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 31,1999

        [ ] 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 Number)

                     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 August 31, 1999, the  Registrant had 1,876,227  shares of Common Stock and
165,412 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












                                       2

<PAGE>

                              NACO Industries, Inc.
                        CONSOLIDATED FINANCIAL STATEMENTS
                                 August 31, 1999










                                       3

<PAGE>

                         PART 1 - FINANCIAL INFORMATION

   ITEM 1. CONSOLIDATED FINANCIAL
      STATEMENTS (UNAUDITED)

                             NACO INDUSTRIES, INC.
                    CONSOLIDATED BALANCE SHEETS (UNAUDITED)

                                                     August        November 30
ASSETS                                                1999             1998
------                                            -----------      -----------
Current assets:
  Cash                                            $    80,810      $   112,362
                                                  -----------      -----------
  Accounts receivable, net of allowances
    of $105,231 / $100,193                            801,452          803,165
  Inventory                                           520,568          656,134
  Other current assets                                279,398          220,378
                                                  -----------      -----------
       Total current assets                         1,682,228        1,792,039
                                                  -----------      -----------
Property and equipment:
  Land                                                 40,700           40,700
  Buildings and improvements                          611,374          675,316
  Equipment and vehicles                            2,745,488        2,771,889
  Equipment construction in progress                    9,018           29,461
                                                  -----------      -----------
       Total property and equipment                 3,406,580        3,517,366

  Accumulated depreciation                         (2,021,386)      (1,779,688)
                                                  -----------      -----------
       Net property and equipment                   1,385,194        1,737,678
                                                  -----------      -----------
Other assets:
  Intangible and other assets                         362,653          264,818
                                                  -----------      -----------
       Total other assets                             362,653          264,818
                                                  -----------      -----------
       Total assets                               $ 3,430,075      $ 3,794,535
                                                  ===========      ===========


                 See Notes to Consolidated Financial Statement


                                       4

<PAGE>

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

                                                                   August 31       November 30
LIABILITIES:                                                          1999             1998
------------                                                      -----------      -----------
<S>                                                               <C>              <C>
Current liabilities:
  Accounts payable                                                $   975,111      $   650,305
  Accrued expenses                                                    184,771          283,900
  Income taxes payable                                                   (100)               0
  Line of credit                                                      505,218          849,326
  Current portion of long-term obligations                             84,492          300,582
                                                                  -----------      -----------
       Total current liabilities                                    1,749,492        2,084,113

Long-term liabilities:
  Long-term obligations, less current portion                       1,153,858          673,922
  Deferred income taxes                                                 9,800
                                                                  -----------      -----------
       Total long-term liabilities                                  1,163,658          683,722
                                                                  -----------      -----------
       Total liabilities                                            2,913,150        2,767,835

Stockholders' equity:

  Common stock, $.01 par value, 10,000,000 shares authorized;          18,762           21,472
  Preferred Stock,  7% Cumulative, convertible  $3.00 par             496,236          496,236
  Additional paid-in capital                                          996,045        1,084,959
  Retained earnings (deficit)                                        (994,118)        (484,342)
                                                                  -----------      -----------
                                                                      516,925        1,118,325
  Less: treasury stock - at cost                                            0          (91,625)
                                                                  -----------      -----------
       Total stockholders' equity                                     516,925        1,026,700
                                                                  -----------      -----------
       Total liabilities and
         stockholders' equity                                     $ 3,430,075      $ 3,794,535
                                                                  ===========      ===========
</TABLE>


                 See Notes to Consolidated Financial Statements


                                       5

<PAGE>

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

                                                       Three months ended                Nine months ended
                                                            August 31                        August 31
                                                  ----------------------------      ----------------------------
                                                      1999             1998             1999             1998
                                                  -----------      -----------      -----------      -----------
<S>                                               <C>                <C>              <C>              <C>
Sales, net                                        $ 1,752,404        1,572,404        5,796,937        4,803,088
Cost of goods sold                                    965,309          892,729        3,105,118        2,805,359
                                                  -----------      -----------      -----------      -----------
       Gross profit                                   787,095          679,675        2,691,819        1,997,728

Operating expenses:
  Selling expenses                                    401,335          329,467        1,202,190          998,370
  General and administrative expenses                 314,696          286,863          909,983          910,197
                                                  -----------      -----------      -----------      -----------
       Total operating expenses                       716,031          616,331        2,112,174        1,908,567
                                                  -----------      -----------      -----------      -----------
Income (loss) from operations                          71,064           63,344          579,645           89,161

Other (income) expense:
  Interest income                                      (3,021)            (569)          (3,837)           4,354
  Interest expense                                     56,019           48,251          226,028          150,760
                                                  -----------      -----------      -----------      -----------
       Total other (income) expense                    52,998           47,682          222,192          155,144
                                                  -----------      -----------      -----------      -----------
Income (loss) from continuing operations               18,066           15,663          357,454          (65,953)
Income tax expense (benefit)                                0                0                0                0
                                                  -----------      -----------      -----------      -----------
Net income (loss) from continuing operations      $    18,066           15,663          357,454          (65,953)

Operating Loss from Discontinued Composites          (189,573)         (39,670)        (685,425)         (63,373)
Estimated Cost to Discontinue Composite              (214,844)        (214,844)
Net Income (Loss)                                    (386,351)         (24,007)        (542,815)        (129,326)
Adjustment for preferred dividends in arrears        (138,947)         (69,272)        (138,917)         (69,272)
                                                  -----------      -----------      -----------      -----------
Adjusted net to Common Stockholders               $  (525,298)         (93,279)        (681,732)        (198,598)
                                                  -----------      -----------      -----------      -----------
Earnings (loss) per common share:
  Basic:
      Earnings (loss) from net income             $     (0.21)           (0.01)           (0.29)           (0.07)
      Dividends in arrears                              (0.07)           (0.04)           (0.07)           (0.04)
                                                  -----------      -----------      -----------      -----------
  Net Earnings (loss)                             $     (0.28)           (0.05)           (0.36)           (0.11)
                                                  ===========      ===========      ===========      ===========
 Diluted:
     Earnings (loss) from net income              $     (0.28)           (0.05)           (0.36)           (0.11)
                                                  ===========      ===========      ===========      ===========
Weighted average number of common shares
    Basic                                           1,876,227        1,868,227        1,876,227        1,868,227
                                                  ===========      ===========      ===========      ===========
    Diluted                                         2,207,051        2,205,051        2,207,051        2,205,051
                                                  ===========      ===========      ===========      ===========
</TABLE>


                 See Notes to Consolidated Financial Statements


                                       6

<PAGE>

<TABLE>
                             NACO INDUSTRIES, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
<CAPTION>

                                                                      Nine months ended
                                                                ----------------------------
                                                                 August 31         August 31
                                                                    1999             1998
                                                                -----------      -----------
<S>                                                             <C>              <C>
Cash flows from operating activities
  Net income (loss)                                             $  (369,372)     $  (129,326)
  Adjustments to reconcile net income (loss) to
   net cash provided by (used in) operating activities:
     Depreciation                                                   282,958          253,749
     Amortization                                                    12,454            4,436
   (Increase) decrease in:
     Accounts receivable, net                                         1,713           (3,320)
     Inventory                                                      135,566          166,603
     Other                                                          (71,474)          12,193
   Increase (decrease) in:
     Accounts payable                                               324,806          105,485
     Accrued expenses                                              (121,129)         (19,244)
     Income taxes payable                                              (100)            (800)
                                                                -----------      -----------
        Net cash provided by (used in)
         Operating activities                                       195,422          389,776
                                                                -----------      -----------
Cash flows from investing activities
  Net change  property and equipment                                (48,878)        (169,704)
  Investment in intangible and other assets                         (97,835)            (860)
                                                                -----------      -----------
        Net cash provided by (used in) investing activities        (146,713)        (170,564)

Cash flows from financing activities
  Net change in line of credit                                     (344,108)          50,000
  Payments on related party loan                                          0         (104,194)
  Payments on long-term debt                                       (793,823)        (216,955)
  Payment of Preferred Stock Dividends                                    0          (34,482)
  Proceeds from long-term loans                                   1,236,327          140,758
  Proceeds from issuance of common stock                                  0           57,430
  Proceeds from issuance of preferred stock                               0           10,002
  Purchase of treasury stock                                       (178,657)               0
                                                                -----------      -----------
        Net cash provided by (used in) financing activities         (80,261)         (97,441)
                                                                -----------      -----------
Increase (decrease) in cash                                         (31,552)         121,771

        Cash, beginning of period                                   112,362           75,378
                                                                -----------      -----------
        Cash, end of period                                     $    80,810      $   197,149
                                                                ===========      ===========
Supplemental disclosures:
    Income taxes paid                                           $         0      $         0
    Interest Paid                                               $   237,125      $   158,297
</TABLE>


                 See Notes to Consolidated Financial Statements


                                       7

<PAGE>

                              NACO INDUSTRIES, INC.
             Notes to Consolidated Financial Statements (Unaudited)
                                 August 31, 1999



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 nine-month
period ended August 31, 1999 are not necessarily  indicative of the results that
may be expected for the fiscal year ending November 30, 1999.  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, 1998.


NOTE B - INVENTORY

     Inventory consists of the following:


                                                 August 31,        Nov. 30,
                                                   1999              1998
                                                -----------      -------------
Raw Materials                                   $  162,562       $  231,895
Work in Process                                      1,029           13,598
Finished Goods                                     356,977          360,656
                                                -----------      -------------
                  Total                         $  520,568       $  606,149



NOTE C - DIVIDENDS

         Dividends on the  preferred  stock are  cumulative at 7%. At August 31,
1999, the cumulative amount of dividends  accrued was $138,947.  Of this amount,
$138,947 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.

NOTE E - PREFERRED STOCK AND WARRANTS

         There were no shares of capital stock sold or warrants exercised during
the third quarter of 1999.



NOTE F - SEGMENT INFORMATION

         The Company's  operations  are classified  into two principal  industry
segments,  PVC  fitting  and valves  sold  through  Naco  Industries,  Inc.  and
composite  products  sold through the Naco  Composites  division  which has been
discontinued  as of  September  30,  1999.  The  Company's  reportable  business
segments  are  strategic  business  units  that  offer  different  products  and


                                       8

<PAGE>

services.  Each segment is managed  separately  because  they require  different
technologies and market to distinct classes of customers. No customers in either
segment accounted for 10% or more of consolidated revenue.

         The segment accounting  policies are the same as those described in the
Annual Report on Form 10-KSB in the summary of significant  accounting policies.
Cost plus an  estimated  profit  margin is used to  report  intersegment  sales.
Profit for segment reporting  includes  allocated  general  corporate  expenses,
other income and expense and income tax expense or benefit.  Identifiable assets
are those used by each segment of the  Company's  operations.  Corporate  assets
primarily  represent  cash and are  identified in the other column in the tables
below.


<TABLE>
<CAPTION>
----------------------------------------- --------------------- ------------------ ------------ --------------------
Quarter Ended 8/31/99                          PVC Products     Composite Products    Other            Total
----------------------------------------- --------------------- ------------------ ------------ --------------------
<S>                                          <C>                   <C>              <C>            <C>
Sales to unaffiliated customers              $   1,752,678         $   267,340              0      $   2,020,018
----------------------------------------- --------------------- ------------------ ------------ --------------------
Intersegment Sales                                       0                   0              0                  0
----------------------------------------- --------------------- ------------------ ------------ --------------------
Depreciation Expense                                89,262               7,883              0             97,145
----------------------------------------- --------------------- ------------------ ------------ --------------------
Interest Income                                      1,402                   0              0              1,402
----------------------------------------- --------------------- ------------------ ------------ --------------------
Interest Expense                                    56,018               3,425              0             59,443
----------------------------------------- --------------------- ------------------ ------------ --------------------
Profit (Loss)                                $      45,841         $  (258,474)             0      $    (212,633)
----------------------------------------- --------------------- ------------------ ------------ --------------------
Identifiable Assets                          $   2,718,001         $   514,822      $  80,811      $   3,313,634
----------------------------------------- --------------------- ------------------ ------------ --------------------

----------------------------------------- --------------------- ------------------ ------------ --------------------
Prior Year Quarter Ended 8/31/98
----------------------------------------- --------------------- ------------------ ------------ --------------------
Sales to unaffiliated customers              $   1,572,405         $   208,524              0      $   1,780,929
----------------------------------------- --------------------- ------------------ ------------ --------------------
Intersegment Sales                                       0                   0              0                  0
----------------------------------------- --------------------- ------------------ ------------ --------------------
Depreciation Expense                                79,032               6,842              0             85,874
----------------------------------------- --------------------- ------------------ ------------ --------------------
Interest Income                                        569                 593              0              1,162
----------------------------------------- --------------------- ------------------ ------------ --------------------
Interest Expense                                    54,502               1,489              0             55,991
----------------------------------------- --------------------- ------------------ ------------ --------------------
Profit (Loss)                                $      57,568         $   (81,576)             0      $     (24,008)
----------------------------------------- --------------------- ------------------ ------------ --------------------
Identifiable Assets                          $   2,560,975         $   549,910      $ 197,149      $   3,308,033
----------------------------------------- --------------------- ------------------ ------------ --------------------
</TABLE>


NOTE G - DEBT AND LOAN AGREEMENTS

         At August 31, 1999, the outstanding  balance of the Company's revolving
line of credit was  $505,217.  This line of credit was entered into on April 22,
1999 with Wells Fargo Credit. This facility is based on a percentage of accounts
receivable and  inventories.  The maximum line is $1,500,000 of which,  based on
the "Collateral  Report" there was $624,798 was available to borrow as of August
31,  1999.  The  original  draw on this  line  was  used to pay off  most of the
previous revolving line of credit with Nations Bank.

         Also on April  22,  1999 a second  facility  was  closed  with  WebBank
Corporation  to restructure  the term-debt.  This facility is for $1,100,000 and
was used to pay off long-term  debt of the Company with Nations Bank and several
other small lenders.  A portion of the revolving  line that was previously  with
Nations Bank was also paid off by this facility.

         The line of credit with Wells Fargo and the long-term note with WebBank
Corporation  contain  covenants  pertaining to current ratio,  working  capital,
debt, dividends and capital purchases.


                                       9

<PAGE>

NOTE H - STOCK PERFORMANCE AGREMENT

         Under a stock  purchase  agreement  dated March 5, 1997 with  Britannia
Holding  Limited,  NACO  Industries,   Inc.  agreed  as  part  of  the  original
consideration  for the stock  purchase  agreement,  and in the  event  that NACO
Industries,  Inc. did not during the first twenty four months of the  agreement,
establish a market for NACO  Industries,  Inc.  Common  Stock that traded for at
least $6.00 per share for any 10 consecutive day, to credit additional shares of

its $.01 par value common  stock to Britannia  starting at the end of the twenty
fifth  month  following  the  closing  date of the  agreement,  and  until  NACO
Industries,  Inc. has an established  public market for its common stock trading
for $6.00 or more for at least 10  consecutive  trading days.  NACO  Industries,
Inc.  agreed to issue all credited and  unissued  shares to Britannia  within 30
days  following  the yearly  anniversary  of the  agreement.  The  crediting  of
additional shares under this agreement started in the month of April 1999.



NOTE I - DISCONTINUED OPERATIONS

         NACO Composites,  a division of NACO Industries,  Inc. was discontinued
as of September 30, 1999. This division manufactured and sold composite products
for the  transportation,  amusement,  recreation and  architectural  industries.
These  products  included   transportation  parts,  decorative  building  parts,
after-market auto parts and amusement ride materials.  The Company also produced
tooling and molds for other companies in various  industries.  The manufacturing
operations at the NACO Composites  division was closed due to continued  losses.
The  Company's  composite  products  operation  generated an  operating  loss of
$(685,425)  for the nine  months  ended  August  31,1999  compared  to a loss of
$(63,373)  for the nine months ended  August 31,  1998.  During the past several
months the Company's top  management has spent the majority of their time at the
facility,  during  which time they worked to reduce  direct  labor and  increase
training.  After considerable  effort by management to turn the operation around
it was decided that is was no longer in the Company's  best interest to continue
manufacturing composite product. The Company has out sourced certain products to
vendors  that the  Company  will  continue to sell.  The company  will no longer
manufacture composite products.  The lease on the Ogden facility ended September
30, 1999 and the Company did not  renewing the lease.  It is estimated  that the
known costs to discontinue this operation will cost $214,844. These costs relate
to discontinued use of certain assets, labor, legal fees, accounting review, and
rental obligations.

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


Introduction

NACO  Industries,  Inc.  ("NACO" or the "Company") is a  manufacturing  company,
which produces and sells polyvinyl  chloride (PVC) and composite  products.  The
Company's  primary line of business  consists of manufacturing PVC pipe fittings
and  valves,  which are sold  throughout  the United  States  through  wholesale
distributors to irrigation, industrial, construction and utility industries. The
Company manufactures and sells fabricated fittings (4" through 30" in diameter),
as well as molded fittings (4" though 10" in diameter). Pipefittings produced by
the Company  include tees,  reducers,  elbows,  couplers,  end caps,  and bolted
repair couplers. NACO also manufacturers and sells PVC valves (4" through 12" in
diameter).


                                       10

<PAGE>

NACO Composites, a division, which was formerly a wholly owned subsidiary of the
Company  and was  merged  into the  Company  in  1999,  was  discontinued  as of
September 30, 1999. This division  manufactured and sold composite  products for
the transportation,  amusement,  recreation and architectural industries.  These
products included transportation parts, decorative building parts,  after-market
auto parts and amusement ride materials.  The Company also produced  tooling and
molds for other companies in various industries. The manufacturing operations at
the NACO  Composites  division  was closed at the end of  September  1999 due to
continued losses.


Results of Operations

The  following  discussion  relates to the three  months and nine  months  ended
August 31, 1999 and August 31,  1998,  respectively.  For  comparison  purposes,
percentages  of  sales  will be  used  rather  than  dollars.  In the  following
discussion,  the three  months  ended  August 31,  1999 and August 31,  1998 are
referred to as 3Q99 and 3Q98, respectively, and the nine months ended August 31,
1999 and August 31, 1998 are referred to as 9M99 and 9M98, respectively.

         Overview.   The  Company's   continuing  plastic  products   operations
generated  an  operating  profit  of  $18,066  and  $15,663  for  3Q99  and 3Q98
respectively.  The continuing plastic products operations generated an operating
profit of $357,454 for 9M99 compared to an operating loss of ($65,953) for 9M98.
The Company  continues  to expand into the  industrial  and  commercial  plastic
markets.  Although  these  markets tend to generate  lower sales  during  winter
months, they are less seasonal than the Company's agricultural markets. Sales in
these markets increased from 11.8% of total revenues in 9M98 to 14.9% in 9M99.

     The  Company's  discontinued  composite  products  operation  generated  an
operating loss of $(189,573) for3Q99,  compared to a loss of $(63,373) for 3Q98.
The losses  generated by the Company's  composite  products were due, to a large
extent, to a combination of the Company's low volume of composite product sales,
inexperienced  labor and lack of production  knowledge of how to produce certain
composite products for which the Company had orders. During the first quarter of
1999 the Company hired a new production manager to help with these problems, but
his  employment  was  terminated  in the 2nd  quarter  of 1999 when the  Company
determined that he lacked  expertise  needed to produce the products the Company
was trying to produce.  Competition  for  experienced  labor is strong and, as a
result  during  the  last six  months  of  fiscal  98,  the  Company  lost  some
experienced  employees in its composites  operations  that were replaced by less
experienced people,  resulting in more rework and scrap.  Because of more rework
and  scrap,  material  costs  increased  from 24.9% of sales in 9M98 to 51.1% of
sales 9M99 and direct  labor  increased  from 20.1% of sales in 9M98 to 51.3% of
sales in 9M99.  During the past several  months the Company's top management has
spent the majority of their time at the facility,  during which time they worked
to reduce  direct  labor and increase  training.  After  considerable  effort by
management to turn the operation  around it was decided that is was no longer in
the Company's best interest to continue  manufacturing  composite products.  The
Company  has out sourced  certain  products  to vendors  that the  Company  will
continue to sell. The Company will no longer manufacture composite products. The
lease on the Ogden  facility  ended  September  30, 1999 and the Company did not
renew the lease.  Management believes that these changes will control the losses
in the composites division. The Company's composite products sales were up 28.2%
from 3Q98 to 3Q99,  but costs  (explained  below) were up 119%,  which  caused a
major  deterioration  in gross  margins and profits in the  Company's  composite
products.

Net  Sales:  Continuing  operations  net  sales for 3Q99  increased  by 11.5% to
$1,752,404  compared  to net sales of  $1,572,404  for 3Q98.  Net sales for 9M99
increased by 20.7% to $5,796,937 compared to net sales of $4,803,088 for 9M98.

There are several  factors that  contributed to increased  sales in the plastics
segment:

Agricultural & Industrial Market:

         Increased   manufacturing   capacities  and  throughput  has  decreased
delivery time,  resulting in a quicker turnaround to the Company's  distributors
than many of the Company's competitors have been able to offer. In addition, the
formation of a sales offering to distributors,  which allows the Company to help
solve the distributors problems with product distribution,  has also contributed
to increase sales.


                                       11

<PAGE>

         During the last  quarter  of fiscal  year  1998,  one of the  Company's
warehouses  located in Washington was re-evaluated to better serve the Company's
distributors  in that area.  Non-moving  inventory  was  removed and an improved
product  mix  was  introduced   into  the  warehouse,   allowing  for  increased
distribution from the warehouse.

Utility Market:

         Towards  the end of  fiscal  1998,  eighteen  new  independent  utility
representatives  were established to expand sales into the utility market (sewer
and drainage).  These  representatives are strategically  located throughout the
country, allowing for more effective coverage of the utility market.

         Management  believes  that  this  expansion  into the  utility  market,
including the addition of these new  representatives  has enabled the Company to
increase utility sales by approximately 52% for the 9M99 compared to 9M98.

         Management anticipates that a few more utility  representatives will be
added during the current fiscal year.

     Gross  Margin.  Gross margin as a percentage of sales for 3Q99 and 3Q98 was
44.9% and 43.5%,  respectively.  Gross margins as a percentage of sales for 9M99
and 9M98  were  46.4% and  41.6%  respectively.  The  increase  is gross  margin
percentage was mainly due to increased sales during the period which would cover
more of the fixed costs such and rent, depreciation and others.

     Gross margin for the  discontinued  composites  division as a percentage of
sales for 3Q99 was (53.2)%  compared  to 10.4%for  3Q98.  The  negative  margins
generated by the  Company's  composite  products  were do to a large extent to a
combination   of  the   Company's  low  volume  of  composite   product   sales,
inexperienced  labor and lack of management  knowledge of how to produce certain
composite  products  for which the Company  had orders.  During 1Q99 the Company
hired a new production  manager to help with these problems,  but his employment
was terminated in 2Q99 when the Company  determined that he lacked the expertise
needed to produce the  products  the Company was trying to produce.  Competition
for  experienced  labor is strong and, as a result during the last six months of
last  year,  the  Company  lost some  experienced  employees  in its  composites
operations  that were  replaced by less  experienced  people,  resulting in more
rework and scrap.  During the past several  months the Company's top  management
has spent the  majority of their time at the  facility,  during  which time they
worked to reduce direct labor and increase training.  After considerable  effort
by management to turn the operation  around it was decided that is was no longer
in the Company's best interest to continue manufacturing  composite product. The
Company  has out sourced  certain  products  to vendors  that the  Company  will
continue to sell. The company will no longer manufacture composite products. The
lease on the Ogden  facility  ends  September  30,  1999 and the  Company is not
renewing the lease.  Management  feels that with these  changes the Company will
have stopped the losses in the composites division.

     Selling:  Selling expenses were 23% of net sales for 3Q99,  compared to 21%
for 3Q98. Selling expenses for 9M98 and 9M99 were 21% of net sales. The increase
in selling expenses as a percentage of sales was mainly due to increased freight
and  supplies  expenses.  Freight  expenses  represented  6.6% of sales for 3Q99
compared to 6.1% of sales for 3Q98, mainly due to increased sales in the utility
market  where it is  standard in the  industry to prepay  freight on orders over
$1,000.  Sales supplies expenses increased from 2.2% of sales in 3Q98 to 2.7% of
sales in 3Q99,  mainly due also to the  increase in sales in the utility  market
where large wood crates are required to ship products to the customer.

     General and Administrative: General and administrative expenses represented
18% of net sales for  3Q99,  compared  to 18% for  3Q98.  Overall,  general  and
administrative  expenses  increased  $27,833  from  3Q98  to 3Q99  and  remained
relatively the same from 9M98 to 9M99.

     Other:  Other  expenses/revenues  were 3.0% for 3Q99,  compared to 3.0% for
3Q98. Interest expense, as a percent of sales was 3.1% in 3Q98 and 3.2% in 3Q99.
The  effective  interest  rates  (interest  expense  divided by the average debt
balance for the period) for 9M99 and 9M98 were 13.9% and 10.3%, respectively.


                                       12

<PAGE>

Liquidity and Capital Resources

         The  Company's  principal  sources  of  liquidity  have  been cash from
operations  and credit  facilities.  Cash provided by operating  activities  was
$195,422 in 9M99.  Cash as of August 31, 1999 was  $80,810,  down  $31,552  from
November 30, 1998. At August 31, 1999, the outstanding  balance of the Company's
revolving  line of credit was $505,218.  This line of credit was entered into on
April 22, 1999 with Wells Fargo  Credit.  This facility is based on a percentage
of accounts receivable and inventories.

         At August 31,  1999 the  Company  was in default of several of the loan
covenants.  The Company has submitted new projections to Wells Fargo Credit, who
has agreed to reset the covenants  contained  tin the  Company's  line of credit
documents  so that the Company  will not be in  default.  The Company has to pay
$10,000 plus 1.5% higher interest rate (as adjusted 4% over prime rate) to reset
the covenants.  When the Company reaches  year-to-date  profitability  of $150M,
Wells  Fargo  will  lower  the  interest  rate  1/2%,   and  when   year-to-date
profitability of $300M is achieved, Wells Fargo will lower the interest rate and
additional  1/2%. When  profitability  reaches $453M,  the interest rate will be

lowered and additional 1/2%, which would bring it back to the original  interest
rate of 2.5% over prime rate. The maximum line is $1,500,000 of which,  based on
the "Collateral Report",  prepared by the Company,  there was $624,798 available
to borrow as of August 31, 1999.  The original draw on this line was used to pay
off most of the previous revolving line of credit with Nations Bank.

         As of October 7, 1999,  the Company has  received  approval  from Wells
Fargo Credit to increase the advance rates on accounts receivable and inventory.
These  changes will give the Company  approximately  $200,000 more in additional
availability on the line of credit.


         Also on April  22,  1999 a second  facility  was  closed  with  WebBank
Corporation to restructure  the Company's  long-term  debt. This facility is for
$1,100,000  and was used to pay off  long-term  debt of the Company with Nations
Bank and  several  other  lenders.  A  portion  of the  revolving  line that was
previously with Nations Bank was also paid off by this facility.

         The Company  continues to struggle  with its liquidity  position.  Even
with the new line of credit and the  restructuring  of the  Company's  long-term
debt,  the Company has been unable to pay trade  payables  current.  The Company
increased  trade payables by $324,806 from November 30, 1998 to August 31, 1999.
At November 30, 1998, .8% of the Company's trade payables were out over 60 days.
due  principally  to lack of operating  funds.  As of February 28, 1999, May 31,
1999,  and  August  31,  1999,  43.7%,  31.4%,  and 46.7%  respectively,  of the
Company's  trade payables were out over 60 days.  Management has been in contact
with the  Company's  vendors  and  most are  working  with the  Company  to keep
supplying needed raw materials for production.  The continuing struggle with the
Company's  liquidity has primarily been caused by continued and increased losses
in the Company's composites division.

         Management  believes that the actions  presently  being taken to revise
the Company's  operating and financial  requirements,  together with its capital
resources on hand at August 31,  1999,  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.


                                       13

<PAGE>

Factors Affecting Future Results

         The Company's operating results are subject to certain risks that could
adversely  affect the  Company's  operating  results  and its ability to operate
profitably.  If the  Company  is not able to  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
operations and financial results.  In addition,  the Company's operating results
could also be  adversely  affected by  increased  competition  in the markets in
which the Company's  products compete,  manufacturing  delays and inefficiencies
associated with expanding the Company's manufacturing capacity,  adverse weather
conditions,  increases in labor or raw materials, changes in economic conditions
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.

Impact of the Year 2000 Issue

         The Year 2000  issue is the  result of  computer  programs,  databases,
operating  systems and hardware  utilizing two digits rather than four to define
the  applicable   year.  Any  of  the  Company's   computer  systems  that  have
date-sensitive  software may recognize a date using "00" as the year 1900 rather
than the year 2000.  This could  result in a system  failure or  miscalculations
causing  disruptions of operation,  including,  among other things,  a temporary
inability to process  transactions,  send invoices,  or engage in similar normal
business activities.

         Beginning in the year 1996,  the Company  undertook an  assessment  and
determined that it would be required to modify or replace  significant  portions
of its software so that its computer systems would properly utilize dates beyond
December 31, 1999. In 1997, the Company purchased and received upgraded software
for its major computer programs for  manufacturing  and accounting.  The Company
went "live" on all critical software on December 1, 1998. This software includes
network operating  systems,  workstation  operating systems critical to business
operations,  accounting  and  manufacturing  software.  The Company has received
certification  of Year 2000  compliance  from its accounting  and  manufacturing
providers. All custom software is written internally and is Year 2000 compliant.
The  Company  believes  that  with   modifications  to  existing   software  and
conversions  to new software,  the Year 2000 Issue has been  mitigated.  However
there can be no guarantee that everything has been completely covered.

         In January,  1999,  the Company  sent  surveys to critical  vendors and
customers to ensure smooth  transition to the year 2000.  Survey results will be
reviewed and an assessment will be made on the reliability of suppliers past the
year 1999. On March 20, 1999,  the Company  rolled  computer  clocks forward and
performed  tests on Year  2000  compatibility.  No  problems  were  found in the
software tested.  The Company will also continue to test existing systems though
out the year.  In the event the Company  finds  issues  related to the Year 2000
problem,  corrective  measures will be taken. To date, the Company has incurred,
capitalized or expended approximately $152,000 on Year 2000 compliance. The only
Non-Year 2000 compliant  software  currently being used is the Company's  server
backup software. An upgrade will be purchased by November 1999 for approximately
$500.


                                       14

<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





                                       15

<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                                           Oct. 14, 1999
   -----------------------------------------                  ---------------
       Verne E. Bray                                                Date
       President


By  /s/ JEFFREY J. KIRBY                                       Oct. 14, 1999
   -----------------------------------------                  ---------------
        Jeffrey J. Kirby                                            Date
        Principal Financial Officer