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, 2002

[ ] 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)


                     Issuer'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, 2002, the issuer had 1,950,393 shares of Common Stock and 165,412
shares of Preferred Stock outstanding.

     Transitional Small Business Disclosure Format Yes [  ] No  [X]

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

<PAGE>

PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
NACO INDUSTRIES, INC.
BALANCE SHEETS
                                                                                 May 31,   November 30
                                                                                  2002         2002
ASSETS                                                                         ----------- -----------
------                                                                         (Unaudited)   (Audited)
Current assets:
<S>                                                                           <C>           <C>
  Cash                                                                        $   78,648    $  137,355
  Accounts receivable, net of allowances
    Of $27,554 / $14,734                                                       1,062,329       742,026
  Current portion of related parties receivables                                  10,000        10,000
  Inventory                                                                      645,234       584,272
  Other current assets                                                             2,863        28,237
  Deferred income taxes                                                          118,550       307,000
                                                                              ----------    ----------
       Total current assets                                                    1,917,624     1,808,890

Property and equipment, net                                                      834,228       867,732
Related party receivables                                                        300,624       304,152
Other assets, net                                                                179,289       181,773
                                                                              ----------    ----------
Total assets                                                                  $3,231,765    $3,162,547
                                                                              ==========    ==========
</TABLE>
                       See Notes to Financial Statements


                                       2
<PAGE>

<TABLE>
<CAPTION>
NACO INDUSTRIES, INC.
BALANCE SHEETS
                                                                              May 31,   November 30
LIABILITIES:                                                                   2002         2002
------------                                                                ----------- -----------
                                                                            (Unaudited)   (Audited)

Current liabilities:
<S>                                                                       <C>            <C>
  Accounts payable                                                        $   410,126    $   343,086
  Accrued expenses                                                            324,613        406,518
  Current portion of long-term obligations                                     57,801         56,043
                                                                          -----------    -----------
       Total current liabilities                                              792,540        805,647
                                                                          -----------    -----------
Long-term liabilities:
  Long-term obligations, less current portion                                 905,447        935,853
  Note Payable                                                                      0        131,375
  Deferred income tax liability                                                77,000         77,000
                                                                          -----------    -----------
       Total long-term liabilities                                            982,447      1,144,228
                                                                          -----------    -----------
       Total liabilities                                                    1,774,987      1,949,875
                                                                          -----------    -----------
Stockholders' equity:
   Preferred Stock, 7% Cumulative, convertible $3.00 par value, 330,000       496,236        496,236
shares authorized and 165,412 shares issued and outstanding. (Aggregate
liquidation preference $1,235,342 and $1,270,364 respectively)
  Common stock, $.01 par value, 10,000,000 shares authorized; 1,950,393        19,504         19,504
shares issued and outstanding
  Additional paid-in capital                                          .       948,330      1,017,803
  Accumulated deficit                                                          (7,292)      (320,871)
                                                                          -----------    -----------
       Total stockholders' equity                                           1,456,778      1,212,672
                                                                          -----------    -----------
       Total liabilities and
         Stockholders' equity                                             $ 3,231,765    $ 3,162,547
                                                                          ===========    ===========
</TABLE>

                       See Notes to Financial Statements
                                       3

<PAGE>


<TABLE>
<CAPTION>

NACO INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)

                                                                Three months ended              Six months ended
                                                              May 31,        May 31,        May 31,         May 31,
                                                               2002           2001           2002            2001
                                                           --------------------------------------------------------

<S>                                                        <C>              <C>            <C>            <C>
Sales, net                                                 $ 2,517,617      2,466,591      4,336,991      4,055,914
Cost of goods sold                                           1,209,435      1,200,024      2,317,852      2,179,042
                                                           --------------------------------------------------------
       Gross profit                                          1,308,182      1,266,567      2,019,139      1,876,872
Operating expenses:
  Selling expenses                                             565,989        448,369        964,115        789,799
  General and administrative expenses                          235,742        239,527        488,372        495,530
                                                           --------------------------------------------------------
       Total operating expenses                                801,731        687,896      1,452,487      1,285,329
                                                           --------------------------------------------------------
       Income from operations                                  506,451        578,671        566,652        591,543
Other income (expense):
  Interest income                                                  285          1,194          1,018          1,593
  Other income                                                     800            800                           800
  Interest expense                                             (31,858)       (63,494)       (65,641)      (126,805)
                                                           --------------------------------------------------------
       Total other income (expense)                            (31,573)       (61,500)       (64,623)      (124,412)
                                                           --------------------------------------------------------
Income before income taxes                                 $   474,878        517,171        502,029        467,131
Income tax expense (benefit)                                   177,650        189,400        188,450        176,100
                                                           --------------------------------------------------------
       Net income                                          $   297,228        327,771        313,579        291,031
                                                           ========================================================
Adjustment for preferred
dividends in arrears                                              --             --          (34,451)       (34,451)
                                                           --------------------------------------------------------
Adjusted net income (loss) to common                       $   297,228        327,771        279,128        256,580
stockholders
                                                           ========================================================
Earnings per common share:
                                                           --------------------------------------------------------
 Basic:                                                    $       .15            .17            .14            .13
                                                           ========================================================
                                                           --------------------------------------------------------
 Diluted:                                                  $       .15            .17            .14            .13
                                                           ========================================================
Weighted average number of common
  Shares outstanding:
    Basic                                                    1,950,393      1,926,330      1,950,393      1,926,330
                                                           ========================================================
    Diluted                                                  1,950,393      1,926,330      1,950,393      1,926,330
                                                           ========================================================
</TABLE>

                        See Notes to Financial Statements
                                       4

<PAGE>



NACO INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)

                                                          Six months ended
                                                        May 31,       May 31,
                                                         2002          2001
                                                       ---------    ---------
Cash flows from operating activities
  Net income (loss)                                    $ 313,579    $ 291,031
  Adjustments to reconcile net income (loss) to
   net cash provided by (used in)
   operating activities:
     Depreciation                                         97,466      113,467
     Amortization                                          4,207        9,622
     Deferred income taxes                               188,450      176,100
   (Increase) decrease in:
     Accounts receivable, net                           (320,302)    (158,581)
     Receivable from related parties                       3,528       (8,626)
     Inventory                                           (60,962)      63,127
     Other                                                25,374        3,394
   Increase (decrease) in:
     Accounts payable                                     67,040      (74,578)

     Accrued expenses                                    (81,905)     (28,402)
                                                       ---------    ---------

 Net cash provided by operating activities               236,475      386,554
                                                       ---------    ---------
Cash flows from investing activities
  Purchase of  property and equipment                    (63,963)     (29,621)
  Other Assets                                            (1,723)
                                                       ---------    ---------
        Net cash used in investing activities            (65,686)     (29,621)
                                                       ---------    ---------
 Cash flows from financing activities
  Net change in line of credit                          (131,375)    (320,339)
  Payments on long-term debt                             (28,648)     (26,778)
  Dividend Payment                                       (69,473)
                                                       ---------    ---------
        Net cash used in financing activities           (229,496)    (347,117)
                                                       ---------    ---------
Increase (decrease) in cash                              (58,707)       9,816
        Cash, beginning of period                        137,355       32,576
                                                       ---------    ---------
        Cash, end of period                            $  78,648    $  42,392
                                                       =========    =========
See Notes to Financial Statements
Supplemental disclosures:
    Income taxes paid                                  $     900    $     900
    Interest Paid                                      $  65,641    $  98,917

                                       5
<PAGE>


NACO INDUSTRIES, INC.
Notes to Financial Statements (Unaudited)
May 31, 2002

 NOTE A - BASIS OF PRESENTATION
         In the  opinion of  management,  all  adjustments  (consisting  only of
normal recurring  accruals)  considered  necessary for a fair  presentation have
been included. Operating results for the six-month period ended May 31, 2002 are
not  necessarily  indicative  of the results that may be expected for the fiscal
year ending November 30, 2002.  These  statements  should be read in conjunction
with the financial  statements and related notes in the Company's  Annual Report
on Form 10-KSB for the year ended November 30, 2001.

NOTE B - DIVIDENDS
         Dividends on the  preferred  stock are  cumulative at 7%. A dividend of
$.42 per share or $69,473 was declared by the board of  directors  with a record
date of March 29, 2002 and was paid May 6, 2002.  At May 31, 2002,  dividends in
the amount of $242,870 were in arrears.

NOTE C - RELATED PARTY OPERATING LEASES

The Company leases its Logan, Utah, manufacturing and sales facility and certain
equipment  from  P.V.C.,  Inc.  (PVC),  a  corporation  owned 100 percent by the
Company's majority  shareholder,  Verne Bray. The lease agreement requires rents
in the amount of approximately $23,000 per month. The Company has guaranteed the
mortgage on the  facilities  it leases from PVC. At November  30, 2001 and 2000,
the  outstanding  mortgage  balance was  approximately  $720,000  and  $682,000,
respectively.  At May 31,  2002,  the  Company had a lease  deposit  with PVC of
$23,000, which is included in "Other Assets" on the balance sheet.

In  addition,  Verne Bray has signed an  indemnification  agreement  to hold the
Company harmless for funds paid on behalf of Rimshot LLC (Rimshot),  an inactive
limited  liability  company owned by a son of Verne Bray. The Board of Directors
approved the Company's execution of the indemnification agreement. The agreement
covers  $311,231  of costs  advanced  to Rimshot  for  start-up  operations  and
principal and interest  payments made on leased  machinery used by Rimshot.  The
agreement  calls for  monthly  payments  of $2,500  beginning  October  1, 2000.
Pursuant to the indemnification  agreement, Verne Bray conveyed to the Company a
security interest in all PVC lease receivables from the Company. The Company has
also  signed a security  agreement  with PVC that  allows the  Company to offset
payments due to PVC in the event of default on the indemnification agreement.

At May 31, 2002 and November 30, 2001,  Verne Bray and related entities owed the
Company $310,624 and $314,152, respectively.

                                       6
<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")  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 and six month periods ended
May  31,  2002  and  May  31,  2001,  respectively.   For  comparison  purposes,
percentages  of  sales  will be  used  rather  than  dollars.  In the  following
discussion, the three months ended May 31, 2002 and May 31, 2001 are referred to
as 2Q02 and 2Q01,  respectively.  The six months  ended May 31, 2002 and May 31,
2001 are referred to as 6M02 and 6M01, respectively.  Readers are cautioned that
results of operations for the six months ended May 31, 2002 are not  necessarily
indicative  of the  results  that may be  expected  for the fiscal  year  ending
November 30, 2002.

     Overview.  The Company  sustained a net profit before taxes of $474,878 for
2Q02,  compared to a net profit  before taxes of $517,171 for 2Q01.  The Company
sustained  a net profit  before  taxes of $502,029  for 6M02,  compared to a net
profit before taxes of $467,131 for 6M01.  Gross margin as a percentage of sales
for 2Q02 and 2Q01  was  52.0%  and  51.4%,  respectively.  The  decrease  in the
Company's  net profit  before taxes for 2Q02 from 2Q01 was mainly due to a 26.2%
increase in selling  expenses as discussed  below. The increase in the Company's
net profit before taxes for 6M02 from 6M01 was mainly due to increased  sales as
explained below.

     Net Sales: Net sales for 2Q02 increased by 2.1% to $2,517,617,  compared to
net sales of  $2,466,591  for 2Q01.  Net  sales  for 6M02  increased  by 6.9% to
$4,336,991,  compared to net sales of $4,055,933 for 6M01.  Management  believes
that the  increase in net sales was due  primarily  to the  Company's  increased
sales  efforts in the  agricultural  and utility  markets.  Sales in the utility
market  increased 23.7% from 2Q01 to 2Q02 and 28.1% from 6M01 to 6M02.  Sales in
the agricultural market decreased 2.2% from 2Q01 to 2Q02, mainly due to seasonal
shifts in the  agricultural  market due to  weather.  Sales in the  agricultural
market  increased  2.2%  from 6M01 to 6M02,  primarily  due to  increased  sales
efforts.  Agricultural and utility sales as a percentage of net sales were 84.7%
and 15.3% for 2Q02 and 88.1% and 11.9% for 2Q01  respectively.  Agricultural and
utility  sales as a  percentage  of net sales  were 83.8% and 16.2% for 6M02 and
87.6% and 12.4% for 6M01 respectively.

     Gross  Margin.  Gross margin as a percentage of sales for 2Q02 and 2Q01 was
52.0% and 51.4%,  respectively.  Gross margin as a percentage  of sales for 6M02
and 6M01  was  46.6%  and  46.3%,  respectively.  The  margin  for 2Q02 and 6M02
increased from the prior  periods,  mainly due to increased  sales volume.  When
sales change,  the Company's  fixed costs stay  relatively  constant,  generally
resulting  in a higher or lower  gross  margin for the period.  The  increase in
sales  during  2Q02 and 6M02  resulted  in higher  margins  during 2Q02 and 6M02
compared  to the  prior  year  periods.  Variable  cost  of raw  materials  as a
percentage  of net sales  was  25.7% and 26.4% for 2Q02 and 2Q01,  respectively.
Labor and related expenses increased $17,478, or 4.9%, from 2Q01 to 2Q02, mainly
due to an increase in the production  labor force.  The Company added additional
production personnel during 1Q02 in an effort to respond to higher sales volume.
Wage  increases of  approximately  3% in December 2001 also  contributed  to the
increase in labor expenses.  Labor and related expenses  increased  $71,561,  or
10.2%, from 6M01 to 6M02 mainly due to an increase in the production labor force
and the wage increases  mentioned above. During the first quarter of the current
fiscal year the Company experienced certain manufacturing inefficiencies,  which
contributed  to  the  increased  production  force.   Management  feels  it  has
identified and addressed these  inefficiencies  and has reduced production labor
levels.

     Selling:  Selling  expenses  were 22.5% of net sales for 2Q02,  compared to
18.2% for 2Q01.  The increase in selling  expenses as a percentage  of sales was
due to several principal factors. In actual dollars,  selling expenses increased
$117,620,  or 26.6%,  from 2Q01 to 2Q02.  Advertising  expense increased 385% or
$24,466,  from  2Q01 to  2Q02,  mainly  due to the  publication  of new  product
catalogs. Shipping supplies increased 59%, or $20,436, from 2Q01 to 2Q02, mainly
due the timing of purchases of supplies. Freight out increased 8.6%, or $14,016,
from 2Q01 to 2Q02 mainly due to increased sales volume of larger  shipments,  on
which the Company  pays the  freight.  Warranty  expense  increased  379.4%,  or

                                       7
<PAGE>


$42,196, from 2Q01 to 2Q02, primarily due to anticipated product warranty claims
that the Company has accrued for.  Selling  expenses were 22.2% of net sales for
6M02,  compared  to 19.5%  for 6M01.  The  increase  in  selling  expenses  as a
percentage of sales was due to several  principal  factors.  In actual  dollars,
selling expenses increased  $174,316,  or 22.1%, from 6M01 to 6M02.  Advertising
expense  increased  242.7%,  or  $26,535,  from 6M01 to 6M02,  mainly due to the
publication of new product  catalogs.  Shipping  supplies  increased  42.1%,  or
$25,148 from 6M01 to 6M02 and as a percentage of sales from 1.5% in 6M01 to 2.0%
in 6M02,  mainly  due to the  timing  of  purchases  of  supplies.  Freight  out
increased 13.3%, or $36,383,  from 6M01 to 6M02 and increased as a percentage of
net  sales  from 6.7% in 6M01 to 7.1% in 6M02,  mainly  due to  increased  sales
volume of larger  shipments,  on which the Company  pays the  freight.  Warranty
expense  increased  $42,900,  or 265.0%,  from 6M01 to 6M02,  due to anticipated
warranty claims that the Company has accrued for. Salesperson salaries increased
$18,956, or 43.9%, from 6M01 to 6M02, due mainly to reassigning an employee from
administrative to selling.

     General and administrative: General and administrative expenses represented
9.4% of net sales for 2Q02,  compared to 9.7% for 2Q01.  The decrease was mainly
due to increased  sales volume.  Overall,  general and  administrative  expenses
remained  relatively even in dollars at $235,742 and $239,527 for 2Q02 and 2Q01,
respectively. Research and development increased $4,354 from 2Q01 to 2Q02 mainly
due to the  reassigning  of an employee to research and  development.  Legal and
accounting  expenses  decreased $1,629 from 2Q01 to 2Q02 mainly due to timing of
year-end accounting fees. General and administrative  expenses represented 11.3%
of net sales for 6M02,  compared to 12.2% for 6M01.  The decrease was mainly due
to  increased  sales  volume.  Overall,   general  and  administrative  expenses
decreased $10,258 from 6M02 and 6M01.

     Other: Other expenses/revenues were 1.3% of net sales for 2Q02, compared to
2.5% for 2Q01,  mainly  due to  decreased  interest  expense.  Interest  expense
decreased  from  2.6% of net sales in 2Q01 to 1.3% in 2Q02.  Interest  decreased
$31,636 from 2Q01 to 2Q02, mainly due to improved cash flow and lower borrowings
during the quarter and lower interest rates. Other  expenses/revenues  were 1.5%
of net sales for  6M02,  compared  to 3.1% for  6M01,  mainly  due to  decreased
interest  expense.  Interest expense went from 3.1% of net sales in 6M01 to 1.5%
in 6M02.  Interest  decreased $61,164 from 6M01 to 6M02. The effective  interest
rates  (interest  expense divided by the average debt balance for the applicable
period) for 6M02 and 6M01 were 9.94% and 11.46%, respectively.

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

     The Company's  principal  sources of liquidity have  historically been cash
from operations,  credit  facilities and equity  financing.  Cash generated from
operating  activities was $236,475 in 6M02. Cash as of May 31, 2002 was $78,648,
down $58,707 from November 30, 2001. The Company's working capital has increased
$121,841 from November 30, 2001 to May 31, 2002, due primarily to an increase in
current  assets and a reduction  in current  liabilities.  Cash  generated  from
operations  financed the increase in current assets. The Company increased trade
payables  by  $67,040  from  November  30,  2001 to May 31,  2002.  The  Company
decreased accrued warranty by $72,847 mainly due to the settlement of a warranty
claim.

     At May 31, 2002, the outstanding balance of the Company's revolving line of
credit was $0  compared  to  $365,089  at May 31,  2001.  On October 1, 2001 the
Company entered into a new line of credit with Zions Bank. The amounts available
under  the  facility  are  based on a  percentage  of  accounts  receivable  and
inventories.  The new facility  matures March 31, 2003. The interest rate on the
facility is variable and is equal to 1.75 percentage points over the prime rate.
Prime rate means an index which is determined daily by the published  commercial
loan  variable rate index held by any two of the following  banks:  J.P.  Morgan
Chase & Co., Wells Fargo Bank N.A. and Bank of America N.A.

     On May 31, 2002, the Company was in compliance with all loan covenants with
Zions Bank.  The maximum line is $1,200,000,  of which,  based on the "Borrowing
Base  Certificate"  prepared by the Company,  there was $1,136,837  available to
borrow as of May 31, 2002.

     Also, the Company has a note with WebBank Corporation.  The note is secured
by land,  buildings and equipment owned by the Company.  The note has a variable
interest rate equal to The Wall Street  Journal Prime Interest Rate plus one and
one-half  percent  (1.5%)  provided  however,  that the rate shall never  exceed
14.75% nor be less than 9.75%.  The rate on May 31, 2002 was 9.75%.  The term of
the note is fifteen  (15) years  from the date of closing  (April  1999) and the
note requires monthly payments. On May 31, 2002 the monthly payment required was
$11,972.  On May 31, 2002, the outstanding  balance of the note was $950,843 and
the Company was in compliance with all loan covenants with WebBank. This note is
subordinated to the Zions Bank line of credit.

     Management  believes  that its capital  resources  on hand at May 31, 2002,
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.

Critical Accounting Policies
----------------------------

     The  Company's  discussion  and  analysis of its  financial  condition  and
results of operations are based upon the Company's financial  statements,  which
have been prepared in accordance with generally accepted accounting  principles.
The  preparation  of these  financial  statements  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the financial  statements and the reported  amounts of sales and expenses during


                                      8
<PAGE>

the reporting period.  Areas where  significant  judgements are made include but
are not limited to allowance  for doubtful  accounts,  inventory  valuation  and
deferred  income tax asset valuation  allowances.  In the opinion of management,
all  adjustments  (consisting  only of  normal  recurring  accruals)  considered
necessary for a fair presentation have been included.

     Allowance for Doubtful  Accounts:  The Company has established an allowance
for estimated bad debts by applying a historical  percentage of bad debts to net
sales each month. In addition, all accounts over 90 days are evaluated as to the
collectibility  of each  account  and a  specific  reserve  is  established  for
specific  customer  accounts  identified  as  doubtful or  non-collectible.  The
Company's customer base is such that changes in either the customer's  financial
position or the economy as a whole could cause actual  write-offs  to materially
differ from the estimated  reserve.  The allowance for doubtful  accounts at May
31, 2002 is $27,553 compared to $14,734 at fiscal year end November 30, 2001.

     Inventories:  The  Company  evaluates  inventory  on  an  annual  basis  to
determine  obsolete  and slow moving  inventory.  All  inventories  that has not
moved, been used in manufacturing or sold in the past year are reserved against.
Also an  additional  reserve is made for slow moving  inventory.  Based on usage
during the past year, a reserve is calculated by taking the prevailing  interest
rate for  money  borrowed   multiplied by the  value  inventory  in  excess of a
six-month supply. Inventory in excess of a three-year supply is reserved at 100%
of the value of that excess inventory.  The reserve for obsolete and slow moving
inventories at May 31, 2003 and November 30, 2001 was $60,000.

     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. Since only 80% of the dollars in inventory are counted each quarter a
"quantity reserve" is made each quarter for the parts not counted.  The quantity
reserve at May 31, 2002 is $20,000.

     Deferred Income Tax Valuation  Allowances:  The Company's  current asset at
May 31, 2002 includes an entry for deferred taxes in the amount of $118,550. The
Company evaluates the realizability of its net deferred tax asset on a quarterly
basis and a valuation  allowance is provided.  In the opinion of management  the
total asset value at May 31, 2002 is  realizable,  therefore  no  allowance  was
provided.  However, 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 expenses,  changes in economic conditions,  unanticipated  expenses or
events and other factors that could materially change the need for an allowance.

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,  unanticipated expenses or events and
other factors  discussed in this report and the Company's other filings with the
Securities and Exchange Commission.

                                       9
<PAGE>


PART II - OTHER INFORMATION

Item  3 - Defaults  Upon  Senior  Securities

      (b) During the fiscal year ended  November 30, 2001, and for the prior two
      fiscal years,  the Company did not pay dividends due on its Series 1 Class
      A 7% Cumulative  Convertible  Preferred Stock (the "Preferred Stock"). The
      Company's  Board of  Directors  did declare a dividend  for the year ended
      November 30, 2001, in the aggregate amount of $69,473,  which dividend was
      paid May 6, 2002. As of May 31, 2002,  the total  dividend in arrears with
      respect to the Preferred Stock was $242,870.

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

         On  May  17,  2002,  the  Company  held  its  2002  Annual  Meeting  of
Shareholders. At the 2002 Annual Meeting, the shareholders elected the following
five individuals to serve as directors:
<TABLE>
<CAPTION>

                Director                         Votes For          Votes Against  Abstentions
                --------                         ---------          -------------  -----------

<S>                                              <C>                     <C>             <C>
         Verne E. Bray                           1,667,873               0               0
         W. Michael Hopkins                      1,667,873               0               0
         Jeffrey J. Kirby                        1,667,873               0               0
         James C. Czirr                          1,667,873               0               0
         Jack Prust                              1,667,873               0               0
</TABLE>

         At the 2002 Annual Meeting,  the shareholders  also approved a proposal
to ratify the appointment of Jones,  Simpkins LLP as the independent  auditor of
the Company.  There were 1,667,873 votes cast in favor of ratification,  0 votes
cast in opposition, 0 abstentions and 0 broker non-votes.

Item 6 - Exhibits and Reports on Form 8-K

     (a) none


     (b) Reports on form 8-K.  None
                                       10
<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 10, 2002
   -----------------------------------------                 ---------------
             Verne E. Bray                                        Date
             CEO, Secretary, Chairman
             (Principal Executive Officer)

By      /s/ W. MICHAEL HOPKINS                                July 10, 2002
   -----------------------------------------                 ---------------
            W. Michael Hopkins                                    Date
                    President


By    /s/ JEFFREY J. KIRBY                                    July 10, 2002
   -----------------------------------------                 ---------------
          Jeffrey J. Kirby                                        Date
          Executive Vice President/
          Chief Financial Officer/Treasurer
          (Principal Financial and Accounting Officer)
                                       11