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

FORM 10-Q

(Mark One)

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[X]   |  | Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 
|      |  |                                                                                         
|      |  | For the quarterly period ended June 30, 2002 or                                         
|      |  |                                                                                         
|[   ] |  | Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
|      |  |                                                                                         
|      |  | For the transition period from _________ to ____________                                

Commission file number 0-10120

FAFCO, Inc.
(Exact name of Registrant as specified in its charter)

|                                                                          |  |                                                
|------------------------------------------------------------------------- |  | -----------------------------------------------
|California
(State or other jurisdiction of incorporation or organization) |  | 94-2159547
(I.R.S. Employer Identification No.)

435 Otterson Drive, Chico, California 95928
(Address, including zip code, of Registrants principal executive offices)

(530) 332-2100
(Companys telephone number, including area code)

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

Yes [X]       No [   ]

At August 10, 2002, 3,855,591 shares of the Companys Common Stock, $.125 par
value were issued and outstanding.



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TABLE OF CONTENTS



|                               |                                                                                              |                                                    |  |  |  |  |  | 
|------------------------------ | -------------------------------------------------------------------------------------------- | -------------------------------------------------- |  |  |  |  |  | 
|Part 1  FINANCIAL INFORMATION
|                               | Item 1  Financial Statements                                                               
|                               |                                                                                              | CONSOLIDATED BALANCE SHEET                        
|                               |                                                                                              | CONSOLIDATED STATEMENT OF OPERATIONS              
|                               |                                                                                              | CONSOLIDATED STATEMENTS OF CASH FLOWS             
|                               |                                                                                              | NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|                               | Item 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|Part II  OTHER INFORMATION   
|                               | Item 4  Submission of Matters to a Vote of Security Holders                                
|                               | Item 6  Exhibits and Reports on Form 8-K                                                   
|SIGNATURE                     
|EXHIBIT INDEX                 
|EXHIBIT 99.1                  



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##### Table of Contents






Part 1  FINANCIAL INFORMATION




Item 1  Financial Statements




FAFCO, Inc.
CONSOLIDATED BALANCE SHEET

|                                                                                                   |                                                                                                                                           |   |             |            |              |   |            |            |  
|-------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | ---------- | ------------ | - | ---------- | ---------- | -
|                                                                                                   |                                                                                                                                           |   | June 30,    |            | December 31,
|                                                                                                   |                                                                                                                                           |   | 2002        |            | 2001        
|                                                                                                   |                                                                                                                                           |   |             |            |             
|                                                                                                   |                                                                                                                                           |   | (unaudited) |            |              |   |           
|Assets                                                                                             |                                                                                                                                           |   |             |            |              |   |            |           
|Current assets:                                                                                    |                                                                                                                                           |   |             |            |              |   |            |           
|Cash and cash equivalents                                                                          |                                                                                                                                           | $ | 15,200      |            |              | $ | 121,200    |           
|Accounts receivable, less allowance for doubtful accounts of
$460,600 in 2002 and $479,600 in 2001 |                                                                                                                                           |   | 2,774,900   |            |              |   | 1,620,500  |           
|Inventories                                                                                        |                                                                                                                                           |   | 1,439,600   |            |              |   | 1,171,800  |           
|Prepaid expenses and other current assets                                                          |                                                                                                                                           |   | 271,300     |            |              |   | 174,200    |           
|Other accounts receivable, net of allowance                                                        |                                                                                                                                           |   | 14,800      |            |              |   | 35,500     |           
|Deferred tax asset, net of allowance                                                               |                                                                                                                                           |   | 249,600     |            |              |   | 249,600    |           
|                                                                                                   |                                                                                                                                           |   |             |            |              |   |            |           
|Total current assets                                                                               |                                                                                                                                           |   | 4,765,400   |            |              |   | 3,372,800  |           
|                                                                                                   |                                                                                                                                           |   |             |            |              |   |            |           
|Property, plant and equipment, at cost                                                             |                                                                                                                                           |   | 8,415,300   |            |              |   | 8,190,400  |           
|Less accumulated depreciation and amortization                                                     |                                                                                                                                           |   | (2,353,200  | )          |              |   | (2,079,500 | )         
|                                                                                                   |                                                                                                                                           |   |             |            |              |   |            |           
|Net fixed assets                                                                                   |                                                                                                                                           |   | 6,062,100   |            |              |   | 6,110,900  |           
|                                                                                                   |                                                                                                                                           |   |             |            |              |   |            |           
|Other assets (net)                                                                                 |                                                                                                                                           |   | 31,200      |            |              |   | 7,200      |           
|Deferred tax asset, net of allowance                                                               |                                                                                                                                           |   | 312,500     |            |              |   | 565,200    |           
|                                                                                                   |                                                                                                                                           |   |             |            |              |   |            |           
|Total assets                                                                                       |                                                                                                                                           | $ | 11,171,200  |            |              | $ | 10,056,100 |           
|                                                                                                   |                                                                                                                                           |   |             |            |              |   |            |           
|Liabilities and shareholders equity                                                               |                                                                                                                                           |   |             |            |              |   |            |           
|Current Liabilities:                                                                               |                                                                                                                                           |   |             |            |              |   |            |           
|                                                                                                   | Bank line of credit                                                                                                                       |   | $           | 392,600    |              |   | $          | 768,700    |  
|                                                                                                   | Notes payable to bank                                                                                                                     |   |             | 277,000    |              |   |            | 282,600    |  
|                                                                                                   | Accounts payable and other accrued expenses                                                                                               |   |             | 1,859,900  |              |   |            | 1,357,700  |  
|                                                                                                   | Accrued compensation and benefits                                                                                                         |   |             | 445,700    |              |   |            | 355,200    |  
|                                                                                                   | Accrued warranty expense                                                                                                                  |   |             | 262,500    |              |   |            | 252,000    |  
|                                                                                                   | Other current liabilities                                                                                                                 |   |             |            |              |   |            | 3,100      |  
|                                                                                                   |                                                                                                                                           |   |             |            |              |   |            |           
|Total current liabilities                                                                          |                                                                                                                                           |   | 3,237,700   |            |              |   | 3,019,300  |           
|                                                                                                   |                                                                                                                                           |   |             |            |              |   |            |           
|Mortgage                                                                                           |                                                                                                                                           |   | 3,325,400   |            |              |   | 3,340,000  |           
|Notes payable to bank                                                                              |                                                                                                                                           |   | 317,700     |            |              |   | 432,200    |           
|Subordinated debt                                                                                  |                                                                                                                                           |   | 500,000     |            |              |   |            |           
|Other non-current liabilities                                                                      |                                                                                                                                           |   | 38,800      |            |              |   | 35,400     |           
|                                                                                                   |                                                                                                                                           |   |             |            |              |   |            |           
|Total liabilities                                                                                  |                                                                                                                                           | $ | 7,419,600   |            |              | $ | 6,826,900  |           
|                                                                                                   |                                                                                                                                           |   |             |            |              |   |            |           
|Commitments and contingent liabilities                                                             |                                                                                                                                           |   |             |            |              |   |            |           
|Shareholders equity:                                                                              |                                                                                                                                           |   |             |            |              |   |            |           
|                                                                                                   | Preferred Stock-authorized 1,000,000 shares of $1.00 par
value, none of which has been issued                                             |   |             |            |              |   |            |            |  
|                                                                                                   | Common Stock-authorized 10,000,000 shares of $0.125 par
value; 3,855,591 issued and outstanding as of June 30,
2002 and December 31, 2001 |   | $           | 481,900    |              |   | $          | 481,900    |  
|                                                                                                   | Capital in excess of par value                                                                                                            |   |             | 5,137,300  |              |   |            | 5,108,500  |  
|                                                                                                   | Notes receivable secured by common stock                                                                                                  |   |             | (75,100    | )            |   |            | (75,100    | )
|                                                                                                   | Accumulated deficit                                                                                                                       |   |             | (1,792,500 | )            |   |            | (2,286,100 | )
|                                                                                                   |                                                                                                                                           |   |             |            |              |   |            |           
|Total shareholders equity                                                                         |                                                                                                                                           | $ | 3,751,600   |            |              | $ | 3,229,200  |           
|                                                                                                   |                                                                                                                                           |   |             |            |              |   |            |           
|Total liabilities and shareholders equity                                                         |                                                                                                                                           | $ | 11,171,200  |            |              | $ | 10,056,100 |           
|                                                                                                   |                                                                                                                                           |   |             |            |              |   |            |           

The accompanying notes are an integral part of this statement.

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##### Table of Contents



Part I  FINANCIAL INFORMATION
 Item 1 (continued)




FAFCO, Inc.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)

|                                   |                          |   |               |           |                  |   |           |           |      |   |           |           |  |   |           |           | 
|---------------------------------- | ------------------------ | - | ------------- | --------- | ---------------- | - | --------- | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|                                   |                          |   | Quarter Ended |           | Six Months Ended
|                                   |                          |   | June 30       |           | June 30         
|                                   |                          |   |               |           |                 
|                                   |                          |   | 2002          |           | 2001             |   | 2002      |           | 2001
|                                   |                          |   |               |           |                  |   |           |           |     
|Net sales                          |                          | $ | 4,520,200     |           |                  | $ | 4,026,200 |           |      | $ | 8,272,800 |           |  | $ | 6,888,800 |          
|Other income (net)                 |                          |   | (6,800        | )         |                  |   | 36,000    |           |      |   | (23,900   | )         |  |   | (2,200    | )        
|                                   |                          |   |               |           |                  |   |           |           |      |   |           |           |  |   |           |          
|                                   | Total revenues           |   |               | 4,513,400 |                  |   |           | 4,062,200 |      |   |           | 8,248,900 |  |   |           | 6,886,600 | 
|                                   |                          |   |               |           |                  |   |           |           |      |   |           |           |  |   |           |          
|Cost of goods sold                 |                          |   | 2,515,900     |           |                  |   | 2,247,600 |           |      |   | 4,753,800 |           |  |   | 3,911,400 |          
|Marketing and selling expense      |                          |   | 670,900       |           |                  |   | 654,900   |           |      |   | 1,373,300 |           |  |   | 1,239,700 |          
|General and administrative expense |                          |   | 517,600       |           |                  |   | 480,300   |           |      |   | 925,600   |           |  |   | 886,800   |          
|Research and development expense   |                          |   | 95,100        |           |                  |   | 29,300    |           |      |   | 164,300   |           |  |   | 83,800    |          
|Net interest expense               |                          |   | 118,100       |           |                  |   | 140,900   |           |      |   | 233,300   |           |  |   | 226,500   |          
|                                   |                          |   |               |           |                  |   |           |           |      |   |           |           |  |   |           |          
|                                   | Total costs and expenses |   |               | 3,917,600 |                  |   |           | 3,553,000 |      |   |           | 7,450,300 |  |   |           | 6,348,200 | 
|                                   |                          |   |               |           |                  |   |           |           |      |   |           |           |  |   |           |          
|Income before income taxes         |                          |   | 595,800       |           |                  |   | 509,200   |           |      |   | 798,600   |           |  |   | 538,400   |          
|Provision for income taxes         |                          |   | 251,700       |           |                  |   | 133,800   |           |      |   | 305,000   |           |  |   | 141,500   |          
|                                   |                          |   |               |           |                  |   |           |           |      |   |           |           |  |   |           |          
|Net income                         |                          | $ | 344,100       |           |                  | $ | 375,400   |           |      | $ | 493,600   |           |  | $ | 396,900   |          
|                                   |                          |   |               |           |                  |   |           |           |      |   |           |           |  |   |           |          
|Basic net income per share         |                          | $ | 0.09          |           |                  | $ | 0.10      |           |      | $ | 0.13      |           |  | $ | 0.10      |          
|Diluted net income per share       |                          | $ | 0.08          |           |                  | $ | 0.10      |           |      | $ | 0.12      |           |  | $ | 0.10      |          
|                                   |                          |   |               |           |                  |   |           |           |      |   |           |           |  |   |           |          
|Average shares outstanding         |                          |   | 3,855,591     |           |                  |   | 3,854,791 |           |      |   | 3,855,591 |           |  |   | 3,854,791 |          

The accompanying notes are an integral part of this statement.

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Part I  FINANCIAL INFORMATION (continued)




FAFCO, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

|                                                                                |                                                |                                                                                                                                                                         |          |                  |   |      |          |            |   | 
|------------------------------------------------------------------------------- | ---------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------- | ---------------- | - | ---- | -------- | ---------- | - | 
|                                                                                |                                                |                                                                                                                                                                         |          | Six Months Ended
|                                                                                |                                                |                                                                                                                                                                         |          | June 30,        
|                                                                                |                                                |                                                                                                                                                                         |          |                 
|                                                                                |                                                |                                                                                                                                                                         |          | 2002             |   | 2001
|                                                                                |                                                |                                                                                                                                                                         |          |                  |   |     
|Cash flow from operating activities:                                            |                                                |                                                                                                                                                                         |          |                  |   |      |          |           
|Net income                                                                      |                                                | $                                                                                                                                                                       | 493,600  |                  |   | $    | 396,900  |           
|Adjustments to reconcile net income to net
cash (used in) operating activities: |                                                |                                                                                                                                                                         |          |                  |   |      |          |           
|                                                                                | Depreciation and amortization                  |                                                                                                                                                                         |          | 278,600          |   |      |          | 138,100    |  
|                                                                                | Write offs and allowance for doubtful
accounts |                                                                                                                                                                         |          | 60,500           |   |      |          | 32,500     |  
|Change in assets and liabilities:                                               |                                                |                                                                                                                                                                         |          |                  |   |      |          |           
|                                                                                | Accounts receivable                            |                                                                                                                                                                         |          | (1,194,200       | ) |      |          | (483,200   | )
|                                                                                | Inventories                                    |                                                                                                                                                                         |          | (267,800         | ) |      |          | 221,000    |  
|                                                                                | Prepaid expenses and other assets              |                                                                                                                                                                         |          | (97,200          | ) |      |          | (46,800    | )
|                                                                                | Deferred tax assets                            |                                                                                                                                                                         |          | 252,700          |   |      |          |            |  
|                                                                                | Payables, accrued expenses and other           |                                                                                                                                                                         |          | 600,100          |   |      |          | 364,900    |  
|                                                                                | Other non-current liabilities                  |                                                                                                                                                                         |          | 3,400            |   |      |          | 10,200     |  
|                                                                                |                                                |                                                                                                                                                                         |          |                  |   |      |          |           
|Net cash provided by operation activities                                       |                                                |                                                                                                                                                                         | 129,700  |                  |   |      | 633,600  |           
|                                                                                |                                                |                                                                                                                                                                         |          |                  |   |      |          |           
|Cash flow from investing activities:                                            |                                                |                                                                                                                                                                         |          |                  |   |      |          |           
|                                                                                | Purchase of fixed assets                       |                                                                                                                                                                         |          | (224,900         | ) |      |          | (802,400   | )
|                                                                                |                                                |                                                                                                                                                                         |          |                  |   |      |          |           
|Net cash used in investing activities                                           |                                                |                                                                                                                                                                         | (224,900 | )                |   |      | (802,400 | )         
|                                                                                |                                                |                                                                                                                                                                         |          |                  |   |      |          |           
|Cash flow from financing activities:                                            |                                                |                                                                                                                                                                         |          |                  |   |      |          |           
|                                                                                | Proceeds from exercise of stock options        |                                                                                                                                                                         |          |                  |   |      |          | 5,000      |  
|                                                                                | Proceeds of subordinated debt issuance         |                                                                                                                                                                         |          | 500,000          |   |      |          |            |  
|                                                                                | Proceeds from bank line of credit              |                                                                                                                                                                         |          | 1,913,900        |   |      |          | 1,206,600  |  
|                                                                                | Repayment of bank line of credit               |                                                                                                                                                                         |          | (2,290,000       | ) |      |          | (1,464,500 | )
|                                                                                | Proceeds from notes payable to bank            |                                                                                                                                                                         |          |                  |   |      |          | 499,500    |  
|                                                                                | Repayment of notes payable to bank             |                                                                                                                                                                         |          | (120,100         | ) |      |          | (74,700    | )
|                                                                                | Repayment of mortgage                          |                                                                                                                                                                         |          | (14,600          | ) |      |          | (6,800     | )
|                                                                                |                                                |                                                                                                                                                                         |          |                  |   |      |          |           
|Net cash provided by financing activities                                       |                                                |                                                                                                                                                                         | (10,800  | )                |   |      | 165,100  |           
|                                                                                |                                                |                                                                                                                                                                         |          |                  |   |      |          |           
|Net decrease in cash and cash equivalents                                       |                                                |                                                                                                                                                                         | (106,000 | )                |   |      | (3,700   | )         
|Cash and cash equivalents, beginning of period                                  |                                                |                                                                                                                                                                         | 121,200  |                  |   |      | 10,100   |           
|                                                                                |                                                |                                                                                                                                                                         |          |                  |   |      |          |           
|Cash and cash equivalents, end of period                                        |                                                | $                                                                                                                                                                       | 15,200   |                  |   | $    | 6,400    |           
|                                                                                |                                                |                                                                                                                                                                         |          |                  |   |      |          |           
|Supplemental disclosures of cash flow information:                              |                                                |                                                                                                                                                                         |          |                  |   |      |          |           
|                                                                                | Cash paid during the period for interest       |                                                                                                                                                                         | $        | 223,000          |   |      | $        | 224,800    |  
|Non-Cash Financing Activity                                                     |                                                |                                                                                                                                                                         |          |                  |   |      |          |           
|                                                                                |                                                | In January 2002, the company recorded $28,800, the deemed fair value of
the warrants to purchase common shares with the issuance of the subordinated notes.
See Note 4. |          |                  |   |      |          |            |   | 

The accompanying notes are an integral part of this statement.

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Part I  FINANCIAL INFORMATION (continued)




FAFCO, Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. The accompanying financial statements of FAFCO, Inc. (the Company) have
been prepared in accordance with accounting principals generally accepted in
the United States for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements.
However, in the opinion of the Companys management, all adjustments necessary
for a fair statement of results for the periods presented have been included.
The results for the period ended June 30, 2002, are not necessarily indicative
of results to be expected for the entire year. These financial statements,
notes, and analyses should be read in conjunction with the Companys audited
annual financial statements for the year ended December 31, 2001, included in
its 2001 Annual Report to Shareholders.

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. This
standard establishes a new model for accounting for derivatives and hedging
activities. There is no derivative and hedging activity within the Company.

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS no.
141, Accounting for Business Combinations. This statement requires the
purchase method of accounting to be used for all business combinations
initiated after June 30, 2001, and establishes specific criteria for the
recognition of intangible assets separately from goodwill.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. Under SFAS No. 142, goodwill and intangible assets with indefinite
life are not amortized. Instead of amortizing goodwill and intangible assets
deemed to have an indefinite life, the statement requires a test for impairment
to be performed annually, or immediately if conditions indicate that such
impairment could exist. The amortization period of intangible assets with
finite lives will no longer be limited to forty years. This statement is
effective for fiscal years beginning after December 15, 2001, and permits early
adoption for fiscal years beginning after March 15, 2001.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long Lived Assets which addresses financial accounting and
reporting for the impairment and disposal of long-lived assets with adoption
required no later than fiscal year 2003.

The Company does not believe that any of these recent accounting pronouncements
will have a material impact on their financial position or results of
operations.

2. Net income per share is calculated using the weighted average number of
common and common equivalent shares outstanding during the periods presented.
(See Note 5)

3. Inventories are valued at the lower of cost, determined on a first in, first
out (FIFO) basis, or market, and consist of the following.

|                |  |               |           |                   |  |   |           | 
|--------------- |  | ------------- | --------- | ----------------- |  | - | --------- | 
|                |  | June 30, 2002 |           | December 31, 2001
|                |  |               |           |                  
|Raw materials   |  | $             | 869,600   |                   |  | $ | 515,700   | 
|Work in process |  |               | 289,400   |                   |  |   | 230,200   | 
|Finished goods  |  |               | 280,600   |                   |  |   | 425,900   | 
|                |  |               |           |                   |  |   |           | 
|                |  | $             | 1,439,600 |                   |  | $ | 1,171,800 | 
|                |  |               |           |                   |  |   |           | 

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Part I  FINANCIAL INFORMATION  Item 1 (continued)

4. The Company has a line of credit agreement with Butte Community Bank, which
allows the Company to borrow the lesser of $1,000,000 or an amount determined
by a formula applied to accounts receivable. At April 11, 2002, at the
Companys request, this line of credit was increased to $1,500,000 to cover
seasonal borrowing needs. Unused borrowing capacity was $1,107,400 at June 30,
2002. Amounts borrowed bear interest at prime rate plus 1.5% (6.25% at June
30, 2002) per annum and are secured by substantially all the assets of the
Company. This line of credit has been renewed with a maximum borrowable amount
of $1,000,000 and expires on August 10, 2003. At June 30, 2002 , the Company
had complied with the loan covenants.

In addition to the line of credit, the Company has a 36-month term loan
facility in the amount of $445,000 bearing interest at prime plus 1.5% (6.25%
at June 30, 2002). At June 30, 2002, the Company had an outstanding balance of
$144,900 on this loan facility. The Company also has a 60-month term loan
facility in the amount of $500,000 bearing interest at prime plus 1.5% (6.25%
at June 30, 2002). At June 30, 2002, the Company had an outstanding balance of
$410,300 on this loan facility.

The Company also has a $3,400,000 mortgage loan with a maturity date of June
10, 2030. Principal and interest at 9.05% are amortized over a 29 1/2 year
term from January 10, 2001. The interest rate is fixed for five-year
increments. The interest rate will be changed on June 10th of each fifth year
to the current prime rate plus .05%. The balance on this mortgage at June 30,
2002 was $3,364,900. The loan is secured by the Companys office and
manufacturing facilities.

In January 2002, the Company issued $500,000 in principal amount of
subordinated notes, accompanied by warrants to purchase up to 200,000 shares of
the common stock of the company. The warrants have an exercise price of $0.125
per share. The Company recorded $28,800 as a discount and additional paid in
capital for the deemed fair value of the warrants. The discount is being
amortized over the term of the notes. The three-year notes bear interest,
payable quarterly, at an initial annual rate of 10%, increasing to 12% for all
periods after the first anniversary of the date of the notes. The notes are
subordinated to bank
borrowings and other secured indebtedness for money borrowed. The Company may
at its option call the notes for redemption at any time with ten (10) days
notice. Holders of the notes are entitled to certain rights with respect to
registration of the common stock issuable upon exercise of the warrants. The
Chairman and Chief Executive Officer of the Company and his spouse purchased
notes with a principal amount of $150,000 in this offering, and received
warrants to purchase 30,000 shares of common stock.

5. Net Income Per Share

Basic earnings per share were calculated as follows:

|                                  |  |               |           |                  |  |      |           |      |  |   |           |  |  |   |           | 
|--------------------------------- |  | ------------- | --------- | ---------------- |  | ---- | --------- | ---- |  | - | --------- |  |  | - | --------- | 
|                                  |  | Quarter Ended |           | Six Months Ended
|                                  |  | June 30       |           | June 30         
|                                  |  |               |           |                 
|                                  |  | 2002          |           | 2001             |  | 2002 |           | 2001
|                                  |  |               |           |                  |  |      |           |     
|Net income                        |  | $             | 344,100   |                  |  | $    | 396,900   |      |  | $ | 493,600   |  |  | $ | 375,400   | 
|Average common shares outstanding |  |               | 3,855,591 |                  |  |      | 3,854,791 |      |  |   | 3,855,591 |  |  |   | 3,854,791 | 
|                                  |  |               |           |                  |  |      |           |      |  |   |           |  |  |   |           | 
|Earnings per share                |  | $             | 0.09      |                  |  | $    | 0.10      |      |  | $ | 0.13      |  |  | $ | 0.10      | 
|                                  |  |               |           |                  |  |      |           |      |  |   |           |  |  |   |           | 

Basic earnings per share are calculated by dividing net income by the weighted
average number of shares issued and outstanding.

6



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##### Table of Contents



Part I  FINANCIAL INFORMATION  Item 1 (continued)

Diluted earnings per share were calculated as follows:

|                                                                                                     |  |               |           |                  |  |      |           |      |  |   |           |  |  |   |           | 
|---------------------------------------------------------------------------------------------------- |  | ------------- | --------- | ---------------- |  | ---- | --------- | ---- |  | - | --------- |  |  | - | --------- | 
|                                                                                                     |  | Quarter Ended |           | Six Months Ended
|                                                                                                     |  | June 30       |           | June 30         
|                                                                                                     |  |               |           |                 
|                                                                                                     |  | 2002          |           | 2001             |  | 2002 |           | 2001
|                                                                                                     |  |               |           |                  |  |      |           |     
|Adjusted net income                                                                                  |  | $             | 344,100   |                  |  | $    | 375,400   |      |  | $ | 493,600   |  |  | $ | 396,900   | 
|Average common shares outstanding                                                                    |  |               | 3,855,591 |                  |  |      | 3,854,791 |      |  |   | 3,855,591 |  |  |   | 3,854,791 | 
|Add: Exercise of options reduced by the number
of shares purchasable with proceeds                   |  |               | 132,633   |                  |  |      | 81,183    |      |  |   | 140,435   |  |  |   | 131,438   | 
|Add: Exercise of warrants reduced by the
number of shares purchasable with proceeds                  |  |               | 61,875    |                  |  |      | 6,187     |      |  |   | 69,154    |  |  |   | 45,375    | 
|Add: Exercise of warrants attached to debt
reduced by the number of shares purchasable
with proceeds |  |               | 66,667    |                  |  |      |           |      |  |   | 70,588    |  |  |   |           | 
|                                                                                                     |  |               |           |                  |  |      |           |      |  |   |           |  |  |   |           | 
|Adjusted weighted average shares outstanding                                                         |  |               | 4,116,766 |                  |  |      | 3,942,161 |      |  |   | 4,135,769 |  |  |   | 4,031,604 | 
|                                                                                                     |  |               |           |                  |  |      |           |      |  |   |           |  |  |   |           | 
|Earnings per common share assuming full dilution                                                     |  | $             | 0.08      |                  |  | $    | 0.10      |      |  | $ | 0.12      |  |  | $ | 0.10      | 
|                                                                                                     |  |               |           |                  |  |      |           |      |  |   |           |  |  |   |           | 

At June 30, 2002, options and warrants for the purchase of 155,500 shares of
common stock at prices ranging from $0.50 to $0.56 were antidilutive and
therefore not included in the computation of diluted earnings per share. At
June 30, 2001, options and warrants for the purchase of 236,000 shares of
common stock at prices ranging from $0.125 to $0.625 were antidilutive and
therefore not included in the computations of diluted earnings per share.

6. Business Segment and Concentration of Credit Risk

Business Segment. The Company operates in one business segment, the
development, production and marketing of polymer heat exchangers for the solar
and thermal energy storage markets worldwide.

|             |                         |   |               |           |                  |   |           |           |      |   |           |           |  |   |           |           | 
|------------ | ----------------------- | - | ------------- | --------- | ---------------- | - | --------- | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|             |                         |   | Quarter Ended |           | Six Months Ended
|             |                         |   | June 30       |           | June 30         
|             |                         |   |               |           |                 
|             |                         |   | 2002          |           | 2001             |   | 2002      |           | 2001
|             |                         |   |               |           |                  |   |           |           |     
|Product Line |                         |   |               |           |                  |   |           |           |      |   |           |           |  |   |           |          
|Net Sales    |                         |   |               |           |                  |   |           |           |      |   |           |           |  |   |           |          
|             | Pool Products           |   | $             | 3,237,500 |                  |   | $         | 3,423,400 |      |   | $         | 6,133,100 |  |   | $         | 5,672,100 | 
|             | Thermal Energy Products |   |               | 1,282,700 |                  |   |           | 602,800   |      |   |           | 2,139,700 |  |   |           | 1,216,700 | 
|             |                         |   |               |           |                  |   |           |           |      |   |           |           |  |   |           |          
|             |                         | $ | 4,520,200     |           |                  | $ | 4,026,200 |           |      | $ | 8,272,800 |           |  | $ | 6,888,800 |          
|             |                         |   |               |           |                  |   |           |           |      |   |           |           |  |   |           |          

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Part I  FINANCIAL INFORMATION  Item 1 (continued)

Geographic information for revenues and long-lived assets are as follows:

|          |          |       |           |               |         |                  |           |           |         |      |           |           |           |   |           |           |         | 
|--------- | -------- | ----- | --------- | ------------- | ------- | ---------------- | --------- | --------- | ------- | ---- | --------- | --------- | --------- | - | --------- | --------- | ------- | 
|          |          |       |           | Quarter Ended |         | Six Months Ended
|          |          |       |           | June 30       |         | June 30         
|          |          |       |           |               |         |                 
|          |          |       |           | 2002          |         | 2001             |           | 2002      |         | 2001
|          |          |       |           |               |         |                  |           |           |         |     
|Net Sales |          |       |           |               |         |                  |           |           |         |      |           |           |           |   |           |          
|          | Domestic |       | $         | 3,518,400     |         |                  | $         | 3,491,300 |         |      | $         | 6,745,300 |           |   | $         | 5,833,300 |        
|          | Foreign  |       |           |               |         |                  |           |           |         |      |           |           |           |   |           |           |        
|          |          | Japan |           |               | 703,900 |                  |           |           | 281,700 |      |           |           | 1,013,100 |   |           |           | 378,400 | 
|          |          | Other |           |               | 297,900 |                  |           |           | 253,200 |      |           |           | 514,400   |   |           |           | 677,100 | 
|          |          |       |           |               |         |                  |           |           |         |      |           |           |           |   |           |          
|          |          | $     | 4,520,200 |               |         | $                | 4,026,200 |           |         | $    | 8,272,800 |           |           | $ | 6,888,800 |          
|          |          |       |           |               |         |                  |           |           |         |      |           |           |           |   |           |          

|                  |          |  |               |           |                   |  |   |           | 
|----------------- | -------- |  | ------------- | --------- | ----------------- |  | - | --------- | 
|                  |          |  | June 30, 2002 |           | December 31, 2001
|                  |          |  |               |           |                  
|Long-lived assets |          |  |               |           |                   |  |   |          
|                  | Domestic |  | $             | 6,062,100 |                   |  | $ | 6,110,900 | 
|                  | Foreign  |  |               |           |                   |  |   |           | 

For the six months ended June 30, 2002, the Company had one major customer who
individually accounted for 10% or more of sales totaling $1,013,100. For the
quarter ended June 30, 2002, the Company had one major customer who
individually accounted for 10% or more of sales totaling $703,900. For the six
months ended June 30, 2001, the Company had no single customer who accounted
for 10% or more of the sales. For the quarter ended June 30, 2001, the Company
had on major customer who individually accounted for 10% or more of sales
totaling $321,200.

Concentration of Credit Risk: Most of the Companys business activity is with
customers located in California, Florida and foreign countries. As of June 30,
2002, unsecured trade accounts receivable from customers in California,
Florida, and foreign countries were $801,400; $1,033,700; and $503,800
respectively.

7. Property, Plant, and Equipment

Property, plant and equipment consist of the following:

|                                               |  |               |            |                   |  |   |            |  
|---------------------------------------------- |  | ------------- | ---------- | ----------------- |  | - | ---------- | -
|                                               |  | June 31, 2002 |            | December 31, 2001
|                                               |  |               |            |                  
|Building                                       |  | $             | 3,679,100  |                   |  | $ | 3,679,100  |  
|Land                                           |  |               | 550,400    |                   |  |   | 550,400    |  
|Machinery and equipment                        |  |               | 2,789,800  |                   |  |   | 2,590,900  |  
|Office and computer
equipment                  |  |               | 474,900    |                   |  |   | 474,900    |  
|Leasehold improvements                         |  |               | 585,200    |                   |  |   | 585,200    |  
|Vehicles                                       |  |               | 335,900    |                   |  |   | 309,900    |  
|                                               |  |               |            |                   |  |   |            |  
|                                               |  | $             | 8,415,300  |                   |  | $ | 8,190,400  |  
|Less accumulated depreciation
and amortization |  |               | (2,353,200 | )                 |  |   | (2,079,500 | )
|                                               |  |               |            |                   |  |   |            |  
|                                               |  | $             | 6,062,100  |                   |  | $ | 6,110,900  |  
|                                               |  |               |            |                   |  |   |            |  

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##### Table of Contents



Part I  FINANCIAL INFORMATION (continued)




Item 2

FAFCO, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)

This Managements Discussion and Analysis of Financial Condition and Results of
Operations contains 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. The forward-looking statements involve risks and uncertainties,
including, among other things, the uncertainties associated with forecasting
future revenues, costs and expenses. Our actual results may differ materially
from the results discussed in the forward-looking statements. You are
cautioned not to place undue reliance on the forward-looking statements, which
speak only as of the date of this report. Factors that might cause such a
difference include, but are not limited to, those discussed below and under
Factors Affecting Future Results. We assume no obligation to update such
forward-looking statements or to update the reasons why actual results could
differ materially from those anticipated in such forward-looking statements.

You should read the following discussion in conjunction with the interim
condensed consolidated financial statements and notes included elsewhere in
this report and in other reports and documents filed from time to time with the
Securities and Exchange Commission.

Results of Operations

Net sales for the quarter ended June 30 increased by 12.3% to $4,520,200 in
2002 from $4,026,200 in 2001 and increased by 20.1% to $8,272,800 in the first
half of 2002 from $6,888,800 in the corresponding period in 2001. This
increase was due to increased unit sales of the Companys pool products and of
the Companys domestic IceStor products.

Cost of goods sold increased to $2,515,900 (55.7% of net sales) in the quarter
ended June 30, 2002 from $2,247,600 (55.8% of net sales) in the corresponding
period in 2001. For the first half of 2002 cost of goods sold increased to
$4,753,800 (57.5% of net sales) from $3,911,400 (56.8% of net sales) in 2001.
These increases in absolute dollars were due to increased sales while the
increases as a percentage of sales were due primarily to higher sales of the
Companys lower margin products.

Marketing and selling expenses remained relatively stable for the second
quarter at $670,900 (14.8% of net sales) in 2002 compared with $654,900 (16.3%
of net sales) in 2001. Marketing and selling expenses increased in absolute
dollars to $1,373,300 (16.6% of net sales) for the first six months of 2002
compared with $1,239,700 (18.0% of net sales) for the corresponding period in
2001 due to costs associated with higher sales, such as commissions, freight,
and advertising along with increased costs related to operating the Companys
retail office in Tampa, Florida. The decreases as a percent of sales were due
to the higher sales volume in 2002 compared with 2001.

General and administrative expenses remained relatively stable at $517,600
(11.5% of net sales) for the second quarter of 2002 compared with $480,300
(11.9% of net sales) in the second quarter of 2001, and at $925,600 (11.2% of
net sales) for the first six months of 2002 compared with $886,200 (12.9% of
net sales) for the corresponding period in 2001. The decreases as a percent of
net sales were due to the higher sales volumes in 2002 compared with 2001.

Research and development expenses increased to $95,100 (2.1% of net sales) in
the second quarter of 2002 from $29,300 (0.7% of net sales) in the second
quarter of 2001, and to $164,300 (2.0% of net sales) for the first six months
of 2002 compared with $83,800 (1.2% of net sales) for the corresponding period
in 2001.

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##### Table of Contents



Part I  FINANCIAL INFORMATION  Item 2 (continued)

These increases were due to the fact that the majority of engineering projects
for 2002 are expensed projects whereas engineering costs in 2001 related mainly
to capital equipment projects.

Net interest expense decreased to $118,100 (2.6% of net sales) in the second
quarter of 2002 from $140,900 (3.5% of net sales) in the second quarter of 2001
and increased slightly to $233,300 (2.8% of net sales) for the first six months
of 2002 compared with $226,500 (3.3% of net sales) for the corresponding period
in 2001.

Liquidity and Capital Resources

The Companys cash position decreased from $121,200 at 2001 fiscal year end to
$15,200 at June 30, 2002 principally due to investing activities (purchase of
fixed assets) offset in part by cash flow from operations.

At June 30, 2002, the Companys net accounts receivable had increased to
$2,774,900 from $1,620,500 at December 31, 2001 due to a general increase in
sales for the year.

At June 30, 2002, the Companys net inventories had increased to $1,439,600
from $1,171,800 at December 31, 2001. This increase in inventory (to
accommodate orders for 3rd quarter shipments of the Companys IceStor products)
was offset in part by a decrease resulting from increased sales.

At June 30, 2002, the Companys accounts payable and other accrued expenses had
increased to $1,859,900 from $1,357,700 at December 21, 2001. This increase is
primarily due to increased purchases to support the increase in sales.

At June 30, 2002, the Companys accrued compensation and benefits increased to
$445,700 from $355,200 at December 31, 2001 due to a build-up in the vacation
accrual account along with an accrual for profit sharing that was paid out in
July.

The Companys current ratio was 1.47:1.00 compared to 1.12:1.00 at December 31,
2001. The Company had working capital of $1,527,700 at June 30, 2002 compared
with $353,500 at December 31, 2001. Total assets exceeded total liabilities by
$3,751,600 at June 30, 2002 compared with $3,229,200 at December 31, 2001.

At June 30, 2002, total bank debt (line of credit plus term loan plus mortgage)
had decreased to $4,312,700 from $4,823,500 at December 31, 2001.

The Company believes that its cash flow from operations, together with bank
borrowing and issuance of $500,000 in convertible subordinated notes as
discussed in Note 4, will be sufficient to support operations during the next
twelve months. The foregoing statement of how long the Companys capital
resources are expected to last is a forward-looking statement involving risks
and uncertainties, including the amount of the Companys sales and ability of
the Company to control its operating expenses. If sales decline from current
levels additional debt or equity financing may be required. There can be no
assurance that financing, if required, would be available on favorable terms or
at all or that such financing would not significantly dilute the ownership
interests and rights of existing shareholders. The company has a line of
credit, of which $392,600 had been utilized and $1,107,400 remained available
at June 30, 2002. This line of credit has been renewed with a maximum
borrowable amount of $1,000,000 and expires on August 10, 2003.

In addition to the line of credit, the Company has a 36-month term loan
facility in the amount of $445,000, bearing interest at prime plus 1.5%. At
June 30, 2002, the Company had an outstanding balance of $144,900 on this loan
facility.

The company also has a 60-month term loan facility available in the amount of
$500,000 bearing interest at prime plus 1.5%. At June 30, 2002, the Company
had outstanding balance of $401,300 on this loan facility.

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##### Table of Contents



The company has outstanding promissory notes with an aggregate principle amount
of $500,000 (the Notes). The principle amount of the Notes is due and
payable in January 2005. Interest is payable quarterly at a rate of 10% per
annum, increasing to 12% annum starting January 2003.

Factors Affecting Future Results

U.S. Economic Conditions:A protracted U.S. recession would adversely impact
new housing and commercial construction in our largest market, which in turn
would cause us to miss our revenue growth goals.

Asian Economic Conditions:Sales in these Asian countries account for
virtually all our international sales, and contribute a significant portion of
our overall revenues. In the event that these economics experience declining
growth or accelerated contraction in 2002, our sales in this region will be
adversely impacted.

Growth of U.S. Thermal Energy Storage (TES) Market:Our ability to increase
sales of our thermal energy storage products is dependent on growth in the
overall market because opportunities for market share growth are limited. An
extended recession in the general economy, a general decline in construction of
commercial properties or a decline in energy prices would all adversely affect
demand for thermal energy storage systems.

Growth of California TES Market:California is our single largest domestic
market and the single largest potential source of increased revenues in 2002.
A substantial abatement of the energy crisis in California or a further
worsening of economic conditions in California would adversely impact projected
demand for our products.

Destabilizing Incidents:Additional destabilizing events such as terrorist
attacks or overseas conflicts, if they occur, could disrupt our supply chain,
increase our materials cots, reduce demand for our products, and otherwise
negatively impact our operating results.

Materials Prices:Raw materials including resins account for a major portion
of our cost of sales. Any increase in these prices because of supply shortages
or otherwise would reduce our operating margins and adversely impact our
profitability.

Export salesare subject to certain controls and restrictions, including
tariffs and import duties and are subject to certain risks, including changing
regulatory requirements of foreign jurisdictions and transportation delays and
interruptions. However, the Company has not experienced any material
difficulties in the past relating to such limitations.

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Part II  OTHER INFORMATION




Item 4  Submission of Matters to a Vote of Security Holders



| | a. |  | The Annual Meeting of Shareholders was convened on June 7,
2002. Certain business was conducted at that time, including the
voting on items (1), (2), and (3) set forth under subsection (c)
below.
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | The following directors were elected at the meeting:                                                                                                                                               



| | Freeman A. Ford
William A. Berry
Robert W. Selig, Jr.
David F. Ford
William F. Chisholm
| | ---------------------------------------------------------------------------------------



| | c. |  | The matters voted upon at the meeting results of the vote
with respect to those matters were as follows:
| | -- |  | --------------------------------------------------------------------------------------------------------

|    |  |                       |  |           |  |          |  |        
|--- |  | --------------------- |  | --------- |  | -------- |  | -------
|    |  |                       |  | For       |  | Withheld |  | Result 
|    |  |                       |  |           |  |          |  |        
|(1) |  | Election of Directors |  |           |  |          |  |        
|    |  | Freeman A. Ford       |  | 2,739,741 |  | 1,300    |  | Elected
|    |  | William A. Berry      |  | 2,738,766 |  | 2,275    |  | Elected
|    |  | Robert W. Selig, JR   |  | 2,738,666 |  | 2,375    |  | Elected
|    |  | David F. Ford         |  | 2,645,695 |  | 95,346   |  | Elected
|    |  | William F. Chisholm   |  | 2,645,795 |  | 95,246   |  | Elected

|    |  |                                                                                                      |  |     |           |         |  |         |        |           |  |  |     |  |  |  |         | 
|--- |  | ---------------------------------------------------------------------------------------------------- |  | --- | --------- | ------- |  | ------- | ------ | --------- |  |  | --- |  |  |  | ------- | 
|    |  |                                                                                                      |  | For |           | Against |  | Abstain |        | Not Voted
|    |  |                                                                                                      |  |     |           |         |  |         |        |          
|(2) |  | Adoption of the 2002 Stock Option Plan.                                                              |  |     | 2,441,435 |         |  |         | 19,420 |           |  |  | 200 |  |  |  | 279,986 | 
|   
|    |  |                                                                                                      |  | For |           | Against |  | Abstain
|    |  |                                                                                                      |  |     |           |         |  |        
|(3) |  | Ratification of Burr, Pilfer & Mayer as the Companys
independent auditors for the fiscal year 2002. |  |     | 2,739,616 |         |  |         | 1,200  |           |  |  | 225 | 

The foregoing matters are described in detail in the Registrants definitive
proxy statement dated April 29, 2002 for the Annual Meeting of Shareholders
held on June 7, 2002.




Item 6  Exhibits and Reports on Form 8-K



|a. |  | The following exhibits are filed as part, to the extent indicated herein, in
the Form 10-Q:
|-- |  | -------------------------------------------------------------------------------------------

|        |  |                                                                     
|------- |  | --------------------------------------------------------------------
|Exhibit |  | Description                                                         
|        |  |                                                                     
|99.1    |  | Certification of chief executive officer and chief financial officer



|b. |  | Reports on Form 8-K                                                      
|-- |  | -------------------------------------------------------------------------
|  
|   |  | No reports on Form 8-K were filed during the quarter ended June 30, 2002.

12



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##### Table of Contents






SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



| | FAFCO, Inc. (Registrant)
| | ------------------------

|                      |                                                                                        |                   
|--------------------- | -------------------------------------------------------------------------------------- | ------------------
|DATE: August 13, 2002 | BY:                                                                                    | /s/Nancy I. Garvin
|                      |                                                                                       
|                      | Nancy I. Garvin,
Vice President  Finance
(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

|        |  |                                                                     
|------- |  | --------------------------------------------------------------------
|Exhibit |  | Description                                                         
|        |  |                                                                     
|99.1    |  | Certification of chief executive officer and chief financial officer