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, 2003


  [ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934
                For the transition period from 1/1/03 to 12/31/03
                        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) 409-0113
       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

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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

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 $11,737,000

The aggregate  market value of Surety Holding  Corp.'s voting common equity held
by  non-affiliates  was  approximately  $1,100,000 at April 7, 2004 based on the
average bid and asked price.

As of April 1, 2004 6,753,000  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 to Chalon  International  of
Japan  (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 the 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 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),  which were transferred from
Chalon International of Japan. 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   subsidiary,   Surety   Kohala   Corporation,
(collectively,  the  "Company")  are  primarily  engaged in the  development  of
approximately  642 acres of property 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
modifying  the project for its  inclusion of a "hotel  concept".  The Company is
working  with  consultants  to study the  various  options for  structuring  the
project along with the necessary financial

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and funding strategy. Finalization of the components of this development project
has not yet commenced.

During the past five (5) years, the Company's income has been 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  $5.7 million as of December 31, 2003.  In addition,  the
Company refined the Kohala Preserve development project, the approvals for which
had been obtained in 1993. In the future,  however,  the Company may not be able
to maintain compliance with all applicable  conditions of the approvals,  unless
significant  funds are secured for planning,  design,  and  construction  of the
project as represented.

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 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,  operation,  and  maintenance  of the hotel,
resort and golf course,  environmental  and other land use issues may arise. The
Company has  anticipated  the need to comply with such  environmental  and other
land use laws and developed  strategies  to address  them.  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 are 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. Therefore, the Company is attempting to develop a unique
product.

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,   transitional
political/legal environments,  and changing federal, state and local regulations
pertaining to property development.

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(b) BUSINESS OF SURETY

I. SURETY KOHALA

Surety  Kohala owns  approximately  13,800 acres of fee simple land in the North
Kohala district of Hawaii Island (The Big Island),  in the State of Hawaii, USA.
In December 1988,  Surety Kohala was  established in Hawaii to acquire,  own and
develop  vacant  land in North  Kohala  (the  "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 over 100 years  until the
mid 1970's when the operation  was closed.  After the cessation of sugar growing
operations  there were no major activities on the land, which was left fallow or
in  pasturage.  In December  1988,  Surety  Kohala  acquired the Kohala Land. In
addition,  Surety Kohala  acquired 232 acres in September 1989, and 164 acres in
December  1991 for the  expansion  of the Kohala  Preserve  development  project
(discussed in further detail below).

GENERAL LOCATION INFORMATION

The State of Hawaii  was  admitted  to the union 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, Hawaii
Island's  nickname  the "Big Island"  fits  perfectly.  At 4,028 square miles in
size,  the Big  Island is larger  than the State of  Connecticut,  USA.  The Big
Island is the youngest island in the chain and is the southernmost  point of the
United States.

Hawaii Island is almost a "Mini Continent" in itself,  offering  everything from
active  volcanoes to quiet sandy  beaches;  from dense  tropical  rainforests to
verdant  pasturelands.  A large variety of marine life flourishes along Hawaii's
shores.  Mauna Kea,  the  island's  tallest  mountain at 13,736  feet,  provides
astronomers  with the premier  location in the world for their work. The diverse
ethnic  backgrounds  of the  Big  Island's  residents  create  an  exciting  and
fascinating blend of cultural heritages.

The coastline  between  Keahole-Kona  International  Airport and the district of
North  Kohala  is  referred  to as the  "Kohala  Gold  Coast."  It was  Lawrence
Rockefeller who first realized the potential of this coast when he developed his
favorite  retreat at the Mauna Kea Beach Hotel in the 1960's and  Governor  John
Burns who spearheaded the need for a major coastal highway,  the Queen Kaahumanu
Highway,  to connect  Kailua-Kona to Kawaihae.  The major resorts located within
the Gold Coast region are the Mauna Kea Resort to the north,  Hualalai/Kukio  to
the south,  and the Mauna Lani  Resort and  Waikoloa  Beach  Resorts in between.
Within this area are 3,618 visitor accomodation units to

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choose from, including condos,  oceanfront suites, ocean-side villas, bungalows,
thatched huts, and private vacation homes.  Resort sport and fitness  facilities
include over 55 tennis courts, 7 championship golf courses, 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.

Surety  Kohala's  Kohala Land is located in the  district of North Kohala at the
northern end of the island of Hawaii.  This island jewel with its mild  weather,
untouched natural features,  unsurpassed scenery and deep historical and culture
values could become one of the world's leading health resort locations. Within a
20-minute  drive of Surety  Kohala's land is the famous Kohala Gold Coast resort
area.

Surety  Kohala's land in Kohala was formerly  owned by Castle and Cooke,  one of
Hawaii's  oldest and largest  corporations,  whose Dole Food label is well-known
across the nation. A sugar plantation  existed for over 100 years on these lands
before increased  competition and rising costs forced its closure in 1975. Since
that time, no  large-scale  economic  activity has been  developed  within North
Kohala to replace the loss of the sugar industry. The various villages of Kohala
create an aggregate  population  of about 6,000 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-term  importance of resolving  environmental
issues is an ever increasing consideration and commitment.  During discussion of
the global  environment,  land  development  is frequently  considered to be yet
another of man's burdens placed upon Earth's natural eco-systems.  This idea was
anchored  in  previous  experience  with  developments  that  generally  had not
included a specific concern for future cultural and human impacts. The 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 and its host cultures.

Surety Kohala  decided the best way to understand  their newly  acquired  Kohala
Land was to seek involvement from the local community  through open dialogue and
exchange of ideas. A group of local citizens, representing a broad cross section
of the Kohala community,  was gathered and the Citizens Participation  Committee
(CPC) was formed to  encourage  and  enhance  communications  and assist  Surety
Kohala in  understanding  the land and people.  To  facilitate  the  exchange of
information,  the CPC was broken  down into 6  sub-committees:  Housing,  Public
Infrastructure/Recreation,  Historic Sites,  Agriculture,  Commercial/Industrial
Land Use, and Natural Resources/Environmental Quality.

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With these valuable  insights into the land and local  community,  Surety Kohala
may  develop  a new  type  community  utilizing  eco-management  of the  natural
environment  of Kohala.  In essence,  this plan means more than just  building a
resort. Currently, it may integrate an existing community with a new development
plan for the  approximately  13,800 acres of land. The plan 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.  Surety has not decided how many acres will be set aside for
farming,  historical assets and commercial business  institutions.  The detailed
plan will be  decided  based on the  continuously  evolving  national  and local
economic conditions.

Surety  Kohala has  already  acquired  the  necessary  governmental  development
approvals (as discussed  later) for resort  development  at the Mahukona area of
the Kohala Land. As part of the company's  planned Kohala Preserve  development,
Mahukona will be the flagship  facility for the master plan for the Kohala Land.
The  visitors  and owners of Surety  Kohala's  developments  may expect to enjoy
sophisticated  facilities for dining, sports and relaxation during their stay in
Kohala.

It is anticipated  that overall land values for the Kohala Land will be enhanced
by the company's proposed multi-faceted development plan.

KOHALA PRESERVE RESORT DEVELOPMENT:

DEVELOPMENT  CONCEPT

The Kohala Preserve property  consists of approximately  3,906 acres of land, on
two  separate  sites - 642 acres of ocean front land at Mahukona and 3,264 acres
of ranch and  rainforest  east of Hawi.  The sites are a 15-minute  drive apart.
Surety  Kohala has acquired  governmental  approvals  for the  development  of a
hotel,  an 18-hole golf course,  and residential  estate lots at Mahukona.  With
Mahukona's  resort  permitting in place,  and general  community and  government
acceptance,  Kohala  Preserve is a valuable  and  critical  component  of Surety
Kohala's overall  development plan strategy.  In keeping focused on an eco-based
theme for the master plan, and working  towards Surety Kohala  corporate  goals,
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.

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In response to changes in the US and Hawaii  economic  conditions,  competition,
and available  financing,  Surety Kohala is revising its development master plan
for  Kohala  Preserve.  Surety  Kohala  had  retained  a market  assessment  and
feasibility consultant with extensive knowledge and experience in the resort and
second home market on the Big Island.  Surety  Kohala  believes that the highest
and best use for the  Kohala  Preserve  property  is as a high-end  real  estate
oriented  project  with  a  mix  of  whole-ownership   and   fractional-interest
residential real estate products and unique and diverse recreational  amenities.
This  development  concept is  intended to create  significant  value for Surety
Kohala's Kohala Land holdings.

KOHALA  PRESERVE,  MAHUKONA  SITE:  Mahukona  includes  642 acres on the leeward
(west) coast of the North Kohala  district.  The property  includes 1.4 miles of
spectacular  oceanfront,  and a  dry  savanna-like  environment  cooled  by  the
prevailing  trade winds.  It is located  about 20 minutes north of the Mauna Kea
resort and 45 minutes north of the Keahole-Kona International Airport.

     The Mahukona site plan may include a  combination  of  whole-ownership  and
     fractional-interest   units  (both  attached  and   detached),   with  very
     attractive and extensive recreation amenities.

     Residential product may include:

          Premier custom home sites;

          Large high-end detached "estate" homes;

          A variety of luxury condominium units.

     Recreation amenities may include:

          An   attractive   central   lodge   building   housing   the   central
          check-in/administrative  center  for the  resort,  a small  number  of
          overnight   suites,   several   restaurants,   a   small   convenience
          store/bakery;

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

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

          A high quality tennis complex;

          Extensive trails along the attractive waterfront areas;

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

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     KOHALA PRESERVE, MAUKA RANCH AND FOREST: The ranch and forest preserve site
     encompasses 3,264 acres. Located east of the town of Hawi, it includes land
     that was  previously  used for sugar cane  production,  but is now used for
     cattle ranching, limited macadamia nut orchards and open space. Situated on
     the  windward  side of the island,  the site  receives  significantly  more
     rainfall than the Mahukona area. It is, therefore,  green, lush,  partially
     forested, and has many streams, pools, and waterfalls.

     The Mauka  Ranch  site plan may  include a variety of  improvements  to the
     existing ranch,  including development of a 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  activities  for Kohala  Preserve
     owners  and  members.  Activities  and  amenities  may  include  equestrian
     facilities,  hunting,  ATV's, mountain biking,  hiking, forest restoration,
     etc.

GOVERNMENTAL APPROVALS FOR DEVELOPMENT

Surety  Kohala  has  acquired  the  following   government   approvals  for  the
development of Kohala Preserve:

     State Land Use Boundary Amendment: Amendment to the State Land Use Boundary
     Map from  Agricultural  to  Urban,  14.3  Acres.  (Ord.  #93-113  effective
     November 8, 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).  (Ord.  93-109  effective  November  8,
     1993).

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

     Golf Course Use Permit:  The Planning  Commission  approved Golf Course Use
     Permit No. 111, effective 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.

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With these approvals, the acreage breakdown by zoning for the 642 acres is:

          ------------------------------------ ------------------
                        V 2.0 (Resort)           14 Ac.
          ------------------------------------ ------------------
                   A-1a (Agriculture, 1-acre)   267 Ac.
          ------------------------------------ ------------------
                   A-5a (Agriculture, 5-acre)   311 Ac.
          ------------------------------------ ------------------
                          Conservation           39 Ac.
          ------------------------------------ ------------------
                              O (OPEN)           11 AC.
          ------------------------------------ ------------------
          TOTAL:                                642 Acres
          ------------------------------------ ------------------




Summary:  A brief description of each type of land use designations  referred to
above is as follows:

     V2.0: "V" stands for county  designation,  resort. 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 311 units. The height limit in this
     zone is 45 feet.  The minimum  building  site in the "V" district is 15,000
     square feet.

     A-1a/A-5a,Ag.1: "A" stands for county designation,  agriculture. The number
     following  the "A" together with the lower letter "a" indicates the minimum
     number of acres 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.

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

     Conservation District:  The "Conservation  District" is not a County Zoning
     designation;  it is a designation  by the State of Hawaii.  Uses within the
     Conservation District are under the jurisdiction of the State Board of Land
     Natural Resources.

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OFF-SITE UTILITIES & INFRASTRUCTURE

Water.  Although  other  developments  in Hawaii  suffer  from  shortage of both
potable  (drinkable)  and irrigation  water,  North Kohala is very rich in water
resources.  Potable  water will be supplied via pipelines to the site from wells
near Hawi.  Irrigation water will be supplied from the Kohala Ditch Water System
(which  formerly  supplied  irrigation  water to the sugar cane  plantations  in
Kohala).

Electricity. Surety Kohala has been negotiating with the local power utility and
has been assured of sufficient system capacity to serve Kohala Preserve.

Sewage.  Preliminary  design plans have been  completed  for  government  agency
review.

Highway.  Preliminary  design plans have been  completed for  government  agency
review.

EXPECTED CONSTRUCTION COST AND CASH FLOWS (US$)

In February  2004,  the  Company  received a cash flow  projection  report for a
proposed  resort  development,  exclusive of a hotel. In early 2003, the Company
received a  projected  cash flow for the resort  development  including a hotel.
Management is considering both reports in determining its future development and
funding  strategies.  Assuming a development  project  including a hotel,  condo
units  (fractional  and whole  ownership),  house lot and home  sales and a club
(golf, spa and ranch),  the projections  reflect that the total net undiscounted
cash  flows  over 10  years  could be  approximately  $259  million  (discounted
approximately  $70  million).  The  breakdown of this net cash flow would be $60
million for the condos,  $132 million for the house lots and homes,  $26 million
for the golf/club,  and $40 million for the hotel.  The net cash outflow for the
first year could be  approximately  $40 million,  second year $43  million,  and
thereafter  each year it is  anticipated  that it could be a positive cash flow.
Without a hotel, the net undiscounted  cash flow shows $230 million  (discounted
approximately $100 million).  First year's cash outflow could be $21 million and
could be positive each year thereafter.

The reports also estimate that the total  additional  project-wide  and off-site
costs could be approximately  $19.7 million and could all be incurred within the
next two years. The anticipated  additional on site costs could be approximately
$139  million  and will be  incurred  within  the next ten  years.  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.  The  Company may not be  successful  in
overcoming all or some of the risks associated with real estate development

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There is also 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. These
competitors are larger,  have  established  name  recognition,  and have greater
resources available 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 a sandy beach, lack of
commercial facilities,  lack of area restaurants, or lack of critical supporting
commercial facilities.

However, a strength of the Kohala Preserve  development project is its excellent
oceanfront  location,   dramatic  coastline  and  ocean  views,  its  government
entitlements  and fee simple  ownership,  and it's distinct  separation from the
hustle and bustle  typical of the older,  more  populous  resorts along the Gold
Coast. 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).  Located within the Mauna Kea Resort, this
is the very first  resort  hotel to open along the Kohala Gold  Coast.  This was
Lawrence S.  Rockefeller's  retreat and now houses an  extensive  collection  of
Asian/Pacific  art. Recently  remodeled the hotel overlooks a beautiful and rare
crescent of white sand beach.

Hapuna  Beach Prince  Hotel -- (350  Rooms).  Also located  within the Mauna Kea
Resort, the Hapuna Prince opened in 1994 on one of the island's best beaches. It
is Mauna Kea's sister hotel and the two properties share reciprocal  privileges.
The  showpiece  unit of this hotel is an 8,000 square foot,  four-bedroom  suite
with its own swimming pool.

Mauna Lani Bay Hotel -- (350 Rooms). Located on the Mauna Lani Resort, a refined
atmosphere  permeates this hotel whose rooms have been  redecorated in shades of
white with linen and cotton, along with teak furnishings.  Detached,  $4,000 per
night bungalows comes with a butler, limo and private pool.

Fairmont  Orchid - (542  Rooms).  Located on the Mauna Lani  Resort,  this hotel
opened in 1992.  Utilizing many  distinctive  architectural  and interior design
concepts  from  early  20th  century  Hawaii,  it  achieves  an air  of  genteel
distinction. A private, man-made beach lagoon was created for this property.

                                       12
<PAGE>


Hilton Waikoloa -- (1,240 Rooms). Located on the Waikoloa Beach Resort, children
especially  love this resort hotel,  whose 62 acres can be traversed by monorail
or boat.  There is a swimming  pool nearly an acre in size with a 175 foot water
slide and a four-acre  beach lagoon where  visitors can  experience an encounter
with dolphins.

Waikoloa  Beach  Marriott - (525  Rooms).  Located on  Anaehoomalu  beach in the
Waikoloa  Resort,  this property  sits amongst  extensive  beaches,  fascinating
ancient Hawaiian fish ponds, and groves of coconut palms.

Four Seasons Hotel -- (243 Units). The Big Island's newest hotel at the Hualalai
Resort features 32 low-rise bungalows along the ocean, each housing six or eight
guest  rooms  plus four golf club  bungalows  along the golf  course.  The rooms
breathe 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 Kohala Gold Coast, offer visitors a total
of 126 holes with a view:

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.

The  Hapuna  Golf  Course is a unique,  environmentally  sensitive,  links-style
course.  It offers the golfer a great  challenge  along with sweeping  panoramic
views of the Kohala Coast and the volcanic peaks of the Big Island.

Mauna Lani North & South Courses. Characterized by rolling terrain and groves of
kiawe  (mesquite)  trees,  these  courses  are built on  ancient  lava flows and
contrast between green turf and black lava is spectacular.

Waikoloa  King"s and Beach Courses.  The King's Course  features six major lakes
and approximately 75 bunkers. The sophisticated bunker strategy and multiple tee
placements work together to create a challenging and fun course.

Four Seasons Hualalai Golf Course.  This private Nicklaus'  designed golf course
was crafted with extreme  sensitivity  to the land.  This  meticulously  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.

                                       13
<PAGE>


Kukio Resort.  The Kukio resort  recently  completed two (2) private  membership
courses  designed by Tom Fazio; a 10- hole executive course in the makai project
area, and an 18-hole course in the mauka lands. Both courses are for the private
use of Kukio members, owners and guests.

II.  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, 2003, 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 February  2004,  the Company  executed a  promissory  note for an  additional
$200,000  advanced by the Company to Marine  Forest for the real estate taxes on
the property.  The one year note carries interest of 5% per annum and is payable
on March 1, 2005.

III. INTERMOST CORPORATION ("INTERMOST")

On January 8, 2004,  the Company  entered into a letter of intent with Intermost
Corporation  whereby Intermost acquired 100% of the issued and outstanding stock
of a  wholly  owned  subsidiary  of  Surety.  The  consideration  to be  paid by
Intermost  to the Company is 40 million  shares of Intermost  restricted  common
stock.  Intermost  primarily  focuses on the private equity  exchange  business,
through  which  equities  and other assets of privately  held  companies  can be

                                       14
<PAGE>


traded  over-the-counter  with  authorized  exchanges in China.  The  subsidiary
corporation  of Surety is the owner of real  property  in  Hawaii,  whereby  the
Company  guarantees that the property to be designated will realize no less than
$8 million  proceeds  for  Intermost  in the sixty month  period  following  the
closing of the  transaction.  This  transaction is subject to the execution of a
definitive  agreement  and various other  conditions,  including a due diligence
review.  Accordingly,  there can be no assurances that this proposed transaction
will be consummated.

Intermost  utilized  approximately  $4.8 million in cash for  operations for the
year ended June 30, 2003. It is anticipated that Surety will not need to advance
monies to this entity for its  operations  in 2004.  There can be no  assurances
that money will not be required by Intermost for its 2004  operations or will it
be successful in raising funds that may be necessary.

IV.  ASIAN BUSINESS DEVELOPMENT

In January 2004,  the Company began  pursuing  another Asian  business  venture,
which is  intended to  encourage  Asian based  businesses  and to invest  and/or
operate in the Pittsburgh  area.  Surety has been issued 100% of the outstanding
membership units of Surety Pittsburgh Development, LLC (SPD). Surety Pittsburgh,
LP (SP) is the Pittsburgh  operating entity whereby Surety has been issued a 99%
limited  partnership  interest  in SP and  SPD  has  been  issued  a 1%  general
partnership  interest in SP. The Company  segregated  $1.2 million through March
2004 for this venture and may be required to advance more monies  depending upon
the  success  of  developing  other  business  partners  for  this  venture.  No
commitment has been made to increase these designated funds.

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 a limited operating
history.  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.

                                       15
<PAGE>


OUR REVENUES 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  significant
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 VOLATILE.

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 meet  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.

                                       16
<PAGE>


SIGNIFICANT CONTROL OVER THE REGISTRANT

The  former  President,  now a  consultant  to the  Company,  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.

The shares  owned  directly  or  indirectly  by the  consultant,  however,  were
transferred  from its former  owner prior to a bankruptcy  proceeding  in Japan.
Were the Bankruptcy  Trustee to initiate a proceeding,  of which the Company has
no knowledge,  and successfully  pursue a claim for recovery of the shares, then
the control of the Company  would  change,  with  possible  consequences  to the
shareholders.

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  that  may  have an  adverse  affect  on  real  estate
development.

                                       17
<PAGE>


DEVELOPMENT OF BUSINESS.  Our primary 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.

UNDEVELOPED  LAND. The real property owned by us consists of undeveloped land to
be developed as a resort and golf courses,  with a portion to be subdivided  and
sold as lots. Land yet to be developed  involves more risk than the purchase and
ownership  of  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 and other land use approvals
required  for  developing  the  property  as  contemplated  herein.   Additional
approvals  are  required,  including  but not limited to approval to construct a
sewerage  treatment  plant, and no permits or approvals for platting or building
have been  obtained  to begin  development  and  construction  on the  property.
Because most of the remaining approvals are ministerial in nature,  there can be
general assurances that we will be successful in obtaining all necessary permits
and approvals, provided they are applied for and utilized in a timely manner.

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.

                                       18
<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] as well.  Careful adherence to all laws, rules and procedures are the
only assurances  that  litigation will be mitigated.  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 administrative or legislative authorities.

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  which  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.

                                       19
<PAGE>


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 generate sufficient cash
flow for the next year to meet the  ongoing  requirements,  which are  presently
anticipated.  However,  once  development  of the  resort  property  is  started
additional  funding will be needed.  There can be no assurances the Company will
be successful in raising additional funds for the development of the project.

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.

WE  INCURRED A NET LOSS AND HAVE AN ACCUMULATING DEFICIT.

For the year ended December 31, 2002 Surety had a net loss of $1,547,000.  As of
December 31, 2003,  after net income of $927,000,  our  accumulated  deficit was
$5,710,000.  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.

                                       20
<PAGE>


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 the
Company.   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.

                                       21
<PAGE>


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  13,800  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 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 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

                                       22
<PAGE>


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,  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  unless
significant  funds are secured for planning,  design,  and  construction  of the
project as represented.

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

                                       23
<PAGE>


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
(4.75% at December 31, 2003) not to exceed 15%, adjusted annually.  The mortgage
note payable at December 31, 2003 was approximately $386,000.

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 limitation 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 5,159 acres is leased for watershed  purposes at an annual rental of $28,000.
The other  parcel of 3,345  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.

                                       24
<PAGE>


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.

An action was commenced against Surety Kohala  Corporation (SKC), a wholly owned
subsidiary  of the  Company,  in August 2003,  in the US District  Court for the
District of Hawaii by a consultant to the Company  primarily  alleging breach of
contract in connection  with services to be rendered for the  development of the
Kohala Preserve Project.  The consulting firm claimed it was owed  approximately
$5.5 million and  potential  other  amounts.  Subsequent to SKC filing a counter
claim against the  consulting  firm,  SKC's law firm,  in which the  consultants
Chairman/CEO  was of  counsel,  filed a claim for unpaid  fees of  approximately
$361,000.  On April 1, 2004,  the Company  entered  into an  agreement  with all
parties,  subject  to  execution  of  definitive  documentation  by May 1, 2004,
settling  the  litigation  by agreeing to pay a total of  $1,400,000  to certain
parties by June 30, 2004. Accordingly,  the Company's financial statements as of
December 31, 2003 include an expense and a liability  of  $1,500,000,  including
related costs, for this matter.

                                       25
<PAGE>


The Company is involved in certain  other legal actions that arise in the normal
course of  business.  In the  opinion of  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.

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:


                   2003                     High          Low

                   1st Quarter             $4.50         1.01
                   2nd Quarter              2.00          .75
                   3rd Quarter              2.55         1.00
                   4th Quarter              3.00         2.55


                   2004

                   1st Quarter             $3.00         1.50


                                       26
<PAGE>


The Company has approximately 40 shareholders of record as of December 31, 2003.

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.

                                       27
<PAGE>


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

NOTE ON FORWARD LOOKING INFORMATION

This Form 10-KSB  contains  forward-looking  statements.  For this purpose,  any
statements  contained in this Form 10-KSB that are not  statements of historical
fact may be  deemed  to be  forward-looking  statements.  Without  limiting  the
foregoing,  words  such as "may",  "will",  "expect",  "believe",  "anticipate",
"estimates", or "continue" or comparable terminology or the negative thereof are
intended to identify  certain  forward-looking  statements.  These statements by
their  nature  involve  substantial  risks  and  uncertainties,  both  known and
unknown,  and actual  results  may  differ  materially  from any future  results
expressed or implied by such forward-looking  statements. The Company undertakes
no  obligation  to  publicly  update or revise  any  forward-looking  statements
whether as a result of new information, future events or otherwise.

OVERVIEW

Surety Holdings Corp. ("Surety"),  through its wholly-owned  subsidiary,  Surety
Kohala Corporation ("Surety Kohala") (collectively, with other subsidiaries "the
Company"), continues to study its proposed development plans of the 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,  was
initially  slated to be a hotel,  18-hole  golf  course  and resort  homes.  The
Company is  considering  modifying  the  project for its  inclusion  of a "hotel
concept".  There has been no finalization  of the component of this  development
project.  The Company is working with  consultants to study the various  options
for  structuring  the project  along with the  necessary  financial  and funding
strategy.  The timing of its  negotiations  with joint venture  partners  and/or
avenues of development for the 642 acres are a function of many risks. There can
be no assurances  that the Company will be  successful in overcoming  all of the
risks of  development  of the proposed  resort  property.  (See KOHALA  PRESERVE
DEVELOPMENT in Liquidity and Capital Resources).

The Company maintains an investment (notes  receivable) in Marine Forest Resort,
Inc.   ("Marine   Forest"),   a  related  Japanese   corporation  that  controls
approximately  400 acres of land in Okinawa,  Japan (see MARINE  FOREST in Other
Business Ventures for discussion of 2001 and 2002 impairment charges).

The current operations of the Company (discussed in Results of Operations on the
following pages) include the sale of its non-Kohala Preserve development project
real estate and other ancillary activities.

On January 8, 2004,  the Company  entered into a letter of intent with Intermost
Corp.  ("Intermost")  whereby  Intermost  would  acquire  100% of the issued and
outstanding  stock of a wholly owned subsidiary of Surety.  Intermost  primarily
focuses on the private  equity  exchange  business,  through which  equities and
other assets of privately  held  companies can be traded  over-the-counter  with
authorized exchanges in China. (see OTHER BUSINESS VENTURES)

                                       28
<PAGE>


CRITICAL ACCOUNTING POLICIES

The Company has  identified  the following  critical  accounting  policies which
effect the Company's  consolidated  financial statements as of December 31, 2003
and for the years ended December 31, 2003 and 2002:

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  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  obtained a raw land  appraisal  and a revised cash flow  projection
report in February 2004 to supplement  and compare to its 2003-2002  reports for
the various  options  being  considered  for  development  of the real estate in
Hawaii.

 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 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
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.

                                       29
<PAGE>


RESULTS OF OPERATIONS

The  following  table sets forth the  statements of income (loss) of the Company
for the years ended December 31, 2003 and 2002:

                                                      2003              2002

Real estate sales                                $ 10,837,000      $  4,141,000
Rentals                                               269,000           280,000
Cattle sales                                          310,000           349,000
Other                                                 321,000           267,000
                                                 ------------      ------------
   Total revenues                                  11,737,000         5,037,000
                                                 ------------      ------------
Cost of real estate sales                           5,648,000         1,213,000
Cost of rentals                                       157,000           119,000
Cost of cattle sales                                  247,000           202,000
Cost of other                                         277,000           214,000
                                                 ------------      ------------
   Total cost of revenues                           6,329,000         1,748,000
                                                 ------------      ------------
Gross profit                                        5,408,000         3,289,000

General and administrative expenses                 4,146,000         2,028,000
                                                 ------------      ------------
Income from operations                              1,262,000         1,261,000
                                                 ------------      ------------


Impairment charge                                                    (3,814,000)
Interest income                                       295,000           306,000
Interest expense                                      (23,000)         (112,000)
Income tax benefit (expense)                         (607,000)          812,000
                                                 ------------      ------------

                                                     (335,000)       (2,808,000)
                                                 ------------      ------------

Net income (loss)                                $    927,000      $ (1,547,000)
                                                 ============      ============

REAL ESTATE SALES -

For the year  ended  December  31,  2003,  the  Company  sold 36  parcels  to 18
different  buyers of properties for proceeds of  approximately  $10.8 million as
compared to the year ended  December  31, 2002 where the Company sold 10 parcels
for  proceeds  of  approximately  $4.1  million,  an  approximate  $6.7  million
increase.  In 2002, the Company had been  experiencing  closing delays caused by
the Company's survey company being backlogged with work. To address the backlog,
the  Company  switched  surveyors  on  several  projects.  Land court and county
approval  processes  (generally three months or more), which occur subsequent to
the surveying, could also contribute to a slowing in the closing process.

                                       30
<PAGE>


The  Company  anticipates  closing  real  estate  transactions  for a  total  of
approximately $12 million in 2004. The Company closed 3 transactions for a total
of $1.4 million  through  February  2004.  There can be no  assurances  that the
Company will be able to close on the balance of these  contracts in 2004, nor on
the  balance  of  additional  transactions  anticipated  to  yield a total of $5
million in 2005.

Real estate  sales  expense for the years ended  December  31, 2003 and 2002 was
approximately  52%  and  29% of  real  estate  sales.  This  increase  of 23% is
attributable to an increase in the basis for the property sold.

RENTAL REVENUES -

Rental revenues for the year ended December 31, 2003 are  approximately 4% lower
than the rental  revenues  realized for the year ended  December  31, 2002.  The
Company  believes  total rental  revenues in 2004 could  continue to decrease as
compared to total rental revenues  realized in 2003 as long as land continues to
be sold.

CATTLE SALES -

The  approximate  11%  decrease in cattle sales in 2003 is  attributable  to the
decrease in the average  price per head of cattle and the decrease in the cattle
sold. Specifically,  for the year ended December 31, 2003, the Company sold 1081
heads at an average price of approximately  $286 per head versus the same period
in 2002,  where the Company sold 1283 heads at an average price of approximately
$272 per head.  The  deteriorated  cattle  sales  margins  are  attributable  to
increased  costs  resulting from the increase in rent expense caused by the sale
and lease back of former pasturelands. Cattle sales will continue to decrease as
the Company continues to sell pasturelands.

OTHER REVENUES -

Total other  revenues  for the year ended  December  31, 2003 was  approximately
$321,000 for the year ended December 31, 2003.  This  represented an increase of
approximately 20%, as compared to the year ended December 31, 2002.

GENERAL AND ADMINISTRATIVE EXPENSES -

On an overall basis, general and administrative expenses increased approximately
$2,118,000,  or 104% for year ended  December  31,  2003 as compared to the same
period in 2002.  The components of general and  administrative  expenses for the
year ended  December  31,  2003  include a  settlement  cost for  litigation  of
$1,550,000,  salaries and related costs of approximately $373,000;  professional
fees (legal, auditing and consulting) of approximately $1,150,000; franchise and
other taxes of approximately  $165,000;  depreciation of approximately  $65,000;
insurance   of   approximately   $144,000;   and  other   expenses   aggregating
approximately  $699,000.  The components of general and administrative  expenses
for the year ended  December  31, 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

                                       31
<PAGE>


$182,000;  depreciation of  approximately  $63,000;  insurance of  approximately
$109,000; and other expenses aggregating approximately $437,000.

Professional  fees increased  approximately  54% as a result of (i) higher legal
costs in  connection  with hiring  legal  counsel to  negotiate  and address the
development  cost activities and (ii) an increase in consulting fees paid to the
Company's  President and Chief Executive  Officer.  Insurance  expense increased
approximately 32% in 2003.  Travel and entertainment by executives  increased in
2003 to help progress development plans.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

For the year ended  December 31, 2003 and 2002,  the  Company's net cash used in
operating activities of approximately  $5,363,000 and $2,834,000,  respectively,
is comprised of the following:

                                                         2003           2002

Net income (loss)                                 $    927,000     $ (1,547,000)

Impairment charge - Marine Forest                                     3,814,000

Depreciation and amortization                          142,000          144,000

Deferred income taxes (benefit)                        196,000       (1,045,000)

Stock compensation charge                               31,000

Net gain on sales and disposition of property
  and assets                                        (6,309,000)      (3,285,000)

Changes in operating assets
  and liabilities                                     (350,000)        (915,000)
                                                  ------------     ------------

                                                  $ (5,363,000)    $ (2,834,000)
                                                  ============     ============


For the years ended  December 31, 2003 and 2002, the Company's net cash provided
by  investing   activities   of   approximately   $8,365,000   and   $2,639,000,
respectively, is comprised of the following:

                                                    2003                2002

Capital expenditures including
  real estate development                      $   (935,000)       $ (1,917,000)

Proceeds from sales of property                   9,015,000           4,141,000

Proceeds from notes receivable                      285,000             415,000
                                               ------------        ------------

                                               $  8,365,000        $  2,639,000
                                               ============        ============

                                       32
<PAGE>


Approximately  $909,000  of  the  $935,000  of  2003  capital  expenditures  and
approximately $1,807,000 of the $1,917,000 of 2002 capital expenditures was made
to  progress  the  Company's  Kohala  Preserve  development   endeavors.   These
expenditures  include  approximately  $562,000 and  $334,000,  in the year ended
December  31,  2003 and 2002,  respectively,  for land  clearing,  leveling  and
grading and  approximately  $347,000 and $1,473,000 for the years ended December
31, 2003 and 2002, respectively, for design, planning, engineering and surveying
and other costs.

For the years ended  December 31, 2003 and 2002, the Company's net cash provided
by (used in)  financing  activities  of  approximately  $(35,000)  and  $33,000,
respectively, is comprised of the following:

                                                      2003              2002

Proceeds from notes receivable financing         $         --      $    417,000

Repayment of debt (to President)                                       (354,000)

Debt repayments, net                                  (35,000)          (30,000)
                                                 ------------      ------------

                                                 $    (35,000)     $     33,000
                                                 ============      ============

As of December 31, 2003, the Company has total current  assets of  approximately
$17,462,000  and total  current  liabilities  of  approximately  $2,189,000 or a
working  capital  of  approximately  $15,273,000.  At  December  31,  2003,  the
Company's cash balance was  approximately  $12.7 million.  At March 1, 2004, the
cash balance was  approximately  $13.5  million.  As previously  discussed,  the
Company  anticipates  2004 revenue  levels to be higher than levels  experienced
during 2003,  however  there can be no  assurances  that this will be able to be
accomplished.  However,  given the Company's  anticipated  cash  requirements to
develop and construct the revised Kohala  Preserve  project  (discussed  below),
future capital raising or debt financing  activities may be required.  There can
be no  assurances  the Company will be  successful  in resolving  its  financing
requirements.

KOHALA PRESERVE 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 plans
for this parcel of land were the development of a hotel, 18-hole golf course and
resort homes.  This plan,  however,  was revised to exclude the hotel-concept in
late 2003.  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 was to
provide the Company  guidance in determining an effective  development  strategy
that will optimize the property's economic  potential.  Throughout 2002 and 2003


                                       33
<PAGE>


the Company  continued  to analyze its business and  development  options.  As a
result of developing  conflicts with its main real estate/legal  consultant (see
litigation  below),  the  Company  commenced  a  business  relationship  with  a
legal/financial  consultant  based in Texas in the fall of 2003 to  improve  its
efforts  for  the  deal  structuring  of the  resort  project.  The  Texas-based
consulting  firm is working with  studies and market  analysis and the status of
permits  and other  development  documents  to  determine  critical  components,
opportunities and restrictions of the real property.  The Texas-based consulting
firm has been  advising  the  Company of various  options  for  structuring  the
business deal and the financial and funding  strategy.  To date, no finalization
of the components of the development plans has been made. The project is subject
to further Company and consultant review and analysis. The review is expected to
be completed by the summer of 2004.

In  December  2003,  the  Company  entered  into a  monthly  $25,000  consultant
agreement with its principal stockholder and former President for this project.

Some of the risks associated with the Kohala Preserve development project are:

1.   ability to generate revenues and to have sufficient cash to meet all of its
     obligations in a timely fashion,

2.   changes in costs of  construction  and development not foreseen in the cash
     budgeting process,

3.   ability to obtain financing on favorable terms,

4.   adverse changes in national economic conditions,

5.   unanticipated environmental matters,

6.   changes in real estate tax rates and laws,

7.   the  need  to  obtain  or  sustain   agreements/permits   from   regulatory
     authorities  or other third parties in connection  with  development of the
     property,

8.   competition with other developers, and

9.   other factors which are beyond the control of the Company.

There can be no assurances that the Company will be successful in overcoming any
one of these potential risks.

Other  developers in the area have  experienced  lawsuits whereby their projects
have been  suspended  because of  agricultural  related  issues.  The  Company's
awareness of the competition's  issues, along with their own litigation with the
former  consultants,  has  hampered the  Company's  progress in this real estate
project.  Despite this slowdown,  the Company's timing of its negotiations  with
potential  joint  venture  partners  has also been  affected  by other  economic
conditions.  The Company  anticipates  that any potential  joint venture partner
would  be  responsible  for  not  only  assisting  in  obtaining  the  necessary
construction  financing,  but also assist in the large  upfront cash  investment
required to develop this project to the next phase. It is anticipated that there
would be a 120 to 180 day due diligence  period by any  potential  joint venture
partner.

In February  2004,  the  Company  received a cash flow  projection  report for a
proposed  resort  development,  exclusive of a hotel. In early 2003, the Company
received a  projected  cash flow for the resort  development  including a hotel.
Management is considering both

                                       34
<PAGE>


reports in determining its future development and funding strategies. Assuming a
development  project  including  a hotel,  condo  units  (fractional  and  whole
ownership),  house lot and home  sales and a club  (golf,  spa and  ranch),  the
projections  reflect  that the total net  undiscounted  cash flows over 10 years
could be approximately $258 million (discounted  approximately $70 million). The
breakdown  of this net cash  flow  would be $60  million  for the  condos,  $132
million for the house lots and homes,  $26 million  for the  golf/club,  and $40
million  for the  hotel.  The net  cash  outflow  for the  first  year  could be
approximately $40 million,  second year $43 million, and thereafter each year it
is anticipated  that it could be a positive cash flow.  Without a hotel, the net
undiscounted  cash  flow  shows  $230  million  (discounted  approximately  $100
million).  First year's cash outflow  could be $21 million and could be positive
each year thereafter.

In connection with the condominium  development,  the Company  projects that the
total  sources and uses of funds for the next ten years  could be  approximately
$81  million  and  $21  million,  respectively,  or a  total  net  cash  flow of
approximately  $60  million.  The first three years of the  condominium  project
could utilize a cumulative  cash outflow of  approximately  $27 million prior to
generating a possible positive cash flow of approximately $52 million in year 4.

The anticipated  sources and uses of funds for the homesite  development project
over the next ten years is projected to be a total of approximately $189 million
and $57 million,  respectively,  or a total net cash flow of approximately  $132
million.  The first year of the homesite  project  could utilize $5.2 million of
cash prior to  generating a possible  positive  cash flow of  approximately  $26
million in year 2.

The golf  development  project is  forecasted  in the  February  2004  report to
generate a total of $51 million  and to utilize a total of $24 million  over the
next ten years,  for a total net cash flow of  approximately  $27  million.  The
first two years of this  project  could  utilize  $23  million  of cash prior to
generating a possible positive cash flow of $12 million in year 3.

The report indicates  estimated total operating costs for the resort development
of  approximately  $15.9 million.  This could be offset by a total for the seven
years of anticipated  recreational  dues the Company may collect of $2.9 million
commencing in year three, yielding a net project operating cost of approximately
$13 million for the ten years.  The  anticipated  operating  costs for the first
three-year's are projected to be approximately $3 million.

The reports also estimate that the total  additional  project-wide  and off-site
costs could be approximately  $19.7 million and could all be incurred within the
next two years. The anticipated  additional on site costs could be approximately
$139  million  and will be  incurred  within  the next ten  years.  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.  The  Company may not be  successful  in
overcoming all or some of the risks associated with real estate development.

                                       35
<PAGE>


OTHER BUSINESS VENTURES

INTERMOST CORPORATION ("INTERMOST")

On January 8, 2004,  the Company  entered into a letter of intent with Intermost
whereby  Intermost would acquire 100% of the issued and  outstanding  stock of a
wholly owned subsidiary of Surety.  The consideration to be paid by Intermost to
the Company is 40 million shares of Intermost restricted common stock. Intermost
primarily  focuses  on the  private  equity  exchange  business,  through  which
equities  and  other  assets  of  privately   held   companies   can  be  traded
over-the-counter with authorized exchanges in China. The subsidiary  corporation
of  Surety  is the  owner  of real  property  in  Hawaii,  whereby  the  Company
guarantees  that the  property  to be  designated  will  realize no less than $8
million in proceeds  for  Intermost  in the  sixty-month  period  following  the
closing of the  transaction.  This  transaction is subject to the execution of a
definitive  agreement  and various other  conditions,  including a due diligence
review.  There can be no  assurances  that  this  proposed  transaction  will be
consummated.

Intermost  utilized  approximately  $4.8 million in cash for  operations for the
year ended June 30, 2003. It is anticipated that Surety will not need to advance
monies  to this  entity  for its  operations  in  fiscal  2004.  There can be no
assurances  that money will not be  required  by  Intermost  for its fiscal 2004
operations  or that it  will  be  successful  in  raising  additional  funds  as
necessary.

ASIAN BUSINESS DEVELOPMENT

In 2004, the Company  segregated and deposited with a newly formed  subsidiary a
total of $1.2 million to pursue an Asian  business  venture which is intended to
encourage  Asian based  businesses  to invest and/or  operate in the  Pittsburgh
area.  The  Company  plans to  enter  into a formal  agreement  in 2004  whereby
additional  monies may be invested in this project dependent upon the success of
developing  other  business  partners  for  this  project,  however,  no  future
commitment has been made.  These monies are not anticipated to be utilized until
the second half of 2004.

MARINE FOREST

Pursuant to  uncollateralized  promissory  notes,  the Company  advanced  Marine
Forest, a related Japanese corporation that controls  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 nine  months  after  date of  issuance.  However,  the notes were
extended and additional  nine 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.

                                       36
<PAGE>


As of  December  31,  2003  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.

In February 2004,  the Company loaned Marine Forest  $200,000 to pay real estate
taxes on the property.  The Company received a one-year secured promissory note,
with interest of 5% per annum due March 1, 2005.

MILLENNIUM

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  would issue shares of its
common stock if certain  revenue levels related to the sales of the  memorabilia
were attained by certain  dates.  Since the Company's  acquisition of Millennium
and through May 15, 2003,  there was little to no revenues  related to the sales
of the memorabilia. Accordingly, in May 2003, pursuant to the terms of the Asset
Purchase  Agreement,  the Company notified Millennium of its election to rescind
the Asset Purchase Agreement.

LITIGATION

An action was commenced against Surety Kohala  Corporation (SKC), a wholly owned
subsidiary of the Company,  in August 2003 in US District Court for the District
of Hawaii by a consultant to the Company  primarily  alleging breach of contract
in  connection  with services to be rendered for the  development  of the Kohala
Preserve  Project.  The consulting firm claimed it was owed  approximately  $5.5
million and potential  other  amounts.  Subsequent to SKC filing a counter claim
against  the  consulting  firm,  SKC's law  firm,  in  which  the  consultant's
Chairman/CEO  was of  counsel,  filed a claim for unpaid  fees of  approximately
$361,000.  On April 1, 2004,  the Company  entered  into an  agreement  with all
parties,  subject  to  execution  of  definitive  documentation  by May 1, 2004,
settling  the  litigation  by agreeing to pay a total of $1.4 million to certain
parties by June 30, 2004.  Accordingly,  the  Company's  consolidated  financial
statements  reflect an accrual for this  settlement of $1.5  million,  including
related costs, as of December 31, 2003.

                                       37
<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,
2003:

                                                                      GREATER
                                   1 YEAR          1 -3 YEARS       THAN 3 YEARS

Notes payable (a)               $     31,000      $     37,000      $    332,000
Development projects                 349,000
                                ------------      ------------      ------------
                                $    380,000      $     37,000      $    332,000
                                ============      ============      ============

(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.

                                       38


<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            PAGE

INDEPENDENT AUDITORS' REPORT                                                 F-1


CONSOLIDATED FINANCIAL STATEMENTS

     Balance Sheet                                                           F-2

     Statements of Operations                                                F-3

     Statements of Stockholders' Equity                                      F-4

     Statements of Cash Flows                                          F-5 - F-6

     Notes to Financial Statements                                    F-7 - F-17

<PAGE>


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, 2003,  and the related  consolidated
statements of  operations,  stockholders'  equity,  and cash flows for the years
ended December 31, 2003 and 2002. 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 financial  position of Surety  Holdings
Corp.  and  Subsidiaries  as of  December  31,  2003,  and the  results of their
operations  and their cash flows for the years ended December 31, 2003 and 2002,
in conformity with accounting principles generally accepted in the United States
of America.


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


Roseland, New Jersey
January 29, 2004, except for Note 13A,
  which is as of April 1, 2004


                                                                             F-1
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2003

                                     ASSETS

CURRENT ASSETS
  Cash                                                             $ 12,713,000
  Real estate held for sale, current                                  3,014,000
  Prepaid income taxes                                                1,562,000
  Other current assets                                                  173,000
                                                                   ------------
      Total current assets                                           17,462,000

NOTES RECEIVABLE, less current maturities                             3,031,000

NOTES RECEIVABLE, officer                                               553,000

REAL ESTATE HELD FOR SALE                                            26,461,000

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

REAL ESTATE DEVELOPMENT COSTS                                        42,876,000

PROPERTY AND EQUIPMENT, net                                           2,465,000

DEFERRED TAX ASSET                                                    4,369,000

OTHER ASSETS                                                          1,453,000
                                                                   ============
                                                                   $ 98,670,000
                                                                   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Notes payable, current maturity                                  $     31,000
  Accounts payable                                                      297,000
  Accrued expenses and other current liabilities                      1,861,000
                                                                   ------------
      Total current liabilities                                       2,189,000
                                                                   ------------

LONG-TERM LIABILITIES
  Notes payable, less current maturity                                  369,000
  Obligation pursuant to notes receivable
    financing, less current maturity                                    106,000
                                                                   ------------
                                                                        475,000
                                                                   ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Common stock, $.001 par value,
    200,000,000 shares authorized,
    6,753,000 shares issued and
    outstanding                                                           7,000
  Capital in excess of par value                                    101,709,000
  Accumulated deficit                                                (5,710,000)
                                                                   ------------
    Total stockholders' equity                                       96,006,000
                                                                   ------------

                                                                   $ 98,670,000
                                                                   ============


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                             F-2
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 2003 AND 2002

                                                      2003             2002
                                                  ------------     ------------

REVENUES                                          $ 11,737,000     $  5,037,000

COST OF REVENUES                                     6,329,000        1,748,000
                                                  ------------     ------------

GROSS PROFIT                                         5,408,000        3,289,000

GENERAL AND ADMINISTRATIVE EXPENSES                  4,146,000        2,028,000
                                                  ------------     ------------

INCOME FROM OPERATIONS                               1,262,000        1,261,000
                                                  ------------     ------------

OTHER INCOME (EXPENSE)

   Interest income                                     295,000          306,000
   Interest expense                                    (23,000)        (112,000)
   Impairment charge, Marine Forest Resorts, Inc.                    (3,814,000)
                                                  ------------     ------------

                                                       272,000       (3,620,000)
                                                  ------------     ------------

INCOME (LOSS) BEFORE INCOME (TAXES) BENEFIT          1,534,000       (2,359,000)

INCOME (TAXES) BENEFIT                                (607,000)         812,000
                                                  ------------     ------------

NET INCOME (LOSS)                                 $    927,000     $ (1,547,000)
                                                  ============     ============

NET INCOME (LOSS) PER COMMON
  SHARE, basic and diluted                        $       0.14     $      (0.23)
                                                  ============     ============


WEIGHTED AVERAGE COMMON SHARES
 OUTSTANDING, basic and diluted                      6,752,000        6,738,000
                                                  ============     ============


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                             F-3
<PAGE>


                    SURETY HOLDINGS CORP. AND SUBSIDIARIES


                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 2003 AND 2002

<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, 2002       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

ISSUANCE OF COMMON STOCK           15,000                               31,000                         31,000

NET INCOME                                                                            927,000         927,000
                               --------------------------         ------------    -----------     -----------

BALANCES, December 31, 2003     6,753,000     $     7,000         $101,709,000    $(5,710,000)    $96,006,000
                               ==========================         ============    ===========     ===========
</TABLE>


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                             F-4
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 2003 AND 2002

                                                      2003             2002
                                                  ------------     ------------

CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss)                               $    927,000     $ (1,547,000)
  Adjustments to reconcile net income (loss)
   to net cash used in operating activities:
    Depreciation and amortization                      142,000          144,000
    Provision for bad debts                             13,000
    Deferred income taxes                              196,000       (1,045,000)
    Impairment charge, Marine Forest
     Resorts, Inc.                                                    3,814,000
    Gain on sales of property                       (6,359,000)      (3,375,000)
    Loss on disposition of property                     50,000           15,000
    Loss on sale of notes receivable                                     75,000
    Stock compensation charge                           31,000
    Increase (decrease) in cash
     attributable to changes in operating
     assets and liabilities:
      Prepaid income taxes                          (1,302,000)        (260,000)
      Other current assets                            (133,000)          52,000
      Other assets                                      (2,000)        (932,000)
      Accounts payable                                (401,000)         260,000
      Accrued expenses and other
       current liabilities                           1,475,000          (35,000)
                                                  ------------     ------------
NET CASH USED IN OPERATING ACTIVITIES               (5,363,000)      (2,834,000)
                                                  ------------     ------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of property and equipment                  (26,000)        (110,000)
  Proceeds from sales of property                    9,015,000        4,141,000
  Real estate development expenditures                (909,000)      (1,807,000)
  Proceeds from repayments of notes receivable         271,000          407,000
  Proceeds from repayments of notes
   receivable, officer                                  14,000            8,000
                                                  ------------     ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES            8,365,000        2,639,000
                                                  ------------     ------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Principal payments on mortgage note payable          (35,000)         (30,000)
  Proceeds from notes receivable financing                              417,000
  Repayments of notes payable, former president                        (354,000)
                                                  ------------     ------------
NET CASH PROVIDED BY (USED IN)
 FINANCING ACTIVITIES                                  (35,000)          33,000
                                                  ------------     ------------

NET INCREASE (DECREASE) IN CASH                      2,967,000         (162,000)

CASH
  Beginning of year                                  9,746,000        9,908,000
                                                  ------------     ------------

  End of year                                     $ 12,713,000     $  9,746,000
                                                  ============     ============

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                             F-5
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                     YEARS ENDED DECEMBER 31, 2003 AND 2002

                                                        2003            2002
                                                    ------------    ------------


SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION, cash paid during the year for:
  Interest                                          $     23,000    $     31,000
                                                    ============    ============

  Income taxes                                      $  1,690,000    $    494,000
                                                    ============    ============


SUPPLEMENTAL DISCLOSURES OF NONCASH
 INVESTING AND FINANCING ACTIVITIES:
 Issuance of notes receivable upon
   sales of property                                $  1,822,000    $         --
                                                    ============    ============


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                             F-6
<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 642
acres of property in the North Kohala  district of Hawaii Island in the state of
Hawaii. This development, referred to as the Kohala Preserve development project
(see Real  Estate  Development  Costs - Note 4),  was  initially  slated to be a
hotel,   18-hole  golf  course  and  resort  homes.  The  Company  is  currently
considering modifying the project`s inclusion of a "hotel concept".  The Company
is working with  consultants to study various options for structuring  this real
estate project along with the necessary  financial and funding  strategy.  There
has been no finalization of the components of the development project.

The current  Hawaiian  operations  of the Company  also  include the sale of its
non-Kohala  Preserve   development  project  real  estate  and  other  ancillary
activities.

In 2004, the Company commenced  investing in other business projects.  (See Note
13B)


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 typically  maintains cash on deposit at banks in excess of federally
insured limits. At December 31, 2003, the Company's uninsured cash balances were
approximately $12.1 million.  The Company has not experienced any losses in such
accounts and believes it is not exposed 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.  Realized gains and
losses on the sale of real estate are  determined  on a specific  identification
basis.

                                      F-7
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

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, 2003 and 2002 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.

                                      F-8
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 losses.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2003, the Financial  Accounting  Standards  Board ("FASB")  issued a
revision to FASB  Interpretation  No. 46,  "Consolidation  of Variable  Interest
Entities" ("FIN 46R"). FIN 46R requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the equity investors in
the equity do not have the  characteristics of a controlling  financial interest
or do not  have  sufficient  equity  at  risk  for the  entity  to  finance  its
activities without additional subordinated financial support from other parties.
FIN 46R is effective for the reporting  periods  ending after December 15, 2004.
The Company has no arrangements that would be subject to this interpretation.

In April 2003,  the FASB issued SFAS  No.149,  "Amendment  of  Statement  133 on
Derivative  Instruments  and  Hedging  Activities."  SFAS  No.  149  amends  and
clarifies  the  accounting  for  derivative   instruments,   including   certain
derivative  instruments embedded in other contracts,  and for hedging activities
under  SFAS  No.  133,  "Accounting  for  Derivative   Instruments  and  Hedging
Activities."  SFAS No. 149 is generally  effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after June
30,  2003.  The  adoption  of  SFAS  No.  149  had no  impact  on the  Company's
consolidated financial statements.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics of Both Liabilities and Equity".  SFAS No. 150
establishes  standards for  classifying  and measuring as  liabilities,  certain
financial   instruments   that  embody   obligations  of  the  issuer  and  have
characteristics of both liabilities and equity. The adoption of SFAS No. 150 did
not have a material effect on the Company's consolidated financial statements.

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.

                                                                             F-9
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.   NOTES RECEIVABLE

At December 31, 2003, the Company had notes receivable aggregating approximately
$3,046,000.  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, 2003 are
as follows:

  YEAR ENDING DECEMBER 31,
              2004                                    $     15,000
              2005                                         739,000
              2006                                           9,000
              2007                                         549,000
              2008                                       1,538,000
              Thereafter                                   196,000
                                                      ------------

                                                      $  3,046,000
                                                      ============


4.   REAL ESTATE DEVELOPMENT COSTS

At December 31, 2003, real estate development costs, attributed primarily to the
Company's Kohala Preserve development project, consist of the following:

Land and land acquisition costs                       $ 28,698,000
Planning and studies                                     2,645,000
Engineering and architectural                              564,000
Infrastructure                                           6,852,000
Professional and consulting fees                         2,472,000
Other                                                    1,645,000
                                                      ------------

                                                      $ 42,876,000
                                                      ============


5.   PROPERTY AND EQUIPMENT

At December 31, 2003, 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                             574,000
                                                      ------------
                                                         4,526,000
Less accumulated depreciation
  and amortization                                       2,061,000
                                                      ------------

                                                      $  2,465,000
                                                      ============

                                                                            F-10
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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  $386,000 at
December 31, 2003, bears interest based on an adjustable rate (4.75% at December
31, 2003), 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 $14,000
at  December  31,  2003,  bear  interest  at 8.5%  and are  payable  in  monthly
installments aggregating approximately $2,000 through August 2004.

Approximate  aggregate  future  required  principal  payments  on these notes at
December 31, 2003 are as follows:


YEAR ENDING DECEMBER 31,
              2004                                    $     31,000
              2005                                          18,000
              2006                                          19,000
              2007                                          20,000
              2008                                          22,000
              Thereafter                                   290,000
                                                      ------------

                                                      $    400,000
                                                      ============

NOTES RECEIVABLE FINANCING

The Company has a Purchase Agreement  (Mortgage Loans) (the "Agreement") with an
outstanding  balance of  approximately  $107,000  (including  $1,000 included in
other current  liabilities) as of December 31, 2003. The Agreement  provides for
the sale (with recourse) of certain notes receivable 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 January 2003,  the Company issued 15,000 shares of its common stock valued at
$31,000  pursuant to employment  contracts in connection  with an Asset Purchase
Agreement   with   Millenium   International   Sports   &   Entertainment,   LLC
("Millennium"). The Asset Purchase Agreement was rescinded in 2003.

                                                                            F-11
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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  $269,000 and $280,000 for the years ended  December 31, 2003
and 2002,  respectively.  Approximate minimum rentals under the operating leases
for the next five years, excluding renewal options, are as follows:

YEAR ENDING DECEMBER 31,
              2004                                    $    207,000
              2005                                         208,000
              2006                                         206,000
              2007                                         205,000
              2008                                         205,000


9.   INCOME TAXES

At December 31, 2003,  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                      $     73,000

Difference between financial
 and tax bases of assets, primarily
  Marine Forest loan impairment                          4,296,000
                                                      ------------

                                                      $  4,369,000
                                                      ============


The  provision  for income  taxes  (benefit)  in the  accompanying  consolidated
statements of operations consisted of the following for the years ended December
31, 2003 and 2002:


                            2003             2002

CURRENT
       Federal          $   347,000      $   200,000
       State                 64,000           33,000
                        ----------------------------

                            411,000          233,000
                        ----------------------------

DEFERRED
       Federal              169,000         (830,000)
       State                 27,000         (215,000)
                        ----------------------------

                            196,000       (1,045,000)
                        ----------------------------

                        $   607,000      $  (812,000)
                        ============================

                                                                            F-12
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.   INCOME TAXES (CONTINUED)

The following  table  reconciles  the federal  statutory  income tax rate to the
Company's effective tax rate for the years ended December 31, 2003 and 2002:

                                     2003        2002

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

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

Other                                               6
                                  ------------------------

                                       40%        (34%)
                                  ========================


At December  31,  2003,  the Company had net  operating  loss  carryforwards  of
approximately $183,000 available to offset future income subject to tax. The net
operating loss carryforwards expire in 2018.

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  project
development and other services.  Generally, these agreements are on a project by
project  basis  requiring  payments as services  are  performed.  The Company is
currently involved in development projects which are expected to be incurred and
completed in 2004 for a total of approximately $349,000.

An action was commenced against Surety Kohala  Corporation (SKC), a wholly owned
subsidiary of the Company,  in August 2003 in US District Court for the District
of Hawaii by a consultant to the Company  primarily  alleging breach of contract
in  connection  with services to be rendered for the  development  of the Kohala
Preserve  Project.  The consulting firm claimed it was owed  approximately  $5.5
million and potential  other  amounts.  Subsequent to SKC filing a counter claim
against  the  consulting   firm,  SKC's  law  firm,  in  which  the consultant's
Chairman/CEO  was of  counsel,  filed a claim for unpaid  fees of  approximately
$361,000.  On April 1, 2004,  the Company  entered  into an  agreement  with all
parties,  subject  to  execution  of  definitive  documentation  by May 1, 2004,
settling  the  litigation  by agreeing to pay a total of $1.4 million to certain
parties by June 30, 2004. (See Note 13A)

The Company is involved in certain  other legal actions that arise in the normal
course of  business.  In the  opinion of  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.

                                                                            F-13
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  RELATED PARTY TRANSACTIONS

FORMER PRESIDENT, PRINCIPAL STOCKHOLDER, AND CONSULTANT

During 2001 and 2000, the former  President of the Company  advanced the Company
$447,000,  pursuant to one-year,  5% promissory notes.  During 2002, the Company
repaid the former  President  $354,000.  At December 31, 2003,  nothing was owed
pursuant to the notes. Related interest expense for the years ended December 31,
2003 and 2002 is approximately $-0- and $7,000, respectively.

The Company paid the principal  stockholder of the Company $275,000 in salary as
the former President of the Company  (through  November 30, 2003) and $25,000 in
consulting fees in 2003 (the month of December 2003).

On  December 1, 2003,  the Company  entered  into a monthly  $25,000  consulting
agreement with the former President of the Company.


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 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, 2003, 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.

In 2004, the Company advanced an additional $200,000. (See Note 13B)


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 for the
year ended  December  31, 2002.  At December 31, 2003,  the balance on this note
receivable was approximately $553,000.


OTHER

During 2003 and 2002, the Company rented  properties to related  individuals for
aggregate annual rentals of $0 and $10,000, respectively.  During 2003 and 2002,
the Company had real estate sales to officers  (excluding the officer referenced
above) of the Company aggregating $0 and $318,000, respectively. During 2003 and
2002,  the Company paid rent to a related party for aggregate  annual rentals of
approximately $9,000 in each year

                                                                            F-14
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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,
and 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, 2003 and 2002
are as follows (in thousands):

<TABLE>
<CAPTION>
                                                2003

                                    Real Estate               Cattle
                                       Sales        Rental     Sales    Other    Corporate     Total
                                    -----------------------------------------------------------------
<S>                                   <C>          <C>          <C>      <C>      <C>         <C>
Total revenues                        $ 10,837     $   269      $310     $321     $     --    $11,737
Total cost of revenues                   5,648         157       247      277                   6,329
                                    -----------------------------------------------------------------

Segment profit                           5,189         112        63       44                   5,408
General and administrative expenses                                                 (4,146)    (4,146)
Interest income, net                                                                   272        272
Income taxes                                                                          (607)      (607)
                                    -----------------------------------------------------------------

Net income (loss)                     $  5,189     $   112      $ 63     $ 44     $ (4,481)   $   927
                                    =================================================================

Total assets                          $ 33,752     $   103      $150     $355     $ 64,310    $98,670
                                    =================================================================

Capital expenditures                  $     --     $    --      $  6     $ --     $    929    $   935
                                    =================================================================

Depreciation and amortization         $     --     $     4      $ 17     $ 28     $     93    $   142
                                    =================================================================
</TABLE>

                                                                            F-15
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.  SEGMENT REPORTING (CONTINUED)

<TABLE>
<CAPTION>
                                                2002

                                    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>


13.  SUBSEQUENT EVENTS

(A)  LITIGATION (See Note 10)

On April 1, 2004,  the  Company  entered  into an  agreement  with all  parties,
subject to definitive  documentation by May 1, 2004,  settling the litigation by
agreeing to pay a total of $1.4 million to certain parties by June 30, 2004.

Accordingly,  the Company's consolidated financial statements reflect an accrual
for a settlement of $1.5 million,  including  related costs,  as of December 31,
2003.

(B)  OTHER BUSINESS VENTURES

INTERMOST CORP ("INTERMOST")

In January 2004, the Company entered into a letter of intent with  Intermost,  a
Shenzhen China based public  company,  to acquire 40 million shares of Intermost
restricted  common  stock in  exchange  for a parcel of Surety's  property.  The
Company has guaranteed  Intermost that the property will realize no less than $8
million  of  proceeds  for  Intermost  from  the  sale of such  property  in the
sixty-month  period  following  the  closing of the  transaction.  The  proposed
transaction is subject to due diligence  reviews among other  conditions.  There
can be no assurance that this proposed transaction will be consummated.

                                                                            F-16
<PAGE>


                     SURETY HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.      SUBSEQUENT EVENTS (CONTINUED)

ASIAN BUSINESS DEVELOPMENT

In 2004,  the Company  segregated  $1.2 million of funds in  connection  with an
Asian business venture which is intended to encourage Asian businesses to invest
and/or  operate in the  Pittsburgh  area. The Company may be required to advance
more monies depending upon the success of developing other business partners for
this venture.  No future  commitment,  however,  has been made to increase these
designated  funds.  These monies are not  anticipated  to be utilized  until the
second half of 2004.

MARINE FOREST

In 2004, the Company executed a one-year promissory note, which carries interest
at 5% per annum,  for an additional  $200,000 for monies advanced by the Company
to Marine Forest to pay real estate taxes. (See Note 11)


                                                                            F-17
<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 31,2003.

   Name                      Age     Position Held
   ----                      ---     -------------
   Jack Fang                  32     Director, Chairman  of Surety

   Howard R. Knapp            57     Director and President/CEO of Surety
   850 Fort Plains Road
   Howell, NJ 07731

   Linda F. O'Donnell         50     Chief Financial Officer
   157 Linda Lane
   Edison, NJ 08820

   Stuart D. Tauber, M.D.     71     Director
   2003 Timber Trail
   Asheville, N.C. 28804

   Masahiro Kume              43     Chairman, Pres. And Director of
   66-1309 W. Ko Uka Court           Surety Kohala
   Waimee, HI 96743, USA

   Michael Gomes              55     1st Vice President of Surety Kohala
   PO Box 562                        Land Manager
   Kapaau, HI 96775 USA

   Duana Kanuha               56     2nd Vice President of Surety Kohala
   PO Box 6532                       Strategic Planning/Governmental Affairs
   Hilo, HI 96721


                                       39
<PAGE>


   Herman Fernandez           40     Secretary and Treasurer of Surety Kohala
   PO Box 140
   Hawi, HI 96719

   William Shontell           42     Construction Mgr/ Engineer
   PO Box 3
   Hawi, HI 96719

JACK  FANG.  Mr.  Fang was  elected  to the Board of  Directors  and  became the
Chairman of the Company on November 3, 2003.  After graduating from high school,
Mr. Fang began providing consulting services.  From 1994 to 1998, Mr. Fang was a
consultant  to IPI,  which was engaged in the  business of  providing  financial
consulting to other entities.  Mr. Fang was responsible for business development
in Asia.  Since  1999,  Mr.  Fang  provided  consulting  services  to  Surety in
connection with business opportunities.

HOWARD R. KNAPP.  Having joined the Company in January 1999, Mr. Knapp served as
the Company's Chief Financial Officer from January,  2000 to November,  2003 and
was elected to President and Chief  Executive  Officer in November,  2003.  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.

LINDA O'DONNELL.  Ms O'Donnell joined the Company as Chief Financial  Officer in
November of 2003. She had provided  consulting services to the Company since May
2003.  Ms.  O'Donnell  was an audit  partner with the  accounting  firm of Moore
Stephens, PC in Cranford, NJ from 1987 until her resignation in January 2001. In
May 1999, Ms. O'Donnell,  without admitting or denying, allegations set forth in
an Order  Instituting  Proceedings  by the  Securities  and Exchange  Commission
arising out of issues pertaining to auditor independence,  agreed to be censured
and to fulfill  forty hours of continuing  professional  education for auditors'
independence.  Upon her graduation from Rider University in Lawrenceville, NJ in
1974 until 1987 she was employed as an accountant with Mortenson and Associates,
PC. (now known as Moore Stephens). Ms O'Donnell is a CPA licensed to do business
in  NJ  and  Florida.   She  is  also   licensed  as  a  registered   investment
representative for First Global Corporation,  in Dallas,  Texas. The Company has
established  in 2004  an  investment  account  with  First  Global  whereby,  Ms
O'Donnell, as the financial service representative, receives commissions for all
unsolicited trades. Her

                                       40
<PAGE>


securities  and insurance  licenses are in NJ and Florida.  Ms.  O'Donnell  also
performs consulting services to non affiliated entities on a limited basis.

STUART D. TAUBER,  M.D. Dr. Tauber is in private practice as an  Endrocenologist
and was from  1999 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  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.

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<PAGE>


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

YOSHI KAMON.  Mr. Kamon,  formerly the Company's  Chairman,  President until his
resignation  in Oct 2003 has been retained by the Company as a  Consultant.  Mr.
Kamon holds a B.A. degree in economics from Konan University.  From 1988 to 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 he was
President  of  Surety  Kohala.   He  was  also  the  Director  of  the  Shanghai
International  Airport Hotle and  restaurant  and a Director of Chalon Hong Kong
from 1986 to 1996. Mr. Kamon is the brother-in-law of Mr. Kume.

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, 2003,  2002,2001 by each person serving as the
Company's Executive Officers in the years ended December 31, 2003, 2002, 2001

                                               Long Term
                                              Compensation
                                                 Awards
                                               Securities

                           Annual Compensation
                          ---------------------       Underlying
                                                     Options/SARs
Name                      Year         Salary($)       Bonus($)         #
----                      ----         --------      ------------    -------
Yoshihiro Kamon
                          2003         $310,000
                          2002           68,000
                          2001

Jack Fang
                          2003         $ 80,000
                          2002
                          2001


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<PAGE>


Masahiro Kume
                          2003         $134,486
                          2002         $118,200
                          2001         $118,200

Hermann Fernandez
                          2003         $ 66,049
                          2002         $ 62,904
                          2001         $ 62,904

Mike Gomes
                          2003         $ 76,608
                          2002         $ 72,960
                          2001         $ 72,960

Duane Kanuha
                          2003         $ 98,026
                          2002         $ 88,224
                          2001         $ 88,224

Howard R. Knapp
                          2003         $120,000
                          2002         $120,000
                          2001                0

Linda O'Donnell
                          2003         $ 15,850


Compensation  remains  basically  the same in 2004,  however,  Mr.  Fang and Ms.
O'Donnell  are  employed  at annual  base  salaries  of  $150,000  and  $50,400,
respectively.

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,
2003, by the following individuals or groups: each person or entity who is known
by us

                                       43
<PAGE>


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)(3)                          6,270,000              93
1-608 2572 Shinohara
Kohoku
Yokohama, 2220026 Japan

Stuart D. Tauber                                  2,000
2003 Timber Trail
Ashville, NC 28804

Mahukona Holdings Corp(1)(3)                  6,270,000
2nd Floor No 104 Section 2H Siny 1 Rd
Taipai, Taiwain, Republic of China

(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 6,000,000  shares (2) owned by Mahukona  Holdings
     Corp.  This  position  represents  93.8%  of the  outstanding  stock of the
     Company.

(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,  maintains
voting control of Mahukona Holdings Corp. Mr. Kamon resigned from the Board

                                       44
<PAGE>


of Directors  and as President of the Company on October 28, 2003. He remains as
a consultant to the Company.

(3)  Of the shares,  6,000,000  shares were  transferred  from its former  owner
     prior to a bankruptcy  proceeding in Japan. Were the Bankruptcy  Trustee to
     initiate  a  proceeding,  of  which  the  Company  has  no  knowledge,  and
     successfully pursue a claim for recovery of the shares, then the control of
     the Company would change.

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 Chalon  International of Hawaii,  Inc.,
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  former  President  advanced  the Company
$447,000  pursuant to one year 5% promissory  notes.  During 2002 and 2001,  the
Company repaid the former 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

                                       45
<PAGE>


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  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, 2003, 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.

On February 24, 2004, the Company  executed a promissory  note for an additional
$200,000  for monies  advanced by the  Company to pay real  estate  taxes on the
property in connection with the venture.

--------------------------------------------------------------------------------

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
         Form 8-K filed Nov 6, 2003 --
         Change in Officers and Directors

--------------------------------------------------------------------------------


                                   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 12, 2004           /s/ JACK FANG
                                            ----------------------
                                             JACK FANG
                                             CHAIRMAN AND DIRECTOR

                                       46
<PAGE>


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/ JACK FANG
                    ----------------------------------------
                    JACK FANG, CHAIRMAN AND DIRECTOR

                    BY: /s/ HOWARD R. KNAPP
                    ----------------------------------------
                    HOWARD R. KNAPP, PRESIDENT AND
                    CHIEF EXECUTIVE OFFICER AND DIRECTOR

                    BY: /s/ LINDA O'DONNELL
                    ----------------------------------------
                    LINDA O'DONNELL, CHIEF FINANCIAL OFFICER