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 28,1997

                 [X] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                        Commission File number 33-85044-d

                              NACO Industries, Inc.
             (Exact Name of Registrant as specified in its charter)
 
                     Utah                            48-0836971
            (State of Incorporation)            (Federal I.R.S. No.)

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

                   Registrant's Telephone Number 801-753-8020


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


         As of February 28, 1997, the Registrant had 1,500,000  shares of Common
Stock and 140,412 shares of Preferred Stock outstanding.

         Transitional Small Business Disclosure Format     Yes     No  X





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                         PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
See attached Financial Statements for February 28, 1997.





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                              NACO Industries, Inc.

                              FINANCIAL STATEMENTS


                                February 28, 1997


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                         PART 1 - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)

 NACO INDUSTRIES, INC. 
BALANCE SHEETS (UNAUDITED)
                                            February 28             November 30
ASSETS                                          1997                   1996
Current assets:
  Cash                                      $   114,780                 198,306
   Accounts receivable, net of allowances 
     of $84,781 / $73,570                       711,151                 614,775
  Inventory                                     881,259                 668,501
  Prepaid income taxes                           48,400                  48,600
  Other current assets                           50,861                  72,202
       Total current assets                   1,806,451               1,602,384

Property and equipment:
  Land                                           40,700                  40,700
  Buildings and improvements                    555,822                 526,329
  Equipment and vehicles                      2,075,193               2,033,174
  Equipment construction in progress            177,807                  93,130 
       Total property and equipment           2,849,522               2,693,333 

  Accumulated depreciation                   (1,254,077)             (1,195,036)
       Net property and equipment             1,595,445               1,498,297 

Other assets:
  Intangible and other assets                   115,145                 105,907 
       Total other assets                       115,145                 105,907 
       Total assets                         $ 3,517,041               3,206,588 










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                     NACO INDUSTRIES, INC.
                   BALANCE SHEETS (UNAUDITED)
                                            February 28             November 30
LIABILITIES:                                   1997                     1996

Current liabilities:
  Accounts payable                          $   900,746                 544,074 
  Accrued expenses                              165,390                 188,076 
  Income taxes payable                                0                       0
  Line of credit                                854,326                 664,326 
  Current portion of long-term obligations      251,784                 316,215 
  Payable to related party                         (737)                 34,382 
       Total current liabilities              2,171,509               1,747,073 

Long-term liabilities:
   Long-term obligations, less current
     portion                                    905,229                 896,379 
  Deferred income taxes                          79,100                  79,100 
       Total long-term liabilities              984,329                 975,479 
       Total liabilities                      3,155,838               2,722,552 

Stockholders' equity:
  Common stock, $.01 par value; 10,000,000
    shares  authorized;  1,918,951 issued
    (including 418,551 shares in treasury) 
    in treasury)                                 19,186                  19,186 
   Preferred Stock,  7% Cummulative, 
     convertible  $3.00 par value Shares
     authorized; 330,000. shares issued
     140,412 and 132,412, respectively. 
     (Aggregate liquidation preference 
     $842,472 and $794,472, respectively)       421,236                 397,236 
  Additional paid-in capital                    139,637                 115,637 
  Retained earnings                             (77,287)                 94,546 
                                                502,772                 626,605 
   Less: treasury stock - at cost, 418,551.    (141,569)               (141,569)
       Total stockholders' equity               361,203                 485,036 

       Total liabilities and
         stockholders' equity              $  3,517,041               3,207,588 


See Notes to Financial Statements.

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

                                                                            Three months ended
                                                                      February 28          February 29
                                                                         1997                 1996
Cash flows from operating activities
<S>                                                            <C>                           <C>       
  Net income                                                   $        (171,832)            (195,921) 
  Adjustments to reconcile net income to
   net cash provided by (used in) operating activities:
     Depreciation                                                         59,041                42538
     Amortization                                                          1,479  
     Deferred income taxes
   (Increase) decrease in:
      Accounts receivable, net                                           (95,376)            (194,959) 
     Inventory                                                          (212,758)             (12,199) 
     Prepaid income taxes                                                 48,600              120,226  
     Taxes Receivable                                                    (48,400)            (105,226) 
     Other                                                                21,341               18,218  
   Increase (decrease) in:
     Accounts payable                                                    356,671              396,301  
     Accrued expenses                                                    (22,686)             (13,398) 
     Income taxes payable                                                                           0
        Net cash provided by (used in)
         operating activities                                            (63,920)              55,580  

Cash flows from investing activities
  Net change  property and equipment                                    (156,189)             (15,478) 
  Investment in intangible and other assets                              (10,717)             194,465  
        Net cash provided by (used in) investing activities             (166,906)             178,987  

Cash flows from financing activities
  Net change in line of credit                                           190,000                    0
  Payments on related party loan                                         (35,119)              (1,878) 
  Payments on long-term debt                                             (74,049)            (672,441) 
  Proceeds from short term notes payable
  Proceeds from long-term loans                                           18,468                    0
  Proceeds from issuance of common stock
  Proceeds from issuance of preferred stock                               48,000              394,073  
  Purchase of treasury stock                                                   0                    0
        Net cash provided by (used in) financing activities              147,300             (280,246) 

Increase (decrease) in cash                                              (83,526)             (45,679) 

         Cash, beginning of period                                       198,306              133,481  
         Cash, end of period                                    $        114,780               87,802  

See Notes to Financial Statements
Supplemental disclosures:
    Income taxes paid                                           $              0                    0
    Interest Paid                                               $         39,667               65,905  
</TABLE>

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            NACO INDUSTRIES, INC. 
     STATEMENT OF OPERATIONS  (UNAUDITED)

                                                        Three months ended
                                                            February 28
                                                       1997            1996

Sales, net                                      $    1,531,195       1,142,957  

Cost of goods sold                                     959,306         705,158  

       Gross profit                                    571,889         437,799  

Operating expenses:
  Selling expenses                                     346,173         276,013  
  General and administrative expenses                  342,202         302,601  
  Other                                                      0               0

       Total operating expenses                        688,375         578,614  

       Income (loss) from operations                  (116,486)       (140,815) 

Other income (expense):
  Interest income                                          436           1,068  
  Interest expense                                     (55,782)        (56,174) 

       Total other income (expense)                    (55,346)        (55,106) 

Income (loss) before income taxes                     (171,832)       (195,921) 

Income tax expense (benefit)                                 0               0

       Net income (loss)                         $    (171,832)       (195,921) 

Earning (loss) per common share:
  Primary:
    Earning from net income                      $       (0.11)          (0.13)
    Dividends in arrears                                 (0.02)          (0.01)
    Net Earnings                                 $       (0.13)          (0.14)

  Fully Diluted:
    Earning from net income                      $       (0.10)          (0.12)
    Dividends in arrears                                 (0.02)          (0.01)
    Net Earnings                                 $       (0.12)          (0.13)

Weighted average number of common 
 shares outstanding:
    Primary                                          1,500,000       1,500,000  
    Fully Diluted                                    1,771,735       1,602,071  

See Notes to Financial Statements
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                              NACO INDUSTRIES, INC.
                    Notes to Financial Statements (Unaudited)
                                February 28, 1997


NOTE A - BASIS OF PRESENTATION


Management has elected to omit  substantially  all footnotes to these  unaudited
consolidated quarterly financial statements.  In the opinion of management,  all
adjustments  (consisting only of normal recurring accruals) considered necessary
for a fair  presentation  have been  included.  Operating  results for the three
month  period  ended  February 28, 1997 are not  necessarily  indicative  of the
results that may be expected for the fiscal year ending November 30, 1997. These
statements  should  be read  in  conjunction  with  the  consolidated  financial
statements  and related notes in the Company's  Annual Report on Form 10-KSB for
the year ended November 30, 1996.

NOTE B - DIVIDENDS

Dividends on the preferred  stock are cumulative at 7%. At February 28, 1997 the
cumulative amount of dividends in arrears was $28,183.

NOTE C - EARNINGS PER SHARE

Primary earnings per common share is calculated by dividing  adjusted net income
by  the  average  shares  of  common  stock  of the  Company  and  Common  Stock
equivalents  outstanding  during the period.  Net income has been  adjusted  for
dividends in arrears as of February 28, 1997. Common stock equivalents represent
certain  outstanding  stock options and  warrants.  During the period the market
price did not exceed the option price for the  outstanding  options and warrants
and therefore no dilution occurred.

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

NOTE D - CONSULTING AGREEMENTS, WARRANTS AND OPTIONS

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

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NOTE E - COMMON STOCK

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

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

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

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

NOTE F - PREFERRED STOCK

On  March 7,  1996 the  Company  initiated  an  offering  of Units  exempt  from
registration under the Securities Act of 1933. The offering consisted of 175,000
Units at an offering price of $6.00. Each Unit consists of one share of Series 1
Class A 7% Cumulative  Convertible Preferred Stock and a Warrant to purchase one
share of Common  Stock at an  exercise  price of $3.75  per  common  share.  The
offering is made on a "best  efforts"  basis and will continue until the earlier
of the sale of a maximum of 175,000 Units, or June 30, 1997. Selling commissions
equal to 10% of the offering price of the Units will be paid to placement agents
participating in the offering.

Through  February  28,  1997,  the Company  sold 27,000  units and  received net
proceeds of $145,800.  Subsequent to quarter end an additional 25,000 units were
sold with net proceeds of $135,000.


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ITEM 2.           MANAGEMENTS'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) products. The Company's primary line
of business consists of PVC pipe fittings and valves,  which are sold throughout
the United States through  wholesale  distributors  to  irrigation,  industrial,
construction  and  utility  industries.   The  Company  manufactures  and  sells
fabricated fittings (4" through 36" in diameter), as well as molded fittings (4"
though 10" in  diameter).  Pipe fittings  produced by the Company  include tees,
reducers,  elbows,  couplers,  end caps, and bolted repair  couplers.  NACO also
manufacturers  and  sells  PVC  valves  (4"  through  12"  in  diameter).   NACO
Composites,  Inc.,  a wholly  owned  subsidiary  of NACO  produces  related  and
non-related composite products.

RESULTS OF OPERATIONS

The  Company's  fiscal  year ends on November  30,  therefore  the two  quarters
presented here are referred to herein as 1Q97 and 1Q96, respectively.

NEW OPERATION

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

GENERAL DISCUSSION OF QUARTERS OPERATING RESULTS.

During the three months ended February 28, 1997,(1Q97), the Company sustained an
operating loss before tax of $(171,832) compared to an operating loss before tax
of  $(195,921)  for 1Q96.  The quarter of December to February is typically  the
slowest  quarter of the year due to the seasonality of the  agricultural  market
and the cold temperatures.







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SALES

Net sales  increased  by 34% to  $1,531,195  for 1Q97  compared  to net sales of
$1,142,957  in 1Q96 due  mainly  to  increased  volume.  Plastics  sales in 1Q97
increased  $227,081 or 21% compared to 1Q96. The increased volume was due partly
to the  addition  of large  diameter  fittings from 27" to 36" to the  Company's
product line.  Composite  products sales in 1Q97 increased $161,157 or 401% over
1Q96  primarily  as a  result  of the  acquisition  of  the  assets  of  Dreager
Manufacturing  and  the  Company's  new  facilities  for  NACO  Composites  Inc.
Composite sales increased to 14.0% of total revenues in 1Q97 compared to 4.7% in
1Q96.

GROSS MARGIN

Gross  margin as a percent  of sales  for 1Q97 was 37.3%  compared  to 38.3% for
1Q96.  The  decrease in gross margin is mainly due to the higher  percentage  of
sales from the  composites  product  lines.  Gross margin on composites was only
5.7% for 1Q97  primarily as a result of start-up  costs and  increased  overhead
expenses  associated with the new facilities  which were acquired to provide the
Company with sufficient  manufacturing facilities for the planned growth in this
segment  of its  business.  Gross  margin on  plastics  sales for 1Q97 was 42.5%
compared  to 40.7% for 1Q96.  The  increase  is mainly due to  increased  volume
during the quarter. The Company believes that gross margin will improve as sales
of composites increase in the future. Gross margin,  however, could be adversely
affected  by  lower  than  anticipated  growth,   increased  overhead  expenses,
increased competition, and lower than anticipated sales prices.



SELLING

Selling  expenses  were  $346,173  or 22.6% of  net  sales for 1Q97  compared to
$276,013 or 24.1% for 1Q96.  The main reason for the decrease as a percentage of
net sales is  increased  sales.  Salaries  increased  $25,218  mainly due to the
addition of a salesman for composite products, and the addition of a salesman in
plastics in January of 1Q96.  Freight  expense  increased  $26,199 mainly due to
increased sales volume.

GENERAL AND ADMINISTRATIVE

General and administrative expenses were $342,202 or 22.4% of net sales for 1Q97
compared  to  $302,601  or 26.4% of net sales for 1Q96.  The main reason for the
decrease as a percentage  of net sales is increased  sales.  Salaries  increased
$6,340 or 4.8% from 1Q96 to 1Q97  mainly  due to annual pay  increases  given in
September 1996. Employee benefits were up 81% or $8,570 from 1Q96 to 1Q97 mainly
due to several management personnel having completed a year of employment during
1996 making them eligible for certain benefits.


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INTEREST EXPENSE

Interest  expense for 1Q97 was $55,782 or 3.6% of net sales  compared to $56,174
or 4.9% of net sales for 1Q96.  Interest  expense  decrease as a  percentage  of
revenues mainly due to increased sales volume.

FACTORS AFFECTING FUTURE RESULTS

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


LIQUIDITY AND CAPITAL RESOURCES

The  Company's  sources  of  liquidity  have been cash from  operations,  credit
facilities and equity financing.  Cash used in operating  activities was $63,920
in 1Q97 primarily because the first quarter typically has less sales as a result
of the seasonality of the Company's business. Cash as of 1Q97 was $121,848, down
$76,458 from the end of the Company's previous fiscal year.


During 1Q97, the Company sold an  additional  5,000 units of preferred stock and
warrants  for net  proceeds  of  $30,000.  Subsequent  to the end of 1Q97 (i) an
additional  25,000  units of  preferred  stock  and  warrants  were sold for net
proceeds of $135,000  and (ii)  343,750  units  consisting  of common  stock and
warrants  were sold for net proceeds of $742,500.  The  additional  capital from
these equity  financings is being used to finance continued growth and to reduce
debt. The Company at quarter end was current in all of its financial obligations
to lending institutions,  but was not current in it financial obligations to its
trade vendors.  Subsequent to quarter end, with the additional  working  capital
from the above sale of stock,  the  Company  is current in all of its  financial
obligations  to  vendors  and  lending  institutions.   The  Company  still  has
$445,674  available   under  its  line  of  credit.  In  addition,  the  Company
continues to address cash flows by controlling inventory levels,  increasing the
sales effort, and reducing expenses.

The Company  believes  that its capital  resources on hand at February 28, 1997,
together with  anticipated  revenues from sales,  its lending  arrangements  and
equity financings will be sufficient to satisfy its working capital requirements


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for the  remainder  of the fiscal  year.  However,  if the  Company's  operating
results are lower than currently anticipated, the Company may require additional
debt or equity financing in order to fund its working capital  requirements.  In
addition,  the Company may require additional financing to finance the growth of
the Company.  If such financing is required,  there can be no assurance that the
Company will be able to obtain  financing on terms favorable to the Company,  if
at all.


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                           PART II - OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES

         During the quarter  ended  February  28,  1997,  the  Company  sold the
following  units of preferred  stock and warrants  (the  "Units")  pursuant to a
private  offering of Units being made to  accredited  investors in reliance upon
Regulation D as described in Footnote F to the  financial  statements  contained
herein:

         1.       5,000  Units  on  December  16,  1996  at  a purchase price of
                  $30,000.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         a)       Exhibits
                  27.1     Financial Data Schedule

         b)       Reports for Form 8-K
                  None



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                                   SIGNATURES

In  accordance  with to 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 11, 1997
   -----------------------------------                            --------------
         Verne E. Bray                                            Date
         President



By   /s/ Jeffrey J. Kirby                                         April 11, 1997
   -----------------------------------                            --------------
         Jeffrey J. Kirby                                         Date
         Principal Financial Officer




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