SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

[X]      Annual  Report  Pursuant  to  Section  13 or  15(d)  of the  Securities
         Exchange Act of 1934 For the fiscal year ended June 30, 1998 

                                       OR

[ ]      Transition  Report  Pursuant  to Section 13 or 15(d) of the  Securities
         Exchange    Act   of   1934   For   the    transition    period    from
         _______________________ to __________________

                           Commission File No. 0-3366

                             BRYAN STEAM CORPORATION
             (Exact name of registrant as specified in its charter)

           NEW MEXICO                                       35-0202050
  (State or other jurisdiction of                       (I.R.S. Employer
   incorporation or organization)                      Identification Number)

                        P.O. BOX 27, PERU, INDIANA 46970
               (Address of principal executive offices) (Zip Code)

       (765) 473-6651 Registrant's telephone number, including area code:

         Securities registered pursuant to Section 12(b) of the Act:NONE

           Securities registered pursuant to Section 12(g) of the Act:

                             BRYAN STEAM CORPORATION
                     CAPITAL STOCK, PAR VALUE $10 PER SHARE

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  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

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K [X].

         The  aggregate  market value of the 91,042  shares of the  registrant's
common stock held by  non-affiliates  on  September  23, 1998 (based on the last
price at which the common stock was sold on July 20, 1998) was $7,283,360.00.

         There were 191,284 shares of the registrant's  common stock outstanding
on September 23, 1998.

                       DOCUMENTS INCORPORATED BY REFERENCE

         The following  documents are incorporated by reference into the Part of
this report indicated: NONE.



                                                        -1-

<PAGE>



                                     PART I

Item 1.  Business

         Bryan Steam  Corporation  ("Bryan"  and,  together  with its direct and
indirect wholly-owned subsidiaries,  the "Company"),  Burnham Corporation, a New
York corporation ("Burnham") and Burnham Acquisition  Corporation,  a New Mexico
corporation and a wholly-owned  subsidiary of Burnham ("Purchaser") entered into
an  Agreement  and Plan of Merger  dated as of  September  23, 1998 (the "Merger
Agreement"),  among the Company,  Burnham and  Purchaser.  The Merger  Agreement
provides,  among  other  things,  for the  making  of an offer by  Purchaser  to
purchase all outstanding  shares of the Common Stock, par value $10.00 per share
(the  "Shares"),  of the  Company,  at a  purchase  price of $152 per Share (the
"Offer Price"),  net to the seller in cash,  without interest thereon,  upon the
terms and subject to the conditions set forth in an Offer to Purchase and in the
related  Letter  of  Transmittal  (which,   together  with  any  supplements  or
amendments thereto,  collectively  constitute the "Offer"). The Merger Agreement
further provides that,  following the completion of the Offer and subject to the
satisfaction or waiver of certain conditions,  Purchaser will be merged with and
into the Company  (the  "Merger"),  with the Company  surviving  the Merger as a
wholly-owned subsidiary of Burnham with the name "Bryan Steam Corporation". As a
result of the Merger, each outstanding Share (other than Shares held by Burnham,
Purchaser or any subsidiary of Burnham, Purchaser or the Company, Shares held in
the treasury of the Company and Shares held by  stockholders  who have  properly
exercised  their  rights to fair  value  appraisal  rights  under the New Mexico
Business  Corporation Act) will be converted at the effective time of the Merger
into the right to receive in cash the price per Share paid in the Offer  without
interest.

         The Offer is conditioned upon, among other things,  there being validly
tendered and not withdrawn at the expiration of the Offer at least sixty-six and
two-thirds  percent  (66-2/3%)  plus one of the  outstanding  Shares  on a fully
diluted  basis on the date of  purchase.  The Offer is also  subject  to certain
other conditions.

         Bryan  was  incorporated  under  the laws of New  Mexico  in 1916.  The
Company has only one industry  segment,  the  manufacture of boilers,  tanks and
heat exchangers.  All of the revenue, operating profit or loss, and identifiable
assets  of the  Company  are  attributable  to that  industry  segment.  See the
Financial Statements filed under Item 8 in Part II of this Report.

         Bryan  manufactures and sells oil, gas and electrically  fired boilers,
commercial water heaters and swimming pool heaters.  Bryan also manufactures and
sells  a  limited  number  of  storage  tanks  and  other  equipment  for use in
connection with boilers.  Wendland  Manufacturing  Corp.,  Bryan's  wholly-owned
subsidiary  ("Wendland"),  began  manufacturing  storage tanks effective July 3,
1995, upon the consummation of an asset purchase  transaction  pursuant to which
Wendland  purchased  substantially  all  of  the  operating  assets  of  a  tank
manufacturer  in San  Angelo,  Texas (the  "Wendland  Transaction").  The assets
purchased by Wendland in the Wendland  Transaction  totaled  approximately  $1.1
million,  and the  Wendland  Transaction  was  funded  primarily  through a $1.0
million loan. On December 6, 1995,  Wendland also acquired  substantially all of
the assets of a discontinued heat exchanger business in Monticello,  Indiana for
$215,000.  Wendland  operated these assets and the heat exchanger  business as a
division  until March 15,  1996,  at which time  Wendland  organized  Monticello
Exchanger and  Manufacturing  Co.  ("MEMCO") as a  wholly-owned  subsidiary  and
transferred assets and liabilities  relating to the heat exchanger business with
a net value of approximately  $450,000 in exchange for all of MEMCO's issued and
outstanding  capital stock. MEMCO has operated the heat exchanger business since
March 15, 1996.

         Most boilers manufactured by Bryan are sold directly to contractors for
installation  in  new  apartment,   commercial,   industrial  and  institutional
buildings.  A limited number of boilers are sold for replacement purposes.  Most
tanks manufactured by Wendland are sold directly to contractors for installation
in new  commercial and  industrial  applications.  A limited number of tanks are
sold for replacement  purposes.  Most heat exchangers  manufactured by MEMCO are
sold directly to the end-users for installation in new industrial  applications.
A limited number are also sold for replacement purposes.

         Sales of Bryan's boilers are made through  approximately 70 independent
manufacturers'  representatives located throughout the United States and Canada.
Bryan sold boilers to approximately  500 different  purchasers during its fiscal
year ended June 30, 1998. No single  customer  accounts for any material part of
Bryan's  sales.  Sales of  Wendland's  tanks are made through  approximately  45
independent manufacturer's representatives located throughout the United States.
Wendland sold tanks to approximately 400 different  purchasers during its fiscal
year ended June 30, 1998. No single  customer  accounts for any material part of
Wendland's  sales.   Sales  of  MEMCO's  heat  exchangers  are  made  through  8
independent  representatives.  MEMCO sold  products to 50  customers  during its
fiscal year ended June 30, 1998.


                                                        -1-

<PAGE>



         For the  fiscal  year ended June 30,  1998,  fossil  fuel hot water and
steam  boilers  contributed   approximately   $18,479,000,   or  83%,  of  total
consolidated  revenue.  Fossil  fuel hot  water and  steam  boilers  contributed
approximately   $18,759,000,   or  84%,  and  $16,639,000,   or  84%,  of  total
consolidated  revenue  for the  fiscal  years  ended  June 30,  1997  and  1996,
respectively.

         The dollar amount of Bryan's  backlog of orders  believed to be firm as
of the  close  of its  fiscal  year  ended  June  30,  1998,  was  approximately
$6,576,073. Bryan's backlog at the close of its preceding fiscal year ended June
30, 1997, was approximately $5,484,214. Wendland's backlog of orders believed to
be  firm  as of  the  close  of  its  fiscal  year  ended  June  30,  1998,  was
approximately $498,812.  Wendland's backlog at the close of its preceding fiscal
year ended June 30, 1997, was approximately $251,810.  MEMCO's backlog of orders
believed to be firm as of the close of its fiscal year ended June 30, 1998,  was
approximately  $550,020.  MEMCO's  backlog at the close of its preceding  fiscal
year ended June 30, 1997, was approximately $206,968.

         Bryan's Canadian sales amounted to approximately  $1,191,414 during its
fiscal year ended June 30, 1998. Canadian sales were approximately  $555,239 and
$472,300  for its fiscal years ended June 30, 1997 and 1996,  respectively.  Its
other  foreign  sales were not  material.  Foreign  sales by Wendland  and MEMCO
during the year ended June 30, 1998 were not material.

         The Company operates in a highly competitive industry.  Bryan is one of
the smaller boiler  manufacturers,  but holds a relatively  significant share of
its  market.  Wendland  holds a  relatively  insignificant  share of its market.
Because MEMCO  represents  the start-up of a previously  discontinued  business,
MEMCO had not developed a core customer base as of June 30, 1998 and remains one
of the smallest manufacturer of heat exchangers in the industry.

         The Company,  to obtain sales in its industry,  ordinarily  must have a
competitive  price.  The  Company  believes  competition  in  the  industry  has
intensified  in recent  years.  In addition,  reputation  for  quality,  service
capabilities  and  local  sales  representation  are all  important  factors  in
securing sales.

         Bryan's boilers are  manufactured  from steel and copper tubing,  steel
plate,  sheet metal,  finished  components  (including  burners,  controls,  and
gauges) and insulation and refractory materials,  substantially all of which are
available from several sources.  Wendland's  tanks are manufactured  from carbon
steel and stainless steel, steel plate and insulation.  Substantially all of the
materials used to manufacture tanks are available from several sources.  MEMCO's
heat  exchangers are  manufactured  from steel plate,  pipe and various types of
metal tubing, substantially all of which are available from several sources.

         The Company's expenditures for research and development of new products
and  improvement  of existing  products  during its fiscal  years ended June 30,
1998, and June 30, 1997, were approximately $135,760 and $141,923, respectively,
all of which were  incurred  by Bryan.  Bryan  employs 4 persons on a  full-time
basis for such  activities.  Neither  Wendland  nor MEMCO  employ any  full-time
employees solely for research and development purposes.

         The  Company  has  no  patents,  trademarks,  licenses,  franchises  or
concessions that are material to its business.

         To meet quick demand,  Bryan stocks  approximately  80 boilers that are
substantially  complete.  Bryan also stocks  approximately  175 boiler frames to
facilitate delivery. Bryan allows extended payment terms to customer, permitting
customers,  who are primarily contractors,  to pay Bryan after receiving payment
from general contractors or owners.

         Bryan  employs  approximately  217  persons,  all of whom are full time
employees.  Its  production  employees  are  represented  by  Local  357  of the
International  Brotherhood of Boilermakers.  Wendland  employs  approximately 40
employees, all of whom are full time employees, and none of whom are represented
by a union. MEMCO employs approximately 20 employees,  all of whom are full time
employees, and none of whom are represented by a union.


Item 2.  Properties

         Bryan  operates a  manufacturing  plant located in Peru,  Indiana.  The
plant and the  27-acre  site upon  which it is located  are owned by Bryan.  The
plant  consists  of several  adjacent  structures  of brick,  masonry  and steel
construction varying in age, all of which are in satisfactory condition. Bryan's
Plant contains an aggregate of approximately 153,000

                                                        -2-

<PAGE>



square  feet on one level.  Bryan's  executive  and  administrative  offices are
located in a separate masonry building located on the same 27-acre site.

         Wendland operates its tank manufacturing plant on a 4.225 acre tract of
land in San Angelo,  Texas.  The Wendland  plant contains  approximately  55,000
square  feet on one level.  Wendland  is also  currently  leasing  certain  real
property located adjacent to the Wendland plant.

         MEMCO operates its manufacturing plant on a 3.884 acre tract of land in
Monticello,  Indiana. MEMCO's plant contains approximately 17,400 square feet on
one level.

Item 3.  Legal Proceedings

         The Company is a party to ordinary routine litigation incidental to its
business. The Company does not presently expect the outcome of any pending legal
proceedings  to have a material  adverse  effect on its  financial  condition or
results of operations.

Item 4.  Submission of Matters to a Vote of Securities Holders.

         There were no items submitted to a vote of security  holders during the
fourth quarter of the Company's fiscal year ended June 30, 1998.



                                                        -3-

<PAGE>



                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

         There are approximately 1,065 record holders of the Company's shares of
common stock as of September 23, 1998.  There is no  established  trading market
for the Company's  shares and the Company is not normally  informed of the terms
of transactions in its shares.

         The  Company's  shares are traded  sporadically  over-the-counter.  Set
forth  below  are the  range  of high  and low bid  quotations  as  reported  on
Bloomberg  L.P.  for  each  quarter  during  the last two  fiscal  years.  These
quotations  may  reflect  inter-dealer  transactions,  without  retail  mark-up,
mark-down, or commission.  They do not necessarily represent actual transactions
and management does not have knowledge of the volume of trading,  if any, at any
of such bid prices.


           QUARTER ENDED                 HIGH ASK               LOW BID
==================================  ===================  =====================
September 30, 1996                        40 1/2                  37
December 31, 1996                           38                    37
----------------------------------  -------------------  ---------------------
March 31, 1997                            39 1/2                  38
June 30, 1997                               50                  39 1/2
September 30, 1997                          50                    50
December 31, 1997                         63 1/2                  53
----------------------------------  -------------------  ---------------------
March 31, 1998                            65 7/16               63 1/2
June 30, 1998                             67 1/4                65 7/16
==================================  ===================  =====================


         The Company has paid  dividends for the last several years on an annual
basis.  The annual  dividends  per share  declared  for its 1998 and 1997 fiscal
years and the dates of payment are:

                            $2.00    September 15, 1998
                            $2.00    September 15, 1997
                            $1.50    September 13, 1996

Item 6.  Selected Financial Data.

                     BRYAN STEAM CORPORATION AND SUBSIDIARY
                      SELECTED CONSOLIDATED FINANCIAL DATA
                 (All except per share amounts are in thousands)



BRYAN STEAM CORPORATION AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL DATA
(All except per share amounts are in thousands)

<TABLE>
<CAPTION>


                                                                                 Year end
                                                1998             1997             1996              1995             1994

<S>                                            <C>              <C>               <C>              <C>               <C>   
TOTAL ASSETS                                   18,562           17,366            16,217           15,091            13,247

LONG-TERM OBLIGATIONS
         Notes payable                             --               --                --              800                --
         Capital lease obligations                 40               45                --               --                --
         Long-term debt                            29               45               238               --                --
         Deferred income taxes                    457              424               380              323               296
         Dividends payable                         13               12                10                9                12
TOTAL LONG-TERM OBLIGATIONS                       539              526               628            1,132               308

SALES                                          26,178           26,233            22,477           17,480            17,036

COST OF GOODS SOLD                             21,241           20,212            17,887           13,914            13,708

GROSS PROFIT ON SALES                           4,937            6,021             4,590            3,566             3,328

TOTAL EXPENSES                                  3,513            3,674             2,921            2,338             2,346

OPERATING PROFIT                                1,424            2,347             1,669            1,228               982

OTHER INCOME                                      355              234               174              247               143

INCOME BEFORE INCOME TAXES                      1,779            2,581             1,843            1,475             1,125

PROVISION FOR INCOME TAXES                        682              972               694              548               410

INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE                     1,097            1,609             1,149              927               715

CUMULATIVE EFFECT OF
ACCOUNTING CHANGE                                  109               --                --               --             (196)

NET INCOME                                         988            1,609             1,149              927               519

EARNINGS PER SHARE --
  COMMON  STOCK
         (191,284 shares in 1998;  191,284
         shares in 1997;  191,284 shares in
         1996;  191,284 shares in 1995;
         191,284 shares in 1994)                  5.17             8.41              6.01             4.85              3.74

OPERATING PROFIT PER SHARE --
COMMON STOCK
         (191,284 shares in 1998;  191,284
         shares in 1997;  191,284 shares in
         1996;  191,284 shares in 1995;
         191,284 shares in 1994)                  7.44            12.27              8.72             6.42              5.13


DIVIDENDS PER SHARE -- COMMON STOCK
         (191,284 shares in 1998;  191,284
         shares in 1997;  191,284 shares in
         1996;  191,284 shares in 1995;
         191,284 shares in 1994)                  2.00             1.50              1.40             1.30              1.30



</TABLE>


The  accompanying  notes to financial  statements  are an integral  part of this
selected consolidated financial data.

<PAGE>

                     BRYAN STEAM CORPORATION AND SUBSIDIARY
                  SELECTED CONSOLIDATED FINANCIAL DATA (CONT.)
                 (All except per share amounts are in thousands)





<TABLE>
<CAPTION>
                                                                             Year ended June 30,
                                                              1998              1997             1996

EARNINGS PER SHARE-COMMON STOCK
      (191,284 shares in 1998; 191,284 shares
<S>                                                   <C>              <C>              <C>          
        in 1997; 191,284 shares in 1996)              $       5.71     $        8.41    $        6.01


OPERATING PROFIT PER SHARE-
   COMMON STOCK
      (191,284 shares in 1998; 191,284 shares
        in 1997; 191,284 shares in 1996)              $       7.44     $       12.27    $        8.72


DIVIDENDS PER SHARE-COMMON STOCK
      (191,284 shares in 1998; 191,284 shares
        in 1997; 191,284 shares in 1996)              $       2.00     $        1.50    $        1.40


</TABLE>














         For a  discussion  of  business  combinations  and  accounting  changes
materially affecting the comparability of the information reflected in this Item
6, see Notes 19 and 21, respectively, to Consolidated Financial Statements filed
under Item 8 in Part II of this Report.

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operation.

Results of Operations

         The Company's  consolidated net income before the cumulative  effect of
the accounting change for the year ended June 30, 1998 was $1,097,359,  compared
to  $1,609,015  and  $1,148,934  for the  years  ended  June 30,  1997 and 1996,
respectively.   The  Company's   consolidated  earnings  per  share  before  the
cumulative  effect of the  accounting  totaled $5.74 for the year ended June 30,
1998,  compared  to $8.41 and $6.01 for the years  ended June 30, 1998 and 1996,
respectively.  The Company's consolidated net income for the year ended June 30,
1998 was $987,651, compared to $1,609,015 and $1,148,934 for the year ended June
30, 1997 and 1996,  respectively,  The Company's consolidated earnings per share
totaled $5.17 for the year ended June 30, 1998,  compared to $8.41 and $6.01 for
the years ended June 30, 1997 and 1996,

                                                        -4-

<PAGE>



respectively.  The  decrease  in net  income  (before  the  effect  of  the  net
accounting  change) of  $511,656,  or 32%,  was  primarily  attributable  to the
cumulative  effect of accounting  change for vacation pay on years prior to July
1, 1997 of $109,708 and Bryan Boilers' operations,  which generated a net income
of  $970,393  for the year  ended  June 30,  1998,  compared  to a net income of
$1,614,268 for the year ended June 30, 1997.  Wendland also generated net income
of $116,796 for the year ended June 30, 1998, as compared to net income $117,140
for the year ended June 30, 1997. MEMCO generated a loss of $79,542 for the year
ended June 30, 1998,  compared to a loss of $121,905 for the year ended June 30,
1997.  Operating profit totaled $1,423,828,  or 5.44% of sales, in 1998 compared
to 2,346,494,  or 8.94% of sales and $1,668,590,  or 7.42% of sales, in 1997 and
1996, respectively. The sum of the income and losses of the three companies does
not  equal  the  Company's   consolidated   after-tax   profit  because  of  tax
considerations from the losses at MEMCO.

         The Company's  combined revenues of $26,178,214 for the year ended June
30, 1998  represent a decrease of less than 1% over the revenues of  $26,232,883
for the year ended June 30,  1997.  Bryan  Boilers'  revenues for 1998 were down
$232,508. The revenues of MEMCO were down $126,110. However, Wendland's revenues
increased  $303,949.  The revenues of Bryan Boilers  remained  relatively at the
same amount as the prior year level despite a price increase of approximately 3%
that was placed in effect on September 1, 1997. The effect of the price increase
was offset by Bryan Boilers'  inability to maintain the same shipping  levels in
the final quarter of its current  fiscal year as it achieved in the same quarter
of the  previous  fiscal  year.  Wendland's  increase in revenues  reflects  the
results of management's effort to achieve its goal to reach the $3,000,000 sales
level.   MEMCO's   decrease  in  revenues  is  primarily   attributable  to  the
difficulties  encountered by the subsidiary as it attempts to increase is market
share and develop new products to supplement its existing product lines.

         The  Company's  cost of goods sold for the year ended June 30, 1998 was
$21,241,354,  compared to $21,212,160  and  $17,887,043 for the years ended June
30,  1997  and  1996,  respectively.  The  Company's  cost  of  goods  sold as a
percentage of sales was 81.14% in 1998,  which increased when compared to 77.05%
in 1997.  Management  believes that this increase in cost of goods sold reflects
the increase in labor costs incurred during the year. This increase results from
increased  wage rates and the  inability to sustain the labor  efficiency of the
prior year. Bryan Boilers  negotiated a new collective  bargaining  agreement in
May, 1998,  which runs through May, 2001. This collective  bargaining  agreement
provided for an increase in wages for Bryan  Boilers'  bargaining  unit of 5% in
May, 1998 and 3% in each of the subsequent two years covered by the contract.

         Total  expenses  for the year ended June 30,  1998  totaled  $3,513,032
compared to $3,674,229 for the year ended June 30, 1997.  Total expenses for the
year ended June 30, 1997.  Total  expenses for the year ended June 30, 1998 were
approximately 13% of sales, as compared to 14% for the year ended June 30, 1997.

         Total other  income  (expense)  totaled  $355,221  in 1998  compared to
$234,474  and  $173,960 in 1997 and 1996,  respectively.  The  increase in other
income (expense) in 1998 over 1997 resulted from a decrease in interest expense,
an increase in freight income and an increase in other income. These were offset
somewhat  by a decrease  in  interest  and  dividend  income.  Interest  expense
decreased to $24,181 in 1998 from $88,281 in 1997.  Freight income  increased by
$32,907  over this same period in 1997.  Other  income  increased to $118,676 in
1998 from $52,353 in 1997.  Interest and  dividend  income  decreased by $53,052
over the same period in 1997, and is approximately equal to 1996.

Financial Condition

         The Company's total assets at June 30, 1998 were $18.6 million compared
to $17.4 million and $16.2 million at June 30, 1997 and 1996, respectively.  The
increase in total assets resulted  primarily from the approximately $1.3 million
increase in current assets.  The majority of this increase is attributable to an
increase in accounts  receivable,  inventory and prepaid expenses as compared to
June 30, 1997. Total current  liabilities at June 30, 1998 were approximately $3
million,  which is an increase as compared to $2.4  million and $2.5  million at
June 30, 1997 and 1996,  respectively.  The Company's net worth at June 30, 1998
was $15 million,  compared to $14.4 million and $13.1 at June 30, 1997 and 1996,
respectively.

Liquidity and Capital Resources

         Total cash and cash  equivalents  and investments at June 30, 1998 were
$1,561,657,  compared to  $1,835,565  and  $1,921,293 at June 30, 1997 and 1996,
respectively.  This decrease resulted  primarily from the increase in inventory,
accounts  receivables and prepaid expenses  between 1998 and 1997,  offset by an
increase in short-term  borrowings  between 1998 and 1997. The combined  working
capital ratio of current  assets to current  liabilities  was 4.23:1 at June 30,
1998,  compared  to 4.67:1 and 4.61:1 at June 30,  1997 and 1996,  respectively.
Management estimates that capital expenditures

                                                        -5-

<PAGE>



for fiscal year 1999 will total approximately $400,000,  which includes $200,000
for a new  machining  center  to  facilitate  the  drilling  of holes in  pipes.
Management  anticipates that internal sources of funds and available  sources of
financing  will be  adequate  to cover  the  planned  capital  expenditures  and
maintain the Company's current level of operations.

Year 2000

         Management  and the Board of Directors  recognize and  understand  Year
2000 ("Y2K") risk and do not believe that the  consequences  of Y2K issues would
have a material  effect on the Company's  business,  results of  operations,  or
financial condition.  Neither the products that the Company manufactures nor the
manufacturing  equipment  used by the  Company  have  computer  chip  components
affected by the Y2K problem.  Management is in the process of assessing  whether
its  suppliers  or  customers  are Y2K  compliant;  however,  the Company is not
dependent on any single supplier and generally  believes that the components and
materials used in its products are available from multiple suppliers.  Likewise,
no single customer accounts for a material portion of the Company's sales.

         Management  is aware of the need for some minor  equipment  or software
changes to achieve Y2K compliance with respect to its internal systems. Although
the full cost of modifications is not yet known,  management does not anticipate
a need to invest heavily in system  improvements to achieve Y2K  compliance.  At
this time, it is estimated  that costs  associated  with Y2K issues will be less
than $5,000 for fiscal year 1999.

General

         Management  considers  Bryan Boilers'  performance  for the last fiscal
year to be  satisfactory,  considering the competitive  nature of this industry.
Management  considers  the  performance  of  Wendland  to be very  satisfactory,
considering  the  regionality  of its markets.  Management  considers  the MEMCO
performance to be acceptable, considering that it is still a start-up company.
Management is concerned with  continued  losses shown by MEMCO and will continue
to assess the ability of MEMCO to compete in its market.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk.

         Long-term  debt is the only  type of market  risk-sensitive  instrument
held by the Company.  Details regarding long-term debt instruments are described
in the Summary of Significant Accounting Policies, Long-Term Debt and Fair Value
of Financial Instruments Notes to Consolidated  Financial Statements filed under
Item 8 in Part II of this  Report.  The Company  believes its exposure to market
risk fluctuations for the aforementioned instruments is not material at June 30,
1998.

Item 8.  Financial Statements and Supplementary Data.


                               CASSEN COMPANY LLC

                          Certified Public Accountants
                           3845 NORTH MERIDIAN STREET
                        INDIANAPOLIS, INDIANA 46208-4018
                              PHONE (317) 923-3324
                               FAX (317) 923-5247

DONALD L. TEKULVE, C.P.A.                              LOUIS J. BUERGLER, C.P.A.
DENNIS E. REEVES, C.P.A.                                EDGARD E. HOWARD, C.P.A.
ROBERT E. DAVIS, C.P.A.                                 EDWIN L. STAGE, C.P.A.
FRANK L. MUZZILLO III, C.P.A.


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To The Board of Directors and Stockholders
of Bryan Steam Corporation


We have  audited the  accompanying  consolidated  balance  sheets of Bryan Steam
Corporation  (a New Mexico  Corporation)  and  subsidiary  as of June 30,  1998,
1997,and  1996,  and the related  consolidated  statements  of income,  retained
earnings and cash flows for the years then ended. These  consolidated  financial
statements  are  the  responsibility  of  the  Corporation's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of Bryan
Steam  Corporation  and subsidiary as of June 30, 1998,  1997, and 1996, and the
results of their  consolidated  operations,  consolidated  retained earnings and
consolidated  cash flows for the years then ended,  in conformity with generally
accepted accounting principles.

As discussed in Note 21 to the financial statements, effective July 1, 1997, the
Bryan Steam Corporation (Bryan Boiler Division) changed its method of accounting
for vacation pay.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial statements taken as a whole. The Selected Consolidated  Financial Data
is presented for the purposes of additional  analysis and is not a required part
of the basic financial  statements.  Such  information has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion,  is fairly  stated in all  material  respects in relation to the
basic financial statements taken as a whole.



/s/ CASSEN COMPANY LLC
CASSEN COMPANY LLC
Indianapolis, Indiana
July 22, 1998
<PAGE>


BRYAN STEAM CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>



                              ASSETS
                                                                       June 30,
                                                        -------------------------------------
CURRENT ASSETS:                                            1998         1997         1996
                                                        -----------  -----------  -----------
<S>                                                     <C>          <C>          <C>        
       Cash & cash equivalents                          $   864,411  $   368,879  $   304,739
       Investment securities                                697,246    1,466,686    1,616,554
       Accounts receivable, net                           5,104,987    4,814,745    4,793,663
       Inventory                                          5,082,731    4,479,203    4,202,010
       Prepaid federal income taxes                         377,621       27,528       84,414
       Deferred income taxes                                 90,751        6,547        5,208
       Prepaid expenses                                     518,011      282,644      335,183
                                                        -----------  -----------  -----------
            TOTAL CURRENT ASSETS                        $12,735,758  $11,446,232  $11,341,771
                                                        -----------  -----------  -----------

PROPERTY, PLANT & EQUIPMENT
       (Cost, less accumulated depreciation)            $ 5,478,722  $ 5,576,122  $ 4,568,220
                                                        -----------  -----------  -----------

OTHER ASSETS
       Intangible assets, net                           $   135,522  $   201,791  $   268,058
       Deferred income taxes                                206,487      136,646       34,028
       Deposits                                               5,171        5,171        5,171
                                                        -----------  -----------  -----------
            TOTAL OTHER ASSETS                          $   347,180  $   343,608  $   307,257
                                                        -----------  -----------  -----------

TOTAL ASSETS                                            $18,561,660  $17,365,962  $16,217,248
                                                        ===========  ===========  ===========

LIABILITIES & STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
       Accounts payable - trade                         $   722,198  $   851,512  $   553,079
       Capital lease obligations                             12,786        8,632    -
       Short-term debt                                      754,900       45,400      322,620
       Accrued liabilities                                1,372,652    1,427,492    1,168,974
       Current portion of long-term debt                      8,045       24,300      341,673
       State income taxes payable                         -                4,837    -
       Deferred income taxes                                136,760       86,156      113,877
                                                        -----------  -----------  -----------
            TOTAL CURRENT LIABILITIES                   $ 3,007,341  $ 2,448,329  $ 2,500,223
                                                        -----------  -----------  -----------

LONG-TERM LIABILITIES
       Capital lease obligations                        $    40,023  $    45,272  $ -
       Long-term debt                                        28,736       44,968      238,207
       Deferred income taxes                                457,134      423,728      379,661
       Dividends payable                                     13,275       11,834       10,016
                                                        -----------  -----------  -----------
            TOTAL LONG-TERM LIABILITIES                 $   539,168  $   525,802  $   627,884
                                                        -----------  -----------  -----------

STOCKHOLDERS' EQUITY
       Common capital stock, without par value,
         200,000 shares - authorized & issued           $   810,272  $   810,272  $   810,272
       Retained earnings                                 14,233,606   13,610,286   12,307,596
       Treasury stock, at cost, 8,716 shares                (28,727)     (28,727)     (28,727)
                                                        -----------  -----------  -----------
            TOTAL STOCKHOLDERS' EQUITY                  $15,015,151  $14,391,831  $13,089,141
                                                        -----------  -----------  -----------

TOTAL LIABILITIES &
       STOCKHOLDERS' EQUITY                             $18,561,660  $17,365,962  $16,217,248
                                                        ===========  ===========  ===========

</TABLE>


The  accompanying  notes to financial  statements  are an integral part of these
consolidated balance sheets.

<PAGE>

BRYAN STEAM CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                                                   June 30,
                                                             -----------------------------------------------------
                                                                1998                 1997                 1996
                                                             -----------          -----------          -----------
<S>                                                          <C>                  <C>                  <C>        
SALES                                                        $26,178,214          $26,232,883          $22,476,628
                                                             -----------          -----------          -----------
                                                                                                       
COST OF GOODS SOLD                                                                                     
       Inventory - beginning                                 $ 4,479,203          $ 4,202,010          $ 4,181,513
       Purchases and freight                                  11,982,391           11,530,216           10,178,216
       Labor                                                   5,969,390            5,436,966            4,581,203
       Other costs                                             3,893,101            3,522,171            3,148,121
                                                             -----------          -----------          -----------
            TOTAL                                            $26,324,085          $24,691,363          $22,089,053
       Less:  Inventory - ending                               5,082,731            4,479,203            4,202,010
                                                             -----------          -----------          -----------
COST OF GOODS SOLD                                           $21,241,354          $20,212,160          $17,887,043
                                                             -----------          -----------          -----------
                                                                                                       
GROSS PROFIT                                                 $ 4,936,860          $ 6,020,723          $ 4,589,585
                                                             -----------          -----------          -----------
                                                                                                       
EXPENSES                                                                                               
       Salaries and wages - officers                         $   174,842          $   244,015          $   278,261
       Salaries and wages - other                              1,038,044              910,276              772,170
       Depreciation expense                                      210,036              207,935              119,184
       Pension plan                                              134,933              268,658              115,523
       Taxes - payroll & local                                   139,719              166,422              117,387
       Provision for bad debts                                    15,938                   77               15,207
       Repairs & maintenance                                      84,879              130,564               78,141
       General & administrative                                1,714,641            1,746,282            1,425,122
                                                             -----------          -----------          -----------
TOTAL EXPENSES                                               $ 3,513,032          $ 3,674,229          $ 2,920,995
                                                             -----------          -----------          -----------
                                                                                                       
OPERATING INCOME                                             $ 1,423,828          $ 2,346,494          $ 1,668,590
                                                             -----------          -----------          -----------
                                                                                                       
OTHER INCOME (EXPENSE)                                                                                 
       Interest and dividend income                          $   105,623          $   158,675          $   103,984
       Interest expense                                          (24,181)             (88,281)             (82,830)
       Net gain (loss) on investment securities                    6,597               (3,872)              (1,589)
       Freight income                                            148,506              115,599               86,613
       Other income & expense                                    118,676               52,353               67,782
                                                             -----------          -----------          -----------
TOTAL OTHER INCOME (EXPENSE)                                 $   355,221          $   234,474          $   173,960
                                                             -----------          -----------          -----------
                                                                                                       
INCOME BEFORE INCOME TAXES                                   $ 1,779,049          $ 2,580,968          $ 1,842,550
                                                                                                       
PROVISION FOR INCOME TAXES                                       681,690              971,953              693,616
                                                             -----------          -----------          -----------
                                                                                                       
INCOME BEFORE CUMULATIVE EFFECT                                                                        
       OF ACCOUNTING CHANGE                                  $ 1,097,359          $ 1,609,015          $ 1,148,934
                                                                                                       
CUMULATIVE EFFECT OF ACCOUNTING                                                                        
       CHANGE FOR VACATION PAY ON YEARS                                                                
       PRIOR TO JULY 1, 1997 (NET OF INCOME                                                            
       TAX BENEFIT OF $78,794)                                  (109,708)           -                    -
                                                             -----------          -----------          -----------
                                                                                                       
INCOME                                                       $   987,651          $ 1,609,015          $ 1,148,934
                                                             ===========          ===========          ===========
                                                                                                       
EARNINGS PER SHARE                                                                                     
       Income before cumulative effect of accounting change  $      5.74          $      8.41                 6.01
       Cumulative effect of accounting change                      (0.57)           -                    -
                                                             -----------          -----------          -----------
            INCOME                                           $      5.17          $      8.41          $      6.01
                                                             ===========          ===========          ===========
                                                                                                       
</TABLE>
The  accompanying  notes to financial  statements  are an integral part of these
consolidated statements of income.


<PAGE>

BRYAN STEAM CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS




<TABLE>
<CAPTION>

                                                                      June 30,
                                                      --------------------------------------
                                                          1998         1997         1996
                                                      -----------  -----------  -----------
<S>                                                   <C>          <C>          <C>        
BALANCE AT BEGINNING OF YEAR                          $13,610,286  $12,307,596  $11,426,422



       Net income                                         987,651    1,609,015    1,148,934



       Unrealized gain on available-for-sale
           securities                                      18,187    -            -



       Dividends paid                                    (382,518)    (286,885)    (267,760)


       Adjustment to prior year
           income tax expense                           -              (19,440)        -
                                                      -----------  -----------  -----------


BALANCE AT END OF YEAR                                $14,233,606  $13,610,286  $12,307,596
                                                      ===========  ===========  ===========
</TABLE>




The accompanying notes to financial statements are an integral part of these
consolidated statements of retained earnings.

<PAGE>


BRYAN STEAM CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>

                                                                                 June 30,
                                                         -------------------------------------------------------
                                                             1998                 1997                  1996
                                                         ------------         ------------         ------------- 
CASH FLOWS FROM OPERATING ACTIVITIES                                                              
<S>                                                      <C>                  <C>                  <C>          
       Cash received from customers                      $ 26,149,110         $ 26,392,669         $  20,876,838
       Cash paid to suppliers and employees               (25,344,684)         (22,990,668)          (20,083,591)
       Interest and dividends received                        108,472              158,675               129,783
       Interest paid                                          (28,962)             (90,437)              (80,674)
       Income taxes paid                                   (1,040,924)          (1,017,281)             (850,672)
                                                         ------------         ------------         ------------- 
            NET CASH PROVIDED (USED)                                                              
               BY OPERATING ACTIVITIES                   $   (156,988)        $  2,452,958         $      (8,316)
                                                         ------------         ------------         ------------- 
                                                                                                  
CASH FLOWS FROM INVESTING ACTIVITIES                                                              
       Purchases of plant and equipment                  $   (460,875)        $ (1,466,181)        $  (1,493,997)
       Proceeds from sale of plant & equipment                 11,263                5,346                   -
       Purchases of investment securities                    (320,520)            (222,916)             (520,008)
       Proceeds from sale of investment securities          1,127,807              368,912               817,019
       Deposits with utilities                              -                    -                        (5,171)
       Purchase of non-compete agreements                   -                    -                      (300,000)
       Purchase of goodwill                                 -                    -                       (13,627)
                                                         ------------         ------------         ------------- 
            NET CASH PROVIDED (USED)                                                              
              BY INVESTING ACTIVITIES                    $    357,675         $ (1,314,839)        $  (1,515,784)
                                                         ------------         ------------         ------------- 
                                                                                                  
CASH FLOWS FROM FINANCING ACTIVITIES                                                              
       Proceeds from short-term borrowings               $    726,398         $  -                 $     322,620
       Principal payments on short-term borrowings            (17,983)            (277,220)            -
       Principal payments on capital lease obligations         (8,493)              (1,080)            -
       Principal payments on long-term debt                   (24,000)            (566,612)             (464,484)
       Proceeds from long-term debt                         -                       56,000                44,364
       Dividends paid                                        (381,077)            (285,067)             (266,607)
                                                         ------------         ------------         ------------- 
            NET CASH PROVIDED (USED)                                                              
              BY FINANCING ACTIVITIES                    $    294,845         $ (1,073,979)        $    (364,107)
                                                         ------------         ------------         ------------- 
                                                                                                  
NET INCREASE (DECREASE) IN CASH                                                                   
       AND EQUIVALENTS                                   $    495,532         $     64,140         $  (1,888,207)
                                                                                                  
CASH AND EQUIVALENTS AT BEGINNING                                                                 
       OF YEAR                                           $    368,879         $    304,739         $   2,192,946
                                                         ------------         ------------         ------------- 
                                                                                                  
CASH AND EQUIVALENTS AT END                                                                       
       OF YEAR                                           $    864,411         $    368,879         $     304,739
                                                         ============         ============         =============
                                                                                                  
                                                                                                  
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES                                            
       Non-cash investing transactions included trading                                           
       used equipment having a fair                                                               
       market value for new equipment,                                                            
       in addition to boot given, and the                                                         
       recording of capital lease obligations.                                                    
                                                                                                  
       Fair value of used equipment given                $  -                 $  -                 $      14,150
                                                         ============         ============         =============
                                                                                                  
       Capital lease obligations recorded                $  -                 $     54,984         $   -
                                                         ============         ============         =============
                                                                                                         
</TABLE>
                       
The  accompanying  notes to financial  statements  are an integral part of these
consolidated statements of cash flows.

<PAGE>

                     BRYAN STEAM CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The  Corporation  manufactures  boilers and boiler  accessories  at its
         Bryan Steam  Corporation  (Bryan Steam) plant in Peru,  Indiana.  Bryan
         Steam's   wholly-owned   subsidiary,   Wendland   Manufacturing   Corp.
         (Wendland),  operates  a tank  manufacturing  facility  in San  Angelo,
         Texas.  Wendland's  wholly-owned  subsidiary,  Monticello Exchanger and
         Manufacturing  Co.  (Monticello),  manufactures  heat exchangers at its
         plant in  Monticello,  Indiana.  The  Corporation  sells  its  products
         through  independent  sales  representatives.   North  America  is  the
         principal market for the Corporation's products.

         Bryan  Steam's  sales were  83.5% of total  consolidated  sales,  while
         Wendland's  and  Monticello's  sales  were 11.4% and 5.1% of the total,
         respectively.

         1a.      CASH AND CASH EQUIVALENTS

                  For purposes of the statement of cash flows,  cash equivalents
                  include  cash on hand,  deposits  in  banks,  certificates  of
                  deposit,  money funds and all highly  liquid debt  instruments
                  with original maturities of three months or less.

         1b.      INVESTMENT SECURITIES

                  Management  determines the appropriate  classification  of its
                  investments  in debt  and  equity  securities  at the  time of
                  purchase and reevaluates such  determinations  at each balance
                  sheet date. Debt securities are classified as held to maturity
                  when the  Corporation  has the positive  intent and ability to
                  hold the securities to maturity.  Held to maturity  securities
                  are stated at amortized  cost.  Debt  securities for which the
                  Corporation  does not have the  intent or  ability  to hold to
                  maturity are classified as available for sale,  along with any
                  investments  in equity  securities.  Securities  available for
                  sale are carried at fair value,  with the unrealized gains and
                  losses, net of income taxes,  reported as a separate component
                  of   Stockholders'   Equity.   The   Corporation  had  had  no
                  investments that qualify as trading.

                  The  amortized  cost  of  debt   securities  is  adjusted  for
                  amortization   of  premiums  and  accretion  of  discounts  to
                  maturity or, in the case of asset-backed securities,  over the
                  estimated life of the security. Such amortization and interest
                  are included in Other Income  (Expense),  in the  Statement of
                  Income.  The cost of securities  sold is based on the specific
                  identification method.

                  The  Corporation's  investments in debt and equity  securities
                  are  diversified  among  high  credit  quality  securities  in
                  accordance with the Corporation's investment policy.




<PAGE>



                     BRYAN STEAM CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998



         1c.      PROPERTY, PLANT & EQUIPMENT

                  Property, plant and equipment are stated at cost. Depreciation
                  of  buildings,  equipment,  fixtures  and vehicles is computed
                  using the straight-line method over estimated useful lives.

                        Estimated useful lives are:
                                                                 Years
                                Buildings & improvements        10 - 40
                                Machinery & equipment                10
                                Furniture & fixtures             5 - 10
                                Vehicles                         4 - 10

                  Expenditures  for  equipment  repair and  maintenance  and for
                  replacements  and renewals of portions of structures which are
                  not considered as  lengthening  the life of the structures are
                  expensed as incurred. Additions,  replacements and renewals of
                  equipment are capitalized.

                  When  property  or  equipment  is retired,  sold or  otherwise
                  disposed of, the cost and related accumulated depreciation are
                  removed from the accounts and gains and losses  resulting from
                  such transactions are reflected in income.


         1d.      RESEARCH & DEVELOPMENT

                  Research and development  costs are charged to operations when
                  incurred and are included in operating  expenses.  The amounts
                  charged for the years ended June 30, 1998, 1997, and 1996 were
                  $135,760, $141,923, and $92,063, respectively.

         1e.      INVENTORY

                  The  Corporation's  inventory  of raw  materials  is valued at
                  lower  of  cost,  using  the  FIFO  method,  or  market.   The
                  Corporation's  inventories  of  work-in-process  and  finished
                  goods are valued at cost per unit.

         1f.      SUPPLEMENTAL INCOME INFORMATION

                  The amounts of  depreciation  and maintenance are set forth in
                  the  statement of income.  There were no management or service
                  contract  fees or  royalties  paid during the years ended June
                  30,  1998,  1997 and 1996.  Advertising  costs are expensed as
                  incurred.

         1g.      INCOME TAXES

                  The  Corporation  adopted  Statement of  Financial  Accounting
                  Standards (SFAS) 109-  "Accounting for Income Taxes",  July 1,
                  1993.  This  Statement  supercedes  SFAS 96-  "Accounting  for
                  Income  Taxes".  Deferred  income  taxes  reflect  the  future
                  federal and state tax consequences of differences  between the
                  tax  basis of  assets  and  liabilities  and  their  financial
                  reporting amounts at each year-end.


<PAGE>



                     BRYAN STEAM CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998


         1h.      PRINCIPLES OF CONSOLIDATION

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

         1i.      INDUSTRY SEGMENT

                  During the year ended June 30, 1998 the  Corporation  operated
                  exclusively  in  one  industry  segment,  the  manufacture  of
                  boilers, tanks, and heat exchangers.

         1j.      FAIR VALUE OF FINANCIAL INSTRUMENTS

                  Statement of Accounting  Standards No. 107 "Disclosures  about
                  Fair Value of Financial  Instruments," requires disclosures of
                  fair value information about financial instruments, whether or
                  not  recognized  in the statement of financial  condition.  In
                  cases  where  quoted  market  prices are not  available,  fair
                  values are based on  estimates  using  present  value or other
                  valuation  techniques.   Those  techniques  are  significantly
                  affected by the assumptions used,  including the discount rate
                  and  estimates  of future  cash  flows.  In that  regard,  the
                  derived  fair  value  estimates  cannot  be  substantiated  by
                  comparison to  independent  markets and, in many cases,  could
                  not be realized in immediate  settlement  of the  instruments.
                  Statement No. 107 excludes certain  financial  instruments and
                  all nonfinancial instruments from its disclosure requirements.
                  For   most  of  its   covered   financial   instruments,   the
                  Corporation's  carrying  value closely  approximates  the fair
                  value of the financial instruments to the Corporation.

         1k.      USE OF ESTIMATES

                  The  preparation  of financial  statements in conformity  with
                  generally accepted  accounting  principles requires management
                  to make estimates and assumptions that affect certain reported
                  amounts and  disclosures.  Accordingly,  actual  results could
                  differ from the estimates.

2.       INVENTORY

         Inventories   are  stated  at  the  lower  of  cost  or  market.   Cost
         approximates  market.  Such cost includes raw materials,  direct labor,
         other direct costs and production overhead.  The inventories are valued
         on the first-in, first-out (FIFO) method.

         Inventories at June 30 are as follows:

                                               1998         1997         1996
                                            ----------   ----------   ----------
         Finished goods & work in process   $1,611,174   $1,165,334   $1,136,608
         Raw materials                       3,471,557    3,313,869    3,065,402
                                            ----------   ----------   ----------
               TOTALS                       $5,082,731   $4,479,203   $4,202,010
                                            ==========   ==========   ==========




<PAGE>



                     BRYAN STEAM CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998


3.       INCOME TAXES

         As  discussed  in Note 1g, on July 1,  1993,  the  Corporation  adopted
         Statement of Financial  Accounting  Standards No.  109-"Accounting  for
         Income Taxes" (SFAS 109).  SFAS 109 is an asset and liability  approach
         that requires the  recognition  of deferred tax assets and  liabilities
         for the  expected  future  tax  consequences  of events  that have been
         recognized in the Corporation's financial statements or tax returns. In
         estimating  future tax consequences,  SFAS 109 generally  considers all
         expected  future events other than enactments of changes in the tax law
         or rates.

         The Corporation and its subsidiary file separate income tax returns.

         The provision for income taxes consists of the following:

                                           For the years ended June 30,
                                       ----------------------------------
                                         1998          1997        1996
                                       --------    ----------    --------
         Current taxes:
                   Federal             $544,571    $  847,472    $483,412
                   State                141,422       212,093     127,663
                                       --------    ----------    --------
                         Total         $685,993    $1,059,565    $611,075
                                       --------    ----------    --------
         
         Deferred taxes:
                   Federal             $ (1,740)   $  (69,359)   $ 67,105
                   State                 (2,563)      (18,253)     15,436
                                       --------    ----------    --------
                         Total         $ (4,303)   $  (87,612)   $ 82,541
                                       --------    ----------    --------

         Provision (benefit) for
          income taxes                 $681,690    $  971,953    $693,616
                                       ========    ==========    ========


         Reconciliation  of total  provision  for income  tax with the  expected
         provision obtained by applying statutory rates to pretax income:

                                                 For the years ended June 30,
                                              --------------------------------
                                                1998        1997        1996
                                              --------    --------    --------
         
         Expected tax provision               $743,642    $990,165    $606,802
         Nondeductible expenses/
                   (nontaxable income)         (61,952)    (15,760)     86,814
         Other                                    -         (2,452)       -
                                              --------    --------    --------
         
         Total Provision for
                   Income Tax                 $681,690    $971,953    $693,616
                                              ========    ========    ========
      


<PAGE>

                     BRYAN STEAM CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998


3.       INCOME TAXES (CONT.)

         The sources of the temporary  differences  for deferred income taxes as
         of June 30, are summarized as follows:

                                         1998          1997          1996    
                                      ----------    ----------    ----------
         Depreciation                 $1,105,854    $1,021,060    $  908,281
         Pension                         295,925       206,118       272,434
         Net operating loss             (494,615)     (327,321)         -
         Other                          (186,563)      (17,372)      (12,460)
                                      ----------    ----------    ----------
                                      $  720,601    $  882,485    $1,168,255
                                      ==========    ==========    ==========
         Deferred Income
                   Tax Liabilities    $  296,656    $  366,691    $  454,302
                                      ==========    ==========    ==========


         Deferred tax liabilities (assets) are comprised of the following:

                                                 For the years ended June 30,
                                            ----------------------------------
                                               1998         1997        1996
                                            ---------    ---------    --------
Depreciation                                $ 457,134    $ 423,728    $379,661
Pension                                       123,697       86,156     113,877
Other                                          13,063         -           -
                                            ---------    ---------    --------
          Gross deferred tax liability      $ 593,894    $ 509,884    $493,538
                                            ---------    ---------    --------

Allowance for bad debts                     $  (5,121)   $  (6,547)   $ (5,208)
Net operating loss carryforward,
  expires June 30, 2011 and 2012             (206,487)    (136,646)    (34,028)
Vacation pay                                  (85,630)        -           -
                                            ---------    ---------    --------
          Gross deferred tax assets         $(297,238)   $(143,193)   $(39,236)
                                            ---------    ---------    --------

Deferred tax assets
          valuation allowance               $    -       $    -       $   -
                                            ---------    ---------    --------
Deferred tax liabilities (assets)           $ 296,656    $ 366,691    $454,302
                                            =========    =========    ========


4.       PENSION PLANS

         The Corporation has  non-contributory  pension plans for  substantially
         all employees at its Peru,  Indiana facility.  The initial pension plan
         was  established  on or about  July 1,  1966.  Plan  assets  consist of
         government and corporate  bonds,  mutual funds,  guaranteed  investment
         contracts, and cash equivalent investments.  Pension benefits are based
         on taxable earnings and years of service.  The Corporation's  policy is
         to fund at least  the  minimum  amounts  required  by  Federal  law and
         regulation.

         Pension expense includes the following components:
<TABLE>
<CAPTION>

                                                         1998         1997         1996
                                                       ---------    ---------    ---------
<S>                                                    <C>          <C>          <C>      
Service cost-benefits earned during the year           $ 223,599    $ 226,998    $ 175,553
Interest cost on projected benefit obligation            286,822      266,026      278,403
Actual return on assets                                 (493,079)    (151,097)    (346,036)
Net of other components                                  131,139      (62,339)     (42,720)
                                                       ---------    ---------    ---------
Net periodic pension cost                              $ 148,481    $ 279,588    $  65,200
                                                       =========    =========    =========


<PAGE>

The reconciliation of the funded status 
of the plans is as follows:

          Year Ended                                    6/30/98         6/30/97        6/30/96
                                                       ---------    ---------    ---------
          Measurement Date                              3/31/98         3/31/97        3/31/96
                                                       ---------    ---------    ---------

Actuarial present value of benefit obligations:
          Vested benefit obligation                    $(3,498,505)   $(2,798,339)   $(3,490,452)
                                                       -----------    -----------    ----------- 
          Accumulated benefit obligation               $(3,911,156)   $(3,102,787)   $(3,826,817)
                                                       -----------    -----------    ----------- 
          Projected benefit obligation                 $(4,970,451)   $(3,878,041)   $(4,627,297)
          Plan assets at fair value                      4,727,838      4,100,016      4,637,004
                                                       -----------    -----------    ----------- 
          Plan assets greater (less) than projected
                benefit obligation                     $  (242,613)   $   221,975    $     9,707
          Unrecognized net (gain) loss                     705,092        177,968        536,257
          Prior service cost not yet recognized in net
                periodic pension cost                       27,205         29,369         31,533
          Unrecognized transition obligation (assets)     (193,759)      (223,197)      (305,063)
                                                       -----------    -----------    ----------- 
          Prepaid (accrued) pension expense            $   295,925    $   206,115    $   272,434
                                                       ===========    ===========    ===========

The assumptions used in determining pension 
expense and funded status information
shown above were as follows:

                                                       6/30/98            6/30/97       6/30/96
                                                    -----------         -----------    ----------- 
          Discount rate                                 6.75%               7.50%         7.00%
          Rate of salary progression                    4.00%               4.00%         4.00%
          Long-term rate of return on assets         7.00-8.50%          7.00-8.50%       7.00%
</TABLE>


         The  discount  rates for June 30,  1998,  and 1997 are  based  upon the
         Moody's AA Corporate Bond Index.



<PAGE>

                     BRYAN STEAM CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998

4.       PENSION PLANS (CONT.)

         Contributions to a union sponsored  defined  contribution  pension plan
         for years ended June 30, 1998,  1997 and 1996 were  $279,355,  $224,750
         and  $171,238,  respectively.  This plan  covers  all  bargaining  unit
         employees.  This  plan  is  not  administered  by the  Corporation  and
         contributions  are  determined  in  accordance  with  provisions  of  a
         negotiated labor contract.

         The Corporation  maintains a defined  contribution  money-purchase plan
         for  qualified  employees  at  its  San  Angelo,  Texas  facility.  The
         Corporation's contribution to this retirement plan is determined by the
         voluntary contributions made by the employees.  The Corporation matches
         employee  contributions up to 3% of the individual employee's earnings.
         During the years ended June 30, 1998 and 1997, the Corporation incurred
         expenses  of $22,419 and  $20,230,  respectively,  for this  retirement
         plan, all of which was charged to operations.

5.       PLANT, PROPERTY & EQUIPMENT

                                                        June 30,                
                                      -----------------------------------------
                                          1998           1997           1996
                                      -----------    -----------    -----------
       Land                           $   197,326    $   197,326    $   183,526
       Buildings                        4,030,168      3,809,322      2,883,870
       Machinery & equipment            3,659,707      3,488,412      3,131,250
       Equipment under capital lease       50,145         54,984           -
       Patterns - Hoppes                   30,000         30,000         30,000
       Furniture & fixtures             1,090,832      1,020,343        958,293
       Vehicles                           352,155        376,247        311,718
                                      -----------    -----------    -----------
                                      $ 9,410,333    $ 8,976,634    $ 7,498,657
       Less: Accumulated depreciation  (3,931,611)    (3,400,512)    (2,930,437)
                                      -----------    -----------    -----------
                 TOTALS               $ 5,478,722    $ 5,576,122    $ 4,568,220
                                      ===========    ===========    ===========


6.       CONTINGENT LIABILITIES

         The  Corporation  is involved  in  litigation  arising  from the normal
         course of business.  In the opinion of  management,  based on advice of
         legal  counsel,  this  litigation  will not have any  material  adverse
         effect on the financial position of the Corporation.

7.       RELATED PARTY TRANSACTIONS

         The Corporation  paid  approximately  $792,315 in the fiscal year 1998,
         and  $613,253  in the  fiscal  year ended  1997 to cover  premiums  for
         various property,  casualty and workers compensation insurance policies
         on which an insurance agency owned by G. N. Summers,  a director of the
         Corporation,  received  commissions.  There  are  no  other  reportable
         related party  transactions  between the Corporation and its directors,
         executive  officers,  5% beneficial  shareholders  or immediate  family
         members of the foregoing persons.


<PAGE>



                     BRYAN STEAM CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998



7.       RELATED PARTY TRANSACTIONS (CONT.)

         The  Corporation  paid  freight  charges  totalling  $12,800 to Western
         Express through January 31, 1997, at which time Wendland  Manufacturing
         Corp.  (Wendland)  purchased  all of the  business  assets  of  Western
         Express.  Prior to  February  1, 1997,  an officer of  Wendland  had an
         ownership interest in Western Express.

8.       INTANGIBLES

         Amortization is recorded under the "straight line method." Goodwill and
         non-compete   agreements   are  being   amortized   over  five   years.
         Expenditures  to acquire a patent are capitalized and amortized over 17
         years.

9.       OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK

         In 1990,  the  Corporation  adopted  Statement of Financial  Accounting
         Standard  No.  105  which  requires  disclosure  of  information  about
         financial   instruments   with   off-balance   sheet   risk  and  about
         concentrations of credit risk for all financial instruments.

         OFF-BALANCE SHEET RISK

         As of June 30, 1998,  1997 and 1996, the Corporation had no significant
         off-balance sheet risk.

         CONCENTRATIONS OF CREDIT RISK

         Financial  instruments  which  potentially  subject the  Corporation to
         significant  concentrations  of  credit  risk  consist  principally  of
         temporary cash investments and trade receivables.

         The Corporation places its cash and temporary  investments with various
         high quality  financial  institutions.  Cash accounts,  on deposit at a
         local bank,  sometimes  exceeded the $100,000 limit  established by the
         Federal  Deposit  Insurance  Corporation.   The  Corporation  maintains
         accounts with several stock brokerage  firms. The accounts contain cash
         and  various  securities.   Cash  balances,  which  are  generally  not
         significant,  are  insured up to $100,000  by the  Securities  Investor
         Protection  Corporation  (SIPC).  Investment  securities  balances,  as
         reported in the balance sheet are insured by SIPC up to various limits,
         depending on the brokerage firm.

         Concentrations  of credit risk with  respect to trade  receivables  are
         limited  due  to  the  large   number  of  customers   comprising   the
         Corporation's customer base, and their dispersion across many different
         industries  and  geographical  areas.  No individual  customer  balance
         exceeded  10% of the  Corporation's  trade  receivables  at the balance
         sheet date.

         In management's  opinion, as of June 30, 1998 and 1997, the Corporation
         had no other significant concentrations of credit risk.


<PAGE>



                     BRYAN STEAM CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998


10.      COMPARATIVE STATEMENT OF CASH FLOWS

         RECONCILIATION OF NET INCOME TO NET CASH
         PROVIDED (USED) BY OPERATING ACTIVITIES

<TABLE>
<CAPTION>
                                                                June 30,
                                                 -------------------------------------- 
                                                    1998         1997           1996
                                                 ---------    ----------    ----------- 
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                              <C>          <C>           <C>        
   Net income                                    $ 987,651    $1,609,015    $ 1,148,934
   Non-cash items included in net income:
         Adjustment to prior year tax expense         -          (19,440)          -
         Amortization                               63,725        66,267         79,517
         Depreciation                              555,388       495,001        447,072
         (Gain) loss on disposal of equipment       (5,832)       12,916          3,121
         (Gain) loss on sale of securities          (6,597)        3,872          1,589
         Cumulative effect of accounting change    109,708          -              -
         Deferred income taxes                      (4,304)      (87,612)        82,541
   Changes in:
         Accounts receivable                      (218,068)      (21,082)    (1,741,809)
         Inventory                                (603,528)     (277,193)       (20,497)
         Prepaid income taxes                     (354,930)       56,886        (84,414)
         Prepaid expense                          (235,367)       52,539       (144,344)
         Other assets                              (72,067)         -              -
         Accounts payable - trade                 (129,425)      298,434        233,007
         Accrued expenses                         (238,505)      258,518        142,150
         Accrued income taxes                       (4,837)        4,837       (155,183)
                                                 ---------    ----------    ----------- 
           NET CASH PROVIDED (USED) BY
            OPERATING ACTIVITIES                 $(156,988)   $2,452,958    $    (8,316)
                                                 =========    ==========    =========== 
</TABLE>


11.      OPERATING LEASES

         The Corporation has entered into noncancelable operating leases for two
         vehicles,  a computer, a software license and office equipment expiring
         in various years through 2002.  Remaining  minimum lease  payments,  by
         year, are as follows:

                Year Ended June 30,
                       1999                                 $ 42,070
                       2000                                   42,570
                       2001                                   34,644
                       2002                                   22,867
                       2003                                     -
                                                            --------
                TOTAL                                       $142,151

         Rental expense  totalled  $30,710 during the fiscal year ended June 30,
         1998.


<PAGE>



                     BRYAN STEAM CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998


12.      CAPITAL LEASES

         The Corporation is a lessee of a phone system, automobile and hydraulic
         shear under  capital  leases,  both  expiring  in 2002.  The assets and
         liabilities  under  capital  leases  are  recorded  at the lower of the
         present  value of the minimum  lease  payments or the fair value of the
         asset.  The assets are amortized over the estimated  productive life of
         the asset.  Amortization of the assets under capital leases is included
         in depreciation expense for the current year.

         Following is a summary of the property held under capital lease:

          New Lucent Partner Phone System                 $ 4,839
          Ford Escort Wagon                                11,865
          New Atlantic Hydraulic Shear                     50,145
                                                          -------
                                                          $66,849
          Less: Accumulated amortization                   (9,009)
                                                          -------
                                                          $57,840
                                                          -------


         Amortization  of assets under capital leases charged to expense in 1998
         was $8,478.

         Mimimum  future lease  payments under the capital leases as of June 30,
         1998 for each of the next five years and in the aggregate are:

                 1999                                      $17,188 
                 2000                                       17,188
                 2001                                       16,625
                 2002                                       11,573
                 2003                                         -
                                                           -------
          Total minimum lease payments                     $62,574
          Less: Amount representing interest                (9,765)
                                                           -------
          Present value of minimum lease payments          $52,809
                                                           =======


13.      ACCOUNTS RECEIVABLE

         Accounts receivable consist of the following:

                                                         June 30,
                                         --------------------------------------
                                             1998         1997         1996
                                         ----------    ----------    ----------
         Trade receivables               $5,095,869    $4,822,885    $4,774,684
         Other receivables                   22,074         9,232        31,439
         Allowance for doubtful accounts    (12,956)      (17,372)      (12,460)
                                         ----------    ----------    ----------
                                         $5,104,987    $4,814,745    $4,793,663
                                         ==========    ==========    ==========


<PAGE>



                     BRYAN STEAM CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998


14.      INTANGIBLE ASSETS

         Intangible assets consist of the following:


                                                        June 30,
                                         -----------------------------------
                                             1998         1997        1996
                                         ----------    ---------    --------
         Organization expense            $    5,000    $   5,000    $  5,000
         Noncompetition agreements          300,000      300,000     300,000
         Patents                              9,214        9,214       9,214
         Goodwill - Wendland                 13,627       13,627      13,627
         Goodwill - Hoppes                   10,000       10,000      10,000
                                         ----------    ---------    --------
                                         $  337,841    $ 337,841    $337,841
         Less: accumulated amortization    (202,319)    (136,050)    (69,783)
                                         ----------    ---------    --------
                                         $  135,522    $ 201,791    $268,058
                                         ==========    =========    ========


15.      ACCRUED LIABILITIES

         Accrued liabilities consist of the following:

                                                         June 30,
                                         --------------------------------------
                                            1998          1997          1996
                                         ----------    ----------    ----------
         Commissions                     $  709,548    $  807,617    $  621,882
         County property taxes              290,656       254,251       224,006
         Insurance                            9,492        21,440          -
         Interest                             3,712          -            2,156
         Payroll                             29,320       165,239       125,784
         Vacation pay                       204,856          -             -
         Pension & 401(k)                      -             -           23,051
         Payroll taxes & withholdings        94,789       148,977       129,351
         Other                                 -            2,836           861
         Vacation and sick pay                5,933        10,488        41,883
         Sales taxes                         12,543         3,463          -
         Ad valorem taxes                    11,803        13,181          -
                                         ----------    ----------    ----------
                                         $1,372,652    $1,427,492    $1,168,974
                                         ==========    ==========    ==========



<PAGE>



                     BRYAN STEAM CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998


16.      LONG-TERM DEBT

         Long-term debt consists of the following:

          Note payable to Norwest Bank for equipment, matures
          June 30, 2002.  Note is secured by same equipment.
          Principal and interest are currently being made in monthly
          installments.  The interest rate is 10.22%.                  $36,781
                                                                       -------
          
             Total                                                     $ 6,781
                                                                       =======
          
          Maturities of long-term debt are as follows:
          
          Year Ending
           June 30,                                                     Amount
                                                                       -------
                                                                   
                 1999                                                  $ 8,045
                 2000                                                    8,907
                 2001                                                    9,862
                 2002                                                    9,967
                 2003                                                     -
                                                                       -------
          Total                                                        $36,781
                                                                       =======
                                                                
17.      OTHER COMMITMENTS

         The Corporation has $300,000 available on its $1,000,000 line of credit
         from First of America Bank, N.A.  Outstanding advances at June 30, 1998
         totaled  $700,000.  The line of credit expires  October 31, 1998.  This
         line of credit is unsecured  and the interest rate is subject to change
         based on "National  Prime Rate." As of June 30, 1998, the rate was 8.5%
         and the accrued interest was $2,492.

         The  Corporation is liable to Norwest Bank Indiana,  N.A. in the amount
         of $54,900 on a $100,000 revolving  commercial loan. This obligation is
         collateralized by a security  interest in the Corporation's  inventory,
         equipment,  accounts receivable and intangibles.  Norwest Bank Indiana,
         N.A.  also holds an unsecured  guaranty by Bryan Steam  Corporation  on
         this obligation.  The outstanding balance is due December 30, 1998 with
         interest at a current rate of 9.50% due monthly.

         Production  employees at the Corporation's  Peru,  Indiana facility are
         covered by a collective  bargaining agreement which will expire in May,
         2001.


<PAGE>



                     BRYAN STEAM CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998



18.      INVESTMENT SECURITIES

         On July  1,  1994,  the  Corporation  adopted  Statement  of  Financial
         Accounting  Standards No. 115 - "Accounting for Certain  Investments in
         Debt and Equity  Securities" (SFAS 115). The  Corporation's  policy has
         been,  historically,  to classify its investment  securities as current
         assets,  even though  management  has set a precedent,  evidencing  its
         intent, by holding its investment securities to maturity. Prior to July
         1, 1997, the  Corporation  had considered its investment  securities as
         held to maturity.  The  Corporation  has now reclassed  its  investment
         securities as available-for-sale.

         The following is a summary of investment  securities classified as held
         to maturity:


                                                     June 30, 1997
                                               ------------------------
                                                   Fair       Amortized
                                                  Value         Cost
                                               ----------    ----------
          Equity securities                    $  194,161    $  184,461
          U.S. government obligations                -             -
          Obligations of individual states and
            political subdivisions              1,095,081     1,100,725
          Obligations of foreign governments         -             -
          Corporate obligations                   156,375       155,500
          Mortgage-backed securities               25,250        26,000
          Other                                      -             -
                                               ----------    ----------
                                               $1,470,867    $1,466,686
                                               ==========    ==========

         The  following  is a summary of  investment  securities  classified  as
         available-for-sale:

                                                    June 30, 1998
                                                 ---------------------
                                                    Fair     Amortized
                                                   Value      Cost
                                                 --------    --------
          Equity securities                      $154,742    $126,895
          U.S. government obligations                -           -
          Obligations of individual states and
            political subdivisions                296,718     297,992
          Obligations of foreign governments         -           -
          Corporate obligations                   220,661     215,109
          Mortgage-backed securities               25,125      26,000
          Other                                      -           -
                                                 --------    --------
                                                 $697,246    $665,996
                                                 ========    ========


         At June 30, 1997 investment in debt  securities,  classified as held to
         maturity, mature as follows:

                                                                  Fair
                                                   Cost           Value
                                                 ----------    ----------
                Within 1 year                    $  822,020    $  818,900
                1-5 years                           215,350       214,533
                5-10 years                           10,955        10,914
                After 10 years                      207,900       207,109
                                                 ----------    ----------
                                                 $1,256,225    $1,251,456
                                                 ==========    ==========




<PAGE>



                     BRYAN STEAM CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998



18.      INVESTMENT SECURITIES ( CONT.)

         At  June  30,  1998  investment  in  debt  securities,   classified  as
         available-for-sale, mature as follows:

                                                           Fair
                                              Cost         Value
                                           --------      --------
                Within 1 year              $204,394      $204,574
                1-5 years                   106,546       107,968
                5-10 years                   86,281        86,583
                After 10 years              115,880      $118,254
                                           --------      --------
                                           $513,101      $517,379
                                           ========      ========
                                 


         The following is a summary of gross unrealized holding gains and losses
         for investment securities classified as held to maturity:

<TABLE>
<CAPTION>

                                                             June 30, 1997
                                                   ----------------------------------
                                                        Gross              Gross
                                                      Unrealized         Unrealized
                                                    Holding Gains      Holding Losses
                                                    -------------      --------------

<S>                                                    <C>                <C>    
           Equity securities                           $ 9,876            $   176
           U. S. Government obligations                   -                  -
           Obligations of individual states &                           
             political subdivisions                     13,115             18,759
           Obligations of foreign governments             -                  -
           Corporate obligations                         1,500                625
           Mortgage-backed securities                     -                   750
           Other                                          -                  -
                                                        ------             ------
                                                        24,491             20,310
                                                        ======             ======
</TABLE>

         The following is a summary of gross unrealized holding gains and losses
         for investment securities classified as available for sale:

                                                      June 30, 1998
                                              ------------------------------
                                                  Gross           Gross
                                                Unrealized      Unrealized
                                              Holding Gains   Holding Losses
                                              -------------   --------------

         Equity securities                       $27,847         $  -
         U. S. Government obligations               -               -
         Obligations of individual states &                      
           political subdivisions                  9,990          11,264
         Obligations of foreign governments         -               -
         Corporate obligations                     5,739             187
         Mortgage-backed securities                 -                875
         Other                                      -               -
                                                  ------          ------
                                                  43,576          12,326
                                                  ======          ======


<PAGE>



                     BRYAN STEAM CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998



18.      INVESTMENT SECURITIES ( CONT.)

         Realized  gains and losses  were  determined  on the basis of  specific
         identification during the years ended June 30, 1997. Gross proceeds and
         gross  realized  gains and losses on  securities  classified as held to
         maturity were as follows:

                                                         June 30,
                                                          1997
                                                        --------
            Sale proceeds                               $308,912
                                                        ========
            Redemption proceeds                         $ 60,000
                                                        ========
            Amortized cost of sales & redemptions       $372,784
                                                        ========
            Gross realized gains                        $   -
                                                        ========
            Gross realized losses                       $  3,872
                                                        ========


         Realized  gains and losses  were  determined  on the basis of  specific
         identification during the years ended June 30, 1998. Gross proceeds and
         gross   realized   gains  and  losses  on   securities   classified  as
         available-for-sale were as follows:

                                                        June 30,
                                                         1998
                                                      ----------
            Sale proceeds                             $1,082,807
                                                      ==========
            Redemption proceeds                       $   45,000
                                                      ==========
            Amortized cost of sales & redemptions     $1,121,210
                                                      ==========
            Gross realized gains                      $   13,149
                                                      ==========
            Gross realized losses                     $    6,552
                                                      ==========


         The Corporation sold investment securities during the fiscal year ended
         June 30, 1997, and used the proceeds to partially fund  construction of
         a new building in Peru, Indiana.

         The Corporation sold investment securities during the fiscal year ended
         June 30, 1996, and used the proceeds to purchase the business assets of
         Monticello Tank Company.





<PAGE>



                     BRYAN STEAM CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998



19.      BUSINESS COMBINATIONS

         On  July  3,  1995,  Wendland  Manufacturing  Corp.   (Wendland),   the
         Corporation's  wholly-owned subsidiary,  acquired substantially all the
         tank   manufacturing   business  assets  of  a  Texas  corporation  for
         $1,115,000.  Results of  operations  from July 3, 1995 through June 30,
         1996 are included in this report.

         Wendland   also   acquired   substantially   all  the  heat   exchanger
         manufacturing  business assets of an Indiana corporation on December 6,
         1995 for $215,000.  Wendland operated this business as a division, from
         acquisition date through June 30, 1996.

         On March 15, 1996, Wendland exchanged $447,952 of the net assets of the
         heat  exchanger  manufacturing  business  for  100% of the  outstanding
         common stock of its wholly-owned  subsidiary,  Monticello Exchanger and
         Manufacturing Co. (Monticello). Monticello's results of operations from
         March 15 through June 30, 1996 are included in this report.


         On January 31, 1997,  Wendland  purchased  all the  business  assets of
         Western  Express  Company,  a Texas  Corporation,  which  operates as a
         common  carrier  for  transporting  goods  in the  United  States.  The
         purchase  price was  $38,000.  Results of  operations  from January 31,
         through June 30, 1997 are included in this report.


20.      FAIR VALUE OF FINANCIAL INSTRUMENTS

         The  carrying  values and fair values for the  Corporation's  financial
         instruments are as follows:

                                                  June 30, 1998
                                             ------------------------
                                              Carrying        Fair
                Financial Instrument            Value         Value
                --------------------            -----         -----

                Cash and cash equivalents    $  864,411    $  864,411
                Investment securities 
                      (available-for-sale)      697,246       697,246
                Accounts receivable           5,104,987     5,104,987
                Deposits with utilities           5,171         5,171
                Accounts payable                722,198       722,198
                Accrued expenses              1,372,652     1,372,652
                Short-term debt                 754,900       754,900
                Capital lease obligations        52,809        52,809
                Long-term debt                   36,781        36,781
                Dividends payable                13,275        13,275



         The fair value of investment  securities is an estimate based on quoted
         market  prices.  The fair value of  long-term  debt is based on current
         rates  at  which  the  Corporation  could  borrow  funds  with  similar
         remaining maturities.


<PAGE>



                     BRYAN STEAM CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998



21.      ACCOUNTING CHANGE

         Effective  July 1, 1997,  the Bryan  Steam  Corporaiton  (Bryan  Boiler
         Division)  changed  its  method of  accounting  for  vacation  pay from
         expensing  the payments in the year paid to accruing  the  liability in
         the year earned by the employee.  This accrual meets all the conditions
         set  forth  in  FAS-43  (1)  The   employee's   right  to  receive  the
         compensation  for future absences is  attributable to services  already
         performed  by the  employee.  (2) The  employee's  right to receive the
         compensation for future absences is vested. (3) It is probable that the
         compensation  will be  paid.  and (4) The  amount  of  compensation  is
         reasonably estimable. The cumulative effect of adopting this change was
         a charge to income of $109.708  ($.57 per share),  net of a tax benefit
         of $78,794.  The Corporation has omitted the information  about the pro
         forma  retroactive  effect of the  change on net  income  and per share
         amounts  for  all  prior  periods   presented.   In  the  Corporation's
         judgement, the effect would not be material.


<PAGE>

Item  9.  Changes  In and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure.

         Not applicable.



                                                        -6-

<PAGE>



                                    PART III

Item 10.          Directors and  Executive Officers of the Registrant.

<TABLE>
<CAPTION>

                                                                                                      Shares
                                                                                                   Beneficially
                                                                                                    Owned as of
                                              Principal Operation and             Director         September 23,       Percent of
Name                         Age             Prior Business Experience              Since              1998               Class
----                         ---             -------------------------              -----              ----               -----
<S>                          <C>                                                    <C>                <C>                <C>    
Albert J. Bishop 1,2         67     Retired in June 1996; theretofore,              1986               2,380               1.2%
                                    President and General Manager of the
                                    Company since prior to 1993

H. Jesse McVay 3             57     President of the Company since July             1994                328             Less than
                                    1996; theretofore, Vice President of                                                   1%
                                    Operations of the Company since prior
                                    to 1993

Harold V. Koch 1,4           76     Retired in June 1996; theretofore,              1954               5,168               2.7%
                                    Chairman of the Board since prior to
                                    1993

G. N. Summers 5              67     Owner of Insurance Agency since prior           1976                13              Less than
                                    to 1993                                                                                1%

Jack B. Jackson              69     Retired in 1993; theretofore bank               1979                30              Less than
                                    Chairman, Peru office, First of America                                                1%
                                    Bank - Central Indiana since prior to
                                    1993

James R. Lockhart,           44     Vice President of Incom Roofing                 1985               3,085              1.6%
Jr. 6                               Services, Inc.; theretofore Vice President
                                    & General Manager of Residential
                                    Business Development for GAF
                                    Materials Corp.; theretofore, Vice
                                    President of Sales, Firestone Building
                                    Products Company since prior to 1993

Bryan D. Herd 3              55     Design consultant, Partridge Home               1991              17,706              9.3%
                                    Furnishings since 1996; theretofore
                                    owner and President of Furniture and
                                    Decorating business since prior to 1993

Kurt J. Krauskopf            44     Secretary of the Company since prior to          N/A                257            Less than
                                    1993                                                                                   1%

Paul D. Donaldson            35     Treasurer of the Company since prior to          N/A                 0                 0%
                                    1993

All Directors and Officers as a group (9 persons)                                                     28,735              15.0%
</TABLE>

------------------
1        Member of Executive Committee.

2        Includes  501 shares  held  directly by Mr.  Bishop's  spouse and 1,879
         shares held jointly with his spouse.

3        Shares held jointly with spouse.

4        Includes 5 shares held  directly by Mr.  Koch's spouse and 5,163 shares
         held jointly with his spouse. 5The Company paid approximately  $792,315
         in fiscal year 1998 to cover premiums for various  property,  casualty,
         and  workers'  compensation  insurance  policies on which Mr.  Summers'
         insurance agency received commissions.

6        Includes 3,060 shares held by Mr. Lockhart's spouse.

7        Shares held by Mr. Krauskopf's spouse.

                                                        -7-

<PAGE>






      During  the  fiscal  year  ended  June 30,  1998 all  filing  requirements
applicable to its officers,  directors  and greater than 10%  beneficial  owners
with respect to Section 16(a) of the 1934 Act were complied with.

Item 11.       Executive Compensation.

Compensation

      The  following  table shows the  compensation  paid by the Company for the
services of H. Jesse McVay, the Company's chief executive officer.  Non-monetary
compensation of the chief executive  officer did not exceed 10% of his aggregate
cash compensation for the year.

          Name and                            Annual Compensation
     Principal Position         Year         Salary            Bonus
     ------------------         ----         ------            -----
H. Jesse McVay,                 1998         $75,400          $48,428
President
                                1997         $66,325          $32,500

                                1996         $52,900          $12,200


Pension Plan

      The Bryan Steam Corporation  Non-Bargaining  Unit Employees'  Pension Plan
(the "Pension Plan") provides retirement benefits for employees of Bryan who are
not members of the collective  bargaining unit.  Benefits are based on length of
service and average monthly earnings and are[ subject to certain  deductions for
social security benefits].  Contributions to the Pension Plan are computed on an
actuarial basis.

      The average annual  retirement  benefits payable under the Pension Plan to
employees who retire at the normal  retirement age of sixty-five  (65) are shown
in the table below.

 Average Annual
 Compensation over                 Years of Service
 Five-Year Period                     At Age 65

                       10          20           30          40
                       --          --           --          --

 $ 50,000              $ 9,878     $19,756      $29,634     $ 39,512
 $ 75,000              $15,078     $30,156      $45,234     $ 60,312
 $100,000              $20,278     $40,556      $60,834     $ 81,112
 $125,000              $25,478     $50,956      $76,434     $101,912

      Compensation  covered by the  Pension  Plan for a calendar  year  includes
total  taxable  wages or salary  (including  overtime or bonuses) for that year,
plus any contributions the employee makes under the Company's  cafeteria plan or
401(k) plan during the calendar year.

      Estimated credited years of service for  H. Jesse McVay:   28 years

Director Remuneration

      Each  non-employee  director is paid $500 for each meeting of the Board of
Directors, whether or not he attends.

Employment Agreements


                                                        -8-

<PAGE>

         Bryan has an Employment  Agreement,  dated April 1, 1998, with H. Jesse
McVay.  Such  agreement  provides  for an  initial  term  of  three  (3)  years,
automatically extended for an additional year on each anniversary of the date of
such agreement  unless either party gives written notice not to so extend within
ninety  (90)  days  prior to an annual  anniversary,  in which  case no  further
extension shall occur and the term shall end two years  subsequent to the annual
anniversary  immediately following the anniversary prior to which the notice not
to extend  for an  additional  year is given.  Such  agreement  provides  for an
initial  annual  salary of $77,200  which may be increased  from time to time by
Bryan.  Pursuant to such  agreement,  if Bryan  terminates the employment of Mr.
McVay without  cause,  or if Mr. McVay  terminates his employment by reason of a
material breach of any term, condition or covenant of Bryan under the Employment
Agreement,  Bryan must pay to Mr. McVay a lump sum equal to one hundred  percent
(100%) of his total salary and bonus (excluding the Transaction  Bonus described
below) for the preceding  calendar year, plus costs of engaging a placement firm
to find alternative  employment,  and for one year following  termination  Bryan
must  maintain,  for a period of one year  after the date of  termination,  each
employee  medical  and life  benefit  plan in which Mr.  McVay was  entitled  to
participate immediately prior to the date of termination,  unless an essentially
equivalent  benefit is provided by another source.  Such agreement also provides
for the payment of a transaction bonus (the  "Transaction  Bonus") in the amount
of $30,000 in the event of a change of control  (as  defined in the  agreement),
payable  one half on the date of the change of control  and one half on the date
six months after the change in control.  The Merger Agreement provides that such
Transaction Bonus will be triggered by the Offer.

Compensation Committee Interlocks and Insider Participation

      Compensation  decisions  for the fiscal  year ended  June 30,  1998,  with
respect to the  compensation  of H. Jesse  McVay were made and  ratified  by the
Board of Directors, without the participation of Mr. McVay.





                                                        -9-

<PAGE>



Item 12.       Security Ownership of Certain Beneficial Owners and  Management.

      As of September 23, 1998, the Company has outstanding  191,284 shares, all
of one class.  No person to the knowledge of Management is the beneficial  owner
of more than 5 percent of the outstanding voting stock of the Company, except as
shown in the following table.

                                                    Amount           Percent
                   Name and Address of           Beneficially          of
                    Beneficial Owner                Owned             Class
                    ----------------                -----             -----
Ina Mae Bryan Miller                              12,199              6.4%
R. R. #2
Peru, IN  46970
Robert Miller                                     12,198              6.4%
R. R. #2
Peru, IN  46970
Bryan D. and Sharon L. Herd 1                     17,706              9.3%
1208 Glenwick Drive
Logansport, IN  46947
Marilyn J. and Paul J. Malott 1                   17,829              9.3%
1500 Liberty Street
Logansport, IN  46947
Victor L. and Kristine S. Herd 1                  17,690              9.3%
4083 S.E. Honey Hill Lane
Stuart, FL  34997
Beverly Jo Bryan 2                                11,591              6.1%
6299 Valley View Drive
Fishers, IN  46038
----------------

1    Shares held jointly with rights of survivorship.
2    Shares held jointly with children with rights of survivorship.



      See Item 9 of this Report for information  with respect to shares owned by
the directors and executive officers of the Company.

      The Company,  Burnham Corporation,  a New York corporation ("Burnham") and
Burnham  Acquisition  Corporation,  a New Mexico  corporation and a wholly-owned
subsidiary of Burnham ("Purchaser") entered into an Agreement and Plan of Merger
dated as of  September  23, 1998 (the  "Merger  Agreement"),  among the Company,
Burnham and Purchaser.  The Merger Agreement  provides,  among other things, for
the making of an offer by Purchaser to purchase  all  outstanding  shares of the
Common Stock,  par value $10.00 per share (the "Shares"),  of the Company,  at a
purchase price of $152 per Share (the "Offer Price"), net to the seller in cash,
without interest thereon, upon the terms and subject to the conditions set forth
in an Offer  to  Purchase  and in the  related  Letter  of  Transmittal  (which,
together with any supplements or amendments thereto, collectively constitute the
"Offer").  The Merger Agreement further provides that,  following the completion
of the Offer and subject to the  satisfaction  or waiver of certain  conditions,
Purchaser  will be merged with and into the  Company  (the  "Merger"),  with the
Company  surviving the Merger as a  wholly-owned  subsidiary of Burnham with the
name "Bryan  Steam  Corporation".  As a result of the Merger,  each  outstanding
Share  (other  than  Shares  held by Burnham,  Purchaser  or any  subsidiary  of
Burnham,  Purchaser or the  Company,  Shares held in the treasury of the Company
and Shares held by stockholders who have properly exercised their rights to fair
value appraisal  rights under the New Mexico Business  Corporation  Act) will be
converted at the effective  time of the Merger into the right to receive in cash
the price per Share paid in the Offer without interest.


                                                       -10-

<PAGE>



      The Offer is  conditioned  upon,  among other things,  there being validly
tendered and not withdrawn at the expiration of the Offer at least sixty-six and
two-thirds  percent  (66-2/3%)  plus one of the  outstanding  Shares  on a fully
diluted  basis on the date of  purchase.  The Offer is also  subject  to certain
other conditions.

Item 13.       Certain Relationships and Related Transactions.

      The Company paid approximately  $792,315 in the fiscal year ended June 30,
1998, and $613,253 in the fiscal year ended June 30, 1997, to cover premiums for
various property,  casualty and workers compensation insurance policies on which
an  insurance  agency  owned by G. N.  Summers,  a Director  of Bryan,  received
commissions. There are no other reportable relationships or related transactions
between  the  Company  and its  Directors,  Executive  Officers,  5%  beneficial
shareholders, or immediate family members of the foregoing persons.





                                                       -11-

<PAGE>



                                     PART IV

Item 14.       Exhibits and Reports on  Form 8-K.

         (a)      The following  financial  statements are filed as part of this
                  Report:

                  Comparative  Balance  Sheets  (June 30,  1998,  1997 and 1996)
                  Comparative  Statements  of Income (Years ended June 30, 1998,
                       1997, and 1996)  
                  Comparative  Statements of Retained  Earnings
                       (Years  ended  June 30,  1998,  1997,  and  1996)  
                  Comparative Statements of Cash Flows 
                       (Years ended June 30, 1998, 1997, and 1996) 
                  Notes to Financial Statements (June 30, 1998)

         (b)      The following exhibits are filed as a part of this Report:

                  2.       Agreement  and Plan of Merger,  dated  September  23,
                           1998,  between the Company,  Burnham  Corporation and
                           Burnham Acquisition Corporation.

                  3(a).    The Registrant's Articles of Incorporation were filed
                           as  Exhibit 3 to the  Registrant's  Annual  Report on
                           Form 10-K for the year ended June 30, 1981,  which is
                           incorporated herein by this reference.

                  3(b).    The Registrant's Code of By-Laws was filed as Exhibit
                           19(i) to the Company's  Quarterly Report on Form 10-Q
                           for the quarter  ended  December 31, 1986,  which was
                           sent to the Commission on February 4, 1987, and which
                           is incorporated herein by this reference.

                  10(a).   Employment  Agreement  between  Bryan  and  H.  Jesse
                           McVay, dated April 1, 1998.

                  10(b).   Employment  Agreement  between  Bryan  and  Albert J.
                           Bishop, dated April 1, 1998.

                  10(c).   Employment   Agreement  between  Bryan  and  Kurt  J.
                           Krauskopf, dated April 1, 1998.

                  10(d).   Employment  Agreement  between  Bryan  and  Sandra A.
                           Mitting, dated April 1, 1998.

                  10(e).   Employment  Agreement  between  Bryan and  Michael D.
                           Sturch, dated April 1, 1998.

                  10(f).   Employment  Agreement  between  Bryan and  Richard D.
                           Holmquist, dated April 1, 1998.

                  10(g).   Employment  Agreement  between  Bryan and  Gregory A.
                           Minard, dated April 1, 1998.

                  10(h).   Employment  Agreement  between  Bryan and Terrence D.
                           Kubly, dated April 1, 1998.

                  10(i).   Employment Agreement between  Wendland and  P.  Wayne
                           McCune, dated April 1, 1998.

                  21.      The  Registrant  has  one   wholly-owned   subsidiary
                           incorporated  under the laws of the State of Indiana,
                           Wendland Manufacturing Corp.  ("Wendland").  Wendland
                           has one wholly-owned  subsidiary  incorporated  under
                           the  laws  of  the  State  of   Indiana,   Monticello
                           Exchanger and Manufacturing Co.

                  27.      Financial Data Schedule.

                  99.      Press Release dated September 23, 1998.

         (c)      A report  on Form 8-K was filed on June 23,  1998 ,  reporting
                  that certain  significant  shareholders had expressed a desire
                  to  liquidate  their  interests  and  that the  directors  had
                  solicited   expressions  of  interest   regarding  a  possible
                  purchase transaction.



                                                       -12-

<PAGE>


                                   SIGNATURES


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant, in the capacities and on the dates indicated.

Signature                                   Title                 Date

(1) Principal Executive Officer                          )  September 28, 1998
                                                         )
/s/ H. Jesse McVay                          President    )
------------------------------------                     )
H. Jesse McVay                                           )
                                                         )
                                                         )
(2)  Principal Financial Officer                         )
                                                         )
/s/ Kurt J. Krauskopf                       Controller   )
------------------------------------                     )
Kurt J. Krauskopf                                        )


(3)  A majority of the Board of Directors                )  September 28, 1998
                                                         )
                                            Director     )
------------------------------------                     )
Harold V. Koch                                           )
                                                         )
/s/ Albert J. Bishop                        Director     )
------------------------------------                     )
Albert J. Bishop                                         )
                                                         )
                                            Director     )
------------------------------------                     )
Bryan D. Herd                                            )
                                                         )
/s/ H. Jesse McVay                          Director     )
------------------------------------                     )
H. Jesse McVay                                           )
                                                         )
/s/ G.N. Summers                            Director     )
------------------------------------                     )
G.N. Summers                                             )
                                                         )
/s/ Jack B. Jackson                         Director     )
------------------------------------                     )
Jack B. Jackson                                          )
                                                         )
                                            Director     )
------------------------------------                     )
James R. Lockhart, Jr.                                   )





                                                       -13-