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

                                    FORM 10-K

[Mark One]

[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
    of 1934

                  For the fiscal year ended December 31, 2001
                                       or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934

         For the transition period from _____________ to _____________.

                           Commission File No. 0-19727

                          CUMBERLAND TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)

   Florida                                              59-3094503
   -----------------------------------------------      ------------------------
   (State or other jurisdiction of incorporation)       (I.R.S. Employer
                                                         Identification No.)

   4311 West Waters Avenue, Suite 501
   Tampa, Florida                                       33614
   -----------------------------------------------      ------------------------
   (Address of principal executive offices)             (Zip Code)

                                 (813) 885-2112
             -------------------------------------------------------
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:

   Title of each Class                 Name of each exchange on which registered
   -------------------                 -----------------------------------------
   Common Stock                        The NASDAQ Stock Market

           Securities registered pursuant to Section 12(g) of the Act:

                                  Common Stock
                                -----------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                 Yes [x] No [ ]

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

                                    $992,266
                       -----------------------------------

Aggregate  market value of voting stock (Common Stock) held by  nonaffiliates of
the Registrant as of March 7, 2002

                   5,597,244 shares of Common Stock $.001 par value
               ---------------------------------------------------
        Number of shares of Common Stock outstanding as of March 7, 2002

                    Documents incorporated by reference: NONE




<PAGE>


                                     PART I
                                     ------

          Item 1.        Business
          ------         --------

          General
          -------

     Cumberland Technologies,  Inc. ("CTI" or "the Company"),  (f/k/a Cumberland
Holdings, Inc.) a Florida corporation,  was formed on November 18, 1991, to be a
holding company and a wholly-owned subsidiary of Kimmins Corp. ("KC"). Effective
October 1, 1992, KC contributed  all of the  outstanding  common stock of two of
its wholly-owned subsidiaries,  Cumberland Casualty & Surety Company ("CCS") and
Surety Specialists, Inc. ("SSI") to CTI. KC then distributed to its stockholders
CTI's  common  stock on the basis of one  share of common  stock of CTI for each
five  shares  of  KC  common   stock  and  Class  B  common   stock  owned  (the
"Distribution").  Cumberland  Technologies,  Inc.,  ("the Company") is a holding
company engaged through its subsidiaries,  Cumberland  Casualty & Surety Company
("CCS"),  Surety  Specialists,  Inc.  ("SSI"),  The Surety Group,  Inc.  ("SG"),
Associates   Acquisition   Corp.  d/b/a  Surety  Associates  ("SA")  and  Qualex
Consulting  Group,  Inc.  ("Qualex")  in the  delivery of  specialty  surety and
insurance  services.  Surety  services  include  underwriting  surety bonds on a
direct and  assumed  basis,  surety  consulting  and the  development  of surety
software.  Insurance  services  include the underwriting of speciality and other
liability  insurance  products.  In addition,  the Company conducts its business
through a number of  independent  agencies which focus on selling and delivering
surety   insurance   products  to   consumers.   Because  the  need  to  advance
technologically in the delivery of insurance  products,  the Company developed a
software  product  called  Bond-Pro(R).  This patented  surety  issuance  system
increases  the speed that surety agents  deliver their  products to the customer
and  financially  report  those  transactions  to the  carrier,  while  reducing
operating costs. The Company's business strategy is to continue the underwriting
focus of each of its operating  subsidiaries  and to achieve  growth through the
expanded licensing of Bond-Pro(R).

     CCS is a property and casualty  insurance  company that was incorporated in
Texas on May 4, 1988 and redomesticated in Florida, on September 2, 1994. CCS is
licensed in twenty-seven states, the District of Columbia,  and Guam. It holds a
certificate  of authority  from the United  States  Department  of the Treasury,
which qualifies CCS as an acceptable  surety on Federal bonds. CCS is rated "B+"
(Very Good) by A.M. Best.

     CCS currently has  applications  for admission  pending in various  states.
Most of these states have a lengthy  applications process in which the admission
filing must be updated with certain financial and nonfinancial information until
the  insurance  department  decides  to approve an  application.  The  insurance
department is not  restricted as to the amount of time it may take to approve an
application.  All applications are updated as new information  becomes available
and CCS is waiting  for  inquiries  or actions by these  pending  states.  Those
states  in  which  CCS has not  yet  applied  for  licensing  generally  require
additional years of operating  history or additional  capital and surplus.  Once
CCS has met these  requirements,  it is anticipated  that the  applications  for
admission will be submitted  accordingly.  CCS is currently attempting to obtain
additional state licenses in order to spread its risk of loss geographically and
to  increase  its sales of direct  surety  and  insurance  products.  Management
believes that CCS can function profitability selling direct surety and insurance
products in the states in which it is currently licensed.



<PAGE>


     SSI,  a  Florida  corporation,   formed  in  August  1988,  SG,  a  Georgia
corporation,  and SA, a South Carolina  corporation  purchased by the Company in
February and July 1995,  respectively,  are  specialized  surety  agencies which
operate as independent  agencies.  Each secures surety risks for small to medium
size  contractors  as an agent and for other  agents as a broker.  SG and SA are
also general lines insurance  agencies.  When acting as an agent, SSI, SG and SA
receive a commission from the various insurance companies it represents,  one of
which is CCS. Agency commissions are based upon a percentage of premiums paid by
the consumer.  The commissions paid by CCS to SSI, SG and SA range from 35 to 40
percent.

     In addition,  SSI generates  additional  revenues  through joint partnering
agreements  to pursue  small to  medium  size  contract  and  commercial  surety
business on a countrywide  basis.  The  agreements  allow SSI to solicit  surety
business in states in which CCS is not licensed thereby significantly increasing
the Company's  ability to  geographically  spread risk. CCS participates in both
agreements underwriting risk through a retrocession treaty.

     Qualex, a Florida corporation,  formed in November 1994, provides claim and
contracting consulting services to the surety and construction  industries.  CCS
purchases claim consulting services from Qualex on a contract basis.

     The  percentages of gross revenue  generated by the Company's  subsidiaries
for the year ended December 31, 2001 are as follows:

           Subsidiary                                Revenue Percentage
           ----------                                ------------------
           CCS.................................            89%
           Qualex..............................             8%
           SA..................................             1%
           SG..................................             2%
                                                     -------------
                                                          100%

     The term "the Company"  unless the context  otherwise  requires,  refers to
Cumberland  Technologies,  Inc. and its  subsidiaries.  The principal  executive
offices of the Company are located at 4311 West Waters Avenue, Suite 401, Tampa,
Florida 33614. The Company's  telephone number is (813) 885-2112,  its facsimile
number is (813) 885-6734 and its web site is www.cumberlandtech.com.

     Surety Products
     ---------------

     CCS  underwrites  a wide  variety of surety  bonds for small to medium size
surety accounts.  CCS also assumes underwriting risk from other surety companies
under various reinsurance  arrangements.  Contract surety bonds center primarily
on performance and payment bonds issued for the construction industry. The bonds
guarantee  that a contractor  will fulfill  their  obligations,  with respect to
performing  the scope of work  defined  in the  contract  and  fulfilling  their
financial  obligations.  CCS's typical bond is less than $500,000 with aggregate
ongoing  work of $1  million.  These  bonds  are  marketed  through  independent
insurance agencies specializing in this type of coverage to general contractors,
sub-contractors and specialty contractors.


<PAGE>


     Commercial  surety bonds,  which  includes all  non-contract  surety bonds,
numerous  types of license and permit,  miscellaneous  and judicial  bonds.  The
scope of each bond  varies  according  to the law,  locality,  the nature of the
guarantee,  and the  parties  who have a right of action  under  the  bond.  The
typical bond penalty  ranges from $5,000 to $50,000 and is usually  written on a
volume basis.

     Insurance Products
     ------------------

     The  Company's  other  liability   insurance  products  include  Registered
Investment  Advisors  professional  liability insurance and Notary Public Errors
and Omission  liability  insurance.  Both  coverages  are  occurrence  liability
coverages,  that insure against specific  liability risks.  Under the Registered
Investment Advisors  professional  liability coverage,  each endorsed account is
limited to a maximum  liability  coverage of $500,000.  Due to the volatility in
the marketplace,  the Company has suspended  marketing of this product effective
September  2001.  The Notary Public Errors and Omissions  liability  coverage is
written with liability limits of $7,500 to $30,000 per policy.

     On surety or  insurance  products  sold  directly by CCS,  exposure to loss
would be the  penal  amount  of the  bond,  less any  portion  for which CCS has
secured reinsurance. On reinsurance,  CCS's exposure to loss would be limited by
the amount of reinsurance  provided.  Reinsurance does not relieve an insurer of
its liability to the  policyholder  for the full amount of the policy,  however,
the  reinsurer  is  obligated  to the  insurer  for the  portion  assumed by the
reinsurer.

     Technology Product
     ------------------

     On October 1, 1996, CTI launched the  development of a surety bond issuance
system  "Bond-Pro(R)."  The Company received its federal copyright  registration
#TX4-542-729  effective March 29, 1997. The Company sees the  implementation  of
the system as an integral part of its unique service affording it the ability to
capture a larger share of the marketplace. This program encompasses the required
functions an agency needs to run a full scale bond desk when implemented  inside
the agency  structure.  The software is designed to reduce the labor required to
provide improved service. CCS offers its Bond-Pro(R) program to small and medium
size agencies in order to produce premiums. The efficiencies gained in using the
Bond-Pro(R)  system  enhances CCS's ability to increase  premiums and to develop
relationships  which may not otherwise be possible due to  competition  for this
class of business.  While a small  percentage  of the industry  offers issue and
reporting  systems  for  bonds,  no other  provider  offers a fully  integrated,
multi-carrier production and processing system including management reporting.

     Underwriting
     ------------

     For the contract and  commercial  surety lines of business,  the  Company's
underwriting  philosophy  provides  for  an  individual  analysis  of  the  risk
associated   with  each   application,   except  for  specific   categories   of
miscellaneous bonds. In underwriting contract bonds, its approach focuses on the
financial  strength,  experience and operating  capacity of the  contractor.  In
underwriting  commercial surety, this approach focuses on the credit history and
financial resources of the applicant.


<PAGE>


     The  Company  maintains  control  of the  contract  and  commercial  surety
underwriting  process through the use of authority  limits for each  underwriter
and committee  underwriting of larger risks. The Company may require  collateral
on  contract  bonds and  occasionally,  on other  types of bonds  based  upon an
assessment of the risk characteristics.  The risk assessment includes evaluation
of  the  financial  strength  of  the  contractor,  the  credit  history  of the
contractor,  work in progress and  successful  work  experience.  Collateral can
consist of irrevocable letters of credit, certificates of deposit, cash, savings
accounts  and  publicly   traded   securities.   Both   corporate  and  personal
indemnification may be required in order to mitigate liability risk. The Company
also  targets  various  products  in the  commercial  surety  market  which  are
characterized  by  relatively  low risk  exposure  in small penal  amounts.  The
underwriting  criteria,  including  the extent of bonding  authority  granted to
independent agents, will vary depending on the class of business and the type of
bond.  For example,  relatively  little  underwriting  information  is typically
required of certain low exposure risk such as notary bonds.

     Other liability insurance  applications are individually  evaluated and the
decision  to  write a  particular  risk is  made by the  Company's  underwriting
department. The underwriting department determines whether to write a particular
risk  after  evaluating  a number  of  factors  based  upon  detailed  objective
underwriting standards relating to each class of business.

     Reinsurance
     -----------

     The Company's  insurance  subsidiary,  in the ordinary  course of business,
cedes  insurance to other  insurance  companies,  to limit its exposure to loss,
provide  greater  diversification  of risk,  and minimize  aggregate  exposures.
Because the ceding of insurance does not discharge the primary  liability of the
original  insurer,   CCS  places   reinsurance  with  qualified  carriers  after
conducting  a  detailed  review of the nature of the  obligation  and a thorough
assessment  of  the  reinsurers  credit  qualifications  and  claims  settlement
performance and capabilities. The reinsurance coverage terms are tailored to the
specific risk characteristics of the underlining products of the company.

     For contract and commercial surety business,  CCS entered into an excess of
loss reinsurance agreement with Transatlantic Reinsurance Company (Transatlantic
Treaty),  which is rated A+ (Superior) by A.M. Best.  Excess of loss reinsurance
is a form of reinsurance,  which  indemnifies the ceding insurer up to an agreed
amount  against  all or a portion of the amount of loss in excess of a specified
retention.  The Company cedes to Transatlantic  Reinsurance Company on an excess
of loss treaty 95% of the risk insured with a maximum exposure to the Company of
$235,000 per principal prior to June 30, 2001 and a maximum exposure of $300,000
per  principal  effective  July 1, 2001.  Under the  Transatlantic  Treaty,  the
reinsurer  automatically assumes the risk of losses on all contract surety bonds
written and  classified as surety in CCS's  statutory  annual  statement and all
miscellaneous  surety bonds with penal sums over $100,000 written and classified
as surety in CCS's statutory annual statement.

     For its liability  line of registered  investment  advisor  insurance,  the
Company  has reduced its  exposure  on any one risk,  through the  purchase of a
quota share agreement with Dorinco Reinsurance (Dorinco Treaty) which is rated A
(Excellent)  by A.M.  Best.  Under  the  Dorinco  Treaty,  CCS  cedes 50% of its
liability on all Registered Investment Advisor policies.


<PAGE>


     On a  limited  basis,  CCS  also  assumes  and  cedes  reinsurance  through
facultative and treaty agreements from other sureties.  Management  believes the
loss of one of these  customers or resources would not have a material impact on
the  operations  of the Company.  From  October  1991  through May 1, 1997,  CCS
participated in a pooling agreement with various sureties,  which specialized in
writing  contract  surety.  Effective  to April 1, 1993,  CCS assumed 25% of the
business  underwritten by the pooling  agreement;  12.5% effective April 1, 1995
and 10%  effective  April 1, 1996.  Effective  April  1997,  CCS  elected not to
participate in future business under the pooling agreement.

     Reserves
     --------

     Reserves for losses and loss adjustment expenses are established based upon
reported  claims and historical  industry loss  development.  The amount of loss
reserves for reported claims is based on a case by case evaluation of the claim.
Historical  industry  data  is  reviewed  and  consideration  is  given  to  the
anticipated  impact of  various  factors  such as legal  developments,  economic
conditions and the effects of inflation.  Amounts are adjusted  periodically  to
reflect these factors.

     Reserve for losses and loss adjustment  expenses are actuarial estimates of
losses,  including the related  settlement costs.  Management  believes that the
reserves  for losses and loss  adjustment  expenses  are  adequate  to cover the
losses and loss  adjustment  expenses,  including  the cost of incurred  but not
reported losses.

     During 2001, there were no material changes in the mix of business or types
of risk assumed.  However, the Company was effective in spreading the geographic
mix of the business.

     Current  fluctuations  in inflation  have not had a material  effect on the
consolidated  financial  statements and there are no explicit  provisions in the
consolidated  financial  statements  for the effects of inflation that may cause
future changes in claim severity.

     Other  than  certain  classification  differences,  there  are no  material
differences   between  statutory  reserves  and  Generally  Accepted  Accounting
Principle  ("GAAP")  reserves.  CCS does not  discount  its  loss  reserves  for
financial reporting purposes.

     Environmental Claims
     --------------------

     The Company  bonds  several  accounts  that have  incidental  environmental
exposure,  with respect to which the Company  provides  limited contract bonding
programs.  In the  commercial  surety  market,  the  Company  provides  bonds to
corporations that are in the business of mining various  minerals,  establishing
mitigation banks, or operating environmental facilities,  and that are obligated
to post  financial  assurance  bonds that guarantee that property can be managed
according to regulatory  guidelines.  While no environmental  responsibility  is
overtly  provided by commercial or contract  bonds,  some risk of  environmental
exposure may exist if the surety were to assume  certain  rights of ownership of
the  property  in the  completion  of a  defaulted  project or  through  salvage
recovery.

     To date, the Company has not received any environmental claim notices,  nor
is management aware of any potential environmental claims.


<PAGE>


     Investments
     -----------

     Insurance company investment  practices must comply with insurance laws and
regulations.  Generally, insurance laws and regulations prescribe the nature and
quality of, and set limits on, various types of  investments,  which may be made
by CCS.

     CCS's  investment  portfolios  generally  are managed to  maximize  any tax
advantages to the extent available while minimizing credit risk with investments
concentrated  in high quality,  fixed income  securities.  CCS's  portfolios are
managed to provide  diversification  by limiting  exposures  to any one issue or
issuer and to provide liquidity by investing in the public  securities  markets.
Portfolios are structured to support CCS's  operations and in  consideration  of
the expected  duration of liabilities  and short-term  cash needs.

     An Investment Committee of CCS's Board of Directors establishes  investment
policy and oversees the management of the portfolios.

     Marketing
     ---------

     CCS principally  markets its products in twenty-seven  states, the District
of Columbia and Guam in which it is licensed and  indirectly in all other states
through its joint partnering agreements with The St. Paul and Peerless Insurance
Company. Its products are marketed primarily through SSI, SG, SA and independent
agents and producers, including multi-line agents and brokers that specialize as
surety  specialists,  many of whom are members of the  National  Association  of
Surety Bond Producers. CCS uses specialized general agencies to market its other
liability insurance products.

 Competition
 -----------

     The insurance industry is a highly competitive industry. There are numerous
firms, particularly in the specialty surety markets, which compete for a limited
volume of business.  Competition is based upon price, service, products offered,
and financial strength of the insurance company. There are a number of companies
in the industry, which offer products similar to the Company's.

     The Company  competes in the small to medium size  contract and  commercial
surety bond markets.  Primary competitors include large multi-line companies, as
well as small regional companies that specialize in the surety market. While the
surety industry has experienced  slow premium growth,  competition has increased
as a result of 10 years of profitable underwriting experience.  This competition
has typically  manifested  itself through  reduced  premium  rates,  and greater
tolerance for relaxation of  underwriting  standards.  Management  believes such
competition will continue.

     The Company, while competitive in pricing and commission, believes that the
availability of its proprietary  Bond-Pro(R)  surety issuance system,  specialty
underwriting,  managerial  experience  and service  are its primary  competitive
factors in the industry.  To this end, the Company  believes that its technology
and  specialization  in  underwriting  niche  surety  markets  will enable it to
continue to compete  effectively,  even when  challenged by the larger  standard
market companies.


<PAGE>


     Regulation
     ----------

     The Company's subsidiaries are subject to varying degrees of regulation and
supervision in the jurisdictions in which they transact business under statutes,
which  delegate  regulatory,  supervisory,  and  administrative  powers to State
insurance  regulators.  In general, an insurer's state of domicile has principal
responsibility  for such regulation.  It is designed generally to protect policy
holders  rather than  investors  and relates to matters such as the standards of
solvency which must be  maintained;  the licensing of insurers and their agents;
examination of the affairs of insurance companies,  including periodic financial
and  market  conduct  examinations;  the  filing  of annual  and other  reports,
prepared on a statutory  basis,  on the  financial  condition of insurers or for
other purposes;  establishment and maintenance of reserves for unearned premiums
and losses;  and  requirements  regarding  numerous other  matters.  Licensed or
admitted  insurers  generally  must file with the  insurance  regulators of such
states, or have filed on its behalf, the premium rates and bond and policy forms
used within each state. In some states, approval of such rates and forms must be
received from the insurance regulators in advance of their use.

     CCS is  domiciled  in Florida and  licensed in 27 states,  the  District of
Columbia  and Guam.  SSI, SG and SA are  licensed in Florida,  Georgia and South
Carolina respectfully.  CCS is also regulated by the United States Department of
the Treasury as an acceptable surety for Federal bonds.

     Holding  company  laws impose  standards  on certain  transactions  between
registered  insurers and their  affiliates,  which include,  among other things,
that the terms of the  transactions  be fair and  reasonable and that the books,
accounts and records of each party be maintained so as to clearly and accurately
disclose the precise  nature and details of the  transactions.  Holding  company
laws also generally  require that any person or entity  desiring to acquire more
than a specified percentage  (commonly 10%) of the Company's  outstanding voting
securities,  is  required  first to obtain  approval of the  applicable  state's
insurance regulators.

     The National Association of Insurance  Commissioners ("NAIC") has adopted a
risk-based  capital ("RBC") model law for property and casualty  companies.  The
RBC model law is  intended  to  provide  standards  for  calculating  a variable
regulatory capital requirement related to a company's current operations and its
risk exposures (asset risk, underwriting risk, credit risk and off balance sheet
risk).  These standards are intended to serve as a diagnostic  solvency tool for
regulators that establishes uniform capital levels and specific authority levels
for regulatory interventions when an insurer falls below minimum capital levels.
The model laws  specifies  four distinct  action levels at which a regulator can
intervene with  increasing  degrees of authority over a domestic  insurer as its
financial conditions deteriorates.  These RBC levels are based on the percentage
of an insurers  surplus to its calculated  RBC. The company's RBC is required to
be disclosed in its statutory  annual  statement.  The RBC is not intended to be
used as a rating or  ranking  tool nor is to be used in premium  rate  making or
approval.  The Company  calculated its RBC  requirements as of December 31, 2001
and met the standards under the NAIC guidelines.


<PAGE>


     Controlling Shareholders
     ------------------------

     Francis Williams, and KC (collectively  "Majority  Shareholder") owns 79.6%
of the outstanding  ordinary shares of the Company and collectively  control the
policies  and  affairs  of the  Company.  Circumstances  may  arise in which the
interest of the Majority  Shareholder  of the Company  could be in conflict with
the interest of the other holders of the common stock. In addition, the Majority
Shareholder may have an interest in pursuing acquisitions, divestitures or other
transaction that in their judgement, could enhance their equity investment, even
though such  transactions  might involve risk to the other holders of the common
stock.

     Employees
     ---------

     On December 31, 2001,  the Company had 47 employees.  All are employed on a
full-time basis. None of the Company's employees are union members or subject to
collective bargaining agreements.



<PAGE>


     Forward-looking Statements
     --------------------------

     All  statements,  other than  statements of historical  facts,  included or
incorporated by reference in this Form 10-K which address activities,  events or
developments  which the Company expects or anticipates  will or may occur in the
future,  including  statements  regarding  the Company's  competitive  position,
changes  in  business   strategy  or  plans,   the  availability  and  price  of
reinsurance,  the Company's ability to pass on price increases, plans to install
the  Bond-Pro(R)  program  in  independent  insurance  agencies,  the  impact of
insurance laws and regulation,  the  availability of financing,  reliance on key
management  personnel,  ability to manage  growth,  the  Company's  expectations
regarding the adequacy of current  financing  arrangements,  product  demand and
market  growth,  and other  statements  regarding  future plans and  strategies,
anticipated events,  trends or similar  expressions  concerning matters that are
not historical facts are forward looking statements.  These statements are based
on  certain  assumptions  and  analyses  made by the  Company  in  light  of its
experience  and its  perception of historical  trends,  current  conditions  and
expected  future  developments as well as factors it believes are appropriate in
the circumstances. However, whether actual results and developments will conform
with the Company's  expectations and predictions is subject to a number of risks
and uncertainties  which could cause actual results to differ  significantly and
materially from past results and from the Company's expectations,  including the
risk factors discussed in this Form 10-K, Item 1 and 7A, and other factors, many
of which  are  beyond  the  control  of the  Company,  consequently,  all of the
forward-looking  statements  made in this  Form  10-K  are  qualified  by  these
cautionary  statements  and there can be no assurance that the actual results or
developments   anticipated   by  the  Company  will  be  realized  or,  even  if
substantially  realized  that  they will have the  expected  consequences  to or
effects on the Company or its business or operations.

     Item 2.   Properties
     ------    ----------

     The  Company's  operating  subsidiaries  rent or lease  office space in the
cities in which they are  located.  CCS and Qualex  lease office space in Tampa,
Florida from a company owned by Francis  Williams,  the Chairman of the Board of
the Company, at a monthly rate of $12,876, pursuant to a lease that was executed
June 1, 1999 and is effective through May 31, 2009.

     Management  considers  the  rented  and  leased  office  facilities  of its
subsidiaries   adequate  for  the  current  and  anticipated   future  level  of
operations.

     Item 3.   Legal Proceedings
     ------    -----------------

     CCS has been named in a class action lawsuit. The plaintiffs are clients of
a  registered  investment  advisor  (the  "Advisor")  and have  alleged that the
Advisor,  a registered  broker-dealer,  and certain other defendants  (excluding
CCS)  were  negligent  or  otherwise  responsible  for  losses  suffered  by the
plaintiffs resulting from embezzlement of the plaintiffs' investments by a third
party.  As a separate count in the lawsuit,  the  plaintiffs  have also asserted
claims against CCS based on a policy of insurance  issued by CCS to the Advisor.
The policy does not provide coverage for embezzlement,  rather it insures losses
caused  by  market  declines,  providing  that  the  Advisor  has  followed  the
investment  guidelines  required  by the  policy.  CCS  denies  the  plaintiff's
allegations,  however,  it cannot  predict the outcome or the impact this action
could have on CCS. CCS is vigorously  defending this lawsuit and intends to move
for summary judgment.

<PAGE>


     The Company and its  subsidiaries  are involved in various lawsuits arising
in the ordinary course of its business operations as an insurer. Management does
not  believe  that any of these  lawsuits  will  have a  material  effect on the
consolidated financial position, future operations or cash flows of the Company.

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

     None

     Executive Officers of the Registrant
     ------------------------------------

     All of the following persons are regarded as executive  officers because of
their   responsibilities  and  duties  as  elected  officers  of  the  Company's
subsidiaries.  Other than Francis M.  Williams and Joseph M.  Williams (See Item
10),  there are no  family  relationships  between  any of  Company's  executive
officers and directors,  and there are no arrangements or understandings between
any of these  officers  and any other  person  pursuant to which the officer was
selected as an officer.

----------------------------    --------------      --------   -----------------
                                   Position
Name                            Presently Held      Entity     Period of Service
----------------------------    --------------      --------   -----------------

Joseph  M.Williams..........    President           CTI        06/1992 to date

Edward J. Edenfield, IV.....    President           CCS        05/1996 to date
                                President           SSI        06/1997 to date
                                President           SG         01/1998 to date
                                President           SA         01/1998 to date

Carol S. Black..............    Secretary           CTI        06/1995 to date
                                Secretary/Treasurer CCS        06/1995 to date
                                Secretary           SSI        08/1995 to date
                                Secretary/Treasurer Qualex     08/1995 to date
                                Secretary           SG         08/1995 to date
                                Secretary           SA         08/1995 to date

Edward A. Mackowiak.........    President           Qualex     11/1994 to date

Sam H. Newberry.............    Vice President      SG         01/1998 to date



<PAGE>


                                     PART II
                                     -------

Item 5.  Market for the Company's Common Equity and Related Stockholders Matters
------   -----------------------------------------------------------------------

     The  Company's  common  stock  (symbol  "CUMB")  has  been  traded  in  the
over-the-counter  market since October 1, 1992. Effective December 16, 1996, the
Company was approved and included in the trading on the Nasdaq SmallCap  Market.
High and Low bid prices were set forth in Quotation  Market Sheets  published by
Nasdaq. The high and low bid prices for 2001 and 2000 were as follows:

                                               Bid Information
                                               ---------------
                                       2001                   2000
                              --------------------------------------------------
                                   High      Low         High        Low
                              --------------------------------------------------
First Quarter..............   $  1 29/32  $  1 3/8    $  1 3/4    $  1 1/2
Second Quarter ............       1 1/10    1 1/10       1 7/8     1 23/32
Third Quarter .............        49/50      9/10     1 13/16       1 3/4
Fourth Quarter ............        19/20     19/20       2 1/2       2 1/2

     As of March 15, 2002,  there were 815  stockholders of record of the common
stock.  A number of such  holders  are brokers  and other  institutions  holding
shares in "street name" for more than one beneficial owner.

     The Company recently  received a letter from The Nasdaq Stock Market,  Inc.
to the  effect  that its  shares  failed to meet the  Nasdaq  SmallCap  Market's
minimum price  requirement of $1.00 per share for 30  consecutive  trading days.
The  Company's  share are subject to delisting  unless prior to August 13, 2002,
the shares close at $1.00 or more for a minimum of 10 consecutive  trading days.
Nasdaq could require a longer period of  compliance to avoid  delisting.  If the
qualification  requirements have not been met by the specified times, the shares
will likely be delisted,  in which case the Company's  shares may be eligible to
be traded on the Nasdaq  Over-the  Counter  Bulletin  Board,  if a broker-dealer
makes a market in them and requests that they be included,  and subject to other
conditions.

     Dividends
     ---------

     The  payment by the Company of  dividends,  if any, in the future is within
the  discretion  of its Board of  Directors  and will depend upon the  Company's
earnings,  capital  requirements  (including  working capital needs),  and other
financial  needs.  The Company did not declare or pay dividends in 2001 and does
not  anticipate  paying any dividends on the Company's  Common Stock in the near
future.

     The future payment of dividends, if any, by CCS is within the discretion of
its  Board  of  Directors  and  will  depend  upon  CCS's  earnings,   statutory
limitations,   capital  requirements   (including  working  capital  needs)  and
financial  condition,  as well as other relevant factors.  Applicable state laws
and  regulations  restrict  the  payment  of  dividends  by CCS to the extent of
surplus  profits less any dividends that have been paid in the preceding  twelve
months or net  investment  income for the year,  whichever  is less,  unless CCS
obtains prior approval from the insurance commissioner.  CCS does not anticipate
paying any dividends on CCS common stock in the near future.



<PAGE>

Item 6.   Selected Financial Data
------    -----------------------

     The  following  selected  financial  data  are  taken  from  the  Company's
consolidated  financial statements.  The data should be read in conjunction with
the  accompanying  consolidated  financial  statements  and the  related  notes,
Management's Discussion and Analysis and other financial information included in
this Form 10-K.
<TABLE>
<CAPTION>

                                                                                       Year Ended December 31,
                                                             -------------- -------------- --------------- -------------- ----------
                                                                  2001            2000           1999           1998           1997
                                                             -------------- -------------- --------------- -------------- ----------
                                                                                (In Thousands - except per share data)
<S>                                                           <C>             <C>            <C>            <C>             <C>

Statement of Operations Data:
----------------------------
    Net premium income ................................       $ 13,641        $ 12,128       $  9,618       $  7,534        $  5,684
    Net investment income .............................            605             576            333            377             408
    Net realized capital gains (losses) ...............            306              38            129           (437)            202
    Commission and other income .......................          1,909           1,683          1,375          1,537           1,476
        Total revenue .................................         16,461          14,425         11,455          9,011           7,770

    Benefits and expenses .............................         16,034          12,416         10,056          9,214           7,474
    Impairment of long-lived assets ...................            437            --             --             --              --
    Interest expense ..................................            166             203            214            118             125
    Income (loss) from continuing
       operations before extraordinary item ...........           (176)          1,806          1,185           (321)            171
    Income tax (benefit) expense.......................            (76)            764             37           --              --
    Extraordinary gain on restructuring of
        note, net of tax ..............................            158            --             --             --              --
    Net income(loss)...................................             58           1,042          1,148           (321)            171
Income (loss) per common share - diluted...............       $   0.01        $   0.19       $   0.21       $  (0.06)       $   0.03

</TABLE>

<TABLE>
<CAPTION>


                                                                                       Year Ended December 31,
                                                             ---------      ---------       ------------   ------------    ---------
                                                                 2001           2000            1999          1998              1997
                                                             ---------      ---------       ------------   ------------    ---------
                                                                                           (In thousands)
<S>                                                         <C>             <C>              <C>          <C>              <C>

Assets Balance Sheet Data:
-------------------------
    Investments .......................................      $ 10,815        $ 9,955         $ 8,394       $ 3,987          $  6,469
    Cash and cash equivalents .........................         2,654            694           2,000         4,202             1,804
    Accrued investment income .........................           154            185              66            55              --
    Accounts receivable ...............................         4,687          4,258           3,301         3,105             1,966
    Reinsurance recoverable ...........................         3,844          4,910           2,898         2,306             2,017
    Deferred policy acquisition costs .................         1,904          1,955           1,601         1,247               813
    Intangibles .......................................           534          1,115           1,267         1,456             1,681
    Other investment ..................................           641            583             559           553               244
    Deferred tax asset ................................           499            175             305          --                --
    Income tax recoverable ............................            -             168             --           --                --
    Other assets ......................................           372            311             315           354               327
    Total assets ......................................     $  26,104        $24,309         $20,706       $17,265         $  15,321

Policy Liabilities and Accruals:
-------------------------------
    Unearned premiums .................................     $   5,583        $ 5,775         $ 4,844       $ 3,750         $   2,629
    Losses and LAE ....................................         4,113          5,186           4,577         3,220             2,550
    Derivative instruments ............................         1,979          --                --           --                --
    Ceded reinsurance and accounts payable ............         5,143          3,359           2,277         2,615             2,714
    Income tax payable ................................           113          --                 35          --                --
    Term note to affiliate ............................           604          1,000           1,000         1,000              --
    Non affiliate debt ................................           652          1,103           1,281         1,331             1,419
    Total liabilities .................................        18,187         16,423          14,014        11,916             9,312
    Total stockholders' equity ........................     $   7,917        $ 7,886         $ 6,692       $ 5,349         $   6,009

</TABLE>


<PAGE>

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

Critical Accounting Policies
----------------------------

     The  preparation of  consolidated  financial  statements in conformity with
accounting  principles  generally  accepted in the United  States  requires  the
Company to make estimates and  assumptions  that affect the reported  amounts of
assets and liabilities  and the 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.  These estimates and assumptions are based
on  historical  experience  and various  other  factors  that are believed to be
reasonable  under the  circumstances.  Actual  results  could  differ from these
estimates under different assumptions or conditions.

     The  Company  believes  the  following  accounting  policies  are the  most
critical since these policies  require  significant  judgment or involve complex
estimations  that are  important  to the  portrayal of the  Company's  financial
condition and operating results:

     The Company records valuation  allowances to reduce the deferred tax assets
to the amount  that is more likely  than not to be  realized.  While the Company
considers taxable income in assessing the need for a valuation allowance, in the
event the Company determines it would be able to realize its deferred tax assets
in the future in excess of the net recorded amount,  an adjustment would be made
and income increased in the period of such determination. Likewise, in the event
the  Company  determines  it  would  not be able to  realize  all or part of its
deferred  tax assets in the  future,  an  adjustment  would be made and  charged
against income in the period of such determination.

     The Company  reviews  long-lived  assets,  including  goodwill  and certain
identifiable   intangibles,   for  impairment  whenever  events  or  changes  in
circumstances  indicate  that  the  carrying  value  of  an  asset  may  not  be
recoverable.  Upon  determination  that  the  carrying  value  of the  asset  is
impaired,  the Company would record an impairment charge or loss. Future adverse
changes  in  market  conditions  or poor  operating  results  of the  underlying
investment  could result in losses or an inability to recover the carrying value
of the  investment  that may not be  reflected  therein;  and  therefore,  might
require the Company to record an impairment charge in the future.

     Statement  of  Financial   Accounting  Standard  No.  133,  Accounting  for
Derivative  Instruments and Hedging  Activities ("SFAS No.133") is effective for
all fiscal  years  beginning  after June 15,  2000.  SFAS No.  133,  as amended,
establishes  accounting  and  reporting  standards for  derivative  instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging activities. Under SFAS No. 133, certain contracts that were not formerly
considered derivatives may now meet the definition of a derivative.  The Company
adopted  SFAS No. 133  effective  January 1, 2001.  The Company  identified  one
product that meets the definition of a derivative  instrument as defined in SFAS
No. 133. The identified  derivative  was formerly  accounted for as an insurance
contract within the policy  liabilities  for loss and loss  adjustment  expenses
account in the  consolidated  balance sheet. At December 31, 2001 the fair value
of the derivative instrument has been determined by using a financial model that
incorporates  market data and other  assumptions.  Due to the  volatility in the
marketplace,  the Company has  suspended  marketing  of this  product  effective
September 2001.


<PAGE>


     The liability for loss and loss adjustment  expenses including incurred but
not  reported  losses is based on the  estimated  ultimate  cost of settling the
claim using  traditional  paid and  incurred  loss  development  methods.  These
estimates are subject to the effects of trends in loss  severity and  frequency.
Although  considerable  variability  is inherent in such  estimates,  management
believes  that  the  liabilities  for  loss and  loss  adjustment  expenses  are
adequate.  The estimates are  continually  reviewed and adjusted as necessary as
experience  develops or new  information  becomes known.  Such  adjustments  are
included  in  current  operations.  A  liability  for all costs  expected  to be
incurred in connection  with the  settlement of unpaid loss and loss  adjustment
expenses is accrued  when the related  liability  for unpaid  losses is accrued.
Loss adjustment  expenses include costs associated directly with specific claims
paid or in the process of settlement,  such as legal and adjusters'  fees.  Loss
adjustment  expenses  also include  other costs that cannot be  associated  with
specific  claims but are related to losses paid or in the process of settlement,
such as internal costs of the claims function. The Company does not discount its
reserves for losses and loss adjustment  expenses.  The Company writes primarily
surety  contracts  which are of short  duration.  The Company  does not consider
investment  income in  determining  if a premium  deficiency  relating  to short
duration contracts exists.

Results of Operations
---------------------

     The  following  table sets forth,  for the periods  indicated,  (i) summary
financial  data (in  thousands),  and (ii) the  percentage  change in the dollar
amount for such items from period to period.

<TABLE>
<CAPTION>

                                                                                                     Percentage Increase (Decrease)
                                                                                                        Year Ended December 31,
                                                            Year Ended December 31,
                                             ---------------------------------------------------------------------------------------
                                                          2001            2000           1999          2001             2000
                                             ---------------------------------------------------------------------------------------
                                                                                  (In thousands)
<S>                                                   <C>             <C>           <C>             <C>               <C>

Net premium income ............................       $ 13,641        $ 12,128       $  9,618          12.5%            26.1%
Net investment income .........................            604             576            333           4.9%            73.0%
Net realized investment gains .................            306              38            129         705.3%          (70.5)%
Other income ..................................          1,909           1,682          1,375          13.5%            22.3%
Losses and loss adjustment
    expenses ..................................          4,045           3,360          2,395          20.4%            40.3%
Derivative expense ............................          1,061            --             --           100.0%             --
Amortization of deferred
    acquisition costs .........................          4,363           3,767          2,895          15.8%            30.1%
Operating expenses and interest ...............          6,730           5,491          4,980          22.6%            10.3%
Impairment of long-lived assets ...............            437            --             --           100.0%             --
Income (loss) from continuing
    operations ................................           (176)          1,806          1,185       (109.8)%            52.4%
Income tax (benefit) expense ..................            (76)            764             37       (109.9)%         1,964.9%
Income (loss) before extraordinary
    item ......................................           (100)          1,042          1,148       (109.6)%           (9.2)%
Extraordinary gain on restructuring of note,
    net of tax ................................            158            --             --           100.0%             --
Net income.....................................       $     58        $  1,042       $  1,148        (94.4)%           (9.2)%


</TABLE>


<PAGE>

      Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
      --------------------------------------------------------------------

     During the period  ended  December  31,  2001 and 2000,  earned  direct and
assumed premium was $18,253,687 and  $15,236,814,  respectively.  Overall earned
premiums,  net of ceded premiums increased 12.5% or $1,513,363.  The increase in
earned premiums is a result of CCS's continued growth in the surety bond market.
The following  table  represents  the written and earned premium for CCS and the
percentage  of  change  for  the  years  ended   December  31,  2001  and  2000,
respectively.

                      Written Premiums (000's)          Earned Premiums (000's)
                 ---------------------------------------------------------------
                     2001       2000    % Change       2001        2000  %Change
                 ---------------------------------------------------------------
Direct ........  $ 13,867   $ 13,775         .7%    $14,465   $  12,756    13.4%
Assumed .......     4,194      2,393       75.3%      3,788       2,481    52.7%
Ceded .........    (4,654)    (3,510)      32.6%     (4,612)     (3,109)   48.3%
                 --------   --------                -------      ------
    Total .....  $ 13,407   $ 12,658        5.9%    $13,641   $  12,128    12.5%
                 ========   ========                =======   =========

     During the years ended December 31, 2001 and 2000,  net  investment  income
earned was $604,463 and $576,406,  respectively.  The return on average invested
assets was 6.01% for the year 2001 as compared  to 6.28% for the year 2000.  The
slight decrease in the return is attributed to the decrease in overall  interest
rates.  Net realized  gains for the years ended  December 31, 2001 and 2000 were
$305,461 and $38,381,  respectively. Net realized gains during 2001 are a result
of gains on bond  disposals of $329,360  which is offset by losses of $23,899 on
stock disposals. Realized gains in year 2000 are attributed to stock disposals.

     Other  revenue  consists  primarily  of  commissions  earned by  subsidiary
agencies and fee revenue earned by a subsidiary  claim-consulting group. For the
year ended  December 31, 2001,  other  revenues  increased by $227,283 or 13.5%,
which is primarily  attributable  to increased  business by the Company's  claim
consulting subsidiary.

     Loss  and  loss  adjustment  expenses  including   derivative  expense  was
$5,106,377  and  $3,360,358  for the years  ended  December  31,  2001 and 2000,
respectively.  The increase of $1,746,019 or 52% is attributed to an increase in
derivative  expense and assumed  claims expense when compared to the same period
in the prior year.  The  increase on assumed  claims is  attributable  to claims
associated  with the joint  partnering  agreement  with SSI where CCS  assumes a
portion of the risk underwritten.  The Company adopted SFAS No. 133,  Accounting
for  Derivative  Instruments  and  Hedging  Activities  on January 1, 2001.  CCS
identified one product that met the definition of a derivative  instrument under
SFAS No. 133, and recorded an additional $1,060,799 in derivative expense during
2001.  Derivative expenses represent additional charges recorded by CCS that are
necessary to account for the derivative instrument at fair value. The fair value
of the derivative instrument is calculated using a financial model, inclusive of
certain assumptions and market data.

     The  following  table  reflects the 2001 activity for CCS as it pertains to
earned premiums and incurred claims and derivative expense:

                                           -------------------------------------
                                                          Loss LAE and
                                           Earned          Derivative
                                           Premiums          Expense       Ratio
                                           -------------------------------------
Direct surety premiums, net ..........     $ 8,709,977     $ 2,874,915     33.0%
Assumed surety premiums, net .........       3,788,443       1,170,663     30.9%
Other liability premiums, net ........       1,142,896       1,060,799     92.8%
                                           -----------     -----------
     Total ...........................     $13,641,316     $ 5,106,377
                                           ===========     ===========

<PAGE>

     During the year ended  December 31, 2001 the net  amortization  of deferred
policy  acquisition  costs were to $4,362,721 as compared to $3,767,107  for the
year ended December 31, 2000. The acquisition costs represent 23.9% and 24.7% of
the direct and assumed earned premiums for the years ended December 31, 2001 and
2000, respectively.

     During the year ended  December  31,  2001,  operating  expenses and taxes,
licenses  and  fees  (excluding  income  taxes)  increased  to  $6,563,919  from
$5,288,520 in 2000. The increase of $1,275,399 or 24.1% is a result of increased
salary and related  expenses,  actuarial and consulting fees associated with the
derivative  valuation,  legal  fees,  travel  and  related  expenses  and  other
miscellaneous  expenses.  The Company began direct  marketing in the surety bond
market in 1997. Through 2001, the Company has produced approximately $67 million
in gross written  premiums and $52 million in premiums net of  reinsurance.  The
increase in expenses is associated  with the Company's  continued  expansion and
administration costs.

     In accordance  with Statement of Financial  Accounting  Standard 121 ("SFAS
121"), goodwill and other long-lived assets that were capitalized in conjunction
with the purchase of Associates Acquisition Corp., d/b/a Surety Associates, were
deemed  impaired as of December  31,  2001,  and an asset  impairment  charge of
$437,418 was recorded.

     Interest  expense on  non-affiliated  debt is  interest  paid to the former
owners of The Surety  Group and Surety  Associates  on notes due to agencies the
Company purchased in 1995.  Interest on affiliated debt represents interest on a
note payable to TransCor, a division of KC.

     The Company  incurred income tax (benefit)  expense during 2001 and 2000 of
$(75,932) and $764,390,  respectively.  The Company's effective tax rate for the
2001 is 26.7% and 42% for 2000.

      Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
      ---------------------------------------------------------------------

     Written direct and assumed  premiums  reached a record  $16,168,734  during
2000. Overall written premiums,  net of ceded premiums,  increased by $2,160,885
or 20.6% when compared to the same period in 1999. Earned premiums  increased by
$2,510,161 or 26.1% to $12,127,953 for 2000 compared to $9,617,792 for 1999. The
increase in earned premiums  resulted from CCS's continued  growth in the direct
surety bond market.

     During 2000, premiums written by CCS increased as a result of the continued
marketing  direction of the Company,  which is to  penetrate  the direct  market
while  decreasing the volume of reinsurance  premiums  assumed  through  pooling
agreements.  CCS's  reinsurance  assumed  premium  is a result  of  quota  share
agreements  whereby  CCS assumes a portion of the  premiums  written by agencies
contracted to produce business using The Company's Bond-Pro(R) issuance program.
The increase in ceded premiums is correlated to the direct  premium  written and
the  association  to excess of loss  treaties on these  premiums.  The following
table reflects the written premium activity,  net of reinsurance ceded, for 2000
and 1999.

                                                       Written Premiums
                                       -----------------------------------------
                                               2000             1999    % Change
                                       -----------------------------------------
Direct ............................    $ 13,775,266     $ 10,816,114       27.4%
Assumed ...........................       2,393,468        2,421,346      (1.2)%
Ceded .............................      (3,510,537)      (2,740,148)      28.1%
                                       ------------     ------------      ------
    Total .........................    $ 12,658,197     $ 10,497,312       20.6%
                                       ============     ============      ======

<PAGE>


     During the year ended  December 31, 2000 and 1999,  net  investment  income
earned was $576,406 and $333,462, respectively. Net realized gains for the years
ended  December 31, 2000 and 1999 were $38,381 and $129,101,  respectively.  The
increase in net investment income is attributed to a reallocation of investments
from money market funds to the bond portfolio. Net realized gains includes other
than temporary losses of $231,686 from certain investments.

     Other  income  consists  primarily  of  commissions  earned  by  subsidiary
agencies and fee revenue earned by a subsidiary claims consulting group. For the
year ended  December 31, 2000,  other  revenues  increased by $307,249 or 22.3%,
which is  attributable to increased  business by the Company's claim  consulting
subsidiary.

     Losses and loss adjustment expenses increased to $3,360,258 from $2,394,532
for the year ended  December  31, 2000 and 1999,  respectively.  The increase of
$965,726  or 40.3%  is  attributed  to  claims  arising  from  increased  direct
writings. Losses as a percentage of earned premiums were 27.7% and 24.9% for the
years ended December 31, 2000 and 1999,  respectively.  Direct  incurred  losses
increased  $1,498,196  or  89.0%  while  losses  under  the  assumed  agreements
decreased  $475,117 or 72.7% when  comparing  current  year to prior  year.  The
following  tables  reflects the 2000 activity as it pertains to earned  premiums
and incurred claims:

                                   ---------------------------------------------
                                     Earned            Loss and LAE
                                    Premiums           Expense Incurred    Ratio
                                   ---------------------------------------------
Direct, net ..............         $ 9,647,241         $ 3,182,274         33.0%
Assumed, net .............           2,480,712             178,084          7.2%
                                   -----------         -----------         ----
Total ....................         $12,127,953         $ 3,360,358         27.7%
                                   ===========         ===========         ====

     During the year ended  December 31, 2000 the net  amortization  of deferred
policy  acquisitions  costs increased to $3,767,107 from $2,895,834 for the year
ended  December 31, 1999.  The increase is  attributed to the increase in earned
premiums.

     During the year ended  December  31,  2000,  operating  expenses and taxes,
licenses  and  fees  (excluding  income  taxes)  increased  to  $5,288,520  from
$4,766,101  in 1999.  The  increase of $522,419 or 11% is a result of  increased
salary  expense  including  bonuses,  payroll  taxes and  employee  benefits  of
$617,066 and a decrease in general office  expenses of $94,647.  The increase in
salary  and  consulting  expenses  is  attributable  to the  cost of  additional
personnel and results from the Company's growth.

     Interest  expense on  non-affiliated  debt is  interest  paid to the former
owners of The Surety  Group and Surety  Associates  on notes due to agencies the
Company purchased in 1995.

     The  Company  incurred  income tax  expenses  during  2000 of  $764,390  as
compared  to $36,686  during  1999.  The income tax  expense  for the year ended
December 31, 1999 includes the reversal of a valuation allowance of $466,799.


<PAGE>

Liquidity and Capital Resources
-------------------------------

     The capacity of a surety company to underwrite insurance and reinsurance is
based on maintaining  liquidity and capital  resources  sufficient to pay claims
and expenses as they become due. Based on standards  established by the National
Association  of Insurance  Commissioners  (NAIC) and  promulgated by the Florida
Department of Insurance, the Company is permitted to write net premiums up to an
amount equal to three times its statutory surplus, or approximately  $19,509,655
at December 31, 2001.  Statutory  guidelines impose an additional  limitation on
increasing net written  premiums to no more than 33% of prior year's net written
premiums.  Under  these  guidelines,  the  Company  could  increase  net written
premiums by approximately $4,400,000.

     At December  31,  2001,  the  Company's  $26,104,019  of total  assets were
distributed   primarily  as  follows:  52.2  percent  in  cash  and  investments
(including  accrued  investment   income),   32.7  percent  in  receivables  and
reinsurance  recoverables,  9.3  percent  in  intangibles  and  deferred  policy
acquisition  costs,  1.9 percent in deferred income tax asset and 3.9 percent in
other assets.

     The Company follows  investment  guidelines that are intended to provide an
acceptable return on investment while maintaining  sufficient  liquidity to meet
its obligations.

     Net cash  provided by operating  activities  was  $2,811,695,  $214,494 and
$1,965,077 for the years ended December 31, 2001,  2000 and 1999,  respectively.
In 2001 and 2000,  the cash  provided  by  operating  activities  was  primarily
attributed to an increase in policy liabilities and accruals.  In 1999, the cash
provided by operating activities was primarily  attributable to increases in net
income and accrued policy liabilities on claims and reinsurance.

     Net cash used in investing  activities  was  $(630,772),  $(1,316,601)  and
$(4,133,973) for the years ended December 31, 2001, 2000 and 1999, respectively.
Investing activities consist primarily of purchases and sales of investments.

     Net cash  used in  financing  activities  was  $(220,570),  $(204,262)  and
$(33,308) for the years ended  December 31, 2001,  2000 and 1999,  respectively.
Financing  activities consist primarily of repayments on borrowings and advances
to (from) affiliates during 2001, 2000 and 1999.

     The following  summarizes  the Company's  contractual  cash  obligations at
December  31, 2001 and the effect such  obligations  are expected to have on its
liquidity and cash flow in future periods.

<TABLE>
<CAPTION>


                                                                              Payments Due by Period (in thousands)
                                                                  ------------------------------------------------------------------
                                                                             Less than 1         1-3             4-5         After5
                                                                   Total         Year           Years           Years         Years
                                                                  ------------------------------------------------------------------
Contractual cash obligations:
----------------------------
<S>                                                              <C>            <C>            <C>            <C>            <C>
Operating leases ........................................         $1,473         $  224         $  439         $  393         $  417
                                                                  ------         ------         ------         ------         ------
Total contractual cash obligations ......................         $1,473         $  224         $  439         $  393         $  417
                                                                  ======         ======         ======         ======         ======
</TABLE>

     At  December  31,  2001 and  2000,  the  Company  did not  have  any  other
commercial commitments, such as guarantees or standby repurchase obligations, or
any relationships with unconsolidated entities or financial  partnerships,  such
as entities often referred to as structured finance or special purpose entities,
which would have been  established for the purpose of  facilitating  off-balance
sheet arrangements or other contractually narrow or limited purposes.


<PAGE>


Losses and Loss Adjustment Expenses
-----------------------------------

     The consolidated  financial  statements include the estimated liability for
unpaid losses and loss  adjustment  expenses (LAE) of CCS. The  liabilities  for
losses and LAE's are determined  using  case-basis  evaluations  and statistical
projections  and  represent  estimates  of the  ultimate  net cost of all unpaid
losses and LAE's  incurred  through the end of the period.  These  estimates are
subject to the effect of trends in future claim  severity and  frequency.  These
estimates  are  continually   reviewed  and,  as  experience  develops  and  new
information  becomes  known,  the  liability  is  adjusted  as  necessary;  such
adjustments, if any, are included in current operations.

Reconciliation of Liability for Losses and Loss Adjustment Expenses
-------------------------------------------------------------------

     The following table provides a  reconciliation  of the beginning and ending
liability balances, net of reinsurance  recoverable,  for 2001, 2000 and 1999 to
the gross amounts reported in the Company's balance sheets:

<TABLE>
<CAPTION>


                                                                                                      December 31,
                                                                                       ---------------------------------------------
                                                                                             2001           2000           1999
                                                                                       ---------------------------------------------
<S>                                                                                    <C>          <C>             <C>
Liability for losses and LAE, net of  reinsurance
    recoverable on unpaid losses, at beginning
    of year .......................................................................    $2,416,657    $ 2,808,727    $ 1,680,580
                                                                                       ----------    -----------    -----------
Incurred losses and LAE's claims, net of reinsurance, occurring during:
   Current year ...................................................................     4,982,148      4,363,435      2,810,532
   Prior year .....................................................................      (936,570)    (1,003,077)      (416,000)
                                                                                      -----------    -----------      ---------
Total incurred losses, net of reinsurance .........................................     4,045,578      3,360,358      2,394,532
Losses and LAE payments for claims, net of
   reinsurance, occurring during:
   Current year ...................................................................     1,331,813      2,450,587        135,635
   Prior years ....................................................................     1,017,190        383,749      1,130,750
                                                                                      -----------    -----------      ---------
Total payments ....................................................................     2,349,003      2,834,336      1,266,385
Liability for losses and LAE, net of reinsurance
   recoverable on unpaid losses, at end of year ...................................     4,113,232      3,334,749      2,808,727
Liability for derivative instrument at end of
   the year .......................................................................          --         (918,092)          --
Subrogation recoverables...........................................................          --        1,850,877      1,767,812
                                                                                      -----------    -----------      ---------
Liability for losses and LAE, gross of reinsurance
   recoverables on unpaid losses, at end of year ..................................   $ 4,113,232    $ 4,267,534    $ 4,576,539
                                                                                      ===========    ===========    ===========

</TABLE>

     The Company experienced  $936,570,  $1,003,077 and $416,000 in redundancies
for losses and loss adjustment expenses in 2001, 2000 and 1999 respectively. The
redundancies  principally result from subrogation  received on pooling agreement
case  base  reserves  and  claims in prior  years.  KC and SSI  entered  into an
agreement  with  an  independent  contractor,  AEC  on  August  16,  1989  on  a
construction  contract  with the United  States Navy  ("Navy").  At the time the
bonds  were  issued  by  CCS as  surety,  KC  entered  into  an  indemnification
agreement,  whereby  KC  indemnified  CCS from  any and all  losses,  costs  and
expenses  incurred  related  to the  bonds.  In  1991,  the Navy  defaulted  and
terminated AEC on the contract.  The contract was subsequently litigated and CCS
was  unsuccessful in its litigation  activities  with the Navy. As a result,  KC
reimbursed CCS $1,500,000 of the total subrogation  recoverable of $1,851,000 in
November 2001 on the contract.  CCS wrote off the remaining $351,000 reinsurance
recoverable  as a charge to loss and loss  adjustment  expense  and  incurred an
additional $240,000 in legal fees during 2001.

<PAGE>


     The  anticipated   effect  of  inflation  is  implicitly   considered  when
estimating liabilities for losses and LAE. While anticipated price increases due
to inflation are considered in estimating the ultimate claim costs, the increase
in average severities of claims is caused by a number of factors. Future average
severities are projected  based on historical  trends  adjusted for  anticipated
changes in  underwriting  standards,  policy  provisions,  and general  economic
trends.  These anticipated  trends are monitored based on actual development and
are modified if necessary.

     The differences  between the December 31, 2001 liability for losses and LAE
reported in the  accompanying  consolidated  financial  statements in accordance
with generally accepted accounting  principles ("GAAP") and that reported in the
annual  statement filed with the state insurance  departments in accordance with
statutory accounting practices ("SAP") are as follows:

Liability for losses and LAE on a SAP basis
 (which is net of  reinsurance  recoverables on
 unpaid losses and LAE) ............................             $    5,091,080
Subrogation recoverable .............................                 1,001,043
Derivative instrument ...............................                (1,978,891)
                                                                 ---------------
Liability for losses and LAE, as reported
  in the accompanying GAAP basis consolidated
  financial statements ..............................            $    4,113,232
                                                                 ===============

Analysis of Loss and Loss Adjustment Expense Development
--------------------------------------------------------

     The following table  represents the development of the statutory  liability
for  unpaid  losses  and LAE,  net of  reinsurance,  for 1994  through  2001 (in
thousands).

<TABLE>
<CAPTION>

                                               1994       1995       1996       1997       1998         1999          2000      2001
                                            ---------  ---------  ---------  ---------  ---------  ---------   -----------   -------
<S>                                         <C>        <C>        <C>        <C>        <C>      <C>           <C>           <C>
Liability for losses and loss
  adjustment expenses, net
  of reinsurance ........................   $ 1,625    $ 1,053    $   595    $ 1,393    $ 1,680   $    2,809   $     3,335   $ 5,091
Liability re-estimated as of:
  One year later ........................     1,384      1,716        644      1,710      1,264        1,806         3,142      --
  Two years later .......................     1,420      1,815      1,013      1,711        655        1,188          --        --
  Three years later .....................     1,631      2,049      1,121      1,237        996         --            --        --
  Four years later ......................     1,726      2,036        818      1,686       --           --            --        --
  Five years later ......................     1,625      1,721      1,159       --         --           --            --        --
  Six years later .......................     1,328      2,083       --         --         --           --            --        --
  Seven years later .....................     1,640       --         --         --         --           --            --        --
                                            -------    -------    -------    -------    -------   ----------   -----------   -------
Cumulative (deficiency)
  redundancy ............................   $   (15)   $(1,030)   $  (564)   $  (293)   $   684   $    1,621   $       193   $ 5,091
                                            =======    =======    =======    =======    =======   ==========   ===========   =======

                                               1994       1995       1996       1997       1998         1999          2000      2001
                                            -------    -------    -------    -------    -------   ----------   -----------   -------
Cumulative amount of
  liability, net of
  reinsurance recoverables,
  paid through:
      One year later ....................   $ 1,643    $ 1,334    $   563    $ 1,802    $ 2,155   $    2,196   $     2,249   $  --
                                            =======    =======    =======    =======    =======   ==========   ===========   =======
      Two years later ...................   $ 2,316    $ 2,186    $ 1,631    $ 2,856    $ 1,878   $       90   $      --     $  --
                                            =======    =======    =======    =======    =======   ==========   ===========   =======
      Three years later .................   $ 2,164    $ 2,997    $ 2,466    $ 2,575    $   488   $     --     $      --     $  --
                                            =======    =======    =======    =======    =======   ==========   ===========   =======
      Four years later ..................   $ 2,875    $ 3,506    $ 2,336    $ 1,345    $  --     $     --     $      --     $  --
                                            =======    =======    =======    =======    =======   ==========   ===========   =======
      Five years later ..................   $ 3,230    $ 3,360    $   929    $  --      $  --     $     --     $      --     $  --
                                            =======    =======    =======    =======    =======   ==========   ===========   =======
      Six years later ...................   $ 3,062    $ 1,903    $  --      $  --      $  --     $     --     $      --     $  --
                                            =======    =======    =======    =======    =======   ==========   ===========   =======
      Seven years later .................   $ 1,572    $  --      $  --      $  --      $  --     $     --     $      --     $  --
                                            =======    =======    =======    =======    =======   ==========   ===========   =======
</TABLE>

<PAGE>

Effect of Inflation
-------------------

     Inflation has not had a material  impact upon the Company's  operations for
the last three years.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk
-------    ----------------------------------------------------------

     Interest Rate Sensitivity
     -------------------------

     The  following  tables  present  principal  maturity cash flows and related
weighted average interest rates by expected maturity as of December 31, 2001 and
2000:


<TABLE>
<CAPTION>


                                                                           2001 Expected Maturity Date
                                                                           ---------------------------
                                                                                                                             Fair
                                                                                                      There-                 Value
                                              2002        2003       2004        2005       2006      after       Total    12/31/01
                                        --------------------------------------------------------------------------------------------
                                                                                 (In thousands)
<S>                                     <C>         <C>          <C>       <C>         <C>          <C>         <C>        <C>
Assets
------
Debt securities available for sale ...  $     502   $   3,424    $  1,140   $   1,757   $   1,071    $  1,445   $   9,339   $ 9,339
    Average interest rate ............        6.4%        5.3%        5.8%        6.7%        5.8%        7.2%        6.2%      6.2%

Debt securities held to maturity .....        --          260         100        --          --          --           360       374
    Average interest rate ............        --          5.5%        5.5        --          --          --           5.5%      5.5%

Mortgage loans .......................         2            2           2           2           2          32          41        41
    Average interest rate ............       7.5%         7.5%        7.5%        7.5%        7.5%        7.5%        7.5%      7.5%

Short-term investments ...............       434          --          --          --          --          --          434       434
    Average interest rate ............       5.3%         --          --          --          --          --          5.3%      5.5%

Liabilities
-----------
Debt including current
    portion ..........................  $    729   $      72   $      72    $     72   $      72    $    239   $   1,256    $ 1,256
    Average interest rate ............       8.1%        6.3%        6.3%        6.3%        6.3%        6.3%        6.6%       6.6%


</TABLE>

<PAGE>



<TABLE>
<CAPTION>
                                                                           2000 Expected Maturity Date
                                                                           ---------------------------

                                                                                                                             Fair
                                                                                                      There-                 Value
                                                2001      2002       2003       2004       2005       after       Total    12/31/00
                                           -----------------------------------------------------------------------------------------
                                                                                 (In thousands)
<S>                                        <C>         <C>      <C>         <C>        <C>         <C>        <C>        <C>
Assets
------
Debt securities available for sale .....   $    498    $  504    $  2,410    $  2,051   $   1,152  $    938   $   7,553   $   7,553
    Average interest rate ..............        5.5%      6.4%        5.9%        6.2%        7.3%      7.3%        6.4%        6.4%

Debt securities held to maturity .......        865      --           259         100        --         --        1,224       1,224
    Average interest rate ..............        6.3%     --           5.5         5.5%       --         --          5.8%        5.8%

Mortgage loans .........................        701         1           2           2           2        34         742         742
    Average interest rate ..............         .5%      7.5%        7.5%        7.5%        7.5%      7.5%        6.3%        6.3%

Short-term investments .................        434      --          --          --          --        --           434         434
    Average interest rate ..............        5.5%     --          --          --          --        --           5.5%        5.5%

Liabilities
-----------
Debt including current
    portion ............................   $  1,184    $  189   $      70    $     77    $     84  $    499   $   2,103   $   2,103
    Average interest rate ..............        9.0%      7.7%        8.6%        8.5%        8.4%      8.0%        8.4%        8.4%

</TABLE>

     The  operations of the Company are subject to risk  resulting from interest
rate fluctuations to the extent that there is a difference between the amount of
the  Company's  interest-earning  assets  and  the  amount  of  interest-bearing
liabilities that are prepaid/withdrawn,  mature or reprice in specified periods.
The principal objective of the Company's  asset/liability  management activities
is to provide maximum levels of net interest income while maintaining acceptable
levels of interest rate and liquidity risk and facilitating the funding needs of
the Company.

     Due to the  limited  nature and  duration of claims,  generally  one to two
years,  the Company  maintains a portfolio  with a yield that  approximates  the
money market interest rate scenario.

     Additionally,  the Company's exposure to rapid changes in interest rates is
partially  mitigated because most of the Company's  interest-earning  assets and
interest-bearing liabilities being written are at fixed rates.

     SFAS No. 133, Accounting for Derivative  Instruments and Hedging Activities
is effective for all fiscal years  beginning  after June 15, 2000. SFAS No. 133,
as amended,  establishes  accounting  and  reporting  standards  for  derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts,  and for hedging  activities.  Under SFAS No. 133, certain  contracts
that were not  formerly  considered  derivatives  now meet the  definition  of a
derivative.  The Company  adopted SFAS No. 133  effective  January 1, 2001.  The
Company  identified  one  product  that  meets the  definition  of a  derivative
instrument as defined in SFAS No. 133. The  identified  derivative  was formerly
accounted for as an insurance  contract  within the policy  liabilities for loss
and loss adjustment  expenses account in the consolidated  balance sheet.  Under
the  Registered  Investment  Advisors  professional  liability  coverage,   each
endorsed account is limited to a maximum liability coverage of $500,000.  Due to
the volatility in the marketplace,  the Company has suspended  marketing of this
product effective September 2001.


<PAGE>

     In July 2001,  Statement of Financial  Accounting Standards (SFAS) No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets"
were approved by the Financial  Accounting  Standards Board (FASB). SFAS No. 141
requires  that the  purchase  method  of  accounting  be used  for all  business
combinations  initiated after June 30, 2001. SFAS No. 142 changes the accounting
for  goodwill  from  an  amortization  method  to an  impairment-only  approach.
Amortization  of  goodwill,   including   goodwill  recorded  in  past  business
combinations,  will  cease  upon  adoption  of this  statement.  The  Company is
required  to  implement  SFAS No. 142 on January 1, 2002.  The  Company  has not
evaluated  the effect,  if any,  that the  adoption of SFAS 142 will have on the
Company's consolidated financial statements.

     In  August  2001,  the FASB  issued  SFAS No.  143,  Accounting  for  Asset
Retirement  Obligations ("SFAS 143"). SFAS 143 provides accounting and reporting
standards  related to  obligations  associated  with the  retirement of tangible
long-lived assets.  SFAS 143 is effective on January 1, 2003,  however,  earlier
application  is  encouraged.  The Company has not evaluated the effect,  if any,
that the adoption of SFAS 143 will have on the Company's  consolidated financial
statements.

     In  October  2001,  the  FASB  issued  SFAS  No.  144,  Accounting  for the
Impairment  or Disposal of Long-Lived  Assets  ("SFAS  144").  SFAS 144 provides
accounting and reporting  standards for the impairment or disposal of long-lived
assets.  SFAS  144  supersedes  SFAS  121 but  retains  SFAS  121's  fundamental
provisions for (a) recognition/measurement of impairment of long-lived assets to
be held and used and (b)  measurement of long-lived  assets to be disposed of by
sale. SFAS 144 also supersedes the accounting/reporting provisions of Accounting
Principles  Board  Opinion  No. 30 ("APB 30") for  segments  of a business to be
disposed of but retains APB 30's requirement to report  discontinued  operations
separately from continuing  operations and extends that reporting to a component
of an entity that either has been disposed of or is classified as held for sale.
SFAS  144  is  effective  January  1,  2002,  however,  earlier  application  is
encouraged.  The Company  adopted SFAS 144  effective  January 1, 2002,  and the
adoption of this statement had no impact on the financial condition,  results of
operations, or cash flows of the Company.

Item 8.   Consolidated financial statements and Supplementary Data
------    --------------------------------------------------------

     The consolidated  financial statements of the Company required by this Item
are listed in Item 14(a)(1) and (2) and are  submitted as a separate  section of
this report.

     The following  information  presents unaudited  quarterly operating results
for the Company for 2001 and 2000.  The data has been prepared by the Company on
a basis consistent with the Consolidated Financial Statements included elsewhere
in this Form 10-K, and include all  adjustments,  consisting of normal recurring
accruals that the Company considers necessary for a fair presentation thereof.


<PAGE>

<TABLE>
<CAPTION>

                                                       12/31      9/30       6/30     3/31      12/31     9/30      6/30      3/31
(In thousands, except per share data)                    01        01         01       01         00       00        00        00
-------------------------------------                -------    -------    -------  ---------  -------  --------   -------   -------
<S>                                                  <C>        <C>       <C>        <C>      <C>       <C>        <C>       <C>
Revenue ..........................................   $ 4,632    $ 4,213    $ 3,776   $ 3,840   $ 3,713   $ 3,758   $ 3,494   $ 3,460
Benefit related expenses .........................     2,710      2,889      1,891     1,980     2,018     2,015     1,458     1,636
Operating and other expenses .....................     2,129      1,656      1,854     1,528     1,396     1,439     1,494     1,163
                                                     -------    -------    -------   -------   -------   -------   -------   -------
Total expenses ...................................     4,839      4,545      3,745     3,508     3,414     3,454     2,952     2,799
                                                     -------    -------    -------   -------   -------   -------   -------   -------
(Loss) income from continuing
  operations .....................................      (207)      (332)        31       332       299       304       542       661
Income tax (benefit) expense .....................       (59)      (131)         4       110       259       103       180       222
                                                     -------    -------    -------   -------   -------   -------   -------   -------
(Loss) income before extraordinary
  item ...........................................      (148)      (201)        27       222        40       201       362       439
Extraordinary item net of taxes ..................       158       --         --        --        --        --        --        --
                                                     -------    -------    -------   -------   -------   -------   -------   -------
Net income (loss) ................................   $    10   $  (201)   $    27   $   222   $    40   $   201       362       439
                                                     =======    =======    =======   =======   =======   =======   =======   =======
Weighted average number of shares
  outstanding - basic ............................     5,589      5,597      5,597     5,564     5,529     5,553     5,511     5,448
                                                     =======    =======    =======   =======   =======   =======   =======   =======
Net income (loss) per share - basic ..............   $  0.01   $  (0.04)   $  0.01   $  0.04   $  0.01   $  0.04   $  0.07   $  0.08
                                                     =======    =======    =======   =======   =======   =======   =======   =======
Weighted average number of shares
  outstanding - diluted ..........................     5,612      5,667      5,667     5,564     5,642     5,635     5,593     5,448
                                                     =======    =======    =======   =======   =======   =======   =======   =======
Net income (loss) per share -
  diluted ........................................   $  0.01   $  (0.04)   $  0.01   $  0.04   $  0.01   $  0.04   $  0.06   $  0.08
                                                     =======    =======    =======   =======   =======   =======   =======   =======

</TABLE>

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

     On January 3, 2000,  the Company filed a Form 8-K to register its change in
certifying accountant.

Item 10.  Directors and Executive Officers of the Registrant
-------   --------------------------------------------------

The current directors and executive officers of the Company are as follows:

     Name                          Age        Position
     ----                          ---        --------

     Francis M. Williams           60         Chairman of the Board of Directors
     Joseph M. Williams            45         President and Treasurer
     Andrew J. Cohen               48         Director
     R. Donald Finn                58         Director
     Edward J. Edenfield IV        44         President, CCS

     All  Directors of the Company hold office until the next annual  meeting of
stockholders and the election and qualification of their successors. Officers of
the Company are elected  annually by the Board of  Directors  and hold office at
the discretion of the Board.

     Set forth  below is  information  regarding  the  directors  and  executive
officers of the Company:

     Francis M. Williams has been Chairman of the Board of the Company since its
inception and, until June 1992, was President of the Company.  In addition,  Mr.
Williams  has  been  Chairman  of the  Board  and  Director  of CCS and SSI from
inception  and  President and Chairman of the Board of KC since its inception in
1979.  Prior to November  1988,  Mr.  Williams was the Chairman of the Board and
Chief Executive  Officer of Kimmins Corp. and its predecessors and sole owner of
K Management  Corp.  From June 1981 until  January  1988,  Mr.  Williams was the
Chairman of the Board of  Directors of College  Venture  Equity  Corp.,  a small
business  investment  company;  and since June 1981, he has been Chairman of the
Board, Director, and sole stockholder of Kimmins Coffee Service, Inc., an office
coffee service  company.  Mr.  Williams has also been a director of the National
Association of Demolition Contractors and a member of the executive committee of
the Tampa Bay International Trade Council.

<PAGE>

     Joseph M. Williams has served as the Treasurer and President of the Company
since June 1992.  He also served as Vice  President and Secretary of the Company
from its inception on November 18, 1991 through June 1992. Mr.  Williams  served
as a member of the Board of  Directors  of the Company  from  November  18, 1991
through February 24, 1997. In addition,  Mr. Williams has been the Secretary and
Treasurer  of  Kimmins  Corp.  since  October  1988 and a member of the Board of
Directors of CCS since 1988.  He held the position of President of CCS from 1991
through August of 1996. From 1989 through 1990 he held the position of Secretary
and  Treasurer of CCS and from 1991 through 1994 served as Treasurer of CCS. Mr.
Williams  has  been  employed  by the  Company  and  Kimmins  Corp.  in  various
capacities  since 1994.  From  January  1982 to December  1983,  he was managing
partner of Williams and Grana, a firm engaged in public accounting. From January
1978 to December 1981, Mr. Williams was employed as a senior tax accountant with
Price  Waterhouse  &  Company.  Joseph M.  Williams  is the nephew of Francis M.
Williams.

     Edward J.  Edenfield,  IV is the President and Chief  Operating  Officer of
CCS. Mr. Edenfield joined CCS in May of 1996 as Chief Operating Officer, and was
promoted to President in September of 1996. He brings over sixteen (16) years of
management  experience in the insurance  industry,  specializing in contract and
miscellaneous surety bonds. Prior to his involvement with CCS, Mr. Edenfield had
various  management and senior management  positions in the insurance  industry.
Mr.  Edenfield began his career in 1980 with  Continental  Insurance  Company in
their  New York  home  office.  Within  the last five  years  prior to CCS,  Mr.
Edenfield has held the position of Assistant  Vice President in charge of surety
at Meadowbrook  Insurance  Group from August 1995 to May 1996; Vice President in
charge of  underwriting  at  Universal  Surety of America  from  October 1994 to
August  1995;  Vice  President  in charge of  underwriting  at American  Bonding
Company from January 1992 to September  1994, and Assistant  Secretary in charge
of treaty and  facultative  reinsurance  from March 1992 to December  1992.  Mr.
Edenfield  completed his bachelor's  degree in Business  Administration  with an
emphasis in Economics from Lycoming College.  Mr. Edenfield is presently a Board
Member of The  American  Surety  Association,  and is involved  in the  National
Association of Independent  Sureties,  as well as being a member of the National
Association  of  Surety  Bond  Producers.   Mr.  Edenfield  is  responsible  for
administration and finance of the insurance operations at CCS.

     Andrew J. Cohen was elected as a Director to the Company's  Board effective
February 24, 1997.  Currently  Co-President  and Chief Executive  Officer of ABC
Capital Corp., an investment  management  firm based in Tampa,  Florida and also
acts as  Co-Chairman  on their Board of  Directors.  In  addition,  Mr. Cohen is
President of Albany Associates,  Inc., a Tampa based management consulting firm.
From June of 1972  through  1997,  Mr. Cohen was  co-President  of ABC Fabric of
Tampa,  Inc. which was the fourth  largest  private retail fabric company in the
United States. Mr. Cohen brings both national marketing and corporate management
experiences to the Company.

<PAGE>

     R. Donald Finn was elected as a Director to the Company's  Board  effective
September  9,  1999.  For more than the last  five  years,  Mr.  Finn has been a
partner in the law firm of Gibson,  McAskill & Crosby,  located in Buffalo,  New
York, where Mr. Finn has practiced law for more than the last 25 years.

Beneficial Ownership Reporting Compliance
-----------------------------------------

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10 percent of a registered
class of the  Company's  equity  securities,  to file reports of  ownership  and
changes in  ownership  with the  Securities  and  Exchange  Commission  ("SEC").
Officers,  directors,  and greater than 10 percent  stockholders are required by
SEC  regulation  to furnish the Company  with copies of all Section  16(a) forms
they  file.  Based  solely on the  Company's  review of the copies of such forms
received by it, or written  representations  from certain reporting persons that
no Form 5 was required for those persons,  the Company believes that, during the
year ended December 31, 2001 all filing requirements applicable to its officers,
directors, and greater than 10 percent beneficial owners were complied with.

Item 11.   Executive Compensation and Other Information
-------    --------------------------------------------

Summary Compensation Table
--------------------------

     The  following  table  provides  certain  summary  information   concerning
compensation  paid or  accrued by the  Company  and its  subsidiaries  to and on
behalf of the  Company's  President  and CCS's  President  for each of the three
years in the period ended December 31, 2001:

<TABLE>
<CAPTION>


                                                                                                                            All
                                                                                                              Other        Other
         Name and Principal                                                                                   Annual    Compensation
             Position                                           Year        Salary           Bonus         Compensation      (1)
             --------                                           ----        --------         --------      ------------ ------------

<S>                                                              <C>         <C>            <C>             <C>            <C>
Joseph M. Williams ......................................        2001        $125,000        $ 50,000        $ 10,800       $ 10,295
President and Treasurer .................................        2000        $ 95,000        $ 64,000        $  7,650       $  8,641
CTI .....................................................        1999        $ 95,000        $ 60,000        $  6,600       $  8,167

Edward J. Edenfield, IV .................................        2001        $115,000        $ 25,000        $  6,000       $  4,905
President and CEO, CCS ..................................        2000        $115,000        $ 50,500        $  6,000       $  4,641
                                                                 1999        $115,000        $ 35,000        $  6,000       $  4,181

</TABLE>

(1)  Represents  the Company's  contribution  to the  employee's  account of the
     Company's  401(k)  Plan and  premiums  paid by the  Company  for term  life
     insurance and long-term  disability.  These plans, subject to the terms and
     conditions of each plan, are available to all employees.

Aggregate Option Exercises in 2001 and December 31, 2001 Option Values
----------------------------------------------------------------------

     The  following  table  shows  information  concerning  options  held by the
officers shown in the Summary  Compensation Table at the end of 2001. Mr. Joseph
M. Williams exercised 56,000 and 44,000 options in 2001 and 2000, respectively.

<PAGE>


<TABLE>
<CAPTION>



                                                                                       Number of Securities          Value of
                                                                                           Underlying              Unexercised
                                                                                          Unexercised               In-the-Money
                                                                                        Options/SARs at         Options/SARs at Year
                                                                         Value             Year-End                 End ($)(2)
                                                 Shares Acquired       Realized          (#) Exercisable/          Exercisable/
Name                                             on Exercise (#)         ($)(1)           Unexercisable            Unexercisable
----                                             ---------------       ----------        ---------------        --------------------
<S>                                              <C>                   <C>               <C>                    <C>
Joseph M. Williams ...........................            56,000           $82,500           0/0                $           0/0
Edward J. Edenfield, IV ......................              --             $  --             24,000/0           $           22,800/0

</TABLE>

(1)  Value realized is calculated using the Company's closing stock price on the
     date of exercise,  March 8, 2001,  per share,  less the exercise  price for
     such shares.

(2)  Value is calculated using the Company's closing stock price on December 31,
     2001, per share, less the exercise price for such shares.

Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------

     There is no  compensation  committee of the Company's Board of Directors or
other committee of the Board  performing  equivalent  functions.  The person who
performs the equivalent function is Francis M. Williams,  Chairman of the Board.
Francis Williams serves as an executive officer and director of Kimmins Corp. of
which Joseph Williams is also an executive officer.

Compensation of Directors
-------------------------

     During the year ended  December  31,  2001,  the  Company  paid  Francis M.
Williams  an annual fee of $75,000 as  Chairman  of the Board.  All  non-officer
Directors  received an annual fee of $5,000.  Directors are  reimbursed  for all
out-of-pocket  expenses  incurred in attending  Board of Directors and committee
meetings.

Board Compensation Committee Report on Executive Compensation
-------------------------------------------------------------

     There is no formal  compensation  committee  of the Board of  Directors  or
other committee of the Board performing  equivalent  functions.  As noted above,
compensation is determined by Francis M. Williams,  Chairman of the Board of the
Company  under  the  direction  of the  Board of  Directors.  There is no formal
compensation policy for the Chief Executive Officer of the Company. Compensation
of the Chief Executive  Officer,  which primarily  consists of salary,  is based
generally on  performance  and the  Company's  resources.  Compensation  for Mr.
Joseph  Williams has been fixed annually each year by the Chairman of the Board.
Mr. Joseph Williams' compensation is not subject to any employment contract.

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

Common Stock Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------

     The following table sets forth the number of shares of the Company's Common
Stock  beneficially  owned as of December  31, 2001 by (i) persons  known by the
Company to own more than 5 percent of the  Company's  outstanding  Common Stock,
(ii) each  director  and officer of the  Company,  and (iii) all  directors  and
executive officers of the Company as a group:

<PAGE>


                                Amount and Nature of          Percent of Issued
Name and Address              Beneficial Ownership of           and Outstanding
of Beneficial Owner (1) (2)       Common Stock                   Common Stock
--------------------------    -----------------------          -----------------
Francis M. Williams                    3,826,541 (3)                      68.4%
Joseph M. Williams                       360,493 (4)                       6.4%
R. Donald Finn                             7,131 (5)                        .1%
Andrew J. Cohen                           47,590 (6)                        .9%
Edward J. Edenfield IV                    24,000 (7)                        .4%
Kimmins Corp.                          1,723,290                          30.8%
All directors and executive
 officers as a group (five persons)    4,894,565                          87.5%

(1)  The address of all officers and  Directors of the Company  listed above are
     in care of the  Company  at 4311 West  Waters  Avenue,  Suite  401,  Tampa,
     Florida 33614.

(2)  The Company  believes  that the persons named in the table have sole voting
     and   investment   power  with  respect  to  all  shares  of  common  stock
     beneficially owned by them, unless otherwise noted.

(3)  Includes  2,508,621 shares owned by Mr. Francis Williams;  1,094,480 shares
     allocated to Mr.  Williams  based on his 63.5%  ownership in Kimmins Corp.,
     29,345  shares  owned by Mr.  Williams'  wife;  22,748  shares  held by Mr.
     Williams as trustee for his wife and  children;  18,296  shares held by Mr.
     Williams as custodian  under the New York  Uniform  Gifts to Minors Act for
     his Children; and 153,050 held by various Real Estate Partnerships of which
     Mr.  Williams  is  100  percent  Owner.  Mr.  Williams  owns  63.5%  of the
     outstanding  common  stock of Kimmins  Corp.  and is its Chairman and Chief
     Executive Officer.

(4)  Includes 133,500 shares owned by Mr. Joseph M. Williams;  1,010 shares held
     by Mr.  Williams  as trustee  for his  children;  219 shares held by the KC
     401(K) Plan and ESOP of which Mr.  Williams is fully vested.  Also includes
     205,764  shares held by KC's 401(K)  Plan,  Profit  Participation  Plan and
     ESOP,  options to acquire 20,000 shares of the Company's  Common Stock held
     by the ESOP, of which Mr.  Williams is a trustee;  Mr.  Williams  disclaims
     beneficial ownership of these shares.

(5)  Includes  2,131  shares  owned by Mr. R. Donald Finn and options to acquire
     5,000 shares of the Company's common stock.

(6)  Includes  72,540 shares owned by C&C  Properties a partnership in which Mr.
     Cohen has a 50% ownership, 6,320 shares held in trust for Mr. Cohen's minor
     children and options to acquire 5,000 shares of the Company's common stock.

(7)  Includes options to acquire 24,000 shares of the Company's Common stock.

<PAGE>


Item 13.   Certain Relationships and Related Transactions
-------    ----------------------------------------------

     Surplus Debentures/Term Note
     ----------------------------

     In 1988,  CCS issued a surplus  debenture to KC in exchange for  $3,000,000
which bears  interest at 10 percent per annum.  In 1992, the debenture due to KC
from CCS was  assigned to CTI.  Interest and  principal  payments are subject to
approval by the Florida  Department of Insurance.  On April 1, 1997, CTI forgave
$375,000  of its  $3,000,000  surplus  debenture  due to CCS.  As a result,  CCS
increased  paid-in-capital  by $375,000.  As of December  31, 1999,  no payments
could be made under the terms of the  debenture.  On June 30, 1999,  CTI forgave
$576,266  of its  $2,625,000  surplus  debenture  due to CCS.  As a result,  CCS
increased  paid-in-capital to $1,000,000 from $423,734. As of December 31, 2001,
no payments could be made under the terms of the debenture.

     Effective  November  10,  1988,  the  Company  entered  into  a  $1,000,000
convertible term note agreement with TransCor Waste Services, Inc., a subsidiary
of KC. The note, originally due November 10, 2001, has been extended to November
10,  2002.  The annual  rate of interest is equal to one half of one percent per
annum in excess of the stated interest rate  established by the Bank of America.
The average  interest rate for 2001 was 8.6%. On December 26, 2001,  the Company
made a principal  note payment of $395,945  reducing  the note to $604,055.  The
lender may convert the  principal  amount of the note or a portion  thereof into
common stock at $3.00 per share subsequent to a six-month  anniversary and prior
to the close of business on the maturity date.

     CCS writes surety bonds for KC and its affiliates. Revenues attributable to
transactions  with KC and its  affiliates  were $88,  $4,413 and $10,342 for the
years ended  December 31, 2001,  2000 and 1999,  respectively.  Qualex  performs
consulting services for KC and affiliates.  Revenue  attributable to transaction
with  affiliates  were $121,089,  $171,292 and $117,075 for years ended December
31, 2001, 2000 and 1999, respectively.

Item 14.       Exhibits, Consolidated financial statements,
               Schedules, and Reports on Form 8-K
-------        ----------------------------------

(a)  The  following  documents  are filed as part of this Annual  Report on Form
     10-K

     1.   Consolidated Financial Statements

          -  Independent  Auditors' Report
          -  Consolidated Balance Sheets at December 31, 2001 and 2000
          -  Consolidated  Statements of Operations for each of the three  years
             in  the  period  ended  December  31,  2001.
          -  Consolidated Statements  of  Stockholders'  Equity  for each of the
             three  years in the period ended December 31, 2001.
          -  Consolidated Statements of Cash Flows for each of the three years
             in the period  ended  December 31, 2001.
          -  Notes to Consolidated Financial Statements

     2.   Financial Statement Schedule

          Schedule II - Condensed Financial Information of Registrant

<PAGE>

     All  other  schedules  for  which  provision  is  made  in  the  applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related  instructions or are inapplicable  and,  therefore,  have been
omitted.

     3.   The following documents are filed as exhibits to this Annual Report on
          Form 10-K:

          3(a)      -    Articles of Incorporation*
          3(b)      -    Bylaws*
          10(a)     -    Lease agreement with Cumberland Properties, Inc.*
          10(c)     -    1991 Stock Option Plan*
          11        -    Statement Re: Computation of Earnings Per Share
          22        -    Subsidiary list
          23        -    Consent of Deloitte & Touche LLP

     *    Note - Incorporated by reference to the same exhibit number filed with
          the Registrant's Registration Statement on Form 10 (File No. 0-19727.)

(b)  Reports on Form 8-K - None

(c)  Exhibits  - The  response  to this  portion  of Item 14 is  submitted  as a
     separate section of this report.

(d)  Financial  Statement Schedules - The response to this portion of Item 14 is
     submitted as a separate section of this report.



<PAGE>

                                   SIGNATURES
                                   ----------

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunder duly authorized.

                                    CUMBERLAND TECHNOLOGIES, INC.
                                    --------------------------------------------

Date:      April 1, 2002            By:        /s/ Joseph M. Williams
                                    --------------------------------------------
                                    Joseph M. Williams, President

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


Date:      April 1, 2002            By:        /s/ Joseph M. Williams
                                    --------------------------------------------
                                    Joseph M. Williams, President


Date:      April 1, 2002            By:        /s/ Francis M. Williams
                                    --------------------------------------------
                                    Francis M. Williams, Chairman of the Board


Date:      April 1, 2002            By:        /s/ R. Donald Finn
                                    --------------------------------------------
                                    R. Donald Finn, Director


Date:      April 1, 2002            By:        /s/ Andrew J. Cohen
                                    --------------------------------------------
                                    Andrew J. Cohen, Director


Date:      April 1, 2002            By:        /s/ Carol S. Black
                                    --------------------------------------------
                                    Carol S. Black, Secretary
                                    (Principal Financial and Accounting Officer)




<PAGE>




                           Annual Report on Form 10-K

                             Item 14(a), (c) and (d)

                    List of Consolidated Financial Statements

             Consolidated Financial Statement Schedules and Exhibits

                          Year Ended December 31, 2001


                          Cumberland Technologies, Inc.

                                 Tampa, Florida








<PAGE>




                          CUMBERLAND TECHNOLOGIES, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS,
                   FINANCIAL STATEMENT SCHEDULES AND EXHIBITS

     The following consolidated financial statements of Cumberland Technologies,
Inc. are included herein:

                                                                            Page
                                                                            ----

Independent Auditors' Report..................................................34

Consolidated Balance Sheets at December 31, 2001 and 2000 .................35-36

Consolidated Statements of Operations for each of the three
  years in the period ended December 31, 2001 ................................37

Consolidated Statements of Stockholders' Equity for each
  of the three years in the period ended December 31, 2001 ...................38

Consolidated Statements of Cash Flows for each of the
  three years in the period ended December 31, 2001 ..........................39

Notes to Consolidated Financial Statements ...................................40

The following financial statement schedule is filed as part of this report:

Schedule II - Condensed Financial Information of Registrant ..................61

All other  schedules for which  provision is made in the  applicable  accounting
regulation of the Securities and Exchange  Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.


<PAGE>





                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------


To the Board of Directors of
Cumberland Technologies, Inc.

We have  audited the  accompanying  consolidated  balance  sheets of  Cumberland
Technologies,  Inc. and subsidiaries (the "Company") as of December 31, 2001 and
2000,  and the related  consolidated  statements  of  operations,  stockholders'
equity,  and cash flows for each of the three years in the period ended December
31, 2001. Our audits also included the financial  statement  schedule  listed in
the Index.  These  consolidated  financial  statements  and financial  statement
schedule are the responsibility of the Company's management.  Our responsibility
is to  express  an  opinion  on  these  consolidated  financial  statements  and
financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain reasonable  assurance about whether the consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  consolidated  financial  statements.  An audit also includes  assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall  consolidated  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 the Company at
December 31, 2001 and 2000 and the results of its  operations and its cash flows
for each of the three years in the period ended December 31, 2001, in conformity
with accounting  principles  generally accepted in the United States of America.
Also, in our opinion, the related financial statement schedule,  when considered
in relation to the basic  consolidated  financial  statements  taken as a whole,
presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the  consolidated  financial  statement,  in 2001, the
Company changed its method for accounting for derivatives.

/s/  DELOITTE & TOUCHE LLP
Tampa, Florida

March 25, 2002




<PAGE>









                          CUMBERLAND TECHNOLOGIES, INC.

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS
                                     ------

                                                              December 31,
                                                       -------------------------
                                                            2001          2000
                                                       -------------------------
Investments:
-----------
   Securities available-for-sale at fair value:
      Debt securities ..............................   $ 9,339,353   $ 7,553,010
      Equity securities ............................          --           2,716
   Debt securities held-to-maturity at amortized
      cost (fair value, 2001 - $374,436;
      2000 - $1,227,130) ...........................       359,475     1,223,593
   Mortgage loans on real estate, at unpaid
      principal ....................................       681,790       742,068
   Short-term investments ..........................       433,993       433,993
                                                       -----------   -----------
      Total investments ............................    10,814,611     9,955,380

Cash and cash equivalents ..........................     2,654,131       693,778
Accrued investment income ..........................       154,527       185,011

Reinsurance recoverable ............................     3,844,034     4,910,443

Accounts receivable:
-------------------
   Nonaffiliate less allowance for doubtful
      accounts of $40,289 and $13,750,
      respectively .................................     4,615,327     3,821,206
   Affiliate .......................................        72,201       436,997
Income tax recoverable .............................          --         167,588
Deferred tax asset .................................       499,145       175,234
Deferred policy acquisition costs ..................     1,903,547     1,955,018
Intangibles, net ...................................       533,731     1,115,316
Other investment ...................................       640,872       582,532
Other assets .......................................       371,893       311,082
                                                       -----------   -----------
                                                       $26,104,019   $24,309,585
                                                       ===========   ===========



                 See notes to consolidated financial statements.

<PAGE>



                          CUMBERLAND TECHNOLOGIES, INC.

                           CONSOLIDATED BALANCE SHEETS

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

                                                               December 31,
                                                      --------------------------
                                                           2001           2000
                                                      --------------------------
Policy liabilities and accruals:
-------------------------------
    Loss and loss adjustment expenses ..............  $  4,113,232   $5,185,626
    Derivative instruments .........................     1,978,891         --
    Unearned premiums ..............................     5,582,640    5,775,524
Ceded reinsurance payable ..........................     1,755,105      721,513
Accounts payable and other liabilities .............     3,388,269    2,637,748
Income tax payable .................................       113,284         --
Debt:
----
    Nonaffiliate ...................................       651,940    1,102,683
    Affiliate ......................................       604,055    1,000,000
                                                      ------------  ------------
    Total liabilities ..............................    18,187,416   16,423,094
                                                      ------------  ------------
Stockholders' equity:
--------------------
    Preferred stock, $.001 par value; 10,000,000
        shares authorized, no shares issued ........          --            --
    Common stock, $.001 par value; 10,000,000
        shares authorized; 5,915,356 and 5,871,356
        shares issued, respectively ................        5,916         5,872
    Capital in excess of par value .................    7,270,316     7,264,860
    Accumulated other comprehensive income .........       70,729       104,485
    Retained earnings ..............................      833,361       774,993
                                                     ------------   ------------
                                                        8,180,322     8,150,210
    Less treasury stock, at cost, 318,612  shares at
        December 31, 2001 and 2000 .................     (263,719)     (263,719)
                                                     ------------   ------------
    Total stockholders' equity .....................    7,916,603     7,886,491
                                                     ------------   ------------
                                                     $ 26,104,019  $ 24,309,585
                                                     ============   ============






                 See notes to consolidated financial statements.


<PAGE>

<TABLE>
<CAPTION>

                          CUMBERLAND TECHNOLOGIES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                            Years ended December 31,
                                                                          ----------------------------------------------------------
                                                                              2001                      2000                    1999
                                                                          ----------------------------------------------------------
<S>                                                                       <C>                   <C>                    <C>
Revenue:
-------
Direct premiums earned ...........................................         $ 14,465,244          $ 12,756,102          $ 10,064,121
Assumed premiums earned ..........................................            3,788,443             2,480,712             2,079,680
Less ceded premiums ..............................................           (4,612,371)           (3,108,861)           (2,526,009)
                                                                           ------------          ------------          ------------
Net premium income ...............................................           13,641,316            12,127,953             9,617,792
Net investment income ............................................              604,463               576,406               333,462
Net realized investment gains ....................................              305,461                38,381               129,101
Commission income ................................................              413,422               386,362               473,912
Other income:
     Affiliate ...................................................              121,089               171,292               117,075
     Nonaffiliate ................................................            1,374,916             1,124,490               783,908
                                                                           ------------          ------------          ------------
Total revenue ....................................................           16,460,667            14,424,884            11,455,250
                                                                           ------------          ------------          ------------

Benefits and Expenses:
---------------------
Losses and loss adjustment expenses ..............................            4,045,578             3,360,358             2,394,532
Derivative expense ...............................................            1,060,799                  --                    --
Amortization of deferred policy acquisition
     costs .......................................................            4,362,721             3,767,107             2,895,834
Operating expenses ...............................................            6,563,919             5,288,520             4,766,101
Impairment of long-lived assets ..................................              437,418                  --                    --
Interest expense:
     Affiliate ...................................................               69,198               100,000               100,000
     Nonaffiliate ................................................               97,208               102,760               114,027
                                                                           ------------          ------------          ------------
Total expenses ...................................................           16,636,841            12,618,745            10,270,494
                                                                           ------------          ------------          ------------

(Loss) income from continuing operations .........................             (176,174)            1,806,139             1,184,756
Income tax (benefit) expense .....................................              (75,932)              764,390                36,686
                                                                           ------------          ------------          ------------
(Loss) income  before extraordinary item .........................             (100,242)            1,041,749             1,148,070
Extraordinary gain on restructuring of note,
     (net of income tax) .........................................              158,610                  --                    --
                                                                           ------------          ------------          ------------
Net income .......................................................         $     58,368          $  1,041,749          $  1,148,070
                                                                           ============          ============          ============
Income per basic share:
----------------------
     Income (loss) before extraordinary gain .....................         $      (0.02)         $       0.19          $       0.21
     Extraordinary gain ..........................................                 0.03                  --                    --
                                                                           ------------          ------------          ------------
     Net income ..................................................         $       0.01          $       0.19          $       0.21
                                                                           ============          ============          ============
Weighted average shares outstanding - basic ......................            5,589,167             5,528,849             5,475,613
Income per diluted share:
------------------------
     Income (loss) before extraordinary gain .....................         $      (0.02)         $       0.19          $       0.21
     Extraordinary gain ..........................................                 0.03                  --                    --
                                                                           ------------          ------------          ------------
     Net income ..................................................         $       0.01          $       0.19          $       0.21
                                                                           ============          ============          ============
Weighted average shares outstanding - diluted ....................            5,611,667             5,642,349             5,610,113
                                                                           ============          ============          ============

</TABLE>






                 See notes to consolidated financial statements.

<PAGE>


                          CUMBERLAND TECHNOLOGIES, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                  YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

<TABLE>
<CAPTION>

                                                                                Accumulated
                                                                                   Other      (Accumulated
                                        Common Shares            Capital in     Comprehensive   Deficit)                 Total
                                        -------------            Excess of         Income       Retained    Treasury   Stockholders'
                                       Stock      Amount         Par Value        (Loss)        Earnings      Stock      Equity
                                       -----      ------        ------------    -------------  -----------   ----------  -----------

<S>                                   <C>         <C>            <C>           <C>            <C>           <C>          <C>
Balance at January 1, 1999 ......     5,763,070    $     5,763    $ 7,212,941   $  (190,929)   $(1,414,826)  $(263,719)  $5,349,230

Exercise of 52,286 shares
        under 1991 stock option
        plan ....................        52,286             53         44,975                                                45,028

    Net unrealized appreciation
        of available-for-sale
        securities, net of
        income tax ..............                                                   150,032                                 150,032

    Net income ..................                                                                1,148,070                1,148,070
                                                                                                                         -----------

    Comprehensive income ........                                                                                         1,298,102
                                     -----------    -----------   -----------    -----------    -----------    ---------  ----------
Balance at December 31, 1999 ....     5,815,356          5,816      7,257,916       (40,897)      (266,756)    (263,719)  6,692,360

    Exercise of 56,000 shares
        under 1991 stock option
        plan ....................        56,000             56          6,944                                                 7,000

    Net unrealized appreciation
        of available-for-sale
        securities, net of
        income tax ..............                                                   145,382                                 145,382

    Net income ..................                                                                1,041,749                1,041,749
                                                                                                                         -----------

    Comprehensive income ........                                                                                         1,187,131
                                    -----------    -----------    -----------   -----------    -----------    ---------   ----------
Balance at December 31, 2000 ....     5,871,356          5,872      7,264,860       104,485        774,993     (263,719)  7,886,491

    Exercise of 44,000 shares
        under 1991 stock option
        plan ....................        44,000             44          5,456                                                 5,500

    Net unrealized depreciation
        of available-for-sale
        securities, net of income
        tax .....................                                                   (33,756)                                (33,756)

    Net income ..................                                                                 58,368                     58,368
                                                                                                                            --------
    Comprehensive income.........                                                                                            24,612
                                    -----------    -----------   ------------   -----------    -----------    ---------     --------

Balance at December 31, 2001 ....     5,915,356    $     5,916    $ 7,270,316   $    70,729    $ 833,361    $  (263,719) $7,916,603
                                    ===========    ===========    ===========   ===========    ===========    =========  ===========


</TABLE>







                 See notes to consolidated financial statements.


<PAGE>

<TABLE>
<CAPTION>

                          CUMBERLAND TECHNOLOGIES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                      Years ended December 31,
                                                               ---------------------------------------------------------------------
                                                                               2001                    2000                     1999
                                                               ---------------------------------------------------------------------
<S>                                                                             <C>                 <C>                 <C>
Operating activities:
--------------------
Net income .............................................................        $    58,368       $   1,041,749         $ 1,148,070
Adjustments to reconcile net income to cash
    provided by operating activities:
        Extraordinary gain on restructuring of note payable ............           (158,610)               --                  --
        Accretion of investment discounts ..............................            (15,094)            (21,358)               (165)
        Policy acquisition costs amortized .............................          4,362,721           3,767,107           2,895,834
        Policy acquisition costs deferred ..............................         (4,311,250)         (4,120,698)         (3,250,706)
        Amortization ...................................................            144,267             151,319             188,890
        Impairment of long-lived assets..... ...........................            437,318                --                  --
        Net realized gains on sales of investments .....................           (305,461)            (38,381)           (129,101)
        Provision (recoveries) for bad debts ...........................               --               (13,250)             27,000
        (Increase) decrease in:
             Accrued investment income .................................             30,484            (118,923)            (10,740)
             Reinsurance recoverable ...................................          1,066,409          (2,012,021)           (592,050)
             Accounts receivable .......................................           (794,121)           (911,598)           (193,584)
             Income tax recoverable ....................................            167,588            (167,588)            120,000
             Deferred income tax asset .................................           (421,123)             66,710            (304,983)
             Other assets ..............................................            (60,811)              3,777             (80,868)
        Increase (decrease) in:
             Policy liabilities and accruals ...........................           (347,186)          1,541,005           2,449,743
             Derivative liability ......................................          1,060,799                --                  --
             Ceded reinsurance payable .................................          1,033,592             353,607            (746,361)
             Accounts payable and other liabilities ....................            750,521             728,169             408,966
             Income tax payable ........................................            113,284             (35,132)             35,132
                                                                                -----------         -----------         -----------
Net cash provided by operating activities ..............................          2,811,695             214,494           1,965,077
                                                                                -----------         -----------         -----------
Investing activities:
--------------------
Securities available-for-sale:
        Purchases - debt securities.....................................         (6,405,825)         (6,670,793)         (2,998,992)
        Proceed from sales - debt securities. ..........................          4,907,176           3,098,993           1,286,262
        Proceed from sales - equities ..................................                939             354,956             347,707
Proceeds from investment settlement ....................................               --               228,875                --
Securities held-to-maturity:
        Purchases- debt securities. ....................................               --                  --            (1,860,015)
        Proceeds from maturities .......................................            865,000           1,500,000                --
Net payments on (purchases of) - mortgage loans.............................         60,278             198,236            (895,877)
Other investment .......................................................            (58,340)            (23,114)             (6,812)
Purchases of short-term investments ....................................               --                (3,754)             (6,246)
                                                                                -----------         -----------         -----------
Net cash used in investing activities ..................................           (630,772)         (1,316,601)         (4,133,973)
Financing activities:
--------------------
Payments on debt, affiliate and
    non-affiliate ......................................................           (590,866)           (178,746)            (49,159)
Stock options exercised ................................................              5,500               7,000              45,028
Net change in advances to (from) affiliates ............................            364,796             (32,516)            (29,177)
                                                                                -----------         -----------         -----------
Net cash used in financing activities ..................................           (220,570)           (204,262)            (33,308)
                                                                                -----------         -----------         -----------
Increase (decrease) in cash and cash equivalents .......................          1,960,353          (1,306,369)         (2,202,204)
Cash and cash equivalents, beginning of year ...........................            693,778           2,000,147           4,202,351
                                                                                -----------         -----------         -----------
Cash and cash equivalents, end of year .................................        $ 2,654,131         $   693,778         $ 2,000,147
                                                                                ===========         ===========         ===========

Supplemental cash flows disclosure:
----------------------------------
Cash paid for interest .................................................        $    33,834         $   102,760         $   114,027
                                                                                -----------         -----------         -----------
Cash paid for income taxes .............................................        $   164,909         $ 1,025,400         $   148,950
                                                                                ===========         ===========         ===========

</TABLE>


                 See notes to consolidated financial statements.

<PAGE>


                          CUMBERLAND TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

1.   Ownership and Organization
     --------------------------

     Cumberland  Technologies,  Inc. ("CTI" or "the Company")  f/k/a  Cumberland
Holdings, Inc., a Florida corporation,  was formed on November 18, 1991, to be a
Holding company and a wholly-owned subsidiary of Kimmins Corp. ("KC"). Effective
October 1, 1992, KC contributed  all of the  outstanding  common stock of two of
its  other  wholly-owned  subsidiaries,  Cumberland  Casualty  & Surety  Company
("CCS") and Surety Specialists,  Inc. ("SSI") to CTI. KC then distributed to its
stockholders CTI's common stock on the basis of one share of common stock of CTI
for each five  shares of KC common  stock and Class B common  stock  owned  (the
"Distribution".)  Effective January 30, 1997, Cumberland Holdings,  Inc. changed
its name to Cumberland Technologies, Inc. CTI conducts its business through five
wholly-owned  subsidiaries.  CCS,  a  Florida  corporation  formed  in May 1988,
provides underwriting for specialty surety and performance and payment bonds for
contractors.  The surety services provided include direct surety and to a lesser
extent,  assumed reinsurance.  SSI, a Florida corporation formed in August 1988,
is a general lines agency which operates as an independent  agent.  Surety Group
("SG"), a Georgia  corporation,  and Associates  Acquisition  Corp. d/b/a Surety
Associates ("SA"), a South Carolina corporation,  purchased in February and July
1995,  respectively,  are general lines  agencies  which operate as  independent
agencies. Qualex Consulting Group, Inc. ("Qualex"), a Florida corporation formed
in November 1994, provides claim and contracting consulting services.

2.   Summary of Significant Accounting Policies
     ------------------------------------------

     Principles of Consolidation
     ---------------------------

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

     Basis of Presentation
     ---------------------

     The accompanying  consolidated  financial  statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America which,  as to the subsidiary  insurance  company,  differ from statutory
accounting  practices  prescribed  or permitted by regulatory  authorities.  The
significant accounting policies followed by CTI and subsidiaries that materially
affect the consolidated financial statements are summarized in this note.

     Investments
     -----------

     The Company accounts for marketable securities in accordance with Statement
No. 115, Accounting for Certain Investments in Debt and Equity Securities.



<PAGE>



                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

2.   Summary of Significant Accounting Policies (continued)
     -----------------------------------------------------

     Debt  securities  that the Company has both the positive intent and ability
to hold to maturity are  classified  as  "held-to-maturity"  securities  and are
reported at amortized  cost. The amortized  cost of debt  securities is adjusted
for  amortization  of  premiums  and  accretion  of  discounts  from the date of
purchase to maturity. Such amortization and accretion, which is calculated under
the interest method, is included in investment income.

     Marketable   equity  securities  and  debt  securities  not  classified  as
"held-to-maturity"   or  "trading"  are   classified  as   "available-for-sale."
Available-for-sale  securities  are reported at estimated  fair value,  with the
unrealized  gains and losses,  net of any related  income  taxes,  reported as a
separate component of equity and of other comprehensive income (loss).  Realized
gains and losses and  declines in value  judged to be  other-than-temporary  are
included  in  income.  The cost of  securities  sold is  based  on the  specific
identification  method.  Interest and  dividends on  securities  are included in
investment income.

     Short-term  investments  primarily  include  certificates of deposit having
maturities  of more than three  months when  purchased.  These  investments  are
reported at cost, which approximates fair value.

     Investments  in which the Company has a 20% - 50%  ownership  interest  are
accounted  for using the equity  method.  The Company's  proportionate  share of
income (losses)  generated by an investee  accounted for under the equity method
of $53,621,  $19,997, and ($203,255) for the years ended December 31, 2001, 2000
and 1999, respectively, are included in income.

     Cash Equivalents
     ----------------

     The Company  considers all highly liquid  investments  having a maturity of
three months or less when purchased to be cash equivalents.

     Deferred Policy Acquisition Costs
     ---------------------------------

     To the  extent  recoverable  from  future  policy  revenues,  the  costs of
acquiring  new  surety  business,  principally  commissions,  are  deferred  and
amortized in a manner which charges each year's  operations in direct proportion
to the premium revenue recognized.

     Intangibles
     -----------

     Intangible  assets are stated at cost and principally  represent  purchased
customer  accounts  and the excess of costs over the fair value of  identifiable
net  assets  acquired  ("Goodwill").  Purchased  customer  accounts,  noncompete
agreements,   and  purchased  contract  agreements  are  being  amortized  on  a
straight-line basis over the related estimated lives and contract periods, which
range from 3 to 15 years.  Goodwill is being amortized on a straight-line  basis
over 15 years.  Purchased  customer accounts are records and files obtained from
acquired  businesses  that contain  information  on  insurance  policies and the
related insured parties that is essential to policy renewals.


<PAGE>



                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


2.   Summary of Significant Accounting Policies (continued)
     -----------------------------------------------------

     The carrying value of Goodwill and other intangible assets will be reviewed
if  circumstances  suggest that they may be impaired.  If this review  indicates
that the intangible  assets will not be recoverable,  as determined based on the
undiscounted  cash flows of the entity acquired over the remaining  amortization
period,  the Company's carrying value of the Goodwill and intangibles is reduced
to fair value. The amount of Goodwill  impairment,  if any, is measured based on
projected  discounted  future  results  using a  discount  rate  reflecting  the
Company's average cost of funds.

     In accordance  with Statement of Financial  Accounting  Standard 121 ("SFAS
121"), Goodwill and other long-lived assets that were capitalized in conjunction
with the purchase of Associates  Acquisition Corp., d/b/a Surety Associates were
deemed  impaired  as of  December  31,  2001 and an asset  impairment  charge of
$437,418 was recorded.

     Loss and Loss Adjustment Expenses
     ---------------------------------

     The liability for loss and loss adjustment  expenses including incurred but
not  reported  losses is based on the  estimated  ultimate  cost of settling the
claim using  traditional  paid and  incurred  loss  development  methods.  These
estimates are subject to the effects of trends in loss  severity and  frequency.
Although  considerable  variability  is inherent in such  estimates,  management
believes  that  the  liabilities  for  loss and  loss  adjustment  expenses  are
adequate.  The estimates are  continually  reviewed and adjusted as necessary as
experience  develops or new  information  becomes known.  Such  adjustments  are
included  in  current  operations.  A  liability  for all costs  expected  to be
incurred in connection  with the  settlement of unpaid loss and loss  adjustment
expenses is accrued  when the related  liability  for unpaid  losses is accrued.
Loss adjustment  expenses include costs associated directly with specific claims
paid or in the process of settlement,  such as legal and adjusters'  fees.  Loss
adjustment  expenses  also include  other costs that cannot be  associated  with
specific  claims but are related to losses paid or in the process of settlement,
such as internal costs of the claims function.

     The Company does not  discount its reserves for losses and loss  adjustment
expenses.  The Company  writes  primarily  surety  contracts  which are of short
duration.

     The Company does not consider investment income in determining if a premium
deficiency relating to short duration contracts exists.

     Unearned Premiums
     -----------------

     Unearned premiums are deferred and amortized on a pro-rata basis.


<PAGE>




                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


2.   Summary of Significant Accounting Policies (continued)
     -----------------------------------------------------

     Reinsurance
     -----------

     The  Company  assumes and cedes  reinsurance  and  participates  in various
pools. The accompanying  consolidated  financial  statements  reflect  premiums,
benefits and settlement expenses,  and deferred policy acquisition costs, net of
reinsurance  ceded.  Amounts  recoverable  from reinsurers for unpaid losses are
estimated in a manner  consistent with the claim  liability  associated with the
reinsured policies.

     Revenue Recognition
     -------------------

     Premiums earned on direct insurance and assumed  reinsurance are recognized
on a pro-rata basis over the period of risk.  Commission income, which is earned
on ceded premiums and premiums written for other third party insurance carriers,
is  recognized  at  the  effective  date  of the  bonds  issued.  Other  income,
consisting  primarily of  consulting  fees, is  recognized  when the  negotiated
services are provided.

     Stock-Based Compensation
     ------------------------

     The  Company  has  adopted  only the pro  forma  disclosure  provisions  of
Statement No. 123,  Accounting for  Stock-Based  Compensation  ("SFAS No. 123").
SFAS No. 123 encourages,  but does not require companies to record at fair value
compensation  cost for  stock-based  employee  compensation  plans.  The Company
accounts for  equity-based  compensation  arrangements  in  accordance  with the
intrinsic value method prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. Intrinsic
value is the amount by which the market price of the  underlying  stock  exceeds
the  exercise  price of the  stock  option  or award  on the  measurement  date,
generally the date of grant.

     Income Taxes
     ------------

     Deferred  income tax assets and  liabilities  are recognized for the future
tax  consequences  attributable to differences  between the financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
basis. Deferred income tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those  temporary
differences  are  expected to be  recovered  or settled.  The effect on deferred
income tax  assets and  liabilities  of a change in tax rates is  recognized  in
income in the period that includes the enactment date.


<PAGE>




                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


2.   Summary of Significant Accounting Policies (continued)
     -----------------------------------------------------

     The  Company  has  recorded a deferred  income  tax asset of  $499,145  and
$175,234 at December 31, 2001 and 2000,  respectively.  Realization of the asset
is dependent on generating  sufficient taxable income in future years.  Although
realization is not assured,  management believes it is more likely than not that
all of the deferred income tax asset will be realized.

     The  Company  files a  consolidated  tax return  that  includes  all of its
subsidiaries.

     Earnings Per Share
     ------------------

     The Company computes and discloses  earnings (loss) per share in accordance
with the  provisions  of Statement of Financial  Accounting  Standards  No. 128,
Earnings Per Share. The 22,500, 113,500 and 134,500 outstanding stock options at
December 31, 2001, 2000 and 1999, respectively,  had no effect on the results of
the calculations of earnings per share.  Additionally,  47,000 outstanding stock
options at December 31, 2001 were antidilutive.

     Business Concentration
     ----------------------

     The majority of the Company's  business  relates to surety and  performance
bonds  for  contractors.   Accordingly,   the  occurrence  of  adverse  economic
conditions in the contracting  business could have a material  adverse effect on
the Company's  business although no such conditions have been encountered in the
past.  The Company only requires  collateral  from surety bond  customers if the
customer  meets between 80 percent to 99 percent of the  Company's  underwriting
criteria.  Customers  that fail to meet at least 80 percent of the  requirements
are denied surety bonding.

     Use of Estimates
     ----------------

     The preparation of the consolidated financial statements in conformity with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and  assumptions  that affect the amounts
reported in the consolidated  financial  statements and accompanying notes. Such
estimates and assumptions could change in the future as more information becomes
known which would affect the amounts reported and disclosed herein.



<PAGE>



                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


2.   Summary of Significant Accounting Policies (continued)
     -----------------------------------------------------

     New Accounting Standards
     ------------------------

     SFAS No. 133, Accounting for Derivative  Instruments and Hedging Activities
is effective for all fiscal years  beginning  after June 15, 2000. SFAS No. 133,
as amended,  establishes  accounting  and  reporting  standards  for  derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts,  and for hedging  activities.  Under SFAS No. 133, certain  contracts
that were not formerly  considered  derivatives may now meet the definition of a
derivative.  The Company  adopted SFAS No. 133  effective  January 1, 2001.  The
Company  identified  one  product  that  meets the  definition  of a  derivative
instrument  as  defined  in SFAS No.  133.  The  policy is issued to  registered
investment advisors ("Advisors"), and insures losses suffered by the Advisors as
a result of market declines on covered investment  principal,  provided that the
Advisors have followed the  investment  guidelines  required by the policy.  The
identified derivative was formerly accounted for as an insurance contract within
the policy  liabilities  for loss and loss  adjustment  expenses  account in the
consolidated  balance  sheet and on  January 1,  2002,  there was no  cumulative
effect  of  change  in  accounting  principal  due to the fact  that the  policy
liability  recorded for this policy at December 31, 2001  approximated  the fair
value of the  derivative  instrument  at January 1, 2002.  The fair value of the
derivative instrument at December 31, 2001 is $1,978,891. The change in the fair
value of the  derivative  instrument  for the year ended  December  31,  2001 is
$1,060,799.  The Company is not involved in any hedging activities.  At December
31, 2001 the fair value of the  derivative  instrument  has been  determined  by
using a financial model that incorporates market data and other assumptions. Due
to the  volatility in the  marketplace,  the Company has suspended  marketing of
this product effective September 2001.

     In July 2001,  Statement of Financial  Accounting Standards (SFAS) No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets"
were approved by the Financial  Accounting  Standards Board (FASB). SFAS No. 141
requires  that the  purchase  method  of  accounting  be used  for all  business
combinations  initiated after June 30, 2001. SFAS No. 142 changes the accounting
for  Goodwill  from  an  amortization  method  to an  impairment-only  approach.
Amortization  of  Goodwill,   including   Goodwill  recorded  in  past  business
combinations,  will  cease  upon  adoption  of this  statement.  The  Company is
required  to  implement  SFAS No. 142 on January 1, 2002.  The  Company  has not
evaluated  the effect,  if any,  that the  adoption of SFAS 142 will have on the
Company's consolidated financial statements.

     In  August  2001,  the FASB  issued  SFAS No.  143,  Accounting  for  Asset
Retirement  Obligations ("SFAS 143"). SFAS 143 provides accounting and reporting
standards  related to  obligations  associated  with the  retirement of tangible
long-lived assets.  SFAS 143 is effective on January 1, 2003,  however,  earlier
application  is  encouraged.  The Company has not evaluated the effect,  if any,
that the adoption of SFAS 143 will have on the Company's  consolidated financial
statements.

<PAGE>


                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


2.   Summary of Significant Accounting Policies (continued)
     -----------------------------------------------------

     New Accounting Standards
     ------------------------

     In  October  2001,  the  FASB  issued  SFAS  No.  144,  Accounting  for the
Impairment  or Disposal of Long-Lived  Assets  ("SFAS  144").  SFAS 144 provides
accounting and reporting  standards for the impairment or disposal of long-lived
assets.  SFAS  144  supersedes  SFAS  121 but  retains  SFAS  121's  fundamental
provisions for (a) recognition/measurement of impairment of long-lived assets to
be held and used and (b)  measurement of long-lived  assets to be disposed of by
sale. SFAS 144 also supersedes the accounting/reporting provisions of Accounting
Principles  Board  Opinion  No. 30 ("APB 30") for  segments  of a business to be
disposed of but retains APB 30's requirement to report  discontinued  operations
separately from continuing  operations and extends that reporting to a component
of an entity that either has been disposed of or is classified as held for sale.
SFAS  144  is  effective  January  1,  2002,  however,  earlier  application  is
encouraged.  The Company  adopted SFAS 144  effective  January 1, 2002,  and the
adoption of this statement had no impact on the financial condition,  results of
operations, or cash flows of the Company.

     Reclassifications
     -----------------

     Certain amounts in the 2000 and 1999 consolidated financial statements have
been  reclassified  to  conform  to the 2001  consolidated  financial  statement
presentation.

3.  Related Party Transactions
    --------------------------

     CTI  and  its  subsidiaries  have  entered  into  transactions  with KC and
companies  affiliated  through common ownership.  CCS writes surety bonds for KC
and its  affiliates.  Revenues  attributable  to  surety  bonds  with KC and its
affiliates  were $88,  $4,413 and $10,342 for the years ended December 31, 2001,
2000 and 1999,  respectively.  Qualex  performs  consulting  services for KC and
affiliates.  Other  income  from  affiliates  in the  accompanying  consolidated
statements of operations  consist  primarily of consulting  services provided to
KC.

     Affiliate accounts receivable  represents funds advanced and joint expenses
that have not yet been reimbursed from KC and its affiliates.  These receivables
are paid  periodically  and no interest is charged on the  outstanding  balances
which are payable on demand.

     The  Company's  operating  subsidiaries  rent or lease  office space in the
cities in which they are  located.  CCS and Qualex  lease office space in Tampa,
Florida from a company owned by Francis  Williams,  the Chairman of the Board of
the Company, at a monthly rate of $12,876, pursuant to a lease that was executed
June 1, 1999 and is effective through May 31, 2009.


<PAGE>

                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


3.   Related Party Transactions (continued)
     -------------------------------------

     KC and SSI entered into an agreement with an independent contractor, AEC on
August 16, 1989 on a construction contract with the United States Navy ("Navy").
At the  time  the  bonds  were  issued  by CCS as  surety,  KC  entered  into an
indemnification  agreement,  whereby KC indemnified CCS from any and all losses,
costs and expenses  incurred  related to the bonds.  In 1991, the Navy defaulted
and terminated AEC on the contract.  The contract was subsequently litigated and
CCS was unsuccessful in its litigation activities with the Navy. As a result, KC
reimbursed CCS $1,500,000 of the total subrogation  recoverable of $1,851,000 in
November 2001 on the contract.  CCS wrote off the remaining $351,000 reinsurance
recoverable  as a charge to loss and loss  adjustment  expense  and  incurred an
additional $240,000 in legal fees during 2001.

4.   Investments
     -----------

     The   Company's   investments   in   available-for-sale    securities   and
held-to-maturity securities are summarized as follows:

<TABLE>
<CAPTION>




                                                                                          Gross              Gross         Estimated
                                                                       Amortized       Unrealized          Unrealized        Fair
                                                                         Cost            Gains               Losses          Value
                                                                       ----------      -----------       ------------     ----------
<S>                                                                   <C>              <C>              <C>               <C>
Available-for-sale securities at December 31, 2001:
    Debt securities:
        U.S. Government bonds ..................................       $5,304,913       $   48,834       $   17,507       $5,336,240
        State and municipal bonds ..............................          546,547             --             19,457          527,090
        Industrial and miscellaneous bonds .....................        3,354,093          125,067            3,137        3,476,023
                                                                       ----------       ----------       ----------       ----------
    Total debt securities ......................................       $9,205,553       $  173,901       $   40,101       $9,339,353
                                                                       ==========       ==========       ==========       ==========

Held-to-maturity securities at December 31, 2001:
    Debt securities:
        U.S. Government bonds ..................................       $  359,475       $   14,961       $     --         $  374,436
                                                                       ==========       ==========       ==========       ==========

Available-for-sale securities at December 31, 2000:
    Debt securities:
        U.S. Government bonds ..................................       $4,916,126       $  153,445       $      824       $5,068,747
        State and municipal bonds ..............................          546,488             --             32,773          513,715
        Industrial and miscellaneous bonds .....................        1,900,751           69,797             --          1,970,548
                                                                       ----------       ----------       ----------       ----------
    Total debt securities ......................................        7,363,365          223,242           33,597        7,553,010
    Equity securities ..........................................           24,838             --             22,122            2,716
                                                                       ----------       ----------       ----------       ----------
Total ..........................................................       $7,388,203       $  223,242       $   55,719       $7,555,726
                                                                       ==========       ==========       ==========       ==========

Held-to-maturity securities at December 31, 2000:
    Debt securities:
        U.S. Government bonds ..................................       $1,223,593       $    4,007       $      470       $1,227,130
                                                                       ==========       ==========       ==========       ==========

</TABLE>

<PAGE>

                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


4.   Investments (continued)
     ----------------------

     The  amortized  cost and fair value of the  Company's  investments  in debt
securities,  segregated by available-for-sale and held-to-maturity,  at December
31, 2001 are  summarized,  by stated  maturity,  as follows:

<TABLE>
<CAPTION>


                                                                    Available-for-Sale                         Held-to-Maturity
                                                                    ------------------                         ----------------
Maturity                                                      Amortized Cost     Fair Value           Amortized Cost     Fair Value
--------                                                      --------------     ----------           --------------     -----------
<S>                                                          <C>                 <C>                 <C>                  <C>
Due in one year or less ............................          $  499,906          $  501,875          $     --            $     --
Due after one year through five
    years ..........................................           7,281,003           7,392,056             359,475             374,436
Due after five years through
    ten years ......................................             928,097             968,332                --                  --
Due after twenty years .............................             496,547             477,090                --                  --
                                                              ----------          ----------          ----------          ----------
                                                              $9,205,553          $9,339,353          $  359,475          $  374,436
                                                              ==========          ==========          ==========          ==========

</TABLE>

     The Company held no investments in any person or its affiliates  (excluding
obligations of the U.S. Government or its agencies) which exceeded 10 percent of
stockholders' equity at the end of the respective year.

     At  December  31,  2001 and 2000,  the  Company  had $3.3  million and $3.1
million, respectively, in restricted investments (debt securities and short-term
investments).   Restricted   investments   primarily  represent  funds  held  as
collateral in connection  with  reinsurance  trust  agreements and funds held as
required under statutory regulations by state insurance departments.

     Net investment income for the Company is comprised of the following:

<TABLE>
<CAPTION>


                                                                                       Year ended December 31,
                                                               ---------------------------------------------------------------------
                                                                               2001                     2000                    1999
                                                               ---------------------------------------------------------------------
<S>                                                                          <C>                   <C>                   <C>
Debt and equity securities .......................................            $ 573,345             $ 501,853             $ 143,416
Mortgage loans on real estate ....................................                3,289                 3,384                 3,480
Short-term investments, including cash and
     cash equivalents ............................................               77,203               106,089               199,208
                                                                              ---------             ---------             ---------
                                                                                653,837               611,326               346,104
Less investment expenses .........................................              (49,374)              (34,920)              (12,642)
                                                                              ---------             ---------             ---------
Net investment income ............................................            $ 604,463             $ 576,406             $ 333,462
                                                                              =========             =========             =========
Realized gains (losses) on available-for-sale
     securities:
     Debt securities - gains .....................................            $ 329,360             $    --               $  10,592
     Equity securities - gains ...................................                 --                  38,381               118,509
     Equity securities - losses ..................................              (23,899)                 --                    --
                                                                              ---------             ---------             ---------
Net realized investment gains ....................................            $ 305,461             $  38,381             $ 129,101
                                                                              =========             =========             =========
</TABLE>

<PAGE>


                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


4.   Investments (continued)
     ----------------------

     Net realized investment gains for the year ended December 31, 2000 includes
other-than-temporary losses of $231,686 from certain investments.

5.   Fair Value of Financial Instruments
     -----------------------------------

     The carrying amounts and fair values of the Company's financial instruments
at December 31, 2001 and 2000 are as follows:

                                                            December 31, 2001
                                                      --------------------------
                                                      Carrying Amount Fair Value
                                                      --------------------------
Assets:
------
    Cash and cash equivalents, including short-
        term investments .............................   $3,088,124   $3,088,124
    Investments ......................................    9,698,828    9,713,758
    Mortgage loans on real estate ....................      681,790      681,790
    Accounts receivable ..............................    4,687,528    4,687,528
    Reinsurance recoverable ..........................    3,844,034    3,844,034

Liabilities:
-----------
    Debt .............................................    1,255,995    1,255,995
    Ceded reinsurance payable ........................    1,755,105    1,755,105
    Derivative instrument.............................    1,978,891    1,978,891

                                                           December 31, 2000
                                                      --------------------------
                                                      Carrying Amount Fair Value
                                                      --------------------------
Assets:
------
    Cash and cash equivalents, including short-
        term investments .............................   $1,127,771   $1,127,771
    Investments ......................................    8,779,319    8,782,856
    Mortgage loans on real estate.....................      742,068      742,068
    Accounts receivable ..............................    4,258,203    4,258,203
    Reinsurance recoverable ..........................    4,910,443    4,910,443

Liabilities:
-----------
    Debt .............................................    2,102,683    2,025,897
    Ceded reinsurance payable ........................      721,513      721,513

     The  following  methods  and  assumptions  were  used  by  the  Company  in
estimating its fair value disclosures for financial instruments:

<PAGE>


                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


5.   Fair Value of Financial Instruments (continued)
     ----------------------------------------------

     Cash and cash equivalents,  short-term investments,  mortgage loans on real
estate,  accounts  receivable,  reinsurance  recoverable  and ceded  reinsurance
payable:  The  carrying  amount  reported  in  the  consolidated  balance  sheet
approximates fair value.

     Investments:  Fair values for debt  securities  are based on quoted  market
prices   and   are   recognized   in  the   consolidated   balance   sheet   for
available-for-sale  securities.  The fair values for equity securities are based
on quoted market prices and are recognized in the consolidated balance sheet.

     Debt: Fair value of debt is based on discounted expected future cash flows,
using risk rates  currently  available for debt with similar terms and remaining
maturities.

6.   Intangibles
     -----------

     Intangibles are comprised of the following:

                                                            As of December 31,
                                                      --------------------------
                                                          2001            2000
                                                      --------------------------
     Deferred state admission costs ...............   $  227,171      $  227,171
     Customer lists and acquisition costs .........      567,163       1,084,041
     Product development ..........................      262,194         262,194
     Goodwill .....................................      280,623         926,661
                                                      ----------      ----------
                                                       1,337,151       2,500,067
     Accumulated amortization .....................      803,420       1,384,751
                                                      ----------      ----------
     Total ........................................   $  533,731      $1,115,316
                                                      ==========      ==========

     Amortization  expense  amounted to  $144,267 in 2001,  $151,319 in 2000 and
$188,890 in 1999.

7.   Other Investment
     ----------------

     The  Company  has a 30 percent  investment  in Global  Solutions  Insurance
Services,  Inc.  ("GSIS"),  an agency  located in  California  that issues cargo
insurance and customs bonds, which is accounted for under the equity method.

     Summarized unaudited financial information of GSIS is as follows:

<PAGE>


                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


7.   Other Investment (continued)
     ---------------------------

                                                   Year ended December 31,
                                            ------------------------------------
                                                  2001        2000         1999
                                            ------------------------------------
Revenues ................................   $  600,530  $  417,972   $  227,652
Net income (loss) .......................      178,738      66,655     (677,516)

                                                   As of December 31,
                                            ------------------------------------
                                                2001         2000
                                            ------------------------------------
Current assets ..........................   $1,034,572  $  732,669
Non-current assets ......................      250,955      76,180
Current liabilities .....................      726,402     386,633
Non-current liabilities .................    1,607,555   1,607,555

8.   Reserve for Losses and Loss Adjustment Expenses
     -----------------------------------------------

     The following table provides a  reconciliation  of the beginning and ending
liability  balances,  net of  reinsurance  recoverables,  for  the  years  ended
December 31, 2001, 2000 and 1999, to the gross amounts reported in the Company's
consolidated balance sheets:

<TABLE>
<CAPTION>


                                                                                                       December 31,
                                                                                   -------------------------------------------------
                                                                                           2001              2000              1999
                                                                                   -------------------------------------------------
<S>                                                                                <C>               <C>                <C>
Liability for losses and LAE, net of reinsurance
   recoverable on unpaid losses, at beginning
   of year ...................................................................      $ 2,416,657       $ 2,808,727       $ 1,680,580
                                                                                    -----------       -----------       -----------

Incurred losses and LAE's claims, net of reinsurance, occurring during:
   Current year ..............................................................        4,982,148         4,363,435         2,810,532
   Prior year ................................................................         (936,570)       (1,003,077)         (416,000)
                                                                                    -----------       -----------       -----------
Total incurred losses, net of reinsurance ....................................        4,045,578         3,360,358         2,394,532
Losses and LAE payments for claims, net of
   reinsurance, occurring during:
   Current year ..............................................................        1,331,813         2,450,587           135,635
   Prior years ...............................................................        1,017,190           383,749         1,130,750
                                                                                    -----------       -----------       -----------
Total payments ...............................................................        2,349,003         2,834,336         1,266,385
Liability for losses and LAE, net of reinsurance
   recoverable on unpaid losses, at end of year ..............................        4,113,232         3,334,749         2,808,727
Liability for derivative instrument at end of
   the year ..................................................................             --            (918,092)             --
Subrogation recoverables .....................................................             --           1,850,877         1,767,812
                                                                                    -----------       -----------       -----------
Liability for losses and LAE, gross of reinsurance
   recoverables on unpaid losses, at end of year .............................      $ 4,113,232       $ 4,267,534       $ 4,576,539
                                                                                    ===========       ===========       ===========

</TABLE>


<PAGE>


                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


8.   Reserve for Losses and Loss Adjustment Expenses (continued)
     ---------------------------------------------------------

     The Company experienced  $936,570,  $1,003,077 and $416,000 in redundancies
for losses and loss adjustment expenses in 2001, 2000 and 1999 respectively. The
redundancies  principally result from subrogation  received on pooling agreement
case base reserves and claims in prior years.

     The  anticipated   effect  of  inflation  is  implicitly   considered  when
estimating liabilities for losses and LAE. While anticipated price increases due
to inflation are considered in estimating the ultimate claim costs, the increase
in average severities of claims is caused by a number of factors. Future average
severities are projected  based on historical  trends  adjusted for  anticipated
changes in  underwriting  standards,  policy  provisions,  and general  economic
trends.  These anticipated  trends are monitored based on actual development and
are modified if necessary.

9.   Income Taxes
     ------------

     Income tax (benefit) expense consists of the following:

                                                      December 31,
                                       -----------------------------------------
                                            2001            2000            1999
                                       -----------------------------------------
Current:
-------
     Federal ....................      $ 294,737       $ 595,707      $ 283,252
     State ......................         50,453         101,973         58,417
                                       ---------       ---------      ---------
     Total current ..............        345,190         697,680        341,669
                                       ---------       ---------      ---------

Deferred:
--------
     Federal ....................       (276,568)         56,960       (260,407)
     State ......................        (47,342)          9,750        (44,576)
                                       ---------       ---------      ---------
     Total deferred .............       (323,910)         66,710       (304,983)
                                       ---------       ---------      ---------
     Total provision ............      $  21,280       $ 764,390      $  36,686
                                       =========       =========      =========

     The provision is reported as follows:


                                                       December 31,
                                           -------------------------------------
                                               2001           2000          1999
                                           -------------------------------------
(Benefit) for (loss) from
    continuing operations ...........      $(75,932)      $764,390      $ 36,686
Expense for extraordinary
    gain on restructuring of
    note ............................        97,212           --            --
                                           --------       --------      --------
Total income tax expense ............      $ 21,280        764,390        36,686
                                           ========       ========      ========

<PAGE>




                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


9.   Income Taxes (continued)
     -----------------------

     A  reconciliation  of the  statutory  federal  income  tax  rate  with  the
Company's effective income tax rate is as follows:

                                                          December 31,
                                               ---------------------------------
                                                  2001        2000          1999
                                               ---------------------------------

    Statutory federal rate ............         34.00%       34.00%       34.00%
    State income taxes ................          3.63         3.63         0.78
    Tax exempt income .................        (11.04)        (.49)        0.00
    Change in valuation allowance .....          --            --        (35.30)
    Nondeductible expenses ............           .13         1.52         0.46
    Miscellaneous .....................          --           3.66         3.16
                                               ------        -----        -----
    Effective tax rate ................         26.72%       42.32%        3.10%
                                               ======        =====        =====

     The  following  summarizes  the effect of deferred  income  taxes items and
their  impact  of  "temporary   differences"   between  amounts  of  assets  and
liabilities for financial reporting purposes and such amounts as measured by tax
laws.  Temporary  differences  and  carry-forwards  which give rise to  deferred
income tax assets and liabilities are as follows:

                                                      December 31,
                                      ------------------------------------------
                                             2001           2000            1999
                                      ------------------------------------------

     Deferred income tax liabilities:
     -------------------------------
     Deferred acquisition costs ...   $  (716,305)   $  (735,673)   $  (632,564)
     State income taxes ...........          --             --          (15,156)
     Unrealized gain on investments       (63,039)       (63,039)       (12,603)
                                      -----------    -----------    -----------
     Total deferred tax liabilities      (779,344)      (798,712)      (660,323)
                                      -----------    -----------    -----------

     Deferred  income tax assets:
     ---------------------------
     Basis difference in fixed
       assets .....................          --           17,139         17,990
     Basis difference in
       investments ................       120,766        300,261         96,201
     Reserve discounting ..........       442,163        102,537         33,112
     Unearned premiums ............       333,791        351,420        605,246
     Amortization .................       279,455        100,275        105,358
     Surplus notes ................       102,314        102,314        107,399
                                      -----------    -----------    -----------
     Total deferred tax assets ....     1,278,489        973,946        965,306
                                      -----------    -----------    -----------
     Net deferred tax asset .......   $   449,145    $   175,234    $   304,983
                                      ===========    ===========    ===========


<PAGE>


                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


10.  Debt
     ----

     Debt as of December 31, consists of the following:

                                                      --------------------------
                                                             2001           2000
                                                      --------------------------
Affiliate:
---------
Convertible note payable due November 10,
      2002 .......................................     $  604,055     $1,000,000
Nonaffiliate:
------------
Note payable due March 1, 2002 ...................        124,523        249,109
Note payable due June 30, 2010 ...................        527,417        853,574
                                                       ----------     ----------
                                                       $1,255,995     $2,102,683
                                                       ==========     ==========

     Convertible Note Payable to Affiliate
     -------------------------------------

     Effective  November  10,  1988,  the  Company  entered  into  a  $1,000,000
convertible term note agreement with TransCor Waste Services, Inc., a subsidiary
of KC. The note, originally due November 10, 2001, has been extended to November
10,  2002.  The annual  rate of interest is equal to one half of one percent per
annum in excess of the stated interest rate  established by the Bank of America.
The average  interest rate for 2001 was 8.6%. On December 26, 2001,  the Company
made a principal  note payment of $395,945  reducing  the note to $604,055.  The
lender may convert the  principal  amount of the note or a portion  thereof into
common stock at $3.00 per share subsequent to a six-month  anniversary and prior
to the close of business on the maturity date.

     Notes Payable to Nonaffiliates
     ------------------------------

     In connection  with the  acquisition of certain  agencies  during 1995, the
Company entered into two notes payable with the agencies'  previous owners.  One
note is due March 1, 2002 and bears interest at 8% through February 28, 2001 and
10% thereafter.  Principal payments of $125,000 are due annually beginning March
1, 2000.  The other note is due June 30, 2010 and bears  interest 9%.  Principal
payments of $40,000 were due annually for three years beginning January 5, 1996.
Payments of $11,104  including  principal  and  interest  were paid monthly from
April 1, 1997  through  March 31,  2001.  On  December  3,  2001,  SA reached an
agreement  with the holder on this note  payable,  whereby the terms of the note
were  modified,  such that  interest  rate was  reduced to zero,  and  principal
payments  became payable at $6,000 per month.  The  modification of the terms of
the note resulted in an  extraordinary  gain of $158,610 (net of deferred income
taxes of $97,212).  Payments totaling  $113,312  including a lump sum payment of
$50,000 were made during 2001.

     Interest  incurred in 2001, 2000 and 1999 for term notes due  nonaffiliates
was $97,208, $102,760 and $114,027, respectively.

<PAGE>

                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


10.  Debt (continued)
     ---------------

     Maturities of affiliate and non-affiliate notes payable are as follows:

     ------------------- ------------------
       Year Ending
      December 31,
     ------------------- ------------------
        2002              $     728,578
        2003                     72,000
        2004                     72,000
        2005                     72,000
        2006                     72,000
      Thereafter                239,417

11.  Employee Benefit Plan
     ---------------------

     On April 1, 1996, CTI adopted a defined  contribution  401(k) plan covering
substantially  all employees.  Under the plan,  the Company makes  contributions
equal to one  percent  of the  participant's  compensation,  not to  exceed  six
percent of the participant's  annual deferrals.  The Company's  contributions to
the  plan  totaled  $33,502,  $24,311,  and  $22,730  in 2001,  2000  and  1999,
respectively.

12.  Stock Option Plan
     -----------------

     During the fiscal year ended December 31, 1999, the Company  registered the
1991 Stock Option Plan. (the"Plan").  The Company applies APB Opinion No. 25 and
related interpretations in accounting for the Plan. Accordingly, no compensation
cost has been  recognized for the Plan. Had  compensation  cost been  determined
based on the fair  market  value at the grant  dates for  awards  under the Plan
consistent with the method of FASB Statement No.123, the effect on the Company's
net income and earnings per share would have been immaterial.

     The fair value of each option  grant is  estimated on the date of the grant
using the  Black-Scholes  option-pricing  model. The following  weighted-average
assumptions  were used for the  grant  for the year  ended  December  31,  1998;
dividend  yield of 0%, risk free  interest  rate of 5.40%,  expected  life of 10
years and volatility of 99.98%. The following weighted-average  assumptions were
used for grants for the year ended December 31, 2000; dividend yield of 0%, risk
free  interest  rates of  6.54%,  and  6.31%,  expected  lives  of 10 years  and
volatility of 80.59%.

     Options  granted  under this plan have a term of ten years and vest ratably
over a four year period  immediately  following  the grant date.  The  following
table  summarizes all stock option  transaction for the years ended December 31,
2001, 2000 and 1999:



<PAGE>



                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


12.  Stock Option Plan (continued)
     ----------------------------

<TABLE>
<CAPTION>



                                                                   ---------------------     -----------------     -----------------
                                                                               2001                2000                   1999
                                                                   ---------------------     ------------------    -----------------


                                                                               Weighted-             Weighted-             Weighted-
                                                                                Average                Average              Average
                                                                                Exercise              Exercise             Exercise
                                                                     Shares     Price         Shares    Price      Shares    Price
                                                                   ---------   ---------     -------   --------    --------  -------
<S>                                                                 <C>        <C>           <C>        <C>        <C>        <C>
Outstanding at
beginning of year .............................................     113,500    $     .42     134,500    $   .42     187,086   $  .35

Grants ........................................................        --      $      --      39,000    $  1.50       --      $   --
Exercised .....................................................     (44,000)   $    .125     (56,000)   $  1.25     (52,286)  $  .15
Forfeited .....................................................        --      $      --      (4,000)   $  1.88        (300)  $  .15
                                                                  ---------                  -------                -------
Outstanding
at end of year.................................................      69,500    $    1.38      113,500   $   .89     134,500      .42
                                                                  =========                   =======               =======

Exercisable
at end of year.................................................      45,300    $    1.28       79,900   $   .60     122,800   $  .30
                                                                  =========                   ========              =======

Weighted-average fair value of options granted during the year    $    --      $     --          --     $  1.52        --     $  --

</TABLE>

     The proceeds from the exercise of stock options  include certain income tax
benefits, which are included in capital in excess of par value.

     The following table summarizes  information about stock options at December
31, 2001:

<TABLE>
<CAPTION>




                                                 Options Outstanding                                     Options Exercisable
                                                 -------------------                                     -------------------
                                             Number         Weighted-Average     Weighted-              Number           Weighted-
  Range of                               Outstanding at         Remaining         Average          Exercisable at        Average
Exercise Prices                         December 31,2001    Contractual Life    Exercise Price    December 31, 2001   Exercise Price
---------------                         -----------------   ----------------     --------------   -----------------   --------------
<S>                                     <C>                 <C>                 <C>               <C>                  <C>
$.75 - 1.00 .....................            22,500            6 years            $         .78         22,500            $      .78
$1.56 ...........................            37,000            9 years            $        1.52         14,800            $     1.52
$2.25 ...........................            10,000            8 years            $        2.25          8,000            $     2.25
                                             ------                                                     ------
                                             69,500                                                     45,300
                                             ======                                                     ======
</TABLE>




<PAGE>


                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


13.  Preferred Stock
     ---------------

     CTI is authorized to issue 10,000,000 shares of preferred stock,  $.001 par
value,  with such rights and privileges as determined by the Board of Directors.
The preferred stock shall be issued at such times and for such  consideration as
determined by the Board of Directors.  No shares have been issued as of December
31, 2001.

14.  Reinsurance
     -----------

     CCS assumes reinsurance  premiums through a program whereby its subsidiary,
SSI has contracted  through two joint  partnering  agreements (St. Paul Fire and
Marine  Group,  f/k/a United States  Fidelity and Guaranty  Company and Peerless
Insurance Company) to pursue small to medium size contract and commercial surety
business  in  states  in which  CCS is not  licensed.  CCS  participates  in the
underwriting risk through a retrocession  treaty with Transatlantic  Reinsurance
Company.

     Effective  October 1, 1996,  CCS entered into a quota share  agreement with
First Indemnity of America Insurance Company ("FIA") whereby all of the premiums
written  through a shared  underwriting  office are subject to this treaty.  The
Company assumes 50% of the premiums written by FIA and cedes 50% of the premiums
written by CCS.

     CCS assumed reinsurance primarily from a pooling agreement which expired in
April, 1997 for which CCS assumed 10 percent of the risk with a maximum exposure
to CCS of $125,000 per bond.  CCS is still  receiving  residual  revenues from a
pooling  agreement  for which CCS  assumed 25 percent and 20 percent of the risk
with a maximum exposure to CCS of $125,000 and $600,000 per bond, respectively.

     The Company cedes to Transatlantic Reinsurance Company on an excess of loss
treaty  95% of the risk  insured  with a  maximum  exposure  to the  Company  of
$235,000 per principal prior to June 30, 2001 and a maximum exposure of $300,000
per principal effective July 1, 2001. Transatlantic Reinsurance Company is rated
A+ by  A.M.  Best.  For its  liability  line of  registered  investment  advisor
insurance, the Company has reduced its exposure on any one risk, with a purchase
of a quota share agreement with Dorinco  Reinsurance  (Dorinco  Treaty) which is
rated A (Excellent) by A.M. Best. Under the Dorinco Treaty, CCS cedes 50% of its
liability on all registered investment advisor policies, which have an aggregate
net liability limit of $500,000 per endorsement.  The Company  continues to have
exposure to risk for reinsurance ceded in the event that the reinsurer is unable
to meet its obligation  under the  reinsurance  agreement in force.  Reinsurance
does not relieve an insurer of its  liability  to  policyholders,  however,  the
reinsurer is obligated to the insurer for the portion assumed by such reinsurer.


<PAGE>



                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


14.  Reinsurance (continued)
     ----------------------

     Gross and net written  premiums in 2001,  2000 and 1999 are  summarized  as
follows:

<TABLE>
<CAPTION>


                                  -----------------------------       ---------------------------     ------------------------------
                                               2001                              2000                               1999
                                  -----------------------------       ---------------------------     ------------------------------
                                     Written           Earned           Written         Earned           Written           Earned
                                  ------------     ------------       ----------     ------------     ------------     -------------
<S>                               <C>              <C>                <C>            <C>              <C>              <C>
Direct  premiums .............    $ 13,866,876     $ 14,465,244       13,775,266     $ 12,756,102     $ 10,816,114     $ 10,064,121

Assumed  premiums ............       4,193,927        3,788,443        2,393,468        2,480,712        2,421,346        2,079,680

Ceded
premiums .....................      (4,653,722)      (4,612,371)      (3,510,537)      (3,108,861)      (2,740,148)      (2,526,009)
                                  ------------     ------------     ------------     ------------     ------------     ------------

Net
premiums .....................    $ 13,407,081     $ 13,641,316     $ 12,658,197     $ 12,127,953     $ 10,497,312     $  9,617,792
                                  ============     ============     ============     ============     ============     ============

</TABLE>

     Loss and loss adjustment expenses in 2001, 2000, and 1999 are summarized as
follows:

                                      ------------------------------------------
                                             2001           2000           1999
                                      ------------------------------------------
Direct ............................   $ 5,361,119    $ 6,301,778    $ 3,932,278
Assumed ...........................     1,217,945        680,032        714,117
Ceded .............................    (2,533,486)    (3,621,452)    (2,251,863)
                                      -----------    -----------    -----------
Net losses and loss adjustment
      expenses ....................   $ 4,045,578    $ 3,360,358    $ 2,394,532
                                      ===========    ===========    ===========

     The Company reported premiums paid in advance and reinsurance  recoverables
on paid losses,  of  $3,844,034  and  $4,910,443  at December 31, 2001 and 2000,
respectively.

15.  Commitments and Contingencies
     -----------------------------

     The Company leases certain office space and equipment  under  noncancelable
operating leases. Rent expense was $241,158, $222,983 and $178,429 for the years
ended December 31, 2001, 2000 and 1999, respectively.  Minimum future rental and
lease commitments as of December 31, 2001 for all noncancelable operating leases
with an initial or remaining term of over one year are as follows:

           ------------------------ -----------------------
                 Year Ending
                December 31,
           ------------------------ -----------------------
                    2002            $          223,823
                    2003                       225,803
                    2004                       213,150
                    2005                       197,587
                    2006                       195,315
                 Thereafter                    417,628



<PAGE>

                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


15.  Commitments and Contingencies (continued)
     ----------------------------------------

     CCS has been named in a class action lawsuit. The plaintiffs are clients of
a  registered  investment  advisor  (the  "Advisor")  and have  alleged that the
Advisor,  a registered  broker-dealer,  and certain other defendants  (excluding
CCS)  were  negligent  or  otherwise  responsible  for  losses  suffered  by the
plaintiffs resulting from embezzlement of the plaintiffs' investments by a third
party.  As a separate count in the lawsuit,  the  plaintiffs  have also asserted
claims against CCS based on a policy of insurance  issued by CCS to the Advisor.
The policy does not provide coverage for embezzlement,  rather it insures losses
caused  by  market  declines,  providing  that  the  Advisor  has  followed  the
investment  guidelines  required  by the  policy.  CCS  denies  the  plaintiffs'
allegations,  however,  it cannot  predict the outcome or the impact this action
could have on CCS. CCS is vigorously  defending this lawsuit and intends to move
for summary judgment.

     The Company and its  subsidiaries  are involved in various lawsuits arising
in the ordinary course of its business operations as an insurer. Management does
not  believe  that any of these  lawsuits  will  have a  material  effect on the
consolidated financial position, future operations or cash flows of the Company.

16.  Statutory Accounting Practices and Regulatory Requirements
     ----------------------------------------------------------

     Statutory capital and surplus and net income as reported to the domiciliary
state  insurance  department  in  accordance  with its  prescribed  or permitted
statutory accounting practices for CCS is summarized as follows:

                                                   Year Ended December 31,
                                        ----------------------------------------
                                              2001           2000           1999
                                        ----------------------------------------
Statutory capital and surplus .....     $6,503,218     $5,441,336     $5,106,241
Statutory net income ..............        105,513        511,624        675,975

     CCS is  domiciled in Florida and  prepares  its  statutory-basis  financial
statements in accordance  with accounting  practices  prescribed or permitted by
the Florida Insurance  Department.  "Prescribed"  statutory accounting practices
include state laws, regulations,  and general administrative rules, as well as a
variety of publications of the National  Association of Insurance  Commissioners
("NAIC").  "Permitted"  statutory  accounting practices encompass all accounting
practices  that are not  prescribed;  such  practices  may differ  from state to
state,  may differ from company to company within a state, and may change in the
future. In 1998, the National Association of Insurance  Commissioner adopted the
Codification of Statutory  Accounting  Principles  (Codification)  for insurance
companies.  Codification, which is intended to standardize regulatory accounting
and reporting  for the insurance  industry,  is effective  January 1, 2001.  The
effect  on  CCS's  statutory  financial  statements  for the  implementation  of
Codification is an additional  $453,187 of surplus as of December 31, 2001. This
change in  accounting  principle is shown in the capital and surplus  section of
the  statutory  financial  statements  as a  "cumulative  change  in  accounting
principle."


<PAGE>

                          CUMBERLAND TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


16.  Statutory Accounting Practices and Regulatory Requirements (continued)
     ---------------------------------------------------------------------

     Under  applicable  state  insurance  statutes,  CCS must  maintain  minimum
capital and surplus of $3,000,000 (as of December 31, 2001). In addition,  under
applicable state laws and  regulations,  CCS is restricted from paying dividends
to the extent of surplus  profits less any dividends  that have been paid in the
preceding  twelve  months or net  investment  income for the year,  whichever is
less,  unless the Company obtains prior approval from the Florida  Department of
Insurance.  As of December 31, 2001,  no dividends  from CCS are  available  for
payment to CTI without the prior  approval of the  Department of Insurance.  The
more significant  variances between statutory  reporting and generally  accepted
accounting  principles are deferred  policy  acquisition  costs and  nonadmitted
assets. Insurance regulations dictate expensing commissions.  Nonadmitted assets
represent  non-liquid  assets and are excluded from the  statutory  statement of
admitted assets, liabilities and capital and surplus.

17.  Comprehensive Income
     --------------------

     Comprehensive  income is defined as any change in equity from  transactions
and other events originating from nonowner sources. The Company's  comprehensive
income is  comprised  of  reported  net  income and  changes  in the  unrealized
appreciation  of  available-for-sale  securities.  The following  summarizes the
components of comprehensive income:

<TABLE>
<CAPTION>



                                                                                    Consolidated Statements of Comprehensive Income
                                                                                          For the Year Ended December 31,
                                                                             -------------------------------------------------------
                                                                                   2001                   2000                  1999
                                                                             -------------------------------------------------------
<S>                                                                          <C>                    <C>                   <C>
Net income ......................................................            $   58,368             $1,041,749            $1,148,070
Other comprehensive (loss) income,
  net of income tax:
      Unrealized appreciation
         of available-for-
         sale securities arising during
         the year................................................               164,988               168,411               230,552
Less:  reclassification adjustment
         for gains included in
         net income .............................................               198,744                23,029                80,520
                                                                             ----------             ----------            ----------
Comprehensive income ............................................            $   24,612            $1,187,131            $1,298,102
                                                                             ==========             ==========            ==========


</TABLE>



<PAGE>




           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                          CUMBERLAND TECHNOLOGIES, INC.


                                                               December 31,
                                                       -------------------------
Condensed Balance Sheets                                     2001           2000
------------------------                               -------------------------

Assets:
------
Investment in wholly-owned subsidiaries ..........     $6,301,161     $6,957,172
Other assets .....................................          1,973          2,699
Other investments ................................        640,872        582,532
Deferred income tax asset ........................        499,145        175,234
Income tax recoverable ...........................           --          167,588
Surplus debenture receivable from subsidiary .....      2,048,734      2,048,734
                                                       ----------     ----------
                                                       $9,491,885     $9,933,959
                                                       ==========     ==========
Liabilities:
-----------
Accounts payable to affiliates ...................     $1,450,710     $2,005,911
Income tax payable ...............................        113,284          --
Accounts payable .................................         11,288         41,557
                                                       ----------     ----------
                                                       $1,575,282      2,047,468
                                                       ----------     ----------
Stockholders' equity:
--------------------
Common stock .....................................          5,916          5,872
Other stockholders' equity .......................      7,910,687      7,880,619
                                                       ----------     ----------
                                                       $7,916,603      7,886,491
                                                       ----------     ----------
                                                       $9,491,885     $9,933,959
                                                       ==========     ==========

<TABLE>
<CAPTION>


                                                                                               Year Ended December 31,
                                                                           ---------------------------------------------------------
                                                                                  2001                   2000                   1999
                                                                           ---------------------------------------------------------
<S>                                                                        <C>                   <C>                    <C>
Condensed Statements of Operations
----------------------------------
Revenue:
-------
Management fees from wholly-
    owned subsidiaries .........................................           $   533,332            $   526,309           $   233,226
                                                                           -----------            -----------           -----------
                                                                               533,332                526,309               233,226
                                                                           -----------            -----------           -----------
Costs and expenses:
------------------
Selling and administrative
    expenses ...................................................               175,161                140,589               469,534
Interest expense to affiliates .................................                69,198                100,000               100,000
                                                                           -----------            -----------           -----------
                                                                               244,359                240,589               569,534
                                                                           -----------            -----------           -----------
Income before income taxes
    and equity in net income (loss)
    of subsidiaries ............................................               288,973                285,720              (336,308)
Income tax (benefit) expense ...................................               109,116                120,916              (129,142)
Equity in income (loss) of
    subsidiaries ...............................................              (121,489)               876,945             1,355,236
                                                                           -----------            -----------           -----------
Net income .....................................................           $    58,368            $ 1,041,749           $ 1,148,070
                                                                           ===========            ===========           ===========

</TABLE>


<PAGE>


                  SCHEDULE II - CONDENSED FINANCIAL INFORMATION
                            OF REGISTRANT (CONTINUED)

                          CUMBERLAND TECHNOLOGIES, INC.

Supplemental Schedule of Noncash Investing and Financing Activities
-------------------------------------------------------------------

     The  Company  operates  through  its  wholly-owned   subsidiaries  and  all
operating activities have been funded by its subsidiaries.

Notes to Condensed Financial Statements
---------------------------------------

1.   Organization and summary of significant accounting policies
     -----------------------------------------------------------

     Organization - Cumberland  Technologies,  Inc. ("CTI" or "the Company"),  a
Florida  corporation,  was formed on November 18, 1991, to be a holding  company
and a  wholly-owned  subsidiary of Kimmins Corp.  ("KC").  Effective  October 1,
1992,  KC  contributed  all  of  the  outstanding  common  stock  of  two of its
wholly-owned  subsidiaries,  Cumberland  Casualty & Surety  Company  ("CCS") and
Surety Specialists, Inc. ("SSI") to CTI. KC then distributed to its stockholders
CTI's  common  stock on the basis of one  share of common  stock of CTI for each
five  shares  of  KC  common   stock  and  Class  B  common   stock  owned  (the
"Distribution").  CTI conducts its business through its subsidiaries,  CCS, SSI,
Surety Group,  Inc. ("SG"),  Surety  Associates  ("SA"),  and Qualex  Consulting
Group, Inc.  ("Qualex") CCS, a Florida  corporation formed in May 1988, provides
performance and payment bonds for contractors and miscellaneous  surety bonds to
federal and local  government  agencies.  The surety services  provided  include
direct surety and, to a lesser extent,  reinsurance.  SSI, a Florida corporation
formed  in  August  1988,  is a  general  lines  agency  which  operates  as  an
independent agent. SG, a Georgia corporation,  and Associates  Acquisition Corp.
d/b/a Surety Associates, a South Carolina corporation,  purchased by the Company
in February and July 1995,  respectively,  are general lines insurance  agencies
which operate as independent  agencies.  Qualex, a Florida corporation formed in
November 1995, provides claim and contracting consulting services.

     For the years  ended  December  31,  2001,  2000 and 1999,  CTI charged its
subsidiaries, excluding CCS, a management fee.

2. Basis of Presentation - In the parent-company-only  financial statements, the
Company's   investment  in  subsidiaries  is  stated  at  cost  plus  equity  in
undistributed  earnings  of  subsidiaries  since  the date of  acquisition.  The
Company's  share of net income (loss) of its  subsidiaries is included in income
using the equity method. Parent-company-only financial statements should be read
in conjunction with the Company's consolidated financial statements.

     Investment  in  subsidiaries  includes  the  net  unrealized   appreciation
(depreciation)  in  available-for-sale  securities  held by CCS,  of $70,729 and
$104,485 as of December 31, 2001 and 2000, respectively. These amounts have been
included in the CTI "other stockholders' equity" amounts.


<PAGE>




                  SCHEDULE II - CONDENSED FINANCIAL INFORMATION
                            OF REGISTRANT (CONTINUED)

                          CUMBERLAND TECHNOLOGIES, INC.


3.   Surplus Debenture Receivable from Subsidiary
     --------------------------------------------

     In 1988,  CCS issued a surplus  debenture to KC in exchange for  $3,000,000
which bears  interest at 10 percent per annum.  In 1992, the debenture due to KC
from CCS was  assigned to CTI.  Interest and  principal  payments are subject to
approval by the Florida  Department of Insurance.  On April 1, 1997, CTI forgave
$375,000 of its  $3,000,000  surplus  debenture  due from CCS. As a result,  CCS
increased paid-in-capital by $375,000. On June 30, 1999, CTI forgave $576,266 of
its $2,625,000  surplus debenture due from CCS as well as future interest.  As a
result, CCS increased paid-in-capital to $1,000,000. As of December 31, 2001, no
payments could be made under the terms of the debenture.