UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

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

For the fiscal year ended September 30, 2000

                                       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: 0-27552

                                  REALCO, INC.
-----------------------------------------------------------------------------
         (Exact name of registrant as specified in its charter)

                 New Mexico                         85-0316176
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       State or other jurisdiction of            (I.R.S. Employer
    incorporation or other organization         Identification No.)

     1650 University Boulevard, NE, Suite 5-100
                Albuquerque, New Mexico                      87102
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       (Address of principal executive offices)            (Zip Code)


Registrant's telephone number, including area code: (505)242-4561


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


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


                            No Par Value Common Stock
                          -------------------------
                                (Title of Class)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No __.



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

The number of shares of the Registrant's common stock outstanding as of December
10,  2000  was  approximately  2,959,000.  The  aggregate  market  value  of the
Registrant's  common stock held by non-  affiliates  as of December 11, 2000 was
approximately $6,773,000.

                   DOCUMENTS INCORPORATED BY REFERENCE

     Notice  of  2001  Annual  Meeting  of  Stockholders   and  Proxy  Statement
(incorporated into Part III).



                                  PART I


ITEM 1:  BUSINESS.

Realco,  Inc.,  incorporated  in 1983 under the laws of the State of New Mexico,
and subsidiaries is hereinafter sometimes referred to as the "Registrant" or the
"Company".

General
-------

The Company is an integrated real estate services company, which provides a wide
range of real estate related products and services to customers primarily within
the  Albuquerque,  New Mexico  and  Phoenix,  Arizona  metropolitan  areas.  The
Company's  operations  are grouped  into four  principal  segments - real estate
brokerage services,  residential  construction and land development,  commercial
construction and financial services.

The Company's  principal  executive offices are located at 1650 University Blvd.
NE, Suite 5-100, Albuquerque,  New Mexico 87102 and its telephone number at that
location is (505)242-4561.

Real Estate Brokerage Services:

This  segment's  operations  consist of residential  and commercial  real estate
brokerage services in the Albuquerque and Phoenix metropolitan areas.

Residential  brokerage operations are conducted under a franchise agreement with
Prudential  Real  Estate  Affiliates  (PREA) by two of the  Company's  principal
subsidiaries,   Hooten/Stahl   Realtors,   Inc.  (d.b.a.   Prudential  Preferred
Properties,  New  Mexico)  and Mull  Realty  Company,  Inc.  (d.b.a.  Prudential
Preferred Properties,  Arizona).  Such operations consist of providing marketing
services to buyers and sellers of residential real estate,  providing relocation
services, and to a lesser extent, providing residential property management. The
Company's current franchise agreement with PREA expires in June 2001. While PREA
had  previously  expressed an interest in renewing this  agreement,  the Company
provided  notification on October 10, 2000 that it does not intend to renew such
agreement.  The Company is  currently  pursuing  other  options  with respect to
branding its residential brokerage operations which includes, but is not limited
to, private branding or other national branding.

Commercial   brokerage  operations  consist  primarily  of  providing  marketing
services to buyers,  sellers,  lessors and lessees of  commercial  real  estate.
These  operations  also  include  commercial  property  management  and business
brokerage to a lesser extent. These services are collectively performed by First
Commercial Real Estate Services,  Inc., an Albuquerque based subsidiary and Mull
Realty Company, Inc., a Phoenix based subsidiary.

Residential Construction and Land Development:

Residential  construction is performed by Charter Building & Development,  Corp.
("Charter"),  an  Albuquerque  based  subsidiary.  Charter's  operations  can be
described as that of a general contractor,  whereby the majority of construction
labor and materials needs  associated with any given home are  subcontracted  to
third  parties.   Residential  construction  is  performed  in  the  Albuquerque
metropolitan  area and at September 30, 2000,  Charter had a backlog of 35 homes
under contract with an indicated  value of  $5,000,000,  as compared to 49 homes
under contract with an indicated value of $8,000,000 in 1999.

The Company is also in the business of acquiring  vacant land for the purpose of
subdividing  and  developing  such  land  into  residential   homesites.   These
activities are performed by Realco Land Development  Division, an unincorporated
division of the Company,  in the  Albuquerque  metropolitan  area. The homesites
developed  by this  division are used  internally  by Charter as well as sold to
third parties.

Commercial Construction:

Realco  Construction,  Inc.,  previously known as Amity,  Inc., is the Company's
Albuquerque based general  contractor  specializing in commercial  construction.
Late in fiscal 2000, this company opened an office in Irvine, California,  which
services that region, as well as Phoenix, Arizona.

Commercial  construction  projects  consist  primarily  of tenant  improvements,
ground-up  construction of small commercial  buildings and commercial  remodels.
With the  acquisition  of  certain  net  assets and  business  operations  of TI
Construction, Inc. (TI) in August 1999, the Company strengthened its multi-state
presence and acquired an expertise in the construction of veterinary facilities.

At September  30,  2000,  the Company had a backlog of  commercial  construction
projects of $2,500,000 as compared to $2,300,000 in 1999.

Financial Services:

The Company provides  financial  services through its wholly owned  subsidiaries
Great American Equity Corporation (GAEC) and PHS, Inc. (PHS), as well as through
its investment in MI Acquisition  Corporation (MI), the parent company of Miller
& Schroeder, Inc.

In the past, GAEC's lending activities included residential construction lending
and homesite  acquisition and development  lending.  These financing  activities
were performed under  participation  agreements with Albuquerque based financial
institutions or private  investors.  Such activities are no longer a significant
portion of Company operations.

The  operations  of PHS  include  a 50%  partnership  interest  in PHS  Mortgage
Company,  a full service  residential  mortgage  banker.  This  partnership  has
operations  at certain  New Mexico and  Arizona  residential  brokerage  offices
operated by the  Company.  As such,  PHS  receives  the majority of its business
through referrals from the Company's sales associates.

The Company owns a 10% equity position in MI, which is a financial services firm
specializing  in underwriting  debt  securities.  James A. Arias,  the Company's
President and Chief Executive Officer serves on the Board of Directors and Audit
Committee of MI and actively  participates in certain cross marketing activities
of services and products.

Operating Strategy
------------------

Since the completion of the Company's  Initial Public Offering in February 1996,
it has been the Company's intention to cross-market services between the primary
business  segments  resulting in one stop  shopping for the real estate  related
needs of its customers.

Management  has  determined in recent months that its best growth  opportunities
exist in the financial services industry.  As a result of this determination,  a
Letter of  Agreement  was  executed  on October 9, 2000 with  Equity  Securities
Investments,  Inc.  (ESI), a Minneapolis  based broker and dealer in securities.
This  Letter of  Agreement  provides  for the  Company  to  acquire  100% of the
outstanding stock of ESI in a tax-free, stock-for-stock transaction.

The ability of the Company to expand its  business in recent  years has been due
in part to the addition of working capital from the public securities  offering.
The Company  anticipates that it will require additional working capital at some
future  date  to fund  internal  growth  initiative  and  consummate  additional
acquisitions.

Financial Information
---------------------

Financial information about the Company's business segments can be found in Note
K to the consolidated financial statements presented in Item 8 of this Form 10-K
and is incorporated herein by reference.

Inventory Acquisition and Development
-------------------------------------

The Company's construction and land development segments are the only operations
with  significant  inventory  needs.  Such inventory needs consist of homesites,
building materials and labor.  Residential  homesites are acquired either by the
purchase of developed  lots from third parties or by the purchase of a parcel of
undeveloped land which the Company  develops.  The Company has also entered into
joint  venture   agreements  with  other  builders  and  developers  to  acquire
undeveloped  parcels of land for development  into  homesites.  At September 30,
2000,  the Company owned or controlled  through a  combination  of  unencumbered
ownership, debt financing and purchase agreements,  over 347 developed homesites
(as compared to 390 in 1999)  within the  Albuquerque,  New Mexico  metropolitan
area. Such homesites are utilized by Charter's  homebuilding  operations and may
also be sold to other homebuilders and individuals.

Acquisition of residential homesites is funded through the use of available cash
of the  Company  or  through  secured  loans  with  various  financing  sources.
Financing is typically  provided by local branches of financial  institutions on
such  terms and  conditions  which are  customary  in the  marketplace.  In some
instances,  the Company may also secure  subordinate  debt on land  inventory to
reduce the loan to value position assumed by the financial institutions, without
using internal working capital.  Such subordinate debt is typically  arranged by
the Company's financial services subsidiary,  GAEC, and participated out to high
net worth individuals.

As the Company uses  subcontractors  to provide  skilled labor and materials for
the  majority  of  its  operations,  construction  inventory  purchases  consist
primarily of payments to such  subcontractors.  Inventory  purchases  are funded
through  construction draws from financial  institutions under credit agreements
or from progress  billings to property owners.  The Company's credit  agreements
typically provide  pre-established  lending  guidelines which determine interest
rates,  available  balances and repayment  terms.  These credit  agreements  are
provided  by  local  branches  of  financial  institutions  on  such  terms  and
conditions which are customary in the marketplace.

Internet Developments
---------------------

As part of the Company's focus to maximize  opportunities  and growth potential,
the Company  continues to strengthen its internet  presence.  Specifically,  the
Company's residential  construction and land development segment has established
a website which  provides users with the Company's  background and  credentials,
the Company's most popular  floorplans,  information on  subdivisions  where the
Company is currently building and contact information. The Company's real estate
brokerage  services segment maintains  websites which provide Company background
and credentials,  property listings, information on the local market, relocation
services and contact  information.  In fiscal 2000, the Company  implemented the
technology to provide "Virtual Tours" and "Still Images" for property listings.

Competition and Market Factors
------------------------------

The business in which the Company is engaged is highly competitive.  Many of the
Company's competitors have nationwide operations or are affiliated with national
franchising  organizations.  As such, a number of the Company's competitors have
greater financial resources. It is for that reason that the Company continues to
pursue strategic alliances with other companies.

The real estate  industry,  and  therefore,  the  Company's  operations,  can be
cyclical and are affected by consumer  confidence  levels,  prevailing  economic
conditions  and  interest  rates.   Other  factors  effecting  business  include
increases  in  construction  costs,  increases  in costs  associated  with  home
ownership  such as  interest  rates and  property  taxes,  changes  in  consumer
preferences and demographic trends.

Work Force
----------

As of September 30, 2000, the Company's work force totaled  approximately  1,170
people, including 180 employees and 990 real estate sales associates. Management
of the Company  believes that its relations with its personnel are  satisfactory
and none of its employees are represented by a union.

All  of its  real  estate  sales  associates  are  independent  contractors.  As
independent contractors, such personnel are paid by commission only on the basis
of closed sales  transactions.  The Company's  construction  operations normally
hire  independent  subcontractors  to  provide  the  skilled  labor  needed  for
construction projects.


ITEM 2:  PROPERTIES.

The Company leases its executive  offices on a month to month basis, at $500 per
month.  Mr.  James A. Arias,  the  Company's  President,  is a part owner of the
building in which the executive  offices are located.  This lease arrangement is
considered a below  market lease as to terms and square foot cost when  compared
to other leases currently in effect within the building.

The  Company  leases  space  for  21  real  estate  brokerage   offices  in  the
Albuquerque,  New Mexico and Phoenix,  Arizona  metropolitan  areas. Such leases
total  approximately  112,000 square feet of office space with a monthly cost of
approximately  $141,000.  Two of these office leases totaling 19,000 square feet
have been  abandoned  by the  Company  and are  currently  sublet  with  monthly
receipts of $18,000.

The  Company's   construction   operations   lease  two  office   facilities  in
Albuquerque,  New Mexico and one office  facility in Irvine,  California.  These
facilities,  which include office space and workshop areas, total  approximately
15,000 square feet and monthly rental costs total approximately $9,000.

Management  believes all facilities are in adequate condition for their intended
use and will not require substantial improvements through Fiscal 2001.


ITEM 3:  LEGAL PROCEEDINGS.

The Company is engaged in various  legal  proceedings  incidental  to its normal
business activities. Management of the Company does not believe that the outcome
of each such  proceeding or all of them  combined  will have a material  adverse
effect on the Company's operations or financial position.


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

No matters were submitted during the fourth quarter of the 2000 fiscal year to a
vote of security holders, through the solicitation of proxies or otherwise.


                                     PART II


ITEM 5:  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information
------------------

The  Company's  common stock is traded on the NASDAQ  National  Market under the
symbol "RLCO".  The following  table sets forth for the periods  indicated,  the
high and low sales prices as reported.

                                        Fiscal 2000           Fiscal 1999
                                     ------------------    -----------------
                                       High      Low         High      Low
                                     --------  --------    --------  --------

    First Quarter                       2.594     1.750       2.438     1.125
    Second Quarter                      2.625     1.719       2.875     1.150
    Third Quarter                       4.125     1.875       3.250     1.625
    Fourth Quarter                      2.750     1.250       3.000     1.625


Approximate Number of Holders of Common Stock
---------------------------------------------

As of December 11, 2000, there were  approximately  700 holders of record of the
Company's common stock.

Company Dividend Policy Disclosure
----------------------------------

The Company  has not paid any  dividends  on its Common  Stock since its initial
public offering in February 1996 and expects that for the foreseeable  future it
will follow a policy of retaining any earnings in order to finance the continued
development  of its business.  Payment of dividends is within the  discretion of
the Board of Directors and will depend upon the earnings,  capital  requirements
and operating and financial condition of the Company, among other factors.




ITEM 6:  SELECTED FINANCIAL DATA.


                            Years ended September 30,
                            ------------------------------------------------
                              2000      1999      1998      1997      1996
                            --------  --------  --------  --------  --------

                    (In thousands, except per share amounts)

                               (a)                 (b)       (c)       (d)

Net sales                   $ 55,205  $ 48,328  $ 35,104  $ 28,681  $ 23,298

Income (loss) from
  continuing operations         (934)      276    (1,180)      330       132

Income (loss)from
  continuing operations
  per common share              (.36)      .10      (.47)      .07       .01

Total assets                  23,642    27,812    28,368    26,354    22,608

Long-term obligations          7,021     8,888    10,584    10,296     7,883

Cash dividends declared
  per common share                -         -         -         -         -

-----------------------

(a)  The 2000 results were affected by the  acquisition  of Farnsworth  Realty &
     Management  Company  on January 1, 2000 and the  acquisition  of  Financial
     Services Group, Inc. on June 1, 2000.

(b)  The 1998  results  were  affected by the  acquisition  of Cliff Winn,  Inc.
     Realtors on February 1, 1998.

(c)  The 1997 results were affected by the  acquisition of Mull Realty  Company,
     Inc. on January 1, 1997 and the acquisition of First Commercial Real Estate
     Services, Inc. on May 1, 1997.

(d)  The 1996 results were affected by the acquisition of Amity, Inc. on July 1,
     1996 and the issuance of debt and equity  securities in connection with the
     Company's initial public offering on February 7, 1996.


ITEM 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview of Operations
----------------------

Operations  for 2000  resulted in a pre-tax  loss of  $1,322,000  as compared to
pre-tax  earnings of $436,000 for 1999.  The Company  experienced an increase in
total  revenues of $6,223,000,  or 13%, to $56,007,000  and an increase in total
costs and expenses of $7,981,000 or 16%, to $57,329,000 for the 2000 period. The
increase in gross profit from the  Company's  brokerage,  construction  and land
development  operations  lagged  the sales  increase  percentage,  as such gross
profits  increased  $623,000 or 6% to $10,303,000.  This is primarily due to the
fact that the gross profit margin from brokerage  operations  decreased from 27%
to 26% and the gross profit margin from construction  operations  decreased from
10% to 9%.  Such  decreases  are  discussed  in more  detail in the  results  of
operations by segment.  Selling,  general and administrative  expenses increased
$1,541,000 or 17% to $10,642,000 in 2000. Such increase is primarily  associated
with  the  growth  of  Phoenix  based   brokerage   operations   and  commercial
construction operations.

Other  significant  fluctuations  affecting  2000 results of  operations  were a
$509,000  or 56%  decrease in  interest  and other  income and a $295,000 or 49%
increase in depreciation  and  amortization in the 2000 period.  The decrease in
interest  and other income is primarily  the result of a  non-recurring  gain of
$550,000  recognized in the 1999 period,  while the increase in depreciation and
amortization  is the result of rapid  amortization  of certain  intangibles in a
recent acquisition and depreciation associated with updates to office facilities
for brokerage operations.

As  discussed  in more  detail in the result of  operations  from the  Financial
Services Segment, the Company generated $757,000 of other comprehensive  income,
net of deferred income taxes, during the 2000 period.

Business Combinations
---------------------

The  Company's  growth  has  been  achieved   primarily  through   acquisitions,
subsequent to its public offering in 1996.  Following is a brief  description of
such acquisitions and terms.

In fiscal 1996, the Company  acquired the outstanding  stock of Amity,  Inc., an
Albuquerque based commercial construction contractor for 24,297 shares of Series
D Preferred  Stock of the  Company.  Additionally,  the  Company  acquired a 50%
partnership  interest for $63,000 in PHS Mortgage Company,  which originates and
sells  residential  mortgages in the Albuquerque  market.  The operations of PHS
were expanded to Phoenix during 1998.

In fiscal 1997, the Company acquired the outstanding common stock of Mull Realty
Company (a Phoenix  based  residential  and  commercial  real  estate  brokerage
company, d.b.a. Prudential Preferred Properties,  Arizona) for a cash payment of
$359,000, the issuance of a $800,000 note payable and future contingent payments
of up to  $1,175,000.  The Company also purchased the net assets and business of
First  Commercial Real Estate  Services,  Inc. (an Albuquerque  based commercial
real  estate  brokerage  company)  for a  cash  payment  of  $265,000  in  1997.
Additionally,  the  Company  purchased  a minority  interest  in MI  Acquisition
Corporation,  the parent company of Miller & Schroeder,  Inc. for $1,000,000. MI
is a financial  services firm located in Minneapolis  which  specializes in debt
securities.

In fiscal 1998, the Company acquired the outstanding common stock of Cliff Winn,
Inc. Realtors (a Phoenix based residential real estate brokerage  company) for a
cash payment of $426,000 and future contingent payments of up to $963,000.

In fiscal 1999, the Company  acquired  certain net assets and the business of TI
Construction,  Inc. (TI). The  acquisition of this commercial  contractor  which
specializes in veterinary clinics was made through the issuance of 67,000 shares
of Company common stock held in treasury.

In fiscal  2000,  the  Company  acquired  certain net assets and the real estate
brokerage  business of Farnsworth  Realty & Management  Company (a Phoenix based
residential  real estate  brokerage  company) for a cash payment of $125,000 and
future contingent payments of up to $150,000.

In fiscal  2000,  the Company  also  acquired  the  outstanding  common stock of
Financial  Services Group,  Inc. (FSG) for 680,000 common shares of Realco.  The
primary assets of FSG consisted of 650,000  common shares of Realco,  which were
cancelled upon delivery.  This acquisition  resulted in an additional  financial
services entity within the Realco structure,  which will ultimately replace GAEC
(a  relatively  inactive New York  corporation).  FSG was  previously  under the
control of James A. Arias, Realco's President and Chief Executive Officer.

On  October  9, 2000 the  Company  executed a Letter of  Agreement  with  Equity
Securities  Investments,  Inc.  (ESI), a Minneapolis  based broker and dealer in
securities,  whereby the Company will acquire 100% of the  outstanding  stock of
ESI in a tax-free,  stock-for-stock  transaction. The agreement provides for the
shareholders of ESI to receive approximately  1,500,000 shares of Company common
stock,  such shares  representing  approximately  30% of the then fully  diluted
outstanding common shares.  This transaction will broaden the Company's focus on
financial services and is expected to close in January 2000.

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

Based upon the various lines of business in which the Company is engaged, it has
defined the following operating segments for purpose of financial accounting and
reporting:  Real Estate  Brokerage  Segment,  Residential  Construction and Land
Development  Segment,  Commercial  Construction  Segment, and Financial Services
Segment.

The Company  currently  operates within the  Albuquerque,  New Mexico,  Phoenix,
Arizona,  and to a lesser extent Irvine,  California  metropolitan  areas. Since
inception,  management has planned on expanding operations and business concepts
to other  geographical  areas,  preferably to areas within the southwest  United
States having similar demographics.

Real Estate Brokerage Segment:

The real estate brokerage segment consists of Prudential  Preferred  Properties,
New Mexico (PPP-NM),  Prudential  Preferred  Properties,  Arizona (PPP-AZ),  and
First Commercial Real Estate Services, Inc. (First Commercial).

   Fiscal 2000 vs. 1999

     The residential resale market softened in Albuquerque and Phoenix in fiscal
2000. Additionally,  as a result of continuing consolidations and mergers within
the  industry,  competition  for  market  share  and  quality  sales  associates
increased in the current year.

     This segment  experienced a pre-tax loss of $1,727,000 for 2000 as compared
to a pre-tax loss of $495,000 in 1999. Brokerage  commissions and fees increased
$2,400,000 or 9% to $28,025,000 for 2000,  while the company dollar (the portion
of  brokerage  commissions  and fees  retained by the  Company)  only  increased
$286,000  or 4% to  $7,296,000.  The  increase  in company  dollar was more than
offset by an  increase  in  selling,  general  and  administrative  expenses  of
$928,000  or 13% to  $7,994,000  and an increase in  depreciation  and  interest
expense of  $534,000  or 101% to  $1,064,000.  The  decline  in  company  dollar
percentage  from  27% in 1999 to 26% in  2000,  as well as  increased  operating
expenses are discussed in more detail below.

     The operations of PPP-NM resulted in a pre-tax loss of $1,462,000 for 2000,
as compared to $1,097,000 for 1999. This loss is a continuing  trend due to past
declines in market share and the  inability to  significantly  reduce  operating
expenses.  While  brokerage  commissions  and fees were  comparable  between the
periods,  resulting in less than a 1% decrease  between the periods,  $8,871,000
for 2000 as compared to $8,905,000 for 1999,  company dollar actually  decreased
$182,000 or 8%. This decline in company dollar from 24.6% to 23% is attributable
to (1) offering  higher  splits to agents in an effort to improve  retention and
recruitment of agents and (2) an increase in the amount of production  generated
by the "top tier" agents who command higher splits.

     Selling,  general and administrative  expenses of PPP-NM decreased $183,000
or 6% to $2,852,000 in 2000, but depreciation and amortization expense increased
$106,000 or 91% to $223,000,  and interest expense increased $213,000 or 113% to
$402,000. The increase in interest expense is primarily attributable to interest
charges in  intercompany  working  capital  advances,  which are  eliminated  in
consolidation,  and to a lesser  extent,  interest  paid on  capital  leases for
furniture and equipment in the new office facility. The increase in depreciation
and amortization  expense is also the result of capital expenditures for the new
office facility.

     Management  continues to implement changes at PPP-NM in an effort to expand
the revenue base and reduce operating expenses.

     In connection  with the Company's  plan to  consolidate  four sales offices
into a single,  modern facility,  a restructuring  charge of $273,000 associated
with lease  abandonment  expenses  was  accrued in the fourth  quarter of fiscal
1998. Of this  restructuring  charge,  $38,000 was utilized in 1999, $98,000 was
utilized in 2000,  and a $108,000  credit was recorded as a revision of estimate
in 2000,  resulting in an accrued  liability  of $29,000 at September  30, 2000,
which represents the anticipated  present value of future obligation  associated
with these abandoned facilities. The revision of estimate was deemed appropriate
in 2000, as the Company was able to secure tenants for these  facilities for the
remaining  lease term and was also able to minimize  its costs  incurred to make
these facilities ready for new tenants.

     PPP-AZ  recognized a pre-tax loss of $39,000 in 2000  compared to a pre-tax
profit of  $663,000  in 1999.  While  revenues  increased  $2,542,000  or 17% to
$17,673,000  in 2000,  the increase in company dollar was limited to $506,000 or
12% to  $4,660,000.  This  decline  in  company  dollar  (from  27% to  26%)  is
attributable to market pressures to recruit and retain agents, as well as recent
acquisitions  of  existing  brokerages  which had been paying  higher  splits to
agents. This trend is being addressed by management through gradually converting
agents to existing  commission plans, as well as adjusting operating expenses as
discussed below.

     Selling, general and administrative expenses of PPP-AZ increased $1,004,000
or 29% to  $4,442,000  which is  directly  related  to growth  in the  number of
offices and agents.  Depreciation and amortization increased $175,000 or 196% to
$264,000 in 2000 as a result of rapid  amortization  of  intangibles  associated
with the acquisition of Farnsworth Realty & Management  Company and depreciation
associated with recent updates to office facilities.

     Management  is  actively  reducing  overhead  where  possible  and is  also
evaluating agent commission  plans and  pass-through  expenses to agents.  It is
further expected that additional  reductions to operating expenses will occur as
recent  acquisitions  become more fully integrated into the previously  existing
operations.

     First  Commercial,  an  Albuquerque  based  commercial  brokerage  company,
recognized a pre-tax loss of $135,000 in 2000 as compared to pre-tax earnings of
$11,000 in 1999.  Brokerage  commissions  and fees  decreased  $108,000 or 7% to
$1,481,000  resulting  in a decrease  of $37,000  or 6% to  $627,000  in company
dollar.  The overall  decline in  production  was primarily the result of timing
associated with closing significant  transactions,  as the commercial  brokerage
business is typically comprised of several large transactions.  Selling, general
and administrative  expenses increased $106,000 or 18% to $708,000 in 2000. This
increase is attributable to management's  growth initiative for this subsidiary,
which expanded its Albuquerque  facilities to accommodate  additional agents and
opened an  office in Las  Cruces,  New  Mexico.  It is  anticipated  that  these
increased  facilities and operating costs will result in improved  profitability
in the future as new agents increase productivity.

   Fiscal 1999 vs. 1998

     Total brokerage  commissions and fees for this segment increased $3,274,000
or 15%, to  $25,625,000  in 1999.  This  increase is primarily  attributable  to
additional revenues of $2,722,000  generated by PPP-AZ and $494,000 generated by
First Commercial.  PPP-AZ generated these additional revenues through $1,372,000
of internal  growth and  $1,902,000  as a result of Winn  Realtors  contributing
twelve months of  operations in 1999, as opposed to eight months in 1998;  while
First Commercial's  increase was attributable  entirely to internal growth. This
segment  experienced  a  pre-tax  loss of  $495,000  for 1999 as  compared  to a
$530,000 loss in 1998. The decrease in the loss is the result of several factors
discussed in more detail below.

     PPP-NM  experienced  a pre-tax loss of $1,097,000 in 1999, as compared to a
$1,250,000 loss in 1998. This decrease of $153,000 is primarily  attributable to
$273,000 of lease  abandonment  costs  accrued in the prior  year,  as offset by
nominal changes in recurring operating expenses and company dollar.

     While  PPP-AZ  did  increase  its  brokerage  revenues  by 22% in  1999  to
$15,131,000, and increase its company dollar to 27%, as compared to 25% in 1998,
operating  expenses  increased  $1,137,000,  or 48% to  $3,530,000 in 1999. As a
result,  of these  factors,  pre-tax  earnings only increased 38% to $663,000 in
1999.  This increase in operating  expenses is  attributable to the higher sales
volume,  as well as higher  facility  costs  associated  with this  subsidiary's
expansion throughout the Phoenix metropolitan area.

     First  Commercial  recognized  pre-tax  earnings  of  $11,000  for the 1999
period,  as compared to a pre-tax loss of $101,000 in 1998. This  improvement in
operations  is the result of an  increase  in company  dollar of $215,000 or 47%
over 1999, which is attributable to a 45% increase in revenues.  The increase in
company dollar was offset by a $103,000 or 19% increase in operating expenses.

Residential Construction and Land Development Segment:

The residential  construction and land development segment operates primarily in
the Albuquerque,  Rio Rancho and Los Lunas, New Mexico  metropolitan areas. This
segment is  comprised  of the  homebuilding  operations  of  Charter  Building &
Development Corp. (Charter),  as well as land development  activities consisting
of the acquisition of raw land for development into  residential  homesite lots,
which are sold to Charter or to other builders.  Such land development  projects
may be performed under joint venture agreements or entirely by the Company.

   Fiscal 2000 vs. 1999

     Residential  construction  and land  sales  increased  $1,704,000  or 9% to
$21,220,000  in 2000.  This  increase in sales,  as reduced by lower  margins in
construction and land sales,  resulted in additional gross profits of $68,000 or
3% in 2000. While this increase is nominal in relation to total gross profits of
$2,370,000  in 2000,  net  earnings  from this  segment  decreased  $458,000  to
$465,000 in 2000.  This decrease is primarily  attributable  to a  non-recurring
other  income  item in the  amount  of  $550,000  recognized  in 1999,  which is
discussed in more detail below.

     Residential  construction sales of $18,272,000 represent a 7% increase over
1999.  This increase  resulted from strong  production in the first,  second and
fourth,  as offset by a third  quarter  decrease.  Gross profit  margins on such
sales decreased from 9.8% to 8.7% in 2000,  yielding gross profits of $1,594,000
as compared to $1,685,000 in 1999. This decrease in gross profit is attributable
to discounts and promotions  offered to stimulate  sales,  pricing errors on new
models and options,  as well as losses incurred on sales of certain  speculative
and model homes.

     Sales of developed  lots  increased  $585,000 or 25% to $2,948,000 in 2000.
This  increase is largely  attributable  to the sale of three  estate sized lots
which totaled $510,000.  Such lots represent a portion of the five lots received
for the assignment of a partnership interest as reported in prior filings. Gross
profit margins on lot sales remained constant at approximately 26%, resulting in
gross profits of $776,000 in 2000.

     Profits on lots sold to Charter,  either  directly by a subsidiary  or by a
joint venture,  are eliminated in consolidation of this segment until the lot is
removed from Charter's  inventory.  Such profits totaled $184,000 and $15,000 at
September 30, 2000 and 1999, respectively.

     Selling,  general  and  operating  expenses  increased  $174,000  or 16% to
$1,240,000 in 2000. Of this increase,  $122,000 is  attributable  to residential
construction  operations and $52,000 is attributable to increased carrying costs
for land development  operations.  Certain cost control measures have been taken
with respect to residential construction  operations,  but additional reductions
may be necessary in the event sales volume does not increase in the near term.

     Other  significant items affecting  comparability  between the periods is a
$122,000  decline in  interest  expense  resulting  from debt  reduction  in the
ordinary course of business, a $27,000 decrease in depreciation and amortization
expense,  a $111,000  increase in other  income  (excluding  the  aforementioned
$550,000)  which consists of construction  management fees and sales  commission
spreads, and an $65,000 decrease in equity earnings of investees.

   Fiscal 1999 vs. 1998

     Residential  construction  and land sales  increased  $8,120,000  or 71% to
$19,516,000 in 1999. This increase in revenues, as well as better profit margins
contributed to a $1,893,000 increase in gross profit to $2,302,000 in 1999. As a
result the additional  gross profits and other income of $550,000  received in a
lawsuit settlement relating to the operations of the land development  division,
this  segment  recognized  a pre-tax  profit of $923,000  in 1999  compared to a
pre-tax loss of $968,000 in 1998.

     Residential  construction sales for the period increased  $7,028,000 or 69%
over 1998. This increase was attributable to the line of value engineered houses
being  received  well by the  marketplace  upon its  introduction  in the fourth
quarter of 1998. This product line also  contributed an increase in gross profit
margin from 4.8% to 9.8% in 1999.

     Sales of developed lots increased  $1,091,000 or 86% to $2,363,000 in 1999.
This increase was  primarily the result of Charter's  higher demand for lots due
to the aforementioned increase in residential  construction sales. Gross profits
on such sales  increased  $690,000 to $617,000 in 1999.  Negative  gross profits
were  recognized  on lot sales in 1998 as a result of  impairments  recorded  on
certain lot inventories.

     Other significant  factors  affecting  revenues of this segment were equity
earnings  of  investees  and other  income.  Specifically,  equity  earnings  of
investees  decreased  $127,000 to $36,000 in 1999, as a result of the completion
of profitable joint venture and other income increased $569,000 to $624,000. The
increase in other  income  relates to $550,000  received  in  connection  with a
lawsuit.  Specifically,  an agreement  reached on December 30, 1998 provided for
the Company to receive certain  residential  homesites  valued at  approximately
$550,000  in  consideration  for its 50%  interest  in a  joint  venture,  which
received an award of $1,633,000  in a lawsuit.  As this award was expected to go
through an extensive future appeal process,  management determined this exchange
was in the best interest of the Company after  considering risk and future legal
costs.

     Selling,  general and administrative  expenses increased $172,000 or 19% to
$1,066,000  in 1999.  Such  increase was a direct  result of increased  staffing
requirements to administer the growth in operations generated by this segment in
1999.  Depreciation and amortization increased from $123,000 to $127,000 in 1999
and interest  expense  increased  $282,000 to $851,000 in 1999.  The increase in
interest expense is attributable to a $103,000 increase in construction interest
and  a  $179,000  increase  in  land  development  interest.   The  increase  in
construction  interest of 18% is directly attributable to the increased activity
of Charter and the  increase in land  development  interest is  attributable  to
expensing interest incurred in 1999 on two projects which capitalized in 1998 as
the projects were under development.

Commercial Construction Segment:

Commercial construction  operations,  consist of Realco Construction (previously
operated under the name Amity, Inc.), which is based in Albuquerque, New Mexico.
Realco Construction also operates from a satellite office in Southern California
and has performed commercial  construction contracts in numerous states. In 2000
the Company amended the articles of incorporation  of Amity,  Inc. to change its
name to  Realco  Construction,  Inc.  in an effort to  establish  stronger  name
recognition outside the Albuquerque metropolitan area.

   Fiscal 2000 vs. 1999

     Revenues from commercial  construction  operations  totaled  $5,960,000 for
2000 as compared to  $3,188,000  for 1999,  resulting  in a 87%  increase.  This
increase  consists of $1,806,000  which is primarily  attributable  to increased
tenant   improvement  and  non-recurring   specialty   projects,   and  $966,000
attributable  to veterinary  clinic revenues  generated  through the August 1999
acquisition  of TI.  Gross  profits on such  revenues  were 10.6% or $636,000 in
2000,  as compared to 11.5% or  $367,000  in 1999.  The decline in gross  profit
margin  is  primarily   attributable  to  cost  overruns   associated  with  two
significant projects in 2000.

     The $269,000  increase in gross profits on  construction  revenues was more
than offset by a $322,000 or 64% increase in operating  expenses for 2000. These
factors,  as well as a $28,000  reduction in other income  resulted in a pre-tax
loss of $184,000 for 2000 compared to a pre-tax loss of $103,000 for 1999.

     The  increase  in  operating  expenses  is  primarily  the result of the TI
acquisition which provided among other things, an administrative  infrastructure
to  support a much  higher  volume of  construction  operations  and to a lesser
extent start-up costs associated with California  operations.  In recent months,
reductions have been made to operating  expenses and are now considered to be at
a level which management believes will result in profitable operations in fiscal
2000.

   Fiscal 1999 vs. 1998

     Revenues from  commercial  construction  operations  totaled  $3,188,000 in
1999,  an increase of  $1,464,000  or 85% over 1998.  Despite  this  increase in
revenues,  a decrease in gross profit  margins and a $197,000 or 75% increase in
general and  administrative  expenses resulted in a pre-tax loss of $103,000 for
1999, as compared to a pre-tax loss of $66,000 in 1998.  The increase in general
and administrative expenses for the 1999 period consisted of $126,000 associated
with internal growth and $71,000 associated with the acquisition of TI which did
not provide any significant revenues for 1999.

Financial Services Segment:

The financial  services  segment  consists of operations of the parent  company,
Great American Equity  Corporation  (GAEC) and PHS, Inc. (PHS), and the recently
acquired Financial Services Group, Inc. (FSG).

In addition to financial services performed directly by the Company,  operations
also include the Company's  share of earnings from a 50% equity  interest in PHS
Mortgage Company, a full service residential mortgage banker. Additionally,  the
Company has a minority interest in MI Acquisition Corporation ("MI"), the parent
company of Miller & Schroeder  Inc., an investment  banker  specializing in debt
securities.

   Fiscal 2000 vs. 1999

     The financial  services  segment,  which also includes certain  unallocated
operating expenses of the parent company,  realized a pre-tax profit of $123,000
as compared to $111,000 for the 1999 period.  This nominal  increase in earnings
was effected by several factors; the most significant of which include a $81,000
decrease in equity  earnings of  investees,  and a $98,000  decrease in interest
expense due to scheduled principal reductions in outstanding debt.

     Net equity earnings  recognized by PHS from its  partnership  interest in a
mortgage banker totaled $254,000 for the 2000 period, as compared to $353,000 in
1999.  This decline is the result of a lower capture rate of in-house  referrals
from  agents  and fewer  mortgage  transactions  due to higher  interest  rates.
Management  has been  working  with office  managers  and agents in an effort to
increase in-house referrals, which appears to be working well in recent months.

     The Company recognized a loss of $35,000 in 2000 as compared to earnings of
$140,000 in 1999 relating to its investment in MI. The decrease in profitability
is  primarily  attributable  to declines  in sales and trading  revenues of this
company and certain  restructuring costs incurred.  As a result of an additional
stock offering by MI Acquisitions  Corporation in May 2000, the Company's equity
position was diluted to a level,  which no longer supported  accounting for this
investment  under the equity method.  Accordingly,  the Company adopted the cost
method to account for this privately owned company effective May 1, 2000.

     The  Company  recognized  equity  earnings of  $176,000  from its  minority
interest in a partnership which sold its sole asset operations (a strip shopping
center) for a gain.  This  minority  interest  is the result of venture  capital
operations of the Company  prior to its  reorganization  and public  offering in
1996.

     Additionally, this segment realized other comprehensive income of $757,000,
net of income taxes on unrealized  appreciation of available for sale securities
in  2000.  Such  unrealized   appreciation  is  primarily  attributable  to  two
investments,  Change  Technology  Partners,  Inc. ("CTPI") and Southwest Capital
Corporation  "(Southwest").  As a result of past venture capital operations, the
Company owned stock in these two corporations  which were inactive entities that
maintained SEC registration  and were traded in the over the counter market.  In
the past year, CTPI entered into a securities  purchase agreement with a venture
capital company and Southwest entered into a securities  purchase agreement with
a  broker  and  dealer  of  securities.  As  a  result  of  these  transactions,
substantial stock price  appreciation  occurred and the Company recognized other
comprehensive  income of $806,000,  net of deferred  income tax  liabilities  of
$537,000.  Such other  comprehensive  income is a component of equity and is not
recognized in the statement of operations.

   Fiscal 1999 vs. 1998

     The  financial  services  segment,   which  includes  certain   unallocated
operating expenses of the parent company,  realized a pre-tax profit of $111,000
in 1999 as compared to a pre-tax  profit of  $205,000 in 1998.  The  decrease is
primarily  attributable  to the $334,000  gain  recognized  on the sale of First
American  Title, an equity method  investee,  in the 1998 period for which there
was no  comparable  activity  in 1999,  as offset  by a  $198,000  reduction  in
operating expenses in 1999. Other significant items affecting  operating results
are as follows.

     Net equity  earnings  recognized  by PHS,  Inc.  from its  interest  in PHS
Mortgage Company totaled  $353,000 for the 1999 period,  as compared to $317,000
in 1998.  This increase is the result of continued  growth in the  operations of
this venture within the Albuquerque  market as well as its recent expansion into
the Phoenix market.

     The Company  recognized  equity earnings of $140,000 for the 1999 period as
compared to $13,000 in 1998 for its  investment in MI  Acquisition  Corporation.
This increase in earnings of $127,000 is primarily  attributable  to the closing
of more investment banking deals in 1999.

     Earnings from GAEC were comparable between the periods,  $34,000 in 1999 as
compared to $46,000 in 1998. While earnings were comparable,  revenues decreased
by $115,000 and expenses decreased $104,000.  These decreases were the result of
a reduction in financing  activities performed by this subsidiary as a result of
an increase in working  capital being utilized by the real estate  brokerage and
construction operations.

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

The Company's  liquidity consists primarily of cash, trade accounts  receivable,
inventories  and  construction  advances  collateralized  by  inventory.  It  is
anticipated that future cash needs will be financed primarily by cash flows from
operations,  future  advances  under  construction  loans and if  needed,  other
financing arrangements, which may become available to the Company.

The Company's  current  projection of future cash  requirements,  is affected by
numerous  factors,  including but not limited to, changes in customer  receipts,
consumer   industry   trends,   sales  volume,   operating  cost   fluctuations,
acquisitions of existing businesses and unplanned capital spending.

As  a  result  of  obligations  for  past   acquisitions,   future   acquisition
opportunities,  increases  in  operating  expenses  associated  with  growth  of
existing operations, recurring operating losses and debt reduction requirements,
management believes that it will be necessary to secure additional  financing to
sustain the Company's  operations and anticipated  growth for the ensuing twelve
months.

On December 12, 2000, the Company received notification from one of its lenders,
that it does not  intend to renew a master  construction  loan  agreement  which
matures on December 31, 2000.  Such  agreement  provides for borrowings of up to
$4,000,000 on individual home construction projects, including up to $900,000 on
speculative  and  model  homes.  The  lender  further  indicated  that any loans
outstanding  under this  agreement  at December  31, 2000 will be  permitted  to
remain outstanding, in accordance with previously existing terms and conditions.
As a result of existing credit facilities with other lenders,  this notification
is not expected to impact the Company's ability to construct  pre-sold homes. In
the event the Company is not able to replace this credit  facility or expand its
current  ability to finance  speculative  and model homes with other lenders,  a
reduction in the number of speculative  and model homes  constructed in the next
fiscal year may occur.

The Company does not have any material  commitments for capital expenditures for
fiscal 2000.

Impact of Inflation
-------------------

The Company's business is significantly affected by general economic conditions,
particularly  by  inflation  and its  generally  associated  adverse  effect  on
interest rates.  Although inflation rates have remained low in recent years, any
significant raise in inflation rates would likely affect the Company's  revenues
and earnings power by reducing demand for real estate purchases.

Forward Looking Statements
--------------------------

Investors are cautioned that certain  statements  contained in this document are
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform Act of 1995 (the "Act").  Statements  which are predictive in
nature,  which depend upon or refer to future  events or  conditions  constitute
forward-looking  statements.  In  addition,  any  statements  concerning  future
financial  performance,  ongoing business strategies or prospects,  and possible
future  Company   actions,   which  may  be  provided  by  management  are  also
forward-looking statements as defined by the Act. Forward-looking statements are
based on  current  expectations  and  projections  about  future  events and are
subject to risks, uncertainties, assumptions, and economic and market conditions
in the real estate industry, among other things.

Actual  events  and  results  may differ  materially  from  those  expressed  or
forecasted  in the forward-  looking  statements  made by the Company or Company
management due to a number of factors.  Important  factors that could cause such
differences  include  but  are not  limited  to,  changes  in  general  economic
conditions  either nationally or in regions in where the Company operates or may
commence operations,  employment growth or unemployment rates,  availability and
costs  of  land  and  homebuilding  materials,   labor  costs,  interest  rates,
prevailing   rates  for  sales   associate   commission   structures,   industry
competition, and regulatory developments.


ITEM 7A:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company has no material market risk associated with interest rates,  foreign
currency exchange rates or commodity prices.


ITEM 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.








              Report of Independent Certified Public Accountants



Shareholders
Realco, Inc.

We have audited the accompanying consolidated balance sheets of Realco, Inc. and
Subsidiaries,  as of September 30, 2000 and 1999,  and the related  consolidated
statements of operations,  stockholders'  equity, and cash flows for each of the
three years in the period ended September 30, 2000.  These financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated  financial position of Realco, Inc. and
Subsidiaries, as of September 30, 2000 and 1999, and the consolidated results of
their operations and their  consolidated  cash flows for each of the three years
in the period ended September 30, 2000, in conformity with accounting principles
generally accepted in the United States of America.

We have also audited Schedule II for each of the three years in the period ended
September  30,  2000.  In our  opinion,  this  schedule  presents  fairly in all
material respects, the information required to be set forth therein.




GRANT THORNTON LLP

Oklahoma City, Oklahoma
November 17, 2000



                          REALCO, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                  September 30,

                             (Dollars in thousands)

                                                        2000         1999
                                                      --------     --------
ASSETS
  Cash and cash equivalents                           $  1,876     $  3,688
  Restricted cash                                          341          367
  Available for sale securities                          1,578           -
  Accounts and notes receivable, net                     2,670        1,899
  Cost and estimated earnings in excess of
    billings on uncompleted contracts                      156          482
  Inventories                                           10,462       14,932
  Property and equipment - at cost, net                  1,786        1,935
  Investments - equity method                              792        1,744
  Investments - cost method                              1,210           -
  Deferred income taxes                                     -           117
  Costs in excess of net assets acquired, net            2,126        1,605
  Other assets                                             645        1,043
                                                      --------     --------
                                                      $ 23,642     $ 27,812
                                                      ========     ========

LIABILITIES
  Notes payable                                       $  4,464     $  5,214
  Lease obligations                                        509          743
  Construction advances and notes payable,
    collateralized by inventories                        4,495        6,797
  Accounts payable and accrued liabilities               3,296        4,293
  Billings in excess of cost and estimated
    earnings on uncompleted contracts                      231           -
  Escrow funds held for others                             341          367
                                                      --------     --------
      Total liabilities                                 13,336       17,414

STOCKHOLDERS' EQUITY
  Preferred  stock  -  authorized, 500,000 shares
   Series  A  -  issued  and
    outstanding, 79,969
      shares, stated at liquidation value                  799          799
    Series B - issued and outstanding, 212,859
      shares, stated at liquidation value                2,129        2,129
  Common stock - no par value; authorized,
    50,000,000 shares; issued, 2,924,038 shares
    in 2000 and 2,894,038 shares in 1999                 7,965        7,909
  Accumulated deficit                                   (1,342)        (408)
  Accumulated other comprehensive income                   757           -
                                                       -------      -------
                                                        10,308       10,429
    Less common stock held in treasury - at cost,
      700 shares in 2000 and 11,000 shares in 1999           2           31
                                                      --------     --------
                                                        10,306       10,398
                                                      --------     --------
                                                      $ 23,642     $ 27,812
                                                      ========     ========


                             See accompanying notes.

                          REALCO, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                            Years ended September 30,

              (Dollars in thousands, except per share amounts)

                                                2000       1999       1998
                                              --------   --------   --------
REVENUES
  Brokerage commissions and fees              $ 28,025   $ 25,625   $ 21,984
  Construction sales                            24,232     20,340     11,848
  Sales of developed lots                        2,948      2,363      1,272
  Equity in net earnings of investees              400        545        506
  Interest and other                               402        911        785
                                              --------   --------   --------
                                                56,007     49,784     36,395
COSTS AND EXPENSES
  Cost of brokerage revenue                     20,729     18,615     16,254
  Cost of construction sales                    22,001     18,287     10,953
  Cost of developed lots sold                    2,172      1,746      1,345
  Selling, general, administrative,
    and other                                   10,642      9,101      8,126
  Depreciation and amortization                    896        601        522
  Interest                                         889        998        711
                                              --------   --------   --------
                                                57,329     49,348     37,911
                                              --------   --------   --------

    Earnings (loss) before income taxes         (1,322)       436     (1,516)

INCOME TAX EXPENSE (BENEFIT)                      (388)       160       (336)
                                              --------   --------   --------

    NET EARNINGS (LOSS)                           (934)       276     (1,180)

PREFERRED STOCK DIVIDEND REQUIREMENT               112        (4)        120
                                              --------   --------   --------
    NET EARNINGS (LOSS) APPLICABLE
      TO COMMON SHARES                        $ (1,046)  $    280   $ (1,300)
                                              ========   ========   ========
BASIC AND DILUTED EARNINGS (LOSS)
  PER COMMON SHARE

    Net earnings (loss) per common
      share before preferred stock
      dividend requirement                    $   (.32)  $    .10   $   (.42)
                                              ========   ========   ========
    Net earnings (loss) per common
      share after preferred stock
      dividend requirement                    $   (.36)  $    .10   $   (.47)
                                              ========   ========   ========
WEIGHTED AVERAGE COMMON
   SHARES OUTSTANDING                        2,900,015  2,774,609  2,777,452
                                             =========  =========  =========






                             See accompanying notes.

                          REALCO, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                  Years ended September 30, 2000, 1999 and 1998

                             (Dollars in thousands)

                                  Series A    Series B    Series D
                                 preferred   preferred   preferred
                                  stock 6%    stock 3%    stock 3%    Common
                                 cumulative  cumulative  cumulative   stock
                                 ----------  ----------  ----------  --------

Balance at October 1, 1997       $      826  $    2,129  $      239  $  7,712

  Purchase of common stock
    for treasury                         -           -           -         -
  Comprehensive loss
    Net loss                             -           -           -         -
    Other comprehensive loss
      Unrealized loss on
        investments, net                 -           -           -         -

    Comprehensive loss
                                 ----------  ----------  ----------  --------
Balance at September 30, 1998           826       2,129         239     7,712

  Redemption of Series A
    preferred stock                     (27)         -           -         -
  Conversion of Series D
    preferred stock                      -           -         (239)      239
  Issuance of treasury stock
    in acquisition                       -           -           -        (42)
  Comprehensive income
    Net earnings                         -           -           -         -
    Other comprehensive income
      Unrealized gain on
        investments, net                 -           -           -         -

    Comprehensive income
                                 ----------  ----------  ----------  --------
Balance at September 30, 1999           799       2,129          -      7,909

  Purchase of common stock
    for treasury                         -           -           -         -
  Issuance of treasury stock             -           -           -         (8)
  Issuance of common stock
    in acquisition                       -           -           -      1,445
  Cancellation of common
    stock acquired                       -           -           -     (1,381)
  Comprehensive loss
    Net loss                             -           -           -         -
    Other comprehensive income
      Unrealized gain on
        investments, net                 -           -           -         -

    Comprehensive loss
                                 ----------  ----------  ----------  --------
Balance at September 30, 2000    $      799  $    2,129  $       -   $  7,965
                                 ==========  ==========  ==========  ========


                          REALCO, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED
                  Years ended September 30, 2000, 1999 and 1998

                             (Dollars in thousands)

                                                       Accumulated
                                Retained                  other
                                earnings    Treasury  comprehensive
                                (deficit)    stock     income(loss)    Total
                               ----------  ---------  -------------  --------

Balance at October 1, 1997     $      496  $     (93) $          18  $ 11,327

  Purchase of common stock
    for treasury                       -        (131)            -       (131)
  Comprehensive loss
    Net loss                      (1,180)         -              -     (1,180)
    Other comprehensive loss
      Unrealized loss on
        investments, net               -          -             (45)      (45)
                                                                     --------
  Comprehensive loss                                                   (1,225)
                               ----------  ---------  -------------  --------
Balance at September 30, 1998        (684)      (224)           (27)    9,971

  Redemption of Series A
    preferred stock                    -          -              -        (27)
  Conversion of Series D
    preferred stock                    -          -              -         -
  Issuance of treasury stock
    in acquisition                     -         193             -        151
  Comprehensive income
    Net earnings                      276         -              -        276
    Other comprehensive income
      Unrealized gain on
        investments, net               -          -              27        27
                                                                     --------
  Comprehensive income                                                    303
                               ----------  ---------  -------------  --------
Balance at September 30, 1999        (408)       (31)            -     10,398

  Purchase of common stock
    for treasury                       -         (12)            -        (12)
  Issuance of treasury stock           -          41             -         33
  Issuance of common stock
    in acquisition                     -          -              -      1,445
  Cancellation of common
    stock in acquired                  -          -              -     (1,381)
  Comprehensive loss
    Net loss                         (934)        -              -       (934)
    Other comprehensive income
      Unrealized gain on
        investments, net               -          -             757       757
                                                                     --------
  Comprehensive loss                                                     (177)
                               ----------  ---------  -------------  --------
Balance at September 30, 2000  $   (1,342) $      (2) $         757  $ 10,306
                               ==========  =========  =============  ========

                             See accompanying notes.

                          REALCO, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            Years ended September 30,

                             (Dollars in thousands)

                                                 2000       1999       1998
                                               --------   --------   --------
Cash flows from operating activities

Net earnings (loss)                            $   (934)  $    276   $ (1,180)
Adjustments to reconcile net earnings
  (loss) to net cash provided by
  (used in) operating activities
    Depreciation and amortization                   896        601        522
    Accretion of discount on notes payable           42         49         55
    (Net earnings in excess of distributions)
      distributions in excess of earnings
      from investees                               (197)       126         (7)
    Gain on sale of equity method investment         -          -        (334)
    Gain on sale of available for sale
      securities                                   (118)       (50)       (57)
    (Gain) loss on sale of property
      and equipment                                  (5)        10         41
    Provision for deferred income taxes            (388)       167       (328)
    Changes in operating assets and
      liabilities (net of businesses acquired)
        Decrease (increase) in restricted cash       26       (197)       233
        (Increase) decrease in accounts
          receivable                               (828)       137        242
        Decrease (increase) in inventories        4,600      1,828     (3,181)
        Decrease (increase) in net billings
          related to costs and estimated
          earnings on uncompleted contracts         557       (406)       128
        Decrease (increase) in other assets          98       (192)       240
        (Decrease) increase in accounts
          payable and accrued liabilities        (1,141)     1,107        292
        (Decrease) increase in escrow funds
          held for others                           (26)       197       (233)
                                               --------   --------   --------
          Net cash provided by (used in)
            operating activities                  2,582      3,653     (3,567)

Cash flows from investing activities
  Purchases of property and equipment              (420)      (634)      (317)
  Proceeds from sale of property and
    equipment                                       271          5          2
  Payments for businesses acquired                 (853)      (455)      (426)
  Advances on notes receivable                     (157)      (578)      (773)
  Receipts on notes receivable                      272      1,449        656
  Purchase of securities available for sale        (995)      (688)      (504)
  Proceeds from securities available for sale     1,007        906        467
  Purchase of equity method investments              -         (63)        -
  Proceeds from sale of equity method
    investment                                       -          -         500
  Cash acquired in business acquisitions             47         -         292
                                               --------   --------   --------
          Net cash used in investing
            activities                             (828)       (58)      (103)

                          REALCO, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
                            Years ended September 30,

                             (Dollars in thousands)

                                                 2000       1999       1998
                                               --------   --------   --------

Cash flows from financing activities
  Construction advances and notes, net           (2,402)    (2,297)     3,955
  Payments on revolving, capital lease, and
    long-term debt                               (1,198)    (1,391)      (608)
  Proceeds from borrowing under revolving
    and long-term debt                               13        20         -
  Issuance of treasury stock                         33         -          -
  Purchase of treasury stock                        (12)        -        (131)
  Redemption of preferred stock                      -         (27)        -
                                               --------   --------   --------
          Net cash provided by (used in)
            financing activities                 (3,566)    (3,695)     3,216
                                               --------   --------   --------

NET DECREASE IN CASH AND CASH EQUIVALENTS        (1,812)      (100)      (454)

Cash and cash equivalents at beginning
  of year                                         3,688      3,788      4,242
                                               --------   --------   --------
Cash and cash equivalents at end of year       $  1,876   $  3,688   $  3,788
                                               ========   ========   ========


Cash paid (received) during the year for:
-----------------------------------------


    Income taxes                               $     -    $     -    $   (184)
    Interest                                        902      1,002        711


Noncash financing and investing activities:
-------------------------------------------

In 2000,  the  Company  sold an office  building  for $165 which was leased back
under market rental rates.  Consideration received consisted of $135 in cash and
a vacant  lot  valued at $130 as reduced  by a  liability  assumed of $100.  The
resulting gain on sale of $42 is being amortized over the lease term.

In 2000, the Company  purchased certain net assets and the real estate brokerage
business of Farnsworth Realty & Management  Company for $381. In connection with
the purchase, liabilities were assumed as follows:

    Fair value of assets acquired, including
      an office building                                  $    410
    Cash paid                                                 (250)
    Issuance of note payable                                  (131)
                                                          --------
    Liabilities assumed                                   $     29
                                                          ========

                          REALCO, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
                            Years ended September 30,

                             (Dollars in thousands)


In 2000, the Company  acquired all the outstanding  stock of Financial  Services
Group,  Inc.  in  exchange  for  680,000  shares of  Company  common  stock.  In
connection with this acquisition, liabilities were assumed as follows:

    Fair value of assets acquired, including
      650,000 shares of Realco common stock
      which were cancelled and cash of $47                $  1,546
    Stock issued                                            (1,445)
                                                          --------
    Liabilities assumed                                   $    101
                                                          ========

In 1999, the Company  purchased the net assets and business of TI  Construction,
Inc.  through the  issuance  of 67,000  shares of Company  common  stock held in
treasury.  In  connection  with the  acquisition,  liabilities  were  assumed as
follows:

    Fair value of assets acquired                         $    753
    Stock issued                                              (151)
                                                          --------
    Liabilities assumed                                        602
                                                          ========

In 1999 and 1998, capital lease obligations of $731 and $47, respectively,  were
incurred  when  the  Company  entered  into  leases  for  office  furniture  and
equipment.

In 1998, the Company acquired all the common stock of Cliff Winn, Inc.  Realtors
for $426.  In  conjunction  with the  acquisition,  liabilities  were assumed as
follows:

    Fair value of assets acquired,
      including cash of $292                              $    457
    Cash paid                                                 (426)
                                                          --------
    Liabilities assumed                                   $     31
                                                          ========
















                             See accompanying notes.

                          REALCO, INC. AND SIBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      September 30, 2000, 1999 and 1998

              (Dollars in thousands, except per share amounts)



NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES

Realco,  Inc., a New Mexico  corporation,  and Subsidiaries  (the "Company") has
operations  which include real estate  brokerage  sales through a franchise from
Prudential Real Estate Affiliates, Inc.; single- family home construction;  land
development;  and, to a lesser  extent,  commercial  construction  and financial
services.  Its  operations  and  customers  are  primarily  in the  vicinity  of
Albuquerque,  New Mexico except for certain real estate  brokerage and financial
services operations and customers in Phoenix, Arizona.

The Company's  accounting  policies  reflect  industry  practices and conform to
generally  accepted  accounting  principles.  The more significant  policies are
briefly discussed below.

1.  Principles of Consolidation

The consolidated  financial  statements include the accounts of Realco, Inc. and
its  wholly  owned  subsidiaries.   All  material   intercompany   accounts  and
transactions have been eliminated in consolidation.

2.  Revenue Recognition and Provision for Warranty Claims

The Company constructs  single-family homes of short building duration for which
minimal  deposits are generally  required from the buyer.  Revenue is recognized
upon closing. Estimated warranty costs are provided at the time of sale.

Revenues from significant  commercial  construction  contracts are recognized on
the percentage-of- completion method;  accordingly,  income is recognized in the
ratio that costs incurred bear to estimated total costs.  The aggregate of costs
incurred and income  recognized  on  uncompleted  contracts in excess of related
billings  is  shown as an  asset,  and the  aggregate  billings  on  uncompleted
contracts in excess of related costs incurred and income  recognized is shown as
a liability.  Certain short-term smaller commercial  construction  contracts are
accounted   for  on  the   completed-contract   method,   which  does  not  vary
significantly from the  percentage-of-completion  basis of accounting.  Contract
costs include all direct material, subcontractor,  supplies, and labor costs and
those indirect costs relating to contract performance.  Provisions for estimated
losses on uncompleted  contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability,
and final  contract  settlements  may result in revisions to cost and income and
are recognized in the period in which the revisions are determined.

Brokerage  commissions and fees earned from real estate  brokerage  services are
recognized at the time of closing on the underlying real estate sales contracts.

3.  Cash, Cash Equivalents, and Restricted Cash

The  Company  considers  money  market  accounts  and  all  highly  liquid  debt
instruments  purchased  with a  maturity  of  three  months  or  less to be cash
equivalents. The Company maintains its cash and cash equivalents in accounts

                          REALCO, INC. AND SIBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      September 30, 2000, 1999 and 1998

              (Dollars in thousands, except per share amounts)



which may not be federally  insured.  The Company has not experienced any losses
in such accounts and believes it is not exposed to any significant credit risk.

In the ordinary course of operations,  the Company  collects and holds in escrow
funds associated with real estate contract deposits, construction sales contract
deposits,  and other escrowed funds.  These balances are reflected as restricted
cash with a corresponding liability.

4.  Accounts and Notes Receivable

The  Company  reviews  accounts  and notes  receivable  for  collectibility  and
provides  reserves on specific  accounts based upon whether the Company believes
that the collection of a specific account is questionable.

The  Company  provides  credit to its  customers  under  ordinary  trade  terms.
Receivables for real estate contracts are generally  collateralized  by the real
estate.

5.  Inventories

Inventories  are carried at the lower of cost or estimated net realizable  value
and include all acquisition costs, direct labor and benefits,  project interest,
materials  unique to or  installed  in the project,  subcontractor  cost,  and a
proportional overhead allocation charge.

6.  Property and Equipment

Depreciation is provided in amounts sufficient to relate the cost of depreciable
assets to operations  over their  estimated  service lives of three to ten years
using straight-line and accelerated methods.

Impairment  losses are recorded on  long-lived  assets used in  operations  when
indicators of impairment are present and the  undiscounted  cash flows estimated
to be generated by these assets are less than the assets' carrying amount.

Assets  acquired  under capital  leases are recorded at the lower of fair market
value or the present value of future  minimum lease  payments.  These leases are
amortized  on the  straight-line  method  over the  primary  lease  term or over
estimated  economic  lives  in the  event  ownership  of the  underlying  assets
transfers at the end of the lease term.

7.  Income Taxes

Deferred  income  taxes are provided on  temporary  differences  between the tax
basis of an asset or  liability  and its  reported  amount  in the  consolidated
financial statements that will result in taxable or deductible amounts in future
years.  Deferred income tax assets or liabilities are determined by applying the
presently enacted tax rates and laws.

The Company and its subsidiaries file consolidated income tax returns.

                          REALCO, INC. AND SIBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      September 30, 2000, 1999 and 1998

              (Dollars in thousands, except per share amounts)



8.  Earnings (Loss) Per Common Share

Earnings  (loss) per common share is  calculated  based on the weighted  average
number  of  shares  outstanding  during  the  year.  Conversion  of  convertible
preferred  stock,   warrants  and  options  are  antidilutive  for  all  periods
presented.

9.  Investments

Investments in affiliated companies and joint ventures owned 20% to 50% or which
the  Company is able to  exercise  significant  influence  over  operations  are
accounted for on the equity method. Accordingly,  the consolidated statements of
operations include the Company's share of the affiliated entities' net operating
results.

Investments in affiliated  companies  owned 20% or less and the Company does not
exercise  significant  influence  over  operations are accounted for on the cost
method.

10.  Intangible Assets

Costs in excess of net assets of businesses  acquired are being  amortized using
the straight-line method over fifteen or twenty years.  Accumulated amortization
of costs in excess of net  assets of  businesses  acquired  was $442 and $299 at
September 30, 2000 and 1999, respectively.

The  Company  assesses  the  recoverability  of costs in excess of net assets of
businesses acquired by determining whether the amortization of the asset balance
over its  remaining  life  can be  recovered  through  the  undiscounted  future
operating cash flows of the acquired operation. The amount of the impairment, if
any, is measured based on projected discounted future operating cash flows.

11.  Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect certain  reported amounts and  disclosures;  accordingly,  actual results
could differ from those estimates.

12.  Stock Options

The Company applies APB Opinion 25 and related interpretations in accounting for
its stock  options.  Accordingly,  compensation  expense is only  recognized for
grants of options which include an exercise  price less than the market price of
the stock at the date of the grant.

13.  Advertising Costs

The Company  expenses the cost of advertising the first time  advertising  takes
place. Advertising expense for the years ended September 30, 2000, 1999 and 1998
was approximately $1,485, $1,037 and $990, respectively.


                          REALCO, INC. AND SIBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      September 30, 2000, 1999 and 1998

              (Dollars in thousands, except per share amounts)



14.  Other Comprehensive Income

Accumulated  other  comprehensive  income  consists  solely  of  net  unrealized
investment gains (losses). Unrealized gain (loss) on investments consists of the
following at September 30:

                                             2000       1999       1998
                                           --------   --------   --------
  Unrealized gain (loss) on investments
    arising during the period              $    875   $     -    $    (27)
  Less reclassification adjustment for
    gains (losses) included in net
    earnings (loss)                             118        (27)        18
                                           --------   --------   --------
  Unrealized gain (loss) on investments,
    net                                    $    757   $     27   $    (45)
                                           ========   ========   ========

Due to subsequent  declines in market value of certain  securities,  accumulated
other comprehensive income, net of deferred income taxes, relating to unrealized
gains on  available  for sale  securities  was $320 at  November  17,  2000.  As
recoverability of certain deferred tax assets is based upon future taxable gains
on available  for sale  securities,  this decline would result in an increase in
the Company's valuation allowance for deferred income tax assets of $292.

NOTE B - INVENTORIES

During the years ended September 30, 2000,  1999 and 1998, the Company  incurred
and  capitalized   interest  costs  of   approximately   $379,  $363  and  $285,
respectively.  Capitalized  interest costs charged to cost of construction sales
were  approximately  $382, $332 and $333 for the years ended September 30, 2000,
1999 and 1998, respectively.

Inventories consist of the following as of September 30:

                                                        2000       1999
                                                      --------   --------
    Land and improvements under development           $  6,717   $  8,755
    Construction in progress                             2,783      5,206
    Model homes                                            962        971
                                                      --------   --------
                                                      $ 10,462   $ 14,932
                                                      ========   ========

Construction in progress  includes homes under contract of approximately  $2,178
and $3,971 at September 30, 2000 and 1999, respectively.

                          REALCO, INC. AND SIBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      September 30, 2000, 1999 and 1998

              (Dollars in thousands, except per share amounts)



NOTE C - COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS

The  following is a summary of  significant  commercial  construction  contracts
accounted for on the percentage-of-completion method as of September 30:

                                                        2000       1999
                                                      --------   --------
    Costs incurred on uncompleted contracts           $    468   $    893
    Estimated earnings                                      68        162
                                                      --------   --------
                                                           536      1,055
      Less billings to date                                611        573
                                                      --------   --------
                                                      $    (75)  $    482
                                                      ========   ========
    Included in the accompanying consolidated
      balance sheets under the following captions
        Costs and estimated earnings in excess of
          billings on uncompleted contracts           $    156   $    482
        Billings in excess of cost and estimated
          on uncompleted contracts                        (231)        -
                                                      --------   --------
                                                      $    (75)   $   482
                                                      ========   ========

NOTE D - INVESTMENTS

The  following is a summary of  investments  carried on the equity  method as of
September 30:

                                                        2000       1999
                                                      --------   --------
    MI Acquisition Corporation, 11%
      stockholder interest in 1999                    $     -    $  1,245
    PHS Mortgage, 50% stockholder interest                 335        279
    Success Venture                                         76        105
    Other                                                  381        115
                                                      --------   --------
                                                      $    792   $  1,744
                                                      ========   ========

Effective May 1, 2000 the Company  adopted the cost method of accounting for its
investment  in MI  Acquisition  Corporation.  As a result  of  additional  stock
offerings by this privately  owned  financial  services  company,  the Company's
equity position has been diluted below 10%, which no longer supports  accounting
for this investment under the equity method.

The  Company  has  participated  in certain  land  development  and  residential
construction  projects under separate  joint venture  agreements.  The Company's
liability is joint and several for such joint  ventures and its 50% share in the
operations  is reported on the equity  method in the  accompanying  consolidated
financial statements.

                          REALCO, INC. AND SIBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      September 30, 2000, 1999 and 1998

              (Dollars in thousands, except per share amounts)



Summarized  financial  information of certain  investments carried on the equity
method is as follows:

              As of and for the year ended September 30, 2000
              -----------------------------------------------

                                                       PHS        Success
                                                     Mortgage     Venture
                                                   -----------  -----------
    Cash                                           $        -   $        39
    Other assets                                           988        1,398
                                                   -----------  -----------
                                                   $       988  $     1,437
                                                   ===========  ===========
    Liabilities                                    $       260  $     1,285
    Equity                                                 728          152
                                                   -----------  -----------
                                                   $       988  $     1,437
                                                   ===========  ===========
    Revenue earned                                 $     1,270  $        -
                                                   ===========  ===========
    Net earnings (loss)                            $       503  $       (58)
                                                   ===========  ===========

              As of and for the year ended September 30, 1999
              -----------------------------------------------

                                          MI
                                      Acquisition      PHS        Success
                                      Corporation    Mortgage     Venture
                                      -----------  -----------  -----------
    Cash                              $     6,954  $        78  $        39
    Other assets                           62,503          504          171
                                      -----------  -----------  -----------
                                      $    69,457  $       582  $       210
                                      ===========  ===========  ===========
    Liabilities                       $    58,552  $        24   $        -
    Equity                                 10,905          558          210
                                      -----------  -----------  -----------
                                      $    69,457  $       582  $       210
                                      ===========  ===========  ===========
    Revenue earned                    $    34,501  $     1,599  $       110
                                      ===========  ===========  ===========
    Net earnings                      $     1,223   $      767   $       43
                                      ===========  ===========  ===========

                          REALCO, INC. AND SIBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      September 30, 2000, 1999 and 1998

              (Dollars in thousands, except per share amounts)



              As of and for the year ended September 30, 1998
              -----------------------------------------------

                                          MI
                                      Acquisition      PHS         Joint
                                      Corporation    Mortgage     Ventures
                                      -----------  -----------  -----------
    Cash                              $     1,734  $       359  $       309
    Other assets                           34,385          543          716
                                      -----------  -----------  -----------
                                      $    36,119  $       902  $     1,025
                                      ===========  ===========  ===========
    Liabilities                       $    26,844  $       503  $       229
    Equity                                  9,275          399          796
                                      -----------  -----------  -----------
                                      $    36,119  $       902  $     1,025
                                      ===========  ===========  ===========
    Revenue earned                    $    31,779  $     1,214  $       893
                                      ===========  ===========  ===========
    Net earnings                      $       908  $       635  $       290
                                      ===========  ===========  ===========

NOTE E - ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable include the following at September 30:

                                                        2000       1999
                                                      --------   --------

Residential  construction  advances  to  various  builders  subordinate  to  the
interest of banks under participation agreements; collateralized by certain real
estate and homes under  construction,  interest  due monthly at the banks' prime
rate plus 1%,  principal  due as homes are sold,  up to a  nine-month  term with
three-month renewals considered $ 35 $ 150

    Brokerage commissions and fees receivable              516        530

    Construction sales receivable                        1,678        909

    Other advances and receivables                         504        335
                                                      --------   --------
                                                         2,733      1,924
      Less allowance for doubtful accounts                  63         25
                                                      --------   --------
                                                      $  2,670   $  1,899
                                                      ========   ========

                          REALCO, INC. AND SIBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      September 30, 2000, 1999 and 1998

              (Dollars in thousands, except per share amounts)



NOTE F - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at September 30:

                                                        2000       1999
                                                      --------   --------

    Office equipment, furniture, and fixtures         $  2,966   $  2,564
    Leasehold improvements                                 499        577
    Automobiles and equipment                              134        182
                                                      --------   --------
                                                         3,599      3,323
      Less accumulated depreciation and
        amortization                                     1,813      1,388
                                                      --------   --------
                                                      $  1,786   $  1,935
                                                      ========   ========

NOTE G - DEBT

Debt consisted of the following at September 30:

                                                        2000       1999
                                                      --------   --------

    Subordinated  sinking fund notes,  $5,750 face amount, 9.5% interest payable
    annually, principal payable at various dates through December 2003 (less $79
    and $121 unamortized discount at September 30, 2000 and 1999,  respectively,
    based on imputed interest rate of 10.5%) (A) $ 4,071 $ 4,829

    Construction    and    development   advances;
    collateralized  by  inventories (A)(B)               2,447      3,866

    Notes payable;  collateralized  by inventories
    (A)(C)                                               2,048      2,931

    Note payable to Norwest Bank;  collateralized by investee common stock owned
    by the Company, due in semi-annual  installments of $35,700 plus interest at
    1% over the bank's prime rate, through July 2004 (A) 286 357

    Other notes payable                                    107         28
                                                      --------   --------
                                                      $  8,959   $ 12,011
                                                      ========   ========

                          REALCO, INC. AND SIBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      September 30, 2000, 1999 and 1998

              (Dollars in thousands, except per share amounts)



(A)  Subordinated  sinking fund notes and certain  construction  and development
advances and notes  payable  collateralized  by inventory are subject to various
covenants, the most restrictive of which include minimum net worth requirements,
cash flow coverage  requirements,  limitations on dividends,  and limitations on
debt.

(B) Construction and development advances  collateralized by inventories include
amounts advanced under construction loan agreements,  other lending arrangements
and buyer financed loans which are payable upon closing.  The construction  loan
agreement  with Wells Fargo  Bank,  which  matures  December  31, 2000  requires
separate  construction  loans for each project and provides  among other things,
for borrowings up to $4,000 with interest rates ranging from prime to prime plus
 .75%. Total amounts  outstanding  under the Wells Fargo Bank  construction  loan
agreement were $814 and $989 at September 30, 2000 and 1999,  respectively.  The
construction  loan agreement  with New Mexico Bank & Trust,  which matures March
30, 2001 also requires separate construction loans for each project and provides
among other things,  for  borrowings  up to $3,000 with interest  rates at prime
plus  .75%.  Total  amounts  outstanding  under  the  New  Mexico  Bank &  Trust
construction loan agreement were $887 and $1,079 at September 30, 2000 and 1999.
Each home to be built  under  other  lending  arrangements  requires  a separate
construction loan with interest rates ranging from prime to prime plus 1.5%. The
prime   lending   rate  was  9.5%  and   8.25%  at   September   30,   2000  and
1999,respectively.

(C) Notes payable  collateralized by inventories  include amounts outstanding on
loan agreements  expiring at various dates through  November 2001, with variable
interest  rates at the banks'  prime rates plus .5% to 1.5% (prime rate was 9.5%
and 8.25% at September 30, 2000 and 1999, respectively) and fixed interest rates
of 7.25% or 9% (9% or 10% in 1999),  with  principal  payments due as properties
are sold.

Aggregate future maturities of debt are as follows at September 30, 2000:

    Year ending September 30
           2001                                       $  4,716
           2002                                          1,617
           2003                                            879
           2004                                          1,826
                                                      --------
                                                         9,038
    Less amount representing discount on debt               79
                                                      --------
                                                      $  8,959
                                                      ========

                          REALCO, INC. AND SIBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      September 30, 2000, 1999 and 1998

              (Dollars in thousands, except per share amounts)



NOTE H - INCOME TAXES

The  provision  for income taxes  consists of the  following for the years ended
September 30:

                                             2000       1999       1998
                                           --------   --------   --------
    Current                                $     -    $     (7)  $     (8)
    Deferred                                   (388)       167       (328)
                                           --------   --------   --------
                                               (388)  $    160   $   (336)
                                           ========   ========   ========

The Company's  effective income tax rate on continuing  operations differed from
the federal statutory rate of 34% as follows:

                                             2000       1999       1998
                                           --------   --------   --------

    Income taxes at federal statutory
      rate                                 $   (449)  $    148   $   (515)
    Increase (decrease) in valuation
      allowance                                  52       (187)       271
    Nondeductible expenses                       81         41         38
    State income taxes at statutory rate        (79)        26        (91)
    Adjustment of estimated income tax
      liability of prior year                    10        127        (49)
    Other                                        (3)         5         10
                                           --------   --------   --------
      Total tax provision                  $   (388)  $    160   $   (336)
                                           ========   ========   ========

Components of deferred taxes are as follows at September 30:

                                                   2000       1999
                                                 --------   --------
    Assets
      Inventories                                $     26   $     72
      Accrued liabilities                             137        177
      Investments                                     117        105
      Tax loss carryforward                           638         32
      Contributions carryforward                        7         -
      Valuation allowance                            (160)      (108)
                                                 --------   --------
                                                 $    765   $    278
                                                 ========   ========

    Liabilities
      Investments                                $    719   $    134
      Property and equipment                           46         27
                                                 --------   --------
                                                      765   $    161
                                                 ========   ========

                          REALCO, INC. AND SIBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      September 30, 2000, 1999 and 1998

              (Dollars in thousands, except per share amounts)



A valuation allowance for deferred tax assets is required when it is more likely
than not  that  some  portion  or all of the  deferred  tax  assets  will not be
realized. The valuation allowance increased $52 for the year ended September 30,
2000 and decreased $187 for the year ended September 30, 1999.

At September 30, 2000, the Company has net operating loss  carryforwards for tax
purposes of approximately $1,594 which will expire in 2020.

NOTE I - LEASES

The Company leases furniture and equipment under long-term leases with ownership
of the furniture and equipment  transferred to the Company at the termination of
the leases. Property and equipment include leased furniture and equipment with a
cost of $807 and $778 and accumulated  depreciation of $140 and $21 at September
30, 2000 and 1999, respectively.

Capital  lease terms range from three to five years and provide for  payments as
follows:

    Year ending September 30
           2001                                      $     305
           2002                                            249
           2003                                              7
                                                      --------
    Total minimum lease payments                           561
    Amount representing interest                            52
                                                      --------
    Present value of net minimum lease payments       $    509
                                                      ========

The  Company  leases  certain  office  facilities  and  equipment  used  in  its
operations  under  operating  leases  expiring at various dates through 2009 and
provide for payments as follows:

    Year ending September 30
           2001                                       $  1,725
           2002                                          1,706
           2003                                          1,424
           2004                                          1,098
           2005                                            779
           Thereafter                                    2,705
                                                      --------
                                                      $  9,437
                                                      ========

Certain facilities are subleased under leases which expire in 2005. Total future
minimum sublease rentals amount to $723 at September 30, 2000.

                          REALCO, INC. AND SIBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      September 30, 2000, 1999 and 1998

              (Dollars in thousands, except per share amounts)


Rental expense for all operating  leases for the years ended  September 30 is as
follows:

                                             2000       1999       1998
                                           --------   --------   --------

     Minimum rentals                       $  1,604   $  1,200   $    989
     Sublease rentals                          (188)       (67)       (61)
                                           --------   --------   --------
                                           $  1,416   $  1,133   $    928
                                           ========   ========   ========

Certain of these leases relating to rental expense of  approximately  $172, $137
and $117 for the years ended  September 30, 2000,  1999 and 1998,  respectively,
are with related parties.

NOTE J - BUSINESS COMBINATIONS

The Company acquired certain net assets and the residential brokerage operations
of Farnsworth Realty & Management  Company  ("Farnsworth")  effective January 1,
2000. The  acquisition  included a cash payment of $250, a note payable of up to
$150, and the assumption of $29 in liabilities.

The  Company  acquired  Financial  Services  Group,  Inc.  ("FSG"),  a financial
services  company  controlled  by the Company's  President  and Chief  Executive
Officer,  effective June 1, 2000. This acquisition was made through the issuance
of 680,000  shares of Company common stock.  Assets  acquired  included  650,000
shares of Company common stock which were immediately cancelled.

The Company  acquired  certain net assets and the operations of TI Construction,
Inc.  ("TI"),  a  commercial   construction   contractor  which  specializes  in
constructing veterinary clinics,  effective August 1, 1999. This acquisition was
made  through the  issuance  of 67,000  shares of Company  common  stock held in
treasury.

The Company acquired Cliff Winn, Inc. Realtors ("Winn Realtors"),  a real estate
broker,  effective February 1, 1998. The acquisition  included a cash payment of
approximately $426 and future contingent payments of up to $963. As of September
30, 2000,  contingent  payments of $351 have been made and the future contingent
payments has been reduced to $578. Future contingent  payments made, if any, are
based on future earnings levels and will result in additional costs in excess of
net assets acquired to be amortized over the remaining life of the asset.

These business combinations have been accounted for using the purchase method of
accounting and the accompanying  consolidated  financial  statements include the
operations  of these  entities  subsequent to the date of  acquisition.  Initial
costs in excess of the net assets acquired were approximately $184.

During the year ended September 30, 2000,  contingent payments of $552 were made
for past  acquisitions  which  resulted in an increase to costs in excess of net
assets acquired.

                          REALCO, INC. AND SIBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      September 30, 2000, 1999 and 1998

              (Dollars in thousands, except per share amounts)



The  following   summarized  pro  forma   unaudited   information   assumes  the
acquisitions  of TI and  Winn  Realtors  occurred  on  October  1,  1997 and the
acquisitions of Farnsworth and FSG occurred on October 1, 1998:

                                              Years ended September 30,
                                              -------------------------
                                           2000         1999         1998
                                        ----------   ----------   ----------

  Revenues                              $   56,498   $   56,357   $   42,578
                                        ==========   ==========   ==========
  Net earnings (loss)                   $     (861)  $      187   $   (1,078)
                                        ==========   ==========   ==========
  Earnings (loss) per common share      $     (.29)  $      .07   $     (.42)
                                        ==========   ==========   ==========

NOTE K - SEGMENT INFORMATION

The Company operates in the following segments:  residential construction,  real
estate broker,  commercial  construction,  and financial  services.  Information
concerning  the  Company's  business  segments  as of and  for the  years  ended
September 30 is as follows:

                                             2000       1999       1998
                                           --------   --------   --------
    Revenues
      Residential construction
        and land development               $ 21,220    $19,515   $ 11,396
      Real estate broker
        Sales to unaffiliated customers      28,025     25,625     21,983
        Intersegment sales                       -          -         368
      Financial services                        642        677        838
      Commercial construction                 5,960      3,188      1,724
      Interest and other
        Sales to unaffiliated customers         160        779        453
        Intersegment sales                      731        646        723
         Eliminations                          (731)      (646)    (1,090)
                                           --------   --------   --------
            Total                          $ 56,007   $ 49,784   $ 36,395
                                           ========   ========   ========
    Operating profit (loss)
      Residential construction
        and land development               $  1,130   $  1,237   $   (348)
      Real estate broker                       (697)       (56)      (329)
      Financial services                       (186)       147        325
      Commercial construction                  (155)       (91)       (49)
                                           --------   --------   --------
            Total                          $     92   $  1,237   $   (401)
                                           ========   ========   ========

                          REALCO, INC. AND SIBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      September 30, 2000, 1999 and 1998

              (Dollars in thousands, except per share amounts)



                                             2000       1999       1998
                                           --------   --------   --------
    Assets
      Residential construction
        and land development               $ 12,924   $ 16,286   $ 17,693
      Real estate broker                      2,815      4,796      3,920
      Financial services                      1,980      2,139      3,073
      Commercial construction                 1,073      1,913        575
                                           --------   --------   --------
        Identifiable assets                  18,792     25,134     25,261
      Equity investments                        361        220        544
      Corporate assets                        2,363        853        828
      Other assets                            2,126      1,605      1,735
                                           --------   --------   --------
             Total                         $ 23,642   $ 27,812   $ 28,368
                                           ========   ========   ========
    Depreciation and amortization
      Residential construction
        and land development               $    100   $    127   $    123
      Real estate broker                        657        339        256
      Commercial construction                    25         22         18
      Other                                     114        113        125
                                           --------   --------   --------
             Total                         $    896   $    601   $    522
                                           ========   ========   ========
    Capital expenditures
      Residential construction
        and land development               $     34   $     90   $    147
      Real estate broker                        351        485        147
      Commercial construction                    29         17         17
      Other                                       6         42          6
                                           --------   --------   --------
             Total                         $    420   $    634   $    317
                                           ========   ========   ========

Operating profit consists of total revenues,  less costs and expenses  including
interest  expense  allocated to the  financial  services  segment,  but does not
include  unallocated  interest expense,  other income, net equity in earnings of
certain  investees,  loss on sale of equipment,  or income  taxes.  Identifiable
assets are those assets used in the  Company's  operations  in each area.  Other
assets include cash and cash equivalents, available for sale securities, certain
investments accounted for under the equity and cost method, and capitalized debt
issuance costs.

NOTE L - COMMITMENTS AND CONTINGENCIES

The Company is engaged in various  legal  proceedings  incidental  to its normal
business activities. Management of the Company does not believe that the outcome
of each such  proceeding or all of them  combined  will have a material  adverse
effect on the Company or its consolidated financial position or operations.

                          REALCO, INC. AND SIBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      September 30, 2000, 1999 and 1998

              (Dollars in thousands, except per share amounts)



NOTE M - STOCK AND WARRANTS

Series A voting  preferred stock is entitled to dividends when declared and paid
at a 6% cumulative rate payable  annually  starting January 31, 1996 and payable
each  January 31  thereafter.  Series B voting  preferred  stock is  entitled to
dividends  when  declared  and paid at a 3%  cumulative  rate  payable  annually
starting  January 31, 1996 and payable each January 31 thereafter.  At September
30, 2000,  preferred  stock dividends in arrears for Series A were $221 or $2.77
per share ($173 or $2.17 per share for 1999) and Series B were $357 or $1.67 per
share ($292 or $1.37 per share for 1999).  Each series of preferred  stock has a
liquidation  preference  of $10 per  share,  plus  all  accumulated  but  unpaid
dividends. Each Series A preferred share is convertible into common shares at $7
per common share on the basis of $10 per preferred share. The Series B preferred
stock is convertible under the same terms; however, the preferred stock value is
$11.11 per share.

In 1999,  2,600 shares of the  outstanding  shares of Series A voting  preferred
stock were redeemed  based upon the $10 per share  liquidation  value and 23,919
shares of Series D voting  preferred  stock were converted into 47,838 shares of
common stock. To induce  conversion,  the Series D preferred stock was converted
at a rate of $5 per common share  instead of $7 per common share in the original
conversion terms. The excess carrying value of the Series D preferred stock over
the fair  value of the common  stock  given and the value of  additional  common
stock issued to induce conversion was approximately $116 which is reflected as a
negative return in the Preferred Stock Dividend  Requirement in the Consolidated
Statements of Operations.

As a result of its past public  offering of certain debt and equity  securities,
690,000  warrants  to  purchase  Company  common  stock at $8.40 per share  were
issued.  These  warrants  became  immediately  exercisable  upon  closing of the
offering  and expire  February  1, 2001.  All  warrants  remain  outstanding  at
September 30, 2000.

During 2000 the Company  amended its articles of  incorporation  to increase the
authorized common shares to 50,000,000.

NOTE N - STOCK OPTIONS

The  Company  has an employee  incentive  stock plan for certain key  employees.
Options currently  outstanding  under the plan become  exercisable one year from
the date of the grant and expire five years  after the date of the grant.  These
options are exercisable at not less than the market value of the Company's stock
on the date of the grant. Accordingly,  no compensation cost has been recognized
for these options. Had compensation cost for these options been determined based
on the fair value of the options at the grant dates  consistent  with the method
of SFAS No. 123,  Accounting  for  Stock-Based  Compensation,  the Company's net
earnings  (loss)  and  earnings  (loss)  per  common  share  would have been the
following pro forma amounts for the years ended September 30:

                          REALCO, INC. AND SIBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      September 30, 2000, 1999 and 1998

              (Dollars in thousands, except per share amounts)



                                             2000       1999       1998
                                           --------   --------   --------
     Net earnings (loss) applicable
       to common shares
         As reported                       $ (1,046)  $    280   $ (1,300)
         Pro forma                           (1,114)       202     (1,386)
     Earnings (loss) per share
       As reported                         $   (.36)  $    .10   $   (.47)
       Pro forma                               (.38)       .07       (.50)

     The fair value of each option  grant is  estimated on the date of the grant
using   the   Black-Scholes    options-pricing    model   with   the   following
weighted-average   assumptions   used  for  grants  in  2000,   1999  and  1998,
respectively:  dividend  yield was  estimated  to remain at zero for all  years;
expected  volatility of 60% for 2000,  58% for 1999 and 54% for 1998;  risk-free
interest rates of 6.7%, 5.5% and 6%, respectively;  and an expected life of five
years for all years.

The  Black-Scholes  options  valuation model was developed for use in estimating
the fair value of traded  options which have no vesting  restrictions  and fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

A summary of the status of the Company's  fixed stock options as of September 30
and changes during the years then ended is presented below:

                              2000              1999              1998
                      -----------------   ----------------   ----------------
                              Weighted            Weighted           Weighted
                      Number   average    Number   average   Number   average
                        of    exercise      of    exercise     of    exercise
                      shares    price     shares    price    shares    price
                      ------- ---------   ------- --------   ------- --------
Outstanding at
  beginning of year   195,000  $   3.21   100,000  $   3.38   35,000  $  3.30
Granted                25,000      2.40   105,000      3.06   90,000     3.42
Forfeited             (15,000)     3.45   (10,000)     3.38  (25,000)    3.42
                      -------            --------            -------
Outstanding at
  end of year         205,000  $   3.09   195,000  $   3.21  100,000  $  3.38
                      =======            ========            =======
Options exercisable
  at year end         180,000  $   3.19
Weighted-average fair
  value of options
  granted during the
  year                         $   1.01            $   1.18           $  1.09

                          REALCO, INC. AND SIBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      September 30, 2000, 1999 and 1998

              (Dollars in thousands, except per share amounts)



The following information applies to options outstanding at September 30, 2000:

Number outstanding                                205,000
Range of exercise prices                          $2.40 to $3.45
Weighted average exercise price                   $3.09
Weighted average remaining contractual life       3 years

The Company records  proceeds from the exercise of stock options,  net of income
tax effects, if any, as additions to common stock.

NOTE O - FINANCIAL INSTRUMENTS

The following  table includes  various  estimated fair value  information  which
pertains  to the  Company's  financial  instruments  and  does  not  purport  to
represent the aggregate net fair value of the Company.  The carrying  amounts in
the table below are the amounts at which the financial  instruments are reported
in the consolidated financial statements.

All of the  Company's  financial  instruments  are held for purposes  other than
trading.

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

1.  Cash,  Cash   Equivalents,   and  Restricted  Cash  -  The  carrying  amount
approximates  fair value because of the short  maturity and highly liquid nature
of those instruments.

2. Floating Rate Notes Receivable - The carrying amount  approximates fair value
because interest rates adjust to market rates.

3.  Fixed  Rate Debt - The  discounted  amount of future  cash  flows  using the
Company's current  incremental rate of borrowing for similar liabilities is used
to estimate fair value.

4.  Floating  Rate Debt - The carrying  amount  approximates  fair value because
interest rates adjust to market rates.

                          REALCO, INC. AND SIBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      September 30, 2000, 1999 and 1998

              (Dollars in thousands, except per share amounts)



The  carrying  amounts  and  estimated  fair values of the  Company's  financial
instruments are as follows:

                                           2000                  1999
                                   --------------------  --------------------
                                   Carrying  Estimated   Carrying  Estimated
                                    amount   fair value   amount   fair value
                                   --------  ----------  --------  ----------
  Financial assets
    Cash, cash equivalents, and
      restricted cash              $  2,217  $    2,217  $  4,055  $   4,055
    Floating rate notes receivable       35          35       144        144
  Financial liabilities
    Fixed rate debt                  (5,550)     (5,457)   (5,605)    (5,602)
    Floating rate debt               (3,409)     (3,409)   (6,407)    (6,407)

NOTE P - NON-RECURRING ITEMS

During the fourth  quarter of fiscal 1998,  the Company  committed to close four
real estate brokerage branch offices and re-establish those offices in a single,
strategically  located  facility.  As a result of this  commitment,  the Company
incurred  charges of $273 related to lease  abandonments.  Additionally,  during
this quarter,  the Company determined valuation allowances of $505 were required
on certain inventories,  receivables,  and other assets. The aggregate effect of
these  items was to increase  the loss for the fourth  quarter of fiscal 1998 by
$606 or $.22 per share.

Of the $273 initial charge relating to lease  abandonments,  $38 was utilized in
1999,  $98 was utilized in 2000, and a revision of estimate of $108 was recorded
in 2000,  resulting in an accrued  liability of $29 at September 30, 2000, which
represents the  anticipated  present value of future  obligations  for abandoned
facilities.

NOTE Q - SUBSEQUENT EVENT

On  October  9, 2000 the  Company  executed a Letter of  Agreement  with  Equity
Securities  Investments,  Inc. ("ESI"), a Minneapolis based broker and dealer in
securities,  whereby the Company will acquire 100% of the  outstanding  stock of
ESI in a tax-free,  stock-for-stock  transaction. The agreement provides for the
shareholders of ESI to receive approximately  1,500,000 shares of Company common
stock,  such shares  representing  approximately  30% of the then fully  diluted
outstanding common shares.  This transaction will broaden the Company's focus on
financial services and is expected to close in January 2001.

On October 10, 2000 the Company notified  Prudential Real Estate Affiliates that
it did not intend to renew its  franchise  agreement  for real estate  brokerage
sales,  which expires in June 2001. The Company is considering  private branding
of its real estate operations or another national franchise.


ITEM 9:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None


                                    PART III


ITEM 10:  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

JAMES A. ARIAS has served as the Company's  President,  Chief Executive  Officer
and a Director since its formation in September  1983. From 1975 to September of
1983, he was a partner of James Bentley & Associates, a financial consulting and
real estate syndication firm in Albuquerque,  New Mexico,  which was merged into
and  became  a  division  of  Financial  Services  Group,  Inc.,  a  New  Mexico
corporation,  of which Mr. Arias is  President  and a  controlling  shareholder.
Since 1984, he has served as Manager of S&H Brokerage  Inc.,  N.M., an insurance
broker in Albuquerque,  New Mexico, which during the fiscal year became a 49.99%
Company  subsidiary.  From June 1995 to March  2000 he  served as  interim  sole
Director  of  Arinco  Computer  Systems  Inc.,  a  publicly  traded  New  Mexico
corporation,  which  underwent a reverse merger  transaction in the current year
and now operates as Change Technology Partners, Inc., a publicly traded Delaware
corporation.   In  August  1997,  at  the  time  when  the  Company  acquired  a
shareholding  interest in Miller and Schroeder Financial,  Inc., a broker dealer
headquartered  in  Minneapolis,  Minnesota Mr. Arias became a Director and Audit
Committee Member of that Company.  Mr. Arias is also a Director of Quatro, Inc.,
a New Mexico electronics company. Both Miller and Schroeder and Quatro, Inc. are
privately held corporations. Mr. Arias will devote substantially all of his time
to the affairs of the Company.

BILL E.  HOOTEN  served as an  Executive  Vice  President  and a Director of the
Company since March 31, 1995.  From  inception to August 1995, Mr. Hooten served
as the  President  and a Director of the Company's  predecessor  Old Realco.  He
currently  serves as a Director  and  Chairman  of the  Finance  and Real Estate
Committees of Presbyterian Health Care Services, headquartered in Albuquerque.

ARTHUR A. SCHWARTZ has served as a Director of the Company since  November 1994.
For more than the past five years Mr.  Schwartz  has been  President  of Masters
Coverage Corp., a successor company of S&H Insurance  Brokerage,  Inc., of N.Y.,
an  insurance  broker  located  in New  York,  New  York.  Of  which he had been
President and manager. Masters Coverage Corp. is a 50.01% owner of S&H Insurance
Brokerage,  Inc.,  N.M.,  an  insurance  brokerage  company  49.9%  owned by the
Registrant located in Albuquerque, New Mexico.

MARSHALL  BLUMENFELD has served as a Director of the Company since its formation
in September 1983. Mr.  Blumenfeld was engaged in the private practice of law in
New York, New York, from 1963 until 1997 when he retired from the practice.

MARTIN S. ORLAND was first elected to the Board by the shareholders on March 21,
1997. Mr. Orland is currently  self-employed,  providing consulting and advisory
services.  He retired January 1, 1997 as an employee of Fortis,  Inc.,  where he
served as President of Fortis Private  Capital,  Inc., a private venture capital
investment  business in New York, New York.  During the same period,  Mr. Orland
was the Executive Vice President of Fortis  Advisors,  Inc., a corporation  that
made  investments  in  commercial  real  estate  and  mortgages.  Each of  these
corporations are subsidiaries of Fortis,  Inc., which is a subsidiary of a Dutch
holding company. From April 1993, through August 1996, Mr. Orland was a Director
of Financing for Science International, Inc., a publicly traded corporation, and
served as Director of Continental Bank, a publicly traded financial institution.
These companies were subsequently sold. In 1997, Mr. Orland became a Director of
Quatro,  Inc., a New Mexico based electronics company, and is also a Director of
three other privately owned companies.

NOEL  ZELLER  was first  elected to the Board by the  shareholders  on March 21,
1997. Mr. Zeller is the founder and owner of Zelco Industries,  Inc., a New York
consumer  products  manufacturing  corporation,  and for more than the past five
years  has  served  as  the  President  of  that  corporation.  He is  also  the
owner-manager of Zeller Properties LLC, a New York corporation,  which is a real
estate investing company.

All directors hold office until the next annual meeting of shareholders or until
their successors have been duly elected and qualified. Executive officers of the
Company  are  appointed  by,  and  serve  at the  discretion  of,  the  Board of
Directors.

The following  table sets forth  certain  information  concerning  the Company's
directors and the Company's executive officers:

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

     James A. Arias(2)           62     President, CEO and Director
     Bill  E. Hooten             64     Executive Vice President and
                                         Director
     Chris A. Bruehl             32     Senior Vice President, CFO
                                         and Secretary/Treasurer
     Arthur A. Schwartz(1)       60     Director
     Marshall Blumenfeld(1)      66     Director
     Martin S. Orland(1)         67     Director
     Noel Zeller(2)              64     Director

     -----------------------------------
     (1)  Audit Committee member.
     (2)  Stock Option Committee member.

Background  information for the executive officer, who is not also a director is
as follows:

CHRIS A. BRUEHL has served as Senior Vice President,  Chief Financial Office and
Secretary/Treasurer  of the Company  since March 1999.  Prior to that time,  Mr.
Bruehl was a  Certified  Public  Accountant  employed as an  Assurance  Services
Manager with Grant Thornton LLP, the Company's  independent  public  accountants
for more than the past five years.


ITEM 11:  EXECUTIVE COMPENSATION.

The following table sets forth certain information regarding compensation earned
or awarded to the Company's  executive  officers during the Company's last three
completed  fiscal  years  ended  September  30,  2000,  1999 and 1998.  No other
executive  office of the  Company  received  compensation  in excess of $100,000
during each of the three years ended September 30, 2000.

                            Annual                             Long-term
                          Compensation                        Compensation
-----------------------------------------------------------  --------------
                                                                      Securities
                                                                      Underlying
 Name and Principal Position    Year    Salary($)  Bonus($)    Options(#)
-----------------------------  -----    ---------  --------    ----------

James A. Arias, President       2000     $ 98,900  $100,000            -
   Chief Executive Officer,     1999       93,000     4,000            -
   Chairman of the Board(1)     1998       87,600        -             -

Bill E. Hooten, Executive       2000      120,000        -             -
   Vice President(2)            1999      120,000        -             -
                                1998      120,000        -             -

Chris A. Bruehl, Senior         2000       96,200     4,000         5,000
   Vice President, Chief        1999       61,800        -         25,000
   Financial Officer,           1998           -         -             -
   Secretary/Treasurer(3)

-----------------------------

Notes to Summary Compensation Table

(1) The Company pays Mr. Arias a monthly base salary,  which increases  annually
at the rate of 6% per annum as a cost of living  adjustment.  In  addition,  Mr.
Arias is to be paid an  allowable  bonus  equal to 10% of  pre-tax  earnings  in
excess of $400,000  during any fiscal year. Mr. Arias received a non- cash bonus
of $100,000  which was accrued by Financial  Services  Group,  Inc. prior to the
acquisition  of this company in 2000.  Such  accrued  bonus was  satisfied  with
certain assets of Financial  Services  Group,  Inc. which existed at the date of
acquisition,  thereby  resulting  in no  expense  or  negative  cash flow to the
Company.

(2) Phyllis S. Hooten, the wife of Bill E. Hooten, is employed by the Company as
an interior designer.  She has been paid $9,000 per year during the fiscal years
ended 2000,  1999 and 1998.  She was also  furnished a car that is leased by the
Company for $472 per month.  None of this compensation paid or furnished to Mrs.
Hooten is included in the totals of the compensation paid to Mr. Hooten.

(3) Mr. Bruehl was hired in March 1999.  Accordingly,  compensation reported for
1999 represents a portion of the year and no compensation is reported for 1998.


Option Grants
-------------

During  2000 the  Company  granted  certain of its  directors  and an  executive
officer options under its Key Employee Incentive Stock Option Plan as follows:

                      Option/SAR Grants in Last Fiscal Year
-----------------------------------------------------------------------------
                                Individual grants
-----------------------------------------------------------------------------
                      Number of     Percent of Total
                      Securities    Options/SARs       Exercise
                      Underlying    Granted to         or Base
                      Option/SARs   Employees in       Price      Expiration
      Name            Granted(#)    Fiscal Year        ($/Sh)     Date
-------------------   -----------   ----------------   --------   ----------

Chris A. Bruehl             5,000                20%     $ 2.40     03/10/05
Arthur A. Schwartz          5,000                20%       2.40     03/10/05
Marshall Blumenfeld         5,000                20%       2.40     03/10/05
Martin S. Orland            5,000                20%       2.40     03/10/05
Noel Zeller                 5,000                20%       2.40     03/10/05

              Option/SAR Grants in Last Fiscal Year (continued)
-----------------------------------------------------------------------------
                               Potential Realized
                                Value at Assumed
                                 Annual Rates of Stock   Alternative:
                                 Price Appreciation      Grant Date
                                 for Option Term         Value *
-----------------------------------------------------------------------------
                                     *           *       Grant Date
                                    5%($)      10%($)    Present Value
                                 ---------   ---------   -------------
Chris A. Bruehl                                               $  5,050
Arthur A. Schwartz                                               5,050
Marshall Blumenfeld                                              5,050
Martin S. Orland                                                 5,050
Noel Zeller                                                      5,050

--------------

* The fair  value of each  option  grant is  estimated  on the date of the grant
using the  Black-Scholes  option  pricing  model,  with the  following  weighted
average  assumptions:  dividend yield rate of zero,  expected volatility of 60%,
risk free interest rate of 6.7% and an expected life of five years.


Option Exercises and Year End Values
------------------------------------

The table below sets forth,  certain information  regarding the value of options
held by certain  Directors and an Executive Officer at September 30, 2000. There
were no options  exercised  by the  Directors or  Executive  Officer  during the
fiscal year ended September 30, 2000.

                   Aggregated Option Fiscal Year End Values
-----------------------------------------------------------------------------
                        Number of Securities          Value of Unexercised
                        Underlying Unexercised        In-the-Money
                        Options/SARs at               Options/SARs at
                        September 30, 2000            September 30, 2000
                      --------------------------   --------------------------
     Name             Exercisable  Unexercisable   Exercisable  Unexercisable
-------------------   -----------  -------------   -----------  -------------
Chris A. Bruehl            25,000          5,000       $    -         $    -
Arthur A. Schwartz         15,000          5,000            -              -
Marshall Blumenfeld        15,000          5,000            -              -
Martin S. Orland           15,000          5,000            -              -
Noel Zeller                15,000          5,000            -              -

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

Directors  are not  currently  paid a fee or other  compensation  for serving as
Directors.  However,  the Company reimburses each Director for all out of pocket
expenses incurred to attend meetings and grants them options to purchase Company
common  stock from time to time under its Key  Employee  Incentive  Stock Option
Plan.

Price Performance Graph
-----------------------

The following graph compares the total cumulative return of the Company's Common
Stock  with  the S&P  SmallCap  600  Index,  the S&P  Services  (Commercial  and
Consumer) Index and the S&P Homebuilding  Index. The total cumulative return for
each period is based on the  investment  of $100 on  February 2, 1996,  assuming
compounded  daily returns and the  reinvestment of all dividends.  The Company's
Common Stock began trading on February 2, 1996.

   [The following table was represented by a graph in the printed material]

                                                 S&P Services
                           Company      S&P       (Commercial       S&P
                           Common     SmallCap   and Consumer)  Homebuilding
                            Stock    600 Index      Index          Index
                           -------   ---------   ------------   ------------

  February 2, 1996           $ 100       $ 100          $ 100          $ 100
  September 30, 1996            48         115            110             89
  September 30, 1997            50         157            128            132
  September 30, 1998            27         133            110            148
  September 30, 1999            31         156            104            125
  September 30, 2000            19         194             75            157



ITEM 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth, certain information with respect to the security
ownership of certain  beneficial  owners and management of the Company's  Common
Stock and Preferred Stock ("Voting  Shares") as of December 11, 2000. There were
2,959,138  shares of the  Company's  Common  Stock  issued  and  outstanding  at
December 11, 2000.

The  Preferred   Stockholders   have  voting  rights  identical  to  the  Common
Stockholders.  The Preferred  Stockholders  have the right to convert all or any
portion of their Preferred Stock to Common Stock. The following table sets forth
the  identity  of (i)  each  shareholder  who is  known  by the  Company  to own
beneficially more than 5% of the outstanding Voting Shares,  (ii) each Director,
and (iii) all Officers and Directors as a group. Except as otherwise  indicated,
each of the  Shareholders  listed in the table or included within a group listed
in the table possess sole voting and investment power with respect to the Voting
Stock indicated.

                                              Shares            Percent of
                                           Beneficially         Outstanding
          Name and Address                    Owned            Voting Shares
---------------------------------------    ------------        -------------

James A. Arias                                214,200                6.6%
1650 University Blvd. NE, Suite 5-100
Albuquerque, New Mexico 87102

Nortek, Inc. (1)                              200,000                6.2%
50 Kennedy Plaza
Providence, RI 02903

Joseph Zerger Revocable Trust                 340,000               10.5%
1550 East Oakland Blvd.
Fort Lauderdale, FL 33334

Arthur A. Schwartz (5)                         35,000                1.1%
401 East 80th Street
New York, New York 10021

Marshall Blumenfeld (5)                        29,000                 *
1338 Van Buren Street
Hollywood, Florida 33019

Bill E. Hooten (2)(3)(4)                      270,714                8.4%
1650 University Blvd. NE, Suite 5-100
Albuquerque, NM 87102

MLPF&S CUST EPO (2)(3)                         57,855                1.8%
Bill E. Hooten IRRA FBO
1650 University Blvd. NE, Suite 5-100
Albuquerque, NM 87102

Bill E. Hooten and Phyllis S. Hooten (2)(4)   212,859                6.6%
Revocable Trust UTA
1650 University Blvd. NE, Suite 5-100
Albuquerque, NM 87102

Martin S. Orland (5)                            1,650                 *
52 Centerville Rd.
Holmdel, New Jersey 07733

Noel Zeller (5)                                35,000                1.1%
3 Justin Road
Harrison, New York 10528

Chris A. Bruehl (6)                             1,000                 *
1650 University Blvd. NE, Suite 5-100
Albuquerque, NM 87102

All Executive Officers and
  Directors as a Group (2)(4)(7)              585,564              18.1%

--------------
* less than 1%

Notes to Beneficial Ownership Table

1. Nortek,  Inc., a New York Stock Exchange listed company,  acquired the shares
as a result of its previous purchase of Ply Gem, Inc., formerly a New York Stock
Exchange listed company.  Realco,  Inc. has no association with Nortek,  Inc. in
any capacity.

2. The 57,855  Series A  Preferred  Shares and the  212,859  Series B  Preferred
Shares  have one vote on all  matters  that may  come  before a  meeting  of the
Shareholders.  Upon the  Offerings  being  declared  effective  by the SEC,  the
holders of Series A and Series B Preferred Shares have the right to convert,  at
any time, their Preferred Shares into Common Stock.

3. The Trust was  established  for the  benefit of Bill E. Hooten as a roll over
account to accept the Series A Preferred Shares previously held in Realco,  Inc.
Stock Bonus Trust, Bill E. Hooten,  Trustee,  for the benefit of Bill E. Hooten.
Mr. Hooten as Trustee has voting and investment power over such shares.

4. Mr. Hooten, an Officer and Director of the Company,  has the right to convert
Series  A and  Series  B  Preferred  Shares  into up to  420,488  shares  of the
Company's  Common  Stock  over  which he has the right to  exercise  voting  and
investment power.

5. Does not include  options to purchase  20,000 shares of the Company's  common
stock.

6. Does not include  options to purchase  30,000 shares of the Company's  common
stock.

7. Shares beneficially owned by all Executive Officers and Directors as a group,
include a total of 270,714 Series A and Series B Preferred Shares.

Family relationships
--------------------

None of the Directors or Executive Officers of the Company are related (as first
cousins or closer) by blood, marriage or adoption.


ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

During the past year the Company  was a party to the  following  transaction  in
which a certain officer and director had a material interest:

On March  10,  2000,  the  Independent  Directors  of the  Company  approved  an
arrangement  whereby Bill Hooten,  the Company's  Executive Vice President,  was
permitted to build up to ten speculative  homes  personally in conjunction  with
Charter  Building  and  Development   ("Charter"),   the  Company's  residential
construction subsidiary in fiscal 2000. Such homes were constructed and marketed
as Charter homes under a fee arrangement  providing for Charter to receive 5% of
direct  construction  costs as a construction  management fee and 1% as warranty
reserve. Additionally, the Company retains sales commissions on such homes.

While the  Company is  foregoing  its normal  gross  profit on homes  under this
arrangement, as offset by the aforementioned fees, this program was deemed to be
in the best  interests  of the  Company  due to the fact the Company is bound to
debt  reduction   requirements   on  certain  lot  inventory  and  lot  purchase
requirements,  which may not be met based upon  current  levels of  construction
activity.  This  arrangement  allows the  Company to better  meet such  takedown
requirements  without  assuming the additional  risk  associated with committing
additional working capital to speculative homes.

As a result of this  arrangement,  revenues of $191,000  were  recognized by the
Company in 2000, which consisted of sales of developed lots and fees revenue.

Any future transactions with officers,  directors or 5% beneficial  shareholders
of the  Company's  Common Stock is intended to be on terms no less  favorable to
the Company or its  affiliates  than could be obtained from  unaffiliated  third
parties and will be approved by a majority of the independent outside members of
the Company's Board of Directors who do not have an interest in the transaction.


                                     PART IV

ITEM 14:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)  Documents filed as part of this report:

     (1) The financial  statements  filed as part of this report are included in
         Item 8.

     (2) The financial  statement  schedule required to be filed as part of this
         report  consists of  Schedule  II  Valuation  and  Qualifying  Accounts
         appearing at the end of this Item.

     (3) The following exhibits are filed as part of this report:

         EXHIBIT
         NUMBER                    DESCRIPTION OF EXHIBIT
         -------  ------------------------------------------------------------

          3.1     Articles of Amendment of Articles of Incorporation dated March
                  14, 2000 (filed herewith).

         21       Subsidiaries of the Registrant (filed herewith).

         21.1     Real Estate Brokerage Services, Inc.
         21.2     Charter Building & Development Corp.
         21.3     Great American Equity Corporation
         21.4     Realco Construction, Inc.
         21.5     PHS, Inc.
         21.6     Financial Services Group, Inc.

         27       Financial Data Schedule (filed herewith).


(b) Reports on Form 8-K:

     The  Registrant  filed Form 8-K dated  October  25, 2000 during the quarter
     ended September 30, 2000 reporting matters under Item 5, Other Events.

(c)  The  exhibits  listed  under  Item  14 (a) (3)  are  filed   herewith  or
     incorporated by reference.

(d) Financial statement schedules:

     (1)  The financial  statement  schedule listed under Item 14(a)(3) is filed
          herewith.



Schedule II - Valuation and Qualifying Accounts:

                             (Dollars in thousands)

                            Balance at
                            beginning   Charged to                Balance at
                             of year      expense    Deductions   end of year
                           -----------  -----------  -----------  -----------


Year ended September 30, 2000:

  Allowance for doubtful
    accounts                  $     25     $     46     $      8     $     63
  Home construction
    warranty reserve               208          254          190          272
  Home construction
    inventory impairment           180           -           115           65
  Reserve for abandonment
    of leaseholds                  235           -           206           29


Year ended September 30, 1999:

  Allowance for doubtful
    accounts                  $     25     $     54     $     54     $     25
  Home construction
    warranty reserve               132          166           90          208
  Home construction
    inventory impairment           270           -            90          180
  Reserve for abandonment
    of leaseholds                  273           -            38          235


Year ended September 30, 1998:

  Allowance for doubtful
    accounts                  $     76     $      9     $     60     $     25
  Home construction
    warranty reserve               123          108           99          132
  Home construction
    inventory impairment             -          270            -          270
  Reserve for abandonment
    of leaseholds                    -          273            -          273


SIGNATURES:

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

                                     REALCO, INC.

     Date: December 15, 2000         By: /s/ JAMES A. ARIAS
                                     ----------------------------------
                           James A. Arias, President,
                          Chief Executive Officer, and
                       Chairman of the Board of Directors


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

      Signature                       Title                    Date
------------------------   ----------------------------  -----------------

/s/ JAMES A. ARIAS         President, Chief Executive    December 15, 2000
-----------------------      Officer and Chairman
    James A. Arias         (Principal Executive Officer)


/s/ CHRIS A. BRUEHL        Senior Vice President and     December 15, 2000
-----------------------      Chief Financial Officer
    Chris A. Bruehl        (Principal Financial and
                               Accounting Officer)


/s/ BILL E. HOOTEN         Executive Vice President      December 15, 2000
-----------------------      and Director
    Bill E. Hooten


/s/ ARTHUR A. SCHWARTZ     Director                      December 15, 2000
-----------------------
    Arthur A. Schwartz


/s/ MARSHALL BLUMENFELD    Director                      December 15, 2000
-----------------------
    Marshall Blumenfeld


/s/ NOEL ZELLER            Director                      December 15, 2000
-----------------------
    Noel Zeller


/s/ MARTIN S. ORLAND       Director                      December 15, 2000
-----------------------
    Martin S. Orland

EXHIBIT 3.1

                            ARTICLES OF AMENDMENT OF
                          ARTICLES OF INCORPORATION OF

                                  REALCO, INC.

      Pursuant to the provisions of the New Mexico Business Corporation Act, the
undersigned  corporation,  Realco,  Inc. adopts the following  amendments to its
Articles of Incorporation:

FIRST:  The name of the corporation is Realco, Inc.

SECOND:  The following  amendment to Article IV of the Articles of Incorporation
Realco,  Inc., as previously  amended on March 20, 1995 and March 21, 1997,  was
adopted on March 10, 2000, as prescribed by the New Mexico  Corporations Act, by
a vote of shareholders sufficient for approval of the Amendment:

      ARTICLE IV is amended as follows:

      The  corporation  shall have the authority to issue  50,000,000  shares of
common stock with no par value.

      Parts I, II and IV of Article IV, remain unchanged from the prior Articles
of Incorporation, as previously amended.

THIRD:  On January  25,  2000,  the  following  series of shares were issued and
outstanding  and entitled to receive notice of and to vote at the March 10, 2000
Meeting of Shareholders:

                                                     Number of Issued
           Title of Stock                         and Outstanding Shares
      --------------------------                  ----------------------
      Common stock, no par value                         2,887,338
      Series A Preferred Stock                              79,969
      Series B Preferred Stock                             212,859

FOURTH:  The shares of outstanding  stock voted for and against the Amendment as
follows:

                                          For the     Against the
           Title of Stock                Amendment     Amendment     Abstained
      --------------------------         ---------    -----------    ---------

      Common stock, no par value         2,361,876         40,950           -
      Series A Preferred Stock              79,969             -            -
      Series B Preferred Stock             212,859             -            -

FIFTH:  This  Amendment   increased  the  corporations   authorized  capital  by
44,000,000 shares of no par value common stock.

Dated:  March 14, 2000

REALCO, INC.

By:   /s/ JAMES A. ARIAS                        /s/ CHRIS A. BRUEHL
      -------------------------                 --------------------------
      James A. Arias, President                 Chris A. Bruehl, Secretary

EXHIBIT 27