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 29, 2004

[ ]      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

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

                                  435-753-8020
                                  ------------
                            Issuer's telephone number


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 29,  2004,  the issuer had  1,998,517  shares of Common Stock and
165,412 shares of Preferred Stock outstanding.


     Transitional Small Business Disclosure Format Yes [ ]   No  [X]
--------------------------------------------------------------------------------





<PAGE>


PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

NACO INDUSTRIES, INC.
BALANCE SHEETS

                                                                          February     November
                                                                             29,         30,
ASSETS                                                                      2004        2003
------                                                                   (Unaudited)  (Audited)
<S>                                                                     <C>          <C>
Current assets:
  Cash                                                                  $   85,769   $  569,445
  Accounts receivable, net of allowances
    Of $27,282 / $20,643                                                 1,311,121      933,038
  Current portion of related parties receivables                            30,000       30,000
  Inventory                                                                837,686      802,888
  Other current assets                                                      30,556       32,714
  Deferred income taxes                                                     69,000       69,000
                                                                        ----------   ----------
       Total current assets                                              2,364,132    2,437,085

Property and equipment, net                                                792,452      833,531
Related party receivables                                                  251,083      258,583
Other assets, net                                                          214,556      216,410
                                                                        ----------   ----------
Total assets                                                            $3,622,223   $3,745,069
                                                                        ==========   ==========

</TABLE>




                       See Notes to Financial Statements


                                       2
<PAGE>
<TABLE>
<CAPTION>
NACO INDUSTRIES, INC.
BALANCE SHEETS

                                                                           February     November
                                                                             29,           30,
                                                                          ----------   ----------
LIABILITIES:                                                                 2004         2003
------------                                                              ----------   ----------
                                                                           (Unaudited)  (Audited)
<S>                                                                       <C>          <C>
Current liabilities:
  Accounts payable                                                        $  486,316   $  346,691
  Accrued expenses                                                           199,014      341,968
  Income Taxes Payable                                                        32,124      157,000
  Current portion of long-term obligations                                    91,685       89,000
                                                                          ----------   ----------
       Total current liabilities                                             809,139      934,659
                                                                          ----------   ----------

Long-term liabilities:
  Long-term obligations, less current portion                                854,544      878,934
  Deferred income tax liability                                               55,000       55,000
                                                                          ----------   ----------
       Total long-term liabilities                                           909,543      933,934
                                                                          ----------   ----------
       Total liabilities                                                   1,718,683    1,868,593
                                                                          ----------   ----------

Stockholders' equity:
   Preferred Stock, 7% Cumulative, convertible $3.00 par value, 330,000      496,236      496,236
shares authorized and 165,412 shares issued and outstanding. (Aggregate
liquidation preference $1,304,815 and $1,270,364 respectively)
  Common stock, $.01 par value, 10,000,000 shares authorized; 1,998,517       19,986       19,986
shares issued and outstanding
  Additional paid-in capital                                               1,017,321    1,017,321
  Retained Earnings                                                          369,997      343,473
                                                                          ----------   ----------
       Total stockholders' equity                                          1,903,540    1,877,016
                                                                          ----------   ----------

       Total liabilities and
         Stockholders' equity                                             $3,622,223   $3,745,609
                                                                          ==========   ==========
</TABLE>

                        See Notes to Financial Statements


                                       3
<PAGE>
>



NACO INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
                                                     Three months ended
                                                February 29,   February 28,
                                                ---------------------------
                                                    2004           2003
                                                ---------------------------

Sales, net                                      $ 2,212,612      1,853,822

Cost of goods sold                               1, 374,894      1,135,735
                                                -----------    -----------
       Gross profit                                 837,718        718,087

Operating expenses:
  Selling expenses                                  472,804        388,393
  General and administrative expenses               288,256        240,354
  Research & development expenses                    12,978          2,631
                                                -----------    -----------
       Total operating expenses                     774,038        631,378
                                                -----------    -----------

       Income from operations                        63,680         86,709

Other income (expense):
  Interest income                                     1,262            590
  Interest expense                                  (23,418)       (25,712)
                                                -----------    -----------
       Total other income (expense)                 (22,156)       (25,122)
                                                -----------    -----------

Income before income taxes                      $    41,524         61,587

Income tax expense                                   15,000         23,000
                                                -----------    -----------

       Net income                               $    26,524         38,587
                                                ===========    ===========

Adjustment for preferred dividends in arrears       (34,451)       (34,451)

                                                -----------    -----------
Adjusted net income (loss) to common            $    (7,927)         4,136
stockholders
                                                ===========    ===========

Earnings per common share:
                                                -----------    -----------
 Basic:                                         $       .00            .00
                                                ===========    ===========

                                                -----------    -----------
 Diluted:                                       $       .00            .00
                                                ===========    ===========
Weighted average number of common
  Shares outstanding:
    Basic                                         1,998,000      1,974,000
                                                ===========    ===========
    Diluted                                       1,998,000      1,974,000
                                                ===========    ===========

                        See Notes to Financial Statements

                                      4
<PAGE>
<TABLE>
<CAPTION>

NACO INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
                                                                 Three months ended
                                                             --------------------------
                                                             February 29,  February 28,
                                                                 2004         2003
                                                              ---------    ---------
<S>                                                           <C>          <C>
Cash flows from operating activities
  Net income                                                  $  26,524    $  38,587
  Adjustments to reconcile net income to
   net cash used in operating activities:
     Depreciation                                                44,553       42,416
     Amortization                                                 1,854        2,103
     Deferred income taxes                                            0      (16,000)
   (Increase) decrease in:
     Accounts receivable, net                                  (378,083)    (407,697)
     Receivable from related parties                              7,500        7,500
     Inventory                                                  (34,798)     (58,365)
     Other Current Assets                                         2,158       (3,360)
   Increase (decrease) in:
     Accounts payable
                                                                139,625      216,363
     Income Taxes Payable                                      (124,876)        --
     Accrued expenses                                          (142,954)    (127,799)
                                                              ---------    ---------
 Net cash used in operating activities                         (458,497)    (306,252)
                                                              ---------    ---------

Cash flows from investing activities
  Purchase of  property and equipment                            (3,474)     (12,248)
  Other Assets                                                        0        3,280
                                                              ---------    ---------
        Net cash used in investing activities                    (3,474)      (8,968)
                                                              ---------    ---------

Cash flows from financing activities
  Net change in line of credit                                        0      177,011
  Payments on long-term debt                                    (21,705)     (13,635)
                                                              ---------    ---------

        Net cash provided by (used in) financing activities     (21,705)     163,376
                                                              ---------    ---------

Decrease in cash                                               (483,676)    (151,844)

        Cash, beginning of period                               569,445      234,964
                                                              ---------    ---------

        Cash, end of period                                   $  85,769    $  83,120
                                                              =========    =========

See Notes to Financial Statements
Supplemental disclosures:
    Income taxes paid                                         $ 138,545    $  41,571
    Interest Paid                                             $  22,574    $  25,816
</TABLE>

                                       5
<PAGE>
NACO INDUSTRIES, INC.
Notes to Financial Statements (Unaudited)
February 29, 2004

NOTE A - BASIS OF PRESENTATION

In the opinion of  management of NACO  Industries,  Inc.  (the  "Company"),  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 29, 2004 are not necessarily indicative of the
results that may be expected for the fiscal year ending November 30, 2004. These
statements  should be read in  conjunction  with the  financial  statements  and
related notes in the  Company's  Annual Report on Form 10-KSB for the year ended
November 30, 2003.

NOTE B - DIVIDENDS

Dividends on the Company's preferred stock are cumulative at 7%. At February 29,
2004, dividends in the amount of $312,343 were in arrears.

NOTE C - RELATED PARTY OPERATING LEASES

The Company leases its Logan, Utah  manufacturing and sales facility and certain
equipment  from  P.V.C.,  Inc.  (PVC),  a  corporation  owned 100 percent by the
Company's majority  shareholder,  Verne Bray. The lease agreement requires rents
in the amount of approximately $25,213 per month. The Company has guaranteed the
mortgage on the facilities it leases from PVC. At February 29, 2004 and November
30,  2003,  the  outstanding  mortgage  balance was  approximately  $636,000 and
$645,000,  respectively.  At February 29, 2004,  the Company had a lease deposit
with PVC of $23,000, which is included in "Other Assets" on the balance sheet.

In  addition,  Verne Bray has signed an  indemnification  agreement  to hold the
Company  harmless  for  funds  paid by the  Company  on behalf  of  Rimshot  LLC
(Rimshot), an inactive limited liability company owned by a son of Mr. Bray. The
disinterested members of the Company's Board of Directors approved the Company's
execution of the indemnification  agreement. The agreement covers costs advanced
to Rimshot for start-up  operations and principal and interest  payments made on
leased  machinery used by Rimshot.  The agreement calls for monthly  payments of
$2,500,  which  commenced on October 1, 2000 and are scheduled to continue until
the balance is paid in full.  Pursuant to the indemnification  agreement,  Verne
Bray  conveyed to the Company a security  interest in all PVC lease  receivables
from the Company. The Company has also signed a security agreement with PVC that
allows the Company to offset  payments due to PVC in the event of default on the
indemnification agreement.

At February  29, 2004 and November  30,  2003,  Verne Bray and related  entities
(including Rimshot) owed the Company $281,083 and $288,583, respectively.

NOTE D - STOCK-BASED COMPENSATION

The Company has stock-based  employee  compensation  plans,  which are described
more fully in Note 12 to the  Company's  financial  statements  included  in the
Company's Annual Report on Form 10-KSB for the year ended November 30, 2003. The
Company   accounts  for  those  plans  under  the  recognition  and  measurement
principles of APB Opinion 25,  "Accounting  for Stock Issued to Employees,"  and
related interpretations,  and has adopted the disclosure-only provisions of SFAS
123,  "Accounting for Stock-Based  Compensation."  Accordingly,  no compensation
cost has been  recognized in the financial  statements,  as all options  granted
under those plans had an exercise price equal to or grater than the market value
of the underlying  common stock on the date of the grant. Had compensation  cost
for the Company's stock options been  determined  based on the fair value at the
grant  date  consistent  with the  provisions  of SFAS 123,  the  Company's  net
earnings and earnings per share would have been reduced to the pro forma amounts
indicated below.

                                       6
<PAGE>
NACO INDUSTRIES, INC.
Notes to Financial Statements (Unaudited)
February 29, 2004


NOTE D - STOCK-BASED COMPENSATION (continued)
                                                   2004                  2003
                                                   ----                  ----
Net income - as reported                         $26,524                4,136
Net income - pro forma                           $22,090                (692)
Earnings per share - as reported                  $0.01                  $.00
Earnings per share - pro forma                    $0.01                  $.00



Item 2 - Management's Discussion and Analysis or Plan of Operations


Introduction
NACO Industries, Inc. ("NACO" or the "Company") manufactures and sells polyvinyl
chloride ("PVC")  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" through 10" in
diameter).  Pipefittings produced by the Company include tees, reducers, elbows,
couplers, end caps, and bolted repair couplers. NACO also manufactures and sells
PVC valves (4" through 12" in diameter).


Results of Operations
     The following  discussion relates to the three-month periods ended February
29,  2004  and  February  28,  2003,  respectively.   For  comparison  purposes,
percentages  of  sales  will be  used  rather  than  dollars.  In the  following
discussion,  the three months ended  February 29, 2004 and February 28, 2003 are
referred to as 1Q04 and 1Q03,  respectively.  Readers are cautioned that results
of operations for the three months ended  February 29, 2004 are not  necessarily
indicative  of the  results  that may be  expected  for the fiscal  year  ending
November 30, 2004.

     Overview.  The Company  achieved net income before tax of $41,524 for 1Q04,
compared  to net income  before  taxes of $61,587  for 1Q03.  Gross  margin as a
percentage of sales for 1Q04 and 1Q03 was 37.9% and 38.7%, respectively.

     Net Sales: Net sales for 1Q04 increased by 19.4% to $2,212,612, compared to
net sales of $1,853,822 for 1Q03.  Management  believes that the increase in net
sales from 1Q03 to 1Q04 was due primarily to an increase in sales in the utility
&  industrial  markets.  Sales in the  utility &  industrial  markets  increased
$245,724.71,  or 51.2%, from 1Q03 to 1Q04. Management believes that the increase
in utility &  industrial  net sales was mainly due to  increased  sales to three
large original equipment manufacturer ("OEM") customers partly due to an upswing
in the U.S. economy. Sales in the agricultural market increased $116,412.97,  or
8.5%, from 1Q03 to 1Q04.  Management  believes that the increase in agricultural
net sales was mainly due to increased  sales  efforts by a new salesman that was
hired in 2003.  Agricultural  and utility  sales as a  percentage  of sales were
67.2% and 32.8% for 1Q04, and 74.1% and 25.9% for 1Q03, respectively.

     Gross  Margin.  Gross margin as a percentage of sales for 1Q04 and 1Q03 was
37.9% and 38.7%,  respectively.  Management  believes  the decrease in the gross
margin  from 1Q03 to 1Q04 was partly due to the  increased  sales in the utility
and  industrial  market,  which  historically  has had lower profit margins than
sales in the  agricultural  market.  Management  believes  another  contributing


                                       7
<PAGE>

factor to the  decrease in the gross margin from 1Q03 to 1Q04 was an increase in
labor and related expenses.  Labor and related expenses increased  $107,245,  or
32.4%, from 1Q03 to 1Q04, mainly due to an annual wage increase of approximately
2.7% and a 164.5%, or $25,432,  increase in workers health  insurance.  Prior to
12/31/2003,  the  Company  "self-funded"  a  portion  of its  employees'  health
insurance claims,  and there were several large medical claims incurred in 1Q04,
which increased  health  insurance  expense.  Effective 1/1/04 the Company began
operating  under a  fully-insured  plan. As a result of the Company's shift to a
fully-insured  plan,  management believes the Company's health insurance expense
will be more consistent in future periods. Another contributing factor to health
insurance expense was to general cost increases  throughout the health insurance
industry. These increases in medical and hospital costs were also a contributing
factor to the Company's increased worker's compensation expense, which increased
$6,994, or 41.4%, from 1Q03 to 1Q04.

     Selling:  Selling  expenses  were 21.4% of net sales for 1Q04,  compared to
21.0% of net sales for 1Q03. The increase in selling expenses as a percentage of
sales was partially due to several factors. In actual dollars,  selling expenses
increased  $84,410,  or 21.7%, from 1Q03 to 1Q04.  Salaries and related expenses
increased  $39,759,  or  32.3%,  from 1Q03 to 1Q04,  mainly  due to hiring a new
salesman to allow for greater  coverage  and  expansion of the  Company's  sales
areas and to health  insurance costs as explained in the section entitled "Gross
Margin" above.  Health insurance costs for sales personnel increased $13,140, or
171.7%,  from 1Q03 to 1Q04.  Supplies  increased  $9,156, or 29.7%, from 1Q03 to
1Q04, mainly due to increased sales volume. Advertising expense increased 27.4%,
or $2,683,  from 1Q03 to 1Q04,  mainly  due to the  publication  of new  product
catalogs in 1Q04.  Freight out increased  36.3%, or $43,276,  from 1Q03 to 1Q04,
and  increased as a  percentage  of net sales from 6.4% in 1Q03 to 7.3% in 1Q04.
Management  believes  freight  expense  increased  partly due to the increase in
sales  volume,  partly  due to  freight  surcharges  by  freight  companies  for
increased fuel prices and partly due to increased  sales in  geographical  areas
where  freight  costs are higher  than the average  historical  costs on Company
sales.

     General and administrative: General and administrative expenses represented
13.0% of net sales for 1Q04,  compared to 13.0% of net sales for 1Q03.  Overall,
general and administrative  expenses increased $47,902,  or 19.9%, from 1Q03 and
1Q04.  Salaries and related expenses increased  $32,883,  or 20.0%, from 1Q03 to
1Q04, due mainly to increased health insurance costs as explained in the section
entitled  "Gross  Margins"  above.   Health  insurance  costs  for  general  and
administrative  employees  increased  $16,668 or 148.4%  from 1Q03 to 1Q04.  The
Company also had a 2.7% average  increase in salaries  that was effective in the
1st of December 2003. Another  contributing  factor to increases in salaries and
related  expenses was the hiring of a new  engineer  during 1Q04 to expedite the
development of new products.

     Other: Other  expense/revenues were 1.0% of net sales for 1Q04, compared to
1.4% of net sales for 1Q03, mainly due to decreased  interest expense.  Interest
expense decreased $2,294 from 1Q03 to 1Q04, mainly due to improved cash flow and
lower  borrowings  during the quarter.  The  Company's  effective  interest rate
(interest expense divided by the average debt balance for the applicable period)
for 1Q04 and 1Q03 was 9.43% and 10.0%, respectively.


Liquidity and Capital Resources
     The Company's  principal  sources of liquidity have  historically been cash
from  operations,  credit  facilities  and  equity  financing.  Net cash used by
operating  activities  was  $458,497 in 1Q04.  Cash as of February  29, 2004 was
$85,769,  down  $483,676  from  November  30,  2003 mainly due to the payment of
income taxes and to an increase in accounts  receivable.  The Company's  working
capital  increased  $52,565 from  November  30, 2003 to February  29, 2004,  due
primarily  to a  decrease  in  current  liabilities.  The  decrease  in  current
liabilities was mainly due to a decrease in income taxes payable.

                                       8
<PAGE>

     As  of  February  29,  2004  the  Company  had  an  unused  bank  revolving
line-of-credit  with Zions Bank, which allows the Company to borrow a maximum of
$1,200,000.  The line-of-credit  bears interest at the prime rate plus 1.75%, is
secured by  receivables  and  inventories  and  expires on March 31,  2005.  The
line-of-credit  agreement  contains  covenants  related  to  minimum  net worth,
earnings before interest and taxes, debt and dividends.

     On February 29, 2004, the Company was in compliance with all loan covenants
with  Zions  Bank.  The  maximum  line is  $1,200,000,  of  which,  based on the
"Borrowing  Base  Certificate"  prepared by the  Company,  there was  $1,200,000
available to borrow as of February 29, 2004.

     The Company also has a note with WebBank  Corporation.  The note is secured
by land,  buildings and equipment owned by the Company.  The note has a variable
interest  rate equal to the prime  interest  rate as reported by The Wall Street
Journal,  plus one and one-half percent (1.5%) provided  however,  that the rate
shall never exceed 14.75% nor be less than 9.75%.  The rate on February 29, 2003
was  9.75%.  The term of the note is 15 years  from the date of  closing  (April
1999) and the note requires monthly payments.  On February 29, 2004, the monthly
payment required was $11,972.  On February 29, 2004, the outstanding  balance of
the note was $857,000 and the Company was in compliance  with all loan covenants
with WebBank. This note is subordinated to the Zions Bank line of credit.

     Management  believes  that its capital  resources  on hand at February  29,
2004,  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.

Critical Accounting Policies
NACO's significant  accounting policies are described in Note 1 to the Company's
financial  statements included in the Company's Annual Report on Form 10-KSB for
the year ended  November  30,  2003.  Included  within  these  policies  are the
Company's "critical accounting policies." Critical accounting policies are those
policies that are most important to the  preparation of the Company's  financial
statements and require  management's  subjective and complex judgment due to the
need to  make  estimates  about  the  effect  of  matters  that  are  inherently
uncertain.  The Company's critical  accounting  policies relate to allowance for
doubtful accounts,  inventory  valuation,  product warranties and allowances for
deferred income taxes. The application of these accounting policies involves the
exercise of judgment and the use of assumptions as to future  uncertainties and,
as a result, actual results could differ materially from these estimates.

     Allowance for Doubtful  Accounts:  The Company has established an allowance
for estimated bad debts by applying a historical  percentage of bad debts to net
sales each month. In addition, all accounts over 90 days are evaluated as to the
collectibility  of each  account  and a  specific  reserve  is  established  for
specific  customer  accounts  identified  as  doubtful or  non-collectible.  The
Company's customer base is such that changes in either the customer's  financial
position  or the  economy as a whole could  cause  actual  write-offs  to differ
materially from the estimated  reserve.  The allowance for doubtful  accounts at
February 29, 2004 was  $27,282,  compared to $20,643 at fiscal year end November
30, 2003.

     Inventory Valuation:  The Company evaluates inventory on an annual basis to
determine obsolete and slow moving inventory.  All inventory that has not moved,
been used in manufacturing or sold in the past year is reserved against. Also an


                                       9
<PAGE>

additional reserve is made for slow-moving inventory.  Based on usage during the
past year, a reserve is  calculated by taking the  prevailing  interest rate for
money  borrowed  multiplied  by the value of  inventory in excess of a six-month
supply.  Inventory in excess of a  three-year  supply is reserved at 100% of the
value of that  excess  inventory.  The  reserve  for  obsolete  and slow  moving
inventories was $50,000 at February 29, 2004 and $60,000 at November 30, 2003.

     The Company takes a complete physical  inventory once a year and a physical
inventory of the top 80% of the dollars in inventory every month.  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. Since only 80% of the dollars in inventory are counted each quarter a
"quantity reserve" is made each quarter for the parts not counted.  The quantity
reserve at February 29, 2004 was $10,000 compared to $0 at November 30, 2003.

     Product  Warranties:  The Company's current  liabilities include an accrued
warranty  account for anticipated  product warranty claims based on a historical
percentage of sales plus any specific claims that have been  identified.  Actual
claims could be materially  different than the historical  estimates made by the
Company.  The accrual for  warranty  claims at  February  29, 2004 was  $67,014,
compared to $72,014 at November 30, 2003.

     Deferred Income Tax Valuation  Allowances:  The Company's current assets at
February 29, 2004 included an entry for deferred taxes in the amount of $69,000.
The Company  evaluates  the  realizability  of its net  deferred  tax asset on a
quarterly  basis and a  valuation  allowance  is  provided.  In the  opinion  of
management, the total asset value at February 29, 2004 is realizable,  therefore
no allowance was provided.  However, the Company's operating results are subject
to certain risks that could adversely  affect the Company's  operating  results,
its ability to operate  profitably  and, as a result,  the Company's  ability to
realize  the value of the  Company's  net  deferred  tax  asset.  The  Company's
operating  results could 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  expenses,
changes  in  economic  conditions,  unanticipated  expenses  or events and other
factors that could materially change the need for an allowance.

Factors Affecting Future Results
     Statements  contained in this Quarterly  Report on Form 10-QSB that are not
purely historical are "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All forward-looking statements involve various
risks and  uncertainties.  Forward-looking  statements  contained in this Report
include  statements  regarding the Company's  plans,  market  opportunities  and
acceptance,  expectations,  goals, revenues, financial performance,  strategies,
mission and  intentions  for the future.  Such  forward-looking  statements  are
included under "Management's  Discussion and Analysis or Plan of Operations" and
encompass  NACO's beliefs,  expectations,  hopes or intentions  regarding future
events.  Words  such as  "expects,"  "believes,"  "anticipates,"  "should,"  and
"likely"  also  identify   forward-looking   statements.   All   forward-looking
statements  included  in this  Report are made as of the date  hereof,  based on
information available to the Company as of such date, and the Company assumes no
obligation to update any forward-looking statement. It is important to note that
such  statements  may not prove to be  accurate  and that the  Company's  actual
results and future events could differ materially from those anticipated in such
statements.   All  subsequent  written  and  oral   forward-looking   statements
attributable  to the  Company  or persons  acting on its  behalf  are  expressly
qualified in their entirety by this section and other factors included elsewhere
in this Report.

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<PAGE>

Item 3 - Controls and Procedures

         An  evaluation  was  performed  under  the  supervision  and  with  the
participation  of the Company's  management,  including the Company's  principal
executive officer and principal  financial officer,  of the effectiveness of the
Company's  disclosure  controls and procedures as of February 29, 2004. Based on
that evaluation,  the Company's  management,  including its principal  executive
officer  and  principal   accounting  officer,   concluded  that  the  Company's
disclosure  controls and  procedures  are  effective to ensure that  information
required to be  disclosed  by the Company in reports  filed or  submitted by the
Company  under the  Securities  Exchange Act of 1934,  as amended,  is recorded,
processed,  summarized  and  reported as specified in the SEC's rules and forms.
There have been no significant  changes in the Company's internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the evaluation.


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<PAGE>

PART II - OTHER INFORMATION
Item  3 - Defaults  Upon  Senior  Securities(b)  During the fiscal  years  ended
      November  30, 2003 and  November  30,  2002,  the Company paid $69,473 and
      $69,473  respectively  in dividends on its Series 1 Class A 7%  Cumulative
      Convertible  Preferred  Stock (the  "Preferred  Stock").  During the prior
      fiscal year ended November 30, 2001 no dividends were paid with respect to
      the  Preferred  Stock.  As of February  29,  2004,  the total  dividend in
      arrears with respect to the Preferred Stock was $312,343.

Item 6 - Exhibits and Reports on Form 8-K


      (a)         Exhibit 31.1      Certification of Chief Executive Officer

                  Exhibit 31.2      Certification of Chief Financial Officer



                  Exhibit 32.1      Certification of Chief Executive Officer

                  Exhibit 32.2      Certification of Chief Financial Officer



     (b) Reports on Form 8-K. None







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<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                                  April 13, 2004
   -----------------------------------------                ---------------
         Verne E. Bray                                      Date
         CEO, Secretary, Chairman
         (Principal Executive Officer)

By       /s/ W. MICHAEL HOPKINS                             April 13, 2004
   -----------------------------------------                ---------------
         W. Michael Hopkins Date President                  Date


By       /s/ JEFFREY J. KIRBY                               April 13, 2004
   -----------------------------------------                ---------------
         Jeffrey J. Kirby                                   Date
         Executive Vice President/
         Chief Financial Officer/Treasurer
         (Principal Financial and Accounting Officer)



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