SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB
                 [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the quarterly period ended May 31,2000

 [ ]    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
         ACT OF 1934 Commission File number 33-85044-d

                              NACO Industries, Inc.
--------------------------------------------------------------------------------

        (Exact Name of small business issuer as specified in its charter)

                      Utah                              48-0836971
              -----------------------          -----------------------------
             (State of Incorporation)          (IRS Employer Identification)

                     395 West 1400 North, Logan, Utah 84341
                     --------------------------------------
               (Address of principal executive offices)(Zip Code)


                   Registrant's Telephone Number 435-753-8020
--------------------------------------------------------------------------------


         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
                            ---          ---

As of May 31, 2000,  the  Registrant  had  1,902,268  shares of Common Stock and
165,412 shares of Preferred Stock outstanding.


     Transitional Small Business Disclosure Format      Yes     No  X
                                                            ---    ---



                                       1

<PAGE>





                         PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements
--------------------------------------------------------------------------------

See attached Consolidated Financial Statements

                                       2

<PAGE>



                              NACO Industries, Inc.
                              FINANCIAL STATEMENTS
                                  May 31, 2000

                                       3
<PAGE>



<TABLE>
                              NACO INDUSTRIES, INC.
                              ---------------------
                                 BALANCE SHEETS
                                 --------------
<CAPTION>

                                                                       May              November 30
                                                                ----------------       -----------------
                                                                      2000                  1999
                                                                ----------------       -----------------
                                                                   (Unaudited)           (Audited)
ASSETS
-------
<S>                                                              <C>                      <C>
Current assets:
  Cash                                                           $   139,313              $    58,073
  Accounts receivable, net of allowance for doubtful
    accounts of $79,791 and $67,753, respectively                    963,065                  862,913
  Due from related parties                                            41,933                   38,385
  Inventory                                                          537,799                  528,461
  Other current assets                                               104,044                   41,283
  Deferred income taxes                                                  --                   153,900
                                                                 -----------              -----------

       Total current assets                                        1,786,154                1,683,015
                                                                 -----------              -----------

Property and equipment:
  Land                                                                40,700                   40,700
  Buildings and improvements                                         610,038                  610,038
  Equipment and vehicles                                           2,752,151                2,805,455
  Equipment construction in process                                    6,083
                                                                 -----------              -----------

       Total property and equipment                                3,408,972                3,456,193

  Less - accumulated depreciation                                 (2,231,322)              (2,076,200)
                                                                 -----------              -----------

       Net property and equipment                                  1,177,650                1,379,993
                                                                 -----------              -----------

Other assets:
  Accounts receivable from related parties                           327,232                  311,231
  Intangible and other assets, net of accumulated
  Amortization of $22,452 and 12,830, respectively                   158,088                  167,711
  Deferred income taxes, net of allowance of $80,000                 255,800                  255,800
                                                                 -----------              -----------

       Total other assets                                            741,120                  734,742
                                                                 -----------              -----------

Total assets                                                     $ 3,704,924              $ 3,797,750
                                                                 ===========              ===========

</TABLE>


                        See Notes to Financial Statements

                                       4

<PAGE>


<TABLE>
                              NACO INDUSTRIES, INC.
                              ---------------------
                                 BALANCE SHEETS
                                 --------------
<CAPTION>


                                                                                May 31                  November 30
                                                                            ----------------        ----------------
                                                                                 2000                     1999
                                                                            ----------------        ----------------
                                                                                (Unaudited)             (Audited)
<S>                                                                           <C>                     <C>
LIABILITIES:
Current liabilities:
  Accounts payable                                                            $   370,685             $   769,056
  Accrued expenses                                                                196,272                 231,720
  Due to related parties                                                           10,028                  15,311
  Line of credit                                                                1,001,267
  Current portion of long-term obligations                                         74,522                  81,700
                                                                              -----------             -----------

       Total current liabilities                                                1,652,774               1,097,787
                                                                              -----------             -----------

Long-term liabilities:
  Warranty obligation                                                              48,000                  48,000
  Long-term obligations, less current portion                                   1,025,887               1,928,763
                                                                              -----------             -----------

       Total long-term liabilities                                              1,073,887               1,976,763
                                                                              -----------             -----------

       Total liabilities                                                        2,726,661               3,074,550
                                                                              -----------             -----------

Stockholders' equity:
Common stock, $.01 par value, 10,000,000 shares authorized; 1,902,268
shares and 1,902,268 shares issued respectively                                    19,023                  19,023
Preferred Stock,  7% Cumulative, convertible  $3.00 par value,
330,000 shares authorized, 165,412 and 165,412 shares issued
respectively (Aggregate liquidation preference $1,165,869 and
$1,131,418 respectively)                                                          496,236                 496,236
Additional paid-in capital                                                      1,018,284               1,018,284
Accumulated deficit                                                              (555,280)               (810,343)
                                                                              -----------             -----------

       Total stockholders' equity                                                 978,263                 723,200
                                                                              -----------             -----------

Total liabilities and Stockholders' equity                                    $ 3,704,924             $ 3,797,750
                                                                              ===========             ===========

</TABLE>


                        See Notes to Financial Statements


                                       5
<PAGE>


<TABLE>
                              NACO INDUSTRIES, INC.
                              ---------------------
                             STATEMENT OF OPERATIONS
                             -----------------------
                                   (UNAUDITED)
                                   -----------
<CAPTION>

                                                                  Three months ended                     Six months ended
                                                       --------------------------------------    ----------------------------------
                                                                 May 31         May 31                 May 31          May 31
                                                                  2000           1999                   2000            1999
                                                       -------------------   ----------------    ---------------     --------------
<S>                                                          <C>            <C>                     <C>            <C>
Sales, net                                                   $ 2,360,625    $ 2,415,231             $ 4,557,662    $ 4,044,258

Cost of goods sold                                             1,359,778      1,142,916               2,640,504      2,139,809
                                                             -----------    -----------             -----------    -----------

       Gross profit                                            1,000,847      1,272,315               1,917,158      1,904,449

Operating expenses:
  Selling expenses                                               442,719        479,404                 804,250        800,855
  General and administrative expenses                            298,119        239,579                 555,186        496,287
                                                             -----------    -----------             -----------    -----------

       Total operating expenses                                  740,838        718,983               1,359,436      1,297,142

       Income (loss) from operations                             260,009        553,332                 557,722        607,307

Other income (expense):
  Interest income                                                    142            381                     842            816
  Other                                                           10,569           --                    24,457           --
  Interest expense                                               (92,661)       (99,033)               (173,254)      (170,009)
                                                             -----------    -----------             -----------    -----------

       Total other income (expense)                              (81,950)       (98,652)               (147,955)      (169,193)
                                                             -----------    -----------             -----------    -----------

Income (loss) before income taxes                                178,059        454,680                 409,767        438,114

Income tax (expense) benefit                                     (76,700)      (171,414)               (154,700)      (165,169)

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

       Net income (loss)                                         101,359        283,265                 255,067        272,945

Adjustment for preferred dividends in arrears                   (173,397)      (103,723)               (173,397)      (103,723)
                                                             -----------    -----------             -----------    -----------
Income (loss) from continuing operations to
Common Stockholders                                              (72,038)       179,542                  81,670        169,222

Discontinued Operations:
Loss from operations of discontinued segment, net
of income tax benefits                                              --         (158,195)                   --         (429,683)
                                                             -----------    -----------             -----------    -----------
Adjusted net income (loss) to common stockholders            $   (72,038)   $    21,348             $    81,670    $  (260,461)
                                                             ===========    ===========             ===========    ===========

Earnings (loss) per common share Basic:

  Earnings (loss) from continuing operations                 $     (0.04)   $      0.09             $      0.04    $      0.09
  Earnings (loss) from discontinued operations                         $    $      (.08)                      $    $      (.23)
  Net Earnings (loss)                                        $     (0.04)   $      0.01             $      0.04    $     (0.14)

Earnings (loss) per common share Diluted:

  Earnings (loss) from continuing operations                 $     (0.04)   $      0.08             $      0.04    $      0.09
  Earnings (loss) from discontinued operations                         $    $      (.07)                      $    $      (.23)
    Earnings (loss) from net income                          $     (0.04)   $      0.01             $      0.04    $     (0.14)

Weighted average number of common
  shares outstanding:
    Basic                                                      1,902,268      1,876,227               1,902,268      1,876,227
    Diluted                                                    2,233,092      2,207,051               2,233,092      2,207,051

</TABLE>

                        See Notes to Financial Statements


                                                                               6
<PAGE>


<TABLE>
                              NACO INDUSTRIES, INC.
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<CAPTION>

                                                                                       Six months ended
                                                                         ---------------------------------------------
                                                                              May 31                        May 31
                                                                               2000                          1999
                                                                         ---------------------      ------------------
<S>                                                                       <C>                            <C>
Cash flows from operating activities
  Net income (loss)                                                       $   255,067                    $   272,945
  Adjustments to reconcile net income (loss) to
   net cash provided by (used in) operating activities:
     Depreciation                                                             163,661                        160,412
     Amortization                                                               9,622                          3,207
     Deferred income taxes                                                    153,900                           --
   (Increase) decrease in:
     Accounts receivable, net                                                (100,153)                      (555,194)
     Receivable from related parties                                              336                       (204,739)
     Inventory                                                                 (9,339)                         7,978
     Other                                                                    (62,762)                        27,480
   Increase (decrease) in:
     Accounts payable                                                        (446,371)                       706,266
     Accrued expenses                                                          12,552                        (55,530)
     Income taxes payable                                                        --                             (100)
                                                                          -----------                    -----------


Net cash provided by (used in) continuing activities                          (23,487)                       362,725

Net cash provided by (used in) discontinued activities                           --                         (429,683)
                                                                          -----------                    -----------

Net cash provided by (used in) operating activities                           (23,487)                       (66,958)
                                                                          -----------                    -----------

Cash flows from investing activities
  Net change  property and equipment                                          (16,827)                       (16,842)
  Loan to related parties                                                     (16,001)                          --
  Investment in intangible and other assets                                      --                           60,395
                                                                          -----------                    -----------

Net cash provided by (used in) investing activities                           (32,828)                        43,553
                                                                          -----------                    -----------

Cash flows from financing activities
  Net change in line of credit                                                213,469                       (368,847)
  Decrease in related party loan                                               (5,283)                             0
  Payments on long-term debt                                                  (70,631)                      (681,986)
  Proceeds from long-term loans                                                  --                        1,018,529
                                                                          -----------                    -----------

Net cash provided by (used in) financing activities                           137,555                        (32,304)
                                                                          -----------                    -----------

Increase (decrease) in cash                                                    81,240                        (55,709)

        Cash, beginning of period                                              58,073                         97,428
                                                                          -----------                    -----------

        Cash, end of period                                               $   139,313                    $    41,719
                                                                          ===========                    ===========

</TABLE>
                        See Notes to Financial Statements

                                       7
<PAGE>


         NACO INDUSTRIES, INC.Notes to Financial Statements (Unaudited)
         --------------------------------------------------------------
                                  May 31, 2000
                                  ------------


NOTE A - INTERIM FINANCIAL STATEMENTS
-------------------------------------
In the opinion of management,  the accompanying  unaudited financial  statements
include all necessary adjustments (consisting only of normal recurring accruals)
to present fairly the financial position of NACO Industries Inc. (the "Company")
as of May 31, 2000,  the results of its  operations for the three months and six
months  ended May 31 1999 and 2000,  and its cash flows for the six months ended
May 31, 2000 in conformity  with generally  accepted  accounting  principles for
interim financial  information applied on a consistent basis.  Operating results
for the six-month  period ended May 31, 2000 are not  necessarily  indicative of
the results that may be expected for the fiscal year ending November 30, 2000.

The Company's  results of  operations  for the three month and six month periods
ending May 31, 1999 have been restated to reflect the discontinued operations of
the Company's  wholly owned  subsidiary,  NACO  Composites,  Inc. The results of
operations of the  discontinued  segment are shown  separately  as  discontinued
operations, net of applicable income taxes.

Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been omitted.  Accordingly,  these financial  statements  should be read in
conjunction  with the Company's  financial  statements  and related notes in the
Company's Annual Report on Form 10-KSB for the year ended November 30, 1999.


NOTE B - INVENTORY
------------------
Inventory consisted of the following:


                                          May 31,          November 30,
                                           2000               1999
                                           ----               ----

Raw materials                        $     246,764          187,813
Finished goods                             371,035          401,608
Less - valuation allowance                 (80,000)         (60,960)
                                           -------          -------

                  Total              $     537,799          528,461
                                           =======          =======


NOTE C - DIVIDENDS
------------------
Dividends on the  preferred  stock are  cumulative  at 7%. At May 31, 2000,  the
cumulative  amount of dividends accrued was $173,397.  Of this amount,  $173,397
was in arrears.


NOTE D - EARNINGS PER SHARE
---------------------------
The Company has adopted SFAS No. 128,  "Earnings Per Share,"  which  establishes
new standards for computing and  presenting  earnings per share.  No restatement
was required for prior year's  earnings per share  figures to conform to the new
standard.  Basic earnings per common share are  calculated by dividing  adjusted
net income by the average  number of shares of common stock  outstanding  during
the  period.  The  calculation  of diluted  earnings  per share of common  stock
assumes the dilative effect of the Company's cumulative preferred stock, options
and warrants.  During the six month period ending May 31, 2000, the market price
did not exceed the option  price for the  outstanding  options and  warrants and
therefore no dilution  occurred.  When conversion of potential common shares has
an  anti-dilutive  effect,  no conversion is assumed in the diluted earnings per
share calculation.

                                       8
<PAGE>


         NACO INDUSTRIES, INC.Notes to Financial Statements (Unaudited)
         --------------------------------------------------------------
                                  May 31, 2000
                                  ------------


NOTE E - PREFERRED STOCK AND WARRANTS
-------------------------------------
There were no shares of  capital  stock sold or  warrants  exercised  during the
three months ending May 31, 2000.


NOTE F - DEBT AND LOAN AGREEMENTS
---------------------------------
At May 31, 2000,  the  outstanding  balance of the Company's  revolving  line of
credit was  $1,001,267.  This line of credit was entered  into on April 22, 1999
with Wells Fargo Business Credit. The amounts, available under the facility, are
based on a  percentage  of accounts  receivable  and  inventories.  This line of
credit  matures April 30, 2002.  As of May 31, 2000 the Company was  technically
not in  compliance  with the  "Minimum  [Pre-tax]  Net Income"  covenant and the
"Minimum Net Worth"  covenant.  The  $1,001,267  line of credit balance has been
classified as current  because of the technical  non-compliance.  The Company is
working with Wells Fargo Credit to reset the covenants.



NOTE G - STOCK OPTIONS
----------------------
In May 2000, the Company granted a non-qualified stock option for $20,000 shares
to Jack Prust,  a new director of the Company.  The options  vested on the grant
date,  and are  exercisable  anytime  while  serving as a director for up to ten
years. The options have an exercise price of $3.00.



NOTE H - RELATED PARTY OPERATING LEASES
---------------------------------------
In December 1999, the Company entered into two  related-party  lease  agreements
for land,  building and equipment with PVC, Inc., a company owned by Verne Bray,
the President,  Chairman of the Board, and majority  stockholder of the Company.
The terms of the leases are for a period of five years commencing December 1999.
Rentals  begin at $13,500  per month for the land and  building,  and $9,500 per
month for various pieces of equipment.  Upon each annual  anniversary  date, the
monthly  rentals for each lease shall be adjusted by the amount of any  increase
in the Consumer  Price Index over the  preceding  year.  The previous  lease for
land, building and equipment, which was executed by the Company and Mr. Bray and
expired  December 31, 1999,  required  lease  payments of $9,300 per month.  The
lease amounts were  negotiated at the  fair-market  rental value and approved by
Company's Board of Directors.

In March  2000,  Mr.  Verne  Bray,  Chairman  of the  Board  and CEO,  signed an
indemnification  agreement to hold the Company harmless for funds paid on behalf
of  Rimshot,  a  limited  liability  company  owned  by a son of Mr.  Bray.  The
agreement  covers $259,144 of costs advanced to Rimshot for startup  operations,
and $52,087 for principal and interest payments made on leased machinery used by
Rimshot through  November 30, 1999. The agreement calls for monthly  payments of
$2,500 beginning October 1, 2000. After October 1, 2001, the note bears interest
at the applicable federal rate. Pursuant to the indemnification  agreement,  Mr.
Bray  conveyed  to the  Company  a  security  interest  in all PVC.  Inc.  lease
receivables  from the  Company.  The board of directors  approved the  Company's
execution of the indemnification  agreement.  The Company also signed a security
agreement with PVC, Inc. which allows the Company to offset payments due to PVC,
Inc. in the event of default on the indemnification agreement.

The Company as paid as of May 31, 2000 an  additional  $16,001 for principle and
interest  payments on leased  machinery  used by  Rimshot.  This amount has been
added  to the  amount  recorded  as due  from Mr.  Bray in  accordance  with the
indemnification agreement.

In May 2000 one of the two lease agreements NACO has for equipment being used by
Rimshot was transferred to PVC, Inc. a Company owned by Mr. Bray.

                                       9
<PAGE>


         NACO INDUSTRIES, INC.Notes to Financial Statements (Unaudited)
         --------------------------------------------------------------
                                  May 31, 2000
                                  ------------


NOTE I - PROVISION FOR INCOME TAXES
-----------------------------------
The Company has loss  carryforwards  from previous fiscal years of approximately
$1,285,000 that may be applied  against future taxable  income.  These operating
loss carryforwards  expire in the years 2009 through 2020. The interim financial
statements  reflect a tax  provision  for net  income to date and  deferred  tax
assets have been adjusted accordingly.

NOTE J - CONTINGINCIES
----------------------
The Company is a defendant in a lawsuit filed by one of its former employees who
owned a building that had been leased by the Company.  The suit asks for damages
of approximately  $41,000.  The Company believes the suit is completely  without
merit  and has  filed a  counter-suit  and  intends  to  vigorously  defend  its
position.

                                       10
<PAGE>




Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
--------------------------------------------------------------------------------

Introduction
NACO  Industries,  Inc.  ("NACO" or the "Company") is a  manufacturing  company,
which produces and sells polyvinyl  chloride "PVC" and composite  products.  The
Company's  primary line of business  consists of manufacturing PVC pipe fittings
and  valves,  which are sold  throughout  the United  States  through  wholesale
distributors to irrigation, industrial, construction and utility industries. The
Company manufactures and sells fabricated fittings (4" through 30" in diameter),
as well as molded fittings (4" though 10" in diameter). Pipefittings produced by
the Company  include tees,  reducers,  elbows,  couplers,  end caps,  and bolted
repair couplers.  NACO also manufactures and sells PVC valves (4" through 12" in
diameter).


Results of Operations
     The following  discussion  relates to the three months and six months ended
May  31,  2000  and  May  31,  1999,  respectively.   For  comparison  purposes,
percentages  of  sales  will be  used  rather  than  dollars.  In the  following
discussion, the three months ended May 31, 2000 and May 31, 1999 are referred to
as 2Q00 and  2Q99,  respectively.  The six  months  ended  May 31,  2000 and May
31,1999 are referred to as 6M00 and 6M99,  respectively.  Readers are  cautioned
that results of  operations  for the three and six months  periods ended May 31,
2000 are not necessarily  indicative of the results that may be expected for the
fiscal year ending November 30, 2000.

     Overview. The Company sustained an operating profit after taxes of $101,359
for 2Q00 compared to an operating profit after taxes of $283,265 for 2Q99. Gross
margin  as a  percentage  of  sales  for 2Q00 and  2Q99  was  42.4%  and  52.7%,
respectively.  The reduction in the Company's operating profit and gross margins
was mainly  due to two  factors.  1)  Management  feels that a warm mild  winter
resulted in a shift of sales to the first quarter that normally  would have been
placed in the second  quarter and 2) Increases in raw material  costs during the
past year have continued to put downward pressure on the Company's gross margin.
(explained below).

     Net Sales: Net sales for 2Q00 decreased by 6.6% to $2,360,625,  compared to
net sales of $2,415,231 for 2Q99.  There are several factors that contributed to
decreased sales. Management feels that a warm mild winter resulted in a shift of
sales to the first quarter that normally would have been in the second  quarter.
Net sales for 1Q00 were  $2,197,038,  up $568,011 from  $1,629,027 in 1Q99.  For
6M00,  net sales were  $4,557,662,  up $513,404 from 6M99.  Management  believes
these results  reflect an increase in overall sales,  but that an apparent shift
from 2Q00 to 1Q00 has occurred.  Another factor that may have contributed is the
increase in the price of PVC pipe from 2Q99 to 2Q00.  Marketing reports indicate
that bigger  projects may have been  postponed or cancelled due to higher costs.
The market has been strong  during the past year,  but appears to be  softening.
The  Company  increased  prices  on  its  products  by 5% in  October  1999  and
implemented  another 5% price increase  effective  April 1, 2000 in an effort to
mitigate the continuing rise in raw material prices.

     Gross  Margin.  Gross margin as a percentage of sales for 2Q00 and 2Q99 was
42.2% and 52.7%, respectively.  Margins decreased mainly due to increases in raw
material  costs,  labor and rent. Raw material  prices  continued to rise during
2Q00.  Raw  materials as a percentage  of sales for 2Q00 and 2Q99 were 30.4% and
23.9%  respectively.  The  Company  increased  prices on its  products  by 5% in
October  1999 and  another  5%  effective  April  1,  2000 to help  offset  this
continuing rise in raw material prices. However, because of competitive pressure
the Company hasn't been able to raise prices  sufficiently to completely  offset
the rise in raw material costs.  Labor and related  expenses  increased 3.0%, or
$11,917,  from 2Q99 to 2Q00 mainly due to an average of 3.5% increases in wages,
effective  December 1, 1999.  Rent expense as a percentage of net sales for 2Q00
and 2Q99 was 3.0% and 1.6% respectively. Rent expense increased 86.2% or $32,527
from  2Q99 to  2Q00  primarily  due to  lease  payments  associated  with  lease
agreements  with PVC,  Inc.  Verne  Bray,  the  Chairman  of the Board and Chief
Executive  Officer of the Company is the principal  shareholder of PVC, Inc. The
terms of the  leases are for a period of five years  commencing  December  1999.
Rentals  begin at $13,500  per month for the land and  building,  and $9,500 per
month for various pieces of equipment.  Upon each annual  anniversary  date, the
monthly  rentals for each lease shall be adjusted by the amount of any  increase
in the Consumer  Price Index over the  preceding  year.  The previous  lease for
land, building and equipment, which was executed by the Company and Mr. Bray and
expired  December 31, 1999,  required  lease  payments of $9,300 per month.  The
lease  amounts were  negotiated at rates  considered  by the Company's  Board of
Directors to represent  the  fair-market  rental value and were  approved by the
Company's Board of Directors.  The Company takes a complete  physical  inventory
once a year and a physical  inventory of the top 80% of the dollars in inventory
every quarter. This helps to offset any inventory  adjustments at year-end.  Any
year-end  adjustments are reflected during the fourth quarter after the year-end
physical inventory is completed.

                                       11
<PAGE>

     Selling:  Selling  expenses  were 18.8% of net sales for 2Q00,  compared to
19.9% for 2Q99. In actual dollars,  selling expenses decreased $36,686, or 7.7%,
from 2Q99 to 2Q00. The decrease in selling expenses as a percentage of sales was
mainly due to decreased freight costs.  Freight as a percentage of net sales for
2Q00  and  2Q99 was 6.9%  and  7.9%  respectively,  partially  due to  receiving
quantity discounts on freight on larger shipments.  Commission expense decreased
 .2% on net  sales,  mainly  due to a  higher  percentage  of  sales  to in house
accounts where a lower commission is paid.

     General and administrative: General and administrative expenses represented
12.6% of net sales for 2Q00,  compared to 9.9% for 2Q99. The increase was mainly
due to decreased  sales  volume and an increase in legal and outside  consulting
fees.  Overall,  general and  administrative  expenses  increased  $58,540  from
$239,579 to $298,119 from 2Q99 to 2Q00.  Legal,  accounting and outside services
as a percentage  of net sales was 1.2% and 3.5% for 2Q99 and 2Q00  respectively.
The increase in dollars for legal,  accounting and outside  services was $55,069
from 2Q99 to 2Q00. During 2Q00 the Company's  management hired a consulting firm
to identify  opportunities to reduce operating expenses,  increase  efficiencies
and improve management  training.  Legal expenses also increased $4,868,  mainly
due to legal expenses occurred to defend against two law suits filed against the
Company  by a former  vendor  and a former  landlord.  (See Part II,  Item 1 for
details on these law suits) R & D expenses  decreased  $4,369 mainly  because of
the departure of the Company's  only engineer that was not replaced.  Management
believes  that the Company can out source its  engineering  requirements  in the
future.  Salaries, as a percentage of net sales,  decreased from 6.4% in 2Q99 to
5.3% in 2Q00 mainly due to two factors:  1) The executive  officers  received no
increase in pay this past year and 2) a voluntary reduction in the salary of the
CEO. Lease expenses  increased $4,022 due to new lease  agreements  between NACO
Industries, Inc. and PVC Inc.

     Other:  Other  expenses/revenues  were 3.5% for 2Q00,  compared to 4.1% for
2Q99 mainly due to $10,569 in lease  revenue  from  equipment  leased to Rimshot
LLC, a related party.  Interest  expense went from 4.1% in 2Q99 to 3.9% in 1Q00.
Interest decreased $6,372 from 2Q99 to 2Q00 mainly due to decreased  borrowings.
The  effective  interest  rates  (interest  expense  divided by the average debt
balance for the period) for 6M00 and 6M99 were 11.94% and 15.14%, respectively.


Liquidity and Capital Resources

         The  Company's  principal  sources  of  liquidity  have  been cash from
operations,  credit facilities and equity financing.  Cash provided in operating
activities was $4,626 in 2Q00. Cash as of May 31, 2000 was $139,313,  up $81,240
from November 30, 1999.

         With the loss  incurred  by the  Company  during the fiscal  year ended
11/30/99  primarily as a result of the discontinued  NACO Composites  operation,
the Company's working capital position was reduced significantly.  The Company's
liquidity  position  improved  during 6M00, due primarily to increased sales and
net income for the period. The Company decreased trade payables by $398,374 from
November  30, 1999 to May 31, 2000.  At November  30, 1999,  the Company was out
over 90 days on trade payables, due principally to a lack of operating funds. As
of May 31, 2000, the Company was current on its trade payables.

         At May 31, 2000,  the  outstanding  balance of the Company's  revolving
line of credit was $1,001,267. This line of credit was entered into on April 22,
1999 with Wells Fargo Business Credit.  The amounts available under the facility
are based on a percentage of accounts  receivable  and  inventories.  It matures
April 30, 2002. As of May 31, 2000 the Company was technically not in compliance
with the  "Minimum  [Pre-tax]  Net Income"  covenant and the "minimum net worth"
covenant.  The covenant  pre-tax  income was $515,000 and the  Company's  actual
pre-tax net income was $409,767.  The minimum net worth covenant was $1,000,000;
the company's actual  net-worth was $978,263.  The Company is working with Wells
Fargo Credit to reset the covenants.

         Also,  on April 22,  1999,  a second  facility  was closed with WebBank
Corporation.  This facility was for $1,100,000. It is secured by current assets,
property and equipment,  and life insurance. It is payable with interest at 1.5%
over the banks prime rate and matures April 30, 2014. On November 30, 1999,  the
Company was in default of WebBank's loan  covenants.  In a letter dated February
18, 2000,  WebBank provided a waiver that extended a grace period to the Company
with respect to meeting  certain ratio  requirements  and advances to affiliates
until  August  31,  2000.  The  waiver  also  extended  a grace  period  for the
debt-worth requirement until November 30, 2000. The Company received a waiver of
the default and has been given a twelve-month grace period.

         The  Company  currently  has plans to spend up to  $150,000  in capital
expenditures  to update and expand its  operations on the  condition  that in so
doing it will not adversely effect loan covenants.

         Management believes that its capital resources on hand at May 31, 2000,
revenues from sales and bank resources will be sufficient to satisfy its working
capital  requirements  for the  foreseeable  future.  There can be no assurance,
however,  that additional debt or equity  financing may not be required or that,
if such  financing is required,  it will be available on terms  favorable to the
Company,  if at all. The Company's  inability to secure additional  financing or
raise  additional  capital  would likely have a material  adverse  effect on the
Company's operations,  financial condition,  and its ability to continue to grow
and expand its operations.

                                       12
<PAGE>

Factors Affecting Future Results
         The Company's operating results are subject to certain risks that could
adversely  affect the  Company's  operating  results  and its ability to operate
profitably.  The  Company's  operating  results  could be adversely  affected by
increased  competition in the markets in which the Company's  products  compete,
manufacturing delays and inefficiencies  associated with expanding the Company's
manufacturing  capacity,  adverse weather conditions,  increases in labor or raw
materials, changes in economic conditions in its markets, unanticipated expenses
or events and other  factors  discussed in this report and the  Company's  other
filings with the Securities and Exchange Commission.

                                       13

<PAGE>


PART II - OTHER INFORMATION

Item 1 - Legal Proceedings
                  Item  1--Lund  Engineering.:  During  its fiscal  year  ending
         November 30, 1999,  and in the ordinary  course of its  business,  NACO
         Industries,  Inc.  (Company)  entered into a series of contracts with a
         Contractor  in  Bountiful,  Utah  known as WCI,  LLC  ("WCI"),  for the
         manufacture of various  premanufactured  fiberglass materials and parts
         to be used in construction. In order to meet its contract requirements,
         the  Company   outsourced   production   under  these  contracts  to  a
         subcontractor known as LUND ENGINEERING AND MANUFACTURING, Inc., a Utah
         corporation  in Salt Lake City  ("LUND").  As of November  30, 1999 the
         Company had timely paid all of the LUND  invoices  submitted  to it for
         jobs  performed by LUND, and believed that it had paid for such work in
         full.  However,  on December 31, 1999,  LUND forwarded to the Company a
         demand  for  approximately  $70,000  of  additional  amounts  which  it
         claimed, based upon invoices dated December 31, 1999, and pertaining to
         jobs  performed and completed much earlier in the year. The majority of
         LUND's  claims  appear to be based on  overtime  it claims  that it was
         required to work for the Company's jobs, and for which it claims it was
         entitled because a Company  employee  allegedly agreed that the Company
         would pay it.

                  During  the  spring  of  2000,  Lund  has  filed a  number  of
         materialmen's  or mechanics  liens against the  properties  where these
         materials  were  supplied.   Also,  WCI,  with  whom  the  Company  was
         contracting on these  projects,  withheld  substantial  payments to the
         Company.  Accordingly, in an effort to resolve this matter, the Company
         has now entered into an Arbitration Agreement,  effective May 15, 2000,
         with Lund,  whereby this dispute has been submitted to arbitration.  In
         connection  with the  arbitration,  all of the various  mechanics'  and
         materialmen's  liens were  released;  and, in exchange  for the deposit
         into escrow of $64,478.70 by WCI, the Company and WCI have entered into
         a mutual  release  of claims  against  each  other  pertaining  to this
         project.  This matter has now been submitted to arbitration  before the
         American Arbitration Association, and the Company's legal council hopes
         to be  scheduling  the  dates  for  arbitration  in  the  near  future.
         Management  and its legal  council  are still of the  opinion  that the
         funds in escrow are  properly  the funds of the  Company,  and that the
         Company should be entitled to substantially all of such funds; and, the
         Company in  addition  is  asserting  counterclaims  against  Lund,  but
         management  does not believe  that Lund has the  financial  capacity to
         satisfy any significant judgment.  The Company is primarily seeking the
         release of the escrowed funds in the arbitration to NACO.

                  Item 2--Draegers: In October of 1996, NACO COMPOSITES, INC., a
         wholly owned subsidiary of NACO Industries,  Inc., entered into a lease
         agreement for the use of a building in Ogden,  Utah as a  manufacturing
         facility  for the  production  of  certain  fiberglass  products.  That
         subsidiary  has since been merged into NACO  Industries,  Inc., and the
         lease expired on September  30, 1999.  In  connection  with that lease,
         Ronald and Rita Draeger, the owners and landlord of the property,  have
         now filed suit against  NACO  Industries,  Inc. in the Second  District
         Court of Weber  County,  State of Utah on or about April 3, 2000 in the
         amount of $41,305,  or the amount to be proven at Court, plus interest,
         costs of Court and a reasonable  attorney's fee. NACO Industries,  Inc.
         has in turn answered this lawsuit, and filed a Counterclaim against the
         Draegers on May 4, 2000 for an amount in excess of $240,000, based upon
         alleged   agreements   by  Draegers  to  reimburse   NACO  for  certain
         improvements  made to the building,  and based upon  Draegers'  alleged
         breach of  contract  for  repudiating  NACO's  option to  purchase  the
         building,  and for  violation  of covenant  not to  compete,  and other
         miscellaneous  damages.  Although it may be too early in the litigation
         to predict the outcome, with discovery still to take place prior to any
         trial, it does not appear at this time that the Company has significant
         risk of  liability  for material  amounts in this suit,  aside from the
         cost  of  the  litigation  itself.  It  may  be  that  the  Company  is
         responsible for certain repair, fix-up or clean-up expenses. Management
         is hopeful that this action can be settled by the  parties'  good faith
         efforts  to resolve  the  matter  before  trial.  Management  and legal
         council  believes  that the  Company  has a  reasonable  basis  for its
         defense to this action, and reasonable grounds for its Counterclaim.

Item 2 - Changes in Securities and Use of Proceeds   none




Item 5 - Other

                                       14
<PAGE>

         In the  Company's  Board  meeting  following  the  annual  stockholders
meeting held May 18,2000,  the Board made the following  changes in  management.
Verne Bray was named the Chairman of the Board and CEO. W.  Michael  Hopkins was
named President. Jeff Kirby was name Executive Vice President and CFO.

Item 6 - Exhibits and Reports on Form 8-K

 Exhibit No.                                  Description
 -----------                                  -----------

(a)      Exhibits. The following are files as exhibits to this report.

27       Financial Data Schedule

(b)      Reports on Form 8-K.  None




                                       15


<PAGE>


SIGNATURES
In accordance with the  requirements of the Securities  Exchange Act of 1934, as
amended,  the  Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

Naco Industries, Inc.
Registrant

By   /s/ VERNE E. BRAY                                    July 12, 2000
   ----------------------------------                  ---------------
         Verne E. Bray                                    Date
         CEO  (Principal executive officer)


By   /s/ W. MICHAEL HOPKINS                               July 12, 2000
   ----------------------------------                  ---------------
         W. Michael Hopkins                               Date
         President


By   /s/ JEFFREY J. KIRBY                                 July 12, 2000
   ----------------------------------                  ---------------
        Jeffrey J. Kirby                                  Date
        Executive Vice President/CFO
       (Principal financial and accounting officer)