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

                                   FORM 10-KSB

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

                  For the fiscal year ended September 30, 2001

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

                  For the transition period from _____ to_____

                           Commission File No. 0-23450

                         CAPITOL COMMUNITIES CORPORATION
          (Name of Small Business Issuer as specified in its charter)

        Nevada                                            88-0361144
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                         Identification No.)


25550 Hawthorne Boulevard
Suite 207
Torrance, CA                                              90505
(Address of principal executive offices)                (Zip Code)


Issuer's telephone number: (310) 375-2266

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

Securities registered under Section 12(g) of the Act:

                          Common Stock ($.01 Par Value)
                                (Title of Class)


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


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

         State the issuer's revenues for its most recent fiscal year.
$258,851.00.



<PAGE>




         State the  aggregate  market  value of the  voting  stock  held by non-
affiliates  computed by reference  to the price at which the stock was sold,  or
the average bid and asked price of such, as of a specified  date within the past
60 days.  $1,524,579 based on the average of the bid and asked obtained from the
National Quotation Bureau, Inc. ("NQB") on December 15, 2001.

         State the number of shares  outstanding of each of the Issuer's classes
of common equity,  as of the latest  practicable  date.  22,930,361 common stock
shares, as of December 15, 2001.


                       DOCUMENTS INCORPORATED BY REFERENCE
NONE

         Transitional Small Business Disclosure Format YES [ ] NO [X}





















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TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS ..................................................  4
--------------------------

PART I
ITEM 1.     DESCRIPTION OF BUSINESS........................................... 4

ITEM 2.     DESCRIPTION OF PROPERTY.......................................... 14

ITEM 3.     LEGAL PROCEEDINGS................................................ 25

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF
            SECURITY HOLDERS................................................. 28

PART II.

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS.............................................. 29

ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR
            PLAN OF OPERATION................................................ 30

ITEM 7.     FINANCIAL STATEMENTS............................................. 41

ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
            ON ACCOUNTING AND FINANCIAL DISCLOSURE........................... 41

PART III

ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
            AND CONTROL PERSONS; COMPLIANCE WITH
            SECTION 16(a)OF THE EXCHANGE ACT................................. 41

ITEM 10.    EXECUTIVE COMPENSATION........................................... 43

ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
            OWNERS AND MANAGEMENT............................................ 45

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED
            TRANSACTIONS..................................................... 46

ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K................................. 46








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FORWARD-LOOKING STATEMENTS

         In   addition  to   historical   information,   this  Report   contains
forward-looking   statements.  Such  forward-looking  statements  are  generally
accompanied by words such as "intends,"  "projects,"  "strategies,"  "believes,"
"anticipates,"  "plans," and similar terms that convey the uncertainty of future
events or outcomes. The forward-looking  statements contained herein are subject
to certain  risks and  uncertainties  that could cause actual  results to differ
materially from those reflected in the forward-looking statements.  Factors that
might cause such a difference  include,  but are not limited to, those discussed
in ITEM 6 of this Report,  the section  entitled  "MANAGEMENT'S  DISCUSSION  AND
ANALYSIS  OR PLAN OF  OPERATION  --Factors  That May Affect  Future  Results and
Market Price of Stock."  Readers are  cautioned  not to place undue  reliance on
these forward-looking statements, which reflect management's analysis only as of
the date  hereof  and are in all cases  subject  to the  Company's  ability  to,
(1)reorganize  under  Chapter 11, its  wholly-owned  subsidiary  which  controls
substantially all of the Company's assets, (2) cure its current severe liquidity
problems and (3) to raise sufficient capital to overcome uncertainties regarding
the availability of sufficient liquidity to continue operations.  If the Company
cannot  reorganize  its current  debt,  the  Company's  status as a viable going
concern will remain in doubt.  There can be no assurance that the Reorganization
Plan filed with the United  States  Bankruptcy  Court will be  approved  or that
Company will be able to raise sufficient  capital to cure its liquidity problems
and pursue the business objectives discussed herein.

         In addition,  the forward-looking  statements  contained in this report
may be impacted by the  September  11,  2001  terrorist  attacks and the related
military action,  as well as the possibility of further  incidents of terrorism.
The effect of these events on the business of the Company,  if any, is currently
unclear. However, any adverse effect on general economic conditions and consumer
confidence  resulting from these events may adversely affect the business of the
Company.

         Capitol  Communities  Corporation  undertakes no obligation to publicly
revise these forward-looking  statements to reflect events or circumstances that
arise after the date hereof.  Readers should  carefully  review the risk factors
described  in other  documents  the  Company  files  from  time to time with the
Securities  and  Exchange   Commission,   including  without   limitation  those
identified in the "Risk Factors" section of the Company's Registration Statement
filed with the Securities and Exchange  Commission (the "SEC")in  September 1996
on Form 10-SB.

PART I.

ITEM 1.  DESCRIPTION OF BUSINESS.

BUSINESS DEVELOPMENT

         Capitol Communities Corporation,  a Nevada corporation (the "Company"),
was formed on August 21, 1995. It is the  successor-by-merger to AWEC Resources,
Inc., a New York corporation (the "Predecessor Corporation"). Unless the context
otherwise  requires,  all references to the "Company" in this Report include the
Predecessor  Corporation,  and all  references  to the  Company's  business  and
properties   include  the  business  and   properties  of  Capitol   Communities
Corporation and its wholly-owned subsidiaries discussed in more detail below.



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<PAGE>



         The Predecessor  Corporation was  incorporated in the State of New York
as Century Cinema Corporation in November 1968.

         On December 20, 1993, the Predecessor  Corporation  changed its name to
AWEC Resources,  Inc. On February 11, 1994, the Predecessor Corporation formed a
wholly-owned subsidiary,  AWEC Development Corporation, an Arkansas corporation,
which later  changed its name on January 29,  1996,  to Capitol  Development  of
Arkansas Inc., (the "Operating Subsidiary").

         In  May  1994,  the  Predecessor   Corporation  formed  a  wholly-owned
subsidiary,  AWEC Homes,  Inc., an Arkansas  corporation (the "Home Construction
Subsidiary"),  for the  purpose  of  building  single  family  homes.  The  Home
Construction Subsidiary,  which later changed its name to Capitol Homes, Inc. on
January 29, 1996, has had no construction operations.

         In order to effectuate a change in domicile and name change approved by
a  majority  of  the  Predecessor  Corporation  shareholders,   the  Predecessor
Corporation  merged,  effective  January  30,  1996,  into  Capitol  Communities
Corporation,  a Nevada  corporation formed in August 1995 solely for the purpose
of the  merger.  Under  the  terms of the  merger,  each  share  of  Predecessor
Corporation common stock was converted to a single share of Capitol  Communities
Corporation  common  stock  (the  "Common  Stock"),   and  Capitol   Communities
Corporation succeeded to all of the assets, rights,  obligations and liabilities
of the Predecessor Corporation.

         On July 21, 2000, the Operating Subsidiary,  a wholly-owned  subsidiary
of the Company which holds  substantially all of the Company's  assets,  filed a
voluntary  petition for relief under Chapter 11 of the United States  Bankruptcy
Code in the  United  States  Bankruptcy  Court,  Eastern  District  of  Arkansas
("Bankruptcy  Court").  Since then,  the Company  has  continued  to operate its
business  as a  debtor-in-possession.  As  such,  the  Operating  Subsidiary  is
authorized to operate its business in the ordinary course, but may not engage in
transactions  outside the ordinary course of business  without  Bankruptcy Court
approval.

         On November  16,  2000,  the  Operating  Subsidiary  filed a Disclosure
Statement and Plan of  Reorganization  (the "Plan") with the Bankruptcy Court to
satisfy  its  existing  debts.  The  Disclosure  Statement  was  approved by the
Bankruptcy  Court on January 19, 2001.  The Plan has been presented to creditors
for acceptance or rejection.  Two secured creditors, the Bank of Little Rock and
First  Arkansas  Valley Bank accepted the Plan,  but the  Liquidator for Resure,
Inc.  ("Resure") rejected it. One creditor from the unsecured class accepted the
Plan.  At least  two-thirds  of each  impaired  class of creditors and more than
one-half in number of the allowed claims of the class members entitled to accept
or reject the Plan have to vote to accept it, however the  Bankruptcy  Court may
still confirm the Plan if at least one of the impaired  classes votes for it and
the Bankruptcy Court finds the Plan does not discriminate  unfairly. The hearing
for confirmation of the Plan was set for February 21, 2001, but was delayed.  As
of the date of this Report,  the Bankruptcy  Court has not rescheduled a hearing
to consider  confirmation  of the Plan. If the Plan is confirmed,  all creditors
listed in the petition  will be bound by the terms and  conditions  set forth in
the Plan. If the Plan is not confirmed,  the Operating  Subsidiary may be forced
into  Chapter  7, at which  point  the  Operating  Subsidiary  will be forced to
liquidate its assets to meet the obligations of the secured creditors and if any
funds  are  available  thereafter  to  meet  the  obligations  of the  unsecured
creditors.



                                        5

<PAGE>



         As a result of the Operating Subsidiary's bankruptcy, all creditors are
stayed from  collection of then existing  debts,  liabilities and obligations of
the Operating Subsidiary (collectively, "Pre-petition Indebtedness").

         Generally, under the Bankruptcy Code, the Operating Subsidiary does not
make  payments on  Pre-petition  Indebtedness  until the Plan is approved by the
Bankruptcy   Court.   Liabilities  and  obligations  first  incurred  after  the
commencement  of the  bankruptcy  case in  connection  with the operation of the
Operating  Subsidiary's  business  generally  enjoy priority in right to payment
over Pre-petition  Indebtedness and must be paid by the Operating  Subsidiary in
the ordinary course of business.

         On December 7, 2000,  Nathaniel S. Shapo, the Director of Insurance for
the State of Illinois,  in his capacity as Liquidator  ("Liquidator") of Resure,
filed a Motion to Dismiss (the Operating  Subsidiary's petition for bankruptcy),
or in the alternative, Motion for the Appointment of a Trustee.

     In July,  2001, the Liquidator for Resure submitted to the Bankruptcy Court
a Competing Plan of  Reorganization  and a Disclosure  Statement.  The Competing
Plan  provides for the  liquidation  of the  Operating  Subsidiary's  assets.  A
hearing has not been set to consider confirmation of the Competing Plan.

         Subsequent to the Company's fiscal year-end,  on November 13, 2001, the
Liquidator  for  Resure  submitted  a  Motion  for  Relief  From  Stay  with the
Bankruptcy Court seeking  permission to continue its foreclosure on 701 acres of
the Large  Residential  Tract of the Maumelle Property used to secure the Resure
Note.

         On December 20, 2001,  the Operating  Subsidiary  and Resure  reached a
settlement  agreement  to resolve  payment  on the  outstanding  amounts  due to
Resure,  and dismiss the Resure  Motions and  Competing  Plan of  Reorganization
currently  before  the  Bankruptcy  Court  ("2001  Settlement  Agreement").  The
Liquidator for Resure was required to obtain  approval from the Circuit Court of
Cook County,  Illinois for the agreement to be effective. An Order approving the
2001  Settlement  Agreement  was  entered by the Cook  County  Circuit  Court on
January 9, 2002. If full payment required under the 2001 Settlement Agreement is
not timely rendered to Resure, the Operating  Subsidiary has agreed to the entry
by Resure of a Consent  Foreclosure  Decree and In Rem  Judgment  in the Pulaski
County Chancery.

           Additionally,  if the Plan is not confirmed, the Operating Subsidiary
may be forced into Chapter 7, at which point the Operating  Subsidiary  would be
forced to liquidate its assets to meet the obligations of the secured  creditors
and if any  funds  are  available  thereafter  to meet  the  obligations  of the
unsecured creditors.  See ITEM 3, "LEGAL PROCEEDINGS," and ITEM 6, "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION."



                                        6

<PAGE>



         BUSINESS OF THE COMPANY

         The Company is  primarily  in the  business of  developing  and selling
property from its inventory of 1,430 acres of real property located in Maumelle,
Arkansas  (the  "Maumelle  Property")  in an effort to  utilize  core  assets to
restructure the Company's  short-term debt into equity and/or long- term debt to
reduce such debt and improve its severe illiquidity problems. See above, ITEM 1,
"DESCRIPTION OF BUSINESS," and ITEM 2, "DESCRIPTION OF PROPERTY."

         GENERAL.  During  fiscal year ended  September  30,  2001,  the Company
focused on trying to sell its  property  in the City of  Maumelle,  Arkansas,  a
5,000 acre  planned  community  located on the Arkansas  River,  across from the
western Little Rock area and fifteen miles from downtown Little Rock, Arkansas.

           The Company's  current  liquidity  problems prevents the Company from
conducting any meaningful business activities other than selling assets from the
Maumelle Property. Although management anticipates utilizing all or a portion of
the  Maumelle  Property to satisfy the  financial  requirements  of the Plan and
raise equity or long-term  debt,  there can be no assurance  that the Bankruptcy
Court will approve the Operating  Subsidiary's  Plan or that the Company will be
able to raise sufficient capital to meet its financial requirements and cure the
Company's liquidity problems and pursue the business  objectives,  strategies or
transactions  discussed  herein.  See ITEM 3, "LEGAL  PROCEEDINGS,"  and ITEM 6,
"MANAGEMENT'S  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - - Certain  Capital
Raising Transactions."

         The Company's  real estate as of September  30, 2001,  consisted of the
remaining  unsold portion of the Maumelle  Property  consisting of approximately
1,430 acres and the Company's  35.16% interest in TradeArk  Properties,  LLC, an
Arkansas  limited  liability  company  ("TradeArk  Properties").   See  ITEM  2,
"DESCRIPTION OF PROPERTY," ITEM 6, "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION - - Certain Capital Raising  Transactions,"  and ITEM 7, "FINANCIAL
STATEMENTS."

         The  Maumelle  Property  is  managed  by  Maumelle  Enterprises,   Inc.
("Maumelle Enterprises"),  a real estate management firm that is affiliated with
certain officers of the Company.  The Company expects that Maumelle  Enterprises
will  continue in the  foreseeable  future to manage the Maumelle  Property.  In
other geographic areas, the Company expects to engage local unaffiliated brokers
to  sell  or  manage  any  property  it  may  acquire.   See  ITEM  12,  CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."

         PRINCIPAL PRODUCTS AND MARKETS.

         MAUMELLE PROPERTIES.  The Company's primary business is the development
and sale of land from its inventory of residential and multi-family  lots of the
Maumelle  Property through the Operating  Subsidiary or its interest in TradeArk
Properties.  Management  anticipates  that the undeveloped  lots will be sold to
developers, and apartment building operators, as appropriate.

          The  Company   will   conduct  any   single-family   development   and
construction activities in Arkansas, through the Operating Subsidiary and/or the
Home   Construction   Subsidiary.   The  Company   may  develop  and   construct
single-family homes, and/or apartments on the Maumelle Property that it does not
sell, and  anticipates  that if the Company does develop and sell  single-family



                                        7

<PAGE>


homes or apartments  it will be with TradeArk  Properties or other joint venture
partners. See ITEM 2, "DESCRIPTION OF PROPERTY--PROGRAM OF DEVELOPMENT."

         The Company's  initial focus is selling land from its Maumelle Property
inventory  to reduce  the  Company's  current  short-term  debt,  or if  Company
management  determines  that  a  particular  property  is  not  appropriate  for
development  by the Company.  Management  anticipates  that if it does  commence
home-building  operations  with  TradeArk  Properties  or  other  joint  venture
partners,  it will develop single-family homes in the $125,000 to $200,000 price
range on a portion of the approximately 3,500 unimproved single-family home lots
it owns in Maumelle. The Company does not expect to operate, manage or lease any
of the single-family homes, and apartment properties it may develop.

         During the fiscal year ended September 30, 2001, the Company sold three
acres  of  its  real  property  for  a  total  price  of  $75,000.  See  ITEM  6
"MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OR PLAN OF  OPERATION---LIQUIDITY  AND
CAPITAL RESOURCES."  Management expects that any Maumelle Property sold probably
will be  purchased  by other real estate  developers,  who may compete  with the
Company or its joint  partners in any  development  activity  undertaken  by the
Company in Maumelle.

         Based on current sales trends as evidenced by building  permits issued,
recent  improvement  bond  refinancing  and renewed efforts of the Maumelle City
staff to attract industrial development, Management of the Company believes that
there is substantial unmet demand in the Maumelle area for  single-family  lots.
There can be no  assurance,  however,  as to the existence of such demand or how
long  such  demand  will  continue,   especially   with  the  current   economic
uncertainties  or that  the  Company  will  be  able  to sell  any or all of its
inventory of residential Maumelle Property. See "- - GROWTH STRATEGIES," below.

         MARKETING AND ADVERTISING.

         The Company intends to develop a marketing and  advertising  plan, with
emphasis  on the print  media,  to  promote  the sale of its  Maumelle  Property
inventory and any single-family  homes it constructs through TradeArk Properties
or other joint venture partners.

         GROWTH STRATEGIES.

         The Company's primary business objective is to increase long-term total
returns to shareholders  through  appreciation in value of the Common Stock. The
Company intends to achieve this objective by implementing  the long-term  growth
strategies  summarized  below.  The Company will not be able to implement any of
these  strategies  if it  cannot  overcome  its  present  illiquidity  and raise
substantial additional capital to commence material development  operations,  of
which  there  can be no  assurance.  See ITEM 6,  "MANAGEMENT'S  DISCUSSION  AND
ANALYSIS OR PLAN OF OPERATION."

         DEVELOPMENT  OF MAUMELLE  PROPERTY.  The Company  initially  intends to
focus on the sale of  single-family  lots in  Maumelle,  Arkansas.  The  Company
believes  that the sale of all or portions of its  Maumelle  Property  inventory
will help the Company to reorganize and restructure its current  short-term debt
and permit the  Company to  commence  activities  which  would offer the Company
significant growth  opportunities.  These opportunities may include, but are not



                                        8

<PAGE>


limited to,  participating in joint  partnerships in the home building  industry
for the construction and sale of single-family  homes, or multi-family  homes in
Maumelle, Arkansas.

         Development of Maumelle  Property.  The Company's  growth strategy with
respect  to the  Maumelle  Property  is to  focus on sale of  single-family  and
multi-family lots. The Company may, through joint venture partners,  develop and
build homes on the  single-family  lots it currently owns in Maumelle,  Arkansas
and through its interest in TradeArk Properties.

         Of the approximately  5,300  single-family  vacant sites in the City of
Maumelle,  approximately  1,500  sites are not owned by the  Company or TradeArk
Properties.  Given the Company's ownership of a majority of available home sites
in Maumelle,  directly or through TradeArk  Properties,  and the fact that under
Maumelle's  current  Master Land Use Plan little or no new property can be added
to  the  City  of  Maumelle  without  public  hearings  regarding  any  proposed
annexation of land by the City and the  subsequent  approval by the City's Board
of  Directors,  the Company  believes it can achieve a dominant  position in the
Maumelle market for the development and sale of single-family  home sites and in
the sale of single-family homes.

         RESTRUCTURING DEBT. The Company believes that restructuring its current
short-term  debt,  all of which is in  default,  through the Plan filed with the
Bankruptcy  Court  will be a key factor in  achieving  long-term  stability  and
growth.  Currently,  management is trying to implement a strategy to utilize the
Company's  assets to restructure  its  short-term  debt into equity and/or long-
term debt, and raise additional capital by liquidating  portions of its Maumelle
Property  inventory.  Once a debt  restructuring  program  is  implemented,  the
Company  intends to seek geographic and product  diversification  throughout the
United States and form joint  ventures  with  partners in the home  construction
industry.  There can be no  assurances,  however,  that  Bankruptcy  Court  will
approve the  Operating  Subsidiary's  Plan or that the  Company  will be able to
successfully  restructure  its debt and  raise  additional  capital,  which  may
severely limit or keep the Company from implementing its growth strategy plan.

         PRODUCT  DIVERSIFICATION.  Although the Company's primary focus will be
on the sale of portions of its Maumelle Property inventory,  the Company intends
to  diversify  its  portfolio  and income  sources by  developing  and  building
single-family homes with joint venture partners, including TradeArk Properties.

         COMPETITION.

         The real estate development industry is highly competitive. In Arkansas
there are numerous large national and regional firms with significantly  greater
experience and financial  resources than the Company currently  possesses.  Such
firms will likely compete with the Company in the  development  and sale of land
for  development.  TradeArk  Properties and any other joint ventures the Company
may form  will  also  have  significant  competition  in the  home  construction
industry  from larger more  experienced  developers  who will  compete  with the
Company in the acquisition of land, the hiring of sub- contractors,  experienced
management personnel,  construction workers and other employees, and the sale of
product.  The Company  also will compete for  residential  sales with the resale
market for existing homes,  multi-family  home sales,  including  townhouses and
condominiums, and with available rental properties.



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         The  Company  currently  has no  material  presence  or  reputation  in
Arkansas or any other area in the real estate development  industry.  Due to the
Company's substantial amount of short-term debt and lack of capital, it may have
to sell  portions  of its  Maumelle  Property at less than  market  value.  As a
result,  there may be reduced profit margins on the Company's  operations  which
may make it more difficult for the Company to compete with other land developers
or to raise  additional  capital.  Although  the Company  intends to improve its
ability to compete by selling portions of its Maumelle Property  inventory,  and
entering into joint venture or similar  development  agreements with established
real estate  developers,  there can be no  assurance  of the success of any such
agreements or that the Company can overcome its present illiquidity.

         GOVERNMENTAL REGULATIONS.

         The   development   industry  is  subject  to  extensive   and  complex
regulations.  In the sale of its Maumelle  Property,  the Company,  or any joint
venture  partners,  must  comply  with  various  federal,  state and local laws,
ordinances,  rules  and  regulations  regarding  zoning,  architectural  design,
construction,  population,  density,  availability  and  installation of utility
services, such as water, electricity,  gas, and waste disposal, the preservation
of the natural terrain, and other related matters,  which requires resources and
expertise  which,  for the most part, the Company  currently  lacks. The Company
intends to obtain such  resources and expertise by raising  additional  capital,
hiring appropriate  sub-contractors,  and entering into joint venture agreements
with experienced real estate developers and other appropriate parties.

         The  Company's  Maumelle  Property is subject to the City of Maumelle's
Master  Land  Use  Plan.  Under  this  Plan,  approximately  987  acres  of  the
approximately  1,430 acres of the Maumelle Property that was developable land as
of September 30, 2001, was already zoned for  single-family  homes.  The current
zoning  allows the  Company to develop  and offer for sale  approximately  3,500
single-family home sites located on this acreage. Although much of the Company's
property is currently  zoned for  single-family  homes,  none of the developable
land acreage is subdivided and the Company will be required to incur significant
additional  cost to subdivide the property  into  individual  lots.  The Company
believes it can satisfy all anticipated  governmental  requirements  involved in
the  subdivision   process,  if  it  obtains  adequate  additional  funding  and
expertise.

         If the Company construct homes, with TradeArk Properties or other joint
venture  partners,  it must  seek  building  permits  from the City of  Maumelle
Building  Inspector for each home it builds in Maumelle.  The Company must apply
for building permits for each multi-family home property it develops in Maumelle
from the Maumelle  City Planning  Commission  and the City's Board of Directors.
Although  the Company  believes it can satisfy  all  necessary  requirements  to
obtain  building  permits,  at the  present  time,  the  Company is not  seeking
building  permits and does not intend to do so until it can restructure its debt
and raise additional capital.

         The Company may be required to mitigate any environmental impact on its
446 acres of wetlands in Maumelle that may be caused by the  Company's  proposed
development activities in Maumelle.  Although the Company is not currently aware
of any such  mitigation  requirements,  the  Company  will be required to obtain
approval from the Army Corp of Engineers of any required mitigation efforts. The
Company may incur  additional  costs and delays in seeking  such  approvals  and
performing such mitigation. See "--ENVIRONMENTAL LAWS," below.


                                       10

<PAGE>



         Delays in obtaining  governmental  permits and  approvals  may increase
development  costs to the Company.  Zoning  requirements and restrictions  could
become more  restrictive in the future,  resulting in additional  time and money
being spent to obtain approvals for development of the Company's properties.

         The Company also may be subject to periodic  delays or may be precluded
from  developing  projects due to building  moratoriums  or  slow-growth  or no-
growth initiatives that could be implemented in the future in the areas which it
does business. In addition,  governmental authorities could change the zoning of
all or some of the  Company's  properties,  which could  result in a decrease in
property values.

         The Company  believes that, with adequate  funding,  it can comply with
all applicable laws regarding its real estate development operations.  There can
be no assurance,  however, that the Company will be able to comply with all such
laws.  The  Company  expects  that the  costs  of  complying  with  governmental
regulations in regard to the sale of its Maumelle Property. However, any failure
to comply with  applicable  laws or  regulations or the enactment of new laws or
regulations could have a material adverse effect on the Company.

         ENVIRONMENTAL LAWS.

         The  Company  is  subject to  various  federal,  state and local  laws,
ordinances and regulations regarding  environmental matters. Under these laws, a
current or  previous  owner or  operator  of real  property  may be  required to
investigate  and clean up hazardous  or toxic  substances  or petroleum  product
releases at such property, and may be held liable to a governmental entity or to
third parties for property  damage and the costs of  investigation,  removal and
decontamination  incurred by such parties in connection with contamination.  The
penalty  is  imposed  whether  or not the  owner or  operator  was  aware of, or
responsible for the hazardous or toxic substances,  and the liability under such
laws has been  interpreted  to be joint and several unless the harm is divisible
and there is a reasonable basis for allocation or responsibility.

         The  costs  of  investigation,   removal  or  decontamination  of  such
substances  could be substantial.  If such substances are found on real property
or there is a failure to properly remove or decontaminate the area, the property
could be  difficult  to sell,  rent,  develop or use to secure  debt  financing.
Persons  who  arrange  for the  disposal  or  treatment  of  hazardous  or toxic
substances at a disposal or treatment  facility also may be liable for the costs
of removal or remediation of a release of hazardous or toxic  substances at such
disposal  or  treatment  facility,  whether  or not  such  facility  is owned or
operated by such person. In addition,  some  environmental laws create a lien on
the contaminated site in favor of the government for damages and costs it incurs
in  connection  with  the  contamination.  Finally,  the  owner of a site may be
subject  to  common  law  claims by third  parties  based on  damages  and costs
resulting form environmental  contamination emanating from a site. In connection
with its ownership and operation of real property,  the Company  potentially may
be liable for the foregoing costs.

         In addition,  recent studies have linked radon,  a  naturally-occurring
substance, to increased risks of lung cancer. While there are currently no state
or federal  requirements  regarding the monitoring for, presence of, or exposure
to,  radon in indoor air,  the EPA and the  Surgeon  General  recommend  testing
residences  for the  presence  of  radon  in  indoor  air,  and the EPA  further
recommends that  concentrations of radon in indoor air be limited to less than 4
picocuries  per liter of air  (Pci/L)  (the  "Recommended  Action  Level").  The



                                       11

<PAGE>


presence of radon in  concentrations  equal to or greater  than the  Recommended
Action Level in one or more of the Company's properties may adversely affect the
Company's  ability to develop its  residential and multi-family  properties,  as
well as the market value of such property.

         Electric  transmission  lines  are  located  in  the  vicinity  of  the
Company's  properties.  Electric  transmission  lines are one of many sources of
electro-magnetic  fields ("EMFs") to which people may be exposed.  Research into
potential  health  impacts   associated  with  exposure  to  EMFs  has  produced
inconclusive   results.   Notwithstanding  the  lack  of  conclusive  scientific
evidence,  some states now regulate the strength of electric and magnetic fields
emanating  from  electric   transmission   lines,  while  others  have  required
transmission  facilities to measure for levels of EMFs. In addition, the Company
understands  that lawsuits  have,  on occasion,  been filed  (primarily  against
electric  utilities)  alleging personal injuries resulting from exposure as well
as fear of adverse effects from transmission  lines has been a factor considered
in  determining  property  values in  obtaining  financing  and in  condemnation
proceedings in eminent domain  brought by power  companies  seeking to construct
transmission lines. Therefore,  there is a potential for the value of a property
to be adversely affected as a result of its proximity to a transmission line and
for the Company to be exposed to damage claims by person exposed to EMFs.

         The Company has had a Phase I  investigation  conducted on the Maumelle
Property,  excluding the approximately 446 acres of wetlands.  The investigation
found no evidence of soil or ground water  contamination on the studied property
and recommended that a Phase II study was not warranted. This Phase I assessment
was carried out in accordance with accepted industry  practices and consisted of
non-invasive  investigations  of  environmental  conditions  at the  properties,
including  a  preliminary  investigation  of the  sites  and  identification  of
publicly known  conditions  concerning  properties in the vicinity of the sites,
physical  site   inspections,   review  of  aerial   photographs   and  relevant
governmental  records  where  readily  available,  interviews  of  knowledgeable
parties,  investigation for the presence of above ground and underground storage
tanks  presently  or formerly at the sites,  a visual  inspection  of  potential
lead-based paint and suspect friable ACMs where appropriate, a radon survey, and
the  preparation  and issuance of a written  report.  In 1986, an  Environmental
Protection Agency ("EPA")  representative stated in a letter to a previous owner
of the Maumelle  Property,  that although part of the Maumelle Property had been
used by the United States government during World War II as a munitions ordnance
facility  until  1950,  the  entire  site  had been  decontaminated  by the U.S.
government prior to its sale in 1961. In the letter,  the EPA  characterized the
property as not having any further environmental concerns.

         The Company is not aware of any environmental liability with respect to
any of its real property that the Company believes would have a material adverse
effect  on  the  Company's   business,   assets,   or  results  of   operations.
Nevertheless,  there can be no assurance,  that the Company's real property does
not contain  hazardous or toxic  substances,  particularly on the property which
has not been subjected to a Phase I investigation,  or that the Company will not
incur  costs  associated  with the  decontamination  of any such  substances  or
liability  arising from any such  contamination.  No assurance can be given that
the  environmental  studies  conducted on the property reveal all  environmental
liabilities or that no prior owner created any material environmental  condition
not known to the Company.

         The Company believes that compliance with applicable environmental laws
and regulations may have a material adverse effect on the Company, its financial
condition and its results of operations unless the Company can raise substantial


                                       12

<PAGE>



additional  capital  to fund  its  operations.  The  Company  believes  that its
properties  are in compliance in all material  respects with all federal,  state
and  local  laws,  ordinances  and  regulations  regarding  hazardous  or  toxic
substances.  The Company has not been notified by any governmental  authority or
any third party,  and is not  otherwise  aware,  of any material  noncompliance,
liability  or claim  relating to  hazardous  or toxic  substances  or  petroleum
products in connection with any of its present properties.

         NUMBER OF EMPLOYEES.  As of the  Company's fiscal year-ended  September
30, 2001, the Company and its subsidiaries had one full-time employees, and  two
part-time employee.

ITEM 2.  DESCRIPTION OF PROPERTY.

GENERAL

         The  Company's  principal  asset is the Maumelle  Property,  located in
Maumelle,  Arkansas, title to which is held by the Operating Subsidiary.  At the
Company's fiscal year-end,  the Maumelle Property consisted of approximately 973
acres of single-family  sites (which included  approximately  3,500 home sites),
approximately  11 acres of multi-family  sites, and  approximately  446 acres of
miscellaneous  undevelopable  property. The Maumelle Property is currently zoned
under the City of Maumelle  Master Land Use Plan for various  development  uses,
including single-family  residences and multi- family units. As of September 30,
2001, the Company's single-family home sites in the City of Maumelle represented
approximately   70%  of  all  available   vacant  land  in  Maumelle  zoned  for
single-family  homes,  including  the  single-  family  lots  owned by  TradeArk
Properties.

         The Maumelle  Property can be divided  into three  categories:  (1) the
Large  Residential  Tract, (2) the Multi-Family  Lots, and (3) the Miscellaneous
Tract and  Property.  Each  category  of  Maumelle  Property  will be  discussed
separately below after the following overview of the City of Maumelle.

         The Company, through the Operating Subsidiary, owns a 35.16% membership
interest in TradeArk Properties.  See discussion below, "-- MAUMELLE PROPERTY- -
TradeArk Property."

         Except as otherwise  noted, the Company believes that its real property
assets  are in good  condition  and  are  suitable  and  adequate  for the  uses
indicated.  Although  there  are no  insurable  improvements  on  the  Company's
properties,  the Company maintains a general liability insurance coverage on its
real property assets.

MAUMELLE PROPERTY

         THE CITY OF  MAUMELLE.  The City of  Maumelle  is a 5,000 acre  planned
community  located off Interstate 40 on the Arkansas  River.  Fifteen miles from
downtown Little Rock, the capital of Arkansas, Maumelle is patterned after other
"new town" communities such as Reston, Virginia,  Irvine Ranch in Orange County,
California and Columbia, Maryland.

         Maumelle is a master  planned city with about 10,557  residents.  Under
the Master Plan,  Maumelle  cannot add new property to the city for  residential
development without public hearings regarding any proposed annexation of land by
the City  and the  subsequent  approval  by the City  Board of  Directors.  From
Maumelle's inception in 1966 to 1996,  approximately $120 million has been spent
on infrastructure, including sewer and water capacity for a city of up to 25,000


                                       13

<PAGE>



residents and a system of designated common areas,  including  pathways,  parks,
lakes,  a golf course and other  recreational  areas.  The City of Maumelle  was
incorporated  as a city in 1985.  It is governed by a mayor and city council and
has police, fire, and emergency services.

         Almost  all of the  cities  within the  four-county  Little  Rock-North
Little Rock region gained  population  from 1990 through 2000. The population of
Maumelle  has  grown at a faster  rate  than that of  neighboring  Little  Rock,
Arkansas  with a growth rate of 57.2% in increased  population,  whereas  Little
Rock had a 4% increase from 1990 to 2000.  The community of Maumelle  appears to
be attracting  more highly  educated  residents  than does Little Rock. The U.S.
Department  of Commerce  and the Little Rock  Metropolitan  Planning  Commission
("Metroplan"),  a government  planning agency,  stated that the figures from the
2000 Census  Supplementary  Survey,  showed  Maumelle and Little Rock  residents
exceeded  the  national  average  in  education  attainment  in every  category,
particularly in graduate and professional degrees.

         Since  1979,  Maumelle  has  attracted  some  major  companies  to  its
industrial areas,  including Molex Inc. (1,154 employees),  Target  Distribution
Center  (800  employees),  Kimberly  Clark (a  manufacturing  facility  with 287
employees),  Ace  Hardware  Distribution  Center  (291  employees),  and Hanover
Direct,  Inc. (540 employees).  However,  unemployment has increased in Maumelle
from 1.4% to 1.6% and in  Little  Rock  from  2.9% to 3.5% for the  period  from
December 2000 to November 2001.

         As of June 30, 1997,  the average new home permit value in Maumelle was
$138,480, by 2000 it was $148,306, and $174,992 by September 30, 2001, according
to a Metroplan  report.  The number of single-family  building permits issued by
Maumelle  has  increased  by 1811  units  between  1990 and 2000,  according  to
Metroplan.  A total of 276 building permits were issued in Maumelle in 1999, 243
in 2000 and 247 in the 12-month period ended September 30, 2001.

         LARGE  RESIDENTIAL  TRACT.  As  of  the  Company's  fiscal  year  ended
September 30, 2001, the Large  Residential  Tract was comprised of approximately
973 acres of  undeveloped  residential.  Under  current  zoning for  residential
development, the Company believes this land can be subdivided into approximately
3,500 single-family lots.

         The Operating  Subsidiary has fee title to the Large Residential Tract,
all of which is subject to a first-priority  mortgage securing a $3,500,000 loan
from Resure Inc. ("Resure Loan"). In February 1997, an Illinois court found that
Resure was  insolvent,  ordered that Resure be  liquidated,  and  appointed  the
Illinois  Director  of  Insurance  as  Liquidator  to oversee  the  liquidation.
Approximately 701 acres of the Large Residential Tract ("Residential  Parcel 1")
is  retained by the  Liquidator  as  collateral  on the Resure  Note,  which was
modified  pursuant to the terms of the Resure  Settlement  Agreement,  effective
September  30,  1997.  The  Company  defaulted  under  the  terms of the  Resure
Settlement Agreement.  Another agreement was entered into between Resure and the
Company in the first quarter of 2000. See,  discussion below, and ITEM 3, "LEGAL
PROCEEDINGS."  A foreclosure  action was  initiated by the Resure  Liquidator on
April 19, 1999. Such  foreclosure  action has been stayed with the filing by the
Operating  Subsidiary of a voluntary petition for bankruptcy under Chapter 11 in
the Bankruptcy Court on July 21, 2000. See, discussion below, and ITEM 3, "LEGAL
PROCEEDINGS."

         Under the  original  terms of the Resure  Note,  quarterly  payments of
principal and  interest in the  amount of $101,591.16 commenced January 1, 1997,


                                       14

<PAGE>



until its  maturity  date on July 1,  2000.  Prior to that date,  interest  only
payments  were  required  on a  quarterly  basis.  Under the  Resure  Settlement
Agreement,  the Company  was to pay  quarterly  installments  of  principal  and
interest  in the  amount of  $101,591.16  until the  modified  maturity  date on
September  1,  1999.  The  balance  due at  maturity,  assuming  payment  of all
scheduled  principal and interest payments and no pre-payments,  was $3,305,842.
The Resure Note bears  interest  at a rate of 10% per annum.  Under the terms of
the Resure Note, it may be prepaid at anytime by the Company  without  incurring
premiums or penalties.  As additional  consideration for the Liquidator to enter
into the Resure  Settlement  Agreement,  the Company agreed to pay a developer's
fee of $2,000 (the  "Developer's  Fee") for each lot sold in  approximately  701
acres of the  Residential  Parcel  1, and  approximately  344 acres of the Large
Residential  Tract  ("Residential  Parcel  2"). In the event that any portion of
Residential Parcel 1 is sold prior to being subdivided into single-family  lots,
the Company  will pay $2,853 per acre,  and  $5,844.20  per acre if  Residential
Parcel 2 is sold prior to being subdivided; however, such Developer's Fees shall
not exceed $2,000,000.  The Developer's Fee is secured by a written amendment to
the loan mortgage securing the Resure Note, and recorded against the Residential
Parcel 1.

         During the first  quarter of 2000, a settlement  agreement  was entered
between the Operating Subsidiary and Resure, and on March 24, 2000, the Chancery
Court approved the settlement (the "2000 Settlement Agreement").  Under the 2000
Settlement  Agreement,  the  Operating  Subsidiary  would pay a cash  payment of
$3,987,353.95  for a full release of all claims by Resure  against the Operating
Subsidiary.  The  Company  did  not  pay  the  settlement  payment,  and if this
agreement is not in effect, the balance owing on the Resure Note was $4,949,171,
as of the Company's fiscal year-end and $5,076,811, as of December 15, 2001.

         Under the proposed Plan, the Operating  Subsidiary will pay 100% of the
outstanding principal and interest owed on the Resure Note. The Plan proposes to
pay interest in monthly  payments at an interest  rate of 9% per annum,  accrued
from the first day after ten days after the entry of the order by the Bankruptcy
Court confirming the Plan ("Confirmation Order") that is not a Saturday, Sunday,
or "legal  holiday,"  ("Effective  Date")  for a period of five  years.  Minimum
payments of principal  in the amount of $250,000  will be due during each of the
one-year  periods.  All  pre-petition  mortgages and security  agreements  shall
remain in full force and effect to secure the Resure note.

         Subsequent to the Company's fiscal year-end,  on November 13, 2001, the
Liquidator  for  Resure  submitted  a  Motion  for  Relief  From  Stay  with the
Bankruptcy  Court seeking  permission to continue to foreclosure on 701 acres of
the Large  Residential  Tract of the Maumelle Property used to secure the Resure
Note.

         On December 20, 2001,  the Operating  Subsidiary  and Resure  reached a
settlement  agreement  to resolve  payment  on the  outstanding  amounts  due to
Resure,  and dismiss the Resure  Motions and  Competing  Plan of  Reorganization
currently before the Bankruptcy Court ("2001  Settlement  Agreement").  The 2001
Settlement  Agreement was contingent  upon the  Liquidator for Resure  obtaining
approval from the Circuit Court of Cook County  Illinois.  The Cook County Court
entered an Order approving the settlement  agreement on January 9, 2002. If full
payment  required  under the  agreement  is not timely  rendered to Resure,  the
Operating  Subsidiary has agreed to the entry by Resure of a Consent Foreclosure
Decree and In Rem  Judgment in the Pulaski  County  Chancery.  See ITEM 3, LEGAL
PROCEEDINGS."



                                       15

<PAGE>



         The Company  intends to pay off the  liability  from  proceeds from the
sale of portions of the Large  Residential  Tract.  Subsequent  to the Company's
fiscal year end, on December 20, 2001, the Operating  Subsidiary entered into an
agreement  with an  unaffiliated  third  party,  to sell 451  acres of the Large
Residential  Property.  The Company intends to use the proceeds from the sale to
pay the  $3,850,000  due to  Resure  under  the  terms  of the  2001  Settlement
Agreement. See discussion below.

         There can be no assurance,  however,  that the  Operating  Subsidiary's
creditors and the  Bankruptcy  Court will approve the Company's Plan or that the
sale of the 451 acres will be completed in a timely manner,  or at all, in order
to  ensure  compliance  with  the  terms  of  the  2001  Settlement   Agreement.
Additionally,  the sale is  subject to the  approval  of the  Bankruptcy  Court;
accordingly there is no assurance such approval will be forthcoming. See ITEM 3,
"LEGAL PROCEEDINGS," and ITEM 6, MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION-LIQUIDITY AND CAPITAL RESOURCES."

         The  remaining  286  acres of the  Large  Residential  Property  has no
mortgages;  however,  the property is used to secure a $1,750,000 line of credit
from First  Arkansas  Valley  Bank  ("First  Arkansas  Line of  Credit").  As of
September  30,  2001,  this line of credit  was  reduced  to  $975,000  and will
continue  to be reduced  until the line of credit is paid.  The  Company  cannot
withdraw new funds from the First Arkansas Line of Credit.  Interest was payable
at a fixed rate of 9.5% per annum and the loan matured on May 27, 1998,  but was
extended  on the same terms to  October  14,  2000.  The line of credit has been
modified to mature on October 14, 2001, at which time all principal and interest
is due and payable.  The modified line of credit has an interest rate of 11% per
annum.

         As of September  30, 2001,  an aggregate of $1,051,801 in principal and
interest was  outstanding on the First Arkansas Line of Credit and $1,078,834 as
of December 31, 2001.  As of the date of this Report,  the Company is in default
on the First Arkansas Line of Credit.

         Under the proposed Plan, the Operating  Subsidiary will pay 100% of the
outstanding principal and interest owed on the First Arkansas Line of Credit and
the Note,  securing  the line of credit,  shall remain in full force and effect.
However, the due date for payment of principal and interest shall be modified to
provide that the Operating  Subsidiary will make quarterly  payments of interest
commencing  90 days after the Effective  Date and  thereafter on the same day of
each  third  month  until  the  obligation  is paid in full.  The Note  shall be
modified to be due five years after the Effective date and a minimum  payment of
principal  in the amount of $50,000  shall be due  during  each of the  one-year
periods commencing with the Effective Date. See ITEM 3, "LEGAL PROCEEDINGS,  and
ITEM 6  MANAGEMENT'S  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - - LIQUIDITY
AND CAPITAL RESOURCES-Indebtedness and Other Liquidity Requirements."

         All property taxes are current and were paid on a timely basis.

         Subsequent to the Company's  fiscal year,  the Operating  Subsidiary on
December 20, 2001,  entered into an agreement with an unaffiliated  third party,
to sell 451 acres of the Large  Residential  Property for a total purchase price
of  $4,000,000.  The  Company  intends  to  use  the  proceeds  to  satisfy  its
obligations under the 2001 Resure Agreement.  Management  expects the sale to be
completed by the first week of February 2002.



                                       16

<PAGE>



         MULTI-FAMILY LOTS. As of the Company's fiscal year-ended  September 30,
2001,  there are  approximately  11 acres of Multi-Family  Lots zoned for multi-
family use. The Operating Subsidiary has fee title to these lots, subject to the
liens discussed below.

         Approximately,  11 acres of the Multi-Family Lots are subject to a lien
in favor of the Bank of Little  Rock as security  for a $400,000  line of credit
("Little Rock Credit Line I") and a $200,000 line of credit ("Little Rock Credit
Line II").  As of the  Company's  fiscal  year-end,  an aggregate of $446,990 in
principal and interest was due on the Little Rock Credit Line I, and $457,564 as
of December  31,  2001.  As of the  Company's  fiscal  year-end an  aggregate of
$216,837 in  principal  and  interest was due on the Little Rock Credit Line II,
and $222,154 as of December 31, 2001. See ITEM 6,  "MANAGEMENT'S  DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION--LIQUIDITY AND CAPITAL RESOURCES--Indebtedness and
Other Liquidity Requirements.

         The $400,000  Little Rock Credit Line I bears  interest of a fixed rate
of 10.5% per  annum.  The  $400,000  line of credit  requires  monthly  interest
payments and matures on April 5, 2002, when a balloon payment  consisting of the
entire principal balance and accrued interest under the line is due and payable.
The  $400,000  line of  credit  is  secured  by  approximately  11  acres of the
Multi-Family Maumelle Property.

         The $200,000  Little Rock Credit Line II bears interest at a fixed rate
of 10.5% per  annum.  The  $200,000  line of credit  requires  monthly  interest
payments,  until it matures on April 10, 2002, when a balloon payment consisting
of the entire  principal  balance and accrued  interest is due and payable.  The
$200,000  line of  credit is  secured  by the same 11 acres as the  Little  Rock
Credit Line I.

         As of the date of this Report,  the Company is in default on the Little
Rock Credit Line I and II.

         Under the proposed Plan, the Operating  Subsidiary will pay 100% of the
outstanding principal and interest owed on the Little Rock Credit Lines I and II
and the Notes shall remain in full force and effect. However, the Bank of Little
Rock mortgage securing the lines of credit shall be modified to provide that the
due date for payment of principal and interest will be due in quarterly payments
of interest  commencing 90 days after the Effective  Date and  thereafter on the
same day of each month  thereafter  until the  principal  obligation  is paid in
full. See ITEM 3, "LEGAL  PROCEEDINGS,  and ITEM 6  MANAGEMENT'S  DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION - - LIQUIDITY  AND CAPITAL  RESOURCES-Indebtedness
and Other Liquidity Requirements."

         The property taxes and ad valorem taxes on the 11 acres of Multi-Family
Lots owned by the Company have not been paid.

         The Company intends to offer the 11 acres of Multi-Family Lots for sale
during the first calendar  quarter of 2002 to meet liquidity  requirements or if
the  Company's   management   determines  that  a  particular  property  is  not
appropriate for development by the Company.

         MISCELLANEOUS TRACT AND PROPERTY. The Miscellaneous Tract and Property
consists of approximately 446 acres of wetlands.  The Operating Subsidiary has
fee title to the Miscellaneous Tract and Property, which are held free of any
encumbrances or liens. The wetlands property is located in the Arkansas River


                                       17

<PAGE>



and, therefore, is unsuitable for development.  Accordingly, the Company has
no development plans for the property.

         TRADEARK  PROPERTIES.  On  June  14,  1999,  the  Operating  Subsidiary
contributed 258 acres of its Maumelle  Property,  including 192 acres of single-
family  lots  ("Pine  Ridge  Tract");  19 acres of  multi-family  lots  ("Rector
Mountain  Tract");  40 acres of  commercial  lots  ("Tract  D");  and 6 acres of
commercial  lots(Tract E"),  (collectively  known as the  "Contributed  Maumelle
Property") for a 35.16%  membership  interest in TradeArk  Properties.  TradeArk
Properties assumed $3,800,000 in debt collateralized by the Contributed Maumelle
Property.  The  interest  in  TradeArk  Properties  is  held  by  the  Operating
Subsidiary.

         Simultaneously  on the  Closing  Date and  pursuant to the terms of the
Contribution  Agreement,  TradeArk Properties secured a $4,000,000 loan from New
Era Life  Insurance  Company ("New Era").  The loan has a fixed interest rate of
13% per  annum,  and  matures  in 30  months  from the date of the loan when all
accrued  interest  and  principal  is due.  $3,156,581.92  of the  New Era  loan
proceeds  were used to retire  loans  held by the  Company.  The New Era loan is
secured by 258 acres of the  Contributed  Property and by  viaticals  settlement
contracts with a discounted net present value of $8,300,000 contributed by Trade
Partners for a 64.84% interest in TradeArk Properties. As of September 30, 2001,
the balance of the New Era loan was  $3,315,915 and  $3,315,915,  as of December
31, 2001.

         On May 20, 2001,  TradeArk  Properties sold  approximately 1.5 acres of
commercial lots in Tract D to an unaffiliated third party for $731,154.60.  Part
of the proceeds,  in the amount of $529,435.46,  were used to partially pay down
the New Era loan.  The balance of the proceeds  were used to pay taxes and other
costs  involved  in the  sale of the  property.  TradeArk  received  no net cash
proceeds from the sale.

         TradeArk Properties  anticipates commencing the development of finished
residential  lots on the Pine Ridge Lots in the  second  quarter of fiscal  year
2002, assuming it can raise sufficient capital.  TradeArk Properties proposes to
develop 38.5 acres of Commercial  Lots for sale commencing in the second quarter
of fiscal  year 2002 and hold the  remaining 6 acres of  Commercial  Lots and 19
acres of  Multi-Family  Lots for  resale.  TradeArk  Properties  is managed by a
manger selected by majority of the membership  interest in TradeArk  Properties.
(See  ITEM  6,  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OR  PLAN  OF  OPERATION
--LIQUIDITY   AND  CAPITAL   RESOURCES,"   and  "-  -  Certain  Capital  Raising
Transactions."

PROGRAM OF DEVELOPMENT.

                  During the Company's fiscal year ended September 30, 2001, the
Company focused on its primary  business of developing and selling property from
its Maumelle  Property  inventory.  During the fiscal  year,  the Company sold 3
acres of property and listed 450 acres for sale.

         Subsequent to the Company's fiscal year-end,  the Operating  Subsidiary
entered into an agreement with an unaffiliated  third party to sell 451 acres of
the  Large  Residential  Tract  for price of  $4,000,000.  However,  the sale is
conditioned  upon the Liquidator for Resure obtaining court approval of the 2001
Settlement  Agreement  from the Cook County  Court.  The Company also intends to
list the 11 acres of Multi-Family Lots for sale in the first calendar quarter of
2002. See ITEM 2, "DESCRIPTION  OF PROPERTY," ITEM 3, "LEGAL  PROCEEDINGS,"  and


                                       18

<PAGE>



ITEM 6,  "MANAGEMENT'S  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - - Certain
Capital Raising Transactions."

         The  Company,  however,  will  not  be  able  to  implement  any of the
following  plans for developing its properties if it cannot overcome its present
illiquidity,  and raise substantial additional capital, of which there can be no
assurance.  The  Operating  Subsidiary,  which  holds  substantially  all of the
Company's assets, has filed a voluntary petition for relief under Chapter 11 and
a Reorganization  Plan with the Bankruptcy Court. There can be no assurance that
the Operating  Subsidiary's  creditors and the Bankruptcy Court will approve the
Plan or that if the Plan is approved  the Company  will be able to  successfully
raise the funds  required  to meet its  obligations  under the Plan and the 2001
Settlement  Agreement  entered into  between the  Operating  Subsidiary  and the
Liquidator for Resure  subsequent to the Company's fiscal year-end.  See ITEM 3,
"LEGAL PROCEEDINGS, and ITEM 6, "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION."

         DEVELOPMENT OF PROPERTY IN MAUMELLE. The Company intends to develop and
offer for sale portions of its residential  lots inventory,  as well as portions
of the Multi-Family Lots during fiscal year 2002.

         In order to facilitate the development of single-family lots and multi-
family lots the Company Subsidiary intends to form improvement districts,  which
will issue  bonds and the  proceeds  from the sale of such bonds will be used to
construct  roads,  utilities and other  infrastructure  improvements to the land
necessary  for the  Company  to  sell  finished  lots,  with  or  without  homes
constructed  on them, or larger tracts of the Maumelle  Property to builders and
developers.

         If the  Company  can  find an  appropriate  joint  partner,  management
anticipates  that the Company will begin the development and sale of residential
property on the Large Residential Tract located in Maumelle, and the development
and sale of the Pine Ridge  Lots,  through its  membership  interest in TradeArk
Properties.

         If the  Company  develops  and  builds on all or a portion of the 3,500
single-family  lots in the Large  Residential  Tract,  it  anticipates  building
moderately  priced  single-family  homes in the range of $125,000  to  $200,000,
assuming  it can comply  with the terms of the 2001  Settlement  Agreement  with
Resure.  If full payment  required under the agreement is not timely rendered to
Resure,  the  Operating  Subsidiary  has  agreed  to  the  entry  of  a  Consent
Foreclosure Decree and In Rem Judgment in the Pulaski County Chancery on the 701
acres of the Large  Residential  Tract.  If the Company fulfill the terms of the
agreement with Resure,  acquire adequate capital funding,  and obtain a suitable
joint venture  partner it will  commence  development  on the Large  Residential
Tract. The Company estimates that the cost for building and selling these homes,
inclusive of general and administrative  expenses, sales and marketing expenses,
and closing costs, will be in the range of $100,000 to $160,000 per home.

         Because the Company lacks experience in the home construction industry,
the Company believes it may be difficult to obtain  conventional  credit sources
sufficient  to finance the  foregoing  development  activity or to find suitable
joint venture  partners that will be able to obtain such financing to pursue the
Company's building program.



                                       19

<PAGE>



         There are no current plans for the  improvement  or  development of the
Miscellaneous  Tracts and Properties  since such  properties are wetlands and as
such undevelopable.

         DEVELOPMENT  OF TRADEARK  PROPERTIES.  TradeArk  Properties  intends to
start  home site  improvements  on at least one Pine  Ridge  subdivision  in the
second  quarter of fiscal  year 2002,  assuming  it is able to obtain  necessary
capital for such development.

         The Pine Ridge Lots are fully  entitled with a preliminary  subdivision
plat  recorded  with the City of Maumelle.  The Pine Ridge Lots are comprised of
487  lots  in  four  subdivisions,  averaging  approximately  120  lots  in each
subdivision.  The improvement  district in which the Pine Ridge Lots are located
is already partially improved, with a roughly graded roadway.

         Because the Pine Ridge Lots were  partially  improved prior to TradeArk
Properties' acquisition,  management expects the cost to develop an improved lot
will be less in Pine Ridge than on the  Company's  Maumelle  Property.  TradeArk
Properties management estimates that construction costs for single- family homes
built on the acquired lots and on the Pine Ridge Lots will average approximately
$50 to $53 per square foot.  TradeArk  Properties  estimates  that the aggregate
cost of building  and selling 487 homes on the Pine Ridge Lots,  inclusively  of
general and administrative  expenses,  sales and marketing expenses,  will be in
the range of $75 to $85 per square foot.

         TradeArk  proposes to develop  38.5 acres of  Commercial  Lots for sale
commencing in the second  quarter of fiscal year 2002,  and hold the remaining 6
acres for resale.  It is holding the 19 acres of  Multi-Family  Lots for resale.
See discussion above, "-Development of the Maumelle Property."

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

         GENERAL.   The  following  is  a  discussion  of  investment  policies,
financing policies,  conflict of interest policies, and policies with respect to
certain  other  activities  of the Company.  The policies  with respect to these
activities  have been  determined by the Company's Board of Directors and may be
amended or revised from time to time at the  discretion  of the Board  without a
vote of the shareholders of the Company, except that changes in certain policies
with  respect to  conflicts  of  interest  must be approved by a majority of the
independent directors and otherwise be consistent with legal requirements.

         INVESTMENT POLICIES.

         Investments  in Real Estate or Interests  in Real  Estate.  The Company
generally  conducted  all of its  investment  activities  through the  Operating
Subsidiary  and its  membership  interest  in TradeArk  Properties.  The Company
intends to conduct all of its investment  activities for the foreseeable  future
through the Operating  Subsidiary,  the Home Construction  Subsidiary or through
membership interest in other entities or other joint venture partnerships.

         The  Company's  investment  objective  is to increase  long-term  total
returns to shareholders  through  appreciation in the value of the Common Stock.
The Company's  policy is to acquire or develop assets where the Company believes
that favorable investment  opportunities exist based on market conditions at the
time of the investment.

         The  Company  expects to pursue  its  investment  objectives  primarily
through the  direct ownership of  properties by  the Operating Subsidiary and/or


                                       20

<PAGE>



subsidiaries, or through indirect property ownership opportunities,  such as its
interest in TradeArk Properties.  The Company may pursue other indirect property
ownership  opportunities,  particularly if it is necessary or advisable to do so
in order to acquire the development resources,  which the Company now lacks. The
Company intends to develop residential, and multi-family properties primarily in
the Maumelle area, but may pursue the  acquisition or development of residential
and multi-family properties in other areas of the United States.

         Future development or investment  activities will not be limited by the
governing  documents of the Company or its  subsidiaries to any geographic area,
product  type  or  specified  percentage  of  the  Company's  assets.  It is the
Company's policy to acquire assets primarily for possible capital gain.

         Securities of or Interests in Persons  Primarily Engaged in Real Estate
Activities and Other Issuers. The Company also may invest in securities of other
entities  engaged in real estate  activities  or invest in  securities  of other
issuers,  including  investments  by the Company  for the purpose of  exercising
control over such entities.  No such investments will be made,  however,  unless
the Board of Directors  determines the proposed  investment  would not cause the
Company  to be an  "investment  company"  within the  meaning of the  Investment
Company  Act  of  1940,  as  amended  (the  "Investment  Company  Act").  Should
management recommend prospective  acquisitions in the be the policy to enumerate
a  correlation  between  the  strategic   objectives  of  the  Company  and  the
prospective  acquisition,  or a plan to enhance shareholder value as measured by
future book value or earnings per share.

         Investments in Mortgages. The Company has no immediate plans to acquire
or warehouse  mortgages.  The  Company,  however,  may offer and hold  mortgages
generated from the sale of its Maumelle Property inventory.

         FINANCING POLICIES. The organizational documents of the Company and its
subsidiaries  impose no limits on the amount of indebtedness they may incur. The
Company  will from time to time  determine  its  borrowing  policies in light of
then-current  economic  conditions,  relative costs of debt and equity  capital,
market  value of the  Company's  real  estate  assets,  growth  and  acquisition
opportunities, and other factors.

         The  Company  intends  to  raise  additional   capital  through  equity
offerings,  debt financing,  or a combination thereof,  although there can be no
assurance that the Company will be able to raise such capital on favorable terms
or at all.

         The  Company has not  established  any limit on the number or amount of
mortgages  that  may  be  placed  on any  single  property  or on the  Company's
portfolio as a whole.

         CONFLICTS  OF INTEREST  POLICIES.  The Board of Directors is subject to
certain  provisions  of Nevada law that are  designed to  eliminate  or minimize
certain potential  conflicts of interest.  There can be no assurances,  however,
that these policies  always will be successful in  eliminating  the influence of
such  conflicts,  and if they are not  successful,  decisions could be made that
might fail to  reflect  fully the  interest  of all  shareholders.  See ITEM 12,
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

         Under  Nevada  law,  each  director is subject to  restrictions  on the
misappropriation  of corporate  opportunities  to himself or his  affiliates  of
which he becomes  aware  solely as a result of his  service as a  director.  The
Company may transact business with  one or more of its directors or  officers or


                                       21

<PAGE>



a  corporation,  firm or  association  in which one or more of its  directors or
officers are directors, officers or are financially interested,  provided any of
the following requirements are satisfied:

         (a)      The interested  directors or officers must disclose the common
                  directorship,  office or  financial  interest  to the board of
                  directors, have it noted in the minutes, and a majority of the
                  disinterested directors must approve or ratify the contract or
                  transaction; or

         (b)      The interested  directors or officers must disclose the common
                  directorship,    office   or   financial   interest   to   the
                  shareholders,  and the shareholders must approve by a majority
                  vote the contract or transaction.  The votes of the interested
                  director  or  officer  must be counted in any such vote of the
                  shareholders; or

         (c)      The common directorship or office or financial interest is not
                  known to the director and officer at the time the  transaction
                  is brought  before the board of directors and therefore is not
                  disclosed; or

         (d)      The contract or  transaction  is fair as to the Company at the
                  time it is authorized or approved.

         CERTAIN POLICIES WITH RESPECT TO OTHER ACTIVITIES.  The Company and its
subsidiaries  have  authority to offer their  securities  and to repurchase  and
otherwise  acquire  their  securities,  and they are  likely  to  engage in such
activities.  In the future,  the Company and its  subsidiaries may make loans to
joint ventures in which they participate in order to meet working capital needs.
The Company  and its  subsidiaries  have not  engaged in trading,  underwriting,
agency distribution, or sale of securities of other issuers and do not intend to
do so. The Company and its  subsidiaries  intend to make investments in a manner
such that they will not be treated as an investment company under the Investment
Company Act.

         COMPETITIVE  CONDITIONS.  The Company's real property is subject to the
highly  competitive  conditions  of the real estate  development  and sales.  In
Arkansas--the  geographic  area in which the  Company  holds  its real  property
inventory and offers such inventory for development and sale--there are numerous
large  national and regional  firms with  significantly  greater  experience and
financial resources than the Company currently possesses. Such firms will likely
compete  with the  Company in the  marketing  and sale of land for  development,
Additionally,  if the Company forms joint  partnerships  for the construction of
homes,  it will compete with such firms for the  acquisition of land, the hiring
of sub-contractors,  experienced management personnel,  construction workers and
other  employees,  and the sale of product.  The Company  also will  compete for
residential  sales with the resale market for existing homes,  multi-family home
sales,  including  townhouses  and  condominiums,   and  with  available  rental
properties.

         The Company  believes that its  ownership of a substantial  majority of
the available  undeveloped  single-family home properties in Maumelle -- through
its Operating Subsidiary or its interest in TradeArk Properties -- will give the
Company an advantage in selling  single-family  lots or if it enters the single-
family  home  construction  market in  Maumelle,  assuming  it is able to obtain
sufficient capital to commence construction activities.

         The  Company  currently  has no  material  presence  or  reputation  in
Arkansas or any other area in the real estate development  industry and does not



                                       22

<PAGE>


have sufficient capital to commence significant  development  activities,  other
than the liquidation of its existing Maumelle Property  inventory.  For this and
other reasons  discussed  herein,  the Company may  experience  difficulties  in
competing with established developers.

ITEM 3.  LEGAL PROCEEDINGS.

         On July 21, 2000, the Operating Subsidiary,  a wholly-owned  subsidiary
of the Company that holds  substantially  all of the Company's  assets,  filed a
voluntary  petition for relief under Chapter 11 of the United States  Bankruptcy
Code in the United States Bankruptcy Court, Eastern District of Arkansas.  Since
then,  the  Company  has  continued  to operate  its  business  as a  debtor-in-
possession.  As such,  the  Operating  Subsidiary  is  authorized to operate its
business in the ordinary course, but may not engage in transactions  outside the
ordinary course of business without Bankruptcy Court approval.

         On November  16,  2000,  the  Operating  Subsidiary  filed a Disclosure
Statement and Plan of  Reorganization  (the "Plan") with the Bankruptcy Court to
satisfy  its  existing  debts.  The  Disclosure  Statement  was  approved by the
Bankruptcy  Court on January 19, 2001.  The Plan has been presented to creditors
for acceptance or rejection.  Two secured creditors, the Bank of Little Rock and
First  Arkansas  Valley Bank accepted the Plan,  but the  Liquidator  for Resure
rejected it. One creditor from the unsecured  class  accepted the Plan. At least
two-thirds of each impaired  class of creditors and more than one-half in number
of the allowed claims of the class members entitled to accept or reject the Plan
have to vote to accept it,  however the  Bankruptcy  Court may still confirm the
Plan if at least one of the  impaired  classes  votes for it and the  Bankruptcy
Court  finds  the  Plan  does  not  discriminate   unfairly.   The  hearing  for
confirmation  of the Plan was set for February 21, 2001, but was delayed.  As of
the date of this Report,  the Bankruptcy  Court has not rescheduled a hearing to
consider  confirmation  of the Plan.  If the Plan is  confirmed,  all  creditors
listed in the petition  will be bound by the terms and  conditions  set forth in
the Plan. If the Plan is not confirmed,  the Operating  Subsidiary may be forced
into  Chapter  7, at which  point  the  Operating  Subsidiary  will be forced to
liquidate its assets to meet the obligations of the secured creditors and if any
funds  are  available  thereafter  to  meet  the  obligations  of the  unsecured
creditors.

         As a  result  of the  Operating  Subsidiary's  bankruptcy,  all acts to
collect  Pre-petition  Indebtedness  and to enforce other  existing  contractual
obligations of the Operating Subsidiary are stayed.

         Generally under the Bankruptcy Code, the Operating  Subsidiary does not
make  payments on  Pre-petition  Indebtedness  until the Plan is approved by the
Bankruptcy   Court.   Liabilities  and  obligations  first  incurred  after  the
commencement  of the  bankruptcy  case in  connection  with the operation of the
Operating  Subsidiary's  business  generally  enjoy priority in right to payment
over Pre-petition  Indebtedness and must be paid by the Operating  Subsidiary in
the ordinary course of business.

         Under the Plan,  the Operating  Subsidiary  proposes to satisfy in full
all  outstanding  amounts  due to its  creditors,  but will  modify the  payment
schedule and due dates.  The Plan also proposes for the early release of certain
portions  of the  Maumelle  Property  used to secure  credit  lines  and  loans;



                                       23

<PAGE>


provided  minimum  amounts  of  principal  are paid on such  liens  prior to the
release.  See ITEM 2,  "DESCRIPTION  OF  PROPERTY,"  and  ITEM 6,  "MANAGEMENT'S
DISCUSSION  AND  ANALYSIS  OR  PLAN  OF  OPERATION  - -  LIQUIDITY  AND  CAPITAL
RESOURCES-Indebtedness and Other Liquidity Requirements."

         Upon filing the voluntary  petition for bankruptcy relief under Chapter
11, the foreclosure  action instituted by the Liquidator for Resure on April 19,
2000 against the Operating  Subsidiary was stayed.  The  foreclosure  action was
filed in the Chancery Court of Pulaski County,  Arkansas (the "Resure lawsuit").
The Resure  Liquidator is seeking to foreclose on approximately 701 acres of the
Large  Residential Tract of the Maumelle Property securing the $3,500,000 Resure
Note,  which is  currently  in  default.  The action  also seeks  $2,000,000  in
Development Fees the Liquidator  claims the Operating  Subsidiary owes under the
terms and conditions of the September 30, 1997, Settlement  Agreement,  which is
secured by the same 701 acres as the Resure Note. On May 28, 1999, the Operating
Subsidiary filed an answer, generally denying the claims.

         A subsequent  settlement  agreement  was entered  between the Operating
Subsidiary  and Resure and on March 24, 2000,  the Chancery  Court  approved the
settlement  (the  "2000  Settlement  Agreement").   Under  the  2000  Settlement
Agreement,  the Operating  Subsidiary  would pay a cash payment of $3,987,353,95
for a full release of all claims by Resure against the Operating Subsidiary. The
settlement  payment  was due not  later  than  April  24,  2000.  The  Operating
Subsidiary  has not made this  payment  and Resure  filed a Motion  for  Summary
Judgement in the foreclosure action on July 13, 2000. The Operating Subsidiary's
July 21, 2000, petition for bankruptcy stayed this action.

         On  December  7, 2000,  the  Liquidator  for  Resure  filed a Motion to
Dismiss the Operating  Company's petition for bankruptcy under Chapter 11 of the
Bankruptcy Code, or in the alternative, Motion for the Appointment of a Trustee.
In the motion,  the Liquidator for Resure alleges that the Operating  Subsidiary
should have paid  developer's  fees to Resure on certain parcels of the Maumelle
Property that were sold subsequent to the bankruptcy  petition and that this was
a diversion of funds. The Operating  Subsidiary asserts that the 2000 Settlement
Agreement is valid and as such no developer's fees are due Resure.

         In July 2001,  the  Liquidator  for Resure  submitted to the Bankruptcy
Court a  Competing  Plan  of  Reorganization  and a  Disclosure  Statement.  The
Competing  Plan  provides  for the  liquidation  of the  Operating  Subsidiary's
assets.  A hearing has not been set to consider  confirmation  of the  Competing
Plan.

         On February 9, 2001, the Company  submitted to the  Bankruptcy  Court a
Motion to Sell Property Free and Clear of Liens and Claims. The motion pertained
to an agreement with the Maumelle Water Management to sell approximately 3 acres
of  residential  land in Maumelle,  Arkansas for a price of $25,000 per acre. On
February 16, 2001, the  Liquidator  for Resure filed a limited  objection to the
Motion. On April 16, 2001, the Bankruptcy Court issued an approval of the Motion
authorizing  the sale. On May 14, 2001,  the Company  received gross proceeds of
$75,000 from the sale.  From the  proceeds,  the Company paid the Bank of Little
Rock $9,203 in interest due on the $200,000 note and a partial  interest payment
of $6,294 on the $400,000 note, and $20,000 in interest and $27,000 in principal
on the debt owed to the First  Valley Bank of  Arkansas.  The Company  also paid
$10,000 to reduce its debt to Resure from the proceeds of the sale.

         Subsequent to the Company's fiscal year-end,  on November 13, 2001, the
Liquidator  for  Resure  submitted  a  Motion  for  Relief  From  Stay with  the

                                       24

<PAGE>



Bankruptcy  Court  seeking   permission  to  continue  its  foreclosure  on  the
approximately  701 acres of the Large Residential Tract of the Maumelle Property
used to secure the Resure Note.

         On December 20, 2001,  the Operating  Subsidiary  and Resure  reached a
settlement  agreement  ("2001  Settlement  Agreement")to  resolve payment on the
outstanding  Resure Note, and  accordingly the Resure Motions and Competing Plan
of  Reorganization  currently before the Bankruptcy  Court. The Bankruptcy Court
entered an Order approving the 2001  Settlement  Agreement on December 20, 2001,
and  dismissed  all pending  motions by Resure,  subject to the  Liquidator  for
Resure  receiving  approval  of the  agreement  from the  Circuit  Court of Cook
County,  Illinois  (the "Cook  County  Court").  The Cook County Court issued an
Order approving the 2001 Settlement Agreement on January 9, 2002.

         The  2001  Settlement   Agreement  requires  Resure  to  forebear  from
collecting  on the Resure  Note or  entering  any  pleadings,  hearings or other
actions for a forbearance period ("Forbearance Period"). This Forbearance Period
shall be through and  including a date (the  "Option A Date") which shall be the
latter of a date (i) February 15, 2002, if the Resure  Liquidator has obtained a
written Order from Cook County  approving the agreement on or before January 15,
2002, or (ii) a date which is one day for each day after January 15, 2002, until
an Order is entered by Cook County;  provided however, that if, on or before six
days prior to the Option A Date,  the  Operating  Subsidiary  elects Option B by
giving Resure written notice,  then the Forbearance  Period shall be through and
including a date which shall be the latter of a date ("Option B Date")(i)  April
15, 2002,  if Resure  Liquidator  has obtained and given notice to the Operating
Subsidiary  of the entry of the Cook County Order prior to January 15, 2002,  or
(ii) a date which is one day for each day after January 15, 2002, until an Order
is entered by Cook County.

         Under the terms of the  Agreement,  the Liquidator for Resure agrees to
accept  $3,850,000  on or before the Option A Date in full  satisfaction  of all
claims against the Operating Subsidiary.  If the Operating Subsidiary elects the
Option B Date,  a payment of  $3,987,353.95,  plus simple  interest at an annual
rate of nine percent  (9%)  accrued from April 24, 2000,  until the payment date
will be due.

         If full  payment  required  under  Option A or Option B, is not  timely
rendered  to  Resure,  the  Operating  Subsidiary  has  agreed to the entry of a
Consent Foreclosure Decree and In Rem Judgment in the Pulaski County Chancery.

         There can be no assurance  that the  Operating  Subsidiary  will timely
make the required payments due Resure under the agreement.  If such payments are
not made,  Resure under the terms of the 2001 Settlement  Agreement will be able
to enter the Consent Foreclosure Decree and In Rem Judgment in the and foreclose
on the 701 acres of the Maumelle Property.

         The Company intends to use the proceeds from the sale of  approximately
451  acres of the  Large  Residential  Tract to  satisfy  the  terms of the 2001
Settlement Agreement with Resure.  However,  such a sale must be approved by the
Bankruptcy  Court,  subsequent  to  notification  to  creditors  and  parties in
interest of the terms and provisions of the proposed sale.

         There  also  can be no  assurance  the  Plan  will be  approved  by the
creditors and the Bankruptcy Court or that the proposed sale of a portion of the
Maumelle Property will be approved.

         If the Plan is approved,  it provides for the  Company's  charter to be
modified to prohibit the issuance of non-voting stock.  Provided the  Company is


                                       25

<PAGE>



able to satisfy the terms of the 2001 Settlement Agreement,  the Company intends
to  modify  the Plan  and  seek  its  confirmation  or  dismiss  the  bankruptcy
proceedings entirely.

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

         No matters were submitted  during the fourth quarter of the fiscal year
covered by this Report to a vote of security  holders,  through the solicitation
of proxies or otherwise.

PART II.

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

         The Common Stock is listed for trading in the  over-the-counter  market
on the NASDAQ electronic  bulletin board under the symbol "CPCY";  however,  the
market for  shares of the Common  Stock is  extremely  limited.  There can be no
assurance that the present  limited  market for the Company's  common stock will
become more active or even be  sustained.  In  addition,  any future sale of the
Company's  stock by any of the controlling  shareholders  may have a substantial
adverse impact on any such public market.

         The high and low bid prices for shares of common  stock of the  Company
for each quarter within the last two fiscal years are as follows:

                                          BID

Quarter Ending                           High                      Low
--------------                           ----                      ---

September 30, 1999                       .532                     .437

December 30, 1999                        .375                     .250

March 31, 2000                          1.00                      .281

June 30, 2000                            .510                     .125

September 30, 2000                       .250                     .013

December 30, 2000                        .180                     .0625

March 31, 2001                           .750                     .065

June 30, 2001                            .570                     .130

September 30, 2001                       .320                     .120

         These bid prices were obtained from the National Quotation Bureau, Inc.
("NQB"), and reflect  inter-dealer prices,  without retail mark up, mark down or
commission and may not reflect actual transactions.

HOLDERS

         The number of record holders of the Company's  common stock was 928, as
of September 30, 2001.





                                       26

<PAGE>


DIVIDENDS

         During the fiscal  year ended  September  30,  2001 and the fiscal year
ended  September 30, 2000,  the Company did not declare any cash  dividends with
respect to its Common Stock. The Company does not expect to declare dividends in
the  foreseeable  future.  The future  dividend  policy of the Company cannot be
ascertained  with any certainty,  particularly  since the Company has decided to
focus on its primary business of developing and selling  single-family  lots due
to its present  illiquidity.  There are no material  restrictions  limiting,  or
restrictions that are likely to limit, the Company's ability to pay dividends on
its Common Stock in the future, except that the articles of incorporation of the
Company permit the board of directors to approve the issuance of preferred stock
having  such  rights  as may be  designated  by the  board  without  shareholder
approval.  Such rights may include preferences with respect to dividends as well
as  prohibitions  against the  declaration  of  dividends  on Common Stock under
certain circumstances.

         There was no issuance of unregistered securities during the fiscal year
ended September 30, 2001.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

OVERVIEW

         The  following  discussion  should  be read  in  conjunction  with  the
financial  statements  and the notes thereto  appearing in Item 7 of this Report
(the "Financial  Statements").  As noted below and elsewhere in this Report,  if
the Company's  Operating  Subsidiary  cannot  reorganize  under its petition for
voluntary  bankruptcy  under  Chapter  11, and if the  Company  cannot  cure its
current  severe  liquidity  problems,  the  Company's  status as a viable  going
concern  will  remain in doubt.  There can be no  assurance,  however,  that the
Reorganization  Plan  filed  with the  United  States  Bankruptcy  Court will be
approved or that  Company will be able to raise  sufficient  capital to cure its
liquidity problems and pursue the business objectives discussed herein.

         Accordingly,  some of the  amounts  presented  below may be  subject to
future adjustments  depending on Bankruptcy Court actions,  further developments
with  respect to disputed  claims,  determination  as to the security of certain
claims or other events.

RESULTS OF OPERATIONS

         COMPARISON OF YEAR ENDED SEPTEMBER 30, 2001 TO YEAR ENDED SEPTEMBER 30,
2000. For the year ended  September 30, 2001, the Company  experienced a loss of
$2,115,003  compared with a loss of $2,376,488 for the year ended  September 30,
2000.  The  difference  in  performance  resulted  primarily  from a decrease in
revenues from $853,569 in the year ended  September 30, 2000, to $202,351 in the
year ended September 30, 2001, a decrease of $650,218. The cost of sales for the
year ended September 30, 2001, amounted to $10,278,  resulting in a gross profit
of $192,073.  Despite the decrease in revenues, gross profits as a percentage of
revenues increased to 94.92% in the year ended September 30, 2001 from 77.43% in
the year ended September 30, 2000. The revenues for the year ended September 30,
2001,  were  increased  by the  recognition  of $118,726 in deferred  land sales
profit.

         During the year ended September 30, 2001,  operating expenses decreased
to $504,896  from  $758,520 in the year ended  September 30, 2000, a decrease of
$1,071,864 or 67.98%.

         Sales  decreased by $683,520 for the year ended  September 30, 2001, to
$75,000 for the year ended September 30, 2001, from $758,520 for  the year ended


                                       27

<PAGE>



September 30, 2000, as a result of decrease land sales of the Maumelle Property.
Gross  profit for the year ended  September  30, 2001 was $192,073 a decrease of
$468,832  from the gross  profit of $660,905  for the year ended  September  30,
2000.

         From the year ended  September 30, 2001 to the year ended September 30,
2000,  operating expenses  decreased from $1,576,760 to $504,896,  a decrease of
$1,071,864 or 67.98%. The decrease was primarily  attributable to a decreases in
amortization of loan costs.  Management expenses decreased from $141,444 for the
year ended September 30, 2000, to $73,618 for the year ended September 30, 2001,
a decrease of $67,827. The decrease was the result of a decrease in expense fees
due to  Maumelle  Enterprises,  a related  party,  of $73,618 for the year ended
September  30, 2001,  from $141,444 for the year ended  September 30, 2000.  For
fiscal year ended September 30, 2001 and for the fiscal year ended September 30,
2000,  accrued  expense  fees due to  Maumelle  Enterprises  were  unchanged  at
$66,329.  Amortization  of loan fees  decreased  from $542,795 in the year ended
September  30, 2000,  to $0 in the year ended  September 30, 2001, a decrease of
$542,795.  Amortization  of loan fees  decreased  to  $542,795 in the year ended
September  30, 2000,  from  $1,441,873  in the year ended  September 30, 1999, a
decrease of $899,078.

         Interest  expenses  increased by $343,612 to $1,619,187 during the year
ended  September 30, 2001 from  $1,275,575  during the year ended  September 30,
2000.

         The  Company  continues  to  accrue  management  fees,  to  the  extent
possible,  to Maumelle  Enterprises,  a related party.  However actual expenses,
which  include  overhead and  salaries,  have been paid to Maumelle  Enterprises
during fiscal year ended  September 30, 2001.  During fiscal year,  Mr. Todd was
paid  $30,000,  a portion of the salary Mr. Todd was  scheduled to be paid.  The
remaining  amount of $210,000 has been accrued,  bringing the balance accrued at
September  30,  2001,  to  $618,671.  Mr.  Todd was going to accrue  one-half or
$10,000 of his $20,000 per month salary,  but due to the financial  condition of
the Company has accrued more than scheduled. See ITEM 12, "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS-Maumelle Enterprises Inc., Agreement."

         The Company  believes that its results of operations can improve in the
future if it is able to reorganize the Operating  Subsidiary under Chapter 11 of
the United  States  Bankruptcy  Code,  satisfy  its  obligations  under the 2001
Settlement  Agreement  with  Resure,  raise  sufficient  additional  capital  to
restructure or retire its short-term debt into long-term debt and/or equity, and
commence significant development operations through TradeArk Properties or other
joint venture partners. The Company, through its interest in TradeArk Properties
or other  joint  venture  partners,  intends to take  advantage  of an  apparent
increase in building activity in the City of Maumelle,  summarized below.  There
can be no assurance, however, that such trends will continue or that the Company
will be able to capitalize on these trends.

         245 permits were issued by the City of Maumelle for the construction of
new  single-family  homes during the 2000 calendar  year.  From January  through
September 2001, 247 permits have been issued for the  construction of new homes.
Although  there can be no assurance that such increase in activity will continue
the Company  believes  that the level of home  development  activity in Maumelle
will continue to increase in the future, for the following reasons:

         (1)   The Country  Club of  Arkansas,  a  golf-oriented  development in
Maumelle,  has  completed  improvements  and opened  its new golf  course to the
public  in  the Fall of 1996.  As of  September 30, 2001, this  development  has


                                       28

<PAGE>



approximately  341 home sites  remaining to be developed,  and has developed and
sold 468 homes. The  owner/developer  of the Country Club of Arkansas has placed
substantial  amounts of  advertising  and promotion into local print media which
may produce a positive effect for future development activity in Maumelle.

         (2)   In the period 1998 through 2000,  560 new jobs have been  created
in the City of Maumelle as a result of continuing industrial  expansion.  In the
period 1990 through 2000,  the SMSA of the Little  Rock/North  Little Rock area,
which  includes  Maumelle,  has  shown a total  increase  of 20.55% in new jobs.
However,  with  the  current  national  economic  downturn  and  other  economic
uncertainties, there can be no assurance that the city will continue to see such
job expansion.

         The Company does not foresee any significant elements of income or loss
that would arise  outside of the  ordinary  course of  business,  except for the
losses that would likely arise if the Company  becomes  unable to (i)  liquidate
property, or (ii) has to liquidate its property for less than fair market value,
or (iii) if the  Bankruptcy  Court does not approve the  Operating  Subsidiary's
Reorganization  Plan,  (iv) if the  Company  cannot  meet the  terms of the 2001
Settlement Agreement or (v) if the Bankruptcy Court does not approve the sale of
the 450 acres of the Maumelle Property. If the sale of a portion of the Maumelle
Property is not approved or the Plan is not confirmed by the  Bankruptcy  Court,
the  Operating  Subsidiary  may be forced  into  Chapter  7, at which  point the
Operating  Subsidiary  would be  forced  to  liquidate  its  assets  to meet the
obligations of the secured  creditors and if any funds are available  thereafter
to meet the  obligations  of the  unsecured  creditors.  If the Company does not
fulfill the terms of the 2001 Settlement Agreement, the Operating Subsidiary has
agreed to the entry of a Consent  Foreclosure  Decree and In Rem Judgment in the
Pulaski County Chancery. See ITEM 3, "LEGAL PROCEEDINGS."

         Even  if  the  Company  can  overcome  its  present   illiquidity   and
restructure it current  short-term  debt into equity or long-term debt and raise
sufficient capital to commence meaningful operations,  there is no assurance the
Company  will be able to  attract  joint  venture  partners  with  home-building
expertise.  Joint venture partners, such as TradeArk Properties,  may experience
some  seasonal  variance  in  the  flow  of  income  from  these   home-building
operations.  Such variances could arise, for example, from the impact of weather
on any construction in progress. Typically,  substantial rainfall is experienced
in Central Arkansas from November through March.

         FACTORS THAT MAY AFFECT FUTURE  RESULTS AND MARKET PRICE OF STOCK.  The
factors  identified  below  are  believed  to  be  important  factors  (but  not
necessarily  all of the important  factors)  that could cause actual  results to
differ  materially from those expressed in any forward looking statement made by
or on behalf of the Company, whether in this section or elsewhere in this Report
or in any other  written or verbal  statement  of the Company or its officers or
directors. Unpredictable or unknown factors not discussed herein could also have
material  adverse effects on forward looking  projections.  The Company does not
intend to update these cautionary statements.

         Liquidity Issues.  As of September 30, 2001, the Company was in default
on all of its loans in the amount of $11,888,992. This illiquity may prevent the
Company from realizing or consummating  any of its business  plans,  objectives,
strategies,  or  transactions,  unless its can  restructure its short- term debt
into equity or long-term  debt and/or raise  capital.  Except for the short-term
debt, the Company has  minimal operating income and its  primary source of funds


                                       29

<PAGE>



to meet  operating  expenses for the last two years has been the  liquidation of
its real property inventory.  There can be no assurance that the Company will be
able to overcome its present illiquidity, raise sufficient capital to retire the
debt, or generate sufficient revenues to pursue the business plans,  objectives,
strategies, or transactions discussed herein. Accordingly,  the Company's status
as a viable  going  business  concern  will be  doubtful.  If the Company has to
liquidate  portions of its Maumelle  Property during fiscal year 2002 to satisfy
its short-term debt, it may be at less than fair market value. If the Company is
not able to meet  its  obligations  under  the 2001  Settlement  Agreement,  the
Operating Subsidiary has agreed to the entry of a Consent Foreclosure Decree and
In Rem Judgment in the Pulaski  County  Chancery.  Additionally,  if the Plan is
rejected,  the  Operating  Subsidiary  could be forced  into  liquidation  under
Chapter 7 of the Bankruptcy Code, at which point the Operating  Subsidiary would
be  forced  to  liquidate  its  assets to meet the  obligations  of the  secured
creditors, and if any funds are available thereafter, to meet the obligations of
the unsecured creditors.

         The improvement of single-family  lots and any subsequent home building
and  construction is  capital-intensive  and generally  involve a high degree of
leveraging  and  up-front  expenses  to improve it, and begin  development.  The
Company intends to sell unimproved and improved lots from its Maumelle  Property
inventory.  In order to facilitate  the  development of  single-family  lots and
multi-family lots, the Company intends to form improvement districts, which will
issue bonds.  The proceeds from the sale of such bonds will be used to construct
roads, utilities and other infrastructure improvements to the land necessary for
the Company to sell finished lots, with or without homes constructed thereon, or
larger tracts of land to builders or developers.

         The Company also intends to commence home building  operations  through
its  membership  interest in TradeArk  during the second  quarter of fiscal year
2002.  TradeArk  intends  to  obtain a  construction  loan  collaterized  by the
property, which is currently is encumbered by a $3,315,915 loan. There can be no
assurance,  however,  that  TradeArk  will be  able to  obtain  such  loans.  In
addition, the Company will need to enter into joint ventures or other agreements
with well-funded  development partners to implement its growth strategies in the
home building industry.  There can be no assurance that the Company will be able
to overcome its present  illiquidity and raise sufficient  additional capital or
enter into joint venture or other  development  agreements with developers under
terms  that  are  favorable  to the  Company,  or at  all.  See  ITEM  3,  LEGAL
PROCEEDINGS," and the discussion below, "LIQUIDITY AND CAPITAL RESOURCES."

         Competition.   The  real   estate   development   industry   is  highly
competitive.  In  Arkansas--the  geographic area in which the Company  initially
intends to sell residential  lots and other property from its Maumelle  Property
inventory and to build homes through its interest in TradeArk Properties-- there
are  numerous  large  national  and regional  firms with  significantly  greater
experience and financial  resources than the Company currently  possesses.  Such
firms will likely  compete with the Company in the sale of land and for the sale
of single-family  homes, the acquisition of land for development,  the hiring of
sub-contractors,  experienced  management  personnel,  construction  workers and
other employees.  See ITEM 2, "DESCRIPTION OF PROPERTY--POLICIES WITH RESPECT TO
CERTAIN ACTIVITIES--Competitive Conditions."

         The  Company  currently  has no  material  presence  or  reputation  in
Arkansas or any other area in the real estate development  industry and does not
have sufficient capital to commence significant development activities. For this


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<PAGE>



and other reasons discussed herein,  the Company may experience  difficulties in
competing with established developers.

         Lack of Experience.  The Company has no  operational  experience in the
real  estate  development  industry,  other than in the sale of  property.  Such
inexperience may make it difficult for the Company to achieve its business plans
and  objectives,  particularly  given the  existence  of  competition  from more
experienced and better capitalized companies.

         Interest Rates;  Mortgage  Financing.  Demand for residential  lots and
homes,  as well as for  multi-family  construction,  is  adversely  affected  by
increases in interest rates.  If interest rates  increase,  demand for homes and
other  projects  the Company may  develop  may be  significantly  reduced due to
prospective  buyers' inability to obtain  financing.  Any adverse changes in the
availability  of  Federal  Housing  Administration  or  Veterans  Administration
mortgage financing may also adversely impact the Company's housing sales.

         Many  Factors  Beyond  The  Company's  Control.  The nature of the real
estate  development  industry  is cyclical  and is  affected by various  factors
beyond  the  Company's  control,  including  changes  in the  general  and local
economy,  employment,  availability  of financing,  interest  rates,  changes in
demographics,  housing  demands,  as well as changes in government  regulations.
Developers are subject to a number of other risks,  including  availability  and
cost of land,  materials,  and labor,  weather conditions,  construction delays,
costs controls, and increases in real property taxes and local government fees.

LIQUIDITY AND CAPITAL RESOURCES

         INDEBTEDNESS AND OTHER LIQUIDITY REQUIREMENTS.  The principal amount of
the Company's total debt at September 30, 2001,  included,  without  limitation,
the following  (see ITEM 2,  "DESCRIPTION  OF  PROPERTY--MAUMELLE  PROPERTY" for
descriptions of encumbered properties referenced below):

                  $3,500,000 Resure Note, the amended recourse note,  payable to
                  Resure,   matured   September   1,   2000,   secured   by  the
                  approximately  701-acre Large Residential Tract; 10% interest,
                  paid quarterly until October 1, 1996, then quarterly  payments
                  of  principal  and interest in the amount of  $101,591.15  are
                  required.  The  Resure  Note is  currently  in  default  and a
                  foreclosure action has been instituted against the Company. On
                  July 21,  2000,  the  Operating  Subsidiary  filed a voluntary
                  petition  of  bankruptcy  under  Chapter 11 of the  Bankruptcy
                  Code.  As a result of the  Operating  Subsidiary's  bankruptcy
                  collection  of  all  then  existing  debts,   liabilities  and
                  obligations,  including  the  foreclosure  action  against the
                  Operating Subsidiary were stayed. Management believes the 2000
                  Settlement Agreement with Resure is in effect, and the balance
                  owing on the  Resure  Note was  $3,987,353  in  principal  and
                  interest  as of  the  Company's  fiscal  year  end,  and as of
                  December 31, 2001.  If the 2000  Settlement is found not to be
                  in effect, the balance owing on the Resure Note was $4,949,171
                  as of the  Company's  fiscal  year-end  and  $5,076,811  as of
                  December 31, 2001.  Although the Company is in default on this
                  loan, collection of this unsecured pre-petition note is stayed
                  under the Operating  Subsidiary's  bankruptcy  petition.  (See
                  ITEM 3, "LEGAL  PROCEEDINGS,"  and  ("-Certain  Recent  Events
                  Relating  to  the   Company's   Indebtedness   and   Liquidity
                  Requirements").



                                       31

<PAGE>



                  $200,000  non-recourse  note  payable to Davister  Corp.  (the
                  "Davister  Note"),  matured  January  9, 1996,  unsecured;  9%
                  interest  payable  at  maturity.  As of the  Company's  fiscal
                  year-end,  $321,150 in  principal  and interest was due on the
                  note,  and  $326,192 as of December  31,  2001.  Although  the
                  Company  is in  default  on  this  loan,  collection  of  this
                  unsecured  pre-petition  note is stayed  under  the  Operating
                  Subsidiary's bankruptcy petition.

                  $6,717,740 in non-secured  short-term debt financed by private
                  sources  ("Promissory  Notes"). The Promissory Notes generally
                  bear  interest at a rate  ranging from 10.9% to 14% per annum,
                  with a weighted average as of the Company's year end of 11.03%
                  per annum, and mature nine months from the date of issuance of
                  each note. As of the Company's  fiscal  year-end,  the Company
                  was in default on the entire $6,717,740  short-term debt, plus
                  $1,060,906 in interest.  As of December 31, 2001,  the Company
                  is in default on the $6,717,740 plus interest in the amount of
                  $1,237,566.

                  $1,750,000 in a commercial  revolving  line of credit from the
                  First Arkansas Bank ("First Arkansas Line of Credit"), secured
                  by approximately  286 acres of the Large  Residential Tract of
                  the  Maumelle  Property.  Interest  on the Line of Credit  was
                  payable at a fixed rate of 9.5% per annum and the loan matured
                  on May 27, 1998, but was extended on the same terms to October
                  14, 2000. The line of credit was modified to mature on October
                  14, 2001,  at which time all principal and interest is due and
                  payable. The modified line of credit of $1,295,000 (which does
                  not  allow the  Company  to draw on the  credit  line as it is
                  reduced  through  payments)  has an  interest  rate of 11% per
                  annum and requires three payments of interest only  commencing
                  January 14, 2001 and  continuing at quarterly  time  intervals
                  thereafter.   As  of  September  30,  2001,  an  aggregate  of
                  $1,051,801  in principal and interest was  outstanding  on the
                  First Arkansas Line of Credit and  $1,078,834,  as of December
                  31,  2001.  Although  the  Company is in default on this loan,
                  collection of this pre-petition obligation is stayed under the
                  Operating Subsidiary's bankruptcy petition.

                  $400,000  in a  commercial  revolving  line of credit from the
                  Bank of Little Rock (the "Little Rock Credit Line I"), secured
                  by 11 acres of the Multi-Family Maumelle Property.  The Little
                  Rock Credit Line I bears interest at a fixed rate of 10.5% per
                  annum. The $400,000 line of credit matured on January 10, 2001
                  but was  extended  to April 5,  2002,  when a balloon  payment
                  consisting  of  the  entire  principal   balance  and  accrued
                  interest under the line is due and payable.  The balance owing
                  in principal  and interest on the Little Rock Credit Line I as
                  of the Company's fiscal year- end was $446,990 and $457,564 as
                  of December  31,  2001.  Although the Company is in default on
                  this loan  because the  required  interest  payments  were not
                  made,  collection  of this  unsecured  pre-  petition  note is
                  stayed under the Operating Subsidiary's bankruptcy petition.

                  $200,000  in a  commercial  revolving  line of credit from the
                  Bank of Little  Rock  (the  "Little  Rock  Credit  Line  II"),
                  secured by 11 acres of the Multi-Family Maumelle Property. The
                  $250,000  Little Rock Credit Line II bears interest at a fixed
                  rate of 10.5% per annum.  The $200,000 line of credit  matured
                  on January 10,  2001,  but was  extended to April 10, 2002 and
                  increased to $200,912.50,


                                       32

<PAGE>



                  when a balloon  payment  consisting  of the  entire  principal
                  balance and accrued  interest  is due and  payable.  As of the
                  Company's  fiscal  year-end,   an  aggregate  of  $216,837  in
                  principal and interest was  outstanding  on the Bank of Little
                  Rock Line of Credit II and  $222,154 as of December  31, 2001.
                  Although  the  Company is in default on this loan  because the
                  required interest  payments were not made,  collection of this
                  unsecured  pre-petition  note is stayed  under  the  Operating
                  Subsidiary's   bankruptcy   petition.   See  ITEM  3,   "LEGAL
                  PROCEEDINGS."

         CERTAIN RECENT EVENTS RELATING TO THE COMPANY'S INDEBTEDNESS AND
LIQUIDITY REQUIREMENTS

         As of the  fiscal  year-end  and as of the  date  of this  Report,  the
Company was in default on all of the above debt. Management has been notified by
New England  International  Surety Inc.(the "Surety"),  the firm that issued the
surety  bonds for the  Promissory  Notes,  that it has been  served with a class
action suit in federal court.  As such, even though the Company has defaulted on
the Promissory  Notes, the Surety will not be able to make interest or principal
payments to the noteholders until the action is settled.

         The  Company  has been in default on the Resure Note since July 1, 1998
(see  discussion  above).  As  discussed in other  sections of this Report,  the
Operating  Subsidiary  filed for relief under Chapter 11 in the Bankruptcy Court
on July  21,  2000.  The  Bankruptcy  Petition  stayed  the  foreclosure  action
instituted  by the Resure  Liquidator  against the  Operating  Subsidiary in the
Chancery Court of Pulaski County, Arkansas seeking to foreclose on approximately
701 acres of the Large  Residential  Tract of the Maumelle Property that secures
the Resure Note and  Developer's  Fees.  On March 24, 2000,  the Chancery  Court
approved a settlement whereas the Operating  Subsidiary would pay a cash payment
of  $3,987,353,95  for a full  release  of all  claims  by  Resure  against  the
Operating  Subsidiary.  The settlement  payment was due not later than April 24,
2000.  The Operating  Subsidiary did not meet this payment and filed a voluntary
petition  for  bankruptcy  under  Chapter  11 of the  Bankruptcy  Code  with the
Bankruptcy Court on July 21, 2000. On December 7, 2000,  Nathaniel S. Shapo, the
Director of Insurance  for the State of Illinois,  in his capacity as Liquidator
("Liquidator")  of  Resure,  Inc.  ("Resure"),  filed a Motion to  Dismiss  (the
Operating Subsidiary's petition for bankruptcy),  or in the alternative,  Motion
for the Appointment of a Trustee.

      In July 2001 the Resure  Liquidator  submitted to the  Bankruptcy  Court a
Competing Plan of Reorganization and a Disclosure Statement.  The Competing Plan
provides for the liquidation of the Operating Subsidiary's assets. A hearing has
not been set to consider  confirmation of the Competing Plan. See ITEM 3, "LEGAL
PROCEEDINGS."

         Subsequent to the Company's fiscal year-end,  On November 13, 2001, the
Liquidator  for  Resure  submitted  a  Motion  for  Relief  From  Stay  with the
Bankruptcy  Court  seeking   permission  to  continue  its  foreclosure  on  the
approximately  701 acres of the Large Residential Tract of the Maumelle Property
used to secure the Resure Note.

         On December 20, 2001, the Operating  Subsidiary and Resure entered into
the 2001 Settlement Agreement to resolve payment on the outstanding Resure Note,
and  accordingly  the  Resure  Motions  and  Competing  Plan  of  Reorganization
currently  before the Bankruptcy  Court.  The Bankruptcy  Court entered an Order
approving the 2001 Settlement  Agreement on December 20, 2001, and dismissed all
pending motions by Resure, subject to the Liquidator for Resure receiving


                                       33

<PAGE>



approval of the  agreement  by the Cook County  Court.  The Cook County  Circuit
Court  entered an Order  approving the 2001  Settlement  Agreement on January 9,
2002.

         The unsecured  Davister Note has matured,  and  collection on this pre-
petition  obligation  is stayed  under  the  Operating  Subsidiary's  bankruptcy
petition.

         Although  the Bank of  Little  Rock  Lines of  Credit I and  Credit  II
matures  on April 5, and April 10,  respectively,  both  lines of credit  are in
default due to the  Company's  failure to meet the required  interest  payments.
However  collection  of both  lines of  credit is  stayed  under  the  Operating
Subsidiary's bankruptcy petition.

         The First Arkansas Line of Credit matured on October 14, 2001 and is in
default;   however  collection  is  stayed  under  the  Operating   Subsidiary's
bankruptcy petition.

         In addition to the foregoing debt and other liquidity requirements, the
Company will,  within six months after the date of this Report,  require general
working capital to cover overhead and  administrative  expenses in the amount of
at least $500,000.

         The  Company's  current  liquidity  problems  prevent the Company  from
conducting any meaningful business activities other than selling assets from the
Maumelle Property. Although management anticipates utilizing all or a portion of
the Maumelle  Property to satisfy the  financial  requirements  of the Plan,  if
approved by the Bankruptcy Court, and/or raise equity, there can be no assurance
that the Bankruptcy Court will approve the Operating Subsidiary's Reorganization
Plan or that the Company  will be able to raise  sufficient  capital to meet its
financial requirements and cure the Company's liquidity problems. If the Plan is
not confirmed,  the Operating  Subsidiary may be forced into Chapter 7, at which
point the Operating  Subsidiary  would be forced to liquidate its assets to meet
the  obligations  of  the  secured  creditors  and if any  funds  are  available
thereafter to meet the obligations of the unsecured creditors.  Accordingly, the
Company's status as a viable going business  concern will be doubtful.  See ITEM
3, "LEGAL  PROCEEDINGS,"  and ITEM 6,  "MANAGEMENT'S  DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION - - Certain Capital Raising Transactions."

         CERTAIN  CAPITAL  RAISING  TRANSACTIONS.  During the fiscal  year ended
September  30,  2001,  the  Company   obtained  capital  through  the  following
transactions:

                  The Company sold 3 acres of the Large Residential Tract of the
                  Maumelle Property to an unaffiliated  third party, for a price
                  of $75,000  with net  proceeds  used to pay down bank debt and
                  Resure.

         SUBSEQUENT EVENTS

                  The Operating Subsidiary on December 20, 2001, entered into an
                  agreement with an  unaffiliated  third party to sell 451 acres
                  of the Large  Residential  Property for a total purchase price
                  of  $4,000,000.  However,  the  sale is  conditioned  upon the
                  Bankruptcy  Court granting  approval for the sale. The Company
                  intends  to use  the  proceeds  to  satisfy  the  2001  Resure
                  Agreement. See ITEM 3, "LEGAL PROCEEDINGS."



                                       34

<PAGE>



         PROSPECTIVE SOURCES OF LIQUIDITY. Current operating cash flows will not
be  sufficient  to  service  the  Company's   existing  debt  or  the  Company's
anticipated  operating cash needs. The Company currently has insufficient  funds
to retire  its  short-term  debt.  Due to the  Company's  inability  to meet its
short-term obligations,  the Operating Subsidiary, which holds substantially all
of the Company's assets, filed a voluntary petition for bankruptcy under Chapter
11 of the  Bankruptcy  Code with the  Bankruptcy  Court on July 21, 2000. If the
Company cannot  restructure this debt and/or raise additional equity or capital,
the Company's status as a viable going business concern will remain doubtful.

         To raise sufficient funds to generate income necessary to discharge its
obligations  under  the 2001  Settlement  Agreement  with  Resure  and the Plan,
assuming the Plan is approved by the creditors  and the  Bankruptcy  Court,  the
Company has  contracted to sell 451 acres of the Large  Residential  Tract for a
purchase price of $4,000,000. However, the sale is conditioned upon the approval
of the Bankruptcy Court. See ITEM 3, "LEGAL PROCEEDINGS." Management anticipates
the  property  will close by the first week of February  2002.  The Company also
intends to list 11 acres of Multi-Family  Lots for sale during the first quarter
of 2002.

         In addition,  to facilitate the development  and sale of  single-family
and  multi-family  lots, the Operating  Subsidiary  intends to form  improvement
districts,  which will issue  bonds and the  proceeds  of the sale of such bonds
will be used to construct roads, utilities and other infrastructure improvements
to the  land  necessary  to  enhance  the sale of the  lots to  builders  and/or
developers.  The Operating  Subsidiary  is continuing to solicit  buyers for its
Maumelle Property in order to reduce its current debt and for working capital.

         The  Company is also  exploring  opportunities  to/or  develop and sell
portions of its Maumelle Property with joint venture partners.

         With respect to prospective long-term liquidity, the Company intends to
generate  the  bulk of its  cash  from  operations  by  developing  and  selling
residential lots in the City of Maumelle.  At present,  Management believes that
the most likely sources of  substantial  cash flow during the next two years are
1) the development and sale of  single-family  lots of the  approximately  3,500
single-family  home sites it owns in Maumelle;  (2) the  development and sale of
single-family  homes in Maumelle,  Arkansas by TradeArk  Properties;  and (3)the
liquidation of property which Management  considers unsuitable for the Company's
purposes, or as required.  See ITEM 1, "DESCRIPTION OF BUSINESS--BUSINESS OF THE
COMPANY--GROWTH STRATEGIES."

         The Company intends to raise  operating  capital by selling debt and/or
equity  securities  to the  public or in private  transactions.  There can be no
assurance, however, that such public or private offerings will be successful.

         COMPARISON OF YEAR ENDED SEPTEMBER 30, 2001 TO YEAR ENDED SEPTEMBER 30,
2000.  At September  30, 2001,  the Company had total  assets of  $7,981,931,  a
decrease of $649,621 or 7.53% from the  Company's  total assets as of the fiscal
year ended  September  30, 2000.  The Company had cash of $134 at September  30,
2001,  compared  to $51,932 on  September  30,  2000,  a decrease  of $51,798 or
99.74%. This decrease was a result of operating losses for the fiscal year ended
September 30, 2001. See "LIQUIDITY AND CAPITAL RESOURCES" above.



                                       35

<PAGE>



         Accounts receivable decreased from $5,775 on September 30, 2000 to $150
on  September  30,  2001, a decrease of $5,625.  Notes  receivable  decreased by
$457,520 on September 30, 2000 to $0 on September 30, 2001.

         The carrying value of the Company's real estate  holdings  decreased by
$10,278 during the year, from $5,367,788 in fiscal year ended September 30, 2000
to  $5,357,510 in fiscal year ended  September 30, 2001.  The net decrease was a
result  of the  sale of  approximately  3  acres  of  single-family  land of the
Maumelle Property to an unrelated third party.

         Total  liabilities  of the  Company  as of  September  30,  2001,  were
$15,655,688  an increase of  $1,390,382  from the  September 30, 2000's total of
$14,265,306.  The current  liability  for notes  payable  decreased  by $322,316
during  the  fiscal  year  ended  September  30,  2001,   from   $12,011,309  to
$11,688,993. The decrease was the result of net payments on a promissory note in
the amount of $320,000 to First  Arkansas  Valley Bank and net payments of other
loans in amounts totaling $2,316.

         Accounts  payable and accrued  expenses  increased  by  $1,727,436,  to
$3,572,403, as of September 30, 2001 from $1,844,967, as of September 30, 2000.

         Accrued  interest  increased  by  $1,526,781  from  $1,349,450,  as  of
September 30, 2000, to $2,876,231,  as of September 30, 2001, as a result of the
nonpayment of interest on the Resure Note and the Promissory Notes.

         Shareholders' Equity decreased by $2,040,003 or 36.2% during the fiscal
year.  The decrease is a result of a net operating  loss of  $2,171,503  for the
year ended September 30, 2001.

ITEM 7.  FINANCIAL STATEMENTS.

         The audited  financial  statements  of the Company are included in this
Annual Report on Form 10-KSB starting at page F1.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE.

         The  Company  has not  changed  accountants  during the last two fiscal
years;  nor has the Company had any  disagreements  with the  accountants on any
matter of accounting principles or practices,  financial statement  disclosures,
or auditing scope or procedures.

PART III

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


DIRECTORS AND EXECUTIVE OFFICERS

                                             Date of          Expiration of
Name               Age     Position          Election         Director Term
----               ---     --------          --------         --------------

Michael G. Todd     52     Chairman,         7/95             2002 or until
                           President                          Successor
                           and Secretary                      elected


                                       36

<PAGE>




Robert R. Neyland   46     Director          4/94 to          5/01


Thomas Blake        68     Director          3/97             2002 or until
                                                              successor
                                                              elected


David R. Paes       47     Vice President,   7/95             N/A
                           Treasurer and
                           Assistant Secretary

Raymond Baptista    59     Director          5/01             2002 or until
                           Vice President                     successor
                           Of Finance                         elected

         The  following  is a  biographical  summary  of the  experience  of the
directors and executive officers of the Company:

MICHAEL G. TODD.  Chairman of the Board,  President and Chief Executive Officer,
and  Secretary of the Company.  Todd also is the sole  Director and President of
the  Operating  Subsidiary.  Todd is a general  partner of DeHaven Todd & Co., a
merchant  banking  partnership he co-founded in 1985 with John W. DeHaven.  Todd
has extensive experience in the banking industry,  having been the President and
Chief Executive Officer of two Southern  California banks,  Orange City Bank and
Bay Cities National Bank.

ROBERT R.  NEYLAND.  Director.  On May 15, 2001,  Robert R. Neyland  resigned as
Director of the Company  for  personal  reasons.  Neyland is  President  and co-
founder  of  Applerock  Funding  Corporation,  which  was  organized  in 1998 to
originate and acquire loans secured by first liens on manufactured housing lots.
He is also a  director  of  Collins  Financial  Service,  Inc.,  a private  debt
collection company, director of FiData Inc., an Internet technology company, and
a director  and officer of Iron  Harbor  Development  Group,  LLC, a real estate
development company.

THOMAS BLAKE. Director. Blake is the Director, Business/ Finance, of Glenwood L.
Garvey Associates,  an urban planning and consulting firm. As Special Advisor to
Self-Cleaning Environments USA, Inc., a manufacturer of environmentally friendly
waste disposal units,  Blake provides  consulting  services  regarding  business
planning,  financing,  and  marketing.  His the founder and former  principal of
Thomas C. Blake  Consulting,  an advisory  service firm, and was Chief Executive
Officer of Interstate Group Administrators, Inc., a benefit services company. He
is a  director  of West Coast  Savings & Loan and  formerly  was a  director  of
various other financial institutions.

RAYMOND C.  BAPTISTA.  Director  and Vice  President - Finance.  Baptista has 25
years experience in banking and finance, both nationally and internationally. He
has also been actively involved in real estate  acquisitions and development and
was president and CEO of a national real estate management company. Mr. Baptista
was  appointed by the Board of Directors as successor to Mr.  Neyland on May 15,
2001,  to serve as director  until 2002,  or until a successor is elected by the
Company's  shareholders.  Mr.  Baptista  has served as director of Summa  Energy
Development Corp., a mining services company, since July 2001.



                                       37

<PAGE>



DAVID R. PAES.  Vice  President,  Treasurer,  and Assistant  Secretary.  Paes is
Executive Vice President and a controlling  shareholder of Maumelle Enterprises,
a  real  estate  management  company  that  currently  provides  management  and
administrative  service to the Company. See ITEM 12, "CERTAIN  RELATIONSHIPS AND
RELATED  TRANSACTIONS--SERVICES  PROVIDED BY AFFILIATED  COMPANIES." He has been
involved in real estate  development  as a chief  financial  officer of two real
estate land companies since 1977, and is a certified public accountant.

SIGNIFICANT EMPLOYEES

         The Company's sole significant  full-time  employee is Michael G. Todd,
its Chairman, President, Chief Executive Officer, and Secretary.

FAMILY RELATIONSHIPS

         There are no family  relationships  between any  directors or executive
officers of the Company, either by blood or by marriage.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

         During the past five years, any director,  person nominated to become a
director, executive officer, promoter or control person of the Company:

         (1) was a general partner or executive  officer of any business against
which any bankruptcy petition was filed, either at the time of the bankruptcy or
two years prior to that time;  The officers and  directors of the Company due to
the Operating  Subsidiary  filing a voluntary  petition  under Chapter 11 of the
Bankruptcy Code.

         (2) was  convicted  in a  criminal  proceeding  or named  subject  to a
pending  criminal  proceeding  (excluding  traffic  violations  and other  minor
offenses);

         (3) was  subject to any order,  judgment  or decree,  not  subsequently
reversed,  suspended  or  vacated,  of  any  court  of  competent  jurisdiction,
permanently or temporarily enjoining,  barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; or

         (4) was found by a court of competent jurisdiction (in a civil action),
the SEC or the Commodity  Futures Trading  Commission to have violated a federal
or state  securities or commodities law, and the judgment has not been reversed,
suspended or vacated.

ITEM 10. EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION

         The following table sets forth certain  information with respect to the
compensation  that was paid in the 2001 fiscal year to the  Company's  executive
officers.

         The following table sets forth the aggregate  compensation  paid by the
Company for services rendered during the periods indicated:





                                       38

<PAGE>



                           SUMMARY COMPENSATION TABLE

                                               LONG-TERM COMPENSATION

ANNUAL COMPENSATION    AWARDS      PAYOUTS

(a)       (b)     (c)       (d)    (e)      (f)     (g)      (h)    (i)

Name &   Year    Salary     Bonus  Other     Res-   Securi-  LTIP  All
Prin-    or        ($)      ($)    Annual    tric-  ties     Pay-  Other
cipal    Period                    Compen-   ted    Under-   outs  Compen-
Position Ended                     sation    Stock  Lying          sation
                                                    Options

Michael 9/30/01  $240,000(1) 0     0         0      0        0     0
Todd,
Chairman/
President

David   9/30/01   0          0     0         0       0       0     0
Paes(2)

(1) Michael G. Todd has been employed as President of the Company since November
1994.  During  fiscal  year,  Mr. Todd was paid  $30,000,  which is deferred and
current compensation for the period October 1, 2000, through September 30, 2001.
For the fiscal year, Mr. Todd deferred $210,000. Mr. Todd was supposed to accrue
one-half  or $10,000  of his  $20,000  per month  salary,  but to the  financial
condition of the Company has accrued more than scheduled.

(2) David Paes has been  Vice-President  of the  Company  since  July 1995,  and
devotes  approximately  40% of his time to its operations.  Paes has received no
salary from the Company from July 1995 through September 30, 2001.

         The  Company  does not have any  qualified  or  non-qualified  stock or
option plans for its employees.

         The Company has a five-year  written agreement with Todd to perform the
duties of President.  Under the agreement,  which became effective on October 1,
1995,  Todd is to be compensated  at a rate of $20,000 per month.  The agreement
expired on September 30, 2000. The Company is not party to any other  employment
agreements.  As of the date of this  Report,  the Company has not executed a new
employment agreement with Todd, but continues to employ Mr. Todd under the terms
of the expired employment agreement.

DIRECTOR COMPENSATION

         Outside  directors are  compensated for their services in the amount of
$500 per month. The deferred director compensation for outside directors Neyland
and Campbell in the amount of $59,500 has been  written-off  by the Company as a
liability,  and  outside  director  Blake has agreed to defer such  compensation
until  the  Treasurer  of the  Company  determines  that  sufficient  funds  are
available to make such  payments.  Such  compensation  has been deferred for the
fiscal  year  ended  September  30,  2001 in the  amount of  $6,000.  Management
anticipates   that  the  outside   directors   will   continue  to  defer  their
compensation.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.



                                       39

<PAGE>



         The following  table sets forth the  beneficial  ownership of shares of
Common Stock as of September  30, 2001,  for (i) each person who is known by the
Company to be the  beneficial  owner of more than a 5% interest in the  Company,
(ii) directors of the Company,  (iii) the sole "named executive  officer" of the
Company,  as defined  in Item  402(a)(2)  of SEC  Regulation  S-B,  and (iv) the
directors  and  named  executive  officer  of the  Company  as a  group.  Unless
otherwise indicated in the footnotes, all such interests are owned directly, and
the indicated person or entity has sole voting and investment  power.  Addresses
are provided only for 5% or greater owners.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                       Name and
Title of Class         address of                  Amount and           Percent
                       beneficial                  nature of bene-      of class
                       owner(1)                    ficial owner

Common Stock           Michael G. Todd(2)          2,897,589 shares     68.59%

Common Stock           Robert R. Neyland           0 shares                 0%

Common Stock           Thomas Blake                0 shares                 0%

Common Stock           Raymond Baptista            0 shares                 0%

Common Stock           Directors and Executive
                       Officers as a Group         2,897,589 shares     68.59%


(1)      Unless  otherwise  indicated,  the address of the  beneficial  owner is
         25550 Hawthorne Boulevard, Suite 207, Torrance, California 90505.

(2)      All of these shares are owned by Prescott Investments,  L.P. or Granite
         Industries LLC.  Michael G. Todd is the sole managing member of Granite
         Industries  LLC, which is the managing  general partner of Prescott LP.
         Todd is the sole "named executive  officer" of the Company,  as defined
         in Item 402(a)(2) of SEC Regulation S-B. Mr. Todd also has a beneficial
         interest  in  40,000  shares  previously  owned  by Nine  Mile  Limited
         Partnership.  See below,  "Note 4," and ITEM 9,  "DIRECTORS,  EXECUTIVE
         OFFICERS, PROMOTERS AND CONTROL PERSONS."


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

SERVICES PROVIDED BY AFFILIATED COMPANIES

         The Company has paid fees or expects to pay fees to certain  affiliated
companies  for  various  types of  services,  and will  continue to do so in the
future. These arrangements are summarized below.

         MAUMELLE ENTERPRISES, INC. AGREEMENT. The Company has an oral agreement
with  Maumelle  Enterprises,  Inc.  to  provide  management  and  administrative
services for the Maumelle Property.  Currently, Maumelle Enterprises manages the
Company's  inventory  of property,  oversees  any sale of property,  and manages
administrative  matters such as ensuring  payment of taxes,  mortgages and other
expenditures  incurred in management of the property.  Maumelle Enterprises also
represents the Company at local and state hearings that may affect the Company's


                                       40

<PAGE>



property.  It has no clients  other than the Company and  DeHaven  Todd  Limited
Partnership,  an Arkansas limited  partnership  ("DTLP"),  which is owned almost
entirely by Michael G. Todd and John W. DeHaven. David Paes and Mary Peyton each
owns 50% of the outstanding  shares of Maumelle  Enterprises,  as of the date of
this Report.  Mary Peyton,  the President of the Home  Construction  Subsidiary,
receives a salary of $24,000  per annum as an officer of  Maumelle  Enterprises.
David Paes, an officer of the Company, receives a salary of $58,800 per annum as
an officer of Maumelle Enterprises.

         Under  the  oral  management  and  administrative  services  agreement,
payment to Maumelle  Enterprises for management services depends upon the actual
services rendered in a given month and the current liquidity of the Company.  If
funds are not available, Maumelle Enterprises has agreed to defer payment of its
management fees to the extent possible.  For the fiscal year ended September 30,
2001, the Company paid Maumelle Enterprises $73,618 in expenses,  which included
overhead  expenses,  and salaries.  No management  fees were accrued  during the
fiscal year ended September 30, 2001.

         SUBLEASING OF OFFICE  SPACE.  The Company is currently  subleasing  its
principal   office  space  in  Torrance,   California  from  DTC,  a  California
partnership.  The  partnership,  owned  equally  by  Michael G. Todd and John W.
DeHaven charges the Company $2,230 per month.  The Company paid DTC the total of
$18,302  and  accrued  $1,190 in  rental  payments  for the  fiscal  year  ended
September 30, 2001.

         The  majority of the  disinterested  board of  directors  on October 1,
1995,  voted to approve the oral  agreement  between the Company and DTC for the
subleasing of office space from DTC to the Company.

         The Company  plans to continue to sublease its office space from DTC on
a month to month basis.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

      (a)     FINANCIAL STATEMENTS AND EXHIBITS

         FINANCIAL STATEMENTS


CAPITOL COMMUNITIES CORPORATION, INCLUDING PREDECESSOR CORPORATION AND
SUBSIDIARIES.

Report of Independent Auditors.............................................. F-1

Balance Sheet as of September 30, 2001...................................... F-2

Statements of Operations for the Years Ended
September 30, 2001 and 2000................................................. F-3

Statements of Changes in Shareholders' Equity
September 30, 2001.......................................................... F-4

Statements of Cash Flows for the Years Ended
September 30, 2001 and 2000................................................. F-5

Notes to Financial Statements............................................... F-6


                                       41

<PAGE>

                              BAUM & COMPANY, P.A.
                          CERTIFIED PUBLIC ACCOUNTANTS
                        1515 UNIVERSITY DRIVE - SUITE 209
                          CORAL SPRINGS, FLORIDA 33071


                          INDEPENDENT AUDITOR'S REPORT

Board of Directors and Stockholders
Capitol Communities Corporation, Inc. and Subsidiaries

We  have  audited  the  accompanying   consolidated  balance  sheet  of  Capitol
Communities Corporation,  Inc. and its wholly-owned subsidiaries as of September
30, 2001 and the related  consolidated  statements of operations,  stockholders'
equity and cash flows for the years ended  September 30, 2001,  and 2000.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

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

We were  unable to  obtain  sufficient  evidence  of the  carrying  value of the
Company's investment in its Trade Ark Properties Joint Venture of $ 2,616,886 at
September  30,  2001  from an  independent  party,  nor were we able to  satisfy
ourselves as to the carrying  value by other auditing  procedures.  As discussed
below in Note 3, the  disposition of thePlan of Bankruptcy may ultimately  cause
the Company to realize substantial losses on its assets in liquidation.

In our  opinion,  except for the effects of such  adjustments,  if any, as might
have been  determined  to be  necessary  had we been  able to obtain  sufficient
evidence of the  carrying  value of the  Company's  investment  in its Trade Ark
Properties  Joint  Venture,  the financial  statements  referred to in the first
paragraph above present fairly, in all material respects, the financial position
of Capitol  Communities  Corporation,  Inc. and wholly-owned  subsidiaries as of
September 30, 2001 and the results of its  operations and its cash flows for the
years ended  September 30, 2001 and 2000 in conformity  with generally  accepted
accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 of the
financial  statements,  the Company has incurred losses from  operations,  has a
significant  negative working capital ratio, and has substantial  non-productive
assets,  which raise  substantial doubt about its ability to continue as a going
concern. The company's wholly-owned subsidiary, Capitol Development of Arkansas,
Inc. has filed a Plan of Reorganization pursuant to the provisions of Chapter 11
of the United  States  Bankruptcy  Code as  discussed  in Note 3. The  financial
statements do not include any adjustments  that might result from the outcome of
these uncertainties.


/s/  BAUM & COMPANY, P.A.
-------------------------
     BAUM & COMPANY, P.A.

Coral Springs, Florida
January 13 2002










                                       F-1

<PAGE>

<TABLE>

<CAPTION>


                         CAPITOL COMMUNITIES CORPORATION
                           CONSOLIDATED BALANCE SHEET
                            AS OF SEPTEMBER 30, 2001


<S>                                                                    <C>

Current Assets
       Cash                                                            $               134
       Other Current Assets                                                          1,143
                                                                       --------------------
                Total Current Assets                                                 1,277

Plant property and equipment
       Furniture and Equipment, net of accumulated depreciation of $9,995            6,264


Other Assets
       Land and Real Estate Holdings                                             5,357,510
       Investment in Trade Ark Properties                                        2,616,880
                                                                       --------------------
                Total Other Assets                                               7,974,390
                                                                       --------------------

                Total Assets                                           $         7,981,931
                                                                       ====================




Current Liabilities
       Notes Payable                                                            11,688,993
       Accounts Payable & Accrued Expenses                                       3,572,403
                                                                       --------------------
                Total Current Liabilities                                       15,261,396

Non Current Liabilities                                                                  -

Liabilities of Subsidiary Subject to Compromise                                    394,292
                                                                       --------------------

                Total Liabilities                                               15,655,688

Shareholders' Equity

       Preferred stock-$.01 par value, none issued                                       -
       Common Stock-$.01 par value, 40,000,000 shares authorized                    77,700
                7,770,050 shares issued and outstanding
       Additional Paid in Capital                                                7,504,513
       Treasury Stock                                                           (4,795,852)
       Accumulated Deficit                                                     (10,460,118)
                                                                       --------------------

                Total Shareholders' Equity                                      (7,673,757)

                Total Liabilities and
                Shareholders' Equity                                   $         7,981,931
                                                                       ====================
</TABLE>


               See Accountant's Report and Supplemental Footnotes



                                      F-2
<PAGE>


<TABLE>

<CAPTION>

                         CAPITOL COMMUNITIES CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
             FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2001 AND 2000


                                                       2001                    2000
                                                 -----------------        ----------------
<S>                                              <C>                      <C>

Revenues:
      Sales                                      $         75,000         $       758,520
      Miscellaneous Income                                  8,625                   8,532
      Recognition of Deferred Land Sale Profit            118,726                  85,517
                                                 -----------------        ----------------

      Gross Revenues                                      202,351                 852,569

      Cost of Sales                                        10,278                 191,664
                                                 -----------------        ----------------

Gross Profit                                              192,073                 660,905

Operating Expenses:
      General & Administrative
      Expenses                                            504,896               1,576,760
                                                 -----------------        ----------------

Net Income (Loss) Before
      Other Income/Expense                               (312,823)               (915,855)

Other Income (Expense)
      Operations of Unconsolidated Investments           (240,657)               (191,180)
      Writeoff of Director's Fees payable                  56,500
      Interest Income                                       1,164                   6,122
      Interest Expense                                 (1,619,187)             (1,275,575)
                                                 -----------------        ----------------

Net Income (Loss) from continuing operations
      before Income Taxes                        $     (2,115,003)        $    (2,376,488)

Provision for Income Taxes
                                                 -----------------        ----------------

Net Income (Loss)                                $     (2,115,003)        $    (2,376,488)
                                                 =================        ================


Earnings per Share-Basic
      Net Income (Loss)                          $         (0.500)        $        (0.568)
                                                 =================        ================


                                                 -----------------        ----------------
Weighted average shares outstanding:                    4,230,361               4,181,348
                                                 =================        ================

</TABLE>

               See Accountant's Report and Supplemental Footnotes

                                      F-3
<PAGE>


<TABLE>

<CAPTION>


                         CAPITOL COMMUNITIES CORPORATION
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001


                                               Common       Additional      Treasury        Retained
                                 Shares         Stock     Paid in Capital     Stock         Earnings
---------------------------------------------------------------------------------------------------------
<S>                               <C>            <C>         <C>             <C>            <C>

Balances at 9/30/99, as
   previously reported            7,630,050      $ 76,300    $ 7,470,913     $(4,795,851)   $ (6,043,627)

Prior period adjustment- error
in accrual of income tax liability
in 1999 that should not have
been recorded                                                                                     75,000
                              ---------------------------------------------------------------------------

Balances at 9/30/99
   as restated                    7,630,050      $ 76,300    $ 7,470,913     $(4,795,851)   $ (5,968,627)


Common Stock Issued
   for services                     140,000         1,400         33,600

Net Income (Loss)
   for the year ended 9/30/00                                                                 (2,376,488)
---------------------------------------------------------------------------------------------------------

Balances at 9/30/00,
   as restated                    7,770,050      $ 77,700    $ 7,504,513     $(4,795,851)   $ (8,345,115)



Net Income (Loss) for the
   year ending 9/30/2001                                                                      (2,115,003)
                              ---------------------------------------------------------------------------


Balance at 9/30/01                7,770,050      $ 77,700    $ 7,504,513     $(4,795,851)   $(10,460,118)
                              ===========================================================================

</TABLE>



               See Accountant's Report and Supplemental Footnotes

                                      F-4
<PAGE>

<TABLE>

<CAPTION>

                         CAPITOL COMMUNITIES CORPORATION
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000


                                                                     2001            2000
                                                                     ----            ----
<S>                                                             <C>              <C>

Cash Flows from Operating Activities:
      Net Loss                                                  $   (2,115,003)  $  (2,376,488)
      Amortization                                                                     758,367
      Depreciation                                                       2,179           7,602
      Common Stock Issued for Services                                                  35,000
      Adjustments to Reconcile Income
      to Net Cash Used for operating Activities
           (Increase) Decrease in Other Assets                           5,915          47,581
           (Increase) Decrease in Real Estate Holdings                  10,278         184,589
           (Increase) Decrease in Investments                          121,931         105,663
           Increase (Decrease) in Accounts Payable and
              Accrued Expenses                                       1,787,698         828,445
                                                                ---------------  --------------

      Net Cash Used for Operations                                    (187,002)       (409,241)


Cash Flows from Investing Activities:
      Collections of Notes Receivable                                  457,520         383,000
      Writeoff of Note Receivable                                                      144,000
      Increase in Notes Receivable                                                    (457,520)
      Disposal of Furniture and Fixtures                                                 9,568
      Acquisition of Furniture and Fixtures                                             (1,829)
                                                                ---------------  --------------

      Net Cash Provided (Used) in Financing Activities                 457,520          77,219


Cash Flows from Financinging Activities:
      Increase in Notes Payable                                          2,516         461,349
      Payment of Notes Payable                                        (324,832)       (738,065)
      Loan Origination Fees                                                           (203,711)
                                                                ---------------  --------------

      Net Cash Provided (Used) in Investing Activities                (322,316)       (480,427)


Net Increase (Decrease) in Cash                                        (51,798)       (812,449)

Beginning Cash                                                          51,932         864,381
                                                                ---------------  --------------

Ending Cash                                                     $          134   $      51,932
                                                                ===============  ==============


Supplemental Information:
Operating cash  flows  from  reorganization  items:
      Professional fees paid for services rendered in connection
      with the Chapter 11 proceeding, included in net cash used
      in operating activities                                   $            -   $     (15,000)

Interest paid                                                   $       84,011   $     418,986

</TABLE>



               See Accountant's Report and Supplemental Footnotes

                                      F-5
<PAGE>


                CAPITOL COMMUNITIES CORPORATION AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

A.       BACKGROUND
         ----------

         The Company  was  originally  incorporated  in the State of New York on
         November 8, 1968 under the name of Century Cinema Corporation. In 1983,
         the Company merged with a privately owned company,  Diagnostic  Medical
         Equipment  Corp.  and as a  result  changed  its  name  to  that of the
         acquired  company.  By 1990, the Company was an inactive  publicly held
         corporation.  In 1993, the Company  changed its name to AWEC Resources,
         Inc. and commenced operations.  On February 11, 1994 the Company formed
         a  wholly  owned   subsidiary  AWEC   Development   Corp,  an  Arkansas
         corporation,  which later  changed its name to Capitol  Development  of
         Arkansas.

         In  February,  1994 Petro Source  Energy  Corporation  transferred  the
         majority  of its  holdings  in the  common  shares  of the  predecessor
         corporation,  AWEC  Resources,  Inc., to Prescott  Investments  Limited
         Partnership  and Charlie  Corporation.  Michael G. Todd is a beneficial
         owner of Prescott Investments and the Company. Herbert Russell and John
         DeHaven,  affliates of Mr. Todd, were beneficial  owners of the Company
         until June 1999.  These shares were  transferred in  consideration  for
         public relations services provided by Prescott Limited  Partnership and
         Charlie Corporation to Petro Source. Such services were deemed by Petro
         Source to be integral and  indispensable to the concurrent  acquisition
         of  approximately  2,041  acres of land in  Maumelle,  Arkansas  by the
         Company's  Operating  Subsidiary.  The  Company  was not a party to the
         transfer of shares.  The Company did not issue any new shares  pursuant
         to the acquisition of the land. Accordingly, the transfer of shares did
         not affect the  capitalization of the Company,  and was non-dilutive to
         all other shareholders.

         In order to effectuate a change in domicile and name change approved by
         a majority of the Predecessor Corporation shareholders, the Predecessor
         Corporation   merged,   effective   January  30,  1996,   into  Capitol
         Communities  Corporation,  a Nevada  corporation  formed in August 1995
         solely for the purpose of the merger.  The Company is  currently in the
         business of developing and selling real estate properties.

                                      F-6
<PAGE>


         On July 21, 2000 Capitol Development of Arkansas,  Inc., a wholly owned
         subsidiary,  filed a voluntary  petition for relief under Chapter 11 of
         the United States Bankruptcy Code.

B.       PRINCIPLES OF CONSOLIDATION
         ---------------------------

         The  Consolidated   financial   statements   include  accounts  of  its
         wholly-owned subsidiaries.  All material intercompany transactions have
         been eliminated.

C.       REAL ESTATE HOLDINGS
         --------------------

         Real  estate  investments  are  stated at the lower of cost or  market.
         Acquisition  costs are  allocated  to  respective  properties  based on
         appraisals of the various properties acquired in the acquisition.

D.       INCOME TAXES
         ------------

         In February  1992,  the  Financial  Accounting  Standards  Board issued
         Statement on Financial  Accounting  standards  109 of  "Accounting  for
         Income Taxes." Under Statement 109, deferred tax assets and liabilities
         are recognized for the estimated future tax  consequences  attributable
         to  differences  between the financial  statement  carrying  amounts of
         existing  assets and liabilities  and their  respective tax bases.  The
         Company has net operating losses (NOL's) of  approximately  $12,900,000
         expiring in the years 2009 through 2021.

         Deferred tax benefit (34% statutory rate)
                                                               $ 4,386,000
         Valuation allowance                                   $ 4,386,000
                                                               ===========
                    Net Benefit                                $    0


         Due to the  uncertainty  of  utilizing  the  NOL  and  recognizing  the
         deferred  tax  benefit,  an  offsetting  valuation  allowance  has been
         provided.

E.       REVENUE RECOGNITION
         -------------------

         Revenue is recognized  under the full accrual method of accounting upon
         the completed sale of real property held for  development and sale. All
         costs  incurred  directly or indirectly in acquiring and developing the
         real property are capitalized.

                                      F-7
<PAGE>


F.       USE OF ESTIMATES
         ----------------

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

G.       CASH AND CASH EQUIVALENTS
         -------------------------

         Cash and cash equivalents  include cash on hand, cash in banks, and any
         highly  liquid  investments  with a maturity of three months or less at
         the time of purchase.

         The  Company and its  Subsidiaries  maintain  cash and cash  equivalent
         balances  at several  financial  institutions  which are insured by the
         Federal Deposit Insurance  Corporation up to $100,000. At September 30,
         2001 the company  had less than  $100,000  on deposit  resulting  in no
         concentration of credit risk from uninsured bank balances.

H.       EARNINGS/LOSS PER SHARE
         -----------------------

         Primary  earnings  per common  share are  computed by dividing  the net
         income (loss) by the weighted  average number of shares of common stock
         and common stock equivalents outstanding during the year. The number of
         shares used for the fiscal years ended September 30, 2001 and 2000 were
         4,230,361 and 4,181,348, respectively.

NOTE 2 - GOING CONCERN CONSIDERATIONS
         ----------------------------

         The company has incurred  significant  losses from  operations  for the
         current year, has a substantial accumulated deficit, has non-productive
         assets and is highly  illiquid.  The Company is currently in default on
         all  of its  loans  including  a  $3.4  million  mortgage,  a  $975,000
         mortgage,  two secured loans totaling  $600,000 and $6,717,740 in short
         term unsecured  debt. No claim for payment has been made for a $200,000
         note due January 6, 1996.  Management has begun implementation of plans
         to make the company  more viable.  The ultimate  outcome of these plans
         can not be determined.

         The Company's wholly owned subsidiary, Capitol Development of Arkansas,
         Inc., which holds  substantially all of the Company's  assets,  filed a
         voluntary  petition  for relief under  Chapter 11 of the United  States
         Bankruptcy Code in the United States Bankruptcy Court, Eastern Division

                                      F-8

<PAGE>

         on July 21, 2000.

         On November  16,  2000,  the  Operating  Subsidiary  filed a Disclosure
         Statement and a Plan of Reorganization (the "Plan") with the Bankruptcy
         Court to satisfy its existing debts.  The Plan has been be presented to
         creditors for acceptance or rejection.  Two secured creditors, the Bank
         of Little Rock and First  Arkansas  Valley Bank accepted the Plan,  but
         the Liquidator for Resure  rejected it. One creditor from the unsecured
         class accepted the Plan. At least  two-thirds of each impaired class of
         creditors and more than one-half in number of the allowed claims of the
         class  members  entitled  to accept or reject  the Plan have to vote to
         accept it, however the  Bankruptcy  Court may still confirm the Plan if
         at least one of the impaired  classes  votes for it and the  Bankruptcy
         Court finds the Plan does not  discriminate  unfairly.  The hearing for
         confirmation  of the  Plan  was  set for  February  21,  2001,  but was
         delayed.  As of the date of this Report,  the Bankruptcy  Court has not
         rescheduled  a  hearing  to  consider  confirmation  of the  Plan.  The
         Bankruptcy  Court  approved  the  Operating   Subsidiary  s  Disclosure
         Statement on January 19, 2001.

         On December 7, 2000,  Nathaniel S. Shapo, the Director of Insurance for
         the State of Illinois, in his capacity as Liquidator  ("Liquidator") of
         Resure,  Inc.  ("Resure"),  filed a Motion to  Dismiss  (the  Operating
         Subsidiary's  petition for bankruptcy),  or in the alternative,  Motion
         for the Appointment of a Trustee.

         On December 20, 2001,  the Operating  Subsidiary  and Resure  reached a
         settlement  agreement ("2001 Settlement  Agreement") to resolve payment
         on the outstanding  Resure Note, and accordingly the Resure Motions and
         Competing Plan of Reorganization currently before the Bankruptcy Court.
         The  Bankruptcy  Court entered an Order  approving the 2001  Settlement
         Agreement on December 20, 2001,  and dismissed  all pending  motions by
         Resure,  subject to the Liquidator for Resure receiving approval of the
         agreement  by the Circuit  Court of Cook  County,  Illinois  (the "Cook
         County  Court").  The Cook County Court issued an Order  approving  the
         2001 Settlement Agreement on January 9, 2002.

         If the Plan is not  confirmed,  the Operating  Subsidiary may be forced
         into Chapter 7, at which point the Operating Subsidiary would be forced

                                      F-9
<PAGE>

         to  liquidate  its  assets  to  meet  the  obligations  of the  secured
         creditors  and if any  funds  are  available  thereafter  to  meet  the
         obligations of the unsecured.

         There can be no assurance the plan will be approved,  or if approved it
         may not be approved under the terms submitted.  Accordingly the Company
         has accrued interest through  September 30, 2001 on the Resure debt and
         all other debt.  The company has not adjusted the carrying value of its
         real estate assets. In all cases the amount of secured debt exceeds the
         carrying value of the land.

NOTE 3 - SUBSIDIARY'S PETITION FOR RELIEF UNDER CHAPTER 11
         -------------------------------------------------

         As noted above,  on July 21, 2000,  the Company's  subsidiary,  Capitol
         Development of Arkansas,  Inc. (the Debtor) filed a petition for relief
         under  Chapter 11 of the federal  bankruptcy  law in the United  States
         Bankruptcy  Court for the Eastern  District of Arkansas.  Under Chapter
         11, certain claims against the Debtor in existence  prior to the filing
         of the  petitions  for relief  under the  federal  bankruptcy  laws are
         stayed   while   the   Debtor   continues   business    operations   as
         Debtor-in-possession.  These claims are  reflected in the September 30,
         2001, Balance Sheet as "Liabilities subject to compromise."  Additional
         claims (liabilities  subject to compromise) may arise subsequent to the
         filing date resulting from rejection of executory contracts,  including
         leases,  and from the  determination  by the  court  (or  agreed  to by
         parties in  interest)  of allowed  claims for  contingencies  and other
         disputed  amounts.  Claims secured against the Debtor's assets (secured
         claims)  also are stayed,  although the holders of such claims have the
         right to move the court for relief  from the stay.  Secured  claims are
         secured  primarily by liens on the Debtor's  real  property.  Under the
         American Institute of Certified Public Accountants SOP 90-7,  Financial
         Reporting by Entities in Reorganization  Under the Bankruptcy Code, the
         debtors  secured  debt is not  classified  as  Liabilities  subject  to
         compromise.  Under SOP 90-7  secured  debt is  considered  a  Liability
         subject to compromise if the fair value of the  collateral is less than
         the allowed liability. It is management's belief that the fair value of
         the secured collateral for each debt exceeds the allowed liability.

         At  September  30,  2001  the  summary  financial   statements  of  the
         subsidiary, without elimination of intercompany accounts are as follows

                                      F-10
<PAGE>


         Cash                                                               59
         Other Current Assets                                           13,200
         Real Estate                                                 5,357,510
         Investment in TradeArk                                      2,616,880
         Other Assets                                                   54,849

         Total Assets                                                8,042,498
                                                                     =========

         Notes Payable                                               4,971,253
         Accounts Payable and Accrued Expenses                       1,334,210
         Liabilities Subject to Compromise                             621,666

         Total Liabilities                                           6,927,129
                                                                     =========


         Included above are  Intercompany  receivables of $10,949.  Intercompany
         Payables of $227,374. Investment in a subsidiary of $50,000.

         Revenues, net of cost of sales                               $192,073
         Operating Expenses                                            127,398
         Interest                                                      537,593
         Loss of unconsolidated subsidiary                             240,657

         Net Loss                                                     (712,539)
                                                                     =========


NOTE 4 - LIABILITIES SUBJECT TO COMPROMISE
         ---------------------------------

         As a result of the Operating Subsidiary's  bankruptcy petition all then
         existing debts,  liabilities and obligations of the subsidiary  matured
         and  became  due and  payable.  All acts to  collect  these  debts  and
         liabilities  are stayed.  The  pre-petition  debt is  reflected  on the
         Company's   Consolidated   Balance  Sheet  as  Liabilities  Subject  to
         Compromise. At September 30, 2001 the Liabilities Subject to Compromise
         consist of the following

         Accounts Payable                                             $ 73,142
         Accrued Interest Payable                                      121,150
         Notes Payable                                                 200,000
         Intercompany Account Payable                                  227,374
                                                                      ========
                                                                      $621,666
--------------------------------------------------------------

         The  Intercompany  Account  Payable  is  eliminated  on  the  Company's
         Consolidated Balance Sheet leaving the balance of $394,292 shown on the
         Consolidated Balance Sheet.

                                      F-11
<PAGE>



NOTE 5 - RELATED PARTY TRANSACTIONS
         --------------------------

         Currently  the  Company  has  an  informal   agreement  with  Maumelle,
         Enterprise,  Inc.  (Maumelle).  A  business  owned by an officer of the
         company, to provide management,  sales and administrative  services for
         the Company Under this informal  agreement payment to Maumelle for such
         services depends upon the actual services rendered in a given month and
         the current liquidity of the Company.

         During the fiscal year ended  September  30,  2001,  the  Company  paid
         Maumelle a total of $73,618  and owes  $66,329  for fees due for fiscal
         year 2000.

         The Company is  subleasing  office space from  DeHaven,  Todd & Co., in
         which a principal  stockholder and officer of the company is a partner.
         The  monthly  lease  payment  began on  October  1,  1995  and  expired
         September 30, 1998 and has been continued on a month by month basis.

NOTE 6 - MORTGAGE IN DEFAULT
         -------------------

         On September 11, 1995, the Company  entered into a promissory note with
         Resure, Inc. for $3,500,000, bearing interest at 10% per annum, payable
         in full on July 1, 2000.  Effective  September  30,  1997,  the Company
         entered into a modification of the promissory  note with Resure,  Inc.,
         with the maturity date reset to October 1, 1999.

         Payments  are due in the amount of  $101,591  including  principal  and
         interest at 10% per annum, payable quarterly.

         As of September 30, 2001, the principal balance due was $3,395,189, and
         the company was in arrears on its $101,591  payment since July 1, 1998.
         The Company  did not pay the  Mortgage on its  maturity  date.  Accrued
         interest  through  September  30,  2001  is  approximately  $1,553,982,
         including  defaulted  interest  and late  fees.  The  receiver  for the
         Resure,  Inc.  liquidation  has filed suit against the Company  seeking
         judgment  in the  sum  of  $5.5  million  for  amounts  due  under  the
         promissory  note and a  developers  fee as per a  settlement  agreement
         dated  September  30,  1997.  The mortgage is secured by 701.3 acres of
         land in Maumelle, Arkansas, with cost basis of $3.473 million.

         Management had been in discussion with the Liquidator for Resure, Inc.,
         to make settlement arrangements and had reached an agreement. Under the

                                      F-12
<PAGE>

         agreement a payment of the principal and accrued interest due under the
         promissory note, approximately $3.99 million would satisfy the mortgage
         and developers fee. The Company was unable to pay the settlement amount
         by the payment date specified in the agreement.

         Under the plan of reorganization  filed by the Company's subsidiary the
         amount to be paid to Resure is previously agreed upon settlement amount
         of $3.99 million. Resure has objected to the plan. Resure is taking the
         position  that the failure to pay the  settlement  amount by the stated
         closing date has voided the settlement agreement.  Resure is asking for
         payment of the full amount of principal and accrued interest as well as
         the  $2  million  developers  fee.  Additionally,  Resure  states  that
         approximately  $309,000 of the  developers fee should have been paid in
         connection  with previous  property sales according to the terms of the
         previous agreement.

         Additionally,  the Company is  currently  in default on  $6,717,740  of
         unsecured short term notes which matured on various dates from November
         1999 through  September  2000 and an unsecured  note for $200,000 which
         was due January 6, 1996 and the debt due to Bank of Little Rock has not
         matured but is in default due to failure to make the required  interest
         payments.   $5,171,253   (principal  only)  is  pre-petition  debt  and
         collection is stayed under  Capitol  Development  of Arkansas,  Inc.'s,
         bankruptcy petition.

NOTE 7 - EXECUTIVE EMPLOYMENT AGREEMENT
         ------------------------------

         The Company had a five-year  written  agreement  with an  individual to
         perform the duties of  President.  Under the  agreement,  which  became
         effective  on October 1, 1995,  he was to be  compensated  at a rate of
         $20,000.  per month.  The agreement  expired on September 30, 2000. The
         Company is not party to any other employment agreements. As of the date
         of this Report, the Company has not executed a new employment agreement
         but  continues to employ the  president  under the terms of the expired
         employment agreement.

NOTE 8 - NOTES PAYABLE
         -------------

         Notes payable consist of the following

         Note Payable - Bank of Little Rock

                  Secured Line of Credit, 10.50% per annum;

                                      F-13
<PAGE>


                  secured by 11 acres Maumelle, AR
                  maturing October 5, 2001 and subsequently
                  extended to April 5, 2002
                                                 $         399,524

         Note  Payable - Bank of Little Rock

                  Secured Note, 10.50% per annum;
                  secured by 11 acres Maumelle, AR
                  maturing October 10, 2001 and subsequently
                  extended to April 10, 2002
                                                 $         200,913

         Note Payable - First Arkansas Valley Bank

                  Secured Note, 10.50% per annum;
                  secured by 332 acres residential land Maumelle, AR

                  maturing October 14, 2001
                                                 $         975,000

         Note Payable - Davister
                  Unsecured Note, 9% per annum;
                  matured January 6, 1996
                                                 $         200,000

         Notes Payable - Various
                  Unsecured notes, interest from 10.90% to 14.00% with
                  maturities not in excess of nine months all of which
                  are currently in default,
                                                 $       6,717,740

         Note Payable - Resure Mortgage

                  Secured 10% per annum due October 1, 1999
                  secured by 701 acres residential land Maumelle, AR
                  payable with quarterly payments beginning
                  1/1/98 for $101,591; mortgage is delinquent
                                                 $       3,395,189


                  Total Current Maturities

                                                 $11,888,993
                                                 ===========

                                      F-14

<PAGE>





         Total Non-Current Maturities

         Total Notes Payable
                                                 $11,888,993
                                                 ===========


         The  company  has not  obtained  extensions  on many of the  notes  and
         mortgages  payable  that have  become due and are in  default.  The two
         secured notes to Bank of Little Rock matured on October 5 and 10, 2001.
         They  were  subsequently  extended  until  April  5 and 10,  2002.  The
         categorization  between  current  and  non  current  was  based  on the
         original maturity date.

NOTE 9 - PRIOR PERIOD ADJUSTMENT
         -----------------------

         Retained  earnings as of October 1, 2000 has been increased by $75,000,
         net of income  tax effect of $0, to correct an error made in the fiscal
         year ended  September  30, 1999.  It was  estimated  that the Company's
         transaction  to  capitalize  its interest in TradeArk  Properties,  LLC
         would result in an income tax liability.  Subsequent  review of the tax
         code and filing of an  amended  tax  return  resulted  in no income tax
         liability. The error had no effect on income for the fiscal years ended
         September 30, 2001 and 2000.

NOTE 10 - UNCONSOLIDATED SUBSIDIARIES
          ---------------------------

         The  investment in TradeArk is accounted  for under the equity  method.
         The  Company  reports  its  proportionate   share  of  the  investments
         operating  income or loss and  increasing  or  decreasing  the carrying
         value  of the  investment  accordingly.  In the case of  TradeArk,  the
         company  also  decreased  its  carrying  value  by  the  amount  of the
         unrecognized  land  sales  profit  in  accordance  with  SFAS 66 . This
         difference  between  the  carrying  value  of the  investment  and  the
         underlying equity in the investment will be accounted for as the assets
         of TradeArk are sold or otherwise disposed.  The amount of unrecognized
         land  sales  profit  was  $1,577,312.  During  the  fiscal  year  ended
         September  30, 2001  TradeArk  sold  property with a basis of $624,750.
         Under the  provisions  of SFAS 66 the  Company  recognized  $118,726 of
         previously  unrecognized  land  sales  profit,  leaving  a  balance  of
         $1,373,069 for future periods.

         At September 30, 2001, TradeArk holds Real Estate valued at $7,225,250,
         viatical  contracts  valued at $8,208,553  and other assets of $65,681.

                                      F-15

<PAGE>

         TradeArk  liabilities  include  a  mortgage  of  $3,315,915  and  other
         liabilities of $834,351. Members Equity is $11,349,217.  Operating loss
         for the 12 months ended September 30, 2001 was $616,693.

NOTE 11 - SUBSEQUENT EVENTS
          -----------------

         A.  RESURE LITIGATION
             -----------------

         On November 13, 2001, the Liquidator for Resure  submitted a Motion for
         Relief  From Stay  with the  Bankruptcy  Court  seeking  permission  to
         continue its  foreclosure on the  approximately  701 acres of the Large
         Residential  Tract of the Maumelle  Property  used to secure the Resure
         Note.

         On December 20, 2001,  the Operating  Subsidiary  and Resure  reached a
         settlement  agreement ("2001 Settlement  Agreement") to resolve payment
         on the outstanding  Resure Note, and accordingly the Resure Motions and
         Competing Plan of Reorganization currently before the Bankruptcy Court.
         The  Bankruptcy  Court entered an Order  approving the 2001  Settlement
         Agreement on December 20, 2001,  and dismissed  all pending  motions by
         Resure,  subject to the Liquidator for Resure receiving approval of the
         agreement  by the Circuit  Court of Cook  County,  Illinois  (the "Cook
         County  Court").  The Cook County Court issued an Order  approving  the
         2001 Settlement Agreement on January 9, 2002.

         The  2001  Settlement   Agreement  requires  Resure  to  forebear  from
         collecting  on the Resure Note or entering any  pleadings,  hearings or
         other actions for a forbearance  period  ("Forbearance  Period").  This
         Forbearance Period shall be through and including a date (the "Option A
         Date") which shallbe the latter of a date (i) February 15, 2002, if the
         Resure  Liquidator  has  obtained  a written  Order  from  Cook  County
         approving the  agreement on or before  January 15, 2002, or (ii) a date
         which is one day for each day after January 15, 2002, until an Order is
         entered by Cook County; provided however, that if,on or before six days
         prior to the Option A Date, the Operating Subsidiary elects Option B by
         giving Resure  written  notice,  then the  Forbearance  Period shall be
         through  and  including a date which shall be the latter of a date (the
         "Option B Date")(i)  April 15, 2002, if Resure  Liquidator has obtained
         and given notice to the  Operating  Subsidiary of the entry of the Cook
         County Order prior to January 15, 2002, or (ii) a date which is one day
         for each day after January 15, 2002,  until an Order is entered by Cook
         County.

                                      F-16
<PAGE>


         Under the terms of the  Agreement,  the Liquidator for Resure agrees to
         accept  $3,850,000 on or before the Option A Date in full  satisfaction
         of all  claims  against  the  Operating  Subsidiary.  If the  Operating
         Subsidiary elects the Option B Date, a payment of  $3,987,353.95,  plus
         simple  interest at an annual rate of nine  percent  (9%)  accrued from
         April 24, 2000, until the payment date will be due.

         If full  payment  required  under  Option A or Option B, is not  timely
         rendered to Resure, the Operating Subsidiary has agreed to the entry of
         a Consent  Foreclosure Decree and In Rem Judgment in the Pulaski County
         Chancery Court.

         On December  20,2001 the Company  entered  into a contract  for sale of
         real estate with a third party. The proposed sale is for  approximately
         451  acres  of  the  Large  Residential  Tract  for  a  sale  price  of
         $4,000,000.  The sale is subject to the approval of the Bankrupcy Court
         following  notification  to  creditors  and  parties in interest of the
         terms and  provisions of the proposed sale. In the event the Bankruptcy
         Court  approves  the sale,  the  proceeds of this sale would be used to
         satisfy the 2001 Settlement Agreement.

         B.  CAPITAL TRANSACTIONS
             --------------------

         On October 18, 2001 the Company issued 6,000,000 shares of common stock
         to Prescott  Investments  LLC, an  affiliated  company for the purchase
         price of $0.05 payable in cash or a note payable in full no later March
         31, 2002.

         On October  18,  2001 the Company  issued  10,000,000  shares of common
         stock to Michael G. Todd, an officer of the Company,  in  consideration
         of and in lieu of unpaid cash compensation and benefits at the price of
         $0.05 per share.

         On October 18, 2001 the Company  issued  100,000 shares of common stock
         to M. I. Schehin , a consultant  of the Company,  in  consideration  of
         cash at the price of $0.05 per share.

         On October 18, 2001 the Company  issued  100,000 shares of common stock
         to M. I. Schehin , a consultant of the Company, in consideration of and
         in lieu of unpaid cash  compensation and benefits at the price of $0.05
         per share.

         On October 18, 2001 the Company issued 2,000,000 shares of common stock
         to Thomas C. Blake,  a Director  and a consultant  of the  Company,  in
         consideration  of and in lieu of unpaid cash  compensation and benefits
         at the price of $0.05 per share.

                                      F-17
<PAGE>


         On October 18, 2001 the Company  issued  500,000 shares of common stock
         to Will Schwartz , a consultant of the Company, in consideration of and
         in lieu of unpaid cash  compensation and benefits at the price of $0.05
         per share.




















                                      F-18

<PAGE>



     EXHIBITS

         The  following  Exhibits  are filed as part of this  Report.  (Exhibits
numbers correspond to the exhibits required by Item 601 of Regulation S-B for an
annual report on Form 10-KSB,

11.      Statement of Computation of Per Share Earnings.

         See Financial Statements starting at F-1.

(b)  REPORTS ON FORM 8-K

         The following  reports on Form 8-K were filed by the Company during the
fiscal quarter ended September 30,2001:

None


                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
there unto duly authorized.

                                   CAPITOL COMMUNITIES CORPORATION




Date: January 14, 2002             By: /s/ Michael G. Todd
                                       ---------------------------
                                       Michael G. Todd, Chairman,
                                       President and Chief
                                       Executive Officer



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