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 February 28,1998

                 [ ] 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 IRS No.)

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

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

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days. Yes X  No
                                                                      ---   ---

         As of February 28, 1998, the Registrant had 1,849,083  shares of Common
Stock and 163,745 shares of Preferred Stock outstanding.


         Transitional Small Business Disclosure Format        Yes     No  X
                                                                         ---




<PAGE>




                         PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements
See attached Consolidated Financial Statements for February 28, 1998



































                                        1

<PAGE>











NACO Industries, Inc.

                        CONSOLIDATED FINANCIAL STATEMENTS


                                February 28, 1997




























                                        2

<PAGE>


PART 1 - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>

NACO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<CAPTION>
                                                         February 28             November 30
                                                      ------------------      -------------------
ASSETS                                                      1998                     1997
------                                                                                   
                                                      ------------------      -------------------
<S>                                                 <C>                                   <C>   
Current assets:
  Cash                                              $            91,573                   75,378
  Accounts receivable, net of allowances
    of $70,250 / $69,750                                        868,045                  671,562
  Inventory                                                     920,063                  772,752
  Income taxes receivable                                         5,100                    5,100
  Other current assets                                           71,735                   97,561
                                                      ------------------      -------------------
       Total current assets                                   1,956,516                1,622,353
                                                      ------------------      -------------------

Property and equipment:
  Land                                                           40,700                   40,700
  Buildings and improvements                                    604,437                  600,786
  Equipment and vehicles                                      2,594,766                2,449,997
  Equipment construction in progress                             32,385                   89,980
                                                      ------------------      -------------------
       Total property and equipment                           3,272,288                3,181,463

  Accumulated depreciation                                   (1,537,882)              (1,456,133)
                                                      ------------------      -------------------
       Net property and equipment                             1,734,406                1,725,330
                                                      ------------------      -------------------

Other assets:
  Intangible and other assets                                   105,297                  106,776
                                                      ------------------      -------------------
       Total other assets                                       105,297                  106,776
                                                      ------------------      -------------------
       Total assets                                 $         3,796,219                3,454,459
                                                      ==================      ===================

</TABLE>






                                        3
<PAGE>

<TABLE>
NACO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<CAPTION>
                                                                 February 28           November 30
                                                              ------------------    -------------------
LIABILITIES:                                                        1998                   1997
------------                                                  ------------------    -------------------

<S>                                                         <C>                                <C>    
Current liabilities:
  Accounts payable                                          $           736,970                251,122
  Accrued expenses                                                      168,788                198,046
  Line of credit                                                        999,326                824,326
  Current portion of long-term obligations                              266,637                321,801
  Due to (from) related party                                           (17,815)               (15,704)
                                                              ------------------    -------------------
       Total current liabilities                                      2,153,906              1,579,591

Long-term liabilities:
  Long-term obligations, less current portion                           690,866                664,001
  Deferred income taxes                                                  94,200                 94,200
                                                              ------------------    -------------------
       Total long-term liabilities                                      785,066                758,201
                                                              ------------------    -------------------
       Total liabilities                                              2,938,972              2,337,792

Stockholders' equity:
  Common stock, $.01 par value; 10,000,000
    shares authorized; 2,193,796 and 2,193,796 shares issued
    (including 344,713 and 244,713 shares shares in treasury)            21,939                 21,939
  Preferred Stock,  7% Cumulative, convertible  $3.00 par value 
    Shares authorized; 330,000 shares issued 165,412 and
    165,412, respectively (including 1,667 shares in treasury)
    (Aggregate liquidation preference $1,051,243 and
    $1,016,501, respectively)                                           496,236                496,236
  Additional paid-in capital                                          1,003,800              1,003,800
  Retained earnings (deficit)                                          (538,131)              (278,711)
                                                              ------------------    -------------------
                                                                        983,844              1,243,264
  Less: treasury stock - at cost                                       (126,597)              (126,597)
                                                              ------------------    -------------------
       Total stockholders' equity                                       857,247              1,116,667
                                                              ------------------    -------------------

       Total liabilities and
         stockholders' equity                               $         3,796,219              3,454,459
                                                              ==================    ===================
</TABLE>


See Notes to Consolidated Financial Statements.

                                        4

<PAGE>

<TABLE>
NACO INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
                                                       Three months ended            
                                                           February 28               
                                                 --------------------------------    
                                                      1998              1997         
                                                 ------------     ---------------    

<S>                                            <C>                     <C>           
Sales, net                                     $    1,511,156          1,531,195     

Cost of goods sold                                  1,026,916            959,306     
                                                --------------     --------------    

       Gross profit                                   484,240            571,889     

Operating expenses:
  Selling expenses                                    352,665            346,173     
  General and administrative expenses                 340,395            342,202
  Other                                                     0                  0     
                                                --------------     --------------    

       Total operating expenses                       693,060            688,375     
                                                --------------     --------------    

       Income (loss) from operations                 (208,820)          (116,486)    

Other income (expense):
  Interest income                                         871                436     
  Interest expense                                    (51,471)           (55,782)    
                                                --------------     --------------    

       Total other income (expense)                   (50,600)           (55,346)    
                                                --------------     --------------    

Income (loss) before income taxes                    (259,420)          (171,832)    

Income tax expense (benefit)                                0                  0     
                                                --------------     --------------    

       Net income (loss)                       $     (259,420)          (171,832)    
                                                ==============     ==============    

Adjustment for preferred dividends in arrears         (68,773)           (10,701)    
                                                --------------     --------------    

Adjusted net to Common Stockholders            $     (328,193)          (182,533)    
                                                ==============     ==============    

Earnings (loss) per common share:
  Basic:
      Earnings (loss) from net income          $        (0.14)             (0.11)    
      Dividends in arrears                              (0.04)             (0.01)    
                                                --------------     --------------    
      Net Earnings (loss)                      $       ($0.18)            ($0.12)    
                                                ==============     ==============    

 Diluted:
     Earnings (loss) from net income           $        (0.18)             (0.12)    
                                                ==============     ==============    

Weighted average number of common
  shares outstanding:
    Basic                                           1,849,083          1,500,000     
                                                ==============     ==============    
    Diluted                                         2,176,573          1,771,735     
                                                ==============     ==============    
</TABLE>


See Notes to Consolidated Financial Statements

                                        5
<PAGE>


<TABLE>
NACO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
                                                                          Three months ended
                                                                  February 28             February 28
                                                               ------------------------------------------
                                                                      1998                    1997
                                                               -------------------      -----------------
<S>                                                          <C>                               <C>      
Cash flows from operating activities
  Net income (loss)                                          $           (259,420)              (171,832)
  Adjustments to reconcile net income (loss) to
   net cash provided by (used in) operating activities:
     Depreciation                                                          81,751                 59,041
     Amortization                                                           1,479                  1,479
     Deferred income taxes                                                      0                      0
   (Increase) decrease in:
     Accounts receivable, net                                            (196,483)               (95,376)
     Inventory                                                           (147,311)              (212,758)
     Taxes Receivable                                                           0                    200
     Other                                                                 25,826                 21,341
   Increase (decrease) in:
     Accounts payable                                                     485,848                356,671
     Accrued expenses                                                     (29,258)               (22,686)
     Income taxes payable                                                       0                      0
                                                               -------------------      -----------------
        Net cash provided by (used in)
         operating activities                                             (37,568)               (63,920)
                                                               -------------------      -----------------

Cash flows from investing activities
  Net change  property and equipment                                      (90,827)              (156,189)
  Investment in intangible and other assets                                     0                (10,717)
                                                               -------------------      -----------------
        Net cash provided by (used in) investing activities               (90,827)              (166,906)


Cash flows from financing activities
  Net change in line of credit                                            175,000                190,000
  Payments on related party loan                                           (2,111)               (35,119)
  Payments on long-term debt                                              (76,538)               (74,049)
  Payment of Preferred Stock Dividends                                          0                      0
  Proceeds from long-term loans                                            48,239                 18,468
  Proceeds from issuance of common stock                                        0                      0
  Proceeds from issuance of preferred stock                                     0                 48,000
  Purchase of treasury stock                                                    0                      0
                                                               -------------------      -----------------
        Net cash provided by (used in) financing activities               144,590                147,300
                                                               -------------------      -----------------

Increase (decrease) in cash                                                16,195                (83,526)

        Cash, beginning of period                                          75,378                198,306
                                                               -------------------      -----------------

        Cash, end of period                                  $             91,573                114,780
                                                               ===================      =================

See Notes to Consolidated Financial Statements
Supplemental disclosures:
    Income Taxes Paid                                        $                  0                      0
    Interest Paid                                            $             37,926                 39,667
</TABLE>


                                        6

<PAGE>


                              NACO INDUSTRIES, INC.
             Notes to Consolidated Financial Statements (Unaudited)
                                February 28, 1998


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 period ended February 28, 1998, are not  necessarily
indicative  of the  results  that may be  expected  for the fiscal  year  ending
November 30,  1998.  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, 1997.

NOTE B - INVENTORY

         Inventory consists of the following:

                                              February 28,          Nov. 30,
                                                     1998              1997
                                                     ----              ----
     Raw Materials                               $309,240          $309,193
     Work In Process                               12,169            12,276
     Finished goods                               598,654           451,283
                                                  -------           -------

              Total                              $920,063          $772,752

NOTE C - DIVIDENDS

     Dividends  on the  preferred  stock are  cumulative  at 7%. At February 28,
1998, the  cumulative  amount of dividends  accrued was $68,773.  Of this amount
$68,773 was in arrears.

NOTE D - EARNINGS PER SHARE

     Effective February 28, 1998 the Company adopted SFAS No. 128, "Earnings Per
Share:,  which  establishes new standards for computing and presenting  earnings
per share.  No  restatement  was required  for prior  year's  earnings per share
figures to conform to the new  standard.  Basic  earnings  per common  share are
calculated by dividing adjusted net income by the average shares of common stock
outstanding  during the period. The calculation of diluted earnings per share of
common stock assumes the diluting effect of the Company's  cumulative  preferred
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.   When  conversion  of  potential   common  shares  has  an
anti-dilutive  effect no conversion is assumed in the diluted earnings per share
calculation.



                                        1

<PAGE>




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

Introduction

         NACO is a  manufacturing  company,  which 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).  The  Company,  through  its  subsidiary,  also
manufacturers and sells composite products.

Results of Operations

         The following discussion relates to the three months ended February 28,
1998 and February 28, 1997.  For  comparison  purposes  percent of sales will be
used rather than dollars.  In the following  discussion,  the three months ended
February  28,  1998 and  February  28,  1997 are  referred  to as 1Q98 and 1Q97,
respectively.

         Overview.  The Company  sustained an operating loss for the three-month
period ending February 28, 1998. The loss is a result of several factors.  First
the Company's plastics and composite products operations  generated an operating
loss of  $193,352  and $66,068  respectively.  Management  believes  such losses
resulted primarily from the seasonal nature of these businesses and poor weather
conditions.  The unusually wet weather in the West Coast and Midwest regions was
a  material  factor  in  lower  sales  of the  Company's  agricultural  fittings
products. Installation of an irrigation system is very difficult if not possible
in  extremely  wet  weather.  The  Composites  segment  relies  heavily  on  the
construction  industry,  which is adversely affected by cold winter weather. The
Company is continuing to diversify and expand into the industrial and commercial
markets.  Although  these markets tend to have lower sales during winter months,
they are  less  seasonal  than the  Company's  current  markets.  Sales in these
markets  increased  from 2.2% of total  revenues  in 1Q97 to 10.1% in 1Q98.  The
Company  also  continues  to review its  operations  to try and reduce  expenses
without affecting quality and service to its customers.

         Sales.  Net sales for 1Q98 decreased by 1.3% to $1,511,156  compared to
net sales of $1,531,195 for 2Q97. Net sales for the plastics  segment  increased
by 0.6% to $1,323,858 in 1Q98 compared to net sales of $1,316,555  for 1Q97. Net
sales for the composite  segment decreased by 12.7% to $187,299 in 1Q98 compared
to net sales of $214,641 for 1Q97. These decreases  resulted primarily from both
a decrease  in volume  primarily  due to the  unusually  wet weather on the West
Coast and Midwest regions.  Weather  traditionally can move sales a month or two
earlier or later in the season  depending  whether the weather is harsh or mild.
If weather continues to be unseasonably wet, some irrigation projects may be put
off until  fall,  which  could  also  affect  the 2nd  quarter  sales in plastic
fittings.  Sales decreased mostly in the agricultural line of fittings,  but was
offset by an  increase  mainly in the sewer line of  fittings  so overall  sales
remained very close to the previous year sales.

         Gross Margin.  Gross  margin,  as a percent of sales for 1Q98 was 32.0%
compared to 37.4% 1Q97. Gross margin for plastics and composites respectively as
a percent of sales for 1Q98 was 35.1% and 10.4%  respectively  compared to 42.5%
and 5.7% for 1Q97. The decrease in gross margin in plastics is mainly due to the
higher percentage of sales from the sewer product line in 1Q98 compared to 1Q97.
Sewer as a percent of total sales  increased from 2.2% in 1Q97 to 10.1% in 1Q98.
Gross margins on sewer  fittings are generally  lower than on the other fittings
made by the Company due to market pricing in the industry.  The composites gross
margin  continues  to be low  because of low volumes  and fixed  overhead  cost.
Management  believes that increases in volume along with  improving  through put
should  improve  gross  margins  in both  areas.  The  Company  takes a complete
physical  inventory  once a year and a physical  inventory of the top 80% of the
dollars  in  inventory  every  quarter.  This  helps  to  offset  any  inventory
adjustments  at year-end.  Any year-end  adjustments  are  reflected  during the
fourth quarter after the year-end physical inventory is completed.

         Selling.  Selling expenses were 23.3% of net sales for 1Q98 compared to
22.6% for 1Q97.  Advertising increased as a percent of sales from .2% in 1Q97 to
 .8% in 1Q98 primarily  because brochures were produced for the composite product
lines during 1Q98,  which was not done a year ago in 1Q97.  Salaries and related


                                        2

<PAGE>




benefits  increased  10.5.%  from 1Q97 to 1Q98  mainly due to the  addition of a
salesman in the Naco Composites division and an average 3.2% pay increase.

         General  and  Administrative.   General  and  administrative   expenses
remained  relatively  level as a percent of sales.  They were 22.5% of net sales
for 1Q98 compared to 22.4% for 1Q97. As a percent of sales, salaries and related
benefits  increased  3% mainly due to a average pay  increase of 3.2% over 1Q97.
Insurance  expense  increased  $4,244 from 1Q97 to 1Q98 or 24.3% as a percent of
sales due to the addition of Naco  Composites  and additions in fixed assets due
to expansion of the facilities.  Professional fees, telephone, and utilities all
decreased from 1Q97.

         Other. Other  expenses/revenues were 3.3% for 1Q98 compared to 3.6% for
1Q97.  Interest expense went from 3.6% in 1Q98 to 3.4% in 1Q98 mainly because of
a decrease in the overall debt load of the Company. The effective interest rates
(interest  expense  divided by the average debt balance for the period) for 1Q98
and 1Q97 were 11.14% and 11.42%, respectively.

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
$37,568 in 1Q98.  Cash as of 2-28-98 was  $91,573,  an increase of $16,195  from
November 30, 1997. The increase resulted primarily from an increase in payables.
Because of the  continued  growth and need for capital,  the Company is facing a
potential cash flow shortage.

         The Company continues to struggle with its liquidity position. With the
losses and the expansions, the Company has reduced its available working capital
significantly.  The losses have been explained in above  paragraphs.  During the
expansion,  part of the capital  improvements and new equipment funding has been
from the line of credit and internal financing. The total cash paid for property
and  equipment  totals  $90,827 in 1Q98 and  $166,906 in 1Q97.  The Company also
increased  trade  payables by $485,848  from  November  30, 1997 to February 28,
1998.  At November  30, 1997 the Company was current on trade  payables,  but at
February 28, 1998 the Company was out 60 days. Cash flow traditionally is always
slow during the 1st quarter and improves during the 2nd quarter.  The Company is
addressing the potential cash flow shortage by managing inventories,  increasing
the sales effort and working to reduce expenses.

         Management  believes that external  financing or additional  capital is
necessary  to  replenish  working  capital  to permit  the  Company  to meet its
obligations  on a timely  basis and to provide the  additional  working  capital
which will be required to sustain the expected growth.  At February 28, 1998 the
revolving  line of credit was $1,100,000 of which $999,326 was used leaving only
$100,674  available.  The  availability  of the line is based  on a  percent  of
accounts  receivable  and inventory and the maturity date is August 31, 1998. At
February  28,  1998 the  Company's  current  ratio  was in breach of the line of
credit loan agreement. The Company received a written waiver of this restrictive
covenant for the period ending February 28, 1998, and may need to obtain similar
waivers  in the  future if  operating  results do not  improve.  The  Company is
working  on  several  options  to  improve  working  capital  including  private
placement of equity.

         Under  the  terms of the  Company's  line of  credit,  the  Company  is
prohibited  from making capital  expenditures  in excess of $150,000  unless its
working capital ratio improves.

         Management  believes that the actions  presently  being taken to revise
the  Company's  operating  and financial  requirements  and to raise  additional
capital,  together  with its capital  resources  on hand at February  28,  1998,
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 will be available
on terms favorable to the Company, if at all. If the Company is unable to secure
additional  financing  or raise  additional  capital,  this will  likely  have a
material adverse effect on the Company's  operations,  financial condition,  and
its ability to continue to grow and expand its operations. If the Company raises
capital  through  equity  financing,  this may result in  dilution  to  existing
holders of common stock and preferred stock.

Factors Affecting Future Results

                                        3

<PAGE>





         The Company's  operating  results are subject to certain inherent risks
that could adversely affect the Company's  operating  results and its ability to
operate profitably. If the Company is not able to successfully secure sufficient
equity  or  debt  financing  to  meet  its  working   capital  and   operational
requirements as discussed above, 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,  increases in labor or raw
materials, changes in economic conditions in its markets, unanticipated expenses
or events and other  factors  discussed in this report and the  Company's  other
filings with the Securities and Exchange Commission.





























                                        4

<PAGE>




                           PART II - OTHER INFORMATION

Item 6 - Exhibits and Reports on Form 8-K
------   --------------------------------

         (a)      Exhibits.  The following are filed as exhibits to this Report.


                         Regulation S-K
                           Exhibit No.            Description
                         ---------------   -------------------------------------

                               27          Financial Data Schedule



         (b)      Reports on Form 8-K.  None

















                                        5

<PAGE>



                                   SIGNATURES

         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                                April 7, 1998
   -------------------------------------------            -------------
         Verne E. Bray                                    Date
         President


By       /s/ JEFFREY J. KIRBY                             April 7, 1998
   -------------------------------------------            -------------
         Jeffrey J. Kirby                                 Date
         Principal Financial Officer

































                                        6