volcano, Kilauea,
which has become one of the island's most popular visitor attractions.

         Hawaii Island is almost a "Mini Continent" by itself, offering
everything from active volcanoes to quiet sandy beaches; from dense tropical
rainforests to verdant pasturelands. A huge variety of marine life flourishes
along Hawaii's Mauna Kea, the tallest mountain at 13,736 feet in the Pacific
Basin. The Big Island provides astronomers with the best stargazing on the
planet earth. The diverse background of the Big Island residents creates an
exciting blend of cultural heritage. The Company believes that the population's
ethnic makeup as of 1996 was 40% Caucasian, 58% Asian or Pacific Islander and
1.8% mixed non-Hawaiian.

         Between Kona Airport and the Koahala Preserve, the area is called
"Kohala Coast Resort Area". The destination resorts along the Kona Kohala Coast
are located on the northwestern shore of the island and begin six miles north of
Kona International Airport. Boundaries of the Kona Kohala Coast region are
marked by the Mauna Kea Resort to the north, Ka'upulehu to the south with the
Mauna Lani Resort and Waikoloa Beach Resort in between. There are 3,618 visitor
units to choose from, including condos, one and two bedroom oceanfront suites,
oceanside villas, bungalows, thatched huts and private vacation homes. Island
wide, there are 9,490 visitor facilities accommodations, including Bed &
Breakfasts. Resort sport and fitness facilities have over 55 tennis


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courts, 7 championship golf courses (126 holes), an executive putting course and
6 spas. Other resort activities include scuba, snorkeling, glass-bottom boating,
windsurfing, deep-sea fishing, hunting, horseback riding, sightseeing, whale
watching (in season), sailing and kayaking.

         The Kohala Preserve project land is located on the west (leeward coast)
of the District of North Kohala with about an hour drive time from the
Keahole-Kona International Airport and 20 minutes from Mauna Kea Beach Hotel,
which is located on the north part of Kohala Coast Resort Area. The climate of
the area is generally warm, arid and savanna-like. Daytime temperatures range
from about 89 degrees F. in the summer months to about 82 degrees F. in the
winter months. Rainfall in the project area averages approximately 14 inches per
year.

SURETY KOHALA'S KOHALA LAND MASTER PLAN.

         Surety Kohala's Kohala Land is located at the northern end of the
island of Hawaii, in the District of North Kohala. This island jewel with its
mild weather, untouched natural features, unsurpassed scenery and deep
historical and culture values is becoming one of the world's leading health
resort area. Within half an hour drive of Surety Kohala's land is the famous
Kohala Resort Area. It was Lawrence Rockefeller who first realized the potential
of this area when he developed his favorite retreat at the Mauna Kea Beach Hotel
in the 1960's.

         Surety Kohala's land in Kohala was formerly owned by Castle and Cooke,
one of Hawaii's largest corporations, whose Dole Food label is well-known across
the nation. A plantation existed for over 100 years on these lands before
increased competition and rising costs forced its closure in 1975. Since that
time, little economic activity has been developed within North Kohala. The
various villages of Kohala create an aggregate population of about 4,200 people.
The principal area of employment of Kohala residents is in the resort and
support communities of nearby South Kohala.

         Throughout today's world, the long range importance of solving
environmental issues is an ever increasing consideration and commitment. During
discussion of the global environment, land development is frequently thought to
be yet another of man's burdens placed on natural eco-systems. This idea was
anchored in past disorderly development, which generally did not include a
specific concern for future impacts. The main objective of Surety Kohala is not
only to pursue profit, but also to implement a clear vision of an improved
community that will continuously seek to maintain harmony with nature.

         In these regards, Surety Kohala decided the best method to understand
their land was to seek involvement from the local community through open
dialogue and exchange of ideas. A Citizens Participation Committee (CPC) was
formed to assist Surety Kohala. The CPC was formed by Surety Kohala to examine
existing plans and conditions in the North Kohala area. To facilitate the
evaluation and recommendation proceeds, the CPC was broken down into 6 different
sub-committees: Housing, Public Infrastructure/Recreation, Historic Sites, Land
Use -- Agriculture, Land Use -- Commercial/Industrial and Natural
Resources/Environmental Quality. The Citizen Participation Committee


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"CPC" was not formed as a result of any litigation. Rather, CPC was formed to
encourage and enhance communications with the local citizens of Kohala.

         Surety Kohala may develop a new type community utilizing eco-management
of the excellent natural environment of Kohala. In essence, this plan means more
than just building a resort area. Currently, it may integrate an existing
community with a new development plan for the approximately 14,800 acres of
land, which may include housing, recreational facilities, farming, historical
assets and commercial business institutes. Simultaneously, however, the Company
continues to sell parcels of land to the public. Historically, new developments
were isolated from the existing community, i.e., gated community, private beach,
etc. Surety's concept of development is not to "isolate" but to "integrate" the
resources of the existing community. Surety has not decided how many acres will
be set aside for farming, historical assets and commercial business
institutions, the detail plan will be decided based on Bulk Land Sales
procedures. With respect to historical sites, in the Kohala Preserve development
project, about 11 acres were set aside for historical purposes, zoned "open".
Some of the land, may, however, be sold, under the appropriate circumstances.

         Surety Kohala has already acquired the necessary governmental
development approvals, as discussed later, in the Mahukona area for the Kohala
Land. This will be the flagship facility for the master plan of the area
community. The tourist and owners of the Surety Kohala land may expect to enjoy
sophisticated facilities for dining, sports and relaxation during their stay in
Kohala. The Company has not, however, entered into any agreements with any
restaurants at this time.

         It is anticipated that the land values will be enhanced by the
multi-purpose uses, i.e., land sales, resort, residential lots, bulk land, and
timeshares.

KOHALA PRESERVE RESORT DEVELOPMENT.

    Concept of Development

         In response to changes in the economic conditions on the Big Island of
Hawaii, Surety Kohala is considering amending the existing development master
plan for The Kohala Preserve.

         Accordingly, Surety Kohala retained a marketing assessment and
feasibility consultant with extensive knowledge and experience in the resort and
second home market on the island.

         As a result, Surety Kohala believes that the highest and best use for
the property is as a golf-oriented result with a mix of whole ownership and
fractional interest residential real estate products. The new concept for the
development and plan is intended to create significant value for the property
under consideration which includes two main parcels. One is the Mahukona parcel
located on the west shore of North Kohala coast, which has zoning approvals for
resort development. The other is large parcels of ranch land and forest preserve
encompassing approximately 3,000 acres. The two pieces are


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not connected, but are situated within a 20-minute drive of each other.

MAHUKONA: Mahukona includes 642 acres on the western coast of North Kohala with
1.4 miles of oceanfront which maintains a warm, dry, "rain shadow" climate
similar to that of the resorts along the Kona/Kohala coast. It is located about
20 minutes north of the Mauna Kea resort and 45 minutes north of the
Keahole-Kona International Airport.

MAUKA RANCH AND FOREST LANDS: The ranch and forest preserve land encompasses
approximately 3,000 acres, located northeast of the town of Hawi. It includes
lands that was previously used for sugar cane production. It is now used for
cattle ranching, limited macadamia nut orchards and large amounts of open space.
It is situated primarily on the windward side of the island, and receives
significantly more rainfall than the Mahukona area. It is, therefore, green,
lush and partially forested.

         The above property may be developed to include a combination of
whole-ownership and fractional interest units, (both attached and detached) with
very attractive and extensive recreation amenities for club members, who would
include and be limited to whole-ownership and fractional property owners at the
resort.

         Residential units may include: Twenty (20) premier whole ownership
custom home sites and twenty (20) cabins sold as finished units. In addition,
fifteen (15) large, high-end "estate" homes, sixty (60) smaller condominium or
studio units may be marketed as fractional components, which would represent
ownership interests for portions of the year.

Recreation amenities may include:

         An attractive central lodge building, with up to 50 lodge units and
housing the central check-in/administrative center for the resort as well as
several restaurants (one find dining, one casual), along with a small
convenience store/bakery and possible other uses;

         A first class 18-hole regulation golf course with an attractive
clubhouse and associated practice facilities;

         An attractive "beach club" facility overlooking the ocean, with an
outdoor poll, hot tubs, spa facilities, and other amenities;

         A high quality tennis complex located either at the golf course
clubhouse or lodge;

         Extensive trails and attractive waterfront areas landscaped and
maintained for member use;

         A club boat (a large catamaran for snorkel trips, sunset cruises, etc.

         A variety of improvements to the ranch, including development of
central "ranch house" building, used primarily as a day-lodge for the ranch
lands area, with a small food and beverage kitchen and a variety of amenities
for club member (such as equestrian facilities. ATV's,


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mountain bikes, and possible limited overnight bedroom facilities for occasional
overnight use) and improvement of trails throughout the property for use by
members (horseback, mountain biking, ATV, or SUV).


    Governmental Permits for Development

         The Company believes that the average occupancy rate in the Kohala area
was 68.00% in 1999 according to a published industry source, but may be lower at
this time as a result of a decline in tourism after the terrorist attack of
September 11, 2001.

         Surety Kohala has acquired the following necessary governmental
approvals for the development of its projects:

         State Land Boundary Amendment: Amendment to the State Land Use Boundary
Map from Agricultural to Urban, 14.3 Acres. (SLU 853 dated November 17, 1993).

         County Zoning Code: Amendment to the County Zoning Code, changing the
district classification from Unplanned (U) to Agriculture (A-1a), resort-Hotel
(V 2.0) and Open (O). (REZ 747 dated November 17, 1993)

         Special Management Area (SMA) Use Permit: The Planning Commission
approved SMA Use Permit No. 341, dated June 24, 1993.

         Golf Course Use Permit: The Planning Commission approved Golf Course
Use Permit No. 111, dated June 24, 1993.

         The prior approvals obtained for the Kohala Preserve project in 1993
were conditional; that is, each approval was subject to various conditions of
approval. Certain of these conditions of approval contain time limits or
financial compliance requirements, which if not met, may ultimately result in
legislative and/or administrative actions to void or revoke the prior approvals.
The effect of such adverse actions would be to return the land entitlements to
the former zoning, or more appropriate zoning as determined by the County of
Hawaii. Surety Kohala has continued to maintain the prior approvals through
compliance with all applicable conditions. In the future, however, the Company
may not be able to maintain compliance with all applicable conditions.

         After the approvals, the zoning acreage breakdown is for the 642 acres
is:

V2.o (Resort)                          14 Acres
Ag.1                                  267 Acres
Ag.5                                  307 Acres
Conservation District                  43.Acres
Open                                   11 Acres

Summary: A description of the significance of each type of zoning referred to
above is as follows:


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V2.0: "V" stands for resort zoning. The number following the "V" indicates the
density allowed for that zoning category. For the Kohala Preserve, the "2.0"
means the required land area, in thousands of square feet, for each rentable
unit. Therefore, at 14.324 acres, the Kohala Preserve resort zoned area is
permitted 312 units. The height limit in this zone is 45 feet. The minimum
building area is 15,000 square feet, requiring residential lots be at least
15,000 square feet in size.

Ag.1: "A" stands for agriculture zoning. The number following the "A" together
with the lower letter "a" indicates the minimum number of areas for each
building site. For Kohala Preserve, A-1a and A-5a means zoning for 1 acre and 5
acre sized lots. The height limits for residential structures is 35 feet and 45
feet for all other structures. Hotels, condos or other commercial or industrial
uses are not permitted in this zone.

Conservation District: The "Conservation District" is not a County Zoning
designation; it is a designation by the State of Hawaii. The State of Hawaii
zones the Counties then zone lands to fit each category except for the
Conservation District which is under the jurisdiction of the State Board of Land
Natural Resources as provided in State law.

Open: "O" stands for Open zoned district. Permitted uses are parks,
historical/cultural areas, and other open natural features.

    Infrastructure System

         Water. Although other developments in west Hawaii suffer from shortage
of both portable and irrigation water, North Kohala is very rich with water
resources. Portable water will be supplied to the site from wells in the
northern part of Kohala through pipelines. Irrigation water will be supplied by
Kahola Ditch Water System that was developed about 100 years ago for sugar cane.

         Electricity. Surety Kohala has been conducting research for electricity
system alternatives. Cogeneration System is one of the options and Surety Kohala
will decide the most cost efficient system.

Final sewage plan for the Kohala Preserve is under negotiation with the County.


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Expected Construction Cost (US$)

         Based on the preliminary assessment of its consultants, the revised
Kohala Preserve project cost (excluding on-going costs and maintenance) would be
approximately $214 million and completed substantially over a three-year period.
Based on information provided by its consultants, the Company anticipates the
timing and details of the $214 million to be as follows (in thousands):

Initial Infrastructure
Development Costs

                            Year 1      Year 2     Year 3     Beyond

Infrastructure
and Amenities              $21,062     $31,762    $13,280     $15,586
3-bedroom fractionals                              15,080      15,998
2-bedroom fractionals                               8,918       3,546
Halas                                               4,262       4,389
3-bedroom condos                                   11,310
2-bedroom condos                                    5,016
Lots                                       822                 2,471
Hotel                       16,243      43,949
                           -------     -------    -------     -------
                           $37,305     $78,533    $57,866     $41,990


         There is of course no assurance that the project can or will be
completed at the estimate cost, which is based on many variables which can and
will change.

    Existing Luxury Facilities in Kohala Coast

         Although the Company believes its proposed Kohala Preserve project will
be unique, the Company will face significant competition in each of its proposed
business operations, i.e., hotel, resort, golf courses and land sales. Numerous
competitors are larger, well known and have greater resources than the Company.
There can be no assurance that the Company will be able to compete successfully
or that the Competition will not have an adverse effect on the Company's
operating results. Moreover, the Kohala Preserve project may suffer as a result
of its isolation, lack of Sandy Beach, lack of commercial facilities, lack of
area restaurants, lack of critical supporting commercial facilities.

         However, a strength of the Kohala Preserve development project is its
excellent location, dramatic coastline and ocean view and that it is distinctly
separate from the hustle and bustle typical of the populous resorts.

         The following is a brief description of some of the competition that
the Company will face in its proposed business:

    Hotels

         Mauna Kea Beach Hotel -- (310 Rooms). The very first resort to open
along the Kona Kohala Coast. This was Lawrence S. Rockefeller's retreat and now
houses a portion of his Asian art and Hawaiian quilt collection. Recently
remodeled, overlooking a crescent of white sandy beach and Kauna Koa Bay, all
rooms have lanais, cable television (available on request), swimming pool, 13
tennis courts, beach and 6 shops. Shuttle service and reciprocal charging
privileges with the adjacent Hapuna Beach Prince Hotel.

         Hapuna Beach Hotel -- (350 Rooms). Opened in 1994 on the island's best
beach, this is Mauna Kea's sister hotel and the two properties are adjacent,
with reciprocal privileges. Carpeted guest rooms with marble bathrooms, 36
suites, with all rooms overlooking the ocean, hotel pool,


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hot tub and five restaurants. The showpiece of this hotel is an 8,000 square
foot, four-bedroom suite with its own swimming pool.

         Mauna Lani Bay Hotel -- (350 Rooms). A refined atmosphere permeates
this hotel whose rooms have recently been redecorated in shades of white with
linen and cotton, along with teak furnishings. If money is no object, the $3,000
to $4,000 per night bungalows come with a butler, limo and private pool. This is
the home of the annual Senior Skins Game. There are two spectacular golf
courses. The signature hole is the 15th on the South Course where golfers tee
off over a wide expanse of ocean. Mauna Lani is also home to the annual event of
the Sun Food Celebration in July, a four-day event featuring renowned chefs and
vintners from sunny climes.

         Hilton Waikoloa -- (1,240 Rooms). Children especially love this resort
hotel, whose 62 acres are navigated by monorail or boat. There is a swimming
pool nearly an acre in size with a 175 foot water slide, several smaller pools,
a lazy river, man-made beach and a four-acre lagoon where a chosen few (drawn by
lottery) can experience an encounter with dolphins. The three buildings of the
resort are elaborately landscaped and a multi-million dollar Pacific Island Art
Collections housed in the corridors of the hotel. In addition, guests may enjoy
privileges at 2 golf courses, 3 pools, 8 tennis courts, a spa, 7 restaurants, 6
bars and a lively disco.

         Four Seasons Hotel -- (243 Units). The Big Island's newest resort
features 32 low-rise bungalows along the ocean, each housing six or eight guest
rooms and four golf club bungalows along the golf course. The rooms breathe the
tropical elegance with sisal carpeting, natural slate floors, Hawaiian artwork
from an earlier era and louvered sliding doors of dark wood. Some suites have
outdoor garden baths with showers that fall from lava ledges, private plunge
pools and whirlpools.

    Golf Courses

         Seven Championship courses, all on the Kona Kohala Coast, offer
visitors a total of 126 holes with a view. The Mauna Lani's Francis H. Brown
Golf Courses are home to the annual Senior Skins Game. The Waikoloa Resort hosts
the Kings' Cup and Tiebreaker and the newest, Hualalai, is the home of the PGA's
MasterCard Championship.

         Mauna Kea Golf Course. The Mauna Kea Golf Course offers dramatic
elevation changes and spectacular views. Consistently top rated, this 18-hole
championship golf course is one of Hawaii's most unique challenges. Amenities
include a pro shop, driving range, practice green, restaurant and fitness
center.

         Hapuna Golf Course. A unique, environmentally sensitive golf course,
the Hapuna Golf Course is a link-style 18-hole championship course. It offers
the golfer an ultimate challenge with sweeping panoramic views of the Kohala
Coast and the volcanic peaks of the Big Island. Amenities include a pro shop,
driving range, practice green, restaurant and fitness center.

         Muana Lani Golf Course. Characterized by rolling terrain and groves of
kiawe trees, the North Course is built on an ancient lava flow. Feral goats
frequent the fairways and the course's signature hole

                                       13

<PAGE>


is a par three which hits from an elevated tee into a natural amphitheatre of
lava. Amenities include a pro shop, two driving ranges, practice green, lessons,
rentals, on-course refreshment cart and restaurant.

         Waikoloa Kings Course. Designed by Tom Weiskopf and Jay Morrish, the
Par 72 link, 7,000 yard layout of Waikoloa's Kings' Course features six major
lakes and approximately 75 bunkers. The sophisticated bunker strategy and
multiple tee placements work together to create challenging and fun course.
Amenities include a golf shop, complete practice facility, golf academy, hotels,
condominiums, restaurant and lounge.

         Four Seasons Golf Course. This 18-hole Jack Nicklaus golf course was
crafted with extreme sensitivity to the land. Winding over 7,100 yards, this
carefully groomed course flows across brilliant green fairways contoured against
black lava, ending at the ocean where the finishing holes capture the drama and
beauty of direct seaside golf. Amenities include a short game practice area,
30-station driving range, sand bunker, golf shop, men and women's locker rooms
and restaurant.

MARINE FOREST RESORT, INC.

         Pursuant to uncollateralized promissory notes, the Company advanced
Marine Forest Resort, Inc. ("Marine Forest"), a related Japanese corporation
that owns approximately 400 acres of land in Okinawa, Japan, $9.75 million. The
notes bear interest at the U.S. prime rate, at date of issuance, plus one
percent. Under their original terms, the notes were due six months after date of
issuance. However, all notes were extended an additional six months and
subsequently extended to December 31, 2002, as a concession to Marine Forest to
advance Marine Forest's development projects.

         Marine Forest's current development plans are based upon a recently
completed study prepared by a consultant for the Kohala Preserve development
plan. The Company believes that Marine Forest may sell its development projects
based on the aforementioned study and repay the notes and interest thereafter.

         As of December 31, 2002, the notes remain outstanding. Further, since
issuance of the notes, no interest has been paid to the Company. Accordingly,
during the years ended December 31, 2002 and 2001, in light of the speculative
nature of Marine Forest's development projects among other reasons and in
accordance with its compliance with the requirement of SFAS No. 114, the Company
recorded an impairment charge of approximately $3.8 million and $7.2 million,
respectively, including approximately $1.3 million of aggregate accrued interest
receivable. During the year ended December 31, 2002, the Company discontinued
accruing interest income on the notes in light of its impairment charge.

         In addition to other information in this Annual Report on Form 10KBS,
the following important factors should be carefully considered in evaluating the
Company and its business because such factors currently have a significant
impact on the Company's business, prospects, financial condition and results of
operations.

WE HAVE A VERY SHORT OPERATING HISTORY.

         Although we were originally incorporated in 1995, our present
operations were only recently acquired in December 1999. Prior thereto, we had
no other operations. For the most part, our operating subsidiary has limited
operating histories. Accordingly, we have a limited operating history upon which
you can evaluate our business and prospects. Our historical data is of limited
value in projecting future operating results. You must consider our business in
light of the risks, expenses and problems frequently encountered by companies
with a limited operating history.

OUR REURN REVENUE ARE UNPREDICTABLE AND OUR FINANCIAL RESULTS MAY FLUCUATE>

         Our limited financial data is not reliable as a basis upon which to
predict our future revenues or operating expenses for a number of reasons
including our limited operating history and the developing nature of our
operating subsidiary. Our financial results may fluctuate significantly because
of numerous factors, many of which are beyond our control, including specific
economic conditions relating to real estate development.

WE WILL NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE.

         We will depend upon future revenues from operations, if any, and
borrowing, if any, under credit facilities to meet our operating and capital
expenditure requirements and fund any losses that may occur during the course of
our expansion and development activities. There is no assurance that any
additional financing will be available on commercially attractive terms, in
timely fashion, in sufficient amounts, or at all. If additional funds are
required but are unavailable, we would be unable to complete our business
development as planned and our business and financial condition would be
seriously adversely affected if we were unable to raise addition funds on
acceptable terms, in timely fashion, or at all.

         If we raise addition funds through the issuance of equity or
convertible debt securities, the percentage ownership or our Company held by
existing shareholders will be reduced and those shareholders may experience
dignificant dilution. In addition, new securities may contain certain rights,
preferences or privileges that are senior to those of our ordinary shares.

THE PRICE OF OUR SECURITIES MAY BE HIGHLY VOLITIVE.

         The stock markets have experienced and are likely to continue to
experience significant price and volume fluctuations. This could result in sharp
decreases in the price of the securities no matter how well or poorly we
perform. The trading price of our securities could also fluctuate significantly
in response to fluctuations in quarterly operating results, failures to meed
analysts' expectations and other factors.

SALES OF OUR SECURITIES MAY ADVERSELY AFFECT MARKET PRICE.

         The market price of our securities could drop as a result of sales of
substantial amounts of our shares in the public market or the perception that
such sales may occur. These factors could also make it more difficult for us to
raise funds through future offerings of stock.

OUR SECURITIES HAVE A LIMITED PRIOR MARKET.

         There has been a limited public market for our common stock on the
"Over-the-Counter Bulletin Board.

MANAGEMENT HAS CONTROL OVER US.

         The President owns directly or indirectly approximately 93% of the
outstanding shares of our common stock. Accordingly, this individual possesses
control over our operations, election to the board of directors and other
matters involving shareholder approval. This individual is able to significantly
influence all matters requiring approval by our stockholders, including the
election of directors and the approval of mergers or other business combination
transactions.

RISKS OF DEVELOPMENT.

         GENERAL RISKS; Our investments are subject to the risks generally
incident to the development and ownership of real property including properties
under construction as well as undeveloped real property. These include the
possibility that sufficient cash will not be generated from operations to meet
fixed obligations; changes in costs of construction or development; adverse
changes in national economic conditions, such as restricted availability of
financing, a decline in the home and adverse changes in local market conditions
due to changes in local economic conditions and neighborhood characteristics;
the need for unanticipated improvements or unanticipated expenditures in
connection with environmental matters, change in real estate tax rates and other
operating expenses and adverse changes in laws, governmental rules and fiscal
policies; the need to obtain the agreements of third parties in respect of the
development of the property; acts of God, including floods, fire and hurricanes
which may result in uninsured losses; environmental and waste hazards, and other
factors which are beyond the control of the Company.

         Real estate ownership and development is subject to unexpected
increases in costs. Funds necessary to meet unbudgeted contingencies generally
will come from short-term borrowings, as there can be no assurances as to the
adequacy of revenues, if any. It is not likely that our operations will generate
sufficient revenues to cover operating expenses and meet required payments on
debt obligations. The opportunities for sale, and the profitability of any sale,
will be subject to the risk of adverse changes in real estate market conditions.

         Our real estate activities may be adversely affected by possible
changes in tax laws, including changes which may have an adverse affect on real
estate development.

         DEVELOPMENT OF BUSINESS. Our business is related to development of land
for resort and residential uses. The value of the property may be affected by
changes in the overall demand for the proposed development. In particular,
changes in demand could result from higher interest rates or the unavailability
of personal mortgage financing on advantageous terms or from inflation,
recessions or other economic conditions which reduce the utilization of, and
demand for, housing (which in turn reduces the demand for development parcels of
land). Any sharp rise in interest rates or downturn in the national economy or
the local economy could affect our business's profitability and the sale and
development of the property. Such factors have tended to be cyclical in nature.
Sales of individual housing lots for middle-income housing, may be affected
adversely by such factors to a greater extent than sales of other products.
Other factors that could affect our business include the availability of
construction material and labor and changes in the costs thereof and the overall
availability of land for development of similar projects and changes in the
prices thereof. Our success may be affected by competition from other projects
of a similar business.

         Our business is not diversified as it will invest in any other
property.

         UNDEVELOPED LAND. The real property to be owned by us consists of
undeveloped land to be developed as a result and golf courses, with a portion to
be subdivided and sold as lots for land which has yet to be developed involves
more risk than the purchase and ownership or completed properties due to the
risk of development and construction. Such undeveloped land will not produce
operating cash revenues in the near term, nonetheless, our business will have
certain fixed obligations with respect to such property, such as debt service
obligations with respect to such property, real estate taxes, utility connection
fees, insurance and other obligations, that will be due and payable. The ability
of our business to meet such obligations as well as the continued maintenance of
the undeveloped property will depend upon reserves, if any and cash receipts, if
any, and the ability to borrow or otherwise raise capital.

         At present, we have obtained only certain zoning approvals required to
develop the property as contemplated herein, however, additional approvals are
required, including but not limited to approval of an environmental assessment
and a permit to permit use of state lands, and no permits or approvals for
platting or building have been obtained to begin development and construction on
the property. There can be no assurance that we will be successful in obtaining
all necessary permits and approvals.

         In addition, we anticipate incurring debt to finance the costs of
development. Development of such properties is expected to take place over
several years, and there can be no assurance that financing will be available or
that any such financing will be available on favorable terms.


                                       14
<PAGE>

         LITIGATION. Approvals and permits previously received by Surety Kohala
have been challenged in legal proceedings brought by a citizens group, and it is
anticipated that future permits or approvals will be challenged by these
objectors. There can be no assurance that litigation will be favorably
received. An adverse outcome of such litigation will adversely impact the
Company's development plans.

         COSTS OF COMPLIANCE. In connection with obtaining approvals from
regulatory authorities, we will be required to make significant improvements
such as roads, curbs, water and sewer lines, and to dedicate property for public
use and to make other concessions. The ability to continue our development
activities may be adversely affected in material respects by restrictions and
regulations that may be imposed by regulatory authorities because of, among
other things, inadequate public facilities, such as sewers, water and other
utilities and by local opposition to continued growth. such restrictions may
include limitations or moratoria on construction of housing units or other
developments for certain periods, or until additional public facilities are
constructed, and may be imposed by regulatory authorities or otherwise.

         To varying degrees, certain permits and approvals which we have not yet
obtained will be necessary to complete the development of the property. We have
no assurance that permits currently under consideration or to be applied for in
the future which are required for the development as contemplated by us will be
granted. The continued effectiveness of permits already granted is also subject
to factors such as changes in policies, rules and regulations and their
interpretation and application. Compliance with such conditions will require us
to expend significant sums of money. Necessary approvals or permits or rejection
of submitted plans could result in an inability to develop the affected property
as originally planned shich would result in a loss of market value of the
property, or a failure of such market value to increase.

RISKS OF OPERATION.

         GENERAL. There is no guarantee that we will be successful in the
development, improvement and subdivision of the property and/or if successful
that that business will be successful. The operation of the property may be
adversely affected by future development in such diverse areas as the
availability of utilities, increased costs of improvements to be installed,
other competing result or residential developments, interest expenses and
decline in house prices and the economy in general. Actual expenses to be
incurred in the development of the property will vary from the amounts
anticipated due to factors and circumstances beyond our control. These factors
include, but are not limited to the rate of inflation, changes in the economy,
fluctuation in prices of commodities and services, utilities and labor and the
possible necessity for making repairs and improvements by reason of known and
unknown conditions. In the event of any or all of the foregoing, our operations
may be adversely affected.

         RISKS INHERENT WITH CONSTRUCTION OF IMPROVEMENTS. We will be
responsible for all costs of site preparation improvements, construction and all
expenses in connection with the property acquisition and financing. Any
construction is subject to substantial risks with relation to costs over-runs,
labor disturbances, unanticipated delays due to weather or other matters,
problems with subcontractors, delays from municipal or other governmental
authorities, defective workmanship, and fire or other damage to the construction
site. The above is not inclusive of all possible risks that may occur during
construction. Any additional costs of construction will be our responsibility.
The above risks or any unforeseen risks may materially and adversely affect the
construction and operation of the property.

NEED FOR FINANCING. We will require financing before we can commence
improvements to the property. There can be no assurance that the business will
be able to obtain funds, which are required to install the improvements and
complete the development as contemplated and described herein.

         NON-EXECUTIVE MANAGEMENT. The profitability and success of the business
will depend in large part upon the management of the property. Management will
be obligated to devote only such time as in its sole discretion it deems
necessary to the management of the property. Management is permitted to engage
in activities other than management of the property regardless of whether said
activities compete with those of our business, including, without limitation,
acting as administrator, manager, general partner or owner in similar businesses
assembled to hold competing properties.

         CAPITAL REQUIREMENTS OF THE PROPERTY. The business will not generate
sufficient cash flow to meet those ongoing requirements which are presently
anticipated.

         NO MARKET STUDY. Investors must make an investment decision without the
benefit of market studies. Also there is no guarantee or assurance that the
property can or will be sold at the value ascribed to the property in the
financial information included herein.

                                       15


<PAGE>


WE HAVE INCURRED NET LOSSES AND ACCUMULATING DEFICIT TO DATE.

For the year ended December 31, 2002 Surety had a net losses of $1,547,000. As
of December 31, 2002 and at December 31, 2002 our accumulated deficit totaled
$6,637,000. Like any business enterprise operating in a specialized and
intensely competitive market, we are subject to many business risks. There can
be assurance that we will successfully implement our business plan in a timely
or effective manner.

THE COMPETITION WE FACE FROM ESTABLISHED BUSINESS MAY ADVERSELY AFFECT OUR
REVENUE AND PROFITABILITY.

         We encounter intense competition in all aspects of our business, and we
expect this competition to increase. Our competitors have longer operating
histories and significantly greater financial, technical and marketing resources
than us. Many current and potential competitors also have greater name
recognition and extensive customer bases. Moreover, current and potential
competitors have established and may establish future cooperative relationships
among themselves and with third parties to enhance their product services.
Consequently, new competitors or alliances may emerge and rapidly acquire
significant market share. We cannot assure you that we will be able to compete
effectively with current or future competitors or that the competitive pressures
faced by us will not harm our business or intended business.

THERE IS NO ASSURANCE THAT AN ACTIVE PUBLIC TRADING MARKET WILL DEVELOP.

         There has been an extremely limited public trading market for the
Company's Common Stock. There can be no assurances that a public trading market
for the Common Stock will develop or that a public trading market, if developed,
will be sustained. If, for any reason a public trading market does not develop,
purchasers of the shares of Common Stock may have difficulty in selling their
securities should they desire to do so.

"PENNY STOCK" REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON THE MARKETABILITY
OF OUR SECURITIES.

         The Securities and Exchange Commission (the "Commission") has adopted
regulations which generally define "penny stock" to be any equity security that
has a market price (as defined) less than $5.00 per share, subject to certain
exceptions. The Company's Common Stock is presently subject to these regulations
which impose additional sales practice requirements on broker-dealers who sell
such securities to persons other than established customers and accredited
investors (generally those with assets in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 together with their spouse). For transactions
covered by these rules, the broker-dealer must make a special suitability
determination for the purchase of such securities and have received the
purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a risk disclosure
document mandated by the Commission relating to the penny stock market. The
broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Company's securities and may
negatively affect the ability of purchasers of the Company's shares of Common
Stock to sell such securities.


ITEM 2.  DESCRIPTION OF PROPERTY.

         The lands owned by Surety Kohala in North Kohala, Hawaii comprise, as
of this date, approximately 14,800 acres, (a reduction from the original
aggregate holdings after giving effect to sales of acreage), which land area
includes the Kohala Preserve project area. Surety Kohala's primary focus is the
development of approximately 642 acres of land at Mahukona.

         The Surety Kohala real property is subject to two levels of land use
regulation. The first level is through the State Land Use Commission which is
the state agency charged with the responsibility of establishing the four (4)
district boundaries for lands within the State of Hawaii as Urban District,
Agricultural District, Rural District and Conservation District. Pursuant to
Hawaii Revised Statutes Chapter 205, the State Land Use Law, the County of
Hawaii is delegated the responsibility for implementing zoning regulations and
enforcement of the State Land Use Law within all the districts except for the
Conservation District. The State of Hawaii Department of Land and Natural
Resources ("DLNR") and its Board of Land and Natural Resources ("BLNR") are
charged with the responsibility of implementing and enforcing the rules and
regulations relating to uses proposed within the Conservation District. As a
general rule, the Surety Kohala lands at the shoreline are typically designated
as Conservation District or Agricultural District, the lands at the mid-level
are designated Agricultural District or Urban District, and the lands at the
upper

                                       16

<PAGE>


forest reserve areas are designated as Agricultural District or Conservation
District.

         At the County of Hawaii level, all uses and activities are regulated
through the provisions of Hawaii County Code Chapter 25, Zoning Code, with
additional regulations for lands near the ocean in the County's Special
Management Area pursuant to Hawaii Revised Statutes Chapter 205A, and the
structural setback requirements in the shoreline setback area prescribed in HRS
Section 205A-41, et seq. for the shoreline areas. As noted above, the
Conservation District lands and activities therein are controlled by the State
DLNR and BLNR.

         The specific use and sale of the Surety Kohala real property is also
regulated by other provisions of the Hawaii Revised Statutes (State law) and
Hawaii County Code (County law) which relate to the use, development and sale of
real property within the County, to include without limitation, under State law
-- Hawaii Revised Statues Chapter 6E relating to Historic Preservation, Hawaii
Revised Statutes Chapter 343, relating to Environmental Assessments and
Environmental Impact Statements, Hawaii Revised Statutes Chapter 484 relating to
Uniform Land Sales Practices Act, and Hawaii Revised Statutes Chapter 514a
relating to Condominium Property Act, and under County law -- Hawaii County Code
Chapter 23 relating to Subdivisions, Hawaii County Code Chapter 27 relating to
Flood Control, and the Hawaii County General Plan designations for the lands.
The specific development regulations applicable to each individual parcel are
primarily determined by the County zoning designation, archeological
preservation requirements, flood zone regulations and the subdivision,
condominium, building, plumbing and electrical codes applicable to each parcel.

         The zoning and use regulations specifically relating to the Kohala
Preserve development project are subject to the above, and are more particularly
expressed in the governmental approvals issued to date which include, without
limitation, the following:

         1. State Land Use District Boundary Amendment from Agricultural to
Urban for 14.3+/- acres, Ordinance No. 93-113, effective November 8, 1993;

         2. County Zoning Ordinance No. 93-109, effective November 8, 1993;

         3. Special Management Area Use Permit No. 341, effective June 24, 1993;
               and

         4. Golf Course Use Permit No. 111, effective June 24, 1993.

         The prior approvals obtained for the Kohala Preserve development
project in 1993 were conditional, that is, each approval was subject to various
conditions of approval. Certain of these conditions of approval contain time
limits or financial compliance requirements, which if not met, may ultimately
result in legislative and/or administrative actions to void or revoke the prior
approvals. The effect of such adverse actions would be to return the land
entitlements to the former zoning,


                                       17

<PAGE>


or more appropriate zoning as determined by the County of Hawaii. Surety Kohala
has continued to maintain the prior approvals through compliance with all
applicable conditions. In the future, however, the Company may not be able to
maintain compliance with all applicable conditions.

         The Hawaii Supreme Court remanded the processing of any further agency
actions for proceedings consistent with its opinion in the Citizens for the
Protection of the North Kohala Coastline v. County of Hawaii, 91 Haw 94; p.2d
1120 (1999). The Kohala Preserve development environmental impact statement
requirement was triggered by the proposal to construct two golf cart underpasses
under the State highway. In Hawaii, litigation over the requirements for
environmental assessments/environmental impact statements and their effect on
existing and proposed permit approvals is an evolving area of law. In light of
past litigation, it is probable that a challenge will be made against the
project whether an environmental impact statement is conducted or not. Because
of the evolving state of the law in this area, there may also be an attempt to
again invalidate the prior 1993 permit and legislative approvals. Surety Kohala
has initiated a redesign of the Kohala Preserve development project to avert or
mitigate the need for an environmental impact statement. Surety Kohala is fully
aware of the situation and is taking all feasible actions to mitigate the risk
to the prior approvals in its redesign effort.

         For a more detailed recitation of the properties owned by Surety
Kohala, please refer to previous discussions under Item 1, "Business".

         From a business perspective, Surety Kohala's property may be divided
into two categories. The majority of the Kohala property is zoned agricultural.
The Company intends to sell the property in parcels. The details and terms of
each of the land sales will be on a transaction by transaction basis. Until such
time as the acreage is sold, the parcels are leased on a short-term basis or
used for the Company's cattle ranch operation. The Kohala property consists of
approximately 15,386 acres, zoned as follows: Agricultural -- 76.46%;
Conservation -- 23.09%; Industrial -- .44% and Commercial -- .02%. In connection
with the sales, it may be necessary to subdivide the property. Contract
purchasers have the right to terminate their agreement prior to the Company
subdividing the property and prior to the closing of the transaction. The
Company intends to develop the Kohala Preserve property of approximately 642
acres as previously discussed as hotel, resort, golf course and residential
lots.

         The Company has a mortgage note, which is collateralized by property
located in the Mauna Kea Fairways (see Existing Luxury Facilities in Kohala
Coast). The mortgage note is payable in monthly installments of principal and
interest through 2019. The mortgage note bears interest based on an adjustable
rate (6.25% at December 31, 2002) not to exceed 15%, adjusted annually. The
mortgage note payable at December 31, 2002 was approximately $402,000.

         There are no limitations on the percentage of assets which may be
invested in a single investment. Further, there are no restrictions on the types
of investments the Company may make or the type of properties in which the
Company may invest. Moreover, there is no


                                       18

<PAGE>


limitations on the number of mortgages which may be placed on one piece of
property.

         Surety Kohala leases two (2) parcels of land from the Bishop Estate.
One parcel of 5159 acres is leased for watershed purposes at an annual rental of
$28,000. The other parcel of 44 acres is leased for pasture purposes at an
annual rental of $9,346.

         The Company maintains liability insurance to a maximum of $10,000,000
which it believes is adequate insurance.

         For the proposed development of the property and general competitive
conditions to which the properties are or may be subject, See Item 1,
"Business".

         Surety Kohala maintains offices at 55-515 Hawi Road, Hawi, Hawaii. The
building, containing approximately 12,000 square feet, is owned by Surety
Kohala.


ITEM 3.  LEGAL PROCEEDINGS.

KOHALA PRESERVE DEVELOPMENT PROCEEDINGS

         In the Civil No. 93-418/Hawaii Supreme Court No. 19051 matter, the
Hawaii Supreme Court upheld the validity of the Special Management Area Use
Permit No. 341 for the Kohala Reserve Development Project. No further appeal was
taken on this matter.

         In Civil No. 93-417/Hawaii Supreme Court No. 20723 matter, the Hawaii
Supreme Court remanded the processing of any further agency actions for
proceedings consistent with its opinion in the Citizens for the Protection of
the North Kohala Coastline v. County of Hawaii, 91 Haw. 94;979 P.2d 1120 (1999).
The Court held that an Environmental Impact Statement ("EIS") should have been
processed for the project because it involved the use of State lands, (i.e., use
of the State highway right-of-way for golf cart underpasses). The nature and
extent of further EIS processing will depend on the current Kohala Preserve
development project master plan and timeframe for buildout.

         In Hawaii, litigation over the requirements for environmental
assessments/environmental impact statements and their effect on existing and
proposed permit approvals is an evolving area of law. In light of past
litigation, it is probable that a challenge will be made against the project
whether an environmental impact statement is conducted or not. Because of the
evolving state of the law in this area, there may also be an attempt to again
invalidate the prior 1993 permit and legislative approvals. Surety Kohala
initiated a redesign of the Kohala Preserve development project to avert or
mitigate the need for an environmental impact statement. Surety Kohala is fully
aware of the situation and is taking all feasible actions to mitigate the risk
to the prior approvals in its re design effort.


                                       19

<PAGE>


ACTIONS TO QUIET TITLE

         The Company is  currently  the  plaintiff  in  approximately  seven (7)
actions to quiet title on parcels of land in the North  Kohala  district.  These
actions which are at various  stages of the  proceedings  involve a total of 224
acres  ranging from as small as a 4 acre parcel to as large as a 50 acre parcel.
In  addition,  the  Company is  appealing  a  Planning  Director's  Decision  in
connection with a final sub-division which action may be settled.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were
submitted to a vote of security holders.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         Our common stock is quoted on in the Over-The-Counter Bulletin Board
(OTC-BB) under the Symbol "SHDC". Over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and may
not represent actual transactions. Trading started on March 15, 2002. The
following is our trades for the year:

2002                       High             Low

1st Quarter                13.5             7.35
2nd Quarter                7.75             2.85
3rd Quarter                7.03             2.85
4th Quarter                7.00             4.25


2003

1st Quarter                4.50             1.01


         The Company has approximately 40 shareholders of record as of December
31, 2002.

         On February 4, 2002, the Company declared a 200 percent stock dividend
on its common stock payable on February 15, 2002. The Company does not
anticipate paying any dividends on its common stock in the foreseeable future.


                                       20

<PAGE>

Item 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Surety Holdings Corp. (the "Company"),  through its  wholly-owned  subsidiaries,
Surety Kohala Corporation ("Surety Kohala") and Mahukona Development Corporation
("Mahukona  Development"),  is engaged in the  development  of a property on 642
acres of land in the North  Kohala  district  of  Hawaii  Island in the state of
Hawaii.  This development,  referred to as the Kohala Preserve project (formerly
known as the Mahukona development project),  was initially slated to be a hotel,
18-hole golf course and resort homes.  However,  the Company is exploring  other
avenues  of  development  for the  642  acres  most  notably,  an  all-inclusive
fractional interest club community (see KOHALA PRESERVE DEVELOPMENT in Liquidity
and Capital Resources).

The Company  continues to maintain an investment in Marine Forest  Resort,  Inc.
("Marine  Forest"),  a related Japanese  corporation that owns approximately 400
acres of land in Okinawa,  Japan (see  MARINE  FOREST in  Liquidity  and Capital
Resources).

The current operations of the Company (discussed in Results of Operations on the
following pages) include the sale of its non-Mahukona  development  project real
estate and other  ancillary  activities,  many of which are not deemed to be the
future of the Company's business.

In January 2003,  the Company  acquired the assets of  Millennium  International
Sports &  Entertainment,  LLC,  which  consisted  of  sports  and  entertainment
memorabilia (see MILLENIUM in Liquidity and Capital Resources).

CRITICAL ACCOUNTING POLICIES

The Company has  identified  the following  critical  accounting  policies which
effect the Company's  consolidated  financial statements as of December 31, 2002
and for the two years then ended:

REAL ESTATE HELD FOR SALE AND DEVELOPMENT COSTS (INCLUDING IMPAIRMENT)

Real estate  held for sale is stated at the lower of cost or market.  All direct
and indirect costs relating to the Company's development project are capitalized
in accordance with Statement of Financial  Accounting  Standards ("SFAS") No. 67
"Accounting  for Costs and Initial Rental  Operations of Real Estate  Projects".
Such standard  requires costs associated with the  acquisition,  development and
construction of real estate and real  estate-related  projects to be capitalized
as part of that  project.  The  realization  of these costs is predicated on the
ability  of the  Company  to  successfully  open  and  operate  the  development
property.

The Company reviews its real estate held for sale, real estate development costs
and long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable. To
determine  the  recoverability  of these  assets,  the Company  employs  various
methods to assess fair value

                                       21
<PAGE>


including,  but not limited to, analysis of undiscounted cash flows, third party
appraisals  or valuations  and  contractual  sales value of similar  properties.
Impairment  is the amount by which the carrying  value of the asset  exceeds its
fair value.

The Company has obtained an "Opinion of Market  Value",  dated February 3, 2003,
for  a  majority  of  its  property  from  Economics  Research  Associates,   an
experienced and reputable advisor for developers and others.

MARINE FOREST - "ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN"

The Company  accounts  for the notes  receivable  from Marine  Forest  under the
provisions of SFAS No. 114,  "Accounting by Creditors for Impairment of a Loan".
Under SFAS No. 114, a loan is impaired when,  based on current  information  and
events,  it is probable  that a creditor  will be unable to collect all a mounts
due  according  to the  contractual  terms of the loan  agreement.  SFAS No. 114
requires  lenders to measure  impaired  loans based on: (i) the present value of
expected  future cash flows  discounted at the loans'  effective  interest rate;
(ii)  the  loans'  observable  market  price  or  (iii)  the  fair  value of the
collateral if the loan is collateral-dependent.  An allowance for loan losses is
maintained  if the  measure  of an  impaired  loan is  less  than  its  recorded
investment.  Adjustments to the allowance are made through corresponding charges
or credits to the provision for loan losses.

RESULTS OF OPERATIONS

The following  table sets forth the  statements of operations of the Company for
the years ended December 31, 2002 and 2001:

                                                      2002              2001
                                                  -----------       -----------
Real estate sales                                 $ 4,141,000       $ 5,835,000
Rentals                                               280,000           346,000
Cattle sales                                          349,000           393,000
Other                                                 267,000           257,000
                                                  -----------       -----------
   Total revenues                                   5,037,000         6,831,000
                                                  -----------       -----------
Cost of real estate sales                           1,213,000         2,362,000
Cost of rentals                                       119,000           130,000
Cost of cattle sales                                  202,000           219,000
Cost of other                                         214,000           233,000
                                                  -----------       -----------
   Total cost of revenues                           1,748,000         2,944,000
                                                  -----------       -----------
Gross profit                                        3,289,000         3,887,000

General and administrative expenses                 2,028,000         1,268,000
                                                  -----------       -----------
Income from operations                              1,261,000         2,619,000
                                                  -----------       -----------
Interest income                                       306,000         1,377,000
Interest expense                                     (112,000)          (82,000)
Impairment charge                                  (3,814,000)       (7,200,000)
Income tax benefit                                    812,000         1,352,000
                                                  -----------       -----------
                                                   (2,808,000)       (4,553,000)
                                                  -----------       -----------
Net income (loss)                                 $(1,547,000)      $(1,934,000)
                                                  ===========       ===========

                                       22
<PAGE>


REAL ESTATE SALES -

In 2002,  the Company sold ten  properties  for proceeds of  approximately  $4.1
million as compared to 2001 where the Company sold nine  properties for proceeds
of  approximately  $5.8 million,  an  approximate  $1.7 million  decrease.  On a
transactional  basis,  sales  remained  relatively  steady  but  lower  than the
Company's  expectation  due to the  continuing  delays  caused by the  Company's
survey  company,  the  largest  survey  company  on the Big Island of Hawaii and
probably  the only survey  company  large  enough to handle the  Company's  PCRS
(Parcel Consolidation Re-Subdivision) parcels and subdivisions, being backlogged
with  work.  This  surveying  backlog  is a result of  increasing  demand of the
Company's North Kohala property in a favorable economic time.  Further,  many of
the  properties  the  Company  is  selling  have  never  been  surveyed  and the
topography and terrain are very difficult for surveyors. To address the backlog,
the Company  recently  switched  surveyors on several  projects.  However,  also
contributing  to the delays are the land  court and  county  approval  processes
(generally three months or more), which occur subsequent to the surveying.

The Company  believes  that the tourism and second home  markets  have made full
recoveries from the events of September 11, 2001 ("September 11th"), however the
current war in the Middle East may have negative repercussions.  At December 31,
2002, the Company had  approximately  52 contracts (47 of which are scheduled to
close in 2002) to sell land consisting of approximately 3,300 acres for proceeds
of  approximately  $32.1 million.  During the 2003 (through March 21, 2003), the
Company  has  sold  only  2 lots  consisting  of  approximately  400  acres  for
approximately $2.9 million.  As of date hereof,  the obstacles  discussed in the
preceding  paragraph  bottleneck a majority of these  contracts,  thus making it
difficult to predict, with any certainty, the ultimate timing of these closings.
Therefore,  there can be no assurances  that the Company will be able to close a
majority of these contracts during 2002.

RENTAL REVENUES -

The approximate 19% decrease in rental revenue is primarily  attributable to the
Sandalwood  property,  a new home built on the  island  during  2001,  which was
rented to Surety Kohala's President for the last eleven months of 2001. In 2002,
the Company  sold the  Sandalwood  property  to Surety  Kohala's  President  for
approximately   $575,000.   Additionally,   during  2002,   rental  revenue  was
discontinued  from certain  properties as these properties were placed in escrow
for a pending sale. The Company expects rental income to continue to decrease in
2003 as long as land continues to be sold.

CATTLE SALES -

The  approximate  11% decrease in cattle sales is  attributable  to the combined
effect of (i) an  approximate  5%  decrease in number of head of cattle sold and
(ii) an  approximate  6%  decrease  in the  average  price  per head of  cattle.
Specifically,  in 2002, the Company sold only 1,293 heads at an average price of
approximately  $270 per head versus 2001,  where the Company sold 1,365 heads at
an average price of approximately  $288 per head. The deteriorated  cattle sales
margins are  attributable to decreased  cattle sales coupled with the fixed cost
nature of the cattle  sales  operations.  Processes  and tasks such as branding,
culling, moving, fence repairs, medicine and labor costs are required regardless
of sales. Additionally, during 2001, the Company leased previously owned pasture
and undertook

                                       23
<PAGE>


major fence repairs. Although difficult to predict, the Company anticipates that
2002 annual cattle revenues will approximate 2001 annual cattle revenues.

OTHER REVENUES -

Other  revenues  increased  slightly  in  2002  attributable  to  recovery  from
September 11th induced  downturn.  Barring any negative  repercussions  from the
current war in the Middle East,  the Company  expects other revenues to continue
to increase from certain of its tourist attractions

GENERAL AND ADMINISTRATIVE EXPENSES -

On an overall basis, general and administrative expenses increased approximately
60% over 2001.  The components of general and  administrative  expenses for 2002
include salaries and related costs of approximately $395,000;  professional fees
(legal, auditing and consulting) of approximately $842,000;  franchise and other
taxes  of  approximately   $182,000;   depreciation  of  approximately  $63,000;
insurance   of   approximately   $109,000;   and  other   expenses   aggregating
approximately  $437,000.  The components of general and administrative  expenses
for  2001  include  salaries  and  related  costs  of  approximately   $522,000;
professional  fees (legal,  auditing and consulting) of approximately  $264,000;
franchise  and  other  taxes  of   approximately   $127,000;   depreciation   of
approximately  $59,000;  insurance of approximately  $53,000; and other expenses
aggregating approximately $243,000.

Salaries and related costs decreased  approximately  $127,000 (or 24%) primarily
as a result of the replacement of four highly  compensated Kohala employees with
lower  salaried  employees.  Professional  fees more than  tripled  in 2002 as a
result of (i) higher legal costs in connection the  preparation of an investment
memorandum for Kohala Preserve (ii) higher  accounting costs associated with the
filing of prior period tax returns and (iii) first-time  consulting fees paid to
the Company's  President and Chief  Executive  Officer.  Depreciation  increased
approximately $4,000 (or 7%) as a result of 2002 equipment purchases.  Insurance
more than doubled in 2002, as expected,  in a post September  11th  environment.
Other  expense  increased  substantially  primarily as a result of (i) increased
travel and  entertainment  by  executives to progress  development  plans and to
complete the Millenium transaction (ii) increased rent attributable to temporary
accommodations in San Francisco for the Company's  President and (iii) increased
charitable  contributions  (expenditures  related  to a  pond  on its  land  for
endangered birds).

OTHER INCOME AND EXPENSE -

Interest income has decrease  substantially as a result of the discontinuance of
accruing  interest  receivable  relative  to the  outstanding  promissory  notes
receivable  ($9.75  million at December  31,  2002 and 2001) from Marine  Forest
Resort,  Inc. ("Marine Forest").  These notes have been deemed impaired pursuant
to SFAS No. 114. Interest expense increased approximately 38% as a result of the
loss on sale of notes receivable of $75,000, partially offset by the termination
of a line of credit and lower interest rates.

During the years ended  December 31, 2002 and 2001, in light of the  speculative
nature of Marine Forest's contemplated  development projects among other reasons
and in accordance with its compliance with the requirements of SFAS No. 114, the
Company

                                       24
<PAGE>


recorded an impairment  charge of  approximately  $3.8 million and $7.2 million,
respectively (see MARINE FOREST in Liquidity and Capital Resources).

INCOME TAXES

During the years ended  December  31,  2002 and 2001,  the  Company's  effective
income tax rate was relatively consistent with the statutory income tax rate.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

For the years ended  December 31, 2002 and 2001,  the Company's net cash used in
operating activities of approximately  $2,813,000 and $1,661,000,  respectively,
is comprised of the following:


Net income (loss)                                  $(1,547,000)     $(1,934,000)

Depreciation and amortization                          144,000          147,000

Deferred income taxes                               (1,045,000)      (1,391,000)

Impairment charge, Marine Forest                     3,814,000        7,200,000

Accrued interest receivable, Marine Forest                           (1,054,000)

Gain on sales and disposition of property
  and assets                                        (3,285,000)      (3,944,000)

Changes in operating assets
 and liabilities                                      (894,000)        (685,000)
                                                   -----------      -----------
                                                   $(2,813,000)     $(1,661,000)
                                                   ===========      ===========

For the years ended  December 31, 2002 and 2001, the Company's net cash provided
by  investing   activities   of   approximately   $2,639,000   and   $1,314,000,
respectively, is comprised of the following:

                                                     2002               2001
                                                 -----------        -----------
Capital expenditures including
  real estate development                        $(1,917,000)       $(2,764,000)

Proceeds from sales of property                    4,141,000          4,941,000

Proceeds from notes receivable                       415,000          1,087,000

Advances to Marine Forest                                  0         (1,950,000)
                                                 -----------        -----------
                                                 $ 2,639,000        $ 1,314,000
                                                 ===========        ===========

                                       25
<PAGE>


Approximately  $1,807,000  of the  $1,917,000 of 2002 capital  expenditures  and
approximately $2,571,000 of the $2,764,000 of 2001 capital expenditures was made
to  progress  the  Company's  Kohala  Preserve  development   endeavors.   These
expenditures include  approximately  $334,000 and $1,465,000,  in 2002 and 2001,
respectively,   for  land-clearing,   leveling  and  grading  and  approximately
$1,473,000 and $1,106,000, in 2002 and 2001, respectively, for design, planning,
engineering  and  surveying  and other  costs.  Increased  proceeds  from  notes
receivable are attributable to early mortgage redemptions. During the year ended
December  31,  2001,  the Company  continued  to advance  Marine  Forest  monies
pursuant to short-term  promissory notes (see separate  liquidity  discussion on
page 28).

For the years ended  December 31, 2002 and 2001, the Company's net cash provided
by financing activities of approximately $12,000 and $108,000,  respectively, is
comprised of the following:

                                                         2002            2001
                                                      ---------       ---------

Debt proceeds (from President)                        $      --       $ 217,000

Proceeds from notes receivable financing                417,000

Repayment of debt (to President)                       (375,000)      $ (93,000)

Debt repayments, net                                    (30,000)        (16,000)
                                                      ---------       ---------
                                                      $  12,000       $ 108,000
                                                      =========       =========

In 2002,  the  Company  sold  certain  notes  receivable  (with  recourse)  to a
financial institution for $417,000.

In  2001,  the  debt  repayments  are  net  of  $1,000,000  of  borrowings  (and
repayments)  pursuant to a $500,000  bank line of credit.  In 2002,  the Company
terminated its line of credit with the bank.

As of December 31, 2002, the Company has total current  assets of  approximately
$12.3 million and total current  liabilities of approximately  $0.9 million or a
working capital of approximately  $11.4 million.  As previously  discussed,  the
Company  anticipates  2003 revenue  levels to be higher than levels  experienced
during 2002.  However,  given the Company's  anticipated  cash  requirements  to
complete the revised Kohala Preserve  development project and plans to execute a
strategic  arrangement with Marine Forest (both discussed below), future capital
raising or debt financing activities may be required.

In an effort to increase the marketability of the Company's common stock,  among
other reasons,  in February 2002, the Company's board of directors  authorized a
three-for-one  stock split  effected in the form of a two hundred  percent stock
dividend which was distributed on February 15, 2002 to stockholders of record on
February 4, 2002.


                                       26
<PAGE>


KOHALA PRESERVE (FORMERLY MAHUKONA) DEVELOPMENT

The Company  continues to strategize its  development  plans relative to its 642
acres of land in the North  Kohala  district  of  Hawaii  Island in the state of
Hawaii (known as the Kohala Preserve development project). The original plan for
this valuable parcel of land was the development of a hotel, 18-hole golf course
and resort homes.  However,  during 2001, the Company hired several consultants,
with extensive  experience in high-end  resort  development  and  marketing,  to
reassess its development strategy with respect to Kohala Preserve property,  the
goal of which is to provide the Company  guidance in  determining  an  effective
development  strategy that will optimize the property's economic potential.  The
present  assessment of the consultants  for the Kohala Preserve  property is the
development of an all-inclusive fractional interest club community structured as
an undivided  interest  ("UDI").  A UDI would allow the prospective buyer to use
the Kohala  Preserve  facility  plus the  eco-ranch  lands and would  provide an
ownership interest in both. A UDI would not allow the prospective buyer to own a
specific  parcel of land,  but only a fraction of each square foot of  property.
The revised Kohala  Preserve  development  project is subject to further Company
and consultant  review and analysis that is expected to be completed  during the
second quarter of 2003.

Based  on  the  present  assessment  of its  consultants,  the  Kohala  Preserve
development  project cost  (excluding  ongoing costs and  maintenance)  would be
approximately  $213.7 million and completed  substantially  (approximately  80%)
over a three-year period. Based on information provided by its consultants,  the
Company  anticipates  the  timing and  details  of the  $213.7  million to be as
follows (in thousands):

                                         YEAR 1     YEAR 2     YEAR 3     BEYOND
                                        -------    -------    -------    -------
Infrastructure and amenities            $21,062    $31,762    $13,280    $15,586
3-Bedroom fractionals                                          15,080     15,998
2-Bedroom fractionals                                           8,918      3,546
Hales                                                           4,262      4,389
3-Bedroom condos                                               11,310
2-Bedroom condos                                                5,016
Lots                                                   822                 2,471
Hotel                                    16,243     43,949
                                        -------    -------    -------    -------
                                        $37,305    $76,533    $57,866    $41,990
                                        =======    =======    =======    =======

The Company  recognizes  that its current  operations  will not be sufficient to
fund the cost of Kohala  Preserve's  development and it may not be successful in
future capital raising or debt financing activities. Accordingly, the Company is
exploring other financing strategies including,  but not limited to, a 50% joint
venture  with  development  partners,  including,  but not limited  to,  another
property  development  company,  a  fractional  facility  management  company or
private investors.


                                       27
<PAGE>


MARINE FOREST

Pursuant to  uncollateralized  promissory  notes,  the Company  advanced  Marine
Forest, a related Japanese corporation that owns approximately 400 acres of land
in Okinawa,  Japan,  $9.75  million.  The notes bear interest at the U.S.  prime
rate, at the date of issuance, plus one percent. Under their original terms, the
notes  were due six  months  after  date of  issuance.  However,  the notes were
extended an  additional  six months and  subsequently  extended to December  31,
2002, as a concession to Marine Forest to advance  Marine  Forest's  development
projects.  Marine Forest's current  development  plans are based upon a recently
completed  study  prepared by a consultant for the Kohala  Preserve  development
plan. The Company believes that Marine Forest may sell its development  projects
based on the aforementioned  study and repay the notes and interest  thereafter.
However,  this  action  has not been  initiated  at this point and when (and if)
initiated,  it would take at least a year, if not longer,  to consummate  such a
transaction.

As of  December  31,  2002  and  through  the  date  hereof,  the  notes  remain
outstanding.  Further,  since issuance of the notes and through the date hereof,
no interest  has been paid to the Company.  Accordingly,  during the years ended
December  31,  2002 and  2001,  in light of the  speculative  nature  of  Marine
Forest's  development  projects  among other reasons and in accordance  with its
compliance  with the  requirements  of SFAS No. 114 (see previous  discussion of
Critical  Accounting  Policies),  the Company  recorded an impairment  charge of
approximately   $3.8   million  and  $7.2   million,   respectively,   including
approximately $1.3 million of aggregate accrued interest receivable.  During the
year ended December 31, 2002, the Company discontinued  accruing interest income
on the notes in light of its impairment charge.

MILLENIUM

In January 2003, pursuant to an Asset Purchase  Agreement,  the Company acquired
the   assets  of   Millennium   International   Sports  &   Entertainment,   LLC
("Millennium"),  which  consisted of sports and  entertainment  memorabilia.  In
consideration  for the assets  received,  the Company  will issue  shares of its
common stock if certain  revenue levels related to the sales of the  memorabilia
are  attained  by  certain  dates.  If  revenues  related  to the  sales  of the
memorabilia  equal or exceed $8 million by December  31,  2003,  an aggregate of
350,000  shares of the  Company's  common  stock  would be issued to the  former
members  of  Millenium,  all of whom  executed  employment  agreements  with the
Company in  connection  with the January 2003  transaction.  Since the Company's
acquisition of Millennium  and through March 31, 2003,  there has been little to
no revenues  related to the sales of the  memorabilia.  Pursuant to the terms of
the Asset Purchase Agreement,  the Company has reserved the right to rescind the
Asset Purchase  Agreement if certain  revenue levels related to the sales of the
memorabilia are not attained by certain dates.

The  Millennium  memorabilia  includes  mementos,  uniforms or equipment used in
games or special  events and  autographs  of sports  stars and  celebrities.  It
encompasses a variety of sports and some items are specialized and limited.  The
memorabilia is being marketed  through many sources  including,  but not limited
to, corporate accounts,  cruise ships,  on-line shopping clubs and a proprietary
website.


                                       28
<PAGE>


CONTRACTUAL COMMITMENTS

The Company is obligated  under various  contractual  commitments  over the next
several  years.  Following is a summary of those  commitments as of December 31,
2002:

                                                                      GREATER
                                      1 YEAR        1 -3 YEARS     THAN 3 YEARS
                                     --------       ----------     ------------
Notes payable (a)                    $ 34,000        $ 46,000        $355,000
Employment contracts                  240,000
                                     --------        --------        --------
                                     $274,000        $ 46,000        $355,000
                                     ========        ========        ========

(a)   Excludes obligation pursuant to notes receivable  financing whereby a cash
      outlay is only required if the financial  institution requires the Company
      to repurchase a defaulted note.

                                       29
<PAGE>


ITEM 7.  Consolidated Financial Statements.


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
Surety Holdings Corp.

We have audited the accompanying  consolidated  balance sheet of Surety Holdings
Corp. and  Subsidiaries  as of December 31, 2002,  and the related  consolidated
statements of  operations,  stockholders'  equity,  and cash flows for the years
ended December 31, 2002 and 2001. These  consolidated  financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements 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 audits 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 consolidated financial position of Surety
Holdings Corp. and  Subsidiaries  as of December 31, 2002, and the  consolidated
results of their  operations  and their cash flows for the years ended  December
31, 2002 and 2001, in conformity with accounting  principles  generally accepted
in the United States of America.


                                             /s/ Rothstein, Kass & Company, P.C.

Roseland, New Jersey
March 14, 2003



                                       30

<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
                               DECEMBER 31, 2002

                                     ASSETS

CURRENT ASSETS
  Cash                                                            $   9,746,000
  Real estate held for sale, current                                  2,090,000
  Other current assets                                                  465,000
                                                                  -------------
    Total current assets                                             12,301,000

NOTES RECEIVABLE, less current maturities                             1,372,000

NOTES RECEIVABLE, officer                                               567,000

REAL ESTATE HELD FOR SALE                                            31,320,000

NOTES RECEIVABLE AND ACCRUED INTEREST,
  Marine Forest Resort, Inc., net of an
    approximate $11 million allowance for loan losses                        --

REAL ESTATE DEVELOPMENT COSTS                                        42,294,000

PROPERTY AND EQUIPMENT, net                                           2,582,000

DEFERRED TAX ASSET                                                    4,565,000

OTHER ASSETS                                                          1,749,000
                                                                  -------------
                                                                  $  96,750,000
                                                                  =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Notes payable, current maturity                                 $      34,000
  Accounts payable                                                      698,000
  Accrued expenses and other current liabilities                        121,000
                                                                  -------------
    Total current liabilities                                           853,000
                                                                  -------------

LONG-TERM LIABILITIES
  Notes payable, less current maturity                                  401,000
  Obligation pursuant to notes receivable
    financing, less current maturity                                    448,000
                                                                  -------------
                                                                        849,000
                                                                  -------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Common stock, $.001 par value,
    200,000,000 shares authorized,
    6,738,000 shares issued and
    outstanding                                                           7,000
  Capital in excess of par value                                    101,678,000
  Accumulated deficit                                                (6,637,000)
                                                                  -------------
    Total stockholders' equity                                       95,048,000
                                                                  -------------
                                                                  $  96,750,000
                                                                  =============



SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       31


<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 2002 AND 2001


                                                       2002             2001
                                                    -----------     -----------

REVENUES                                            $ 5,037,000     $ 6,831,000

COST OF REVENUES                                      1,748,000       2,944,000
                                                    -----------     -----------

GROSS PROFIT                                          3,289,000       3,887,000

GENERAL AND ADMINISTRATIVE
  EXPENSES                                            2,028,000       1,268,000
                                                    -----------     -----------

INCOME FROM OPERATIONS                                1,261,000       2,619,000
                                                    -----------     -----------
OTHER INCOME (EXPENSE)
  Interest income                                       306,000       1,377,000
  Interest expense                                     (112,000)        (82,000)
  Impairment charge, Marine Forest Resorts, Inc.     (3,814,000)     (7,200,000)
                                                    -----------     -----------
                                                     (3,620,000)     (5,905,000)
                                                    -----------     -----------

LOSS BEFORE INCOME TAX BENEFIT                       (2,359,000)     (3,286,000)

INCOME TAX BENEFIT                                      812,000       1,352,000
                                                    -----------     -----------

NET LOSS                                            $(1,547,000)    $(1,934,000)
                                                    ===========     ===========
NET LOSS PER COMMON
  SHARE, basic and diluted                          $     (0.23)    $     (0.29)
                                                    ===========     ===========
WEIGHTED AVERAGE COMMON SHARES
  OUTSTANDING, basic and diluted                      6,738,000       6,738,000
                                                    ===========     ===========



SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       32


<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
                                       COMMON STOCK           CAPITAL IN                        TOTAL
                              ----------------------------     EXCESS OF      ACCUMULATED    STOCKHOLDERS'
                                 SHARES          AMOUNT        PAR VALUE        DEFICIT         EQUITY
                              ------------    ------------    ------------   ------------    -------------
<S>                              <C>          <C>             <C>            <C>             <C>
BALANCES, January 1, 2001        6,738,000    $      7,000    $101,678,000   $ (3,156,000)   $ 98,529,000

NET LOSS                                                                       (1,934,000)     (1,934,000)
                              ------------    ------------    ------------   ------------    ------------

BALANCES, December 31, 2001      6,738,000           7,000     101,678,000     (5,090,000)     96,595,000

NET LOSS                                                                       (1,547,000)     (1,547,000)
                              ------------    ------------    ------------   ------------    ------------

BALANCES, December 31, 2002      6,738,000    $      7,000    $101,678,000   $ (6,637,000)   $ 95,048,000
                              ============    ============    ============   ============    ============
</TABLE>






SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       33

<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
                                                               2002             2001
                                                           ------------     ------------
<S>                                                        <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                 $ (1,547,000)    $ (1,934,000)
  Adjustments to reconcile net loss
  to net cash used in operating activities:
    Depreciation and amortization                               144,000          147,000
    Deferred income taxes                                    (1,045,000)      (1,391,000)
    Impairment charge, Marine Forest Resorts, Inc.            3,814,000        7,200,000
    Accrued interest receivable,
      Marine Forest Resorts, Inc.                                             (1,054,000)
    Gain on sales of property                                (3,375,000)      (3,968,000)
    Loss on disposition of property                              15,000           10,000
    Loss on sale of notes receivable                             75,000           14,000
    Increase (decrease) in cash
      attributable to changes in operating
      assets and liabilities:
        Other current assets                                   (208,000)          (2,000)
        Other assets                                           (932,000)        (401,000)
        Accounts payable                                        260,000           65,000
        Accrued expenses and other
          current liabilities                                   (34,000)        (221,000)
        Income taxes payable                                     (1,000)        (126,000)
                                                           ------------     ------------
NET CASH USED IN OPERATING ACTIVITIES                        (2,834,000)      (1,661,000)
                                                           ------------     ------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of property and equipment                          (110,000)        (225,000)
  Proceeds from sales of property                             4,141,000        4,941,000
  Real estate development expenditures                       (1,807,000)      (2,539,000)
  Proceeds from repayments of notes receivable                  407,000        1,087,000
  Proceeds from repayments of notes receivable, officer           8,000
  Advances to Marine Forest Resort, Inc.                                      (1,950,000)
                                                           ------------     ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES                     2,639,000        1,314,000
                                                           ------------     ------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Principal payments on mortgage
    notes payable and bank line of credit                       (30,000)      (1,016,000)
  Proceeds from notes receivable financing                      417,000
  Proceeds from bank line of credit                                            1,000,000
  Proceeds from notes payable, president                                         217,000
  Repayments of notes payable, president                       (354,000)         (93,000)
                                                           ------------     ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                        33,000          108,000
                                                           ------------     ------------

NET DECREASE IN CASH                                           (162,000)        (239,000)
CASH
  Beginning of year                                           9,908,000       10,147,000
                                                           ------------     ------------
  End of year                                              $  9,746,000     $  9,908,000
                                                           ============     ============
</TABLE>



SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       34

<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                     YEARS ENDED DECEMBER 31, 2002 AND 2001



                                                        2002          2001
                                                     ----------    ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION, cash paid during the year for:
    Interest                                         $   31,000    $   51,000
                                                     ==========    ==========

    Income taxes                                     $  494,000    $  165,000
                                                     ==========    ==========

SUPPLEMENTAL DISCLOSURES OF NONCASH
  INVESTING AND FINANCING ACTIVITIES:

Equipment financed                                   $       --        55,000
                                                     ==========    ==========

Issuance of notes receivable upon
  sales of property                                  $       --    $  894,000
                                                     ==========    ==========




SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       35



<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. NATURE OF OPERATIONS

Surety   Holdings   Corp.   ("Surety")   and   its   wholly-owned   subsidiaries
(collectively,  the  "Company")  are primarily  engaged in the  development of a
property on 642 acres of land in the North Kohala  district of Hawaii  Island in
the state of  Hawaii.  This  development,  referred  to as the  Kohala  Preserve
development  project  (f/n/a  Mahukona  development  project)  (see Note 4), was
initially slated to be a hotel,  18-hole golf course and resort homes.  However,
the Company is exploring  other  avenues of  development  for the 642 acres most
notably, an all-inclusive fractional interest club community.

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The  consolidated  financial  statements  include the accounts of Surety and its
wholly-owned   subsidiaries.   All  significant  intercompany  transactions  and
balances have been eliminated in consolidation.

CASH

The Company  maintains its cash with financial  institutions in accounts that at
times may exceed insured  limits.  The Company has not experienced any losses in
such accounts and believes it is not subject to any  significant  credit risk on
cash.

PROPERTY AND EQUIPMENT

Property and  equipment  are stated at cost less  accumulated  depreciation  and
amortization. Depreciation and amortization are provided using the straight-line
method over the following estimated useful lives.

Buildings and improvements         15-30 Years
Livestock                              7 Years
Orchard                               15 Years
Machinery, equipment and other      5-10 Years

REVENUE RECOGNITION

Revenue from the sale of real estate is recognized at the time title is conveyed
to the buyer,  minimum down payment requirements are met, the terms of any notes
received satisfy continuing payment requirements,  and there are no requirements
for continuing involvement by the Company with the property.

REAL ESTATE HELD FOR SALE AND DEVELOPMENT COSTS

Real estate held for sale is stated at the lower of cost or market.

All direct and  indirect  costs (see Note 4)  relating to the  Company's  Kohala
Preserve  development  project are  capitalized in accordance  with Statement of
Financial Accounting Standards ("SFAS") No. 67 "Accounting for Costs and Initial
Rental  Operations  of Real  Estate  Projects."  Such  standard  requires  costs
associated with the  acquisition,  development,  and construction of real estate
and real estate-related  projects to be capitalized as part of that project. The
realization  of these  costs is  predicated  on the  ability  of the  Company to
successfully open and operate Kohala Preserve. The Company allocates capitalized
real estate development costs on a specific  identification  basis. Common costs
and amenities are allocated on a relative fair market value basis.


                                       36
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Management believes that the recorded costs associated with real estate held for
sale and development costs on the consolidated balance sheet will be recoverable
through the sale and development of the properties.

IMPAIRMENT

The Company reviews its real estate held for sale, real estate development costs
and long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable. To
determine  the  recoverability  of these  assets,  the Company  employs  various
methods  to assess  fair  value  including,  but not  limited  to,  analysis  of
undiscounted   net  cash  flows,   third  party  appraisals  or  valuations  and
contractual sales value of similar properties. Impairment is the amount by which
the carrying value of the asset exceeds its fair value.

INCOME (LOSS) PER COMMON SHARE

The Company complies with SFAS No. 128, "Earnings Per Share" which requires dual
presentation of basic and diluted  earnings per share.  Basic earnings per share
excludes  dilution  and is  computed  by  dividing  income  available  to common
stockholders  by the  weighted-average  common shares  outstanding for the year.
Diluted  earnings per share reflects the potential  dilution that could occur if
securities or other  contracts to issue common stock were exercised or converted
into common  stock or resulted in the  issuance of common stock that then shared
in the  earnings of the entity.  Since the  Company has no  securities  or other
contracts to issue common stock,  basic and diluted net income (loss) per common
share for the years ended December 31, 2002 and 2001 were the same.

INCOME TAXES

The Company  complies with SFAS No. 109,  "Accounting  for Income  Taxes," which
requires an asset and liability  approach to financial  accounting and reporting
for income taxes.  Deferred  income tax assets and  liabilities are computed for
differences  between  the  financial  statement  and tax  bases  of  assets  and
liabilities that will result in future taxable or deductible  amounts,  based on
enacted tax laws and rates  applicable  to the periods in which the  differences
are expected to affect taxable  income.  Valuation  allowances are  established,
when necessary,  to reduce deferred income tax assets to the amounts expected to
be realized.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments held by the Company include cash, notes receivable,  notes
payable and accounts  payable.  The book value of cash and accounts  payable are
considered to be  representative  of fair value because of the short maturity of
these instruments.  The fair values of the notes receivable (excluding the notes
receivable from Marine Forest Resort,  Inc.- "Marine  Forest") and notes payable
approximate  book  values  primarily  because  the  contractual  interest  rates
approximate prevailing market rates.

The Company  accounts for the notes  receivable from Marine Forest (see Note 11)
under the provisions of SFAS No. 114, "Accounting by Creditors for Impairment of
a  Loan".  Under  SFAS No.  114,  a loan is  impaired  when,  based  on  current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual  terms of the loan agreement.  SFAS
No. 114  requires  lenders to measure  impaired  loans based on: (i) the present
value of expected future cash flows discounted at the loans' effective  interest
rate;  (ii) the loan's  observable  market price; or (iii) the fair value of the
collateral if the loan is collateral-dependent.  An allowance for loan losses is
maintained  if the  measure  of an  impaired  loan is  less  than  its  recorded
investment.  Adjustments to the allowance are made through corresponding charges
or credits to the provision for loan losses.


                                       37
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In 2002, the Financial  Accounting Standards Board ("FASB") issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal  Activities" and No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure".  SFAS No.
146, which is not effective until the year ending  December 31, 2003,  addresses
financial  accounting and reporting for costs  associated  with exit or disposal
activities.  The  Company  does  not  believe  that  SFAS No.  146  will  have a
significant impact on its consolidated financial position, results of operations
and cash  flows.  SFAS No. 148  addresses  stock-based  compensation,  which the
Company does not have.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

RECLASSIFICATIONS AND RESTATEMENTS

Certain 2001 amounts have been reclassified to conform to the 2002 presentation.
Stockholders'  equity has been  restated to give  retroactive  recognition  to a
February 2002 stock split (see Note 7).

3. NOTES RECEIVABLE

At December 31, 2002, the Company had notes receivable aggregating approximately
$1,496,000.  The notes bear  interest at rates  ranging from 7% to 8% per annum,
mature on various dates through 2011 and are collateralized by real property.

Approximate  maturities of notes receivable  subsequent to December 31, 2002 are
as follows:

YEAR ENDING DECEMBER 31,
       2003                          $   124,000
       2004                               21,000
       2005                              751,000
       2006                              548,000
       2007                               10,000
       Thereafter                         42,000
                                     -----------
                                     $ 1,496,000
                                     ===========




                                       38
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4. REAL ESTATE DEVELOPMENT COSTS

At December 31, 2002, real estate development costs, attributed primarily to the
Company's Kohala Preserve development project, consist of the following:

Land and land acquisition costs             $28,975,000
Planning and studies                          2,456,000
Engineering and architectural                   565,000
Infrastructure                                6,290,000
Professional and consulting fees              2,475,000
Other                                         1,533,000
                                            -----------
                                            $42,294,000
                                            ===========


5. PROPERTY AND EQUIPMENT

At December 31, 2002, property and equipment consist of the following:

Land                                        $ 1,410,000
Buildings and improvements                    1,478,000
Livestock                                       764,000
Orchard                                         300,000
Machinery, equipment and other                  573,000
                                            -----------
                                              4,525,000
Less accumulated depreciation
  and amortization                            1,943,000
                                            -----------
                                            $ 2,582,000
                                            ===========


6. NOTES PAYABLE AND NOTES RECEIVABLE FINANCING

NOTES PAYABLE

The Company has a mortgage note which is  collateralized by certain property and
is payable in monthly  installments of principal and interest  through 2019. The
mortgage note,  which has an outstanding  balance of  approximately  $402,000 at
December 31, 2002, bears interest based on an adjustable rate (6.25% at December
31, 2002), not to exceed 15%, adjusted annually.

In 2001, the Company entered into two note agreements to finance the purchase of
two vehicles used in connection with the Company's  Kohala Preserve  development
project. These notes, which have an outstanding balance of approximately $33,000
at  December  31,  2002,  bear  interest  at 8.5%  and are  payable  in  monthly
installments aggregating approximately $2,000 through August 2004.



                                       39
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6. NOTES PAYABLE AND NOTES RECEIVABLE FINANCING (CONTINUED)

Approximate  aggregate  future  required  principal  payments  on these notes at
December 31, 2002 are as follows:

YEAR ENDING DECEMBER 31,
        2003                         $    34,000
        2004                              29,000
        2005                              17,000
        2006                              18,000
        2007                              19,000
        Thereafter                       318,000
                                     -----------
                                     $   435,000
                                     ===========

NOTES RECEIVABLE FINANCING

The Company has a Purchase Agreement  (Mortgage Loans) (the "Agreement") with an
outstanding  balance of  approximately  $453,000  (including  $5,000 included in
other current  liabilities) as of December 31, 2002. The Agreement  provides for
the sale (with recourse) of certain notes receivable  aggregating  approximately
$454,000 for proceeds of approximately  $417,000 to a financial  institution and
the  assignment of the Company's  interest in the  underlying  collateral to the
financial institution.  The Agreement has certain provisions,  which may require
the  Company to  repurchase  the  receivables  from the  financial  institution;
accordingly,  the Company is accounting for the transactions in a manner similar
to a secured borrowing. The Agreement is also collateralized by certain land and
improvements thereon of the Company.


7. STOCKHOLDERS' EQUITY

In February 2002, the Company's  board of directors  authorized a  three-for-one
stock  split  effected  in the form of a 200 percent  stock  dividend  which was
distributed on February 15, 2002 to  stockholders of record on February 4, 2002.
Stockholders'  equity has been restated to give  retroactive  recognition to the
stock split for all periods presented by reclassifying from capital in excess of
par value to common stock the par value of the  additional  shares  arising from
the split. In addition,  all references in the consolidated financial statements
to number of shares and per share amounts have been restated.


8. NON-CANCELABLE OPERATING LEASES

The Company leases certain parcels of land to tenants,  which are used primarily
for agricultural purposes, under noncancelable operating leases expiring through
2028. Rental income under these operating leases and month-to-month arrangements
was  approximately  $280,000 and $346,000 for the years ended  December 31, 2002
and 2001, respectively.  Approximate minimum rentals under the operating leases,
excluding renewal options, are as follows:

YEAR ENDING DECEMBER 31,
        2003                         $   185,000
        2004                             188,000
        2005                             188,000
        2006                             188,000
        2007                             188,000
        Thereafter                       340,000
                                     -----------
                                     $ 1,277,000
                                     ===========


                                       40
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9. INCOME TAXES

At December 31, 2002,  the Company's  deferred  income tax asset is comprised of
the tax benefit  associated  with the following items based on the statutory tax
rates currently in effect:

Net operating loss carryforwards               $   126,000

Difference between financial
  and tax bases of assets, primarily
    Marine Forest loan impairment                4,439,000
                                               -----------
                                               $ 4,565,000
                                               ===========

The  provision  for income  taxes  (benefit)  in the  accompanying  consolidated
statements of operations consisted of the following for the years ended December
31, 2002 and 2001:

                              2002            2001
                          -----------     -----------
CURRENT
  Federal                 $   200,000     $    39,000
  State                        33,000
                          -----------     -----------
                              233,000          39,000
                          -----------     -----------

DEFERRED
  Federal                    (830,000)     (1,195,000)
  State                      (215,000)       (196,000)
                          -----------     -----------
                           (1,045,000)     (1,391,000)
                          -----------     -----------
                          $  (812,000)    $(1,352,000)
                          ===========     ===========

The following  table  reconciles  the federal  statutory  income tax rate to the
Company's effective tax rate for the years ended December 31, 2002 and 2001:

                                       2002        2001
                                      -----       -----
Provision for income taxes
  at the federal statutory rate       (34%)       (34%)

State income tax,
  net of federal tax benefit           (6)         (6)

Other                                   6          (1)
                                      -----       -----
                                      (34%)       (41%)
                                      =====       =====

At December  31,  2002,  the Company had net  operating  loss  carryforwards  of
approximately $314,000 available to offset future income subject to tax. The net
operating loss carryforwards begin to expire in 2018.


                                       41
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10. COMMITMENTS AND CONTINGENCIES

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

The  Company has entered  into  various  consulting  agreements  for  investment
banking, project development and other services. Generally, these agreements are
on a project by project basis requiring payments as services are performed.

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


11. RELATED PARTY TRANSACTIONS

PRESIDENT

During 2001 and 2000,  the Company's  President  advanced the Company  $447,000,
pursuant to one-year,  5% promissory  notes.  During 2002 and 2001,  the Company
repaid the  President  $354,000 and $93,000.  At December 31, 2002,  nothing was
owed  pursuant  to the  notes.  Related  interest  expense  for the years  ended
December 31, 2002 and 2001 is approximately $7,000 and $18,000, respectively.

MARINE FOREST RESORT, INC. ("MARINE FOREST")

Pursuant to  uncollateralized  promissory  notes,  the Company  advanced  Marine
Forest, a related Japanese corporation that owns approximately 400 acres of land
in Okinawa,  Japan,  $9.75  million.  The notes bear interest at the U.S.  prime
rate, at date of issuance,  plus one percent.  Under their original  terms,  the
notes  were due six  months  after  date of  issuance.  However,  the notes were
extended an  additional  six months and  subsequently  extended to December  31,
2002, as a concession to Marine Forest to advance  Marine  Forest's  development
projects.  Marine Forest's current  development  plans are based upon a recently
completed  study  prepared by a consultant for the Kohala  Preserve  development
plan. The Company believes that Marine Forest may sell its development  projects
based on the aforementioned study and repay the notes and interest thereafter.

As of December 31, 2002, the notes remain outstanding.  Further,  since issuance
of the notes, no interest has been paid to the Company. Accordingly,  during the
years ended  December 31, 2002 and 2001, in light of the  speculative  nature of
Marine Forest's  development projects among other reasons and in accordance with
its compliance with the  requirements  of SFAS No. 114, the Company  recorded an
impairment charge of approximately $3.8 million and $7.2 million,  respectively,
including  approximately $1.3 million of aggregate accrued interest  receivable.
During the year ended  December  31,  2002,  the Company  discontinued  accruing
interest income on the notes in light of its impairment charge.

NOTE RECEIVABLE, OFFICER

In April 2002,  an officer of the Company  purchased  property and  improvements
thereon for $575,000.  The officer  entered into a 30-year note agreement  which
requires  monthly  payments of principal  and interest  through  2032.  The note
receivable  bears  interest at the rate of 2.66%.  The sale of the  property and
improvements to the officer resulted in a loss of approximately $15,000.



                                       42
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11. RELATED PARTY TRANSACTIONS (CONTINUED)

OTHER

During 2002 and 2001, the Company rented  properties to related  individuals for
aggregate annual rentals of $10,000 and $49,000, respectively.

During 2002 and 2001,  the Company had real estate sales to officers  (excluding
the officer referenced above) of the Company  aggregating  $318,000 and $83,000,
respectively.


12. SEGMENT REPORTING

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

Operating  results,  by segment,  for the years ended December 31, 2002 and 2001
are as follows (in thousands):

                                      2002

<TABLE>
<CAPTION>
                                      Real Estate                 Cattle
                                        Sales        Rental       Sales        Other     Corporate      Total
                                      -----------   --------     --------    --------    ---------    --------
<S>                                    <C>          <C>          <C>         <C>         <C>          <C>
Total revenues                         $  4,141     $    280     $    349    $    267    $     --     $  5,037
Total cost of revenues                    1,213          119          202         214                    1,748
                                       --------     --------     --------    --------    --------     --------
Segment profit                            2,928          161          147          53                    3,289
General and administrative expenses                                                        (2,028)      (2,028)
Interest income, net                                                                          194          194
Impairment charge                                                                          (3,814)      (3,814)
Income tax benefit                                                                            812          812
                                       --------     --------     --------    --------    --------     --------
Net income (loss)                      $  2,928     $    161     $    147    $     53    $ (4,836)    $ (1,547)
                                       ========     ========     ========    ========    ========     ========

Total assets                           $ 35,474     $     57     $     97    $    577    $ 60,545     $ 96,750
                                       ========     ========     ========    ========    ========     ========

Capital expenditures                   $     --     $     --     $     49    $     57    $  1,811     $  1,917
                                       ========     ========     ========    ========    ========     ========

Depreciation and amortization          $     --     $      4     $     17    $     60    $     63     $    144
                                       ========     ========     ========    ========    ========     ========
</TABLE>



                                       43
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12. SEGMENT REPORTING (CONTINUED)

                                      2001

<TABLE>
<CAPTION>
                                      Real Estate                 Cattle
                                        Sales        Rental       Sales        Other     Corporate      Total
                                      -----------   --------     --------    --------    ---------    --------
<S>                                    <C>          <C>          <C>         <C>         <C>          <C>
Total revenues                         $  5,835     $    346     $    393    $    257    $     --     $  6,831
Total cost of revenues                    2,362          130          219         233                    2,944
                                       --------     --------     --------    --------    --------     --------
Segment profit                            3,473          216          174          24                    3,887
General and administrative expenses                                                        (1,268)      (1,268)
Interest income, net                                                                        1,295        1,295
Impairment charge                                                                          (7,200)      (7,200)
Income tax benefit                                                                          1,352        1,352
                                       --------     --------     --------    --------    --------     --------
Net income (loss)                      $  3,473     $    216     $    174    $     24    $ (5,821)    $ (1,934)
                                       ========     ========     ========    ========    ========     ========

Total assets                           $ 41,651     $     58     $    110    $  1,033    $ 55,152     $ 98,004
                                       ========     ========     ========    ========    ========     ========

Capital expenditures                   $     --     $      7     $     87    $     71    $  2,599     $  2,764
                                       ========     ========     ========    ========    ========     ========

Depreciation and amortization          $     --     $      6     $     14    $     68    $     59     $    147
                                       ========     ========     ========    ========    ========     ========
</TABLE>


13. SUBSEQUENT EVENT

In January 2003,  the Company  acquired the assets of  Millennium  International
Sports &  Entertainment,  LLC  ("Millennium"),  which  consisted  of sports  and
entertainment memorabilia. In consideration for the assets received, the Company
will issue shares of its common stock if certain  revenue  levels related to the
sales of the memorabilia  are attained by certain dates. If revenues  related to
the sales of the memorabilia equal or exceed $8 million by December 31, 2003, an
aggregate of 350,000 shares of the Company's common stock would be issued to the
former  members of  Millennium.  Additionally,  the former  members of Millenium
excecuted one year employment contracts with the Company.  Significant aggregate
terms of the employment contract include (i) $240,000 of base salary (ii) 15,000
shares of the  Company'  common  stock,  issuable  immediately  and (iii) 35,000
shares of the Company's common stock, issuable upon the attainment of $1 million
of sales of  the  memorabilia  by  March 31, 2003, which is not  expected  to be
achieved.



                                       44

<PAGE>


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURE.  None

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16 (a) OF THE EXCHANGE ACT.

         The  following  table sets forth  certain  information  with respect to
executive  officers  and  directors  of the  Company  and its  subsidiary  as of
December 31,2002.

Name                    Age       Position Held
----                    ---       -------------
Yoshihiro Kamon          40       Director and President and of Surety

Howard R. Knapp          56       Director and Chief Financial Officer of Surety
850 Fort Plains Road
Howell, NJ 07731

Stuart D. Tauber, M.D.   70         Director
2003 Timber Trail
Asheville, N.C. 28804

Masahiro Kume            42       Chairman, Pres. And Director of
66-1309 W. Ko Uka Court           Surety Kohala
Waimee, HI 96743, USA

Michael Gomes            54       1st Vice President of Surety Kohala
PO Box 562
Kapaau, HI 96775 USA

Duana Kanuha             54       2nd Vice President of Surety Kohala
PO Box 6532
Hilo, HI 96721

Herman Fernandez         39       Secretary and Treasurer of Surety
                                  Kohala

YOSHIHIRO KAMON. Mr. Kamon holds a B.A. degree in economics from Konan
University. In addition to being the President and sole Director of the Company,
Mr. Kamon has served, from 1996 to 1999, as the Executive Senior Vice President
of Surety Kohala and Executive Director of Chalon Corporation, in which
positions he was responsible for general business administration, finance
planning, budgeting, negotiations with commercial banks and property management.
From 1988 to 1996, he was a director of Chalon Corporation and Special Assistant
to Shoichi Kamon, Chairman and President of Chalon Corporation. From 1988 to
1999, Mr. Kamon was the President of Surety Kohala, responsible for management
of Surety Kohala's property on the Island of Hawaii. He was also the Director of
the Shanghai International Airport Hotel and restaurant and a Director of Chalon
Hong Kong from 1986 to 1996. Mr. Kamon is the brother-in-law of Mr. Kume.

HOWARD R. KNAPP. Having joined the Company in January 1999, Mr. Knapp has served
as the Company's Chief Financial Officer since January, 2000. From June 1998 to
January 1999, Mr. Knapp served in the Operations Department of Barron Chase. Mr.
Knapp served as Senior Vice President of Meridian Equities Company from 1996 to
July 1998. Previously, Mr. Knapp worked in the securities industry for over 30
years in various corporations, including trader, bank manager and principal in
various offices. Mr. Knapp received a B.S. degree in economics from St. Peter's
College in 1974.

STUART D. TAUBER,  M.D.  Since 1999 Dr.  Tauber has been a principal in Mountain
Diabetes & Endocrine Center in Asheville, North Carolina and President of Stuart
D. Tauber,  M.D.  professional  Association from 1973 to present. He is a former
president of The American Diabetes Association, North Carolina (1977-1978) and a
featured  speaker at medical  seminars.  Dr. Tauber  received his B.A. from Yale
University in 1955 and  graduated  from the  University of Pittsburgh  School of
Medicine in 1960.  He was Assistant  Professor of Medicine at the  University of
Texas Southwestern  Medical School from 1966-1972.  Dr. Tauber has thirty years'
experience in small company development.

MASAHIRO KUME. Mr. Kume joined Chalon Restaurants Corp. in 1979 and in 1989 he
became special assistant of Shoichi Kamon, Chairman and CEO of Chalon Group. Mr.
Kume has been involved in the development and management of Chalon Group's
resort projects, and is presently involved in the development of a networking
system for integrated resort management. In 1995 Mr. Kume was appointed a
director of Chalon Corp., Inc., a Japanese corporation, which operates
approximately 40 restaurants, 5 hotels and a resort facility, and was appointed
Chairman of Board of Surety Kohala in December 1999 and President in April,
2001. From 1990 to 1995 Mr. Kume was the Manager of the Division

                                       45
<PAGE>

Development Division of Chalon International (Japan). Mr. Kume is the
brother-in-law of Mr. Yoshihio Kamon.

MICHAEL GOMES. Mr. Gomes was born in and is a lifetime resident of Kohala,
Hawaii. He was employed by the Mauna Lani Resort as a project manager before
joining Surety Kohala in 1990. He was appointed First Vice President of Surety
Kohala in December, 1999.

DUANE KANUHA. Mr. Kanuha was the former Planning Director of county of Hawaii
and has extensive working experience in governmental entities in the State of
Hawaii. From 1992 to the present Mr. Kanuha has been employed by Surety Kohala.
He was appointed Second Vice President of Surety Kohala in December, 1999.

HERMANN FERNANDEZ. Mr. Fernandez joined Surety Kohala in 1989, and has served as
its Chief Financial Officer. Mr. Fernandez has a BS Degree in accounting from
the University of Washington and was employed by the United States Internal
Revenue before joining Surety Kohala. He was appointed as Secretary and
Treasurer in December, 1999.

Yoshihiro Kamon has not filed a report pursuant to Section 16(a) of the Exchange
Act.

The Company does not have any employment agreements with its executive officers.

ITEM 10. EXECUTIVE COMPENSATION.

The table below summarizes the compensation awarded to, earned by or paid to the
named executive  officer for services  rendered to the Company in all capacities
for the years ended  December 31, 2002,  2001,2000 by each person serving as the
Company's Executive Officers in the years ended December 31, 2002, 2001, 2000.


                                                      Long Term
                                                    Compensatsion
                                                       Awards
                                                     Securities
                             Annual Compensation     Underlying
                             --------------------   Options/SARs
Name               Year      Salary($)   Bonus($)        #
----               ----      ---------   --------   ------------
Yoshihiro Kamon    2002      $68,0000
                   2001          0
                   2000          0

Masahiro Kume      2002      $118,200
                   2001      $118,200
                   2000      $118,200

Hermann Fernandez  2002      $ 62,904
                   2001      $ 62,904
                   2000      $ 62,904

                                       46
<PAGE>

Mike Gomes         2002      $ 72,960
                   2001      $ 72,960
                   2000      $ 72,960

Duane Kanuha       2002      $ 88,224
                   2001      $ 88,224
                   2000      $ 88,224


Howard R. Knapp    2002      $120,000
                   2001          0
                   2000          0

Currently compensation remains at the same rate, but may change in the future.

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANGEMENT  AND
RELATED STOCKHOLDER MATTERS.

         The following  table sets forth  information  regarding the  beneficial
ownership,  as  defined in  applicable  regulations,  of our common  stock as of
December 31, 2002, by the following individuals or groups: each person or entity
who is known by us to own  beneficially  more than 5% of our outstanding  stock;
each of the Named  Executive  Officers;  each director of the Company;  and, all
directors and executive officers as a group. Except as otherwise indicated,  and
subject to applicable  community  property  laws, the persons named in the table
below have sole voting and investment power with respect to all shares of common
stock held by them.

Name of                     No. of Shares          Percentage
Owner                   Beneficially owned(2)       of Class
-------                 ---------------------      ----------
Yoshihiro Kamon(1)           6,270,000                  93
1-608 2572 Shinohara
Kohoku
Yokohama, 2220026 Japan

Mahukona Holdings Corp(1)    6,270,000                  93
680 Mission Street
Apt 33L
San Francisco, California 94105

Directors/Officers           6,270,000                  93
8 as a group


(1)  Yoshihiro Kamon individually owns 270,000 shares (2) directly and by virtue
     of his ownership  interest in Mahukona  Holdings  Corp. may be deemed to be
     the beneficial owner of

                                       47
<PAGE>

6,000,000 shares (2) owned by Mahukona Holdings Corp.

(2) Retroactively restated to give effect to a February 2002 two hundred percent
(200%) stock dividend.

Yoshihiro Kamon and his immediate family directly and indirectly maintain voting
control of Mahukona Holdings Corp.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         In  October  1998,  Yoshihiro  Kamon  acquired  90% of the  issued  and
outstanding  shares of the Company from a shareholder  in exchange for $150,000.
Thereafter in September, 1999, the Company entered into an Agreement and Plan of
Merger and Reorganization,  with Surety Kohala ., a Hawaii corporation  ("Surety
Kohala"),  whereby  Surety  Kohala would be merged into a  subsidiary  of SURETY
HOLDINGS  CORP.,  and become a  subsidiary  of Surety.  The  Company  issued two
million  shares of its common  stock,  $.001 par  value,  to  Mahukona  Holdings
Corp..,  the shareholder of Surety Kohala, as and for the consideration for this
acquisition.  The  Articles of Merger were filed with the  Secretary of State of
Hawaii on December 29, 1999.  Mr. Kamon was President of Surety Kohala from 1988
to 1999, and was Executive Director and Vice President of Chalon Corp. from 1988
to 1999.  Masahiro Kume,  Chairman of Surety Kohala,  is Mr. Kamon's  brother-in
law.

         During 2001 and 2000,  the  Company's  President  advanced  the Company
$447,00,  pursuant to one year 5% promissory  notes.  During 2002 and 2001,  the
Company repaid the President $354,000 and $93,000. At December 31, 2002, nothing
was owed  pursuant to the notes.  Related  interest  expense for the years ended
December 31, 2002 and 2001 is approximately $7,000 and $18,000, respectively.

Conflicts

         Certain  Officers,  directors and shareholders of Surety Holdings Corp.
and Surety Kohala Corporation may also be officers directors and shareholders of
other  companies  with which  Surety  does  business  or that engage in the same
business as Surety.  Moreover,  other companies may have entered into contracts,
agreements,  arrangements  or  otherwise  do business  with  Surety  which would
benefit certain of Surety's officers, directors and/or shareholders.

         Yoshihiro  Kamon and his immediate  family  directly and indirectly own
40% of Marine Forest Resort, Inc. Although individuals and/or entities which are
related to Surety own directly or indirectly 40% of Marine Forest Resort,  Inc.,
the balance of Marine Forest i.e., 60% is owned by non-related parties.

         Pursuant to  uncollateralized  promissory  notes,  the Company advanced
Marine Forest, a related Japanese  corporation that owns approximately 400 acres
of land in Okinawa,  Japan,  $9.75 million.  The notes bear interest at the U.S.
prime rate, at date of issuance,  plus one percent.  Under their original terms,
the notes were due six months  after date of issuance.  However,  the notes were
extended an  additional  six months and  subsequently  extended to December  31,
2002. as a concession to Marine Forest to advance  Marine  Forest's  development
projects.  Marine Forest's current  development  plans are based upon a recently
completed  study  prepared by a consultant for the Kohala  Preserve  development
plan. The company believes that Marine Forest may sell its development  projects
based on the aforementioned study and repay the notes and interest thereafter.

As of December 31, 2002, the notes remain outstanding.  Further,  since issuance
of the notes, no interest has been paid to the Company. Accordingly,  during the
years ended  December 31, 2002 and 2001, in light of the  speculative  nature of
Marine Forest's  development projects among other reasons and in accordance with
its compliance with the  requirements  of SFAS No. 114, the Company  recorded an
impairment charge of approximately $3.8 million and $7.2 million,  respectively,
including  approximately $1.3 million of aggregate accrued interest  receivable.
During the year ended  December  31,  2002,  the Company  discontinued  accruing
interest income on the notes in light of its impairment charge.

                                       48
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         None

                                       49

<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934, the Registrant has duly caused this Form 10-KSB to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                                SURETY HOLDINGS CORP>


Dated:  April 15, 2003                               /s/ Yoshihiro Kamon
                                                     ------------------------
                                                     Yoshihiro Kamon
                                                     President and Director


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 dates indicated.


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


                                                By:  /s/ Stuart D. Tauber
                                                ---------------------------
                                                Dr. Stuart D. Tauber, Director

<PAGE>

                                 CERTIFICATION

I, Yoshihiro Kamon, certify that:

         1. I have reviewed this annual report on Form 10-KSB of Surety Holdings
Corp.

         2. Based on my knowledge,  this  quarterly  report does not contain any
untrue  statement of a material fact or omit to state a material fact  necessary
to make the  statements  made,  in light of the  circumstances  under which such
statement were made,  not misleading  with respect to the period covered by this
annual report;

         3. Based on my knowledge,  the financial statement, and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         a.  designed  such  disclosure  controls and  procedures to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

         b. evaluated the effectiveness of the registrant's  disclosure controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
annual report (the "Evaluation Date");

         c.  presented  in  this  annual  report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evalutation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a. all significant  deficiencies in the design or operation of internal controls
which  could  adversely  affect the  registrant's  ability  to record,  process,
summarize and report  financial data and have  identified  for the  registrant's
auditors any material weaknesses in internal controls; and

b. any  fraud,  whether  or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and

6. the  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most re cent  evaluation,  including any  corrective  actions
with regard to significant deficiencies and material weaknesses.

Dated:   April 15, 2003                      /s/ Yoshihiro Kamon
                                                 President and Director
<PAGE>


                                 CERTIFICATION

I, Howard R. Knapp, certify that:

         1. I have reviewed this annual report on Form 10-KSB of Surety Holdings
Corp.

         2. Based on my knowledge,  this  quarterly  report does not contain any
untrue  statement of a material fact or omit to state a material fact  necessary
to make the  statements  made,  in light of the  circumstances  under which such
statement were made,  not misleading  with respect to the period covered by this
annual report;

         3. Based on my knowledge,  the financial statement, and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         a.  designed  such  disclosure  controls and  procedures to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

         b. evaluated the effectiveness of the registrant's  disclosure controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
annual report (the "Evaluation Date");

         c.  presented  in  this  annual  report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evalutation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a. all significant  deficiencies in the design or operation of internal controls
which  could  adversely  affect the  registrant's  ability  to record,  process,
summarize and report  financial data and have  identified  for the  registrant's
auditors any material weaknesses in internal controls; and

b. any  fraud,  whether  or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and

6. the  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most re cent  evaluation,  including any  corrective  actions
with regard to significant deficiencies and material weaknesses.

Dated:   April 15, 2003          /s/ Howard R. Knapp
                                     Chief Financial Officer and Director