fSEC File No. 33-85044-d


                       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, 2003

       [ ] 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,  2003,  the issuer had  1,974,455  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                                                                       2003          2002
------                                                                    (Unaudited)     (Audited)
<S>                                                                      <C>          <C>
Current assets:
  Cash                                                                   $  682,790   $  234,964
  Accounts receivable, net of allowances
    Of $56,541 / $37,710                                                    690,428      699,482
  Current portion of related parties receivables                             30,000       30,000
  Inventory                                                                 702,950      722,753
  Other current assets                                                       35,277       64,188
  Deferred income taxes                                                     105,000       89,000
                                                                         ----------   ----------
       Total current assets                                               2,246,445    1,840,387

Property and equipment, net                                                 858,908      807,714
Related party receivables                                                   252,682      275,182
Other assets, net                                                           206,076      193,306
                                                                         ----------   ----------
Total assets                                                             $3,564,111   $3,116,589
                                                                         ==========   ==========

</TABLE>

                       See Notes to Financial Statements

                                       2
<PAGE>

<TABLE>
<CAPTION>

NACO INDUSTRIES, INC.
BALANCE SHEETS

                                                                             August     November
                                                                               31,         30,
LIABILITIES:                                                                  2003        2002
------------                                                              ----------   ----------
                                                                          (Unaudited)   (Audited)
<S>                                                                       <C>          <C>
Current liabilities:
  Accounts payable                                                        $  266,617   $  209,886
  Accrued expenses                                                           422,632      364,622
  Income Taxes Payable                                                       168,040
  Current portion of long-term obligations                                    87,638       58,525
                                                                          ----------   ----------
       Total current liabilities                                             776,887      633,033
                                                                          ----------   ----------

Long-term liabilities:
  Long-term obligations, less current portion                                900,389      876,007
  Deferred income tax liability                                               67,000       67,000
                                                                          ----------   ----------
       Total long-term liabilities                                           967,389      943,007
                                                                          ----------   ----------
       Total liabilities                                                   1,744,276    1,576,040
                                                                          ----------   ----------
                                                                          ----------   ----------

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; 1,974,455       19,745       19,745
shares issued and outstanding
  Additional paid-in capital                                               1,017,562    1,017,562
  Retained Earnings                                                          286,292        7,006
                                                                          ----------   ----------
       Total stockholders' equity                                          1,819,835    1,540,549
                                                                          ----------   ----------

       Total liabilities and
         Stockholders' equity                                             $3,564,111   $3,116,589
                                                                          ==========   ==========
</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,
                                                --------------------------    ---------------------------
                                                 2003               2002           2003            2002
                                                --------------------------    ---------------------------

<S>                                             <C>              <C>            <C>            <C>
Sales, net                                      $ 1,727,626      1,780,934      6,348,978      6,117,971

Cost of goods sold                               1, 007,397      1,152,056      3,680,464      3,469,908
                                                -----------    -----------    -----------    -----------
       Gross profit                                 720,229        628,878      2,668,514      2,648,063

Operating expenses:
  Selling expenses                                  420,558        424,447      1,324,710      1,388,562
  General and administrative expenses               254,417        247,495        743,760        734,317
                                                -----------    -----------    -----------    -----------
       Total operating expenses                     674,975        671,942      2,068,470      2,122,879
                                                -----------    -----------    -----------    -----------

       Income from operations                        45,254        (43,064)       600,044        525,184

Other income (expense):
  Interest income                                       629            485          2,354          1,503
  Other income                                       39,565           --           39,565           --
  Interest expense                                  (26,121)       (24,573)       (79,203)       (90,214)
                                                -----------    -----------    -----------    -----------
       Total other income (expense)                  14,073        (24,088)       (37,284)       (88,711)

Income before income taxes                      $    59,327        (67,152)       562,760        436,473

Income tax expense (benefit)                         23,000        (25,000)       214,000        165,000
                                                -----------    -----------    -----------    -----------

       Net income (loss)                        $    36,327        (42,152)       348,760        271,473
                                                ===========    ===========    ===========    ===========

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

                                                -----------    -----------    -----------    -----------
Adjusted net income (loss) to common            $     1,305        (77,174)       279,287        202,000
stockholders
                                                ===========    ===========    ===========    ===========

Earnings per common share:
 Basic:                                         $       .00           (.04)           .14            .10
                                                ===========    ===========    ===========    ===========
 Diluted:                                       $       .00           (.04)           .14            .10
                                                ===========    ===========    ===========    ===========
Weighted average number of common
  Shares outstanding:
    Basic                                         1,974,000      1,950,000      1,974,000      1,950,000
                                                ===========    ===========    ===========    ===========
    Diluted                                       1,974,000      1,950,000      1,974,000      1,950,000
                                                ===========    ===========    ===========    ===========
</TABLE>

           See Notes to Financial Statements



                                       4
<PAGE>




NACO INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
                                                           Nine months ended
                                                        ------------------------
                                                         August 31,   August 31,
                                                             2003         2002
                                                        -----------   ----------
Cash flows from operating activities
  Net income                                             $ 348,760    $ 271,473
  Adjustments to reconcile net income to
   net cash provided by
   used in) operating activities:
     Depreciation                                          130,844      143,124
     Amortization                                            6,227        6,310
     Deferred income taxes                                 (16,000)     163,450
   (Increase) decrease in:
     Accounts receivable, net                                9,054      165,197
     Receivable from related parties                        22,500        6,249
     Inventory                                              19,803      (51,293)
     Other Current Assets                                   28,911      (19,300)
   Increase (decrease) in:
     Accounts payable                                       56,731      (84,447)
     Income Taxes Payable                                  140,040         --
     Accrued expenses                                      (82,030)     (75,116)

                                                         ---------    ---------
 Net cash provided by operating activities                 664,840      525,647
                                                         ---------    ---------

Cash flows from investing activities
  Purchase of  property and equipment                      (74,195)     (85,049)
  Other Assets                                             (18,997)      (3,944)
                                                         ---------    ---------
        Net cash used in investing activities              (93,192)     (88,993)
                                                         ---------    ---------

Cash flows from financing activities
  Net change in line of credit                                   0     (131,375)
  Payments on long-term debt                               (54,348)     (42,564)
  Dividend Payment                                         (69,474)     (69,473)
                                                         ---------    ---------

        Net cash used in financing activities             (123,822)    (243,412)
                                                         ---------    ---------

Increase in cash                                           447,826      193,242

        Cash, beginning of period                          234,964      137,355
                                                         ---------    ---------

        Cash, end of period                              $ 682,790    $ 330,597
                                                         =========    =========

See Notes to Financial Statements
Supplemental disclosures:
    Income taxes paid                                    $  88,479    $     900
    Interest Paid                                        $  73,777    $  90,214

           See Notes to Financial Statements


                                       5
<PAGE>



NACO INDUSTRIES, INC.
Notes to Financial Statements (Unaudited)
August 31, 2003


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, 2003 are not necessarily  indicative of the results that
may be expected for the fiscal year ending November 30, 2003.  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, 2002.


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 April 1, 2003 and a payment  date of May 16,  2003.  At August 31, 2003,
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 $24,737 per month. The Company has guaranteed the
mortgage on the  facilities  it leases from PVC. At August 31, 2003 and November
30,  2002,  the  outstanding  mortgage  balance was  approximately  $655,000 and
$700,000, respectively. At August 31, 2003, 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 Mr. Bray. The
Board of Directors  approved  the  Company's  execution  of the  indemnification
agreement.   The  agreement  covers  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, which commenced on
October 1, 2000 and are scheduled to continue until the balance is paid in full.
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, 2003 and November 30, 2002,  Verne Bray and related  entities owed
the Company $282,682 and $305,182, respectively.


NOTE D - SUPPLEMENTAL CASH FLOW INFORMATION
During the nine months ended August 31, 2003, the Company acquired  property and
equipment  with a cost  of  $107,842  in  exchange  for an  increase  in debt of
$107,842.

                                       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" through 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, 2003 and August 31,  2002,  respectively.  For  comparison  purposes,
percentages  of  sales  will be  used  rather  than  dollars.  In the  following
discussion,  the three  months  ended  August 31,  2003 and August 31,  2002 are
referred to as 3Q03 and 3Q02,  respectively.  The nine months  ended  August 31,
2003 and August 31, 2002 are referred to as 9M03 and 9M02, respectively. Readers
are cautioned  that results of  operations  for the nine months ended August 31,
2003 are not necessarily  indicative of the results that may be expected for the
fiscal year ending November 30, 2003.

     Overview.  The Company  achieved net income  before tax of $59,327 for 3Q03
compared to a net loss before taxes of $(67,152) for 3Q02. The Company  achieved
net income  before  taxes of $562,760  for 9M03,  compared to net income  before
taxes of $436,473 for 9M02.  Gross margin as a percentage  of sales for 3Q03 and
3Q02 was 41.7% and 35.3%,  respectively.  Gross margin as a percentage  of sales
for 9M03 and 9M02 was 42.0% and 43.3%, respectively.

     Net Sales: Net sales for 3Q03 decreased by 3.0% to $1,727,626,  compared to
net sales of  $1,780,934  for 3Q02.  Net  sales  for 9M03  increased  by 3.8% to
$6,348,978,  compared to net sales of $6,117,971 for 9M02.  Management  believes
that the decrease in net sales from 3Q02 to 3Q03 was due primarily to a decrease
in sales in the agricultural markets. Sales in the agricultural market decreased
5.9% from 3Q02 to 3Q03 and 4.8% from 9M02 to 9M03.  Management believes that the
decrease in agricultural net sales was mainly due to two different  factors.  1)
The continuing  drought in the western United States with its resulting decrease
in farm income and 2) The delay in distribution of the farm aid package approved
by Congress  which  management  feels has caused  farmers to delay  decisions of
upgrading or repairing irrigation systems. Management believes that the increase
in net sales from 9M02 to 9M03 was due primarily to the increase in net sales in
the utility market. Utility sales increased $425,187 or 29.4% from 9M02 to 9M03.
Management  believes the increase in net sales in the utility  market was mainly
due to increased  sales to one large  original  equipment  manufacturer  ("OEM")
customer that was awarded  several  domestic and foreign  construction  projects
during the  nine-month  reporting  period.  Agricultural  and utility sales as a
percentage of sales were 67.7% and 32.3% for 3Q03, and 68.7% and 31.3% for 3Q02,
respectively.  Agricultural  and utility sales as a percentage of net sales were
70.2% and 29.8% for 9M03, and 76.2% and 23.8% for 9M02, respectively.

     Gross  Margin.  Gross margin as a percentage of sales for 3Q03 and 3Q02 was
41.7% and 35.3%,  respectively.  Gross margin as a percentage  of sales for 9M03
and 9M02 was 42.0% and 43.3%, respectively.  Management believes the increase in
the  gross  margin  from  3Q02 to 3Q03 was  partly  due to a large OEM sale that
overlapped the 3rd and 4th quarters of 2002. It appears that overlap resulted in
more of the costs  being  booked in the 3rd  quarter and most of the sales being
booked in the 4th  quarter,  resulting  in a lower  gross  margin for 3Q02 and a
higher gross margin for 4Q02. Since that overlap  occurred  management has taken
steps to insure that  overlaps on custom  projects are  accounted  for properly.
Gross  margin for 9M03  decreased  from 9M02,  mainly due to an  increase in raw
material costs. The cost of materials as a percentage of net sales was 32.0% and
29.4% for 9M03 and 9M02,  respectively.  Material  costs  increased  $235,417 or
13.1% from 9M02 to 9M03.  Management believes the increase in raw material costs
from 9M02 to 9M03 was due  primarily  to two  factors.  First,  pipe prices have
increased  approximately  22% from 9M02 to 9M03.  The  increase  in pipe  prices
accounted for  approximately  $45,662 of the increase in raw material costs from
9M02 to  9M03.  Second,  the  increase  in net  sales  from  9M02  to  9M03  was
accompanied  by a  corresponding  increase  in raw  material  costs.  Management
believes  another  contributing  factor to the decrease in the gross margin as a
percentage  of sales from 9M02 to 9M03 was the lower  margins on utility  sales,
especially  on the sales to the large OEM  customer  described  above  under the
heading "Net Sales." Labor and related expenses  decreased  $1,247, or .4%, from
3Q02 to 3Q03, and decreased  $35,237,  or 3.3%, from 9M02 to 9M03, mainly due to
more efficiencies and a small reduction in the size of the Company's  production
labor force.

     Selling:  Selling  expenses  were 24.3% of net sales for 3Q03,  compared to
23.8% of net sales for 3Q02. The increase in selling expenses as a percentage of
sales was  mainly  due to the  decrease  in sales for 3Q03.  In actual  dollars,
selling  expenses  decreased  $3,889,  or .9%,  from 3Q02 to 3Q03.  Salaries and
related expenses increased  $27,062,  or 16.8%, from 3Q02 to 3Q03, mainly due to
hiring a new  salesman  to allow  for  greater  coverage  and  expansion  of the
Company's sales areas.  Guarantees and warranties decreased $24,707 from 3Q02 to
3Q03,  mainly due to the expense  associated  with a warranty  claim asserted in
3Q02 that was not repeated in 3Q03. Supplies decreased $8,856 from 3Q02 to 3Q03,


                                       7
<PAGE>

mainly due to timing of the purchasing of supplies.  Selling expenses were 20.9%
of net sales for 9M03,  compared  to 22.7% for 9M02.  The  decrease  in  selling
expenses as a percentage of sales was largely due to several principal  factors.
In actual dollars,  selling expenses  decreased  $63,852,  or 4.6%, from 9M02 to
9M03. Advertising expense decreased 46.9%, or $20,089, from 9M02 to 9M03, mainly
due to the publication of new product  catalogs in 9M02 that was not repeated in
3Q03.  Shipping supply expenses  decreased 14.9%, or $18,652,  from 9M02 to 9M03
and as a  percentage  of sales from 2.1% in 9M02 to 1.7% in 9M03,  mainly due to
the timing of supply purchases. Freight out increased 1.1%, or $5,166, from 9M02
to 9M03, but decreased as a percentage of net sales from 7.4% in 9M02 to 7.2% in
9M03.  Guarantees and warranties expense decreased $66,918,  or 79.9%, from 9M02
to 9M03, mainly due to the expense  associated with a warranty claim asserted in
9M02 that was not  repeated in 9M03.  Salaries  and related  expenses  increased
$47,286,  or 9.1%,  from 9M02 to 9M03,  due mainly to hiring a new  salesman  as
explained above.

     General and administrative: General and administrative expenses represented
14.7% of net  sales  for 3Q03,  compared  to 13.9% of net  sales  for 3Q02.  The
increase  was  mainly  due to  decreased  sales  volume.  Overall,  general  and
administrative  expenses  remained  relatively  even in dollars at $254,417  and
$247,495 for 3Q03 and 3Q02,  respectively.  Insurance  expense  increased $3,721
from 3Q02 to 3Q03, mainly due to increases in insurance  premiums.  Salaries and
related expenses  increased  $12,450,  or 8.5%, from 3Q02 to 3Q03, due mainly to
increased  health insurance costs and a 3% average increase in salaries that was
effective  in the 4th quarter of 2002.  Depreciation  expense was $3,060 less in
3Q03 than 3Q02.  General and  administrative  expenses  represented 11.7% of net
sales for 9M03,  compared  to 12.0% for 9M02.  The  decrease  was  mainly due to
increased sales volume.  Overall,  general and administrative expenses increased
$9,433 from 9M03 and 9M02.

     Other: Other revenues were 2.3% of net sales for 3Q03,  compared to .03% of
net  sales for 3Q02,  mainly  due to a refund  received  by the  Company  for an
overpayment  over several  years of  utilities  that was  discovered  and repaid
during 3Q03.  Interest expense  increased from 1.4% of net sales in 3Q02 to 1.5%
of net  sales in 3Q03.  Interest  expense  increased  $1,548  from 3Q02 to 3Q03,
mainly due to the financing of new capital equipment during the past year. Other
revenues  were .7% of net sales for 9M03,  compared to 0% of net sales for 9M02.
The  increase was mainly due to the utility  refund  mentioned  above.  Interest
expense  went  from  1.5% of net  sales  in 9M02 to 1.2% of net  sales  in 9M03.
Interest expense  decreased  $11,010 from 9M02 to 9M03. The Company's  effective
interest  rate  (interest  expense  divided by the average  debt balance for the
applicable period) for 9M03 and 9M02 was 9.90% and 9.95%, respectively.


Liquidity and Capital Resources
     The Company's  principal  sources of liquidity have  historically been cash
from operations,  credit facilities and equity  financing.  Net cash provided by
operating  activities  was  $664,840  in 9M03.  Cash as of August  31,  2003 was
$682,790,  up $447,826 from November 30, 2002.  The  Company's  working  capital
increased  $262,204 from November 30, 2002 to August 31, 2003,  due primarily to
an increase in current assets.  The increase in current assets was mainly due to
an increase in cash.

     At August 31, 2003 and November 30, 2002,  the  outstanding  balance of the
Company's  revolving  line of credit was $0. On October  1,  2001,  the  Company
entered into a line of credit with Zions Bank. The amounts  available  under the
facility are based on a percentage of accounts  receivable and  inventories.  On
April 2, 2003 the  facility  was renewed for a  twenty-four  month period with a
maturity  date of March 31, 2005.  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, 2003,  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  $709,203
available to borrow as of August 31, 2003.

     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 prime  interest  rate as reported by The Wall Street
Journal,  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, 2003 was
9.75%.  The term of the note is 15 years from the date of closing  (April  1999)
and the note requires monthly payments.  On August 31, 2003, the monthly payment
required was $11,972.  On August 31, 2003, the  outstanding  balance of the note
was  $885,289 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, 2003,
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
Financial  Statements  for the year ended  November  30, 2002.  These  financial
statements  were prepared in accordance  with  accounting  principles  generally
accepted in the United  States and are included in NACO's  Annual Report on Form
10-KSB  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  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,  product  warranties 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, 2003 was $56,541, compared to $37,710 at fiscal year end November 30,
2002.

     Inventory Valuation:  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 was $60,000 at August 31, 2003 and November 30, 2002.

     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, 2003 was $20,000 compared to $0 at November 30, 2002.

     Product  Warranties:  The Company's current  liabilities include an accrued
warranty  account for anticipated  product warranty claims based on a historical
percentage of sales plus any specific claims that have been  identified.  Actual
claims could be materially  different than the historical  estimates made by the
Company. The accrual for warranty claims at August 31, 2003 was $95,749 compared
to $83,274 at November 30, 2002.

     Deferred Income Tax Valuation  Allowances:  The Company's current assets at
August 31, 2003 include an entry for  deferred  taxes in the amount of $105,000.
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, 2003 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,  its
ability to operate profitably and, as a result, the Company's ability to realize
the value of the  Company's  net deferred  tax asset.  The  Company's  operating
results could be adversely  affected by increased  competition in the markets in


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<PAGE>

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.


Item 3 - Controls and Procedures

         An  evaluation  was  performed  under  the  supervision  and  with  the
participation  of the Company's  management,  including the Company's  principal
executive officer and principal  financial officer,  of the effectiveness of the
Company's  disclosure  controls and  procedures as of August 31, 2003.  Based on
that evaluation,  the Company's  management,  including its principal  executive
officer  and  principal   accounting  officer,   concluded  that  the  Company's
disclosure  controls and  procedures  are  effective to ensure that  information
required to be  disclosed  by the Company in reports  filed or  submitted by the
Company  under the  Securities  Exchange Act of 1934,  as amended,  is recorded,
processed,  summarized  and  reported as specified in the SEC's rules and forms.
There have been no significant  changes in the Company's internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the evaluation.




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<PAGE>

PART II - OTHER INFORMATION

Item  3 - Defaults  Upon  Senior  Securities

         (b) During the fiscal year ended  November 30,  2002,  the Company paid
         $69,473 in  dividends  and in May 2003 the Company  paid $69,473 on its
         Series  1  Class  A 7%  Cumulative  Convertible  Preferred  Stock  (the
         "Preferred  Stock").  During the prior two fiscal years ended  November
         30, 2001 and 2000 no dividends  were paid.  As of August 31, 2003,  the
         total  dividend  in arrears  with  respect to the  Preferred  Stock was
         $277,892.

Item 6 - Exhibits and Reports on Form 8-K


      (a)         Exhibit 31.1      Certification of Chief Executive Officer

                  Exhibit 31.2      Certification of Chief Financial Officer



                  Exhibit 32.1      Certification of Chief Executive Officer

                  Exhibit 32.2      Certification of Chief Financial Officer



     (b) Reports on Form 8-K. None








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<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, 2003
   -----------------------------------------                ---------------
         Verne E. Bray                                      Date
         CEO, Secretary, Chairman

              (Principal Executive Officer)

By       /s/ W. MICHAEL HOPKINS                             October 08, 2003
   -----------------------------------------                ---------------
         W. Michael Hopkins Date President


By       /s/ JEFFREY J. KIRBY                               October 10, 2003
   -----------------------------------------                ---------------
         Jeffrey J. Kirby                                   Date
         Executive Vice President/
         Chief Financial Officer/Treasurer
         (Principal Financial and Accounting Officer)



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