United States          
                  Securities and Exchange Commission
                        Washington, D.C. 20549

                              FORM 10-Q

                  Quarterly Report Under Section 13
           or 15(d) of the Securities Exchange Act of 1934


For Quarter Ended: September 30, 1997          Commission File Number 1-5558


                        Katy Industries, Inc.
        (Exact name of registrant as specified in its charter)



       Delaware                                75-1277589
(State of Incorporation)          (I.R.S. Employer Identification No.)


 6300 S. Syracuse Way, Suite 300, Englewood, Colorado           80111
      (Address of Principal Executive Offices)                (Zip Code)


  Registrant's telephone number, including area code: (303)290-9300



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


                Class                        Outstanding at November 12, 1997
    Common stock, $1 par value                             8,284,702         



                         KATY INDUSTRIES, INC.
                              FORM 10-Q
                          SEPTEMBER 30, 1997


                                INDEX
                                -----

                                                                        Page
PART I FINANCIAL INFORMATION
        Condensed Consolidated Balance Sheets
          September 30, 1997 and December 31, 1996                      2,3

        Statements of Condensed Consolidated Income
          Nine Months Ended September 30, 1997 and 1996                   4

        Statements of Condensed Consolidated Cash Flows
          Nine Months Ended September 30, 1997 and 1996                   5

        Notes to Condensed Consolidated Financial Information             6

        Management's Discussion and Analysis of Financial 
          Condition and Results of Operations                             8


PART II OTHER INFORMATION
        Item 1  Legal Proceedings                                        13

        Item 6  Exhibits and Reports on Form 8-K                         13

        Signatures                                                       14

                              Page 1



                        KATY INDUSTRIES, INC.
                CONDENSED CONSOLIDATED BALANCE SHEETS
               SEPTEMBER 30, 1997 AND DECEMBER 31, 1996


                                                 September 30,  December 31,
                                                      1997         1996
                                                      ----         ----
                                                   (Thousands of dollars)
CURRENT ASSETS:

  Cash and cash equivalents                         $ 7,393     $ 27,321 
  Accounts receivable, trade, net                    62,534       50,324 
  Notes and other receivables, net                    2,049        2,154 
  Inventories - Note 1                               78,528       68,885 
  Deferred income taxes                              14,330       14,331 
  Other current assets                                4,805        3,500 
                                                    -------      -------
    Total current assets                            169,639      166,515 
                                                    -------      -------

OTHER ASSETS:
  Investments, at equity, in
    unconsolidated affiliates                         6,422        6,382 
  Investments in waste-to-energy facility            10,832       11,058 
  Notes receivable, net                               1,405        1,260 
  Cost in excess of net assets of 
    businesses acquired, net                          9,889        6,723 
  Miscellaneous                                       7,379        5,211 
                                                    -------      -------
       Total other assets                            35,927       30,634 
                                                    -------      -------

PROPERTIES, at cost:
  Land and improvements                               3,397        3,776 
  Buildings and improvements                         31,364       32,545 
  Machinery and equipment                            48,688       41,773 
                                                    -------      -------
                                                     83,449       78,094 
  Accumulated depreciation                          (35,101)     (35,734)
                                                    -------      -------
       Net properties                                48,348       42,360 
                                                    -------      -------

                                                   $253,914     $239,509 
                                                    =======      =======


See Notes to Condensed Consolidated Financial Statements.                     
 
                              Page 2

                       

                        KATY INDUSTRIES, INC.
                CONDENSED CONSOLIDATED BALANCE SHEETS
               SEPTEMBER 30, 1997 AND DECEMBER 31, 1996


                                                September 30,  December 31,
                                                     1997         1996
                                                     ----         ----
                                                   (Thousands of dollars)

CURRENT LIABILITIES:

  Accounts payable                                 $ 28,961     $ 20,318 
  Accrued expenses                                   36,204       37,351 
  Other current liabilities                           1,261        1,277 
                                                    -------      -------
       Total current liabilities                     66,426       58,946 
                                                    -------      -------

LONG-TERM DEBT, less current maturities               8,092        8,582 

DEFERRED INCOME TAXES                                23,198       23,861 

EXCESS OF ACQUIRED NET 
  ASSETS OVER COST, Net                               7,239        8,517 

OTHER LIABILITIES                                    12,766        9,557 
                                                    -------      -------
       Total liabilities                            117,721      109,463 
                                                    -------      -------

SHAREHOLDERS' EQUITY:
  Common stock, $1 par value, authorized
    25,000,000 shares, issued 9,822,204 shares        9,822        9,822 
  Additional paid-in capital                         51,146       51,117 
  Foreign currency translation
    and other adjustments                            (1,869)      (1,778)
  Retained earnings                                  98,891       93,099 
  Treasury stock, at cost, 1,550,877 and
    1,582,942 shares                                (21,797)     (22,214)
                                                    -------      -------
       Total shareholders' equity                   136,193      130,046 
                                                    -------      -------

                                                   $253,914     $239,509 
                                                    =======      =======


See Notes to Condensed Consolidated Financial Statements.    

                              Page 3



                         KATY INDUSTRIES, INC.
                STATEMENTS OF CONDENSED CONSOLIDATED INCOME
           NINE MONTHS MONTHS ENDED SEPTEMBER 30, 1997 AND 1996


                                           Three Months        Nine Months
                                       Ended September 30, Ended September 30, 
                                       ------------------- -------------------
                                          1997      1996     1997      1996
                                          ----      ----     ----      ----

                                    (Thousands of Dollars Except Per Share Data)

Net sales                              $ 83,520  $ 46,068 $ 234,104 $ 133,390 

Cost of goods sold                       60,205    32,084   165,126    90,907 
                                        -------   -------   -------   ------- 
Gross profit                             23,315    13,984    68,978    42,483 

Selling, general and administrative      19,732    12,008    57,560    35,444 
                                        -------   -------   -------   -------
      Income from operations              3,583     1,976    11,418     7,039 

Interest and other, net - Note 3            205       779       511     6,795 
                                        -------   -------   -------   -------

      Income from consolidated operations
       before provision for income taxes  3,788     2,755    11,929    13,834 

Provision for income taxes               (1,445)     (976)   (4,294)   (5,051)
                                        -------   -------   -------   -------
      Income from consolidated operations 2,343     1,779     7,635     8,783 

Equity in income(loss) of unconsolidated
    affiliates (net of tax)                 267      (144)       24      (420)
                                        -------   -------   -------   -------
      Net income                       $  2,610  $  1,635  $  7,659  $  8,363 
                                        =======   =======   =======   =======


Earnings per share                     $    .31  $    .20  $    .92  $   1.00 
                                        =======   =======   =======   =======
Average shares outstanding                8,307     8,258     8,305     8,380 
                                        =======   =======   =======   =======
Dividends paid per share - common stock$  .0750  $  .0750  $  .2250  $  .2125 
                                        =======   =======   =======   =======


See Notes to Condensed Consolidated Financial Statements.

                              Page 4 



                        KATY INDUSTRIES, INC.
           STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
            NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996



Nine Months Ended September 30,                       1997         1996         
                                                      ----         ----
                                                   (Thousands of dollars)    
Cash flows from operating activities:
  Net income                                         $7,659      $ 8,363 
  Depreciation and amortization                       2,999        4,362 
  Gain on marketable security transactions               -        (4,914)
  Adjustments to reconcile net income to net cash
    flows from operating activities (mainly changes
    in working capital, net of 
    acquisition/disposition of subsidiaries):       (14,811)      (5,412)
                                                     ------       ------
       Net cash flows from operating activities      (4,153)       2,399 
                                                     ------       ------
Cash flows from investing activities:
  Proceeds from sale of assets                          598        1,170 
  Collections of notes receivable                       320       13,908 
  Disposition of subsidiary                           5,444           -  
  Proceeds from sale of marketable securities            -         9,191 
  Payment for purchase of subsidiary                (12,617)          -  
  Capital expenditures                               (6,676)      (4,047)
                                                     ------       ------
       Net cash flows from investing activities     (12,931)      20,222 
                                                     ------       ------
Cash flows from financing activities:
  Notes payable activity, net                            -       (14,193)
  Principal payments on long-term debt                 (506)        (879)
  Payment of dividends                               (1,867)      (1,831)
  Purchase of treasury shares                          (566)      (6,177)
  Other                                                  95           -  
                                                     ------       ------
       Net cash flows from financing activities      (2,844)     (23,080)
                                                     ------       ------
Net decrease in cash and cash equivalents           (19,928)        (459)
                                                     ------       ------
Cash and cash equivalents, beginning of period       27,321       43,701 
                                                     ------       ------
Cash and cash equivalents, end of period            $ 7,393      $43,242 
                                                     ======       ======


See Notes to Condensed Consolidated Financial Statements.
 
                              Page 5



                        KATY INDUSTRIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                          SEPTEMBER 30, 1997


(1) Significant Accounting Policies
    -------------------------------

Consolidation Policy
--------------------

  The condensed financial statements include, on a consolidated basis, the 
accounts of Katy Industries, Inc. and subsidiaries ("Katy") in which it has 
greater than 50% interest.  Investments in affiliates which are not majority 
owned are reported using the equity method.  The condensed consolidated 
financial statements at September 30, 1997 and December 31, 1996 and for the 
three and nine month periods ended September 30, 1997 and 1996 are unaudited 
and reflect all adjustments (consisting only of normal recurring adjustments) 
which are, in the opinion of management, necessary for a fair presentation of 
financial condition and results of operations.  Interim figures are subject to 
year end audit adjustments and may not be indicative of results to be realized 
for the entire year.  The condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes 
thereto, together with management's discussion and analysis of financial 
condition and results of operations, contained in the Company's Annual Report 
on Form 10-K for the year ended December 31, 1996.

Inventories
-----------

  The components of inventories are as follows:
                                                    September 30,  December 31,
                                                          1997         1996
                                                         (Thousands of dollars)

  Raw materials                                         $18,149      $15,933 
  Work in process                                         6,376        6,269 
  Finished goods                                         54,003       46,683 
                                                         ------       ------
                                                        $78,528      $68,885 
                                                         ======       ======
Earnings Per Share
------------------

  Earnings per share for the nine months ended September 30, 1997 and 1996 are
computed by dividing net income by the weighted average number of shares of 
common stock and common stock equivalents outstanding during the period.  
Common stock equivalents, in the form of stock options, have been included in 
the calculation of weighted average shares outstanding under the treasury stock
method. 

  In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings Per Share".  This Statement
establishes standards for computing and presenting earnings per share ("EPS") 
and applies to all entities with publicly held common stock or potential common
stock.  This Statement replaces the presentation of primary EPS and fully 
diluted EPS with a presentation of basic EPS and diluted EPS, respectively.  
Basic EPS excludes dilution and is computed by dividing earnings available to 
common stockholders by the weighted-average number of common shares outstanding
for the period.  Similar to fully diluted EPS, diluted EPS reflects the 
potential dilution of securities that could share in the earnings.  This 
Statement is effective for the Company's financial statement for the year ended
December 31, 1997 and is not expected to have a material effect on the 
Company's reported EPS amounts. 

                              Page 6


(2) Contingencies
    -------------

  In December, 1996, Banco del Atlantico, a bank located in Mexico, filed a 
lawsuit against Woods Industries, Inc. ("Woods"), a subsidiary of the Company, 
and against certain past and present officers and directors and former owners 
of Woods alleging that the defendants participated in a violation of the 
Racketeer Influenced and Corrupt Organizations Act involving allegedly 
fraudulently obtained loans from Mexican banks, including the plaintiff, and 
"money laundering" of the proceeds of the illegal enterprise.  The plaintiff 
also alleges that it made loans to an entity controlled by officers and 
directors based upon fraudulent representations.  The plaintiff seeks to hold 
Woods liable for its alleged damage under principles of respondeat superior and
successor liability.  The plaintiff is claiming damages in excess of 
$24,000,000 and is requesting treble damages under the statutes.  Katy may have
recourse against the former owners of Woods under the purchase agreement; 
however, as the litigation is in preliminary stages, it is impossible at this 
time for the Company to determine an outcome or reasonably estimate the range 
of potential exposure.


(3) Nonrecurring Items
    ------------------

  Included in Interest and other, net for the nine months ended September 30, 
1996 is a gain of $4,914,000 resulting from the sale of Union Pacific 
Corporation common stock.


(4) Acquisitions and Dispositions
    -----------------------------

  On August 6, 1997, the Company purchased Loren Products, Inc., ("Loren").  
Loren is a manufacturer and distributor of cleaning and abrasives products for 
the industrial markets and building products for the consumer markets.  The 
estimated purchase price, including acquisition costs was approximately 
$10,900,000 plus an adjustment for changes in working capital, which exceeded 
Lorens' book value.  The purchase price for Loren is preliminary and 
adjustments may be recorded through 1998.  The accounts of Loren have been 
included in the Company's Financial Statements from the acquisition date. 

  On July 14, 1997, the Company completed its divestiture of the Beehive 
division of Hamilton Precision Metals, Inc., ("Beehive") for approximately 
$6,000,000 and the assumption of certain liabilities of Beehive.  Beehive is 
engaged in the manufacture and sale of machinery for the meat, poultry, fruit 
and vegetable processing industries.  This divestiture, along with other 
planned divestitures, is not expected to result in a significant gain or loss.
  
                              Page 7



                        KATY INDUSTRIES, INC.
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS

Three Months Ended September 30, 1997
-------------------------------------

  Following are summaries of sales and operating income for the three months 
ended September 30, 1997 and 1996 by industry segment:


Sales                                                    Increase (Decrease)
-----                                                    ------------------- 
                                         1997     1996    Amount   Percent
                                         ----     ----    ------   -------

Distribution and Service               $20,295  $22,760  $(2,465)   (10.8)%

Industrial and 
  Consumer Manufacturing                57,285   16,149   41,136    254.7    

Machinery Manufacturing                  5,940    7,159   (1,219)   (17.0) 



Operating Income                                         Increase (Decrease)
----------------                                         ------------------- 
                                         1997     1996    Amount   Percent
                                         ----     ----    ------   -------

Distribution and Service                $  798   $2,004  $(1,206)   (60.2)%

Industrial and 
  Consumer Manufacturing                 4,366    2,093    2,273    108.6    

Machinery Manufacturing                    602      180      422    234.4  

  
  The Distribution and Service Group's sales decreased due to decreases in 
sales of electronic components and electrical parts and accessories and 
waste-to-energy services.  This decrease was partially offset by increased 
sales in the refrigeration and cold storage facilities portion of this segment.
The decrease in the Group's operating income was mainly a result of the 
decreased volume in the electronic components and electrical parts and 
accessories and waste-to-energy services areas, along with decreased margins in
the rerolled metals area.  Higher selling, general and administrative costs as 
a percentage of sales in each of the above mentioned areas further contributed 
to the decrease in the Group's operating income. 

  The increased sales of the Industrial and Consumer Manufacturing Group was
primarily due to both the acquisition of Woods, in December 1996 and the 
acquisition of Loren, in August of 1997.  Increased sales in the stain products
portion also contributed to the improvement.  The increase in the Group's 
operating income was primarily a result of the above mentioned acquisitions, 
complemented with increased margins in the sanitary and maintenance areas.

  The Machinery Manufacturing Group's sales decreased mainly as a result of the
Company's divestiture of Beehive, on July 14, 1997, offset partially by 
increased sales in the cookie sandwich machinery business.  The increase in the
Group's operating income was primarily due to increased margins in the cookie 

                              Page 8



sandwich machinery business and the wood processing machinery business.

  Selling, general and administrative expenses decreased as a percentage of 
sales to 23.6% in 1997 from 26.1% in 1996.  The decrease in this percentage is 
primarily due to the acquisition of Woods.  Excluding Woods from the third 
quarter of 1997, selling, general and administrative expenses as a percentage 
of sales increased slightly due to the previously mentioned increase in the 
Distribution and Service Group.

  Interest and other, net decreased due to lower cash levels during the third 
quarter of 1997.


Nine Months Ended September 30, 1997
------------------------------------

  Following are summaries of sales and operating income for the nine months 
ended September 30, 1997 and 1996 by industry segment:

Sales                                                    Increase (Decrease)
-----                                                    ------------------- 
                                         1997     1996    Amount    Percent
                                         ----     ----    ------    -------

Distribution and Service               $61,460  $64,635  $(3,175)    (4.9)%

Industrial and 
  Consumer Manufacturing               149,491   44,715  104,776    234.3    

Machinery Manufacturing                 23,153   24,040     (887)    (3.7) 


Operating Income                                         Increase (Decrease)
----------------                                         -------------------
                                         1997     1996    Amount    Percent
                                         ----     ----    ------    -------

Distribution and Service               $ 2,688   $5,971  $(3,283)   (55.0)%

Industrial and 
  Consumer Manufacturing                12,463    5,035    7,428    147.5    

Machinery Manufacturing                  2,519    1,668      851     51.0  

  
  The Distribution and Service Group's sales decreased due to volume decreases 
of rerolled metals, waste-to-energy services and electronic components and 
electrical parts and accessories which also contributed to the decline in 
operating income for the Group.  In addition, operating income decreased as a 
result of increased selling, general and administrative expenses as a 
percentage of sales in the electronic components and electrical parts portions 
of this segment. 

  The increased sales of the Industrial and Consumer Manufacturing Group was
primarily due to the acquisition of Woods, in December 1996 and the acquisition
of Loren, in August 1997.  Increased sales in the sanitary maintenance supplies
and stain businesses also contributed to the improvement.  The increase in the 
Group's operating income was due to the above mentioned acquisitions and the 
increased volume in the above mentioned areas.  

  The Machinery Manufacturing Group's sales decreased primarily as a result of 
the divestiture of Beehive, on July 14, 1997, offset partially by increased 
sales in the cookie sandwich machinery business.  The Group's increased 

                              Page 9


operating income is mainly due to increased margins in both the cookie sandwich
machinery business and the wood processing machinery business.

  Selling, general and administrative expenses decreased as a percentage of 
sales to 24.6% in 1997 from 26.6% in 1996.  The decrease in this percentage is 
primarily due to the acquisition of Woods.  Excluding Woods from the first 
three quarters of 1997, selling, general and administrative expenses remained 
fairly constant between the periods. 

  Interest and other, net in 1996 includes a gain of $4,914,000 resulting from 
the sale of Union Pacific Corporation common stock in the first quarter of 
1996.  Excluding this gain, Interest and other, net decreased due to lower cash
levels during the first three quarters of 1997.

  The effective tax rate decreased during the first three quarters of 1997 
primarily due to the benefits resulting from the Woods acquisition.


LIQUIDITY AND CAPITAL RESOURCES

  Combined cash and cash equivalents decreased to $7,393,000 on September 30, 
1997 compared to $27,321,000 on December 31, 1996 primarily due to the 
acquisition of Loren on August 6, 1997 and the increase in working capital 
needs caused by higher sales and seasonal factors. 

  Katy expects to commit an additional $4,436,000 for capital projects during 
the remainder of 1997.  Funding for these expenditures and for working capital 
needs is expected to be accomplished through the use of available cash and 
internally generated funds.  The Company also continues to search for 
appropriate acquisition candidates, and may obtain all or a portion of the 
financing for future acquisitions through the incurrence of additional debt, 
which the Company believes it can obtain at reasonable terms and pricing.

  At September 30, 1997, Katy had short and long-term indebtedness for money 
borrowed of $8,733,000.  Total debt was 6.0% of total debt and equity at 
September 30, 1997.  The Company has a committed unsecured line of credit with 
The Northern Trust Company in the amount of $30,000,000, which is used 
principally for letters of credit.  Katy intends to secure an additional 
commitment of bank credit in an amount it determines appropriate for future 
acquisitions.
  
  In August 1995, Katy's Board of Directors authorized the Company to 
repurchase up to 400,000 shares of its common stock in open market 
transactions.  In January 1996, Katy's board authorized the Company to 
repurchase an additional 500,000 shares, bringing the total authorization to 
900,000 shares.  In connection, therewith, Katy repurchased 38,000 shares in 
1997, bringing the total repurchased to 900,000, thus, completing the 
repurchase program.


ACQUISITIONS AND DISPOSITIONS

  On August 6, 1997, the Company purchased Loren.  Loren is a manufacturer and
distributor of cleaning and abrasives products for the industrial markets and
building products for the consumer markets.  The estimated purchase price, 
including acquisition costs was $10,900,000 plus an adjustment for changes in 
working capital, which exceeded Lorens' book value.  The purchase price for 
Loren is preliminary and adjustments may be recorded through 1998.  The 
accounts of Loren have been included in the Company's Financial Statements from
the acquisition date.

                              Page 10


  On July 14, 1997, the Company completed its divestiture of the Beehive 
division of Hamilton Precision Metals, Inc., for approximately $6,000,000 
and the assumption of certain liabilities of Beehive.  Beehive is engaged 
in the manufacture and sale of machinery for the meat, poultry, fruit and 
vegetable processing industries.  This divestiture, along with other 
planned divestitures, are not expected to result in a significant gain or loss.


NEW ACCOUNTING PRONOUNCEMENTS

  In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an 
Enterprise and Related Information".  This statement establishes standards for 
the way public business enterprises report information about operating 
segments.  It also establishes standards for related disclosures about products
and services, geographic areas, and major customers.  This statement is 
effective for the Company's financial statement for the year ended December 31,
1998 and the Company does not expect the adoption of SFAS 131 to materially 
effect the financial statement presentation.   

  In June 1997, the Financial Accounting Standards Board issued Statement 
Financial Accounting Standard No. 130, "Reporting Comprehensive Income".  This 
statement establishes standards for reporting and display of comprehensive 
income in financial statements.  Under this statement, all components of 
comprehensive income shall be reported in the financial statements for the 
period in which they are recognized.  This statement divides comprehensive 
income into net income and other comprehensive income.  Other comprehensive 
income shall be classified separately into foreign currency items, minimum 
pension liability adjustments, and unrealized gains and losses on certain 
investments in debt and equity securities.  The accumulated balance of other 
comprehensive income shall be reported in the equity section of the balance 
sheet separately from retained earnings and additional paid-in-capital.  This
statement is effective for the Company's financial statement for the year ended
December 31, 1998 and the Company does not expect the adoption of SFAS 130 to
materially effect the financial statement presentation.

  In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings Per Share".  This statement
establishes standards for computing and presenting earnings per share ("EPS") 
and applies to all entities with publicly held common stock or potential common
stock.  This statement replaces the presentation of primary EPS and fully 
diluted EPS with a presentation of basic EPS and diluted EPS, respectively.  
Basic EPS excludes dilution and is computed by dividing earnings available to 
common stockholders by the weighted-average number of common shares outstanding
for the period.  Similar to fully diluted EPS, diluted EPS reflects the 
potential dilution of securities that could share in the earnings.  This 
statement is not expected to have a material effect on the Company's reported 
EPS amounts.  This statement is effective for the Company's financial 
statements for the year ended December 31, 1997. 


OTHER FACTORS

  The Company and certain of its current and former direct and indirect 
corporate predecessors, subsidiaries and divisions have been identified by the 
U.S. Environmental Protection Agency and certain state environmental agencies 
and private parties as potentially responsible parties ("PRP's") at a number of
hazardous waste disposal sites under the Comprehensive Environmental Response, 
Compensation and Liability Act ("Superfund") and equivalent state laws and, as 
such, may be liable for the cost of cleanup and other remedial activities at 

                              Page 11

these sites.  Responsibility for cleanup and other remedial activities at a 
Superfund site is typically shared among PRPs based on an allocation formula.  
The means of determining allocation among PRPs is generally set forth in a 
written agreement entered into by the PRPs at a particular site.  An allocation
share assigned to a PRP is often based on the PRP's volumetric contribution of 
waste to a site.  The Company is also involved in remedial response and 
voluntary environmental clean-up at a number of other sites which are not 
currently the subject of any legal proceedings under Superfund, including 
certain of its current and formerly owned manufacturing facilities.  Based on 
its estimate of allocation of liability among PRPs, the probability that other 
PRPs, many of whom are large, solvent, public companies, will fully pay the 
costs apportioned to them, currently available information concerning the scope
of contamination, estimated remediation costs, estimated legal fees and other 
factors, the Company believes that it has an adequate accrual for all known 
liabilities at September 30, 1997.  Although management believes that these 
actions in the aggregate are not likely to have a material adverse effect on 
Katy's consolidated financial position or results of operations, further 
costs could be significant and will be recorded as a charge to operations 
when such costs become probable and reasonably estimable. 

  Katy also has a number of product liability and workers' compensation claims
pending against it and its subsidiaries.  With respect to the product liability
and workers' compensation claims, Katy has provided for its share of expected 
losses beyond the applicable insurance coverage, including those incurred but 
not reported.  Such accruals are developed using currently available claim 
information.  The incurred but not reported component of the liability was 
developed using actuarial techniques.

  Some of the statements in this Form 10-Q Quarterly Report, as well as 
statements by the Company in periodic press releases, oral statements made by 
the Company's officials to analysts and shareholders in the course of 
presentations about the Company and conference calls following earning 
releases, constitute "forward-looking statements" within the meaning of the 
Private Securities Litigation Reform Act of 1995.  Such forward looking 
statements involve known and unknown risks, uncertainties and other factors 
that may cause the actual results, performance or achievements of the Company 
to be materially different from any future results, performance or 
achievements expressed or implied by the forward-looking statements.

                              Page 12



                        KATY INDUSTRIES, INC.
                     PART II - OTHER INFORMATION


Item 1.  LEGAL PROCEEDINGS
         -----------------

  Except as set forth below, during the quarter for which this report is filed,
there have been no material developments in previously reported legal 
proceedings, and no other cases or legal proceedings, other than ordinary 
routine litigation incidental to the Company's business and other nonmaterial 
proceedings, have been brought against the Company.

  With respect to the request for information from the United States Environment
Protection Agency (the "EPA") received by Hamilton Precision Metals concerning 
the Reclaim Barrel Company site in West Jordan, Utah, described in the 
Company's Form 10-K for the year ended December 31, 1996, the Company entered 
into an Administrative Order on Consent with the EPA on September 15, 1997, 
settling the Company's liability with respect to this matter in return for a 
nominal payment. 

  On June 16, 1997, the EPA made a claim against GC Electronics, a division of 
GC Thorsen, Inc. ("GC Thorsen"), a subsidiary of Hallmark Holdings, Inc. 
(a Company subsidiary) and forty-one other potentially responsible parties 
regarding contamination at the Interstate Pollution Control Superfund Site in 
Rockford, Illinois, seeking to recover an aggregate of $399,951 of costs 
allegedly incurred by the EPA at such site.  The Company has tendered this 
claim to Jupiter Industries, a former owner of GC Thorsen, and Jupiter 
Industries had agreed to assume responsibility for this matter.  The Company 
may also have a right to indemnification for this matter from Elgin National 
Industries, Inc., the party that sold GC Thorsen to the Company.  The liability
of the Company's subsidiary, if any, cannot be determined at this time.

  On March 24, 1997, the EPA issued a request for information to GC Thorsen 
concerning shipments of waste to the Daly Drum Site in Rockford, Illinois.  
GC Thorsen responded to this request by stating that its records identified no 
such shipments.  The liability of the Company's subsidiary, if any, cannot be 
determined at this time.



EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------

(a)  Reports on Form 8-K

No reports on Form 8-K were filed during the quarter ended September 30, 1997.


                              Page 13



                              Signatures
                              ----------

       Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.



                                         KATY INDUSTRIES, INC.
                                         ---------------------
                                               Registrant


DATE: November 12, 1997                  By  /s/Stephen P. Nicholson
                                            ------------------------
                                         Stephen P. Nicholson
                                         Vice President, Finance &
                                         Chief Financial Officer 

                              Page 14