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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 March 31, 2002 or

o    
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                                                     |  | 94-2159547                          
|(State or other jurisdiction of incorporation or organization) |  | (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 o

At March 31, 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                                   
|Part II  OTHER INFORMATION   
|                               | Item 5  Other Information               
|                               | Item 6  Exhibits and Reports on Form 8-K
|SIGNATURE                     



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##### Table of Contents






Part 1  FINANCIAL INFORMATION




Item 1  Financial Statements




FAFCO, Inc.
CONSOLIDATED BALANCE SHEET

|                                                                                                                       |                                                                                                                                          |   |                |            |                   |   |            |            |  
|---------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | - | -------------- | ---------- | ----------------- | - | ---------- | ---------- | -
|                                                                                                                       |                                                                                                                                          |   | March 31, 2002 |            | December 31, 2001
|                                                                                                                       |                                                                                                                                          |   |                |            |                  
|                                                                                                                       |                                                                                                                                          |   | (unaudited)    |            |                  
|Assets                                                                                                                 |                                                                                                                                          |   |                |            |                   |   |            |           
|Current
          assets:                                                                                              |                                                                                                                                          |   |                |            |                   |   |            |           
|Cash and
          cash equivalents                                                                                    |                                                                                                                                          | $ | 21,300         |            |                   | $ | 121,200    |           
|Accounts
          receivable, less allowance for doubtful accounts of $503,600 in 2002
          and $479,600 in 2001 |                                                                                                                                          |   | 2,545,700      |            |                   |   | 1,620,500  |           
|Inventories                                                                                                            |                                                                                                                                          |   | 1,169,100      |            |                   |   | 1,171,800  |           
|Prepaid
          expenses and other current assets                                                                    |                                                                                                                                          |   | 257,600        |            |                   |   | 174,200    |           
|Other
          accounts receivable, net of allowance                                                                  |                                                                                                                                          |   | 91,500         |            |                   |   | 35,500     |           
|Deferred
          tax asset, net of allowance                                                                         |                                                                                                                                          |   | 249,600        |            |                   |   | 249,600    |           
|                                                                                                                       |                                                                                                                                          |   |                |            |                   |   |            |           
|Total
          current assets                                                                                         |                                                                                                                                          |   | 4,334,800      |            |                   |   | 3,372,800  |           
|                                                                                                                       |                                                                                                                                          |   |                |            |                   |   |            |           
|Property,
          plant and equipment, at cost                                                                       |                                                                                                                                          |   | 8,379,700      |            |                   |   | 8,190,400  |           
|Less accumulated
          depreciation and amortization                                                               |                                                                                                                                          |   | (2,209,500     | )          |                   |   | (2,079,500 | )         
|                                                                                                                       |                                                                                                                                          |   |                |            |                   |   |            |           
|Net fixed
          assets                                                                                             |                                                                                                                                          |   | 6,170,200      |            |                   |   | 6,110,900  |           
|                                                                                                                       |                                                                                                                                          |   |                |            |                   |   |            |           
|Other
          assets (net)                                                                                           |                                                                                                                                          |   | 36,000         |            |                   |   | 7,200      |           
|Deferred
          tax asset, net of allowance                                                                         |                                                                                                                                          |   | 565,200        |            |                   |   | 565,200    |           
|                                                                                                                       |                                                                                                                                          |   |                |            |                   |   |            |           
|Total
          assets                                                                                                 |                                                                                                                                          | $ | 11,106,200     |            |                   | $ | 10,056,100 |           
|                                                                                                                       |                                                                                                                                          |   |                |            |                   |   |            |           
|Liabilities
          and shareholders equity                                                                         |                                                                                                                                          |   |                |            |                   |   |            |           
|Current
          Liabilities:                                                                                         |                                                                                                                                          |   |                |            |                   |   |            |           
|                                                                                                                       | Bank line
          of credit                                                                                                            |   | $              | 648,100    |                   |   | $          | 768,700    |  
|                                                                                                                       | Notes
          payable to bank                                                                                                          |   |                | 291,300    |                   |   |            | 282,600    |  
|                                                                                                                       | Accounts
          payable and other accrued expenses                                                                                    |   |                | 1,938,900  |                   |   |            | 1,357,700  |  
|                                                                                                                       | Accrued
          compensation and benefits                                                                                              |   |                | 293,200    |                   |   |            | 355,200    |  
|                                                                                                                       | Accrued
          warranty expense                                                                                                       |   |                | 268,000    |                   |   |            | 252,000    |  
|                                                                                                                       | Income
          tax payable                                                                                                             |   |                | 19,900     |                   |   |            |            |  
|                                                                                                                       | Other
          current liabilities                                                                                                      |   |                |            |                   |   |            | 3,100      |  
|                                                                                                                       |                                                                                                                                          |   |                |            |                   |   |            |           
|Total
          current liabilities                                                                                    |                                                                                                                                          |   | 3,459,400      |            |                   |   | 3,019,300  |           
|                                                                                                                       |                                                                                                                                          |   |                |            |                   |   |            |           
|Mortgage                                                                                                               |                                                                                                                                          |   | 3,332,000      |            |                   |   | 3,340,000  |           
|Notes
          payable to bank                                                                                        |                                                                                                                                          |   | 363,700        |            |                   |   | 432,200    |           
|Subordinated
          debt                                                                                            |                                                                                                                                          |   | 500,000        |            |                   |   |            |           
|Other
          non-current liabilities                                                                                |                                                                                                                                          |   | 43,600         |            |                   |   | 35,400     |           
|                                                                                                                       |                                                                                                                                          |   |                |            |                   |   |            |           
|Total
          liabilities                                                                                            |                                                                                                                                          | $ | 7,698,700      |            |                   | $ | 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 in 2002 and in 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                                                                                                            |   |                | (2,136,600 | )                 |   |            | (2,286,100 | )
|                                                                                                                       |                                                                                                                                          |   |                |            |                   |   |            |           
|Total
          shareholders equity                                                                                   |                                                                                                                                          | $ | 3,407,500      |            |                   | $ | 3,229,200  |           
|                                                                                                                       |                                                                                                                                          |   |                |            |                   |   |            |           
|Total
          liabilities and shareholders equity                                                                   |                                                                                                                                          | $ | 11,106,200     |            |                   | $ | 10,056,100 |           
|                                                                                                                       |                                                                                                                                          |   |                |            |                   |   |            |           

The accompanying notes are an integral part of this statement.

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Part I  FINANCIAL INFORMATION (continued)




FAFCO, Inc.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)

|                                    |                          |   |                    |           |      |   |           |           | 
|----------------------------------- | ------------------------ | - | ------------------ | --------- | ---- | - | --------- | --------- | 
|                                    |                          |   | Three Months Ended
|                                    |                          |   | March 31,         
|                                    |                          |   |                   
|                                    |                          |   | 2002               |           | 2001
|                                    |                          |   |                    |           |     
|Net sales                           |                          | $ | 3,752,600          |           |      | $ | 2,862,600 |          
|Other income (net)                  |                          |   | (17,100            | )         |      |   | (38,200   | )        
|                                    |                          |   |                    |           |      |   |           |          
|                                    | Total revenues           |   |                    | 3,735,500 |      |   |           | 2,824,400 | 
|                                    |                          |   |                    |           |      |   |           |          
|Cost of goods sold                  |                          |   | 2,237,900          |           |      |   | 1,663,800 |          
|Marketing & selling expense         |                          |   | 702,400            |           |      |   | 584,700   |          
|General & administrative expense    |                          |   | 408,000            |           |      |   | 406,600   |          
|Research & development expense      |                          |   | 69,200             |           |      |   | 54,500    |          
|Net interest expense                |                          |   | 115,200            |           |      |   | 85,600    |          
|                                    |                          |   |                    |           |      |   |           |          
|                                    | Total costs and expenses |   |                    | 3,532,700 |      |   |           | 2,795,200 | 
|                                    |                          |   |                    |           |      |   |           |          
|Income before income taxes          |                          |   | 202,800            |           |      |   | 29,200    |          
|Provision for income taxes          |                          |   | 53,300             |           |      |   | 7,700     |          
|                                    |                          |   |                    |           |      |   |           |          
|Net income                          |                          | $ | 149,500            |           |      | $ | 21,500    |          
|                                    |                          |   |                    |           |      |   |           |          
|Basic earnings net income per share |                          | $ | 0.04               |           |      | $ | 0.01      |          
|Diluted net income per share        |                          | $ | 0.04               |           |      | $ | 0.01      |          

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)

|                                                                                            |                                                          |   |                    |            |      |   |          |          |  
|------------------------------------------------------------------------------------------- | -------------------------------------------------------- | - | ------------------ | ---------- | ---- | - | -------- | -------- | -
|                                                                                            |                                                          |   | Three Months Ended
|                                                                                            |                                                          |   | March 31,         
|                                                                                            |                                                          |   |                   
|                                                                                            |                                                          |   | 2002               |            | 2001
|                                                                                            |                                                          |   |                    |            |     
|Cash flow from operating activities:                                                        |                                                          |   |                    |            |      |   |          |         
|Net income                                                                                  |                                                          | $ | 149,500            |            |      | $ | 21,500   |         
|Adjustments to reconcile net income to net cash provided by
(used in) operating activities: |                                                          |   |                    |            |      |   |          |         
|                                                                                            | Depreciation                                             |   |                    | 130,000    |      |   |          | 65,000   |  
|                                                                                            | Write offs and allowance for doubtful accounts           |   |                    | 24,100     |      |   |          | 13,300   |  
|Change in assets and liabilities:                                                           |                                                          |   |                    |            |      |   |          |         
|                                                                                            | Accounts receivable                                      |   |                    | (1,005,300 | )    |   |          | (282,000 | )
|                                                                                            | Inventories                                              |   |                    | 2,700      |      |   |          | 64,200   |  
|                                                                                            | Prepaid expenses and other assets                        |   |                    | (83,400    | )    |   |          | (52,000  | )
|                                                                                            | Payables, accrued expenses and other current liabilities |   |                    | 552,000    |      |   |          | 216,900  |  
|                                                                                            | Other non-current liabilities                            |   |                    | 8,200      |      |   |          |          |  
|                                                                                            |                                                          |   |                    |            |      |   |          |         
|Net cash (used in) provided by operations                                                   |                                                          |   | (222,200           | )          |      |   | 46,900   |         
|                                                                                            |                                                          |   |                    |            |      |   |          |         
|Cash flow from investing activities:                                                        |                                                          |   |                    |            |      |   |          |         
|                                                                                            | Purchase of fixed assets                                 |   |                    | (189,300   | )    |   |          | (500,100 | )
|                                                                                            |                                                          |   |                    |            |      |   |          |         
|Net cash used in investing activities                                                       |                                                          |   | (189,300           | )          |      |   | (500,100 | )       
|                                                                                            |                                                          |   |                    |            |      |   |          |         
|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                        |   |                    | 834,400    |      |   |          | 937,900  |  
|                                                                                            | Repayment of bank line of credit                         |   |                    | (955,000   | )    |   |          | (844,500 | )
|                                                                                            | Proceeds from notes payable to bank                      |   |                    |            |      |   |          | 460,100  |  
|                                                                                            | Repayment of notes payable to bank                       |   |                    | (59,800    | )    |   |          | (34,000  | )
|                                                                                            | Repayment of mortgage                                    |   |                    | (8,000     | )    |   |          | (3,900   | )
|                                                                                            |                                                          |   |                    |            |      |   |          |         
|Net cash provided by financing activities                                                   |                                                          |   | 311,600            |            |      |   | 520,600  |         
|                                                                                            |                                                          |   |                    |            |      |   |          |         
|Net (decrease) increase in cash and cash equivalents                                        |                                                          |   | (99,900            | )          |      |   | 67,400   |         
|Cash and cash equivalents, beginning of period                                              |                                                          |   | 121,200            |            |      |   | 10,100   |         
|                                                                                            |                                                          |   |                    |            |      |   |          |         
|Cash and cash equivalents, end of period                                                    |                                                          | $ | 21,300             |            |      | $ | 77,500   |         
|                                                                                            |                                                          |   |                    |            |      |   |          |         
|Supplemental disclosures of cash flow information:                                          |                                                          |   |                    |            |      |   |          |         
|                                                                                            | Cash paid during the period for interest                 |   | $                  | 103,000    |      |   | $        | 109,400  |  

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. This information is unaudited; 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 March
31, 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.

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 or market, determined on a first
in, first out (FIFO) basis, and consists of the following.

|                |  |                |           |                   |  |   |           | 
|--------------- |  | -------------- | --------- | ----------------- |  | - | --------- | 
|                |  | March 31, 2002 |           | December 31, 2001
|                |  |                |           |                  
|Raw materials   |  | $              | 647,100   |                   |  | $ | 515,700   | 
|Work in process |  |                | 213,600   |                   |  |   | 230,200   | 
|Finished goods  |  |                | 308,400   |                   |  |   | 425,900   | 
|                |  |                |           |                   |  |   |           | 
|                |  | $              | 1,169,100 |                   |  | $ | 1,171,800 | 
|                |  |                |           |                   |  |   |           | 

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. Unused borrowing capacity was
$351,900 at March 31, 2002. Amounts borrowed bear interest at prime rate plus
1.5% (6.25% at March 31, 2002) per annum and are secured by substantially all
the assets of the Company. At April 11, 2002, this line of credit was
increased to $1,500,000. This line of credit expires on August 10, 2002. At
March 31, 2002, the Company had complied with or obtained waivers for
compliance with the loan covenants.

In addition to the line of credit, the Company has a 36-month term loan in the
amount of $445,000 bearing interest at prime plus 1.5% (6.25% at March 31,
2002). At March 31, 2002, the Company had an outstanding balance of $184,200
on this loan facility. The Company also has a 60- month term loan available in
the amount of $500,000 bearing interest at prime plus 1.5% (6.25% at March 31,
2002). At March 31, 2002, the Company had an outstanding balance of $432,100
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 pricing is fixed for five-year increments.
The interest rate will be changed on June 10th of those five-year periods to
accrue at prime plus .05%. The balance on this mortgage at March 31, 2002 was
$3,370,700.

During 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%, and 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.

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Part I  FINANCIAL INFORMATION (continued)

5. Net Income Per Share

Basic earnings per share were calculated as follows:

|                                  |  |                        |           |      |  |   |           | 
|--------------------------------- |  | ---------------------- | --------- | ---- |  | - | --------- | 
|                                  |  | Quarter Ended March 31
|                                  |  |                       
|                                  |  | 2002                   |           | 2001
|                                  |  |                        |           |     
|Net income                        |  | $                      | 149,500   |      |  | $ | 21,500    | 
|Average common shares outstanding |  |                        | 3,855,591 |      |  |   | 3,842,347 | 
|                                  |  |                        |           |      |  |   |           | 
|Earnings per share                |  | $                      | 0.04      |      |  | $ | 0.01      | 
|                                  |  |                        |           |      |  |   |           | 

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

Diluted earnings per share were calculated as follows:

|                                                                                                   |  |                        |           |      |  |   |           | 
|-------------------------------------------------------------------------------------------------- |  | ---------------------- | --------- | ---- |  | - | --------- | 
|                                                                                                   |  | Quarter Ended March 31
|                                                                                                   |  |                       
|                                                                                                   |  | 2002                   |           | 2001
|                                                                                                   |  |                        |           |     
|Adjusted net income                                                                                |  | $                      | 149,500   |      |  | $ | 21,500    | 
|Average common shares outstanding                                                                  |  |                        | 3,855,591 |      |  |   | 3,842,347 | 
|Add: Exercise of options reduced by the number of shares
purchased with proceeds                   |  |                        | 131,966   |      |  |   |           | 
|Add: Exercise of warrants reduced by the number of shares
purchased with proceeds                  |  |                        | 65,742    |      |  |   | 30,927    | 
|Add: Exercise of warrants attached to debt reduced by the
number of shares purchased with proceeds |  |                        | 68,750    |      |  |   |           | 
|Adjusted weighted average shares outstanding                                                       |  |                        | 4,122,049 |      |  |   | 3,873,274 | 
|                                                                                                   |  |                        |           |      |  |   |           | 
|Earnings per common share assuming dilution                                                        |  | $                      | 0.04      |      |  | $ | 0.01      | 
|                                                                                                   |  |                        |           |      |  |   |           | 

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 March 31
|             |                                 |   |                       
|             |                                 |   | 2002                   |           | 2001
|             |                                 |   |                        |           |     
|Product Line |                                 |   |                        |           |      |   |           |          
|Net Sales    |                                 |   |                        |           |      |   |           |          
|             | Pool Products                   |   | $                      | 2,895,600 |      |   | $         | 2,248,700 | 
|             | Thermal Energy Storage Products |   |                        | 857,000   |      |   |           | 613,900   | 
|             |                                 |   |                        |           |      |   |           |          
|             |                                 | $ | 3,752,600              |           |      | $ | 2,862,600 |          
|             |                                 |   |                        |           |      |   |           |          

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

|          |          |       |           |                        |         |      |           |           |         | 
|--------- | -------- | ----- | --------- | ---------------------- | ------- | ---- | --------- | --------- | ------- | 
|          |          |       |           | Quarter Ended March 31
|          |          |       |           |                       
|          |          |       |           | 2002                   |         | 2001
|          |          |       |           |                        |         |     
|Net Sales |          |       |           |                        |         |      |           |          
|          | Domestic |       | $         | 3,226,900              |         |      | $         | 2,342,000 |        
|          | Foreign  |       |           |                        |         |      |           |           |        
|          |          | Japan |           | 309,200                |         |      |           | 96,700    |        
|          |          | Other |           |                        | 216,500 |      |           |           | 423,900 | 
|          |          |       |           |                        |         |      |           |          
|          |          | $     | 3,752,600 |                        |         | $    | 2,862,600 |          
|          |          |       |           |                        |         |      |           |          

6



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##### Table of Contents



Part I  FINANCIAL INFORMATION (continued)

|                  |  |                |           |                |  |   |           | 
|----------------- |  | -------------- | --------- | -------------- |  | - | --------- | 
|                  |  | March 31, 2002 |           | March 31, 2001
|                  |  |                |           |               
|Long-lived assets |  |                |           |                |  |   |           | 
|Domestic          |  | $              | 6,170,200 |                |  | $ | 5,779,100 | 

For the three months ended March 31, 2002, the Company had no major customers
who accounted for 10% or more of sales.

For the three months ended March 31, 2001, the Company had one major customer
who 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 March
31, 2002, unsecured trade accounts receivable for customers in California,
Florida, and foreign countries were $617,900, $1,074,600, and $406,100.

7. Property, plant and Equipment

Property, plant and equipment consist of the following:

|                                               |  |                |            |                   |  |   |            |  
|---------------------------------------------- |  | -------------- | ---------- | ----------------- |  | - | ---------- | -
|                                               |  | March 31, 2002 |            | December 31, 2001
|                                               |  |                |            |                  
|Building                                       |  | $              | 3,679,100  |                   |  | $ | 3,679,100  |  
|Land                                           |  |                | 550,400    |                   |  |   | 550,400    |  
|Machinery and equipment                        |  |                | 2,754,200  |                   |  |   | 2,590,900  |  
|Office and computer equipment                  |  |                | 474,900    |                   |  |   | 474,900    |  
|Leasehold improvements                         |  |                | 585,200    |                   |  |   | 585,200    |  
|Vehicles                                       |  |                | 335,900    |                   |  |   | 309,900    |  
|                                               |  |                |            |                   |  |   |            |  
|                                               |  | $              | 8,379,700  |                   |  | $ | 8,190,400  |  
|Less accumulated depreciation
and amortization |  |                | (2,209,500 | )                 |  |   | (2,079,500 | )
|                                               |  |                |            |                   |  |   |            |  
|                                               |  | $              | 6,170,200  |                   |  | $ | 6,110,900  |  
|                                               |  |                |            |                   |  |   |            |  




Item 2

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

Results of Operations

Net sales for the quarter ended March 31 increased by 31.1% to $3,752,600 in
2002 from $2,862,600 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 $2,237,900 (59.6% of net sales) in the first
quarter of 2002 compared with $1,663,800 (58.1% of net sales) in the first
quarter of 2001. This increase in absolute dollars was due to increased sales
while the increase as a percentage of sales was due primarily to higher sales
of the Companys lower margin Above Ground Pool System products.

Marketing and selling expenses increased to $702,400 (18.7% of net sales) in
the first quarter of 2002 compared with $584,700 (20.4% of net sales) in the
first quarter of 2001. This increase in absolute dollars was due to costs
associated with higher sales, such as commissions, freight, and advertising;
the decrease as a percent of sales was due to the higher sales volume in 2002
compared with 2001.

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##### Table of Contents



Part I  FINANCIAL INFORMATION (continued)

General and administrative expenses remained stable in absolute dollars at
$408,000 for the first quarter of 2002 compared with $406,600 in the first
quarter of 2001, but decreased as a percent of net sales to 10.9% for the first
quarter of 2002 from 14.2% in 2001. The decrease as a percent of net sales was
due to higher sales volume in 2002 compared with 2001.

Research and development expenses decreased to $69,200 (1.8% of net sales) in
the first quarter of 2002 from $54,500 (1.9% of net sales) in the first quarter
of 2001.

Net interest expense increased to $115,200 (3.1% of net sales) in the first
quarter of 2002 from $85,600 (3.0% of net sales) in the first quarter of 2001.
This increase was due primarily to interest related to the Companys
subordinated debt.

Liquidity and Capital Resources

The Companys cash position decreased to $21,300 at March 31, 2002 from
$121,200 at December 31, 2001 principally due to receipt of payment for a
large order in late December.

At March 31, 2002, the Companys accounts payable and other accrued expenses
had increased to $1,938,900 from $1,357,700 at December 31, 2001. This
increase was primarily due to increased purchases to support the increase in
sales.

At March 31, 2002, the Companys net accounts receivable had increased to
$2,545,700 from $1,620,500 at December 31, 2001 due mainly to the Companys
Early Buy program for Above Ground Pool systems combined with increased sales
of the Companys other products.

At March 31, 2002, the Companys inventories remained constant at $1,169,100
relative to $1,171,800 at December 31, 2001.

At March 31, 2002, the Companys current ratio was 1.25 to 1 compared with 1.12
to 1 at December 31, 2001. The Company had working capital of $875,400 at
March 31, 2002 compared with $353,500 at
December 31, 2001. Total assets exceeded total liabilities by
$3,407,500 at
March 31, 2002 compared with $3,229,200 at December 31, 2001.

At March 31, 2002, total bank debt (line of credit plus term loan plus
mortgage) had decreased to $4,635,100 from $4,823,500 at December 31, 2001.

The Company believes that its cash flow from operations along with its
available line of credit will be sufficient to support operations during the
next twelve months.




Part II  OTHER INFORMATION




Item 5  Other Information

The following table summarizes the outstanding securities during the quarter
ended March 31, 2002.

|                                                                                                                                                                                                                          |  |        |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------ | --------- | 
|                                                                                                                                                                                                                          |  | Shares
|                                                                                                                                                                                                                          |  |       
|Common Stock: authorized 10,000,000 shares of $.125 par value;
issued and outstanding at December 31, 2001, as reported in the
Registrants Annual Report on Form 10-K filed for the fiscal year
ended December 31, 2001. |  |        | 3,855,591 | 
|Issued during the quarter                                                                                                                                                                                                 |  |        |           | 
|                                                                                                                                                                                                                          |  |        |           | 
|Outstanding at March 31, 2002                                                                                                                                                                                             |  |        | 3,855,591 | 

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##### Table of Contents



Part II  OTHER INFORMATION (continued)




Item 6  Exhibits and Reports on Form 8-K

a. Exhibits

None

b. Reports on Form 8-K

No reports on Form 8-K were filed during the quarter ended March 31, 2002.

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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: May 10, 2002 | BY:                      | /s/Nancy I. Garvin                                                                                      
|                   |                          | Nancy I. Garvin, 
        Vice President  Finance 
        (Principal Financial and Accounting Officer)
|                   |                         

10