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 August 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 August  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

                                                                              August               November
                                                                                31,                   30,
ASSETS                                                                         2002                  2001
------                                                                      -----------          ----------
                                                                            (Unaudited)           (Audited)
<S>                                                                         <C>                  <C>
Current assets:
  Cash                                                                      $  330,597           $  137,355
  Accounts receivable, net of allowances
    Of $32,782 / $14,734                                                       576,830              742,026
  Current portion of related parties receivables                                10,000               10,000
  Inventory                                                                    635,564              584,272
  Other current assets                                                          47,537               28,237
  Deferred income taxes                                                        143,550              307,000
                                                                            ----------           ----------
       Total current assets                                                  1,744,078            1,808,890

Property and equipment, net                                                    809,658              867,732
Related party receivables                                                      297,903              304,152
Other assets, net                                                              179,406              181,773
                                                                            ----------           ----------
Total assets                                                                $3,031,045           $3,162,547
                                                                            ==========           ==========
</TABLE>
                       See notes to Financial Statements.


                                       2
<PAGE>


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

                                                                               August             November
                                                                                 31,                 30,
LIABILITIES                                                                     2002                2001
-----------                                                                  -----------         -----------
                                                                             (Unaudited)         (Audited)
<S>                                                                          <C>                 <C>
Current liabilities:
  Accounts payable                                                           $   258,639         $   343,086
  Accrued expenses                                                               331,402             406,518
  Current portion of long-term obligations                                        58,158              56,043
                                                                             -----------         -----------
       Total current liabilities                                                 648,199             805,647
                                                                             -----------         -----------

Long-term liabilities:
  Long-term obligations, less current portion                                    891,174             935,853
  Note Payable                                                                         0             131,375
  Deferred income tax liability                                                   77,000              77,000
                                                                             -----------         -----------
       Total long-term liabilities                                               968,174           1,144,228
                                                                             -----------         -----------
       Total liabilities                                                       1,616,373           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 $1,270,364 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                                                           (49,398)            (320,871)
                                                                             -----------         -----------
       Total stockholders' equity                                              1,414,672           1,212,672
                                                                             -----------         -----------

       Total liabilities and
         Stockholders' equity                                                $ 3,031,045         $ 3,162,547
                                                                             ===========         ===========
</TABLE>

                       See Notes to Financial Statements


                                       3
<PAGE>


<TABLE>
<CAPTION>
NACO INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
                                                                  Three months ended             Nine months ended
                                                             August 31,      August 31,       August 31,     August 31,
                                                         -----------------------------------------------------------------
                                                               2002               2001           2002            2001
                                                         ------------------------------------------------------------------

<S>                                                         <C>                 <C>             <C>            <C>
Sales, net                                                  $  1,780,934        1,886,383       6,117,971      5,942,297

Cost of goods sold                                             1,152,056        1,102,793       3,469,908      3,281,835
                                                        -----------------------------------------------------------------
       Gross profit                                              628,878          783,590       2,648,063      2,660,462

Operating expenses:
  Selling expenses                                               424,447          389,147       1,388,562      1,178,946
  General and administrative expenses                            247,495          239,018         734,317        734,548
                                                        -----------------------------------------------------------------
       Total operating expenses                                  671,942          628,165       2,122,879      1,913,494
                                                        -----------------------------------------------------------------

       Income from operations                                   (43,064)          155,425         525,184        746,968

Other income (expense):
  Interest income                                                    485            1,270           1,503          2,863
  Other income                                                                        600                          1,400
  Interest expense                                              (24,573)         (51,338)        (90,214)      (178,143)
                                                        -----------------------------------------------------------------
       Total other income (expense)                             (24,088)         (49,468)        (88,711)      (173,880)
                                                        -----------------------------------------------------------------

Income before income taxes                                   $  (67,152)          105,957         436,473        573,088

Income tax expense (benefit)                                    (25,000)           40,000         165,000        216,100
                                                        -----------------------------------------------------------------

       Net income (Loss)                                     $  (42,152)           65,957         271,473        356,988
                                                        =================================================================

Adjustment for preferred dividends in arrears                   (35,022)         (35,022)        (69,473)       (69,473)

                                                        -----------------------------------------------------------------
Adjusted net income (loss) to common                         $  (77,174)           30,935         202,000        287,515
stockholders
                                                        =================================================================

Earnings per common share:
                                                        -----------------------------------------------------------------
 Basic:                                                      $     (.04)              .02             .10            .15
                                                         =================================================================

                                                         -----------------------------------------------------------------
 Diluted:                                                    $     (.04)              .02             .10            .15
                                                         =================================================================
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>


<TABLE>
<CAPTION>
NACO INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
                                                                        Nine months ended
                                                               -----------------------------------
                                                                August 31,              August 31,
                                                               -----------             -----------
                                                                  2002                    2001
<S>                                                            <C>                     <C>
Cash flows from operating activities
  Net income                                                   $   271,473             $  356,988
  Adjustments to reconcile net income to
   net cash provided by (used in) operating activities:
     Depreciation                                                  143,124                167,551
     Amortization                                                    6,310                 14,434
     Deferred income taxes                                         163,450                216,100
   (Increase) decrease in:
     Accounts receivable, net                                      165,197                 42,313
     Receivable from related parties                                 6,249                 (8,626)
     Inventory                                                     (51,293)                89,038
     Other                                                         (19,300)               (11,312)
   Increase (decrease) in:
     Accounts payable                                              (84,447)               (79,020)
     Accrued expenses                                              (75,116)               (23,669)
                                                               -----------             -----------
Net cash provided by operating activities                          525,647                763,797
                                                               -----------             -----------

Cash flows from investing activities
  Purchase of  property and equipment                              (85,049)               (44,549)
  Other Assets                                                      (3,944)                (4,813)

                                                               -----------             -----------
        Net cash used in investing activities                      (88,993)               (49,362)
                                                               -----------             -----------

Cash flows from financing activities
  Net change in line of credit                                    (131,375)              (593,500)
  Payments on long-term debt                                       (42,564)               (40,108)
  Dividend Payment                                                 (69,473)
                                                               -----------             -----------

        Net cash used in financing activities                     (243,412)              (633,608)
                                                               -----------             -----------

Increase in cash                                                   193,242                 80,827

        Cash, beginning of period                                  137,355                 32,576
                                                               -----------             -----------

        Cash, end of period                                    $   330,597             $  113,403
                                                               ===========             ===========

See Notes to Financial Statements
Supplemental disclosures:
    Income taxes paid                                          $       900            $       900
    Interest Paid                                              $    90,214            $   140,248

</TABLE>
                        See Notes to Financial Statements

                                       5
<PAGE>


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



NOTE A - BASIS OF PRESENTATION
     In the opinion of management of NACO Industries,  Inc. (the "Company",  all
adjustments  (consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the nine-month
period ended August 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 Company's 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 August  31,  2002,
dividends in the amount of $277,892 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 August 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 by the  Company  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 August 31, 2002 and November 30, 2001,  Verne Bray and related  entities
owed the Company $307,903 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") manufactures 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 nine-month periods ended
August 31, 2002 and August 31,  2001,  respectively.  For  comparison  purposes,
percentages  of  sales  will be  used  rather  than  dollars.  In the  following
discussion,  the three  months  ended  August 31,  2002 and August 31,  2001 are
referred to as 3Q02 and 3Q01,  respectively.  The nine months  ended  August 31,
2002 and August 31, 2001 are referred to as 9M02 and 9M01, respectively. Readers
are cautioned  that results of  operations  for the nine months ended August 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 loss before taxes of $(67,152)  for
3Q02,  compared to a net profit  before taxes of $105,957 for 3Q01.  The Company
sustained  a net profit  before  taxes of $436,473  for 9M02,  compared to a net
profit before taxes of $573,133 for 9M01.  Gross margin as a percentage of sales
for 3Q02 and 3Q01  was  35.3%  and  41.5%,  respectively.  The  decrease  in the
Company's  net profit  before  taxes for 3Q02 from 3Q01 was mainly due to a 9.1%
increase in selling  expenses and a 13.7% increase is raw materials as discussed
below.  The decrease in the Company's net profit before taxes for 9M02 from 9M01
was mainly due a 17.8%  increase in selling  expenses and a 9.4% increase in raw
materials as discussed below.

     Net Sales: Net sales for 3Q02 decreased by 5.6% to $1,780,934,  compared to
net sales of  $1,886,383  for 3Q01.  Net  sales  for 9M02  increased  by 3.0% to
$6,117,971,  compared to net sales of $5,942,297 for 9M01.  Management  believes
that the decrease in net sales from 3Q01 to 3Q02 was due primarily to a decrease
in sales in the utility  markets.  Sales in the utility market  decreased  21.2%
from 3Q01 to 3Q02 primarily due to the continuing economic slowdown,  decreasing
sales  to a  significant  OEM  account  that  developed  internal  manufacturing
capabilities  and  increasing  competition.  Sales  in the  agricultural  market
decreased .7% from 3Q01 to 3Q02. Sales in the utility market increased 6.2% from
9M01 to 9M02. Sales in the agricultural market increased 1.1% from 9M01 to 9M02.
Management  believes  the net  increase  in sales from 9M01 to 9M02 for both the
utility and  agricultural  markets was due primarily to the Company's  increased
sales effort. Agricultural and utility sales as a percentage of sales were 77.3%
and 22.7% for 3Q02, and 73.0% and 27.0% for 3Q01, respectively. Agricultural and
utility  sales as a percentage  of net sales were 81.9% and 18.1% for 9M02,  and
83.0% and 17.0% for 9M01, respectively.

     Gross  Margin.  Gross margin as a percentage of sales for 3Q02 and 3Q01 was
35.3% and 41.5%,  respectively.  Gross margin as a percentage  of sales for 9M02
and 9M01 was 43.3%  and  44.8%,  respectively.  Gross  margin  for 3Q02 and 9M02
decreased  from the prior  periods,  partly due to  decreased  sales  volume and
partly  due to an  increase  in raw  material  costs.  When  sales  change,  the
Company's fixed costs stay relatively constant,  generally resulting in a higher
or lower gross margin for the period. The decrease in sales during 3Q02 resulted
in lower margins during 3Q02 compared to the corresponding  periods of the prior
year.  Variable  cost of materials  as a  percentage  of net sales was 36.0% and
29.9% for 3Q02 and 3Q01,  respectively.  The increase in material  costs was due
primarily to a sharp increase in pipe prices since early 2002.  Pipe prices have
increased an average of 34% from  February  2002 to June 2002 for several of the
Company's key pipe vendors.  Labor and related expenses  decreased  $19,963,  or
5.8%,  from 3Q01 to 3Q02,  mainly due to a decrease in the size of the Company's
production labor force. Labor and related expenses  increased $39,339,  or 3.8%,
from 9M01 to 9M02,  mainly due to an increase in the production  labor force and
wage increases. The Company added additional production personnel during 1Q02 in
an effort to respond to seasonal fluctuations in sales volume. Wage increases of
approximately  3% in December  2001 also  contributed  to the  increase in labor
expenses.  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 23.8% of net sales for 3Q02,  compared to
20.6% for 3Q01.  The increase in selling  expenses as a percentage  of sales was
due to several principal factors. In actual dollars,  selling expenses increased
$35,300,  or 9.1%, from 3Q01 to 3Q02.  Salaries and related  expenses  increased
$9,649 or 6.4% from 3Q01 to 3Q02,  mainly due to  reassigning  an employee  from
administrative to selling  responsibilities.  Warranty expense increased 234.5%,
or $17,322,  from 3Q01 to 3Q02,  primarily due to anticipated  product  warranty
claims for which the Company has recorded accruals.  Selling expenses were 22.7%
of net sales for 9M02,  compared  to 19.8% for 9M01.  The  increase  in  selling
expenses  as a  percentage  of sales was due to several  principal  factors.  In
actual dollars, selling expenses increased $209,650, or 17.8%, from 9M01 to 9M02


                                       7
<PAGE>

Advertising expense increased 159.1%, or $26,277,  from 9M01 to 9M02, mainly due
to the publication of new product catalogs.  Shipping supply expenses  increased
20.3%,  or $21,123 from 9M01 to 9M02 and as a  percentage  of sales from 1.8% in
9M01 to 2.0% in 9M02, mainly due to the timing of supply purchases.  Freight out
increased 11.0%, or $44,618,  from 9M01 to 9M02 and increased as a percentage of
net  sales  from 6.8% in 9M01 to 7.4% in 9M02,  mainly  due to  increased  sales
volume of larger  shipments,  on which the Company  pays the  freight.  Warranty
expense  increased  $60,222,  or 255.5%,  from 9M01 to 9M02,  due to anticipated
warranty  claims for which the  Company  has  recorded  accruals.  Salaries  and
related expenses  increased  $45,349,  or 9.6%, from 9M01 to 9M02, due mainly to
reassigning an employee from administrative to selling responsibilities.

     General and administrative. General and administrative expenses represented
13.6% of net sales for 3Q02, compared to 12.6% for 3Q01. The increase was mainly
due to decreased  sales volume.  Overall,  general and  administrative  expenses
remained  relatively even in dollars at $241,394 and $238,488 for 3Q02 and 3Q01,
respectively.  Research and development  expenses  increased $6,101 from 3Q01 to
3Q02 mainly due to the reassigning of an employee from manufacturing to research
and development.  General and administrative  expenses  represented 12.0% of net
sales for 9M02,  compared  to 12.4% for 9M01.  The  decrease  was  mainly due to
increased sales volume.  Overall,  general and administrative expenses decreased
nominally $231 from 9M02 and 9M01.

     Other. Other expenses/revenues were 1.4% of net sales for 3Q02, compared to
2.6% for 3Q01,  mainly  due to  decreased  interest  expense.  Interest  expense
decreased from 2.7% of net sales in 3Q01 to 1.4% of net sales in 3Q02.  Interest
expense  decreased  $26,766 from 3Q01 to 3Q02,  mainly due to improved cash flow
and lower borrowings during the quarter,  as well as lower interest rates. Other
expenses/revenues were 1.5% of net sales for 9M02, compared to 2.9% of net sales
for 9M01, mainly due to decreased  interest expense.  Interest expense went from
3.0%  of net  sales  in 9M01 to 1.5% of net  sales  in  9M02.  Interest  expense
decreased  $87,930 from 9M01 to 9M02.  The Company's  effective  interest  rates
(interest expense divided by the average debt balance for the applicable period)
for 9M02 and 9M01 were 9.95% and 12.37%, 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  $525,647  in 9M02.  Cash as of August  31,  2002 was
$330,597,  up $193,242 from November 30, 2001. The Company's working capital has
increased  $92,635 from November 30, 2001 to August 31, 2002, due primarily to a
reduction in current liabilities. The reduction in current liabilities is partly
due to the Company paying accounts  payable earlier in order the take advantages
of discounts  offered by the Company's  vendors.  Purchase  discounts taken were
$16,820 for 9M02 compared to $5,292 for 9M01.  The Company Cash  generated  from
operations financed the reduction in current liabilities.  The Company decreased
trade payables by $84,447 from November 30, 2001 to August 31, 2002.

     At August 31, 2002, the outstanding balance of the Company's revolving line
of credit was $0 compared to $91,928 at August 31, 2001 and $131,375 at November
30, 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 August 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 $639,387
available to borrow as of August 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 August 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 August 31, 2002, the monthly payment required
was  $11,972.  On August  31,  2002,  the  outstanding  balance  of the note was
$938,523 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 August 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.

                                       8
<PAGE>


Critical Accounting Policies
----------------------------
     NACO's  significant  accounting  policies are described in Note 1 to NACO's
Consolidated  Financial  Statements for the year ended November 30, 2001.  These
financial  statements  were prepared in accordance  with  accounting  principles
generally  accepted in the United  States and are  included in NACO's Form 10KSB
which has been filed  with the  Securities  and  Exchange  Commission.  Included
within these policies are the Company's "critical accounting policies." Critical
accounting   policies  are  those  policies  that  are  most  important  to  the
preparation  of the  Company's  consolidated  financial  statements  and require
management's  subjective and complex  judgment due to the need to make estimates
about  the  effect of  matters  that are  inherently  uncertain.  The  Company's
critical   accounting  policies  relate  to  allowance  for  doubtful  accounts,
inventory valuation and allowances for deferred income taxes. The application of
these  accounting  policies  involves  the  exercise of judgment  and the use of
assumptions as to future  uncertainties  and, as a result,  actual results could
differ materially from these estimates.

     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 differ
materially from the estimated  reserve.  The allowance for doubtful  accounts at
August 31, 2002 was $32,781, 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 inventory that has not moved,
been used in manufacturing or sold in the past year is 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 of  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 August 31, 2002 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 month.  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 August 31, 2002 was $20,000.

     Deferred Income Tax Valuation  Allowances:  The Company's current assets at
August 31, 2002 include an entry for  deferred  taxes in the amount of $143,550.
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 August 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
--------------------------------
     Statements  contained in this Quarterly  Report on Form 10-QSB that are not
purely historical are "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All forward-looking statements involve various
risks and  uncertainties.  Forward-looking  statements  contained in this Report
include  statements  regarding the Company's  plans,  market  opportunities  and
acceptance,  expectations,  goals, revenues, financial performance,  strategies,
mission and  intentions  for the future.  Such  forward-looking  statements  are
included under. "Management's Discussion and Analysis of Financial Condition and
Results of Operations"  and encompass  NACO's  beliefs,  expectations,  hopes or
intentions  regarding  future  events.  Words  such  as  "expects,"  "believes,"
"anticipates," "should," and "likely" also identify forward-looking  statements.
All  forward-looking  statements included in this Report are made as of the date
hereof,  based on information  available to the Company as of such date, and the
Company  assumes no obligation to update any  forward-looking  statement.  It is
important to note that such statements may not prove to be accurate and that the
Company's  actual results and future events could differ  materially  from those
anticipated in such statements.  All subsequent written and oral forward-looking
statements  attributable  to the  Company  or  persons  acting on its behalf are
expressly qualified in their entirety by this section and other factors included
elsewhere in this Report.


                                       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 August 31,  2002,  the total  dividend in arrears
      with respect to the Preferred Stock was $277,892.

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

         None

Item 6 - Exhibits and Reports on Form 8-K


      (a)   Exhibit 99.1  Certification  by Verne E. Bray  pursuant to 18 U.S.C.
            Section   1350,   as  adopted   pursuant   to  Section  906  of  the
            Sarbanes-Oxley Act of 2002

            Exhibit 99.2 Certification by Jeffrey S. Kirby pursuant to 18 U.S.C.
            Section   1350,   as  adopted   pursuant   to  Section  906  of  the
            Sarbanes-Oxley Act of 2002


      (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                                        October 10, 2002
   -----------------------------------------                ----------------
       Verne E. Bray                                        Date
       CEO, Secretary, Chairman
       (Principal Executive Officer)

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


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


                                       11
<PAGE>


CERTIFICATIONS *
--------------
I, Verne E. Bray, certify that:

         1. I have  reviewed  this  quarterly  report  on  Form  10-QSB  of NACO
         Industries, Inc.;

         2. Based on my knowledge, this quarterly report does not contain any
         untrue statement of a material fact or omit to state a material fact
         necessary to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this quarterly report;

         3. Based on my knowledge, the financial statements, and other financial
         information  included in this quarterly  report,  fairly present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this quarterly report;

         4. The registrant's  other certifying officer and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

                   a) designed such disclosure controls and procedures to ensure
                   that  material   information   relating  to  the  registrant,
                   including its consolidated subsidiaries,  is made known to us
                   by others  within  those  entities,  particularly  during the
                   period in which this quarterly report is being prepared;

                   b) evaluated the effectiveness of the registrant's disclosure
                   controls and  procedures as of a date within 90 days prior to
                   the filing date of this  quarterly  report  (the  "Evaluation
                   Date"); and

                   c) presented in this quarterly  report our conclusions  about
                   the  effectiveness of the disclosure  controls and procedures
                   based on our evaluation as of the Evaluation Date;

         5. The  registrant's  other  certifying  officer and I have  disclosed,
         based on our most recent evaluation,  to the registrant's  auditors and
         the  registrant's   board  of  directors  (or  persons  performing  the
         equivalent function):

                   a) all significant deficiencies in the design or operation of
                   internal   controls   which   could   adversely   affect  the
                   registrant's ability to record, process, summarize and report
                   financial  data  and  have  identified  for the  registrant's
                   auditors any material weaknesses in internal controls; and

                   b)  any  fraud,  whether  or  not  material,   that  involves
                   management or other employees who have a significant  role in
                   the registrant's internal controls; and

         6. The registrant's  other  certifying  officer and I have indicated in
         this quarterly report whether or not there were significant  changes in
         internal controls or in other factors that could  significantly  affect
         internal controls subsequent to the date of our most recent evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.

Date: October 10, 2002

                               /s/ Verne E. Bray
                                   ---------------------------------------------
                                   Verne E. Bray
                                   Chief Executive Officer and Secretary



                                       12
<PAGE>




I, Jeffrey J. Kirby, certify that:

        1. I have  reviewed  this  quarterly  report  on  Form  10-QSB  of NACO
         Industries, Inc.;

         2. Based on my knowledge, this quarterly report does not contain any
         untrue statement of a material fact or omit to state a material fact
         necessary to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this quarterly report;

         3. Based on my knowledge, the financial statements, and other financial
         information  included in this quarterly  report,  fairly present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this quarterly report;

         4. The registrant's  other certifying officer and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

                   a) designed such disclosure controls and procedures to ensure
                   that  material   information   relating  to  the  registrant,
                   including its consolidated subsidiaries,  is made known to us
                   by others  within  those  entities,  particularly  during the
                   period in which this quarterly report is being prepared;

                   b) evaluated the effectiveness of the registrant's disclosure
                   controls and  procedures as of a date within 90 days prior to
                   the filing date of this  quarterly  report  (the  "Evaluation
                   Date"); and

                   c) presented in this quarterly  report our conclusions  about
                   the  effectiveness of the disclosure  controls and procedures
                   based on our evaluation as of the Evaluation Date;

         5. The  registrant's  other  certifying  officer and I have  disclosed,
         based on our most recent evaluation,  to the registrant's  auditors and
         the  registrant's   board  of  directors  (or  persons  performing  the
         equivalent function):

                   a) all significant deficiencies in the design or operation of
                   internal   controls   which   could   adversely   affect  the
                   registrant's ability to record, process, summarize and report
                   financial  data  and  have  identified  for the  registrant's
                   auditors any material weaknesses in internal controls; and

                   b)  any  fraud,  whether  or  not  material,   that  involves
                   management or other employees who have a significant  role in
                   the registrant's internal controls; and

         6. The registrant's  other  certifying  officer and I have indicated in
         this quarterly report whether or not there were significant  changes in
         internal controls or in other factors that could  significantly  affect
         internal controls subsequent to the date of our most recent evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.

Date: October 10, 2002

                               /s/ Jeffrey J. Kirby
                                   -----------------------
                                   Jeffrey J. Kirby
                                   Chief Financial Officer


                                       14