Surety Holdings Corp · 10SB12G · On 2/9/01

Filed On 2/9/01 12:29pm ET   ·   SEC File 0-32331   ·   Accession Number 950123-1-1032

Registration of Securities of a Small-Business Issuer   ·   Form 10-SB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10SB12G     Form 10-Sb                                            45    160K 
 2: EX-2.01     Certificate of Incorporation                           2      8K 
 3: EX-2.02     Certificate of Merger, With Agreement of Merger        5     17K 
 4: EX-2.03     By-Laws                                               11     24K 
 5: EX-2.04     Amendment to By-Laws                                   1      8K 
 6: EX-5.01     Lock Up Agreement                                      1      4K 
 7: EX-8.01     Agreement and Plan of Merger                          33     98K 

10SB12G   ·   Form 10-Sb
Document Table of Contents

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 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.

FORM 10-SB

 GENERAL FORM FOR REGISTRATION OF SECURITIES

 Pursuant to Section 12(b) or (g) of the Securities Exchange
 Act of 1934

 SURETY HOLDINGS CORP.
 (Exact name of Registrant in its charter)

DELAWARE                                    56-2229054                          
(State of organization)                     (I.R.S. Employer Identification No.)

850 Fort Plains Road, Howell, New Jersey                         07731          
(Address of principal executive offices)                       (Zip code)       

Registrant's Telephone Number, including area code: (732) 886-0706              

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

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

Forward looking statements within the meaning of Section 27A of the Securities  
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 appear       
throughout this report. These statements relate to the Company's expectations,  
hopes, beliefs, intentions, goals or strategies regarding the future and are    
based on certain underlying assumptions by the Company. Such assumptions are, in
turn, based on information available and internal estimates and analyses of     
general economic conditions, competitive factors, conditions specific to the    
property, unfavorable local, regional, national, international and economic     
developments, weather conditions, competition, regulations pertaining to        
property development, federal, state and local. Readers are urged to carefully  
review and consider the various disclosures made by the Company in this Report, 
as an attempt to advise interested parties of the risks and factors that may    
affect the Company's business, financial condition and results of operations and
prospects.                                                                      

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PART I

ITEM 1.  BUSINESS.                                                              

(a) DEVELOPMENT OF BUSINESS.                                                    

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

 In December 1999, Surety issued 2,000,000 shares of its common stock in
exchange for 100% of Chalon Hawaii's outstanding shares in a recapitalization   
transaction accounted for as a reverse acquisition with a "shell" company.      
Chalon Hawaii was deemed the accounting acquirer and Surety was deemed the      
legal acquirer (see Note 3 to Consolidated Financial Statements).               

   Surety and Chalon Hawaii's (collectively, the "Company") primary focus is
the development of a hotel, 18-hole golf course and resort homes on             
approximately 600 acres of land in the North Kahola district of Hawaii Island   
in the state of Hawaii (the "Mahukona development project").                    

(b) NARRATIVE DESCRIPTION OF BUSINESS.                                          

CHALON HAWAII                                                                   

Chalon Hawaii owns approximately 18,000 acres of fee simple land in             
North Kahola district of Hawaii Island (The Big Island), in the State of Hawaii,
USA. Chalon Hawaii has, since 1989, worked with the local Kohala community for  
the master planning of the development and is intending to develop a New Style  
Health community, utilizing eco-management of the excellent natural environment.
The plan is more than just building a resort area; it is a plan to integrate an 
existing community with a new development plan for the 18,000 acres of land,    
which is expected to include housing, recreational facilities, farming,         
historical assets and commercial business institutes.                           

   The Mahukona property consists of approximately 600 acres of land. Chalon
Hawaii has already acquired the necessary governmental permits for the          
developments of a hotel, 18-hole golf course and approximately 87 sites for     
resort homes. Located on the leeward (dry) side of the island, with resort      
permitting in place, and general community and government acceptance as a resort
location, Mahukona is a valuable and critical component of the overall master   
plan strategy. In keeping focused on an eco-based theme for the master plan, and
working towards Chalon's corporate goals, the Mahukona Resort will:             

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

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

     Although there is no assurance that this will, in fact, be the actual total
cost, it is expected that the total current cost for the Mahukona Development   
will be approximately $70,000,000-$75,000,000. This estimated cost currently    
includes a 100 Room Hotel, 100 Bungalow Units, 87 Lot units for Residential     
Homes (land only, costs for building the homes are not included) 18-Hole Golf   
Course and Sports Facilities.                                                   

In developing the property, the Company will rely upon a pool of      
experienced and talented entities and individuals. One entity is the Lake Forest
Resort Development Team which is lead by Shoichi Kamon, who has extensive       
experience in real estate development. Over the past 30 years, his experience   
includes more than 50 restaurants, 5 hotels and the very successful Lake Forest 
Resort. His development style is based on his management experience in the      
hospitality industry, where his philosophy is to integrate beauty and           
efficiency.                                                                     

Another entity, TFP Inc., headed by Toru Yamaguchi, is a planning.    
engineering and golf course design company. Mr. Yamaguchi's academic and        
practical experience for civil engineering contributes to keeping costs down on 
the construction of a Golf Course. TFP has been working with Chalon since the   
Lake Forest Development. TFP, Inc., has extensive experience in planning of     
housing projects as well as golf course projects all over Japan and Hawaii.     

 Additionally, Eco-Resort Management Co. is a company that is a spin-off
from Chalon International Co., created to be exclusively in charge of resort    
management. Eco-Resort Management Co. operates Lake Forest Resort in Kyoto,     
Japan. Chalon International was established in 1968 by Shoichi Kamon with a     
small restaurant in Osaka, Japan. Since then, Chalon International Co. has grown
into a diversified international hospitality company, specializing in           
restaurant, hotel and recreational projects in Japan, USA, Hong Kong and China. 
Lake Forest Resort is Chalon International's Flagship Facility that has 45 Holes
of Golf, Hotels and a variety of Sports Facilities. Lake Forest is a membership 
resort, with many corporate members.                                            

   Kohala Coast Resort Area is one of the most luxurious resort areas in the
US. The price range of accommodations in this area start from at approximately  
$300 per night (no ocean view). Mahukona Resort is approximately a 20 minute    
drive from the north point of the Kohala Coast Resort Area. The relation between
Mahukona Resort and Kohala Coast Resort is similar to Kapalua Resort and        
Kaanapali Resort in Maui or Kahala Hilton and Waikiki in Oahu. This means       
Mahukona is more isolated and an eco-related facility compared to Kohala Coast  
Resort Area. Our strategy is to utilize Kohala Coast's luxury image and price   
range without competing with their resorts. We expect to emphasize a "New Style 
of Development", which is far beyond the regular resort development.            

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LOCATION.                                                                       

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

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

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

    Between Kona Airport and Mahukona, the area is called "Kohala Coast Resort
Area". The destination resorts along the Kona Kohala Coast are located on the   
northwestern shore of the island and begin six miles north of Kona International
Airport. Boundaries of the Kona Kohala Coast region are marked by the Mauna Kea 
Resort to the north, Ka'upulehu to the south with the Mauna Lani Resort and     
Waikoloa Beach Resort in between. There are 3,618 visitor units to choose from, 
including Condos, one and two bedroom Oceanfront Suites, Oceanside Villas,      
Bungalows, Thatched Huts and Private Vacation homes. Island wide, there are     
9,490 visitor facilities accommodations, including Bed & Breakfasts. Resort     
Sport and Fitness Facilities have over 55 Tennis Courts, 7 Championship Golf    
Courses (126 holes), an Executive Putting Course and 6 Spas. Other resort       
activities include scuba, snorkeling, glass-bottom boating, windsurfing,        
deep-sea fishing, hunting, horseback riding, sightseeing, whale watching        
(in season), sailing and kayaking.                                              

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

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CHALON'S KOHALA LAND MASTER PLAN.                                               

Chalon's Kohala Land is located at the northern end of the island of  
Hawaii, in the District of North Kohala. This island jewel with its mild        
weather, untouched natural features, unsurpassed scenery and deep historical and
culture values is becoming one of the world's leading health resort area. Within
half an hour drive of Chalon's land is the famous Kohala Resort Area. It was    
Lawrence Rockefeller who first realized the potential of this area when he      
developed his favorite retreat at the Mauna Kea Beach Hotel in the 1960's.      
Chalon's land in Kohala was formerly owned by Castle and Cooke, one of Hawaii's 
largest corporations, whose Dole Food label is well-known across the nation. A  
plantation for over 100 years on these lands before increased competition and   
rising costs forced the closure of the plantation in 1975. Since that time,     
little economic activity has been developed within North Kohala. The various    
villages of Kohala create an aggregate population of about 4,200 people. The    
principal area of employment of Kohala residents is in the resort and support   
communities of nearby South Kohala.                                             

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

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

With strong support by the local Kohala community, Chalon Hawaii is   
intending to develop a new type community utilizing eco-management of the       
excellent natural environment of Kohala. In essence, this plan means more than  
just building a resort area. Currently, it is a plan to integrate an existing   
community with a new development plan for the 18,000 acres of land, which may   
include housing, recreational facilities, farming, historical assets and        
commercial business institutes. Some of the land, may, however, be sold, under  
the appropriate circumstances.                                                  

Chalon has already acquired the necessary governmental development    
approvals, as discussed later, in the Mahukona area for the Kohala Land. This   
will be the flagship facility for the master plan of the area community. The    
tourist and owners of the Chalon land may expect to enjoy sophisticated         
facilities for dining, sports and relaxation during their stay in Kohala.       

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

MAHUKONA RESORT DEVELOPMENT.                                                    

Development Concept                                                   

   The Mahukona property consists of approximately 642 acres of land. Chalon
already has acquired the necessary governmental permits for the development of a
hotel, restaurant(s), an 18-hole golf course and approximately 87 lots for      
resort homes.                                                                   

     Located on the leeward (dry) side of the island, with resort permitting, as
discussed later, in place and the general community and government acceptance as
a resort location, Mahukona is a valuable and critical component of the overall 
master plan strategy.                                                           

    In keeping with the eco-based theme of the master plan and working towards
Chalon's corporate goals, the Mahukona Resort will, as presently planned:       

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

  (2)  Provide access to unique, semi-exclusive Hawaiian eco-activities on
which the Chalon land has.                                  

     (3)  Cater to the U.S. "Baby Boomers" market. This large, well-educated and
          affluent segment of the U.S. comprises 75% - 80% of the current Kohala
  eco-activities users. Also, recent land sales have been almost
 exclusively to this market as well. It is anticipated that by
         satisfying their expected (real or perceived) standards for a quality
      eco-active resort, the resort will appeal to  very large potential
market.                                                     

   18-Hole Golf Course. It is an ocean view golf course along the shoreline.
Emphasis during design, construction and operation will be on environmental     
sensitivity.                                                                    

    Plantation Cottage Hotel. It is anticipated that by blending together with
ecological sensitive concept of the Caribbean's highly successful Maho Bay and  
Harmony "Eco-Resorts" and the culturally sensitive Waimea Plantation Cottages on
Kauai along with the hint of the quality and comfort of the Four Seasons        
Hualalai and Kona Village, the proposed Plantation Cottages Hotel of Mahukona   
will be an appropriate gateway to the Kohala experience.                        

1-Acre Estate Lot Subdivision. These will offer individuals and       
corporations the opportunities to become a part of the Chalon Mahukona/Kohala   
development. The Mahukona Mauka parcel located above the highway offers future  
opportunities for intensive development and adjustments to the market.          

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Sports Facility. Tennis Courts, Putting Green, Driving Range and Spa  
Facilities are planned to develop as additional sports facilities.              

  Restaurants. Plans for various restaurants have been developed. The food
served will include western food, hawaiian style pan-pacific food, teppanyaki   
and shabu-shabu.                                                                

 Bungalow. Each bungalow is intended to have 4 units and each unit has 2
bedrooms, living room and dining area.                                          

Governmental Permits for Development                                  

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

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

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

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

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

     Approval of an environmental assessment and a permit to utilize state lands
for a cart underpass servicing the golf course, which must go under a state     
highway, must still be obtained. These requirements resulted, in part, from an  
appeal filed by a citizens group challenging Chalon Hawaii's approvals, and it  
can be anticipated that this group will appeal future approvals or permits.     
There can be no assurance that such litigation will be favorably resolved. An   
adverse outcome of such litigation will adversely impact the Company's          
development plans.                                                              

After the approvals, the zoning acreage breakdown is:                 

                                                                [Download Table]
                                                                   
V2.0 (Resort)                                          14,324 Acres
Ag.1                                                  266,652 Acres
Ag.5                                                  307,214 Acres
Conservation District                                   43.22 Acres
Open                                                   11,045 Acres

Infrastructure System                                                 

   Water. Although other developments in west Hawaii suffer from shortage of
both portable and irrigation water, North Kohala is very rich with water        
resources. Portable water will be supplied to the site from wells in the        
northern part of Kohala through pipelines. Irrigation                           

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water will be supplied by Kahola Ditch Water System that was developed about 100
years ago for sugar cane.                                                       

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

Development Team                                                      

In developing the property, the Company will rely upon a pool of      
experienced and talented entities and individuals. One entity is the Lake Forest
Resort Development Team, headed by Shoichi Kamon, founder of the Chalon Group,  
who has extensive experience in real estate developments for the past 30 years. 
His experience includes more than 50 restaurants, 5 hotels and the Lake Forest  
Resort in Kyoto, Japan. His development style is based on his management        
experience in the hospitality industry. Concentrating on the importance to      
integrate "Beauty" and "Efficience".                                            

  TFP, Inc., headed by Toru Yamaguchi, is a planning, engineering and golf
course design company. Mr. Yamaguchi's academic and practical experience for    
civil engineering contributes to keeping costs down on the construction of a    
golf course. TFP, Inc., has extensive experience in planning housing projects   
all over Japan and Hawaii.                                                      

   Lake Forest Resort is located in Kyoto, Japan. It was originally built in
1987 (Hotel, Sports Facilities and a 27 Hole Golf Course) and expanded another  
18 Holes in 1993. Lake Forest Resort is a membership resort and has about 2,000 
members at this time. The members consist of a variety of people/organizations, 
from individual members to famous big corporation, labor unions, medical care   
associations and others. It is managed by Chalon International, Inc., which has 
extensive experience in management of restaurants and hotels in Japan and other 
countries. Also, its Central Kitchen Systems supports the Lake Forest Resort    
from the points of quality of food, efficient management and cost control of    
food.                                                                           

Expected Construction Cost (US$)                                      

                                                                [Download Table]
                                                                                
GOLF COURSE (Not including Club House)                                 5,900,000
HOTEL                            Entry Road                            1,200,000
                                 Hotel                                22,000,000
                                 Bungalows                            17,700,000
                                 Park improvement                      3,100,000
   Sports Facility                                                       600,000
   1-Acre House Lots                                                  10,800,000
   Off Site Infrastructure                                             9,400,000
   Total                                                              70,700,000

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     Compared with other companies' developments, we believe that our estimate
of the constructions costs are relatively low. It is not because of our         
facilities are downgraded, but with the experience of the Lake Forest Resort    
development and the expertise of our development team, TFC, Inc., we believe we 
will be able to keep costs under control. There is of course no assurance that  
the project can or will be completed at the estimate cost, which is based on    
many variables which can and will change.                                       

Management Team                                                                 

   Eco-Resort Management Co. Eco-Resort Management Co. is a company that was
spun off from Chalon International Co. to be exclusively in charge of resort    
management. Eco-Resort Management Co. operates Lake Forest Resort in Kyoto,     
Japan. Chalon International was established in 1968 by Shoichi Kamon with a     
small restaurant in Osaka, Japan. Since then, Chalon International has grown    
into a diversified international hospitality company, specializing in           
restaurants, hotels and recreation projects in Japan, USA, Hong Kong and China. 

  Total Resort Operation Systems (Computer Software). This system has been
developed by Lake Forest Resort System Engineering Team. It is a PC Networking  
system, which includes member database, golf, sports facilities and F&B         
management. The system uses MS Windows GUI and achieves user friendly systems.  

Existing Luxury Facilities in Kohala Coast                            

Hotels                                                                

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

Hapuna Beach Hotel - (350 Rooms). Opened in 1994 on the island's best 
beach, this is Mauna Kea's sister hotel and the two properties are adjacent,    
with reciprocal privileges. Carpeted guest rooms with marble bathrooms, 36      
suites, with all rooms overlooking the ocean, hotel pool, hot tub and five      
restaurants. The showpiece of this hotel is an 8,000 square foot, four-bedroom  
suite with its own swimming pool.                                               

 Mauna Lani Bay Hotel - (350 Rooms). A refined atmosphere permeates this
hotel whose rooms have recently been redecorated in shades of white with linen  
and cotton, along with teak furnishings. If money is no object, the $3,000 to   
$4,000 per night bungalows come with a butler, limo and private pool. This is   
the home of the annual Senior Skins Game. There are two                         

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spectacular golf courses. The signature hole is the 15th on the South Course    
where golfers tee off over a wide expanse of ocean. Mauna Lani is also home to  
the annual event of the Sun Food Celebration in July, a four-day event featuring
renowned chefs and vintners from sunny climes.                                  

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

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

Golf Courses                                                          

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

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

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

Muana Lani Golf Course. Characterized by rolling terrain and groves of
kiawe trees, the North Course is built on an ancient lava flow. Feral goats     
frequent the fairways and the course's signature hole is a par three which hits 
from an elevated tee into a natural amphitheatre of lava. Amenities include a   
pro shop, two driving ranges, practice green, lessons, rentals, on-course       
refreshment cart and restaurant.                                                

  Waikoloa Kings Course. Designed by Tom Weiskopf and Jay Morrish, the Par
72 link, 7,000 yard layout of Waikoloa's Kings' Course features six major lakes 
and approximately 75 bunkers. The sophisticated bunker strategy and multiple tee
placements work together to create                                              

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a challenging and fun course. Amenities include a golf shop, complete practice  
facility, golf academy, hotels, condominiums, restaurant and lounge.            

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

Local Resort House Lot Markets                                                  

   There are a number of resorts in the area that offer residential lots for
sale. One resort is known as the Mauna Kea Resort which offers three different  
locations for residential lots. The company believes that prices for residential
lots at the High Bluffs location at the Mauna Kea Resort range from             
approximately $1,250,000 to approximately $1,750,000. Prices for lots at two    
other locations within Mauna Kea Resort may be higher or lower than those at the
High Bluffs. Another resort was formerly known as Mauna Lani but is now known as
Forty-Nine Black Sand Beach. The Company believes that lot prices range from    
$300,000 to a few million dollars. The Company believes that Toyota built a     
corporate retreat on two lots with a combined costs of $10 million dollars.     
Additionally, Nintendo built a corporate retreat on two lots that the Company   
believes the combined real estate cost was approximately $10 million dollars. It
is the Company's opinion that its residential lots, when approved and improved, 
will be of significant value. As real estate is unique and each and every lot   
has unique characteristics there can, of course, be no assurance that the       
Company's residential lots can, in the future, be sold for prices similar to    
previous sales in the area. In addition, real estate sales of resort lots are   
influenced by factors beyond control of the Company, such as the economy,       
inflation, consumer confidence, etc.                                            

OKINAWA DEVELOPMENT PROJECT                                                     

  In the year 2000, the Company loaned to Marine Forest Resort, Inc.("Marine
Forest"), a Japanese corporation, the sum of $6,400.000. The notes, which are   
due six months after date of issuance and bear interest at the U.S. prime rate  
plus one percent, may be converted to equity interests in Marine Forest in      
2001.                                                                           

     Marine Forest presently operates two restaurants and a convenience store in
the Okinawa Airport. In addition, it has undertaken a resort project and has    
obtained government approvals in 1995 for construction of a hotel and 18 hole   
golf course. The project is at the very earliest stages with the beginning of   
the construction of the entry road and mass grading of the property for future  
construction of the hotel. The site is located in Sedaka of Nago City which is  
about one hour drive from Okinawa International Airport.                        

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

Except for historical information, the materials contained in this Management's 
Discussion and Analysis or Plan of Operation is forward-looking (within the     
meaning of Section 27A of the                                                   

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Securities Act and Section 21E of the Exchange Act) and involve a number of     
risks and uncertainties. Forward looking statements within the meaning of       
Section 27A of the Securities Act of 1933 and Section 21E of the Securities     
Exchange Act of 1934 appear throughout this report. These statements relate to  
the Company's expectations, hopes, beliefs, intentions, goals or strategies     
regarding the future and are based on certain underlying assumptions by the     
Company. Such assumptions are, in turn, based on information available and      
internal estimates and analyses of general economic conditions, specific to the 
property, unfavorable local, regional, national, international and economic     
developments, weather conditions, competition, regulations pertaining to        
property development, federal state and local. Readers are urged to carefully   
review and consider the various disclosures made by the Company in this Report, 
as an attempt to advise interested parties of the risks and factors that may    
affect the Company's business, financial condition and results of operations and
prospects.                                                                      

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OVERVIEW                                                                        

On December 29, 1999, pursuant to an Agreement and Plan of Merger and           
Reorganization (the "Plan"), Surety issued 2 million shares of its common stock 
in exchange for 100% of Chalon Hawaii's outstanding shares in a recapitalization
transaction accounted for as a reverse acquisition with a "shell" company.      
Chalon Hawaii was deemed the accounting acquirer and Surety was deemed the legal
acquirer. The consolidated financial statements included herein and discussed   
below include the accounts of Chalon Hawaii for the years ended December 31,    
1998 and 1999 and the accounts of Surety from December 29, 1999 (date of the    
Plan) to December 31, 1999.                                                     

RESULTS OF OPERATIONS                                                           

Years ended December 31, 1998 and 1999  -                                       
The following table sets forth the statements of operations of the Company for  
the years ended December 31, 1998 and 1999:                                     

                                                                [Download Table]

                                                   1998                1999   
                                                                              
Real estate sales                              $ 3,236,000         $ 3,483,000
Rentals                                            355,000             379,000
Cattle sales                                       335,000             305,000
Water and other                                    130,000             174,000
                                               -----------         -----------
    Total revenues                               4,056,000           4,341,000
                                               -----------         -----------
Cost of real estate sales                        5,372,000           1,907,000
Cost of rentals                                    153,000             149,000
Cost of cattle sales                               269,000             204,000
Cost of water and other                            216,000             206,000
                                               -----------         -----------
    Total cost of revenues                       6,010,000           2,466,000
                                               -----------         -----------
Gross margin                                    (1,954,000)          1,875,000

General and administrative expenses                728,000             819,000
                                               -----------         -----------
Income (loss) from operations                   (2,682,000)          1,056,000
                                               -----------         -----------
Other expenses, net                                  1,000             210,000
Deferred income taxes (benefit)                   (530,000)            210,000
                                               -----------         -----------
                                                  (529,000)            420,000
                                               -----------         -----------
Net income (loss)                              $(2,153,000)        $   636,000
                                               ===========         ===========

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Although real estate sales were relatively consistent during the years ended    
December 31, 1998 and 1999, real estate sales margins improved significantly.   
Specifically, in 1998, cost of real estate sales were higher because the Company
sold "Maliu Phase 3 Subdivision" and adjacent land as bulk sales. The land was  
allocated higher land costs because it was originally planned to be sold as 3   
and 5 acres housing lots (already zoned). The Company sold the land in a bulk   
sale transaction because of deteriorated market conditions. Rental revenue and  
cattle sales and their related margins were relatively consistent during the    
years ended December 31, 1998 and 1999. The approximate 34% increase in water   
and other revenues is attributable to the success of the Company's eco-tourism  
operations (see discussion at Nine months ended September 30, 1999 and 2000).   

The approximate 13% increase in general and administrative expenses is primarily
attributable to the professional fees associated with the Agreement and Plan of 
Merger and Reorganization.                                                      

While interest income, net has remained relatively consistent, the substantial  
increase in other expenses, net is attributable to a $206,000 charge incurred in
connection with the recapitalization transaction (see Note 3 to Consolidated    
Financial Statements). Deferred income taxes have increased proportionally to   
the Company's pretax income. There are no current taxes as a result of net      
operating loss carryforwards.                                                   

Nine months ended September 30, 1999 and 2000 (unaudited)-                      
The following table sets forth the statements of operations of the Company for  
the nine months ended September 30, 1999 and 2000:                              

                                                                [Download Table]

                                                   1999                2000    
                                                                               
Real estate sales                              $   828,000         $ 5,628,000 
Rentals                                            306,000             245,000 
Cattle sales                                       219,000             359,000 
Water and other                                    134,000             215,000 
                                               -----------         ----------- 
  Total revenues                                 1,487,000           6,447,000 
                                               -----------         ----------- 

Cost of real estate sales                          378,000           1,937,000 
Cost of rentals                                    121,000              68,000 
Cost of cattle sales                               155,000             129,000 
Cost of water and other                            146,000             201,000 
                                               -----------         ----------- 
  Total cost of revenues                           800,000           2,335,000 
                                               -----------         ----------- 
Gross profit                                       687,000           4,112,000 
General and administrative expenses                557,000             874,000 
                                               -----------         ----------- 
Income from operations                             130,000           3,238,000 
                                               -----------         ----------- 
Interest income, net                                                  (252,000)
Deferred income taxes                               26,000             698,000 
                                               -----------         ----------- 
                                                    26,000             446,000 
                                               -----------         ----------- 
Net income                                     $   104,000         $ 2,792,000 
                                               ===========         =========== 

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Increased real estate sales and related margins are a result of increasing      
demand of the Company's North Kohala property in a favorable economic time.     
Correspondingly, the increased real estate sales have contributed to the        
approximate 20% decrease in rental revenue. Specifically, the Company has been  
selling previously rented agricultural land without any development plan. The   
Company's management anticipates the real estate sales and rental revenue trends
will continue in 2001. The approximate 64% increase in cattle sales is          
attributable to a strong, but difficult to predict, beef market. Hence, future  
trends are uncertain, although the Company's plan to sell the real estate that  
is used for the cattle ranch will substantially decrease cattle sales. The      
approximate 60% increase in water and other revenues is attributable to the     
success of the Company's eco-tourism operations such as Kohala Ditch kayak rides
and Pololu Beach mule rides. The Company's management believes that these       
eco-tourism operations are consistent with the current tourism trend in Hawaii  
and will be instrumental in enhancing the image of the Company's real estate    
holdings.                                                                       

The approximate 57% increase in general and administrative expenses is          
attributable to increased Delaware franchise tax fees, higher allocation of     
administrative payroll previously capitalized in connection with the now        
abandoned non-Mahukona development projects and higher professional fees.       

While interest expense has remained relatively consistent, interest income has  
increased substantially as a result of the Company's high cash balance generated
from the March 2000 private placement (see Liquidity and Capital Resources).    
Deferred income taxes have increased proportionally to the Company's pretax     
income. There are no current taxes as a result of net operating loss            
carryforwards.                                                                  

LIQUIDITY AND CAPITAL RESOURCES                                                 

For the years ended December 31, 1998 and 1999 and the nine months ended        
September 30, 1999 and 2000(unaudited), the Company's net cash used in operating
activities of approximately $405,000, $362,000, $107,000 and $246,000,          
respectively, is comprised of the following:                                    

                                                        [Enlarge/Download Table]

                                                               NINE MONTHS    NINE MONTHS 
                                   YEAR ENDED    YEAR ENDED       ENDED          ENDED    
                                  DECEMBER 31,  DECEMBER 31,  SEPTEMBER 30,  SEPTEMBER 30,
                                      1998          1999          1999            2000    
                                                               (unaudited)    (unaudited) 
                                                                                          
Net income (loss)                 $(2,153,000)  $   636,000    $   104,000   $ 2,792,000  
Depreciation, amortization and                                                            
 other noncash charges                204,000       326,000         96,000        90,000  
Deferred income taxes (benefit)      (530,000)      210,000         26,000       698,000  
Loss (gain) on sales of property    2,056,000    (1,820,000)      (537,000)   (4,292,000) 
Changes in operating assets                                                               
 and liabilities                       18,000       286,000        204,000       466,000  
                                  -----------   -----------    -----------   -----------  
                                  $  (405,000)  $  (362,000)   $  (107,000)  $  (246,000) 
                                  ===========   ===========    ===========   ===========  

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For the years ended December 31, 1998 and 1999 and the nine months ended        
September 30, 1999 and 2000(unaudited), the Company's net cash provided by (used
in) investing activities of approximately $2,655,000, $2,192,000, $175,000 and  
($1,071,000), respectively, is comprised of the following:                      

                                                        [Enlarge/Download Table]

                                                                   NINE MONTHS    NINE MONTHS  
                                        YEAR ENDED    YEAR ENDED       ENDED          ENDED    
                                       DECEMBER 31,  DECEMBER 31,  SEPTEMBER 30,  SEPTEMBER 30,
                                           1998          1999          1999            2000    
                                                                    (Unaudited)    (Unaudited) 
                                                                                               
Capital expenditures including                                                                 
  real estate development              $  (643,000)  $(1,168,000)   $  (856,000)   $(1,774,000)
Proceeds from sales of property          3,096,000     3,051,000        725,000      3,497,000 
Proceeds from notes receivable             202,000       309,000        306,000        106,000 
Advances to Marine Forest Resort, Inc.                                              (2,900,000)
                                       -----------   -----------    -----------    ----------- 
                                       $ 2,655,000   $ 2,192,000    $   175,000    $(1,071,000)
                                       ===========   ===========    ===========    =========== 

For the years ended December 31, 1998 and 1999 and the nine months ended        
September 30, 1999 and 2000(unaudited), the Company's net cash provided by (used
in) financing activities (excluding the March 2000 private placement discussed  
below) of approximately ($958,000), ($1,763,000), ($1,566,000) and $317,000,    
respectively, is comprised of the following:                                    

                                                                [Download Table]

                                                    NINE MONTHS    NINE MONTHS 
                        YEAR ENDED    YEAR ENDED       ENDED          ENDED    
                       DECEMBER 31,  DECEMBER 31,  SEPTEMBER 30,  SEPTEMBER 30,
                           1998          1999          1999            2000    
                                                    (Unaudited)    (Unaudited) 
                                                                               
Debt proceeds          $        --   $   160,000   $    25,000     $   350,000 
Debt repayments           (173,000)     (347,000)       (7,000)       (207,000)
Capital contributions       83,000       113,000       105,000         174,000 
Capital withdrawals       (868,000)   (1,689,000)   (1,689,000)                
                       -----------   -----------   -----------     ----------- 
                       $  (958,000)  $(1,763,000)  $(1,566,000)    $   317,000 
                       ===========   ===========   ===========     =========== 

In March 2000, the Company raised approximately $7 million, net of offering     
costs, pursuant to a private placement of 146,000 shares of its common stock at 
$50 per share. The use of the proceeds would be generally allocated among the   
business objectives and marketing needs of the Company, including development of
the Company's properties, expansion of facilities and administrative costs.     

As of September 30, 2000, the Company has total current assets of approximately 
$18.7 million and total current liabilities of approximately $1.3 million or a  
working capital of approximately $17 million. Looking forward to 2001 and       
beyond, the Company anticipates revenue levels to be relatively consistent with 
levels experienced during 2000. However, given the Company's anticipated cash   
requirements to complete the Mahukona                                           

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Resort project and plans to pursue the Okinawa Marine Forest Resort project,    
future capital raising or debt financing activities will be required.           

The anticipated cash requirements to complete the Mahukona Resort project are as
follows (in millions):                                                          

                                                                [Download Table]
                                                            
Golf course                                          $  5.9 

Hotel                                                       
         Entry road                       $  1.2            
         Infrastructure                     22.0            
         Timeshare units                    17.7            
         Park improvements                   3.1       44.0 
                                          ------            
Sports facility                                         0.6 
1 Acre house lots                                      10.8 
Off-site infrastructure                                 9.4 
                                                     ------ 
                                                       70.7 

Less:    Costs capitalized through                          
         September 30, 2000                            (8.4)
                                                     ------ 
Anticipated cost to complete                         $ 62.3 

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD                                   

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
provides guidance on the recognition, presentation and disclosure of revenues in
financial statements and requires adoption no later than the fourth quarter of  
2000. The Company is currently evaluating the impact of SAB 101 and its related 
interpretations to determine the effect, if any, that it will have on the       
Company's consolidated financial position and results of operations.            

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ITEM 3.  PROPERTIES.                                                            

In addition to the office at 855 Fort Plains Road, Howell, New Jersey,          
the Company presently leases a small office at One World Trade Center, New York,
New York, on a month-to-month basis, for a monthly rate of $351.00.             

Chalon Hawaii, maintains offices at 55-155 Hawi Road, Hawi, Hawaii. The         
building, containing approximately 11,700 square feet, is owned by Chalon.      

Chalon Hawaii, as dicussed in Item 1, owns approximately 18,000 acres in the    
North Kahala District.                                                          

ITEM 4.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT         

The following table sets forth information regarding the beneficial ownership,  
as defined in applicable regulations, of our common stock as of December 31,    
1999, based on 2,100,000 shares of common stock outstanding including the       
2,000,000 issued in connection with the acquisition of Chalon Hawaii, by the    
following individuals or groups: each person or entity who is known by us to    
own beneficially more than 5% of our outstanding stock; each of the Named       
Executive Officers; each director of the Company; and, all directors and        
executive officers as a group. Except as otherwise indicated, and subject to    
applicable community property laws, the persons named in the table below have   
sole voting and investment power with respect to all shares of common stock     
held by them.                                                                   

                                                                [Download Table]

Name of                     No. of Shares                Percentage
Owner                      Beneficially Owned             of Class 
-----                      ------------------             -------- 

                                                                   
Yoshihiro Kamon (1)            90,000                        4.3   

Chalon Corp. (1)               2,000,000                     95.2  

Directors/Officers             90,000                        4.3   
7 as a group                                                       

(1) Yoshihiro Kamon also has a 12% ownership interest in Chalon Corp. and owns  
50% of Kamon Corp. which owns 66% of Chalon Corp.                               

ITEM 5.  DIRECTORS AND EXECUTIVE OFFICERS.                                      

The following table sets forth certain information with respect to executive    
officers and directors of the Company and its subsidiary as of December 31,     
2000.                                                                           

                                                                [Download Table]

NAME                AGE         POSITION HELD                        
----                ---         -------------                        
                                                                     
Yoshihiro Kamon     38          President and sole Director of Surety

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                                                                [Download Table]
                                                                        
Howard R. Knapp     54          Chief Financial Officer of Surety       

Masahiro Kume       40          Chairman of Chalon Hawaii               

Takeshi Okumura     66          President and Director of Chalon Hawaii 

Kengo Aso           54          Director of Chalon Hawaii               

Michael Gomes       52          First Vice President of Chalon Hawaii   

Duane Kanuha        52          Second Vice President of Chalon Hawaii  

Hermann Fernandez   37          Secretary and Treasurer of Chalon Hawaii

YOSHIHIRO KAMON. Mr. Kamon holds a B.A. degree in economics from Konan          
University. In addition to being the President and sole Director of the Company,
Mr. Kamon has served, from 1996 to 1999, as the Executive Senior Vice President 
of Chalon International Co. and Executive Director of Chalon Corporation, in    
which positions he was responsible for general business administration, finance 
planning, budgeting, negotiations with commercial banks and property management.
From 1988 to 1996, he was a director of Chalon Corporation and Special Assistant
to Shoichi Kamon, Chairman and President of Chalon Corporation. From 1988       
to1999, Mr. Kamon was the President of Chalon International of Hawaii, Inc.,    
responsible for management of Chalon Hawaii's property on the Island of Hawaii. 
He was also the Director of the Shanghai International Airport Hotel and        
restaurant and a Director of Chalon Hong Kong from 1986 to 1996.                

HOWARD R. KNAPP. Mr. Knapp has served as the Company's Chief Financial Officer  
since January, 2000. Prior thereto, Mr. Knapp worked in the securities industry 
for over 30 years in various corporations, including trader, bank manager and   
principal in various offices. Mr. Knapp received a B.S. degree in economics     
from St. Peter's College in 1974.                                               

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

TAKESHI OKUMURA. Mr. Okumura joined Chalon International of Hawaii, Inc. in     
1992, working on the planning and development of Chalon Hawaii's properties, and
became its President in December 1999. His prior business experience includes   
being a marketing manager for a cruise company and a branch manger of a         
commercial bank in California.                                                  

KENGO ASO. Mr. Aso joined Chalon Restaurant Corp. in 1970 after his graduation  
from school in Kumamoto, and has served in numerous management positions for    
that company's restaurants.                                                     

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Since 1989, Mr. Aso has been acting director, president and general manager of  
Shanghai International Airport Hotel, a joint venture project between Chalon    
Corp. and China Eastern Airline, and acting director of Shanghai International  
Airport Restaurant. In 1996, Mr. Aso was appointed a director of Chalon         
International Limited and in 1999 became a director of Chalon International of  
Hawaii, Inc.                                                                    

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

DUANE KANUHA. Mr. Kanuha was the former Planning Director of county of Hawaii   
and has extensive working experience in governmental entities in the State of   
Hawaii. He was appointed Second Vice President of Chalon Hawaii in December,    
1999.                                                                           

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

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ITEM 6.  EXECUTIVE COMPENSATION.                                                

SUMMARY COMPENSATION TABLE

The table below summarizes the compensation awarded to, earned by or paid to the
named executive officer for services rendered to the Company in all capacities  
for the years ended December 31, 1999 and 1998, and the nine months ended       
September 30, 2000, by each person serving as the Company's Executive Officers  
in the years ended December 31, 1999 and 1998 and the nine months ended         
September 30, 2000.                                                             

                                                                [Download Table]


                                                                  Long-Term 
                                                                Compensation
                                             Annual                Awards   
                                          Compensation           Securities 
                                     ----------------------      Underlying 
                                                                Options/SARs
Name                     Year        Salary($)      Bonus($)         (#)    
-------------------------------------------------------------------------   
                                                                            
Yoshihiro Kamon          2000           $0                                  
    "      "             1999           $0                                  
    "      "             1998           $0                                  

Masahiro Kume            2000        $118,200                               
    "      "             1999           $0                                  
    "      "             1998           $0                                  

Hermann Fernandez        2000        $ 62,904                               
    "      "             1999        $ 62,904                               
    "      "             1998        $ 62,904                               

Mike Gomes               2000        $ 72,960                               
 "     "                 1999        $ 72,960                               
 "     "                 1998        $ 72,960                               

Takeshi Okumura          2000        $118,200                               
    "       "            1999        $104,785                               
    "       "            1998        $104,784                               

Duane Kanuha             2000        $ 88,224                               
  "     "                1999        $ 88,224                               
  "     "                1998        $ 88,224                               

Kengo Aso                2000           $0                                  
 "     "                 1999           $0                                  
 "     "                 1998           $0                                  

Howard R. Knapp          2000           $0                                  
  "    "    "            1999           $0                                  
  "    "    "            1998           $0                                  

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

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NO OPTION GRANTS IN LAST FISCAL YEAR

No stock options were granted to the named executive officers in the Summary    
Compensation Table during Fiscal 1999 nor have any options ever been granted.   

The Company's directors currently serve without compensation.                   

ITEM 7.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                        

In September, 1999, the Company entered into an Agreement and Plan of Merger and
Reorganization, with Chalon International of Hawaii, Inc., a Hawaii corporation 
("Chalon Hawaii"), whereby Chalon Hawaii would be merged into a subsidiary of   
SURETY HOLDINGS CORP., and become a subsidiary of Surety. The Company issued two
million shares of its common stock, $.001 par value, to Chalon Corp., the       
shareholder of Chalon Hawaii, as and for the consideration for this acquisition.
The Articles of Merger were filed with the Secretary of State of Hawaii on      
December 29, 1999. Yoshihiro Kamon, President and Chairman of the Company, is a 
12% shareholder of Chalon Corp. and owns 50% of Kamon Corp. which owns 66% of   
Chalon Corp. Mr. Kamon was President of Chalon Hawaii from 1988 to 1999, and was
Executive Director and Vice President of Chalon Corp. from 1988 to 1999.        
Masahiro Kume, Chairman of Chalon Hawaii, is Mr. Kamon's brother-in law.        

ITEM 8.  DESCRIPTION OF REGISTRANT'S SECURITIES.                                

  Our Certificate of Incorporation authorizes 200,000,000 shares of $0.001
par value common stock. As of September 30, 2000, there were issued and         
outstanding 2,246,000 shares of common stock, including 2,000,000 shares issued 
in connection with the acquisition of Chalon and the shares issued in a private 
placement of our securities (discussed in Part II, Item 4).                     

   The 2,000,000 shares issued in connection with the acquisition of
Chalon Hawaii are subject to the agreement of Chalon Corp., the shareholder, not
to pledge, hypothecate, assign or sell the shares in the Company for a period of
5 years.                                                                        

     The holders of common stock are entitled to one vote for each share held of
record on all matters to be voted on by the shareholders. There is no cumulative
voting with respect to the election of directors, with the result that the      
holders of more than 50 percent of the shares have the ability to elect the     
directors. The holders of common stock are entitled to receive dividends when,  
as, and if declared by the Board of Directors out of funds legally available    
therefor. The Company has not, however, previously paid any cash dividends and  
does not anticipate paying any cash dividends in the foreseeable future. In the 
event of liquidation, dissolution or winding up of the Company, the holders of  
common stock are entitled to share ratably in all assets remaining available for
distribution to them after payment of liabilities and after provision has been  
made for each class of stock, if any, having preference over the common stock.  
Holders of shares of common stock, as such, have no conversion, preemptive or   
other subscription rights,                                                      

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and there are no redemption provisions applicable to the common stock. All of   
the outstanding shares of common stock are, when issued, fully paid and         
nonassessable.                                                                  

         The Company's Transfer Agent is Interwest Transfer Co., Inc., 1981 East
Murray Holiday Road, Salt Lake City, Utah 84117.                                

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 PART II

ITEM 1.   MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND   
RELATED STOCKHOLDER MATTERS.                                

Our common stock is listed in the Over-The-Counter Bulletin Board (OTC-BB) under
the Symbol "SHDC". Over-the-counter market quotations reflect inter-dealer      
prices, without retail mark-up, mark-down or commissions and may not represent  
actual transactions. To date there has been no trading.                         

The Company had approximately 38 shareholders of record as of December 31, 2000.

The Company has never declared or paid any dividends on its common stock and    
does not anticipate paying any dividends on its common stock in the foreseeable 
future.                                                                         

ITEM 2.  LEGAL PROCEEDINGS.                                                     

As discussed under Narrative Description Of Business, there is an appeal of the 
Mahukona Resort development approvals, being the matter of "Citizens for        
Protection of North Kohala Coastline v. County of Hawaii/Chalon International of
Hawaii, Inc., Civil No. 93-417, Supreme Court No. 20723". As to that matter,    
pursuant to the July 13, 1999 Opinion of the Supreme Court of the State of      
Hawaii, the March 17, 1997 Order of the Circuit Court of the Third Circuit, and 
Judgment entered thereon on April 28, 1997, was affirmed in part, vacated in    
part and remanded for proceedings consistent with the Court's Opinion. The net  
result for the development of the Mahukona Lodge Project will depend on the     
final project design.                                                           

 Chalon is also the plaintiff in two actions to Quiet Title, as follows:
Chalon/Nuhi, Complaint to Quiet Title, filed October 3, 2000, Civil No.         
00-1-0413; and Chalon/Uwaia, Complaint to Quiet Title filed October 23, 2000,   
Civil No. 00-1-0450. In each of these matters, Chalon is in the process of      
identifying and serving defendants.                                             

In addition, Chalon has received a demand made by Virginia Carabelli  
alleging that Chalon must remedy a wrongful representation or omission relating 
to an access easement in connection with the sale of real property by Chalon to 
Virginia Carabelli. It is anticipated that a Land Court Petition to Designate   
Easements will be filed shortly and the parties will execute a settlement       
agreement and mutual release.                                                   

ITEM 3.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND       
FINANCIAL DISCLOSURES.                                      

None                                                                

24  

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ITEM 4.   RECENT SALES OF UNREGISTERED SECURITIES                               

The issuance of shares by the Company in connection with the hereinafter        
described private placement acquisitions were each transactions exempt from     
registration pursuant to Regulation D of the Securities Act.                    

On March 5, 2000, the Company accepted subscriptions from 26 investors for the  
issuance of a total of 100,000 shares of the Company's common stock, at a       
purchase price of $50.00 per share. On March 29, 2000, the Company accepted     
subscriptions from an additional 5 investors for an additional 46,000 shares of 
common stock at $50.00 per share. The Company's private placement had authorized
a sale of up to a maximum of 400,000, but no additional shares were sold.       

Each purchaser of the securities described above has represented that he/she/it 
understands that the securities acquired may not be sold or otherwise           
transferred absent registration under the Securities Act or the availability of 
an exemption from the registration requirements of the Securities Act, and each 
certificate evidencing the securities owned by each purchaser bears or will bear
upon issuance a legend to that effect.                                          

ITEM 5.  INDEMNIFICATION OF OFFICERS AND DIRECTORS.                             

The By-Laws of the Company contain the following provision:           

        Article IX: Indemnification. Each person who at any time is or shall
        have been a director or officer of the Corporation and is threatened
    to be or is made a party to any threatened, pending or completed
          action, suit or proceeding, whether civil, criminal, administrative or
          investigative, by reason of the fact that the person is, or the person
   or the person's testator or intestate was, a director, officer,
         employee or agent of the Corporation, or served at the request of the
     Corporation as a director, officer, employee, trustee or agent of
    another corporation, partnership, joint, venture, trust or other
enterprise, shall be indemnified against expenses (including
     attorneys' fees), judgments, fines and amounts paid in settlement
          actually and reasonably incurred by such person in connection with any
       such threatened, pending or completed action, suit or proceeding to
the full extent authorized under Section 145 of the General 
   Corporation Law of the State of Delaware. Subject to applicable
          statutory limitations, in connection with the forgoing the Company may
         from time to time, in its sole discretion, advance such sums it deems
 appropriate for defense of any action. The foregoing right of
       indemnification shall in no way be exclusive of any other rights of
     indemnification to which such director or officer may be entitled
      under any by-law, agreement, vote of stockholders or disinterested
directors, or otherwise.                                    

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       To the extent that officers, directors, employees and agents of the
         Company may be indemnified against any cost, loss, or expense arising
          out of any liability under the '33 Act. Insofar as indemnification for
        liabilities arising under the '33 Act may be permitted to directors,
         officers and controlling persons of the Company, the Company has been
          advised that in the opinion of the Securities and Exchange Commission,
        such indemnification for violations of the '33 Act is against public
policy and is, therefore, unenforceable.                    

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SURETY HOLDINGS CORP. AND SUBSIDIARY

 CONSOLIDATED FINANCIAL STATEMENTS
 AND
INDEPENDENT AUDITORS' REPORT

 DECEMBER 31, 1999
 And
  SEPTEMBER 30, 2000
 (unaudited)

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SURETY HOLDINGS CORP. AND SUBSIDIARY

 CONSOLIDATED FINANCIAL STATEMENTS
 AND
INDEPENDENT AUDITORS' REPORT

 DECEMBER 31, 1999
 And
  SEPTEMBER 30, 2000
   (unaudited)

                                                                [Download Table]

                                                                      Page      
                                                                      ----      

                                                                                
Independent Auditors' Report                                          F-1       

Consolidated Balance Sheets as of December 31. 1999                   F-2       
amd September 30, 2000 (unaudited)                                              

Consolidated Statements of Operations                                 F-3       
for the years ended December 31, 1998 and                                       
December 31, 1999 and the nine months ended                                     
September 30, 1999 (unaudited) and                                              
September 30, 2000 (unaudited)                                                  

Consolidated Statements of Stockholders' Equity                       F-4       

Consolidated Statements of Cash Flows for                                       
the years ended December 31, 1998 and                                 F-5 - F-6 
December 31, 1999 and the nine months ended                                     
September 30, 1999 (unaudited) and                                              
September 30, 2000 (unaudited).                                                 

Notes to Consolidated Financial Statement                             F-7 - F-15

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INDEPENDENT AUDITORS' REPORT                                                    

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

We have audited the accompanying consolidated balance sheet of Surety Holdings  
Corp. and Subsidiary as of December 31, 1999, and the related consolidated      
statements of operations, stockholders' equity, and cash flows for the years    
ended December 31, 1999 and 1998. These consolidated financial statements are   
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.      

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

In our opinion, the consolidated financial statements referred to above present 
fairly, in all material respects, the consolidated financial position of Surety 
Holdings Corp. and Subsidiary as of December 31, 1999, and the consolidated     
results of their operations and their cash flows for the years ended December   
31, 1999 and 1998, in conformity with accounting principles generally accepted  
in the United States of America.                                                

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

Roseland, New Jersey                                                            
June 16, 2000, except for the last two paragraphs of                            
Note 11, which are as of January 11, 2001.                                  

                                                                         F-1

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        SURETY HOLDINGS CORP. AND SUBSIDIARY

         CONSOLIDATED BALANCE SHEETS

                                                                [Download Table]

                                                   December 31,   September 30, 
                                                       1999           2000      
                                                  -------------   ------------- 
                                                                   (UNAUDITED)  
                                                                                
                     ASSETS                                                     

CURRENT ASSETS                                                                  
 Cash                                             $   1,935,358   $   7,986,007 
 Real estate held for sale, current                   4,215,207       7,061,393 
 Note receivable, Marine Forest Resort, Inc.                                    
   (see Note 11)                                                      2,972,407 
 Other current assets                                   184,612         654,971 
                                                  -------------   ------------- 

     Total current assets                             6,335,177      18,674,778 

NOTES RECEIVABLE, less current maturities               585,188       2,159,321 

REAL ESTATE HELD FOR SALE                            39,907,725      35,819,115 

REAL ESTATE DEVELOPMENT COSTS                        31,105,176      32,268,054 

PROPERTY AND EQUIPMENT, net                           3,323,731       3,751,180 

DEFERRED TAX ASSET                                    2,804,000       2,106,000 
                                                  -------------   ------------- 

                                                  $  84,060,997   $  94,778,448 
                                                  =============   ============= 

            LIABILITIES AND STOCKHOLDERS' EQUITY                                

CURRENT LIABILITIES                                                             
 Mortgage note payable, current maturity          $       9,169   $       9,226 
 Note payable, president                                                150,000 
 Accounts payable                                       160,700         436,025 
 Accrued expenses and other current liabilities         442,626         726,053 
                                                  -------------   ------------- 
     Total current liabilities                          612,495       1,321,304 
                                                  -------------   ------------- 

LONG-TERM LIABILITIES,                                                          
 Mortgage note payable, less                                                    
  current maturity                                      425,943         418,946 
                                                  -------------   ------------- 
CONTINGENCIES                                                                   

STOCKHOLDERS' EQUITY                                                            
 Common stock, $.001 par value,                                                 
   200,000,000 shares authorized,                                               
   2,100,000 and 2,246,000 shares issued                                        
   and outstanding, respectively                          2,100           2,246 
 Additional paid-in capital                          94,370,572     101,594,346 
 Accumulated deficit                                (11,350,113)     (8,558,394)
                                                  -------------   ------------- 
     Total stockholders' equity                      83,022,559      93,038,198 
                                                  -------------   ------------- 

                                                  $  84,060,997   $  94,778,448 
                                                  =============   ============= 

See accompanying notes to consolidated financial statements.                 F-2

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SURETY HOLDINGS CORP. AND SUBSIDIARY

 CONSOLIDATED STATEMENTS OF OPERATIONS

                                                        [Enlarge/Download Table]

                                                              NINE MONTHS    NINE MONTHS 
                                  YEAR ENDED    YEAR ENDED       ENDED          ENDED    
                                 DECEMBER 31,  DECEMBER 31,  SEPTEMBER 30,  SEPTEMBER 30,
                                    1998          1999           1999           2000     
                                 -----------   -----------   ------------   ------------ 
                                                             (UNAUDITED)    (UNAUDITED)  
                                                                                         

REVENUES                                                                                 
 Real estate sales               $ 3,235,595   $ 3,482,820   $   828,000    $ 5,627,966  
 Rentals                             355,366       379,602       306,025        245,551  
 Cattle sales                        335,280       304,623       218,898        358,847  
 Water and other                     129,872       174,097       133,588        214,942  
                                 -----------   -----------   -----------    -----------  
   Total revenues                  4,056,113     4,341,142     1,486,511      6,447,306  
                                 -----------   -----------   -----------    -----------  

COST OF REVENUES                                                                         
 Cost of real estate sold          5,371,649     1,906,707       378,252      1,937,042  
 Cost of rentals                     152,989       149,588       120,780         68,118  
 Cost of cattle sales                269,458       203,617       155,218        129,073  
 Cost of water and other             215,569       205,733       145,588        200,901  
                                 -----------   -----------   -----------    -----------  
   Total cost of revenues          6,009,665     2,465,645       799,838      2,335,134  
                                 -----------   -----------   -----------    -----------  

GROSS MARGIN                      (1,953,552)    1,875,497       686,673      4,112,172  

GENERAL AND ADMINISTRATIVE                                                               
 EXPENSES                            728,417       818,796       557,031        873,945  
                                 -----------   -----------   -----------    -----------  

INCOME (LOSS) FROM OPERATIONS     (2,681,969)    1,056,701       129,642      3,238,227  
                                 -----------   -----------   -----------    -----------  

OTHER INCOME (EXPENSE)                                                                   
 Recapitalization charge                          (206,000)                              
 Interest income                      66,729        47,370        35,771        281,529  
 Interest expense                    (67,812)      (51,744)      (35,549)       (30,037) 
                                 -----------   -----------   -----------    -----------  
                                      (1,083)     (210,374)          222        251,492  
                                 -----------   -----------   -----------    -----------  

INCOME (LOSS) BEFORE DEFERRED                                                            
 INCOME TAXES (BENEFIT)           (2,683,052)      846,327       129,864      3,489,719  

DEFERRED INCOME TAXES (BENEFIT)     (530,000)      210,000        26,000        698,000  
                                 -----------   -----------   -----------    -----------  

NET INCOME (LOSS)                $(2,153,052)  $   636,327   $   103,864    $ 2,791,719  
                                 ===========   ===========   ===========    ===========  

NET INCOME (LOSS) PER COMMON                                                             
 SHARE, basic and diluted        $     (1.08)  $      0.32   $      0.05    $      1.26  
                                 ===========   ===========   ===========    ===========  

WEIGHTED AVERAGE COMMON SHARES                                                           
 OUTSTANDING                       2,000,000     2,001,000     2,000,000      2,221,667  
                                 ===========   ===========   ===========    ===========  

See accompanying notes to consolidated financial statements.                 F-3

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SURETY HOLDINGS CORP. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                                        [Enlarge/Download Table]

                                                 COMMON STOCK           ADDITIONAL                      TOTAL     
                                                 ------------              PAID-       ACCUMULATED   STOCKHOLDERS'
                                           SHARES           AMOUNT      IN CAPITAL       DEFICIT        EQUITY    
                                          ---------      ------------  ------------   ------------   ------------ 

                                                                                                                  
BALANCES, January 1, 1998                 2,000,000      $      2,000  $ 96,581,519   $ (9,833,388)  $ 86,750,131 

CAPITAL CONTRIBUTIONS                                                        82,700                        82,700 

CAPITAL WITHDRAWALS                                                        (867,625)                     (867,625)

NET LOSS                                                                                (2,153,052)    (2,153,052)
                                          ---------      ------------  ------------   ------------   ------------ 

BALANCES, December 31, 1998               2,000,000             2,000    95,796,594    (11,986,440)    83,812,154 

CAPITAL CONTRIBUTIONS                                                       112,967                       112,967 

CAPITAL WITHDRAWALS                                                      (1,688,889)                   (1,688,889)

RECAPITALIZATION TRANSACTION                100,000               100       149,900                       150,000 

NET INCOME                                                                                 636,327        636,327 
                                          ---------      ------------  ------------   ------------   ------------ 

BALANCES, December 31, 1999               2,100,000             2,100    94,370,572    (11,350,113)    83,022,559 

CAPITAL CONTRIBUTIONS (unaudited)                                           173,920                       173,920 

SALES OF COMMON STOCK, net                                                                                        
  of offering costs (unaudited)             146,000               146     7,049,854                     7,050,000 

NET INCOME (unaudited)                                                                   2,791,719      2,791,719 
                                          ---------      ------------  ------------   ------------   ------------ 

BALANCES, September 30, 2000 (unaudited)  2,246,000      $      2,246  $101,594,346   $ (8,558,394)  $ 93,038,198 
                                          =========      ============  ============   ============   ============ 

See accompanying notes to consolidated financial statements.                 F-4

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SURETY HOLDINGS CORP. AND SUBSIDIARY

 CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                        [Enlarge/Download Table]

                                                                        NINE MONTHS   NINE MONTHS  
                                          YEAR ENDED     YEAR ENDED        ENDED         ENDED     
                                         DECEMBER 31,   DECEMBER 31,   SEPTEMBER 30,  SEPTEMBER 30,
                                             1998           1999           1999           2000     
                                         -----------    -----------    ------------   ------------ 
                                                                        (UNAUDITED)    (UNAUDITED) 
                                                                                                   
CASH FLOWS FROM OPERATING ACTIVITIES                                                               
 Net income (loss)                       $ (2,153,052)   $   636,327    $   103,864   $  2,791,719 
 Adjustments to reconcile net income                                                               
 (loss) to net cash used in                                                                        
 operating activities:                                                                             
  Depreciation and amortization               204,301        119,835         95,919         89,511 
  Recapitalization charge                                    206,000                               
  Deferred income taxes (benefit)            (530,000)       210,000         26,000        698,000 
  Loss (gain) on sales of property          2,055,764     (1,820,058)      (537,499)    (4,291,841)
  Increase (decrease) in cash                                                                      
   attributable to changes in operating                                                            
   assets and liabilities:                                                                         
    Other current assets                      (49,149)         9,995        (15,863)       (91,966)
    Accounts payable                         (171,503)        71,763         48,316        275,325 
    Accrued expenses and other                                                                     
    current liabilities                       238,365        204,261        172,527        283,427 
                                         ------------   ------------    -----------   ------------ 
NET CASH USED IN                                                                                   
OPERATING ACTIVITIES                         (405,274)      (361,877)      (106,736)      (245,825)
                                         ------------   ------------    -----------   ------------ 

CASH FLOWS FROM INVESTING ACTIVITIES                                                               
 Purchases of property and equipment           (9,310)      (350,518)      (268,582)      (516,960)
 Proceeds from sales of property            3,095,595      3,050,820        725,000      3,496,591 
 Real estate development expenditures        (633,279)      (817,611)      (586,789)    (1,256,579)
 Proceeds from notes receivable               202,008        309,440        305,758        106,442 
 Advances to Marine Forest Resort, Inc.                                                 (2,900,000)
                                         ------------   ------------    -----------   ------------ 
NET CASH PROVIDED BY (USED IN)                                                                     
INVESTING ACTIVITIES                        2,655,014      2,192,131        175,387     (1,070,506)
                                         ------------   ------------    -----------   ------------ 

CASH FLOWS FROM FINANCING ACTIVITIES                                                               
 Principal payments on mortgage                                                                    
  notes payable and bank line of credit      (172,700)      (347,125)        (6,833)      (206,940)
 Proceeds from bank line of credit                           160,000         25,000        200,000 
 Capital contributions                         82,700        112,967        104,967        173,920 
 Capital withdrawals                         (867,625)    (1,688,889)    (1,688,889)               
 Proceeds from note payable, president                                                     150,000 
 Proceeds from sales of common                                                                     
  stock, net of offering costs                                                           7,050,000 
                                         ------------   ------------    -----------   ------------ 
NET CASH PROVIDED BY (USED IN)                                                                     
 FINANCING ACTIVITIES                        (957,625)    (1,763,047)    (1,565,755)     7,366,980 
                                         ------------   ------------    -----------   ------------ 

NET INCREASE (DECREASE) IN CASH             1,292,115         67,207     (1,497,104)     6,050,649 

CASH                                                                                               
 Beginning of period                          576,036      1,868,151      1,868,151      1,935,358 
                                         ------------   ------------    -----------   ------------ 

 End of period                           $  1,868,151   $  1,935,358    $   371,047   $  7,986,007 
                                         ============   ============    ===========   ============ 


See accompanying notes to consolidated financial statements.                 F-5

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SURETY HOLDINGS CORP. AND SUBSIDIARY

 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                                                        [Enlarge/Download Table]

                                                                     NINE MONTHS    NINE MONTHS 
                                         YEAR ENDED    YEAR ENDED       ENDED         ENDED     
                                        DECEMBER 31,  DECEMBER 31,  SEPTEMBER 30,  SEPTEMBER 30,
                                            1998         1999           1999          2000      
                                        -----------   -----------   ------------   ------------ 
                                                                     (UNAUDITED)     (UNAUDITED)
                                                                                                
SUPPLEMENTAL DISCLOSURE OF CASH FLOW                                                            
 INFORMATION, cash paid during the                                                              
 period for interest                    $   62,000    $   78,000     $   26,000     $   30,000  
                                        ==========    ==========     ==========     ==========  

SUPPLEMENTAL DISCLOSURES OF NONCASH                                                             
 INVESTING AND FINANCING ACTIVITIES:                                                            

 Liability assumed in recapitalization                                                          
 transaction                            $       --    $   56,000     $       --     $       --  
                                        ==========    ==========     ==========     ==========  

 Issuance of notes receivable upon                                                              
 sales of property                      $  140,000    $  432,000     $  103,000     $2,131,000  
                                        ==========    ==========     ==========     ==========  

See accompanying notes to consolidated financial statements.                 F-6

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SURETY HOLDINGS CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                       In December 1999, Surety issued 2,000,000
                        shares of its common stock in exchange for
                      100% of Chalon's outstanding shares in a
                        recapitalization transaction accounted for
                     as a reverse acquisition with a "shell"
                       company. Chalon was deemed the accounting
                      acquirer and Surety was deemed the legal
    acquirer (see Note 3).

                    Surety and Chalon's (collectively, the
                         "Company") primary focus is the development
                        of a hotel, 18-hole golf course and resort
                         homes on approximately 600 acres of land in
                        the North Kahola district of Hawaii Island
                   in the state of Hawaii (the "Mahukona
                 development project") (see Note 5).

2.  SUMMARY OF SIGNIFICANT                                                      
ACCOUNTING POLICIES       Principles of Consolidation                 

                          The consolidated financial statements of the
                        Company include the accounts of Chalon for
                         the years ended December 31, 1999 and 1998.
                        The consolidated financial statements also
                          include the accounts of Surety from December
                 29, 1999 (the effective date of the
                  recapitalization transaction/reverse
                    acquisition) to December 31, 1999. All
                       significant intercompany transactions and
              balances have been eliminated in
consolidation.    

Cash              

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

                                                                             F-7

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SURETY HOLDINGS CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.  SUMMARY OF SIGNIFICANT                                                      
ACCOUNTING POLICIES                                                   
(CONTINUED)               Property and Equipment                      

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

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

                       Real Estate Held for Sale and Development
Costs             

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

                         Development costs include substantially all
                       costs directly related to the planning of
                         improvements to be constructed on the land;
                    land acquisition costs, interest, real
                      estate taxes and other indirect charges.
                 Land and land development costs are
                          allocated to the project using relative fair
values.           

             Impairment of Long-lived Assets

                       The Company reviews its long-lived assets
                          for impairment whenever events or changes in
                      circumstances indicate that the carrying
                   amount of the assets may not be fully
                          recoverable. To determine the recoverability
                   of its long-lived assets, the Company
                   evaluates the probability that future
                      undiscounted net cash flows will be less
                      than the carrying amounts of the assets.
                   Impairment is the amount by which the
                          carrying value of the asset exceeds its fair
value.            

     Income per Common Share

                    The Company complies with Statement of
                         Financial Accounting Standards ("SFAS") No.
                      128, "Earnings Per Share" which requires
                    dual presentation of basic and diluted
                          earnings per share. Basic earnings per share
                  excludes dilution and is computed by
                 dividing income available to common
                         stockholders by the weighted-average common
                      shares outstanding for the year. Diluted
                       earnings per share reflects the potential
                        dilution that could occur if securities or
                        other contracts to issue common stock were
                         exercised or converted into common stock or
                      resulted in the issuance of common stock
                     that then shared in the earnings of the
                         entity. Since the Company has no securities
                       or other contracts to issue common stock,
                     basic and diluted net income (loss) per
                       common share for the years ended December
                       31, 1999 and 1998 and for the nine months
               ended September 30, 2000 and 1999
        (unaudited) were the same.

                                                                             F-8

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SURETY HOLDINGS CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.  SUMMARY OF SIGNIFICANT                                                      
ACCOUNTING POLICIES                                                   
(CONTINUED)               Income Taxes                                

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

 Revenue Recognition

                          Sales of real estate are accounted for under
                          the accrual method. Accordingly, gain is not
                        recognized until the collectability of the
                       sales price is reasonably assured and the
           earnings process is complete.

                  In December 1999, the Securities and
                         Exchange Commission issued Staff Accounting
                   Bulletin 101, "Revenue Recognition in
                        Financial Statements" ("SAB 101"). SAB 101
                   provides guidance on the recognition,
                        presentation and disclosure of revenues in
                        financial statements and requires adoption
                       no later than the fourth quarter of 2000.
                     The Company is currently evaluating the
               impact of SAB 101 and its related
                         interpretations to determine the effect, if
                     any, that it will have on the Company's
                         consolidated financial position and results
of operations.    

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 disclosure of contingent
                       assets and liabilities at the date of the
                   financial statements and the reported
                         amounts of revenues and expenses during the
                    reporting period. Actual results could
          differ from those estimates.

                                                                             F-9

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SURETY HOLDINGS CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.  RECAPITALIZATION           On October 15, 1998, the majority beneficial     
                  owner of Chalon ("Beneficial Owner")
                    acquired 90% of the outstanding common
                        shares of Surety Holdings Corp., a Florida
                          Corporation from an existing shareholder for
                          $150,000. After the June 1999 merger between
                          Surety Holdings Corp., a Florida corporation
                   and Surety (see Note 1) and effective
                       December 29, 1999, Surety entered into an
              Agreement and Plan of Merger and
                          Reorganization (the "Plan") with Chalon. The
                         Plan provided for Surety to issue 2,000,000
                        shares of its common stock in exchange for
                       2,000,000 shares, or 100%, of Chalon. The
                         transaction, which is a recapitalization of
                      the Company, has been accounted for as a
                       reverse acquisition of a "shell" company.

                          The costs related to the recapitalization of
                    $206,000, the excess of the Beneficial
                 Owner's purchase price plus the net
                     liability assumed, has been included in
                        other expenses for the year ended December
                       31, 1999. No goodwill has been recognized
                 since Surety was a "shell company".
                        Accordingly, the accompanying consolidated
                          statements of operations include the results
                       of operations of Surety from December 29,
                   1999, the effective date of the Plan,
        through December 31, 1999.

                          Additionally, the consolidated statements of
                          stockholders' equity have been retroactively
                      restated to reflect the number of shares
                       received by the stockholders of Chalon in
       the business combination.

4.  NOTES RECEIVABLE           At December 31, 1999 and September 30, 2000      
                (unaudited), the Company had notes
                  receivable aggregating approximately
                        $689,000 and $2,714,000, respectively. The
                          notes bear interest at rates ranging from 7%
                       to 10% per annum, mature on various dates
                         through 2011 and are collateralized by real
property.         

                        Approximate maturities of notes receivable
                     in each of the five years subsequent to
                September 30, 2000 are as follows:

      YEAR ENDING DECEMBER 31,

                                  2000                     $   555,000
                                  2001                         117,000
                                  2002                          26,000
                                  2003                          27,000
                                  2004                         338,000
                                Thereafter                   1,651,000
                                                           -----------
                                                           $ 2,714,000
                                                           ===========

                                                                            F-10

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SURETY HOLDINGS CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.  REAL ESTATE DEVELOPMENT    At December 31, 1999 and September 30, 2000      
COSTS                     (unaudited), real estate development costs  
                             attributed primarily to the Company's
                                   Mahukona development project consist of the
  following:

                                                                [Download Table]

                                   DECEMBER 31,  SEPTEMBER 30,
                                      1999           2000     
                                   -----------   ------------ 
                                                 (Unaudited)  

                                                              
Land and land acquisition costs    $23,938,570   $23,896,144  
Planning and studies                 1,563,150     1,546,340  
Engineering and architectural          580,647       576,483  
Infrastructure                       2,110,078     3,262,197  
Professional and consulting fees     1,687,732     1,679,856  
Other                                1,224,999     1,307,034  
                                   -----------   -----------  

                                   $31,105,176   $32,268,054  
                                   ===========   ===========  

                        Prior to the year ended December 31, 1998,
                      the Company wrote-off approximately $3.1
                      million of real estate development costs
                 associated with primarily all other
                non-Mahukona development projects.

                                                                          F-11

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SURETY HOLDINGS CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.  PROPERTY AND EQUIPMENT  At December 31, 1999 and September 30, 2000         
                   (unaudited), property and equipment consist
of the following:       

                                                                [Download Table]

                                  DECEMBER 31,   SEPTEMBER 30,
                                      1999          2000      
                                                  (Unaudited) 

                                                              
Land                               $2,346,169     $2,346,169  
Buildings and improvements          1,216,421      1,611,625  
Livestock                             759,226        759,226  
Orchard                               300,000        300,000  
Machinery, equipment and other        359,076        480,832  
                                   ----------     ----------  
                                    4,980,892      5,497,852  
Less accumulated depreciation                                 
   and amortization                 1,657,161      1,746,672  
                                   ----------     ----------  

                                   $3,323,731     $3,751,180  
                                   ==========     ==========  


7.  MORTGAGE NOTE PAYABLE   The mortgage note, which is collateralized          
CREDIT FACILITY       by certain property, is payable in monthly    
              installments of principal and interest
             through 2019. The mortgage note bears
                  interest based on the Federal Reserve rate
                   (7.625% and 9.125% at December 31, 1999 and
                   September 30, 2000, respectively), plus 3%,
             not to exceed 15%, adjusted annually.

             Approximate aggregate future required
                  principal payments on the mortgage note at
         September 30, 2000 is as follows:

YEAR ENDING DECEMBER 31,

                     2000                $   2,000
                     2001                    9,000
                     2002                   10,000
                     2003                   11,000
                     2004                   12,000
                  Thereafter               384,000
                                         ---------
                                         $ 428,000
                                         =========

                    In addition, the Company has a $250,000 bank
               line of credit, which bears interest at
                  11.5%, collateralized by certain assets of
             the Company. At December 31, 1999 and
                  September 30, 2000 (unaudited), there were
              no borrowings against the bank line of
credit.                 

                                                                            F-12

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SURETY HOLDINGS CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.  NON-CANCELABLE          The Company leases certain parcels of land          
OPERATING LEASES       to tenants, which are used primarily for       
                  agricultural purposes, under noncancelable
               operating leases expiring through 2028.
                  Rental income under these operating leases
           and month-to-month arrangements was
                   approximately $355,000 and $380,000 for the
               years ended December 31, 1998 and 1999,
                   respectively, and $306,000 and $245,000 for
                    the nine months ended September 30, 1999 and
                   2000 (unaudited), respectively. Approximate
                   minimum rentals under the operating leases,
                  excluding renewal options, are as follows:

YEAR ENDING DECEMBER 31,

                              2000                      $ 69,000
                              2001                        64,000
                              2002                        59,000
                              2003                        48,000
                              2004                        39,000
                           Thereafter                    448,000
                                                       ---------
                                                       $ 727,000
                                                       =========

9.  INCOME TAXES            At December 31, 1999, the Company's deferred tax    
                        asset is comprised of the tax benefit associated
                           with the following items based on the statutory tax
rates current in effect:

                                                                [Download Table]


                                   DECEMBER 31,   SEPTEMBER 30,
                                       1999           2000     
                                                   (Unaudited) 
                                                               
Net operating loss carryforwards    $3,884,000     $2,488,000  
Difference between financial                                   
and tax bases of assets              1,724,000      1,724,000  
                                    ----------     ----------  

Deferred income tax asset, gross     5,608,000      4,212,000  
Valuation allowance                  2,804,000      2,106,000  
                                    ----------     ----------  
                                    $2,804,000     $2,106,000  
                                    ==========     ==========  

                                                                            F-13

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SURETY HOLDINGS CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. INCOME TAXES (CONTINUED)    Deferred income taxes (benefit) for the          
                        years ended December 31, 1998 and 1999 and
                          the nine months ended September 30, 1999 and
                          2000 (unaudited) consisted of the following:

                                                                [Download Table]

                                           NINE             NINE     
           YEAR ENDED     YEAR ENDED    MONTHS ENDED    MONTHS ENDED 
          DECEMBER 31,   DECEMBER 31,   SEPTEMBER 30,   SEPTEMBER 30,
              1998           1999           1999            2000     
                                         (Unaudited)     (Unaudited) 
                                                                     
Federal    $(450,000)     $ 178,000       $  22,000       $ 592,000  
State        (80,000)        32,000           4,000         106,000  
           ---------      ---------       ---------       ---------  

           $(530,000)     $ 210,000       $  26,000       $ 698,000  
           =========      =========       =========       =========  

                        The following table reconciles the federal
                        statutory income tax rate to the Company's
                    effective tax rate for the years ended
                     December 31, 1998 and 1999 and the nine
                      months ended September 30, 1999 and 2000
(unaudited):      

                                                        [Enlarge/Download Table]

                                                           NINE             NINE     
                          YEAR ENDED     YEAR ENDED    MONTHS ENDED     MONTHS ENDED 
                         DECEMBER 31,   DECEMBER 31,   SEPTEMBER 30,    SEPTEMBER 30,
                            1998           1999           1999              2000     
                                                        (Unaudited)     (Unaudited)  

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

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

Effect of net                                                                        
 operating loss carry-                                                               
 forwards and valuation                                                              
 allowances, net              20             (20)           (20)            (20)     

Other                                          5                                     
                         ----------------------------------------------------------- 
                             (20)%            25%            20%             20%     
                         =========================================================== 

                                                                            F-14

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SURETY HOLDINGS CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. INCOME TAXES (CONTINUED)    Through December 31, 1998, the Company           
                       generated federal and state net operating
                          loss carryforwards ("NOL"s) of approximately
                       $10.9 million, available to offset future
                      taxable income. However, a change in the
                         ownership of the Company's common stock has
                   triggered an annual limitation on the
                        utilization of NOL's. At December 31, 1999
                     and September 30, 2000 (unaudited), the
                     Company had NOL's of approximately $9.7
                     million and $6.2 million, respectively,
                          available to offset future income subject to
                 tax. The NOL's expire through 2018.

10.CONTINGENCIES               As discussed in Note 1, the Company's            
                        primary focus is on the development of the
               Mahukona property. Approval of an
                      environmental assessment and a permit to
                      utilize state lands for a cart underpass
                      servicing the golf course, which must go
                  under a state highway, must still be
                       obtained. These requirements resulted, in
                      part, from an appeal filed by a citizens
                        group challenging the Company's approvals,
                       and it can be anticipated that this group
                      will appeal future approvals or permits.
                 There can be no assurance that such
                       litigation will be favorably resolved. An
                     adverse outcome of such litigation will
                        adversely impact the Company's development
plans.            

11.SUBSEQUENT EVENTS           In March 2000, the Company raised                
                       approximately $7 million, net of offering
                       costs, pursuant to a private placement of
                       146,000 shares of its common stock at $50
per share.        

                 During 2000 and 2001, the Company's
                     President advanced the Company $260,000
                    ($150,000 during the nine months ended
                       September 30, 2000-unaudited) pursuant to
            one year, 5% promissory notes.

                        Pursuant to promissory notes, during 2000,
                        the Company advanced Marine Forest Resort,
                Inc. ("Marine Forest"), a Japanese
                     corporation, $6.4 million ($2.9 million
                        during the nine months ended September 30,
                       2000-unaudited) to initiate the Company's
                      development endeavors in Okinawa, Japan.
                               The notes, which are due six months after date of
                          issuance and bear interest at the U.S. prime
                        rate (9.5% at September 30, 2000) plus one
                 percent, may be converted to equity
                         interests in Marine Forest in 2001. Related
                       interest income for the nine months ended
                             September 30, 2000 (unaudited) is approximately
$72,000.          

                                                                            F-15

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PART III

EXHIBITS:                                                                       

2.01     Certificate of Incorporation                                           

2.02     Certificate of Merger, with Agreement of Merger annexed                

2.03     By-Laws, with adopting resolution                                      

2.04     Amendment to By-Laws                                                   

5.01     Lock Up Agreement by Chalon Corp.                                      

8.01     Agreement and Plan of Merger and Reorganization by and between Surety  
      Holdings Corp., Chalon Acquisition Corp. and Chalon International of
Hawaii, Inc.                                                  

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of    
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.                       

Registrant:                               SURETY HOLDINGS CORP.                 

Date: February 9, 2001                By:  /S/ Howard R. Knapp                  
                                  ----------------------------
                             Howard R. Knapp
                                     Chief Financial Officer

29

Dates Referenced Herein   and   Documents Incorporated By Reference

				Referenced-On Page
This 10SB12G Filing		Date		First		Last			Other Filings
		6/24/93		7
		11/17/93		7
		3/17/97		24
		4/28/97		24
		10/15/98		38
		12/31/98		13		43
		7/13/99		24
		9/30/99		14		42
		12/29/99		13		38
		12/31/99		13		43
		3/5/00		25
		3/29/00		25
		6/16/00		29
		9/30/00		14		43
		10/3/00		24
		10/23/00		24
		12/31/00		18		41
		1/11/01		29
Filed On / Filed As Of		2/9/01		45
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