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 August 31,1998

                 [ ] 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 small business issuer as specified in its charter)

         Utah                                            48-0836971
         ----                                            ----------
(State of Incorporation)                       (IRS Employer Identification 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 August 31, 1998, the  Registrant  had 1,868,227  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






<PAGE>


                              NACO Industries, Inc.

                        CONSOLIDATED FINANCIAL STATEMENTS


                                 August 31, 1998






<PAGE>



                         PART 1 - FINANCIAL INFORMATION

CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

         NACO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                                                    August 31        November 30
                                                  -------------     ------------
ASSETS                                                1998              1997
------                                            -------------     ------------
Current assets:
  Cash                                             $   197,149           75,378
  Accounts receivable, net of allowances
    of $70,093 / $45,102                               674,882          671,562
  Inventory                                            606,149          772,752
  Income Taxes Receivable                                5,900            5,100
  Other current assets                                  80,932           97,561
                                                   -----------      -----------
       Total current assets                          1,565,012        1,622,353
                                                   -----------      -----------

Property and equipment:
  Land                                                  40,700           40,700
  Buildings and improvements                           659,773          600,786
  Equipment and vehicles                             2,612,352        2,449,997
  Equipment construction in progress                    38,342           89,980
                                                   -----------      -----------
       Total property and equipment                  3,351,167        3,181,463

  Accumulated depreciation                          (1,709,882)      (1,456,133)
                                                   -----------      -----------
       Net property and equipment                    1,641,285        1,725,330
                                                   -----------      -----------

Other assets:
  Intangible and other assets                          107,636          106,776
                                                   -----------      -----------
       Total other assets                              107,636          106,776
                                                   -----------      -----------
       Total assets                                $ 3,313,933        3,454,459
                                                   ===========      ===========



                                        4
<PAGE>

                            NACO INDUSTRIES, INC.
                   CONSOLIDATED BALANCE SHEETS (UNAUDITED)

                                                      August 31      November 30
                                                    ------------    ------------
LIABILITIES:                                            1998           1997
------------                                        ------------    ------------

Current liabilities:
  Accounts payable                                   $   356,607        251,122
  Accrued expenses                                       178,802        198,046
  Line of credit                                         874,326        824,326
  Current portion of long-term obligations               283,410        321,801
  Payable to related party                              (119,898)       (15,704)
                                                     -----------    -----------
       Total current liabilities                       1,573,247      1,579,591

Long-term liabilities:
  Long-term obligations, less current portion            626,195        664,001
  Deferred income taxes                                   94,200         94,200
                                                     -----------    -----------
       Total long-term liabilities                       720,395        758,201
                                                     -----------    -----------
       Total liabilities                               2,293,642      2,337,792

Stockholders' equity:

  Common stock, $.01 par value, 10,000,000
shares authorized;  2,212,940 shares
and 2,193,796 shares issued respectively
(including 344,713 shares and 344,713
share respectively in treasury)                           22,131         21,939
  Preferred Stock,  7% Cumulative, convertible
$3.00 par value, 330,000 shares authorized,
165,412 shares issured. (Aggregate liquidation
preference $1,061,744 and $1,026,940
respectively)                                            496,236        496,236
  Additional paid-in capital                           1,036,558      1,003,800
  Retained earnings (deficit)                           (408,037)      (278,711)
                                                     -----------    -----------
                                                       1,146,888      1,243,264
  Less: treasury stock - at cost                        (126,597)      (126,597)
                                                     -----------    -----------
       Total stockholders' equity                      1,020,291      1,116,667
                                                     -----------    -----------

       Total liabilities and
         stockholders' equity                        $ 3,313,933      3,454,459
                                                     ===========    ===========


                See Notes to Consolidated Financial Statements.

                                        5

<PAGE>

                             NACO INDUSTRIES, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                           Three months ended                  Nine months ended
                                                             August 31                           August 31
                                                   -------------------------------    --------------------------------
                                                       1998             1997               1998              1997
                                                   -------------    --------------    --------------    --------------

<S>                                              <C>                    <C>               <C>               <C>      
Sales, net                                       $    1,780,929         1,815,298         5,467,341         5,796,356

Cost of goods sold                                    1,080,879         1,236,670         3,368,342         3,724,261
                                                   -------------    --------------    --------------    --------------

       Gross profit                                     700,050           578,628         1,113,948         1,117,607

Operating expenses:
  Selling expenses                                      368,091           362,606         1,113,948         1,117,607
  General and administrative expenses                   306,294           340,091           964,854           986,968
                                                   -------------    --------------    --------------    --------------

       Total operating expenses                         674,385           702,697         2,078,802         2,104,575
                                                   -------------    --------------    --------------    --------------

       Income (loss) from operations                     25,665          (124,069)           20,197           (32,480)

Other income (expense):
  Interest income                                         1,162               603             8,774             1,322
  Interest expense                                      (50,835)          (46,705)         (158,297)         (156,512)
                                                   -------------    --------------    --------------    --------------

       Total other income (expense)                     (49,673)          (46,102)         (149,523)         (155,190)
                                                   -------------    --------------    --------------    --------------

Income (loss) before income taxes                       (24,008)         (170,171)         (129,326)         (187,670)

Income tax expense (benefit)                                  0              (900)                0                 0
                                                   -------------    --------------    --------------    --------------

       Net income (loss)                         $      (24,008)         (169,271)         (129,326)         (187,670)

Adjustment for preferred dividends in arrears           (69,272)          (17,335)          (69,272)          (34,468)
                                                   -------------    --------------    --------------    --------------

Adjusted net to Common Stockholders              $      (93,280)         (186,606)         (198,598)         (222,138)
                                                   -------------    --------------    --------------    --------------

Earnings (loss) per common share:
  Basic:
      Earnings (loss) from net income            $        (0.01)            (0.10)            (0.07)            (0.11)
      Dividends in arrears                                (0.04)            (0.01)            (0.04)            (0.02)
                                                   -------------    --------------    --------------    --------------
  Net Earnings (loss)                            $        (0.05)            (0.11)            (0.11)            (0.13)
                                                   =============    ==============    ==============    ==============

 Diluted:
     Earnings (loss) from net income             $        (0.05)            (0.11)            (0.11)            (0.13)
                                                   =============    ==============    ==============    ==============

Weighted average number of common shares outstanding:

    Basic                                             1,868,227         1,722,057         1,868,227         1,722,057
                                                   =============    ==============    ==============    ==============
    Diluted                                           2,205,051         2,033,723         2,205,051         2,033,723
                                                   =============    ==============    ==============    ==============
</TABLE>

                 See Notes to Consolidated Financial Statements
                                        6

<PAGE>

                              NACO INDUSTRIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                 Nine months ended
                                                              August 31     August 31
                                                            ---------------------------
                                                                 1998          1997
                                                              ---------     ---------
<S>                                                           <C>           <C>      
Cash flows from operating activities
  Net income (loss)                                           $(129,326)    (187,670)
  Adjustments to reconcile net income (loss) to
   net cash provided by (used in) operating activities:
     Depreciation                                               253,749      183,887
     Amortization                                                 4,436        4,436
     Deferred income taxes                                            0            0
   (Increase) decrease in:
     Accounts receivable, net                                    (3,320)    (185,370)
     Inventory                                                  166,603      (19,890)
     Taxes Receivable                                              (800)      39,300
     Other                                                       12,193      (73,672)
   Increase (decrease) in:
     Accounts payable                                           105,485     (219,243)
     Accrued expenses                                           (19,244)     (29,646)
     Income taxes payable                                             0            0
                                                               ---------    ---------
        Net cash provided by (used in)
         operating activities                                   389,776     (487,868)
                                                               ---------    ---------

Cash flows from investing activities
  Net change  property and equipment                           (169,704)    (420,435)
  Investment in intangible and other assets                        (860)      (1,148)
                                                               ---------    ---------
        Net cash provided by (used in) investing activities    (170,564)    (421,583)

Cash flows from financing activities
  Net change in line of credit                                   50,000      160,000
  Payments on related party loan                               (104,194)     (48,703)
  Payments on long-term debt                                   (216,955)    (214,301)
  Payment of Preferred Stock Dividends                          (34,482)     (27,837)
  Proceeds from long-term loans                                 140,758       64,524
  Proceeds from issuance of common stock                         57,430      742,500
  Proceeds from issuance of preferred stock                      10,002      192,972
  Purchase of treasury stock                                          0       (5,000)
                                                               ---------    ---------
        Net cash provided by (used in) financing activities     (97,441)     864,155

                                                               ---------    ---------
Increase (decrease) in cash                                     121,771      (45,296)

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

        Cash, end of period                                   $ 197,149      153,010
                                                               =========    =========

See Notes to Consolidated Financial Statements
Supplemental disclosures:
    Income taxes paid                                         $       0            0
    Interest Paid                                             $ 158,297      148,153
</TABLE>


                                        7
<PAGE>


                              NACO INDUSTRIES, INC.
             Notes to Consolidated Financial Statements (Unaudited)
                                 August 31, 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 nine month period ended  August 31,  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:


                                                August 31,         Nov. 30,
                                                   1998              1997
                                                -----------      -------------
Raw Materials                                   $  231,895       $    309,193
Work in Process                                     13,598             12,276
Finished Goods                                     360,656            451,283
                                                -----------      -------------

                  Total                         $  606,149       $    772,752


NOTE C - DIVIDENDS

         Dividends on the  preferred  stock are  cumulative at 7%. At August 31,
1998, the  cumulative  amount of dividends  accrued was $69,272. Of this amount,
$69,272 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

<PAGE>

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

         The Company raised $19,125 from warrants  exercised for 6,375 shares of
the Company's common stock during the quarter ended August 31, 1998.

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
36" 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).

         The  Company,  through its  subsidiary,  also  manufacturers  and sells
composite   products  for  the   transportation,   amusement,   recreation   and
architectural industries. These products include trailer tops and amusement ride
materials.  The Company also produces  tooling and molds for other  companies in
various industries.

Results of Operations

         The  following  discussion  relates to the three months and nine months
ended  August  31,  1998 and  August  31,  1997,  respectively.  For  comparison
purposes,  percentages  of  sales  will  be used  rather  than  dollars.  In the
following discussion, the three months ended August 31, 1998 and August 31, 1997
are referred to as 3Q98 and 3Q97, respectively, and the nine months ended August
31, 1998 and August 31, 1997 are referred to as 9M98 and 9M97, respectively.

         Overview. The Company sustained an operating loss of $(24,008) for 3Q98
and an operating loss of $(129,326)  for 9M98,  compared to an operating loss of
$(169,271)  for 3Q97 and an operating loss of $(187,670) for 9M97. The Company's
plastic products operations  generated a profit of $65,162 for 3Q98, compared to
a loss of  $(134,768)  for 3Q97.  The  Company's  composite  products  operation
generated  an  operating  loss of  $(89,170)  and  $(34,503)  for 3Q98 and 3Q97,
respectively.  The improvement in the Company's plastic products  operations was
mainly due to an small  increase  in sales and a  significant  increase in gross
margin due to improvements in  manufacturing  (explained  below).  The Company's
composite  products  sales  were down  $98,759  from 3Q97 to 3Q98  mainly due to
decreased  sales to the  amusement  ride market.  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 .9% of
total revenues in 9M97 to 9.6% in 9M98. The Company also continues to review its
operations in an effort to reduce expenses without affecting quality and service
to its customers.

         Sales. Net sales for 3Q98 decreased by 1.9% to $1,780,929,  compared to
net sales of $1,815,298 for 3Q97. Net sales for the plastics  segment  increased

<PAGE>

by 4.3% to $1,572,405 in 3Q98, compared to net sales of $1,508,015 for 3Q97. Net
sales for the composite segment decreased by 32.1% to $208,524 in 3Q98, compared
to net  sales of  $307,283  for 3Q97.  The  increase  in sales in the  Company's
plastic  products was mainly due to  increased  sales in the sewer market as the
Company continued to expand its sales to that market.  Management  believes that
sales were down in the Company's  composite products due primarily to a drop off
in the amusement ride market. In 3Q97, the Company received several large orders
in the amusement ride market, but did not receive comparable orders during 3Q98.

         Gross  Margin.  Gross margin as a percentage of sales for 3Q98 and 3Q97
was 39.3% and 31.9%, respectively,  and for 9M98 and 9M97 gross margin was 38.4%
and  35.7%,  respectively.  Gross  margin  for  plastics  and  composites  as  a
percentage  of sales for 3Q98 was 43.2% and  10.4%,  respectively,  compared  to
34.9% and 16.8%,  respectively,  for 3Q97.  In 3Q97 the Company  realized  lower
margins on its sewer  product line mainly  because of costs  incurred to gear up
for higher volumes. As the Company's  production force has developed  additional
experience and sales volumes for plastic products have increased,  gross margins
on these products have improved.  The lower margins  currently  generated by the
Company's  composite  products  reflect the  Company's  low volume of  composite
product sales.  Management  believes that  increased  sales volumes of composite
products  will improve the  Company's  ability to cover fixed costs and generate
higher  margins.  Currently,  the Company has a backlog of  composite  orders of
approximately  $450,000.  Management  believes the Company can fill these orders
during the  fourth  fiscal  quarter  of 1998,  which,  together  with  improving
throughput, should improve gross margins. Depreciation  expense increased $8,269
or 18% from 3Q97 to 3Q98 due  primarily to the increase in capital  equipment of
$169,704  from August 31, 1997 to August 31, 1998.  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 20.7% of net sales for 3Q98, compared to
20.0% for 3Q97.  The increase in selling  expenses as a percentage  of sales was
mainly due to  decreased  sales  volume.  In actual  dollars,  selling  expenses
increased  $5,485 or 1.4%  from 3Q97 to 3Q98.  Freight  expense  increased  as a
percentage  of sales  from 5.6% in 3Q97 to 6.1% in 3Q98  primarily  because  the
Company paid the freight for most of the sewer products sold during the quarter.
This is a common  industry  practice  for  sewer  products.  Commission  expense
decreased  from  3.1% in 3Q97 to 2.8% in 3Q98  primarily  due to lower  sales in
those areas where commissions are paid.  Telephone expense increased from .3% in
3Q97 to .9% in 3Q98 due  principally to increased  sales efforts by the Company.
Selling  expenses  as a  percentage  of sales  were 20.4% of net sales for 9M98,
compared to 19.3% for 9M97. The increase in selling  expenses as a percentage of
net sales was due primarily to decreased sales volumes during 9M98.

         General  and  administrative.   General  and  administrative   expenses
represented  17.2% of net  sales  for 3Q98,  compared  to 18.7%  for 3Q97.  As a
percentage of sales,  salaries and related benefits decreased from 10.7% in 3Q97
to 9.8% in 3Q98 mainly because the President of the Company  temporarily reduced
his salary. Professional fees decreased $5.553 or 42% from 3Q97 to 3Q98. General
and administrative expenses as a percentage of sales were 17.6% of net sales for
9M98, compared to 17.0% for 9M97. The increase was attributable primarily to the
decreased  sales volume in 9M98  compared to 9M97.  The actual  dollar amount of
general and adminsitrative expenses was $ 22,114 less in 9M98, compared to 9M97,
due primarily to a temporary  reduction of the salary of the Company's President
and decreased insurance premiums.

         Other. Other expenses/revenues were 2.8% for 3Q98, compared to 2.6% for
3Q97.  Interest  expense  went  from  2.6% in 3Q97  to 2.9% in  3Q98,  due to an
increase in the average debt load for 3Q98 over 3Q97 by $68,500.  The  effective
interest  rates  (interest  expense  divided by the average debt balance for the
period) for 9M98 and 9M97 were 11.02% and 11.30%, respectively.

<PAGE>

Liquidity and Capital Resources

         The  Company's  sources of  liquidity  have been cash from  operations,
credit  facilities and equity financing.  Cash provided by operating  activities
was $389,776 in 9M98.  Cash as of August 31, 1998 was  $197,149,  an increase of
$121,771 from November 30, 1997. The increase resulted primarily from a decrease
in inventory  and an increase in payables.  Because of the slower sales and need
for capital,  the Company is facing a potential cash flow shortage.  The Company
raised  $19,125 from warrants  exercised for 6,375 shares of common stock during
3Q98.

         The Company continues to seek to improve its liquidity position. In the
course of the Company's  expansion,  the Company has incurred losses, which have
significantly  reduced the Company's available working capital.  The losses have
been  explained in above  paragraphs  and the  Company's  Annual  Report on Form
10-KSB.  During  the  expansion,  the  capital  improvements  and new  equipment
acquired by the Company have been  financed  through draws against the Company's
line of credit, as well as internal financing.  The total cash paid for property
and  equipment  amounted to $169,704 in 9M98 and  $420,435 in 9M97.  The Company
also  increased  trade payables by $105,485 from November 30, 1997 to August 31,
1998. At August 31, 1998, the Company was current on trade  payables.  Cash flow
is traditionally slow during the 1st quarter and improves during the 2nd and 3rd
quarters,  and this year was not an  exception.  The Company is  addressing  the
potential  cash flow  shortage by  managing  inventories,  increasing  its sales
efforts, and working to reduce expenses.

         Management  believes that external financing or additional capital will
be  necessary  to  replenish  working  capital to permit the Company to meet its
obligations on a timely basis and to provide  additional  working  capital which
will be required to sustain any future growth. On August 31, 1998, the Company's
revolving line of credit was  $1,100,000,  of which  $874,326 was used,  leaving
only $225,674  available.  The availability of the line is based on a percentage
of accounts  receivable and inventory and the maturity date was August 31, 1998.
The Company is currently  working with the bank to renew this  revolving line of
credit. On August 31, 1998, the Company's current ratio was in breach of certain
covenants set forth in the line of credit loan agreement. The Company received a
written waiver of this  restrictive  covenant for the period ending February 28,
1998,  and needs to obtain  similar  waivers for the current period and may need
similar  waivers in the future if operating  results do not continue to improve.
The Company is working on several options to improve working capital,  including
a potential private placement of equity;  however,  the Company has not obtained
any  commitment  or  agreement to provide such funding and can give no assurance
that such a financing transaction can be completed.

         Under  the  terms of the  Company's  line of  credit,  the  Company  is
prohibited  from  making  capital  expenditures  in excess of  $150,000  without
written  authorization  from the bank unless its working capital ratio improves.
The  Company  has  received  written   authorization   from  the  bank  for  all
expenditures over the $150,000 limit, up to $244,300. The increase was needed to
secure  equipment  needed to increase  production  in response to orders for the
Company's products.

         Management  believes that the actions  presently  being taken to obtain
waivers with respect to the Company's  operating and financial  covenants and to
raise additional capital,  together with its capital resources on hand at August
31, 1998, and anticipated sales revenues 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 expand its  business  operations.  If the Company
raises capital through equity financing, this may result in dilution to existing
holders of common stock and preferred stock.

<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.




<PAGE>


                           PART II - OTHER INFORMATION

Item 2 - Changes in Securities and Use of Proceeds
------   -----------------------------------------

         During June 1998,  the Company sold 6,375  shares of its Common  Stock,
$.01 par value (the "Common Stock"), to ten existing shareholders of the Company
upon the exercise of outstanding  warrants to purchase Common Stock. The warrant
exercise price paid by the shareholders was $3.00 per share,  resulting in total
proceeds to the Company of $19,125. The Company did not engage an underwriter in
connection  with the warrant  exercises.  Based upon the Company's  pre-existing
relationship  with  each of the  purchasing  shareholders,  the  access  of such
shareholders  to information  regarding the Company,  the absence of any general
solicitation  activities and other factors deemed  relevant by the Company,  the
Company relied upon the exemption from registration set forth in Section 4(2) of
the  Securities  Act of 1933, as amended (the  "Securities  Act") in selling the
shares of Common Stock described above.


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




<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                                    October 1, 1998
   -----------------------------------------                  ---------------
         Verne E. Bray                                        Date
         President


By       /s/ JEFFREY J. KIRBY                                 October 1, 1998
   -----------------------------------------                  ---------------
         Jeffrey J. Kirby                                     Date
         Principal Financial Officer