U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-QSB


(Mark One)

____X______       QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                  EXCHANGE ACT OF 1934

                  For Quarterly Period Ended December 31, 1996.



__________        TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                  EXCHANGE ACT

                  For the transition period from __________ to __________.


Commission File No. 0-3366

                             BRYAN STEAM CORPORATION
        (Exact name of small business issuer as specified in its charter)

         NEW MEXICO                                   35-0202050
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

                               POST OFFICE BOX 27
                                 PERU, IN 46970
          (Address of principal executive offices, including zip code)

                                 (317) 473-6651
                (Issuer's telephone number, including area code)


         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 __________

         State the number of shares  outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.

            COMMON STOCK                                      191,284
          (Title of class)                        (Number of shares outstanding
                                                         February 5, 1997)


                                        1


<PAGE>

                          PART. I FINANCIAL INFORMATION


Item 1.  Financial Statements


                             BRYAN STEAM CORPORATION
                     CONDENSED CONSOLIDATED INCOME STATEMENT


<TABLE>
<CAPTION>
                                       Unaudited              Unaudited            Unaudited            Unaudited
                                                  For the                                    For the
                                              Six months Ended:                         Fiscal Quarter Ended:
                                        12/31/96              12/31/95              12/31/96              12/31/95
                                        (Current             (Preceding             (Current             (Preceding
                                          Year)                 Year)                 Year)                 Year)
                                       ----------------------------------         ----------------------------------
Gross sales less
<S>                                   <C>                   <C>                   <C>                   <C>         
       discounts, returns             $ 13,910,753          $ 12,170,623          $  7,197,531          $  6,202,227
                                      ------------          ------------          ------------          ------------
       and allowances                                                                                   
                                                                                                        
Cost and expenses --                                                                                    
                                                                                                        
Cost of goods sold                    $  9,031,931          $  7,918,151          $  4,671,997          $  4,022,319
Selling, general and                                                                                    
       administrative expenses           3,222,524             2,909,177             1,727,684             1,564,777
                                      ------------          ------------          ------------          ------------
Total cost and expenses               $ 12,254,455          $ 10,827,328          $  6,399,681          $  5,587,096
                                      ------------          ------------          ------------          ------------
Operating income                      $  1,656,298          $  1,343,295          $    797,850          $    615,131
                                      ------------          ------------          ------------          ------------
Other income and (expenses)                                                                             
       Interest income                $     38,608          $         --          $     22,030          $         --
       Freight income                       47,523                    --                22,643                    --
       Interest expense                    (51,189)              (50,356)              (13,576)              (27,470)
                                      ------------          ------------          ------------          ------------
Total other income and (expenses)     $     34,942          $    (50,356)         $     31,097          $    (27,470)
                                      ------------          ------------          ------------          ------------
Income (or Loss) before                                                                                 
       taxes on income and                                                                              
       extraordinary items            $  1,691,240          $  1,292,939          $    828,947          $    587,661
                                                                                                        
Provision for taxes                                                                                     
       on income                           660,858               554,682               344,524               238,401
                                      ------------          ------------          ------------          ------------
Net income (or loss)                  $  1,030,382          $    738,257          $    484,423          $    349,260
                                      ============          ============          ============          ============
Earnings per share*                   $       5.39          $       3.86          $       2.53          $       1.83
                                      ============          ============          ============          ============
Dividends per share                   $       1.50          $       1.40          $       1.50          $       1.40
                                      ============          ============          ============          ============

</TABLE>


* Based on 191,284 shares of Common Stock issued and
       outstanding throughout the periods involved.

<PAGE>
                             BRYAN STEAM CORPORATION
                                  PERU, INDIANA
                           CONSOLIDATED BALANCE SHEET


<TABLE>
<CAPTION>


                                                                  Unaudited        Unaudited
ASSETS                                                           December 31,       June 30,
                                                                    1996              1996
                                                                 -----------      -----------
<S>                                                              <C>              <C>        
CURRENT ASSETS
       Cash and cash equivalents                                 $ 1,017,844      $   304,739
       Investment securities                                       1,325,467        1,616,554
       Accounts receivable (net)                                   4,404,096        4,793,663
       Prepaid expenses                                              495,668          335,183
       Prepaid income taxes                                            7,472           84,414
       Inventory                                                   3,830,222        4,202,010
                                                                 -----------      -----------
            TOTAL CURRENT ASSETS                                 $11,080,769      $11,336,563
                                                                 -----------      -----------

FIXED ASSETS
       Land, buildings, equipment                                $ 8,194,621      $ 7,498,657
       Less:  Depreciation accumulated                             3,159,374        2,930,437
                                                                 -----------      -----------
            TOTAL FIXED ASSETS                                   $ 5,035,247      $ 4,568,220
                                                                 -----------      -----------
OTHER ASSETS
       Noncompete agreement (Net of amortization)                $   205,775      $   240,000
       Other amortizable assets (Net of amortization)                 35,482           28,058
       Deposits                                                        5,171            5,171
                                                                 -----------      -----------
            TOTAL OTHER ASSETS                                   $   246,428      $   273,229
                                                                 -----------      -----------
TOTAL ASSETS                                                     $16,362,444      $16,178,012
                                                                 ===========      ===========
LIABILITIES AND NET WORTH

CURRENT LIABILITIES
       Accounts payable - trade                                  $   341,666      $   553,079
       Loans payable                                                 239,326          664,293
       Accrued commissions                                         1,025,200          621,882
       Accrued property taxes                                        237,078          224,006
       Accrued taxes & other expenses                                190,013          323,086
       Deferred federal income tax                                    60,678           60,678
       Deferred state income tax                                      13,963           13,963
                                                                 -----------      -----------
            TOTAL CURRENT LIABILITIES                            $ 2,107,924      $ 2,460,987
                                                                 -----------      -----------
LONG-TERM LIABILITIES
       Loans payable                                             $    29,576      $   238,207
       Deferred federal income tax                                   308,816          308,816
       Deferred state income tax                                      70,845           70,845
       Dividends payable                                              12,685           10,016
                                                                 -----------      -----------
            TOTAL LONG-TERM LIABILITIES                          $   421,922      $   627,884
                                                                 -----------      -----------
TOTAL LIABILITIES                                                $ 2,529,846      $ 3,088,871
                                                                 -----------      -----------
NET WORTH
       Capital stock                                             $   810,272      $   810,272
       Treasury stock, at cost                                       (28,727)         (28,727)
       Retained earnings                                          13,051,053       12,307,596
                                                                 -----------      -----------
            TOTAL NET WORTH                                      $13,832,598      $13,089,141
                                                                 -----------      -----------
TOTAL LIABILITIES AND NET WORTH                                  $16,362,444      $16,178,012
                                                                 ===========      ===========
</TABLE>


<PAGE>

                             BRYAN STEAM CORPORATION
                                  PERU, INDIANA
                COMPARATIVE CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>


                                                              Unaudited         Unaudited
                                                             Jul 01, 1996     Jul 01, 1995
                                                                  to               to
                                                             Dec 31, 1996     Dec 31, 1995
                                                             ------------     ------------
<S>                                                           <C>             <C>        
CASH FLOWS FROM OPERATING ACTIVITIES
       Net income                                             $1,030,382      $   738,257
       Non-cash items included in net income
            Amortization                                          26,801           10,606
            Depreciation                                         228,938          215,932
            Changes in:
                 Inventory                                       371,788          161,763
                 Accounts receivable                             389,567       (1,268,095)
                 Prepaid expenses                               (160,485)         (33,726)
                 Prepaid income taxes                             76,942               --
                 Accounts payable                               (211,413)        (242,030)
                 Commissions payable                             403,318          391,882
                 Accrued county property taxes                    13,072            6,067
                 Accrued taxes & other expenses                 (133,073)          14,035
                 Federal income taxes payable                         --          (39,839)
                 State income taxes payable                           --          (10,711)
                                                              ----------      ----------- 
NET CASH PROVIDED BY OPERATING ACTIVITIES                     $2,035,837      $   (55,859)
                                                              ----------      ----------- 
CASH FLOW FROM INVESTING ACTIVITIES
       Noncompetition payments                                $       --      $  (300,000)
       Purchases of plant and equipment                         (695,964)      (1,152,929)
       Redemptions of investment securities                      291,087          467,615
                                                              ----------      ----------- 
NET CASH (USED) BY INVESTING ACTIVITIES                       $ (404,877)     $  (985,314)
                                                              ----------      ----------- 
CASH FLOWS FROM FINANCING ACTIVITIES
       Payments on long-term debt                             $ (633,598)     $   (68,624)
       Dividends paid                                           (284,257)        (242,117)
                                                              ----------      ----------- 
NET CASH (USED) BY FINANCING ACTIVITIES                       $ (917,855)     $  (310,741)
                                                              ----------      ----------- 
NET INCREASE (DECREASE) IN CASH & EQUIVALENTS                 $  713,105      $(1,351,914)
                                                              ==========      =========== 

CASH & CASH EQUIVALENTS
       July 01,                                               $  304,739      $ 2,192,946
       December 31,                                            1,017,844          841,032
                                                              ----------      ----------- 
NET INCREASE (DECREASE) IN CASH & EQUIVALENTS                 $  713,105      $(1,351,914)
                                                              ==========      =========== 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
       Cash paid during the period for:
            Interest (Net of amount capitalized)              $   51,189      $    50,356

            Income taxes                                      $  498,346      $   369,036
</TABLE>


<PAGE>


Item 1.           CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  The unaudited  interim  consolidated  financial  statements to
                  which this  management's  discussion  and analysis is attached
                  reflect  all   adjustments   which  are,  in  the  opinion  of
                  management,  necessary to a fair  statement of the results for
                  the interim period  presented.  All such  adjustments are of a
                  normal, recurring nature.

                  The accompanying consolidated financial statements include the
                  accounts of the Company  and of its  wholly-owned  subsidiary.
                  Intercompany transactions and balances have been eliminated in
                  consolidation.

                  Pension  benefits  are based on taxable  earnings and years of
                  service.  The Company's policy is to fund at least the minimum
                  amounts required by Federal law and regulation.

                  The Company's  policy  regarding  investment  securities is to
                  classify  them  as  current  assets.  None  of the  investment
                  securities are considered to be  available-for-sale or trading
                  securities by the Company.  Gross unrealized holding gains and
                  losses on investment securities classified as held to maturity
                  at  December  31, 1996 are not  material  to the  accompanying
                  consolidated   financial   statements  and  are  not  reported
                  therein.


                                       5


<PAGE>



Item 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
                  CONDITION AND CONSOLIDATED RESULTS OF OPERATIONS

                  Consolidated  net income for the second quarter of $484,423 is
                  up  (38.70%)   from  the  net  income  of  $349,260   for  the
                  corresponding  quarter last year. The increase in consolidated
                  net income  results  primarily from the  significant  $243,641
                  increase in net income of Bryan Steam Corporation (the Parent)
                  for the quarter,  as compared to the corresponding  quarter of
                  the prior  fiscal year.  The  Parent's  increase in net income
                  results from  improved  sales,  which  offset a  corresponding
                  increase  in cost of goods  sold  and a  smaller  increase  in
                  selling, general and administrative expenses.

                  Consolidated  sales for the quarter  increased 16.05% from the
                  corresponding  quarter last year, and increased 8.38% over the
                  same  year to date  period  last  year.  Cost  of  goods  sold
                  increased a corresponding  16.15% from the same quarter a year
                  ago, and increased 14.07% over last year for the year to date.
                  The $995,304  increase in  consolidated  sales for the quarter
                  results  primarily  from the  Parent's  sales for the  quarter
                  having increased $798,908 over the corresponding  quarter last
                  year.  This increase  results from the Parent  having  shipped
                  more large boiler units during the current quarter than during
                  the same quarter a year ago. Consolidated selling, general and
                  administrative    expenses    increased    10.41%   from   the
                  corresponding  quarter a year ago,  and 10.77% for the year to
                  date, primarily from the addition of the selling,  general and
                  administrative    expenses   of   Monticello   Exchanger   and
                  Manufacturing Company, an indirect subsiderary formed in March
                  of 1996.

                  The consolidated working capital ratio at December 31, 1996 of
                  5.26 to 1, is up from 4.61 to 1 at year-end, and down from the
                  6.03 ratio of a year ago.  Consolidated  cash and  equivalents
                  are up  $713,105  (234.01%)  from  year-end,  and up  $176,812
                  (21.02%)  from the  same  quarter  a year  ago as a result  of
                  collections  from higher  sales and an increase in more liquid
                  investments.   Consolidated  investment  securities  decreased
                  $291,087  (18.01%) from  year-end,  and  decreased  $135,322 (
                  9.26%) from the same quarter a year ago.  Accounts  receivable
                  are down (8.13%) from  year-end,  and up (3.12%) from the same
                  quarter a year ago, as a result of having  shipped  more large
                  boiler units than during the same period last year.

                                        6


<PAGE>




Item 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
                  CONDITION AND CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)


                  Inventory  dropped  $371,788  (8.85%)  from  year-end  as more
                  work-in-progress was brought to finished,  saleable condition,
                  and  decreased  $189,528  (4.71%) over the same quarter a year
                  ago.

                  Consolidated  trade  accounts  payable  decreased  $211,413  (
                  38.22%) to a historically  customary level from year-end,  but
                  increased  $263,624  from a year ago, as a result of increased
                  materials   purchases.    Consolidated   accrued   commissions
                  increased  $403,318  (64.85%)  from  year-end as a result of a
                  recent increase in accounts receivable.

                  Production  continues  at  near  capacity.   The  consolidated
                  backlog  of  orders  at  December  31,  1996,  was  steady  at
                  $5,083,000,   with  the  Parent's  backlog  being  down  about
                  $300,000 from year-end.  The plants are operating first shifts
                  totalling 209 employees on a 40 hour work week. Twenty workers
                  are on layoff from the second shift. . The Parent has $800,000
                  available  on its  $1,000,000  revolving  line of  credit  and
                  $500,000 available on its $500,000 operating line of credit.

                  Planned capital  expenditures  this year of up to $850,000 (of
                  which approximately $520,000 has been utilized,  primarily for
                  a building  addition at the Parent's plant),  will continue to
                  be funded internally.

                                        7


<PAGE>


                           PART II. OTHER INFORMATION

Item 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

                  At the Annual  Meeting  of the  Stockholders  held  October 3,
                  1996, the following votes were cast in respect of the nominees
                  for director:

                                                    VOTES
                                 ----------------------------------------------
        Director                   For             Withheld         Abstentions
        --------                 -------           --------         -----------
    Harold V. Koch               157,706                32               0
    Albert J. Bishop             157,738                 0               0
    H. Jesse McVay               157,702                36               0
    G.N. Summers                 133,341            24,397               0
    Jack B. Jackson              157,738                 0               0
    James B. Lockhart, Jr.       157,738                 0               0
    Bryan D. Herd                157,738                 0               0
                                                                    
                 
Item 6.           Exhibits and reports on Form 8-K

                  (a) Exhibits - The following exhibit is filed as part of this 
                      report.

                      Exhibit 27 - Finanacial Data Schedule

                  (b) No reports on Form 8-K were filed during the quarter ended
December 31, 1996.


                                        8


<PAGE>



                                   SIGNATURES
                                                                       
Pursuant to the requirements of the Exchange Act, the Registrant has duly caused
this  report to be  signed on its  behalf  by the  undersigned  there  unto duly
authorized.


                                         BRYAN STEAM CORPORATION



                                         By:  /s/ H. Jesse McVay
                                              ----------------------------------
                                                  H. Jesse McVay, President

                                         Date: February 14, 1997
                                              ----------------------------------


                                         By:  /s/ Kurt Krauskopf
                                              ----------------------------------
                                                  Kurt Krauskopf, Secretary

                                         Date: February 14, 1997
                                              ----------------------------------


                                        9