UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  FORM 10-KSB

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

For the fiscal year ended September 30, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]

Commission File Number:  0-27552

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

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

 1650 University Boulevard, N.E., Suite 5-100, Albuquerque, New Mexico, 87102
            (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)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such 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____.

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

State issuer's revenues for its most recent fiscal year: $24,256,642

State the  aggregate  market  value of the voting  stock held by  non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked  prices of such stock,  as of a specified  date within the past 60
days:  On December  16, 1996,  based on the price  quoted by NASDAQ,  the market
value was $5,797,500.

The number of shares  outstanding of each of the Registrant's  classes of voting
stock, as of December 16, 1996, was:

     No Par Value Common:  2,845,000 shares.
     Series A Preferred:      82,569
     Series B Preferred:     217,859
     Series D Preferred:      24,297

PART I
                    
ITEM 1:  DESCRIPTION OF BUSINESS

General

The  Registrant'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.

The Registrant  was organized in 1983 as a private  company and its business was
that of an investment  company providing funds to others in the form of loans or
equity  interests  through   September  30,  1994.   Through  its  wholly  owned
subsidiary, MMAD Industries, Inc.,(MADD) a New York corporation (now named Great
American Equity Corporation and referred to hereafter as "GAEC"), it was engaged
in the  business of  arranging  and  participating  in secured  loans  involving
various forms of real estate  acquisitions  and ventures.  Beginning  October 1,
1994,  the  Registrant  changed its business  strategy  and  developed a plan to
create a financial  group of  interrelated  companies to provide a full range of
real estate services.

On  March  14,  1995,  the  Registrant  entered  into an  agreement  and plan of
Reorganization  with a New Mexico corporate  holding company and certain of that
company's  shareholders,  which  resulted  in the  Registrant's  acquisition  of
several  wholly-owned  subsidiaries  including  Charter Building and Development
Corp.  (Charter),  a residential  home  building  contractor  and  Hooten-Stahl,
Inc.(Hooten/Stahl)   a  real  estate   brokerage   business.   Pursuant  to  the
Reorganization certain of the acquired corporations's shareholders exchanged all
of their Common Stock, representing  approximately 98% of the outstanding stock,
for an aggregate of 82,569 shares of the  Registrant's  Series A Preferred Stock
and  228,859  shares of the  Registrant's  Series B Preferred  Stock.  Since the
acquisition,  the  Registrant  has conducted its  activities  through it`s three
wholly-owned operating subsidiaries; GAEC, Charter and Hooten/Stahl.

Following  the  acquisition  of Charter and  Hooten/Stahl,  the  Registrant,  on
February 2, 1996,  successfully  concluded a public  offering of securities,  at
which time Charter began a marketing effort to obtain agreements with additional
builders  in  the  Albuquerque  area,  to  build  and  market  homes  under  fee
arrangements. Charter has secured two such contracts whereby Charter is building
homes  under  the  trade  name  of  each  of  the  builders.  In  addition  to a
construction fee,  Hooten/Stahl has secured an exclusive marketing agreement for
the marketing of those Charter built branded homes.

On April 22, 1996,  the Registrant  announced that it had commenced  residential
construction lending activity.  GAEC entered into a participation agreement with
a local bank,  which agreement is contemplated to provide an annual  residential
home construction  funding budget of approximately $24 million.  As of September
30, 1996,  the  Registrant  and its bank partner had  $3,025,400 in  outstanding
loans  and/or  funding  commitments,  of  which  approximately  $965,000  is the
Registrant's  participation.  The Registrant expects to commit  approximately $3
million of its funds to this project,  while the bank will provide approximately
$9 million of matching  funds.  This kind of loan  generally  matures within six
months and the Registrant  anticipates that upon repayment of outstanding  loans
the funds will be reinvested in the continuation of this lending activity.

Also on April 22,  1996,  the  Registrant  announced  that it had entered into a
joint venture with its PHS, Inc.,  subsidiary and CTX Mortgage  Company,  a full
service  residential  mortgage  provider.  The joint venture began operations at
each of its three Hooten/Stahl branch locations.  By October 31, 1996, the joint
venture  was fully  operational  and  recorded  nominal  income for the month of
September, 1996.

On July 1, 1996,  the  Registrant  acquired  all of the  outstanding  and issued
common shares of stock of Amity, Inc., (Amity), an Albuquerque, New Mexico based
general contractor specializing in commercial construction, including commercial
tenant improvements and residential remodeling.  The Registrant exchanged 24,297
shares of its Series D Convertible Preferred Stock, $10.00 per share liquidation
value,  bearing 3% cumulative  dividend,  for all of the issued and  outstanding
Amity  shares.  The total value of the  transaction  was  $242,970,  which was a
$100,000 premium in excess of the audited net worth of Amity at June 30, 1996.

Operating Strategy

All of the Registrant's business activities are located in the metropolitan area
of Albuquerque, New Mexico. Since the completion of its Initial Public Offering,
the  Registrant  has expanded its lending and  construction  activities  and has
added new services to its core of businesses' in a continuing effort to become a
one  stop  source  for  small to  medium  size  independent  home  builders  and
developers who may need to acquire financing, building materials,  marketing and
sales support.

The  Registrant  believes that it can  capitalize  on its operating  methods and
strategies,  which it is  formulating in its existing  market,  for expansion to
other geographical areas. For example, the Registrant believes that expansion to
other  markets  may be  achieved  by its  acquisition  of either  real estate or
building  companies.  Once such a business is acquired,  the strategy will be to
export  to its new  market  the  entire  array  of  business  activities  of the
Registrant.

On  a  continuing  basis,  the  Registrant  has  been  exploring  a  variety  of
acquisition  opportunities,  consisting  of service,  product  and  distribution
businesses.  The  Registrant's  acquisition  strategy  complements  the  plan of
internal growth charted for its existing activities.

Inventory Acquisition and Development

During the fiscal period ended  September 30, 1996 the  Registrant  made several
acquisitions of undeveloped  land for development of residential home sites. The
land  purchases  were made  through  joint  venture  arrangements,  whereby  the
Registrant  or  one of its  subsidiaries  became  a 50%  equity  partner  in the
venture.  The Registrant and/or its participating  subsidiary,  usually provides
funding for the joint ventures by arranging  primary and  subordinate  secondary
secured land acquisition and development loans. First position secured loans are
generally   provided  by  local  banks  with  whom  the  Registrant  has  credit
facilities,  on such terms and  conditions as are customary in the  geographical
market in which the  Registrant  does  business.  Subordinate  second  position,
secured  loans are generally  provided by  combination  of Registrant  funds and
outside third party  participants.  This tier of subordinated  debt is generally
granted an "Equity Kicker" in the form of additional  preferential  payments per
residential  lot sold,  in addition  to the return of  principal  and  interest.
Interest,  terms  and  conditions  are  customary  in the  market  in which  the
Registrant does business. The Registrant is almost always requested by the first
position lender, (bank) to guarantee the entire debt obligations.

On July 5, 1996, Charter acquired 50 completed building  residential home sites,
located on the west side of Albuquerque, New Mexico. During fiscal 1996, Charter
acquired an additional  40 building  sites at that same  location,  completing a
contractual agreement with the developer of the property.  The total acquisition
value of the 90 residential home sites was $3 million. Only the initial purchase
of 50 home sites was  financed by bank loans.  On July 5, 1996,  the  Registrant
executed a mortgage and promissory note in the amount of $1,100,000,  secured by
initial  acquisition of 50 home sites. The note bears floating interest equal to
one percent above the prime rate published in Reserve Statistical Release H. 15.
Interest  on the note is  payable  quarterly  and  principal  is  reduced by the
payment of a lot release provision. The maturity of the note is January 5, 1997,
which  may be  extended  for one  additional  year  subject  to  payment  by the
Registrant  of a fee  equal to one  percent  of the then  outstanding  principal
balance of the note.

On February 12, 1996 the Registrant  acquired 25 completed building  residential
home sites located in the Northeast quadrant of Albuquerque, Registrant executed
a  mortgage  and  promissory  note in the  amount of  $696,000,  secured  by the
acquired  property.  The note bears floating  interest equal to one and one-half
percent  above  the  prime  rate  of  interest   published  in  Federal  Reserve
Statistical  Release  H.15.  Interest  on the  note  is  payable  quarterly  and
principal is reduced by the payment of a lot release provision.  The maturity of
the note is February 12, 1997,  which may be extended for one  additional  year,
subject to payment by the  Registrant  of a fee equal to one percent of the then
outstanding principal balance of the note.

On June 26, 1996, the Registrant  purchased from a bank with whom the Registrant
has a banking  relationship,  a mortgage and note  representing  an  outstanding
indebtedness  of a real  estate  joint  venture in which  Charter is a 50% joint
venturer.  The original  balance of the note was $1,050,000,  dated February 23,
1995,  which  matured on  February  23,  1996.  The Bank and  Borrower  had been
negotiating  a  renewal  of the  note on terms  acceptable  to both  parties.  A
mutually  agreeable renewal of the note was not consummated,  and the Registrant
acquired  the  note  from  the  bank.  The  Registrant   agreed  to  extend  the
indebtedness  to the Joint Venture to February 23, 1997. The note is not subject
to any default provisions and is performing as expected.

On July 29, 1996,  Charter,  entered into a joint  venture  agreement,  (Success
Venture),  in which  Charter  became a 50% joint  venturer.  The  joint  venture
acquired 19.4839 acres of undeveloped land, located in the Northeast quadrant of
Albuquerque,  New Mexico,  for the purpose of  developing  85  residential  home
sites.  The purchase  price of the  undeveloped  land was  $2,825,165.  The land
purchase and funds  required to fully  develop the property were borrowed from a
bank and from the seller of the property.  On September 3, 1996,  the Registrant
executed a first  mortgage and note on the property in the amount of $2,500,000.
The note bears  floating  interest  equal to one percent above the prime rate of
interest of Chase  Manhattan  Bank of New York.  Interest on the note is payable
quarterly  and  principal is reduced by the payment of a lot release  provision.
The  maturity  of the note is  December  3, 1998.  On  September  3,  1996,  the
Registrant  executed a second mortgage and note on the property in the amount of
$1,555,699.  The second  mortgage  note  bears  floating  interest  equal to one
percent  above the prime rate of interest of Chase  Manhattan  Bank of New York.
Interest  on the note is  payable  quarterly  and  principal  is  reduced by the
payment of a lot release provision.  The maturity of the second mortgage note is
also December 3, 1998.

As of December 15, 1996,  the  Registrant  owned or controlled  through  various
joint venture  arrangements,  over 335 developed or currently under development,
home sites within the Albuquerque,  New Mexico  metropolitan area.  Inventory of
home sites  controlled by the  Registrant,  are utilized by Charter and are also
available for sale to home builders and individuals.

Hooten/Stahl  currently  represents  approximately  45  independent  home custom
builders in an exclusive  marketing  arrangement.  These  builders are part of a
"Builders Group" within the Hooten/Stahl client base. Any of the builders in the
"Builders Group" may draw on the available building site inventory controlled by
the Registrant. In addition, any independent builder within the "Builders Group"
may secure  residential  construction  loans from the Registrant's  GAEC lending
subsidiary.

Competition and Market Factors

Each of the  Registrant's  subsidiaries  competes  principally  on the  basis of
reputation in the community in which it serves. However, the Registrant competes
in a  highly  competitive  environment  typical  of all  real  estate  dependent
companies. All of the Registrant's  subsidiaries compete with companies,  nearly
all of which have greater  financial  resources than the  Registrant.  It is for
that reason that the Registrant has undertaken to form strategic  alliances with
other companies with greater financial resources and expertise.

The  Registrant  believes  that the host of  services it  currently  offers will
appeal to small and medium  size  builders  and  developers.  Since its  Initial
Public  Offering,  Hooten/Stahl  has nearly  doubled  the number of  independent
custom builders in its "Builder Group".  The ability of the Registrant to expand
its  business  is due in part to the  addition  of new  capital  from the public
securities offering.

The real estate  industry,  and the  Registrant's  business,  is cyclical and is
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
property taxes,  changes in consumer  preferences and  demographic  trends.  The
Registrant  believes that its strategy of vertical  integration will allow it to
remain  profitable during downturns in the cycle and to build a dominance in its
market during such times, however,  there can be no assurance that this strategy
will be successful.

Employees

As of September 30, 1996, the  Registrant,  including its  subsidiaries,  had 94
full and part time salaried employees.  They were employed as follows: Realco, 9
full-time:  Charter,  9 full-time  and 5 part-time;  Amity,  16 full-time  and 1
part-time,  and  Hooten/Stahl,  33  full-time  and 21  part-time.  In  addition,
Hooten/Stahl  has   approximately  142  sales  associates  who  are  independent
contractors.  Charter and Amity  normally  hire  independent  subcontractors  to
provide the skilled labor needed to construct their projects.

ITEM 2: DESCRIPTION OF PROPERTIES

The Registrant  leases,  on a month to month basis,  approximately  3,000 square
feet of office space at $500 per month for its executive  offices.  Mr. James A.
Arias, the Registrant's  President, is a part owner of the building in which the
executive offices are located.

The Registrant leases space for three real estate brokerage offices, Charter and
Amity construction subsidiaries,  all located within the Albuquerque, New Mexico
metropolitan area. Leases include space ranging from 2,100 square feet to 13,900
square feet at monthly rental costs ranging from $2,100 per month to $13,900 per
month. One lease is with the Registrant's  Executive Vice President and Chairman
of Hooten/Stahl,  Mr. Bill E. Hooten.  Prior to entering into the lease with Mr.
Hooten,  the Registrant  acquired an independent  determination  of fairness and
reasonableness  of the lease and its annual  rental of $103,250.  The lease with
Mr. Hooten expires on January 31, 1997, and the Registrant  anticipates  that it
will be renewed for a comparable period and at a comparable rental.

ITEM 3: LEGAL PROCEEDINGS

The  Registrant  is  subject to certain  legal  claims  from time to time and is
involved in litigation  that has arisen in the ordinary  course of its business.
It is the  Registrant's  opinion that it either has adequate  legal  defenses to
such claims or that any liability that might be incurred due to such claims will
not, in the aggregate,  exceed the limits of the Registrant's insurance policies
or  otherwise  result  in  any  material  adverse  effect  on  the  Registrant's
operations or financial position.

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

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of the fiscal year ended September 30, 1996.

PART II

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

The Registrant's  common stock is traded in the  over-the-counter  market and is
quoted on the National  Association of Securities  Dealers  Automated  Quotation
System  ("NASDAQ") under the symbol RLCO. The Registrant's  common stock was not
traded until the conclusion of the initial  public  offering of the common stock
in February,  1996. The following  table sets forth from February,  1996 through
September  30, 1996,  the range of the high and low last reported sale prices as
reported by NASDAQ. The quotations shown represent  inter-dealer  prices without
adjustment for retail  markups,  markdowns or  commissions,  and may not reflect
actual transactions.

Stock Quotations:

                                    High           Low
                                    ----           ---
     Fiscal 1996 
          First Quarter             N/A      
          Second Quarter             6            4 5/8
          Third Quarter            5 3/4          5 3/8
          Fourth Quarter             4            3 1/8

On December 16, 1996,  the last sale price for the common stock,  as reported by
NASDAQ,  was $3.00 per share. As of December 20, 1996, there were  approximately
700 beneficial holders of the common stock.

The transfer Agent for the Registrant's  Common Stock is American Stock Transfer
& Trust Registrant,  40 Wall Street,  New York City, New York 10005,  telephone:
(718) 921-8275.

The  Registrant 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  earnings  in order to finance the  continued
development  of its business.  Payment of dividends is within the  discretion of
the Registrant's  Board of Directors and will depend upon the earnings,  capital
requirements  and  operating and financial  condition of the  Registrant,  among
other factors.

ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

General

The Registrant's  revenues are generated through commercial and residential real
estate  brokerage  services,  general  residential  and commercial  construction
sales, and various financing activities.

The historical  financial  information for the twelve months ended September 30,
1996, is not comparable to the twelve months ended  September 30, 1995,  because
in March,  1995, the Registrant changed its business with the acquisition of its
real  estate  brokerage  services  and  general  residential  home  construction
businesses.  Revenues for the Registrant prior to the acquisition in March 1995,
were generated through various financing  activities in which the Registrant has
been continuously  involved since its inception in 1983. Since March,  1995, the
Registrant's  operating  results  have  included  the  operating  results of the
acquired businesses.

Results of Operations

Construction  and lot sales  increased by $4,955,083 to  $12,812,009 in 1996, an
increase of 63% over 1995.  Housing demand for new  construction  for the fiscal
period ended  September 30, 1996,  was slightly  lower than for the period ended
September 30, 1995.  Overall,  construction and lot sales was 53% of revenues in
1996 as compared to 57% of total  revenues in 1995.  The increase in revenue was
primarily due to the  recognition  of a full twelve  months of operation  during
1996, verses  recognition of seven months of operations during the fiscal period
ended September 30, 1995.

Revenues  from  brokerage  commissions  and  fees  increased  by  $4,811,013  to
$10,485,508 in 1996, an increase of 85% over 1995. This increase was primarily a
result of an increased  marketing campaign which was began in 1995 and continued
through 1996, the recognition of a full twelve months of operation  during 1996,
verses  recognition of seven months of operations during the fiscal period ended
September 30, 1995.

Revenues  from equity in net earnings of companies in which the  Registrant  has
invested  increased  by $200,487  to $270,984 in 1996,  an increase of 284% over
1995.  Earnings  attributed  to land  development  joint  ventures  increased by
$176,112 to $203,361 in 1996,  an increase of 645% over 1995.  There was also an
increase in net earnings from the Registrant's equity earnings in First American
Title Company of New Mexico and other  miscellaneous  investments  of $24,375 in
1996.  These  increases were  primarily due to the  recognition of a full twelve
months  of  operation  during  1996,  verses  recognition  of  seven  months  of
operations during 1995.

Gross  profit  from  the  Registrant's  construction  and lot  sales,  increased
$585,456 to $1,124,745  in 1996, a net increase of 109% over 1995.  Gross profit
percentage  increased from 6.9% in 1995 to 8.8% in 1996.  This increase in gross
profit percentage in 1996,  resulted  primarily from the Registrant's  increased
inventory of speculative  ("spec") homes. The Registrant  expanded its spec home
and lot  inventory in  anticipation  of sales  demand.  Changes in typical price
ranges for single family  residential  housing moved down slightly  during 1996,
causing longer delays between the  completion of  construction  and sale of spec
homes.  The increase in the holding  period of the spec  inventory was offset by
increased  margins  which were the result of  continuously  re-engineering  home
building  plans with a view towards  reducing  costs.  The  Registrant  has been
replacing sold spec homes with new spec homes priced to sell at prices which are
currently  influencing  market  conditions.  The  Registrant  believes  that its
marketing  strategy to quickly satisfy changing housing trends and buyer demands
will preserve the continuity of new home construction  revenues,  however, there
can be no assurances that such measures will be successful.

The  Registrant's  gross margin from  brokerage  commissions  and fees increased
$1,468,033 to $3,076,303 in 1996, an increase of 91.3%.  Gross profit percentage
increased  from  28.3%  in 1995 to  29.3%  in 1996.  The  primary  factor  which
contributed  to the increase was greater  gross revenue in 1996 compared to 1995
and a smaller  increase in the cost of  brokerage  revenue for 1996  compared to
1995.  The  Registrant  has  undertaken  a review of all  brokerage  expenses to
improve the gross margin during 1997.

Selling,  general and administrative  expenses increased by 77% to $4,220,119 in
1996 from  $2,384,385  in 1995.  This increase is primarily due to the following
factors. The Registrant  experienced additional costs associated with its public
offering,  related ongoing general and administrative  costs and the recognition
of a full twelve months of operations during 1996,  verses  recognition of seven
months of operations during the fiscal period ended September 30, 1995.

Depreciation  and  amortization  expense  was  $360,572  in 1996 as  compared to
$138,665 in 1995.  The  increase was  primarily  due to the  following  factors.
Consolidation  of the  March 1,  1995  acquisition  increased  the  Registrant's
depreciation base,  increasing the amount of amortization and the recognition of
a full twelve  months of operation  during  1996,  verses  recognition  of seven
months of operations during 1995.

Interest  expense  was  $423,340  in 1996 as  compared  to $27,041 in 1995.  The
Registrant  capitalizes  certain  interest costs for land  development  and home
construction and includes such capitalized interest in the cost of the home. The
increase in interest  expense for 1996 was  primarily  attributable  to interest
associated with the $5,750,000 of 9.5% Subordinated  Notes issued as part of the
public offering of the Registrant's securities.

Net income before  preferred  stock dividend  requirement  for 1996 was $132,142
compared to a loss of $49,820 for 1995. Increase in net income was a result of a
combination of all the factors discussed previously.

The Registrant is subject to a dividend requirement on preferred stock issued to
stockholders of acquired  businesses as previously  discussed.  The Registrant's
9.50% Subordinated  Notes contain  restrictions on the ability of the Registrant
to issue dividends. As of September 30, 1996, $66,071 was available for payments
of dividends  under the terms of the 9.50%  Subordinated  Notes. On February 28,
1996,  the  Registrant  paid a dividend to holders of Series A, 6%,  Convertible
Preferred Stock, of $49,541. All other dividends payable to holders of Series A.
Series B and Series D Preferred Stock have not been paid, and under the terms of
its Preferred Stock agreements, such dividends will continue to accumulate until
paid.

Liquidity and Capital Resources

In February, 1996, the Registrant publicly sold one million common shares of its
common  stock at $7.00  per  share  and  5,750  Units  consisting  of  $1,000 in
principal  amount of a 9.5%  Subordinated  Sinking Fund Note and 120 Warrants To
purchase 120 shares of common Stock.  The Registrant  received net proceeds from
the sale of approximately $11,250,000.

The  Registrant's  principal  sources of liquidity are cash flow from  operating
activities,  bank borrowings under both term and revolving credit facilities and
approximately  $4,480,880  of  the  Registrant's   unrestricted  cash  and  cash
equivalents. At September 30, 1996, the Registrant had approximately $10 million
revolving interim construction and inventory lines of credit with various banks.
In  addition,  the  Registrant  is in the process of renewing  approximately  $6
million of expired  commitments with two banks with whom the Registrant has long
standing relationships.

The Registrant  believes that the cash flow from its operations,  available bank
credit  lines and its  unrestricted  cash  balance,  will  sustain  its  current
operations and anticipated internal growth during fiscal 1997.

Inflation and Effects of Changing prices

Almost all aspects of the  Registrant's  operations  are affected by  inflation,
which  can cause  increases  in the price of land,  raw  materials,  subcontract
labor,  cost of  capital  and  affordable  availability  of  capital to fund the
various  business  activities of the  Registrant.  Inflation may result in lower
gross  profits  and  reduction  in  revenues  from  each  of  the   Registrant's
activities. The Registrant believes that the vertical integration strategy which
it is pursuing,  will provide some  insulation  from  cyclical and  inflationary
pressures. The Registrant believes in its ability to capture a variety of profit
opportunities  by  making  available  a broad  assortment  of its  products  and
services to the niche market it has identified, however, there are no assurances
that the Registrant will succeed,  should it actually experience such a cyclical
or inflationary period.

ITEM 7: FINANCIAL STATEMENTS 


Report of Independent Certified Public Accountants


The Shareholders
Realco, Inc.

We have audited the accompanying consolidated balance sheets of Realco, Inc. and
Subsidiaries,  as of September 30, 1996 and 1995,  and the related  consolidated
statements of  operations,  stockholders'  equity,  and cash flows for the years
then ended.  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  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our 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, 1996 and 1995, and the consolidated results of
their operations and their  consolidated  cash flows for the years then ended in
conformity with generally accepted accounting principles.

As discussed in Note N to the  consolidated  financial  statements,  the Company
changed  its method of  accounting  for certain  investments  in debt and equity
securities in 1995.



                                                              GRANT THORNTON LLP

Oklahoma City, Oklahoma
November 15, 1996


                         Realco, Inc. and Subsidiaries

                          CONSOLIDATED BALANCE SHEETS

                                 September 30,


                                                          1996           1995
                                                      -----------    -----------

ASSETS
  Cash and cash equivalents ......................    $ 4,480,880    $   642,829
  Restricted cash ................................        486,559        483,144
  Securities available for sale ..................        188,435        225,935
  Accounts and notes receivable (note E) .........      3,718,826        872,927
  Inventories (note B) ...........................     10,321,533      6,265,812
  Costs and estimated earnings in excess of
    billings on uncompleted contracts (note C) ...        307,433           -- 
  Property and equipment, net (note F) ...........        795,816        819,846
  Investments - equity method (note D) ...........        895,596        720,760
  Deferred income taxes (note H) .................         87,734         59,230
  Other assets ...................................      1,325,108        690,826
                                                      -----------    -----------

                                                      $22,607,920    $10,781,309
                                                      ===========    ===========

LIABILITIES
  Notes payable (note G) .........................    $ 5,627,240    $   176,002
  Lease obligations (note I) .....................        187,535        275,371
  Construction advances and notes payable,
    collateralized by inventories (note G) .......      3,389,012      4,078,804
  Accounts payable and accrued liabilities .......      1,784,917      1,393,401
  Escrow funds held for others ...................        486,559        483,144
                                                      -----------    -----------

             Total liabilities ...................     11,475,263      6,406,722

STOCKHOLDERS' EQUITY (note P)
   Series A preferred stock - authorized,
     83,000 shares; issued and
     outstanding, 82,569 shares in 1996
     and 1995, stated at liquidation value .......        825,690        825,690
   Series B preferred stock - authorized,
     230,000 shares; issued and outstanding,
     217,859 shares in 1996 and 222,859
     shares in 1995, stated at liquidation
     value .......................................      2,178,590      2,228,590
   Series C preferred stock - authorized,
     80,000 shares; issued and outstanding,
     none ........................................           --             --
   Series D preferred stock - authorized,
     24,297 shares; issued and outstanding,
     24,297 shares in 1996, stated at
     liquidation value ...........................        242,970           -- 
   Common stock - no par value; authorized,
     6,000,000 shares; issued and
     outstanding, 2,845,000 shares in 1996
     and 1,845,000 shares in 1995 ................      7,712,461      1,229,750
   Retained earnings .............................        165,588         82,987
   Unrealized gains on available-for-sale
     securities, net of taxes ....................          7,358          7,570
                                                      -----------    -----------
                                                       11,132,657      4,374,587
                                                      -----------    -----------

                                                      $22,607,920    $10,781,309
                                                      ===========    ===========

        The accompanying notes are an integral part of these statements.


                         Realco, Inc. and Subsidiaries

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                            Year ended September 30,


                                                         1996           1995   
                                                    ------------   ------------

REVENUES
  Brokerage commissions and fees ................   $ 10,485,508   $  5,674,495
  Construction sales ............................     11,807,150      7,573,124
  Sales of developed lots .......................      1,004,859        283,802
  Equity in net earnings of investees (note D) ..        270,984         70,497
  Interest and other, net .......................        688,141        206,828
                                                    ------------   ------------
                                                      24,256,642     13,808,746

COSTS AND EXPENSES
  Cost of brokerage revenue .....................      7,409,205      4,066,225
  Cost of construction sales ....................     10,672,952      7,025,070
  Cost of developed lots sold ...................      1,014,312        292,567
  Selling, general, administrative, and other ...      4,220,119      2,384,385
  Depreciation and amortization .................        360,572        138,665
  Interest ......................................        423,340         27,041
                                                    ------------   ------------
                                                      24,100,500     13,933,953
                                                    ------------   ------------
             Earnings (loss) before income
               taxes and cumulative effect
               of change in accounting principle         156,142       (125,207)

INCOME TAX (BENEFIT) EXPENSE (note H) ...........         24,000        (59,517)
                                                    ------------   ------------
             Earnings (loss) before cumulative
               effect of change in accounting
               principle ........................        132,142        (65,690)

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
        PRINCIPLE (note N) ......................           --          (15,870)
                                                    ------------   ------------

             NET EARNINGS (LOSS) ................        132,142        (49,820)

PREFERRED STOCK DIVIDEND REQUIREMENT ............        117,846         64,100
                                                    ------------   ------------

             NET EARNINGS (LOSS) APPLICABLE TO
               COMMON SHARES ....................   $     14,296   $   (113,920)
                                                    ============   ============
EARNINGS (LOSS) PER COMMON SHARE
  Earnings (loss) before cumulative effect of
    change in accounting principle and preferred
    stock dividend requirement ..................   $        .05   $       (.04)
  Cumulative effect of change in accounting
    principle ...................................           --              .01
                                                    ------------   ------------

  Net earnings (loss) per common share before
    preferred stock dividend requirement ........   $        .05   $       (.03)
                                                    ============   ============
  Net earnings (loss) per common share after
    preferred stock dividend requirement ........   $        .01   $       (.06)
                                                    ============   ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ......      2,498,005      1,845,000
                                                    ============   ============

        The accompanying notes are an integral part of these statements.

<TABLE>
                          Realco, Inc. and Subsidiaries

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                    Years ended September 30, 1996 and 1995
<CAPTION>
                                                                                                         Unrealized
                                                                                                            gains 
                                                                                                         (losses)on
                                     Series A     Series B       Series D                                 available
                                     preferred    preferred      preferred                                 for sale       Total
                                     stock  6%    stock 3%       stock 3%        Common      Retained     securities,  stockholders'
                                    cumulative   cumulative     cumulative       stock       earnings     net of tax      equity  
                                   -----------   -----------    ----------   -----------    ----------    ----------   ------------
<S>                                <C>           <C>            <C>          <C>            <C>           <C>          <C>         
Balance at October 1, 1994 .....   $     --      $      --      $     --     $ 1,230,750    $  132,807    $    --      $  1,363,557

Effect of accounting change,
  net of taxes of $32,423
  (note N) .....................         --             --            --            --            --        (48,634)        (48,634)

Purchase of 185,000 shares
  of common stock ..............         --             --            --        (147,250)         --           --          (147,250)

Sale of 185,000 shares of
  common stock .................         --             --            --         146,250          --           --           146,250

Issuance of Series A preferred
  stock in business acquisition
  (note K) .....................      825,690           --            --            --            --           --           825,690

Issuance of Series B preferred
  stock in business acquisition
  (note K) .....................         --        2,288,590          --            --            --           --         2,288,590

Retirement of Series B
  preferred stock ..............         --          (60,000)         --            --            --           --           (60,000)

Change in unrealized gains
  (losses) on available-for-sale
  securities, net of taxes of
  $37,469                                --             --            --            --            --         56,204          56,204

Net loss .......................         --             --            --            --         (49,820)        --           (49,820)
                                   ----------     ----------    ----------   -----------    ----------    ---------    ------------

Balance at September 30, 1995 ..      825,690      2,228,590          --       1,229,750        82,987        7,570       4,374,587

Sale of common stock ...........         --             --            --       6,178,174          --           --         6,178,174

Sale of common stock warrants ..         --             --            --         304,537          --           --           304,537

Issuance of Series D preferred
  stock in business acquisition
  (Note K) .....................         --             --         242,970          --            --           --           242,970

Retirement of Series B
  preferred stock ..............         --         (50,000)          --            --            --           --           (50,000)

Change in unrealized gains on
  available-for-sale securities,
  net of taxes of $304 .........         --            --             --            --            --           (212)           (212)

Dividends paid on Series A
  preferred stock ..............         --            --             --            --         (49,541)        --           (49,541)

Net earnings ...................         --            --             --            --         132,142         --           132,142
                                   ----------   -----------     ----------   -----------    ----------    ---------    ------------

Balance at September 30, 1996 ..   $  825,690   $ 2,178,590     $  242,970   $ 7,712,461    $  165,588    $   7,358    $ 11,132,657
                                   ==========   ===========     ==========   ===========    ==========    =========    ============
<FN>
         The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
<TABLE>
                          Realco, Inc. and Subsidiaries

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                            Year ended September 30,
<CAPTION>
                                                                           1996            1995             
                                                                      ------------    ------------
<S>                                                                   <C>             <C>         
Cash flows from operating activities
  Net earnings (loss) .............................................   $    132,142    $    (49,820)
  Adjustments to reconcile net earnings (loss) to net cash provided
    by (used in) operating activities
      Depreciation and amortization ...............................        360,572         138,665
      Accretion of discount on notes payable ......................         36,823            --   
      Distributions from investees in excess of net earnings (net
        earnings in excess of distributions) ......................       (112,248)        154,503
      (Gain) loss on sale of securities available for sale ........        (80,296)            591
      Cumulative effect of change in accounting principle .........           --           (15,870)
      Changes in operating assets and liabilities
        (Increase) decrease in restricted cash ....................         (3,415)          6,612
        Increase in accounts receivable ...........................       (399,562)        (40,911)
        (Increase) decrease in inventories ........................     (3,924,721)      1,877,481
        Decrease in net billings related to costs and estimated
          earnings on uncompleted contracts .......................         41,886            --   
        (Increase) decrease in other assets .......................         56,417        (113,224)
        Decrease in accounts payable and accrued liabilities ......        (10,551)       (111,067)
        Increase (decrease) in escrow funds held for others .......          3,415        (559,991)
        Increase in deferred tax asset ............................        (38,255)        (27,600)
                                                                      ------------    ------------

          Net cash provided by (used in) operating activities .....     (3,937,793)      1,259,369

Cash flows from investing activities
  Purchases of property and equipment .............................       (208,487)       (215,504)
  Advances on notes receivable ....................................     (3,059,185)           --   
  Receipts on notes receivable ....................................        580,556         136,190
  Proceeds from sale of securities available for sale .............        147,280          17,408
  Purchase of securities available for sale .......................        (30,000)        (43,013)
  Purchase of investments - equity method .........................        (62,588)           --   
  Cash acquired in business acquisition ...........................         71,159         469,933
                                                                      ------------    ------------

          Net cash provided by (used in) investing activities .....     (2,561,265)        365,014

Cash flows from financing activities
  Construction advances and notes payable, net ....................       (689,792)     (2,095,896)
  Proceeds from borrowings under revolving and long-term debt .....      4,709,491          66,655
  Payments on revolving, capital lease, and long-term debt ........       (115,760)        (64,847)
  Sale of common stock ............................................      6,178,174         146,250
  Sale of common stock warrants ...................................        304,537            --   
  Dividends paid on preferred stock ...............................        (49,541)           --   
  Purchase of common stock ........................................           --          (147,250)
                                                                      ------------    ------------

          Net cash provided by (used in) financing activities .....     10,337,109      (2,095,088)
                                                                      ------------    ------------

          NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....      3,838,051        (470,705)

Cash and cash equivalents at beginning of year ....................        642,829       1,113,534
                                                                      ------------    ------------

Cash and cash equivalents at end of year ..........................   $  4,480,880    $    642,829
                                                                      ============    ============
Cash paid during the year for:

        Income taxes ..............................................   $      3,700    $    242,000
        Interest ..................................................        664,000         255,000
</TABLE>

Noncash financing and investing activities:

In 1996, the Company acquired all of the common stock of Amity, Inc. in exchange
for the issuance of 24,297 shares of Series D preferred  stock.  In  conjunction
with the acquisition, liabilities were assumed as follows:

Fair value of assets acquired, including cash of $71,159 ........     $ 726,052
Preferred stock issued for assets of Amity, Inc. ................      (242,970)
                                                                      ---------

        Liabilities assumed .....................................     $ 483,082
                                                                      =========

The Company  exchanged a $50,000  note  receivable  for 5,000 shares of Series B
preferred stock in 1996 and a $60,000 note receivable for 6,000 shares of Series
B preferred stock in 1995.

In 1995,  the  Company  acquired  substantially  all of the common  stock of Old
Realco in exchange  for the  issuance  of 82,569  shares of Series A and 228,859
shares  of  Series B  preferred  stock.  In  conjunction  with the  acquisition,
liabilities were assumed as follows:

Fair value of assets acquired, including cash of $469,933 .....    $ 11,697,042
Preferred stock issued for assets of Old Realco ...............      (3,114,280)
                                                                   ------------

        Liabilities assumed ...................................    $  8,582,762
                                                                   ============

        The accompanying notes are an integral part of these statements.


                          Realco, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          September 30, 1996 and 1995


NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES

Realco, Inc. (the "Company"),  a New Mexico corporation,  has operations,  since
the acquisition of its current  business  effective March 1, 1995, which include
single-family home construction; real estate brokerage sales through a franchise
from Prudential Real Estate  Affiliates,  Inc.;  joint ventures for building lot
development;  and, to a lesser  extent,  commercial  construction  and financial
services.  Its  operations  and  activities  are  primarily  in the  vicinity of
Albuquerque, New Mexico and its customers are also in this area.

Realco,  Inc. and  Subsidiaries  is comprised of Realco,  Inc. and the following
wholly owned  subsidiaries:  Hooten/Stahl,  Inc., Charter Building & Development
Corporation,  Hooten/Stahl Commercial Investment, Inc., PHS, Inc., Home Equity &
Guaranty Corporation,  Great American Equity Corporation,  Towne Park, Inc., and
Amity, Inc. ("Amity").

In February,  1996, the Company completed the sale in an initial public offering
of 1,000,000 shares of common stock, $5,750,000 subordinated sinking fund notes,
and 690,000 common stock purchase  warrants to purchase  Company common stock at
$8.40 per share. The common stock was issued for approximately  $6,178,000,  net
of offering expenses of approximately  $822,000.  The subordinated  sinking fund
notes were  issued  for  approximately  $4,770,000,  net of  offering  costs and
discounts of approximately  $980,000.  The common stock purchase  warrants which
became  immediately  exercisable  upon closing of the offering were  allocated a
portion of proceeds based upon estimated fair value of  approximately  $304,000,
net of approximately $41,000 offering costs, and remain outstanding at September
30, 1996.  Offering  proceeds were used to repay borrowings  under  construction
loans,  acquire  residential  building  sites,  fund advances  under notes,  and
provide working capital.

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
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.
Included in cash and cash  equivalents  at September  30, 1996 is  approximately
$1,025,000  in a single  money  market fund and  approximately  $1,057,000  in a
savings account at a single financial institution.

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.  No allowance was
required at  September  30, 1996 and 1995.  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.

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 lesser of the primary lease term
or estimated economic lives.

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.

8.      Earnings (Loss) Per Common Share
        --------------------------------

Earnings  (loss) per common share has been computed on the basis of the weighted
average  shares  outstanding  during the year.  The series  preferred  stock and
common  stock  warrants  are  common  stock  equivalents;   however,   they  are
antidilutive and are not included in the per share computations.

9.      Investments
        -----------

Investments  in  affiliated  companies and joint  ventures  owned 20% to 50% are
accounted for on the equity method. Accordingly,  the consolidated statements of
operations include the Company's share of the affiliated entities' net earnings.

Available-for-sale  securities  are  carried at fair  value with the  unrealized
gains and losses excluded from earnings and reported in a separate  component of
stockholders'  equity, net of tax effects.  Prior to 1995, such investments were
carried at fair value with unrealized gains and losses included in earnings (see
Note N).

10.     Intangible Assets
        -----------------

Cost in excess of net assets of businesses  acquired included in other assets is
being amortized using the straight-line method over twenty years.

The  Company  assesses  the  recoverability  of cost 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. The
Company  believes that no  impairment  has occurred and that no reduction in the
estimated useful life is warranted.

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.     Recently Issued Accounting Pronouncement
        ----------------------------------------

In March,  1995, the Financial  Accounting  Standards Board issued  Statement of
Financial  Accounting  Standards ("SFAS") No. 121, "Accounting for Impairment of
Long-Lived  Assets and for Long-Lived  Assets to be Disposed Of", which requires
impairment  losses to be recorded on long-lived  assets used in operations  when
indicators of impairment are present and the  undiscounted  cash flows estimated
to be generated by those assets are less than the assets' carrying amount.  SFAS
No. 121 also addresses the  accounting for long-lived  assets for which disposal
is expected.  The Company will adopt SFAS No. 121 in the first  quarter of 1997;
however, the effect of adoption has not been determined.


13.     Reclassifications
        -----------------

Certain  reclassifications  have  been made to the 1995  consolidated  financial
statements to correspond with the 1996 presentation.

NOTE B - INVENTORIES

During the years ended  September  30, 1996 and 1995,  the Company  incurred and
capitalized  approximately  $301,000  and  $228,000,  respectively,  of interest
costs.  Capitalized  interest costs charged to cost of  construction  sales were
approximately  $323,000 and $256,000 for the years ended  September 30, 1996 and
1995, respectively.

Inventories consist of the following:

                                                         1996            1995   
                                                     -----------     -----------

Land and improvements under development ........     $ 5,464,200     $ 3,134,735
Houses in progress .............................       3,598,516       1,683,570
Model homes ....................................       1,258,817       1,447,507
                                                     -----------     -----------
                                                     $10,321,533     $ 6,265,812
                                                     ===========     ===========

Houses in progress include homes under contract of approximately  $1,174,000 and
$1,225,000 at September 30, 1996 and 1995, respectively.

NOTE C - COSTS AND ESTIMATED EARNINGS 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, 1996.
There were no contracts accounted for on the percentage-of-completion  method as
of September 30, 1995.

Costs incurred on uncompleted contracts .....................         $2,988,084
Estimated earnings ..........................................             36,134
                                                                      ----------
                                                                       3,024,218
   Less billings to date ....................................          2,716,785
                                                                      ----------
Costs and estimated earnings in excess of
  billings on uncompleted contracts .........................         $  307,433
                                                                      ==========


NOTE D - INVESTMENTS

The  following is a summary of  investments  carried on the equity  method as of
September 30:
          
                                                            1996          1995  
                                                          --------      --------

First American Title Company of New Mexico,
  20% stockholder interest .........................      $144,002      $256,659
Village Joint Venture ..............................       306,502       159,635
Stonehenge at High Resort Joint Venture ............       294,410       188,337
Success Venture ....................................           100          -- 
Other ..............................................       150,582       116,129
                                                          --------      --------

                                                          $895,596      $720,760
                                                          ========      ========

The  Company  is  participating  in three  development  projects,  each  under a
separate joint venture agreement.  The Company's  liability is joint and several
for each of the joint  ventures.  The Company's  50% share in the  operations of
certain joint ventures is adjusted for preferential rights of the managing joint
venturers and is reported on the equity method in the accompanying  consolidated
financial statements.

Village  Joint Venture was formed in March,  1992 and  Stonehenge at High Resort
Joint Venture was formed in May,  1993.  Each was formed with Boyle  Development
Company,  managing  general  venturer.  Success Venture was formed in July, 1996
with Mesa Verde  Development  Corporation.  These joint ventures were formed for
the  purpose  of  acquisition,  development,  and sale or other  disposition  of
specific parcels of land.

Summarized  financial  information of First American Title Company of New Mexico
is as  follows  as of and  for  the  year  ended  September  30,  1996  and  the
seven-month period ended September 30, 1995:

                                                    1996                 1995   
                                                 ----------           ----------

Cash .................................           $  658,776           $  709,539
Other assets .........................            8,167,839            5,248,604
                                                 ----------           ----------

                                                 $8,826,615           $5,958,143
                                                 ==========           ==========



Liabilities ..........................           $8,106,606           $4,674,848
Equity ...............................              720,009            1,283,295
                                                 ----------           ----------
                                                 $8,826,615           $5,958,143
                                                 ==========           ==========

Revenue earned .......................           $4,155,923           $2,450,769
                                                 ==========           ==========

Net earnings .........................           $  331,843           $  196,770
                                                 ==========           ==========

Summarized  financial  information of joint ventures is as follows as of and for
the year ended September 30, 1996 and the seven-month period ended September 30,
1995:

                                                          1996           1995   
                                                       ----------     ----------

Cash .............................................     $   45,387     $  103,828
Other assets, primarily land and improvements
   under development .............................      5,665,952      3,326,282
                                                       ----------     ----------

                                                       $5,711,339     $3,430,110
                                                       ==========     ==========

 Liabilities .....................................     $4,509,316     $2,743,167
 Equity ..........................................      1,202,023        686,943
                                                       ----------     ----------
                                                       $5,711,339     $3,430,110
                                                       ==========     ==========

 Revenue earned ..................................     $2,359,312     $  393,007
                                                       ==========     ==========

 Net earnings ....................................     $  606,631     $  209,385
                                                       ==========     ==========


NOTE E - ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable include the following at September 30:

                                                            1996         1995   
                                                         ----------   ----------

Land  development  financing  to an  affiliate,
collateralized  by certain real estate and a
limited  guaranty of the  borrowers,  interest
due monthly at 8.5%,principal due as developed
lots are sold through July, 1998 .....................   $  972,292   $  218,707

Land development financing to an affiliate,
collateralized by certain real estate and a
limited guaranty of the borrowers, interest
due monthly at 9.75%, principal due as lots
are sold through February, 1997 ......................      426,015         -- 

Residential construction advances to various
builders subordinate to the interest of a bank
under a participation agreement, collateralized
by certain real estate and homes under construction,
interest due monthly at Chase Manhattan prime plus
1% (9.25% at September 30, 1996), principal due as
homes are sold, up to a nine-month term with three-
month renewals considered ............................      844,256         -- 

Notes receivable from various real estate agents,
collateralized by computer equipment, payable in
monthly installments aggregating approximately
$8,100, including interest at 10%, with maturity
dates through September, 1999 ........................      218,747         -- 

Notes receivable, collateralized by real estate,
interest due monthly at 9%, principal payable as
lots are sold through January, 1997 ..................      118,000         -- 

Notes receivable, collateralized by real estate,
payable in monthly installments of $1,275,
including interest at 8%, with outstanding
principal due May, 1997 ..............................      173,398         -- 

Uncollateralized note receivable from the
Company's executive vice president
(a stockholder), interest due annually at 6%,
principal due June, 1997 .............................       50,000      100,000

Other advances and receivables .......................      916,118      554,220
                                                         ----------   ----------

                                                         $3,718,826   $  872,927
                                                         ==========   ==========


NOTE F - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at September 30:

                                                           1996          1995 
                                                        ----------    ----------

Office equipment, furniture, and fixtures ..........    $  997,702    $  778,422
Leasehold improvements .............................       114,948       107,400
Automobiles and equipment ..........................       109,052        73,122
                                                        ----------    ----------
                                                         1,221,702       958,944
Less accumulated depreciation and amortization .....       425,886       139,098
                                                        ----------    ----------

                                                        $  795,816    $  819,846
                                                        ==========    ==========

NOTE G - DEBT

Debt consisted of the following at September 30:

                                                           1996          1995   
                                                        ----------    ----------

Subordinated sinking fund notes, $5,750,000
face amount, 9.5% interest payable annually,
 principal payable at various dates through
December, 2003 (less $280,577 unamortized
discount based on imputed interest rate of
10.5%) (A) .........................................    $5,469,423    $     -- 

Construction advances, collateralized by
 inventories (B) ...................................     1,220,512     2,077,025

Notes payable, collateralized by inventories (C) ...     2,168,500     2,001,779

Revolving line of credit with Norwest Bank,
interest payable monthly at 1.5% over the bank's
prime rate, principal payable March, 1997 ..........       100,000       100,000

Other notes payable ................................        57,817        76,002
                                                        ----------    ----------

                                                        $9,016,252    $4,254,806
                                                        ==========    ==========

(A) Subordinated  sinking fund notes are subject to various covenants,  the most
restrictive  of which include  minimum net worth  requirements,  limitations  on
dividends, and limitations on debt.

(B)  Construction  advances   collateralized  by  inventories  include  $497,388
($1,172,545 at September 30, 1995) advanced under various  interim  construction
lines of credit  which  total  $2,000,000.  Each home built under these lines of
credit  requires a separate  construction  loan  bearing  interest at the bank's
prime  rate plus 1% (9.25% at  September  30,  1996 and 8.25% at  September  30,
1995).  Construction  advances also include $412,290  ($773,207 at September 30,
1995)  advanced  under  other  guidelines  which  provide  up to  $8,000,000  in
construction  advances.  Each home to be built  under these  lending  guidelines
requires a separate construction loan at the bank's prime rate plus 1% (9.25% at
September  30, 1996 and 8.25% at September 30,  1995).  Additional  construction
advances  collateralized  by inventories of $310,834  ($131,273 at September 30,
1995) consist primarily of owner-financed  construction  loans which are payable
upon closing.

(C) Notes payable  collateralized by inventories  include amounts outstanding on
loan  agreements  expiring at various dates from January 5, 1997 to February 12,
1997,  with interest rates ranging from the banks' prime rates plus 1% (9.75% at
September  30,  1996  and  8.25% at  September  30,  1995) to 10% and  principal
payments due as properties are sold.

NOTE H - INCOME TAXES

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

                                                   1996                  1995 
                                                 --------              --------

Current ............................             $ 62,255              $(31,917)
Deferred ...........................              (38,255)              (27,600)
                                                 --------              --------
                                                 $ 24,000              $(59,517)
                                                 ========              ========

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

                                                         1996            1995  
                                                       --------        --------

Income taxes at federal statutory rate .........       $ 53,088        $(42,570)
Effect of graduated rates ......................         (8,943)         16,969
Change in valuation allowance ..................        (25,574)        (35,870)
Nondeductible expenses .........................          7,227           8,206
Dividend exclusion .............................         (8,326)        (13,360)
Other ..........................................          6,528           7,108
                                                       --------        --------

        Total tax expense (benefit) ............       $ 24,000        $(59,517)
                                                       ========        ========

Components of deferred taxes are as follows at September 30:

                                                     1996               1995    
                                                  ---------          ---------

 Assets
   Accrued liabilities ...................         $  62,577          $  52,768
   Property and equipment ................            36,660             35,069
   Investments ...........................            89,892             89,892
   Tax loss carryforward .................            22,721             31,555
   Other .................................             2,763                602
   Valuation allowance ...................           (40,426)           (66,000)
                                                   ---------          ---------

                                                   $ 174,187          $ 143,886
                                                   =========          =========

Liabilities
  Investments ............................         $  75,153          $  62,056
  Inventories ............................            11,300             22,600
                                                   ---------          ---------
                                                   $  86,453          $  84,656
                                                   =========          =========

The  valuation  allowance  decreased  $25,574  and  $35,870  for the years ended
September 30 1996 and 1995, respectively.

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  approximately  $313,000 and accumulated  depreciation of  approximately
$141,000 and $49,000 at September 30, 1996 and 1995, respectively.

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

Year ending September 30
  1997 ......................................................         $  93,680
  1998 ......................................................            76,008
  1999 ......................................................            35,196
                                                                      ---------

Total minimum lease payments ................................           204,884

Amount representing interest ................................           (17,349)
                                                                      ---------

Present value of net minimum lease payments .................         $ 187,535
                                                                      =========

The Company leases certain  property and equipment used in its operations  under
operating  leases.  Lease  terms  range from three to ten years and  provide for
payments as follows:

        Year ending September 30
          1997                        $   445,379
          1998                            402,744
          1999                            272,193
          2000                            196,044
          2001                            195,222
          Thereafter                      518,400
                                      -----------

                                      $ 2,029,982
                                      ===========

Rental  expense under these leases was  approximately  $564,000 and $363,000 for
the years  ended  September  30, 1996 and 1995,  respectively.  Certain of these
leases relating to rental expense of approximately  $112,000 and $71,000 for the
years ended September 30 1996 and 1995, respectively, are with related parties.

NOTE J - EMPLOYEE BENEFIT PLAN

The Company has a deferred  compensation  plan  covering  certain  eligible  key
employees.  The plan allows for  discretionary  incentive  contributions  by the
Company.  Discretionary  incentive  contributions  vest  20%  after  one year of
service and an additional 20% for each year thereafter. Retirement age under the
plan is age 65 and benefits may be paid as a lump sum or in annual  installments
over a period elected by the  participant  or  beneficiary up to ten years.  The
plan is a  nonqualified  deferred  compensation  plan which can be terminated or
changed by the Company at any time.  The Company  made no  contributions  to the
plan during the years ended September 30, 1996 and 1995.

NOTE K - BUSINESS COMBINATIONS

On February 20, 1995, the Board of Directors  ("Board") of the Company  approved
the acquisition of a New Mexico holding company ("Old Realco"),  which comprises
the majority of the Company's current lines of business.  The Board approved the
issuance of 82,569  shares of newly  authorized  Series A preferred  stock,  $10
stated value, and 228,859 shares of newly  authorized  Series B preferred stock,
$10 stated value, in exchange for common stock representing approximately 98% of
the shares  outstanding of Old Realco. The Series A and Series B preferred stock
receive annual  cumulative  dividends of $.60 and $.30 per share,  respectively,
have specified liquidation  preferences,  and are convertible into common stock.
This business  combination  has been accounted for using the purchase  method of
accounting and the accompanying  consolidated  financial  statements include the
operations  of Old Realco  subsequent  to its  acquisition,  which was effective
March 1,  1995.  Cost in excess of the net  assets  acquired  was  approximately
$310,000.

The Company acquired Amity, a commercial construction contractor, effective July
1, 1996.  The Board  approved the issuance of 24,297 shares of newly  authorized
Series D  preferred  stock,  $10 stated  value,  in  exchange  for common  stock
representing  100% of the  shares  outstanding  of  Amity.  The  Series  D stock
receives  annual   cumulative   dividends  of  $.30  per  share,  has  specified
liquidation  preferences,  and is convertible  into common stock.  This business
combination  has been accounted for using the purchase  method of accounting and
the accompanying  consolidated  financial  statements  include the operations of
Amity subsequent to its  acquisition.  Cost in excess of the net assets acquired
was $100,000.

The following summarized pro forma unaudited information assumes the acquisition
of Amity had occurred on October 1, 1994:

                                                   Year ended September 30,
                                               --------------------------------
                                                   1996                1995    
                                               ------------        ------------

Revenues ..............................        $ 26,968,000        $ 15,767,000
                                               ============        ============

Net earnings (loss) ...................        $     14,600        $   (113,000)
                                               ============        ============

Earnings (loss) per share .............        $        .01        $       (.06)
                                               ============        ============

NOTE L - 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:

                                                     1996              1995   
                                                 ------------      ------------

Revenues
  Residential construction .................     $ 10,689,087      $  7,573,124
  Real estate broker
    Sales to unaffiliated customers ........       10,485,508         5,674,495
    Intersegment sales .....................          406,100           262,876
  Financial services .......................          276,399              --   
  Commercial construction ..................        1,118,063              --   
  Other sales ..............................        1,004,859           283,802
  Interest and other .......................          682,726           277,325
  Eliminations .............................         (406,100)         (262,876)
                                                 ------------      ------------

      Total ................................     $ 24,256,642      $ 13,808,746
                                                 ============      ============


Operating profit (loss)
  Residential construction .................     $    423,478      $    242,290
  Real estate broker .......................         (354,356)         (248,335)
  Financial services .......................          230,436              --   
  Commercial construction ..................            8,562              --   
  Other sales ..............................           (9,453)           (8,765)
                                                 ------------      ------------

    Total ..................................     $    298,667      $    (14,810)
                                                 ============      ============

Assets
  Residential construction .................     $ 11,965,756      $  7,169,689
  Real estate broker .......................        1,615,150         1,667,435
  Financial services .......................        2,608,838              --   
  Commercial construction ..................          724,548              --   
                                                 ------------      ------------

    Identifiable assets ....................       16,914,292         8,837,124

  Equity investments - other ...............          241,891           360,002
  Corporate assets .........................        4,339,561           756,031
  Other assets .............................        1,112,176           828,152
                                                 ------------      ------------

    Total ..................................     $ 22,607,920      $ 10,781,309
                                                 ============      ============

Depreciation and amortization
  Residential construction .................     $     77,675      $     32,247
  Real estate broker .......................          178,078            84,262
  Financial services .......................            3,428              --   
  Commercial construction ..................            3,859              --   
  Other ....................................           97,532            22,156
                                                 ------------      ------------

    Total ..................................     $    360,572      $    138,665
                                                 ============      ============

Capital expenditures
  Residential construction .................     $     97,859      $     78,980
  Real estate broker .......................           88,818           101,552
  Financial services .......................           17,629              --   
  Commercial construction ..................            1,900              --   
  Other ....................................            2,281            34,972
                                                 ------------      ------------

    Total ..................................     $    208,487      $    215,504
                                                 ============      ============

Operating profit consists of total revenues,  less costs and expenses,  and does
not  include  either  interest  and other  income,  net  equity in  earnings  of
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,  investments  accounted for under the equity method,
and capitalized debt issuance costs.

NOTE M - COMMITMENTS AND CONTINGENCIES

The Company is  contingently  liable on land  development  loans made by various
lending  institutions  to joint  ventures  to which the Company is a 50% general
partner.  The Company was contingently  liable for approximately  $4,300,000 and
$2,500,000 at September 30, 1996 and 1995, respectively.

The Company has  agreements to purchase a specified  number of lots on an agreed
time schedule for which  deposits of  approximately  $162,000 have been paid. In
the  event the lots are not  purchased  by the  Company,  the  deposits  will be
forfeited.

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.

NOTE N - CHANGE IN ACCOUNTING PRINCIPLE
 
Effective October 1, 1994, the Company changed the nature of its business and no
longer operates as an investment  company.  Therefore,  the Company now accounts
for  certain of its  investments  under SFAS No.  115,  "Accounting  for Certain
Investments in Debt and Equity  Securities" and certain others under the cost or
equity method.

The cumulative effect of this change in accounting  principle was a reduction of
investments  of  approximately  $33,000,  of which  $15,870 was reflected in the
consolidated  statement of operations and approximately $49,000 was reflected as
unrealized losses on securities, a separate component of equity.

NOTE O - RELATED PARTY TRANSACTIONS

The Company paid  management  fees to a company  owned by a director and officer
for  management  services  provided  for the year ended  September  30,  1995 of
approximately $61,000, plus applicable taxes.

NOTE P - PREFERRED STOCK

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.  Series D
voting  preferred  stock is entitled to dividends when declared and paid at a 3%
cumulative  rate  annually  starting  July  1,  1996  and  payable  each  July 1
thereafter.  At September 30, 1996, preferred stock dividends accrued and unpaid
were $132,405. All three series of preferred stock have a liquidation preference
of $10 per share, plus all accumulated but unpaid  dividends.  Each Series A and
Series D preferred  share is convertible  into common shares at $7.50 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.

Series C preferred  stock is entitled to dividends  when  declared and paid at a
15% cumulative rate payable annually  starting January 31, 1996 and payable each
January 31  thereafter.  Series C has a liquidation  preference of $50 per share
plus all  accumulated  and unpaid  dividends.  Each Series C preferred  share is
convertible  into common shares at $7.50 per common share on the basis of $62.50
per preferred share.

At September 30, 1996, the Company has authorized  82,703 preferred shares which
are  unclassified as to series and any rights,  preferences,  and series will be
fixed by the Board of the Company upon issuance.

NOTE Q - FINANCIAL INSTRUMENTS

The following  table includes  various  estimated  fair value  information as of
September 30, 1996 as required by SFAS No. 107, "Disclosures about Fair Value of
Financial  Instruments".  Such  information,  which  pertains  to the  Company's
financial  instruments,  is based on the  requirements set forth in SFAS No. 107
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.      Securities Available for Sale
        -----------------------------

The estimated fair values are based upon quoted market prices.

3.      Fixed Rate Notes Receivable
        ---------------------------

The  discounted  amount of future cash flows  using the  current  rates at which
similar loans would be made to borrowers is used to estimate fair value.

4.      Floating Rate Notes Receivable
        ------------------------------

The carrying  amount  approximates  fair value because  interest rates adjust to
market rates.

5.      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.

6.      Floating Rate Debt
        ------------------

The carrying  amount  approximates  fair value because  interest rates adjust to
market rates.

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

                                                       Carrying      Estimated
                                                        amount       fair value 
                                                     -----------    -----------
Financial assets
  Cash, cash equivalents, and restricted cash ....   $ 4,480,880    $ 4,480,880
  Securities available for sale ..................       188,435        188,435
  Fixed rate notes receivable ....................     1,958,452      1,946,428
  Floating rate notes receivable .................       844,256        844,256
Financial liabilities
  Fixed rate debt ................................    (6,087,740)    (6,088,467)
  Floating rate debt .............................    (2,928,512)    (2,928,512)

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

There have been no  changes in or  disagreements  with  Accountants  of the kind
described by Item 304 of Regulation S-B at any time during the  Registrant's two
(2) most recent fiscal years.

PART III

Pursuant to instruction  E(3) to From 10-KSB,  the information  required by Part
III  (Items  9,  10,  11 and 12) is  hereby  incorporated  by  reference  to the
materials  contained  in  "Election  of  Directors,"  "Executive  Compensation,"
"Certain  Transactions" and "Security Ownership of Certain Beneficial Owners and
Management,"  contained in the  Registrant's  definitive  proxy  materials to be
filed with the Commission within 120 days of September 30, 1996.

PART IV

ITEM 13: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-KSB

1. Financial Statements, for each of the two years ended September 30, 1996 and
1995:

INDEX TO FINANCIAL STATEMENTS 
                                                                          
                                                               
REALCO, INC. AND SUBSIDIARIES
  Report of Independent Certified Public Accountants                    
  Balance Sheets as of September 30, 1996 and 1995            
  Statements of Operations for the years ended 
     September 30, 1996 and 1995                              
  Statement of Stockholders' Equity for the years ended 
     September 30, 1996 and 1995                              
  Statements of Cash Flows for the year ended 
     September 30, 1996 and 1995                                
  Notes to Consolidated Financial Statements                     
  
2.  Exhibits:

Exhibit             

NUMBER                  DESCRIPTION 

2.1*   Articles of Merger dated July 12, 1995 

3.1*   Articles of Incorporation dated August 8, 1983 

3.2*   Articles of Amendment to Articles of Incorporation dated March 20, 1995 

3.3*   Articles of Amendment dated July 28, 1995 

3.4*   Bylaw as amended 

10.1*  Agreement and Plan or Reorganization dated March 14, 1995 

10.2* Employment Agreement dated March 14, 1995, between the Registrant and Mr.
      Bill E. Hooten, included as an exhibit to Agreement and Plan of
      Reorganization 

10.3* Employment Agreement dated March 14, 1995, between the Registrant and Mr.
      Melvin A. Hardison, included as an exhibit to Agreement and Plan of
      Reorganization 

10.4*  The Prudential Real Estate Affiliates, Inc. Franchise Agreement with the
       Registrant, as amended 

10.5*  First Security Bank line of construction credit commitment dated December
       2, 1994 

10.6* Loan Agreement dated July 5, 1994, between Sunwest Bank of Albuquerque
      and Charter Building and Development Corp. 

10.7* Real Estate lease dated January 1, 1994, between R.R. Rutledge and
      Hooten/Stahl, Inc. 

10.8* Real Estate lease dated January 1, 1991, between Bill E. Hooten and
      Hooten/Stahl, Inc. 

10.9* Shopping Center Lease dated December 7, 1993, between Rio Rancho Shopping
      Center and Hooten/Stahl, Inc. 

21    Subsidiaries of the small business issuer 

21.1  Prudential Hooten/Stahl, Inc. Realtors 

21.2  Charter Building and Development Corporation, Inc. 

21.3  Great American Equity Corporation, Inc. 

25.*  Form T-1 Statement of Eligibility and Qualification under Trust Indenture
      Act of 1939 of a Corporation Designated to act as Trustee 

* Filed as an  exhibit  to the  Registrant's  Registration  Statement  under the
Securities  Act of 1933, as amended,  on Form S-B2  (Registration  Statement No.
33-98740-D), and incorporated herein by reference.

All other exhibits  required by Item 601 of Regulation S-B are  inapplicable  to
this Registrant in this filing.

(b)  Reports on Form 8-K:

During the last  quarter of the period  covered by this report,  the  Registrant
filed the following reports on Form 8-K:

1. On July 1, 1996 the Registrant  reported the acquisition of all of the issued
and outstanding shares of Amity, Inc., a New Mexico corporation.

2. On October 7,  1996,  the  Registrant  filed and  amendment  of Form 8-K/A to
include in the above Form 8-K the required financial information.

SIGNATURES

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

Date: December 26, 1996                           REALCO, INC.

                            By: James A. Arias
                                -------------------------------------------
                                James A. Arias, President, Chief Executive
                                Officer, Chairman of the Board of Directors


In  accordance  with the Exchange  Act, 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                          Dated:


Melvin A. Hardison
------------------------
Melvin A. Hardison       Chief Financial                December 26, 1996 
                         Officer/Secretary/Treasurer  

Bill E. Hooten
------------------------                
Bill E. Hooten           Executive Vice President 
                         and Director                   December 26, 1996 

Arthur A. Schwartz
------------------------
Arthur A. Schwartz       Director                       December 26, 1996
          
Marshall Blumenfeld
------------------------
Marshall Blumenfeld      Director                       December 26, 1996
     

Jeffrey S. Silverman
------------------------
Jeffrey S. Silverman     Director                       December 26, 1996