SEC 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 May 31,1997

                  [ ] 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 Registrant as specified in its charter)

                   Utah                             48-0836971
            (State of Incorporation)             (Federal I.R.S. No.)

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

                   Registrant's Telephone Number 801-753-8020


      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, 1997, the  Registrant  had 1,843,750  shares of Common Stock
and 165,412 shares of Preferred Stock outstanding.

      Transitional Small Business Disclosure Format Yes     No  X







                                      1

<PAGE>







                         PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
See attached Consolidated Financial Statements for May 31, 1997.






































                                      2

<PAGE>













NACO Industries, Inc.

                        CONSOLIDATED FINANCIAL STATEMENTS


                                  May 31, 1997





























                                      3

<PAGE>

PART 1 - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

                             NACO INDUSTRIES, INC.
                    CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>

                                                           May 31     November 30
                                                       -------------  -----------
ASSETS                                                      1997          1996
------                                                 -------------  -----------
Current assets:
<S>                                                  <C>                  <C>
  Cash                                               $      305,857      198,306
  Accounts receivable, net of allowances
    of $92,200 / $73,570                                    987,008      615,775
  Inventory                                                 758,407      668,501
  Prepaid income taxes                                       48,400       48,600
  Other current assets                                       61,585       72,202
                                                       -------------  -----------
       Total current assets                               2,161,257    1,603,384
                                                       -------------  -----------

Property and equipment:
  Land                                                       40,700       40,700
  Buildings and improvements                                579,164      526,329
  Equipment and vehicles                                  2,196,936    2,033,174
  Equipment construction in progress                        132,081       93,130
                                                       -------------  -----------
       Total property and equipment                       2,948,881    2,693,333

  Accumulated depreciation                               (1,304,506)  (1,195,036)
                                                       -------------  -----------
       Net property and equipment                         1,644,375    1,498,297
                                                       -------------  -----------

Other assets:
  Intangible and other assets                               107,058      105,907
                                                       -------------  -----------
       Total other assets                                   107,058      105,907
                                                       -------------  -----------
       Total assets                                 $     3,912,690    3,207,588
                                                       =============  ===========
</TABLE>









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<PAGE>

                             NACO INDUSTRIES, INC.
                    CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>

                                                                      February 28  November 30
                                                                      -----------  -----------
LIABILITIES:                                                              1997         1996
------------                                                          -----------  -----------

Current liabilities:
<S>                                                                <C>               <C>
  Accounts payable                                                 $      537,285     544,074
  Accrued expenses                                                        154,734     188,076
  Income taxes payable                                                          0           0
  Line of credit                                                          654,326     664,326
  Current portion of long-term obligations                                240,547     316,215
  Payable to related party                                                 (1,254)     34,382
                                                                      -----------  -----------
       Total current liabilities                                        1,585,638   1,747,073

Long-term liabilities:
  Long-term obligations, less current portion                             843,816     896,379
  Deferred income taxes                                                    79,100      79,100
                                                                      -----------  -----------
       Total long-term liabilities                                        922,916     975,479
                                                                      -----------  -----------
       Total liabilities                                                2,508,554   2,722,552

Stockholders' equity:
  Common stock, $.01 par value; 10,000,000
    shares authorized; 2,262,301 issued
    (including 418,551 shares in treasury)                                 22,624      19,186
  Preferred Stock, 7% Cumulative, convertible $3.00 par value
    Shares authorized; 330,000. shares issued 165,412 and 132,412,
    respectively (Aggregate liquidation preference $992,472 and
    $794,472, respectively)                                               496,236     397,236
  Additional paid-in capital                                              987,881     115,637
  Retained earnings                                                        38,964      94,546
                                                                      -----------  -----------
                                                                        1,545,705     626,605
  Less: treasury stock - at cost                                         (141,569)   (141,569)
                                                                      -----------  -----------
       Total stockholders' equity                                       1,404,136     485,036
                                                                      -----------  -----------

       Total liabilities and
         stockholders' equity                                     $     3,912,690   3,207,588
                                                                      ===========  ===========
</TABLE>

See Notes to Consolidated Financial Statements.

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<PAGE>


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

                                                             Three months ended             Six months ended
                                                                   May 31                        May 31
                                                            ---------------------         ---------------------
                                                             1997           1996           1997           1996
                                                            ------         ------         ------         ------

<S>                                                     <C>              <C>            <C>            <C>      
Sales, net                                              $ 2,449,863      2,312,664      3,981,058      3,455,621

Cost of goods sold                                        1,528,285      1,275,865      2,487,591      1,981,023
                                                          ---------      ---------      ---------      ---------

       Gross profit                                         921,578      1,036,799      1,493,467      1,474,598

Operating expenses:
  Selling expenses                                          408,828        339,178        755,001        615,191
  General and administrative expenses                       304,675        248,239        646,877        550,840
  Other                                                           0              0              0              0
                                                          ---------      ---------      ---------      ---------

       Total operating expenses                             713,503        587,417      1,401,878      1,166,031
                                                          ---------      ---------      ---------      ---------

       Income (loss) from operations                        208,075        449,382         91,589        308,567

Other income (expense):
  Interest income                                               283            438            719          1,506
  Interest expense                                          (54,025)       (56,189)      (109,807)      (112,363)
                                                          ---------      ---------      ---------      ---------

       Total other income (expense)                         (53,742)       (55,751)      (109,088)      (110,857)
                                                          ---------      ---------      ---------      ---------

Income (loss) before income taxes                           154,333        393,631        (17,499)       197,710

Income tax expense (benefit)                                    900         69,159            900         69,159
                                                          ---------      ---------      ---------      ---------

       Net income (loss)                                $   153,433        324,472        (18,399)       128,551

Adjustment for preferred dividends                          (17,310)       (12,006)       (45,493)       (22,707)
                                                          ---------      ---------      ---------      ---------

Adjusted net to Common Stockholders                         136,123        312,466        (63,892)       105,844
                                                          ---------      ---------      ---------      ---------

Earnings (loss) per common share:
  Primary:
      Earnings (loss) from net income                          0.09           0.22          (0.01)          0.09
      Dividends in arrears                                    (0.01)         (0.01)         (0.03)         (0.02)
                                                          ---------      ---------      ---------      ---------
  Net Earnings (loss)                                   $      0.08    $      0.21     $    (0.04)   $      0.07
                                                          =========      =========      =========      =========

Fully Diluted:
     Earnings (loss) from net income                    $      0.08           0.19          (0.04)          0.07
                                                          =========      =========      =========      =========

Weighted average number of common shares outstanding:
    Primary                                               1,699,196      1,500,000      1,699,196      1,500,000
                                                          =========      =========      =========      =========
    Fully Diluted                                         1,984,805      1,716,854      1,984,805      1,716,854
                                                          =========      =========      =========      =========
</TABLE>

See Notes to Consolidated Financial Statements
                                        
                                       6
<PAGE>

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

<TABLE>
<CAPTION>

                                                                 Three months ended
                                                                 May 31       May 31
                                                                 -------------------
                                                                  1997         1996
                                                                 ------       ------
Cash flows from operating activities
<S>                                                           <C>            <C>    
  Net income (loss)                                           $ (18,399)     128,551
  Adjustments to reconcile net income (loss) to
   net cash provided by (used in) operating activities:
     Depreciation                                               109,470       107141
     Amortization                                                 1,478            0
     Deferred income taxes                                            0       (8,241)
   (Increase) decrease in:
     Accounts receivable, net                                  (371,234)    (656,916)
     Inventory                                                  (89,906)      81,452
     Prepaid income taxes                                           200            0
     Taxes Receivable                                                 0      120,226
     Other                                                        9,139      (60,636)
   Increase (decrease) in:
     Accounts payable                                            (6,789)     340,294
     Accrued expenses                                           (33,342)     (42,620)
     Income taxes payable                                             0       72,468
                                                              ---------   ----------
        Net cash provided by (used in)
         operating activities                                  (399,383)      81,719
                                                              ---------   ----------

Cash flows from investing activities
  Net change  property and equipment                           (255,548)     (94,319)
  Investment in intangible and other assets                      (1,151)     193,801
                                                              ---------   ----------
        Net cash provided by (used in) investing activities    (256,699)      99,482

Cash flows from financing activities
  Net change in line of credit                                  (10,000)      30,000
  Payments on related party loan                                (35,636)      (2,483)
  Payments on long-term debt                                   (146,699)    (633,907)
  Proceeds from short term notes payable
  Proceeds from long-term loans                                  18,468            0
  Proceeds from issuance of common stock                        742,500            0
  Proceeds from issuance of preferred stock                     195,000      394,073
  Purchase of treasury stock                                          0            0
                                                              ---------   ----------
        Net cash provided by (used in) financing activities     763,633     (212,317)

                                                              ---------   ----------
Increase (decrease) in cash                                     107,551      (31,116)

        Cash, beginning of period                               198,306      133,481
                                                              ---------   ----------

        Cash, end of period                                   $ 305,857      102,365
                                                              =========   ==========

See Notes to Consolidated Financial Statements
Supplemental disclosures:
    Income taxes paid                                         $       0            0
    Interest Paid                                             $  93,599      123,184
</TABLE>

                                        7
<PAGE>







                              NACO INDUSTRIES, INC.
             Notes to Consolidated Financial Statements (Unaudited)
                                  May 31, 1997


NOTE A - BASIS OF PRESENTATION


Management has elected to omit  substantially  all footnotes to these  unaudited
consolidated quarterly financial statements.  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 three
month and six month periods ended May 31, 1997, are not  necessarily  indicative
of the results  that may be expected  for the fiscal  year ending  November  30,
1997.  These  statements  should be read in  conjunction  with the  consolidated
financial  statements  and related notes in the Company's  Annual Report on Form
10-KSB for the year ended November 30, 1996.

NOTE B - INVENTORY

Inventory consists of the following:
                              May 31,           Nov. 30,
                               1997                1996
                               ----                ----
      Raw Materials         $ 236,054           242,388
      Work In Process          15,343             3,750
      Finished goods          507,010           422,363
                              -------           -------

           Total            $ 758,407           668,501

NOTE C - DIVIDENDS

Dividends on the  preferred  stock are  cumulative  at 7%. At May 31, 1997,  the
cumulative amount of dividends  accrued was $45,493.  Of this amount $28,183 was
in arrears.

NOTE D - EARNINGS PER SHARE

Primary earnings per common share are calculated by dividing adjusted net income
by  the  average  shares  of  Common  Stock  of the  Company  and  Common  Stock
equivalents  outstanding  during the period.  Net income has been  adjusted  for



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dividends in arrears as of May 31,  1997.  Common  Stock  equivalents  represent
certain  outstanding  stock options and  warrants.  During the period the market
price did not exceed the option price for the  outstanding  options and warrants
and therefore no dilution occurred.

The calculation of fully diluted  earnings per share of Common Stock assumes the
diluting effect of the Company's Cumulative Preferred Stock.

NOTE E - CONSULTING AGREEMENTS, WARRANTS AND OPTIONS

In September 1996 the Company entered into an agreement with Extol International
Corporation  ("Extol") to provide  investor  relations and financial  consulting
services  to the  Company.  As part of this  agreement,  Extol  has the right to
purchase for $100, a warrant to purchase  50,000 shares of the Company's  Common
Stock at $3.50 per share.  This warrant is  exercisable  for five (5) years from
the date of issuance, and will carry "piggyback" registration rights.

NOTE F - COMMON STOCK

On March 5, 1997, the Company entered into an offshore  securities  subscription
agreement  with  Britannia  Holdings  Ltd. of England and on March 5, 1997,  the
Company sold 343,750 Units for an aggregate purchase price of $825,000. The sale
was made without  registration under the Securities Act of 1933 in reliance upon
Regulation S. Each Unit consists of one share of Common Stock and forty-four one
hundredth (.44) of a warrant to purchase an additional  share of Common Stock at
an exercise  price of $3.50 per share.  The Warrant  will expire in three years,
subject to extension as described below. The Warrants are currently  callable by
the Registrant anytime after its Common Stock trades for a bid price of $7.50 or
higher for 30 trading days in a row.

The Company also granted  Britannia  Holdings Ltd. a 12 month option to purchase
an additional  343,750 Units in connection  with the sale of the above Units. If
the Purchaser  purchases all of the Units subject to the Option,  the Registrant
will extend the exercise  period of all of the Warrants  issued as part of Units
(including  the Units  issued  on March 5,  1997)  from 3 years to 7 years,  and
increase the call price on such Warrants from $7.50 to $15.00.

As part of the consideration for the stock agreement,  the Company has agreed to
credit additional  shares of common stock to Britannia  Holdings Ltd. of England
if the Company does not establish a market for NACO Common Stock that trades for
at least $6.00 per share for any 10 consecutive days within  twenty-four  months
after March 5, 1997.

A finders  fee of 10% was paid to James Czirr who is an employee of Extol and is
nominated to the board of directors of the Company.



                                      9

<PAGE>




NOTE G - PREFERRED STOCK

On March 7, 1996,  the  Company  initiated  an  offering  of Units  exempt  from
registration under the Securities Act of 1933. The offering consisted of 175,000
Units at an offering price of $6.00. Each Unit consists of one share of Series 1
Class A 7% Cumulative  Convertible Preferred Stock and a Warrant to purchase one
share of Common Stock at an exercise price of $3.75 per common

share.  The offering is made on a "best  efforts"  basis and will continue until
the earlier of the sale of a maximum of 175,000 Units, or June 30, 1997. Selling
commissions  equal to 10% of the  offering  price of the  Units  will be paid to
placement agents participating in the offering.

Through May 31, 1997, the Company sold 52,000 units and received net proceeds of
$280,800.





























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<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 that
produces and sells polyvinyl chloride (PVC) products. The Company's primary line
of business consists of 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 36" in diameter), as well as molded fittings (4"
though 10" in  diameter).  Pipe fittings  produced by the Company  include tees,
reducers,  elbows,  couplers,  end caps, and bolted repair  couplers.  NACO also
manufacturers  and  sells  PVC  valves  (4"  through  12"  in  diameter).   NACO
Composites,  Inc.,  a wholly  owned  subsidiary  of NACO  produces  related  and
non-related composite products.

RESULTS OF OPERATIONS

The Company's  fiscal year ends on November 30. In the following  discussion the
quarters  ended May 31, 1997,  and May 31,  1996,  are the 2nd quarter of fiscal
years  ending  November  30, 1997,  and  November 30, 1996,  and are referred to
herein as 2Q97 and 2Q96,  respectively.  The six months ended May 31, 1997,  and
May 31, 1996, are referred to herein as 6M97 and 6M96 respectively.

NEW OPERATION

The  Company,  on October  11,  1996,  formed a wholly  owned  subsidiary,  NACO
Composites, Inc., and acquired the assets of Draeger Manufacturing in a business
combination  accounted for as a purchase.  The existing fiberglass operations of
the Company were combined into the new subsidiary and moved to a new facility in
Ogden,  Utah.  The  creation  of NACO  Composites,  Inc.,  gives the Company the
capability   to  produce  other   related   composite   products  and  increased
manufacturing capacity  for existing  products.  The  contribution  of composite
products  to the  results  of  operations  has been  negative  to  date,  but is
anticipated by management to have a positive impact on future operating results.

GENERAL DISCUSSION OF QUARTERS OPERATING RESULTS.

During the 2Q97,  the Company  had an  operating  profit  before tax of $151,361
compared to an operating  profit before tax of $393,631 for 2Q96. The quarter of
March to May is typically the best quarter of the year due to the seasonality of
the  agricultural  market.  For the six months ended May 31, 1997,  (6M97),  the



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Company  sustained  an  operating  loss before tax of  $(20,471)  compared to an
operating  profit before tax of $197,710 for 6M96. The decline in  profitability
between  the two  periods is  primarily  a result of low  margins  on  composite
products  during the 2Q97 and 6M97 and an unusually  large sale that occurred in
2Q96 as more fully discussed below.

SALES

Net sales  increased  by 5.9% to  $2,449,863  for 2Q97  compared to net sales of
$2,312,664  in 2Q96  due  mainly  to  increased  volume.  Plastic  sales in 2Q97
decreased  $76,299 or 3.4% compared to 2Q96. The decreased volume was due mainly
to a large one time sale in 2Q96 of $492,000  that was not repeated in 2Q97.  If
that sale is disregarded in the comparison, the plastic sales for 2Q97 increased
$415,701 or 24% over 2Q96. This increased  volume was due partly to the addition
of large  diameter  fittings  from  27" to 36" to the  Company's  product  line.
Composite  products sales in 2Q97 increased $216,498 or 136% over 2Q96 primarily
as a result of the  acquisition of the assets of Draeger  Manufacturing  and the
Company's new facilities for NACO Composites  Inc.  Composite sales increased to
13.0% of total  revenues in 2Q97 compared to 3.9% in 2Q96.  Net sales  increased
$525,437 or 15.2% to $3,981,058 for 6M97 compared to net sales of $3,455,621 for
6M96 due mainly to the addition of large  diameter  fittings to the product line
and to increases in composite sales as explained above.

GROSS MARGIN

Gross margin as a percentage  of sales for 2Q97 was 37.6%  compared to 44.8% for
2Q96. Gross margin as a percentage of sales for 6M97 was 37.5% compared to 42.7%
for 6M97. The decrease in gross margin is mainly due to the higher percentage of
sales from the composite product lines. Gross margin on composites was $(57,068)
for 2Q97 and  $(44,757)  for  6M97  primarily  as a  result  of  startup  costs,
increased manufacturing overhead expenses associated with the new facilities and
a large  contract  that  was  acquired  as part of the  acquisition  of  Draeger
Manufacturing  that  was bid at a price  below  the  Company's  actual  costs to
produce the products.  The new  facilities  were acquired to provide the Company
with sufficient  manufacturing facilities for the planned growth in this segment
of its business.  The contract  acquired in connection  with the acquisition was
completed  in 2Q97 and bidding  procedures  with checks and  balances  have been
updated to improve operations which management  believes will improve margins on
composite  products in future  quarters.  The gross margin on plastic  sales for
2Q97 was 45.6%  compared  to 46.1% for 2Q96.  The  Company  believes  that gross
margin as a percentage of sales will improve as sales of composites  increase in
the future.  Gross margin,  however,  could be adversely  affected by lower than
anticipated  growth,  increased overhead expenses,  increased  competition,  and
lower than anticipated sales prices.



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<PAGE>




SELLING

Selling  expenses  were  $408,828  or 16.7% of net  sales for 2Q97  compared  to
$339,178  or 14.7%  for  2Q96.  Salaries  increased  $27,418  mainly  due to the
addition of a salesman for composite products, and an approximate 5% increase in
salaries in September of 1996.  Freight expense  increased $31,329 mainly due to
the  large  order  mentioned  above on which  the buyer  paid the  freight.  The
increase  in sales  in 2Q97 was a more  normal  mix on  which a  portion  of the
freight is typically  paid by the Company.  Selling  expenses  were  $755,001 or
19.0% of net sales for 6M97 compared to $615,191 or 17.8% for 6M96.  For the six
months ended 5/31/97 salaries  increased  $52,636 mainly for the same reasons as
discussed above. Freight expense increased $57,528 due mainly to increased sales
and the mix of sales as explained above.

GENERAL AND ADMINISTRATIVE

General and administrative expenses were $304,675 or 12.4% of net sales for 2Q97
compared to $248,239 or 10.7% of net sales for 2Q96.  Salaries increased $19,255
or 15.8% from 2Q96 to 2Q97 mainly due to annual pay increases given in September
1996  and to the  addition  of one  accounting  clerk  in  2Q97.  Outside  labor
increased  $11,809 from $9,330 to $21,139 due mainly to environmental  concerns,
SEC filings  and sales of stock.  Employee  benefits  were up 76% or $8,134 from
2Q96 to 2Q97 mainly due to several management  personnel having completed a year
of employment during 1996 making them eligible for benefits.  Insurance expenses
were up 60% or $5,982  mainly due to the  addition  of the  Composite  facility.
General and administrative expenses were $646,877 or 16.2% of net sales for 6M97
compared to $550,840 or 15.9% for 6M96.  Salaries increased $25,595 from 6M96 to
6M97  mainly  due to annual pay  increases  given in  September  1996 and to the
addition of one accounting  clerk in 2Q97.  Outside labor and employee  benefits
also increased as explained above.

INTEREST EXPENSE

Interest  expense for 2Q97 was $54,025 or 2.2% of net sales  compared to $56,189
or 2.4% of net sales for 2Q96. Interest expense for 6M97 was $109,807 or 2.7% of
net sales  compared  to  $112,363  or 3.2% of sales for 6M96.  Interest  expense
decreased as a percentage of revenues mainly due to increased sales volume.  The
effective  interest rate (interest  expense  divided by the average debt balance
for the period) for 6M97 and 6M96 were 11.84% and 12.12% respectively.

FACTORS AFFECTING FUTURE RESULTS

      The Company's operating results are subject to certain inherent risks that
could  adversely  affect the  Company's  operating  results  and its  ability to



                                      13

<PAGE>




operate profitably.  If cash generated by operations,  or available from current
debt and  equity  financing  sources  is not  sufficient  to meet the  Company's
working capital and operational  requirements,  this will likely have a material
adverse effect on the Company's  operating results.  In addition,  the Company's
operating results also could be adversely  affected by increased  competition in
the markets, competitors offering products at prices below the Company's prices,
manufacturing delays and inefficiencies  associated with expanding the Company's
manufacturing  capacity,   adverse  weather  conditions,   changes  in  economic
conditions  in its markets,  unanticipated  expenses or events and other factors
discussed in this report.


LIQUIDITY AND CAPITAL RESOURCES

The  Company's  sources  of  liquidity  have been cash from  operations,  credit
facilities and equity financing.  Cash used in operating activities was $402,355
in 6M97  primarily  because  the second  quarter  typically  has more sales as a
result of the seasonality of the Company's business.  This causes more resources
to be in inventory, up $89,906, and accounts receivable, up $371,234.


Cash  as of the  end of 2Q97  was  $305,857,  up  $107,551  from  the end of the
Company's previous fiscal year.

On March 5, 1997, the Company entered into an offshore  securities  subscription
agreement  with  Britannia  Holdings  Ltd. of England and on March 5, 1997,  the
Company sold 343,750 Units for net proceeds of $742,500.  Also during 2Q97,  the
Company sold an additional  25,000 units of preferred stock and warrants for net
proceeds of $147,000. The additional capital from this equity financing is being
used to finance  continued growth and to reduce debt. The Company at quarter end
was current in all of its financial  obligations to lending  institutions and to
its trade vendors.  The Company still has $445,674  available  under its line of
credit. In addition,  the Company continues to address cash flows by controlling
inventory levels, increasing the sales effort, and reducing expenses.

The  Company  believes  that  its  capital  resources  on hand at May 31,  1997,
together with  anticipated  revenues from sales,  its lending  arrangements  and
equity financing will be sufficient to satisfy its working capital  requirements
for the  remainder  of the fiscal  year.  However,  if the  Company's  operating
results are lower than currently anticipated, the Company may require additional
debt or equity financing in order to fund its working capital  requirements.  In
addition,  the Company may require additional financing to finance the growth of
the Company.  If such financing is required,  there can be no assurance that the
Company will be able to obtain  financing on terms favorable to the Company,  if
at all.



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<PAGE>




FORWARD LOOKING STATEMENTS


Information  contained  in this  Report  contains  "forward-looking  statements"
within the  meaning of the  Private  Securities  Litigation  Reform Act of 1995,
which can be identified by the use of forward-looking terminology such as "may,"
"will,"  "should,"  "expect,"  "anticipate,"  "estimate,"  or  "continue" or the
negative thereof or other variations  thereon or comparable  terminology.  These
forward-looking  statements are subject to risk and uncertainties  that include,
but are not limited to, those identified in this report,  described from time to
time in the Company's  other  Securities  and Exchange  Commission  filings,  or
discussed in the Company's  press  releases.  Actual results may vary materially
from expectations.



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<PAGE>





                           PART II - OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES

      During the quarter  ended May 31,  1997,  the Company  sold the  following
units of  preferred  stock and  warrants  (the  "Units")  pursuant  to a private
offering of Units being made to accredited investors in reliance upon Regulation
D as described in Footnote F to the financial statements contained herein:

      1.    5,000 Units on March 7, 1997 at a purchase price of $30,000; and

      2.    20,000 Units on March 7, 1997 at a purchase price of $120,000.

A 10% commission was paid on the 5,000 unit sale.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      a)    Exhibits
            27.1  Financial Data Schedule

      b)    Reports for Form 8-K. A current report dated March 5, 1997 was filed
            reporting the sale of 343,750 units pursuant to Regulation S.







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<PAGE>




                                   SIGNATURES

The unaudited interim consolidated  financial statements furnished by management
reflect all adjustments that are, in the position of management, necessary for a
fair presentation of financial position and results of operation.

In  accordance  with  the  requirements  of the  Securities  Exchange  Act,  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 3, 1997
      --- ----- -- ----                         ---- -- ----
      Verne E. Bray                             Date
      President



By   /s/ Jeffrey J. Kirby                       July 3, 1997
     --- ------- -- -----                       ---- -- ----
      Jeffrey J. Kirby                          Date
      Principal Financial Officer















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