FRIEDMAN INDUSTRIES INC, 10-K405, 1997-06-30

FRIEDMAN INDUSTRIES INC
10-K405, 1997-06-30
STEEL WORKS, BLAST FURNACES & ROLLING & FINISHING MILLS

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<PAGE> 1

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 March 31, 1997

- - ----- 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. 1-7521
-------

FRIEDMAN INDUSTRIES, INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)

Texas 74-1504405
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

4001 Homestead Road, Houston, Texas 77028
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (713) 672-9433
--------------

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

Name of each exchange
Title of each class on which registered
------------------- -----------------------
Common Stock, $1 Par Value American Stock Exchange

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

None

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 and (2) has been subject to the
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.

Yes X No
----- -----

The aggregate market value of the Common Stock held by
non-affiliates of the registrant as of June 18, 1997 (computed by reference to
the closing price on the American Stock Exchange on such date), was
approximately $22,664,000.

The number of shares of the registrant's Common Stock
outstanding at June 18, 1997 was 6,469,731 shares.

<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Shareholders of Friedman
Industries, Incorporated for the fiscal year ended March 31,
1997 - Part II.

Proxy Statement for the 1997 Annual Meeting of Shareholders - Part III.

PART I

Item 1. Business

Friedman Industries, Incorporated (the "Company"), a Texas
corporation incorporated in 1965, is in the steel processing and distribution
business. The Company has two product groups: coil processing (steel sheet
and plate) and tubular products.

Significant financial information relating to the Company's
product and service groups for the last three years is contained in Note 6 of
the Company's Consolidated Financial Statements appearing on page 10 and 11 of
the Company's Annual Report to Shareholders for the fiscal year ended March 31,
1997, which is incorporated herein by reference elsewhere in this report.

Coil Processing

The Company purchases domestic and foreign hot-rolled steel
coils, processes the coils into steel sheet and plate and sells these products
on a wholesale, rapid-delivery basis in competition with steel mills, importers
and steel service centers. The Company also processes customer-owned coils on
a fee basis. The Company has coil processing plants located at Lone Star,
Texas, Houston, Texas and Hickman, Arkansas. At each plant the steel coils are
processed through a cut-to-length line which levels the steel and cuts it to
prescribed lengths. The Company's processing machinery is heavy, mill-type
equipment capable of processing steel coils weighing up to 25 tons. Coils are
processed to the specifications required for a particular order. Shipments are
made via unaffiliated truckers or by rail and, in times of normal supply and
market conditions, can generally be made within 48 hours of receipt of the
customer's order.

At its Lone Star facility, the Company receives hot-rolled steel
coils primarily from Lone Star Steel Company ("LSS"), which is located
approximately four miles from the Company's plant. The Lone Star plant
receives its supply of steel from LSS and other suppliers at competitive prices
determined at the time of purchase. During fiscal 1997 and 1996, the Company
received approximately 86% and 90%, respectively, of its tonnage for the Lone
Star facility from LSS and was able to purchase sufficient tonnage at
competitive prices from other suppliers to meet the requirements of this
facility. Loss of LSS as a source of coil supply could have a material adverse
effect on the Company's business.

At its Houston facility, the Company warehouses and processes
hot-rolled steel coils, which are generally purchased on the open market at
competitive prices from importers, trading companies and domestic steel mills.

At the Company's Hickman facility, the Company warehouses and
processes steel coils which are purchased primarily from Nucor Steel Company
("NSC"). NSC is located approximately one-half mile from the Hickman facility.
Loss of NSC as a source of coil supply could have a material adverse effect on
the Company's business.

At the Lone Star facility, the Company maintains three
cut-to-length lines and a coil-to-coil 2-Hi rolling mill. This equipment is
capable of processing steel up to 84 inches wide and up to one-half inch thick.
At the Houston facility, the Company has a cut-to-length line and a rolling
mill

-2-
<PAGE> 3
that are capable of processing steel up to 90 inches wide and up to one-half
inch thick. The Hickman facility operates a cut to length line which has 84
inch wide and one-half inch thick capacity. The Company intends to install a
2-Hi rolling mill at the Hickman facility in fiscal 1998. This rolling mill
will be capable of processing steel up to 74 inches wide and one-half inch
thick in a coil-to-coil mode or directly from coil to cut-to-length processing.
The Company believes this process will improve surface quality, impart a
higher degree of flatness, reduce scrap loss and increase sales capacity.

Tubular Products

Through its Texas Tubular operation in Lone Star, Texas, the
Company purchases, markets, processes (e.g., sorting, end-beveling, threading,
etc.) and manufactures tubular products.

The Company processes its own tubular products and processes
pipe on a fee basis for one major customer, LSS. Pipe processing equipment
employed by this operation includes eight threading machines, six cutoff and
beveling machines, pipe handling equipment and other related machinery. This
machinery can process pipe up to 13-3/8 inches in outside diameter.

The Company's Texas Tubular operation includes a pipe mill that
is capable of producing pipe from 2-3/8 inches to 8-5/8 inches in outside
diameter. The pipe mill is API-licensed to manufacture line and oil country
pipe and also manufactures pipe for structural and piling purposes that meets
recognized industry standards. The Company currently manufactures and sells
substantially all of its line and oil country pipe to LSS pursuant to orders
received from LSS, and in exchange therefor, LSS sells to the Company pipe for
structural applications for some sizes of pipe that are beyond the capability of
the pipe mill.

The Company purchases a substantial portion of its annual supply
of pipe and coil material used in pipe production from LSS. The Company can
make no assurances as to the amounts of pipe and coil material that will be
available from LSS in the future or amounts of tubular products that it will be
able to process for LSS in the future. Loss of LSS as a source of supply or as
a customer could have a material adverse effect on the Company's business. A
summary of tubular operations is provided in Note 6 of the Company's
Consolidated Financial Statements incorporated herein by reference.

Marketing

The following table sets forth the approximate percentage of
total sales contributed by each group of steel products during each of the
Company's last three fiscal years:

<TABLE>
<CAPTION>
Product Groups 1997 1996 1995
- - -------------- ---- ---- ----
<S> <C> <C> <C>
Coil Processing 56% 60% 65%
Tubular Products 44% 40% 35%
</TABLE>

Coil Processing (Steel Sheet and Plate). The Company's products and
processing services are sold to approximately 420 customers located primarily in
the midwestern, southwestern and southeastern sections of the United States. The
Company's coil processing products and services are sold principally to steel
distributors and to customers fabricating steel products such as storage tanks,
steel buildings, farm machinery and equipment, construction equipment,
transportation equipment, conveyors and other similar products. During each of
the fiscal years ended March 31, 1997, 1996 and 1995, seven, seven and four
customers, respectively, accounted for approximately 25% of the Company's sales
of coil processing products. No sheet and plate customer accounted for as much
as 10% of the Company's total sales during those years.

The Company sells substantially all of its coil processing products
through its own sales force. At March 31, 1997, the sales force consisted of a
senior vice president of sales and marketing, five inside and two outside
salesmen. The senior vice president of sales and marketing supervises the sales
department and performs the duties of an inside salesman. The inside sales
force handles mostly telephone orders from customers. Outside salesmen take
telephone orders and call on customers and potential customers in the field.
Inside salesmen are paid on a salary and commission basis with the rate of
commission depending upon the tonnage shipped to the salesman's customers in a
particular month. Outside salesmen are paid on a salary basis.

-3-
<PAGE> 4
Shipments of particular products are made from the facility offering
the product desired. If the product is available at more than one facility,
other factors such as location of the customer, productive capacity of the
facility and activity of the facility enter into the decision regarding
shipments. The Company regularly contracts on a quarterly basis with many of
its larger customers to supply minimum quantities of steel.

Tubular Products. Tubular products are sold nationally to
approximately 330 customers. Sales of tubular products were made primarily to
steel and pipe distributors, to piling contractors and to LSS. Sales of pipe
to LSS accounted for approximately 15% of the Company's total sales in fiscal
1997.

The Company sells its tubular products through its own sales force,
which includes three inside salesmen and one manager. Salesmen are paid on a
salary and commission basis.

The Company processes its own tubular products and processes pipe for
one major customer, LSS, on a fee basis.

Employees

At March 31, 1997, the Company had approximately 150 full-time
employees.

Competition

The Company is normally engaged in a non-seasonal, highly competitive
business. The Company competes with steel mills, importers and steel service
centers. The steel industry, in general, is characterized by a small number of
extremely large companies dominating the bulk of the market and a large number
of relatively small companies, such as the Company, competing for a limited
share of such market. The large companies and many of the small companies
possess resources substantially greater than those of the Company.

In the opinion of management, the competitive position of the Company
in times of normal supply and market conditions is dependent upon its ability
to offer steel products at prices competitive with or below those of other
steel suppliers, as well as its ability to provide products to customer
specifications on a rapid delivery basis.

-4-
<PAGE> 5
Executive Officers of the Company

The following table sets forth the name, age, officer positions and
family relations, if any, of each executive officer of the Company and period
during which each officer has served in such capacity:

<TABLE>
<CAPTION>
Position, Offices with the Company
Name Age and Family Relations, if any
---- --- ----------------------------
<S> <C> <C>
Jack Friedman 76 Chairman of the Board of Directors and Chief Executive Officer since 1970,
Director since 1965, brother of Harold Friedman

Harold Friedman 67 Vice Chairman since 1995, formerly President and Chief Operating Officer since
1975, Executive Vice President from 1973 to 1975, Director since 1965, brother of
Jack Friedman

William E. Crow 50 President and Chief Operating Officer since 1995, formerly Vice President since
1981 and formerly President of Texas Tubular Products Division since August 1990.

Benny Harper 51 Senior Vice President - Finance since 1995 (formerly Vice President since 1990),
Treasurer since 1980 and Secretary since May 1992

Thomas Thompson 46 Senior Vice President - Sales and Marketing since 1995, formerly Vice President - Sales
since 1990

Ronald Burgerson 58 Vice President since 1974

Ted Henderson 69 Vice President since 1985

Dale Ray 51 Vice President since 1994
</TABLE>

Dale Ray was elected a vice president in March 1994. Prior thereto,
Mr. Ray was a plant manager at the Company's Lone Star facility for more than
five years.

Item 2. Properties

The principal properties of the Company are described in the following
table:

<TABLE>
<CAPTION>
Approximate Type of
Location Size Ownership Construction
- - -------- -------------- --------- ------------
<S> <C> <C> <C>
LONE STAR, TEXAS
Plant-Coil Processing 42,260 sq. feet Owned (1) Steel frame/siding
Plant-Texas Tubular Products 76,000 sq. feet Owned (1) Steel frame/siding
Offices-Coil Processing 1,200 sq. feet Owned (1) Steel building
Offices-Texas Tubular Products 5,000 sq. feet Owned (1) Cinder block
Land-Coil Processing 13.93 acres Owned (1) --
Land-Texas Tubular Products 67.77 acres Leased (2) --

LONGVIEW, TEXAS Offices 2,600 sq. feet Leased (3) Office Building

HOUSTON, TEXAS
Plant and Warehouse-Coil Processing 70,000 sq. feet Owned (1) Rigid steel frame
and steel siding
Offices-Coil Processing 4,000 sq. feet Owned (1) Brick veneer;
steel building
Land-Coil Processing 12 acres Owned (1) --
</TABLE>

-5-
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
HICKMAN, ARKANSAS
Plant and Warehouse-Coil Processing 25,500 sq. feet Owned (1) Steelframe/siding
Offices-Coil Processing 1,200 sq. feet Owned (1) Cinder block
Land-Coil Processing 20 acres Owned (1) --
</TABLE>

______________________

(1) All of the Company's owned real estate, plants and offices are held in
fee and are not subject to any mortgage or deed of trust.

(2) The real estate lease is with LSS and its affiliate, Texas & Northern
Railway, Inc., and expires August 31, 2010. The lease provides for
monthly payments of $1,667 adjusted each January 1 for changes in the
Consumer Price Index. The Company has an exclusive option to purchase
this property during a 60-day period beginning May 1, 1998 for
$214,238.

(3) The office lease is with a nonaffiliated party, expires April 30,
2001, and provides for an annual rental of $24,672.

Item 3. Legal Proceedings

The Company is not a party to, nor is its property the subject of, any
material pending legal proceedings.

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

None.

PART II

Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters

The Company's Common Stock is traded principally on the American Stock
Exchange (Symbol: FRD).

Reference is hereby made to the sections of the Company's Annual
Report to Shareholders for the fiscal year ended March 31, 1997, entitled
"Description of Business--Range of High and Low Sales Prices of Common Stock"
and "Description of Business--Dividends Declared Per Share of Common Stock",
which sections are hereby incorporated herein by reference.

The approximate number of shareholders of record of Common Stock of
the Company as of May 23, 1997 was 730.

The Company intends to continue the payment of cash dividends although
future dividends will depend on the Company's earnings, financial needs and
other factors.

Item 6. Selected Financial Data

Information with respect to Item 6 is hereby incorporated herein by
reference from the section of the Company's Annual Report to Shareholders for
the fiscal year ended March 31, 1997, entitled "Selected Financial Data".

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

Information with respect to Item 7 is hereby incorporated herein by
reference from the section of the Company's Annual Report to Shareholders for
the fiscal year ended March 31, 1997, entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations".

-6-
<PAGE> 7
Item 8. Financial Statements and Supplementary Data

The following financial statements and notes thereto of the Company
included in the Company's Annual Report to Shareholders for the fiscal year
ended March 31, 1997, are hereby incorporated herein by reference:

Consolidated Balance Sheets--March 31, 1997 and 1996

Consolidated Statements of Earnings--Years ended March 31, 1997, 1996
and 1995

Consolidated Statements of Stockholders' Equity--Years ended March 31,
1997, 1996 and 1995

Consolidated Statements of Cash Flows--Years ended March 31, 1997,
1996 and 1995

Notes to Consolidated Financial Statements--March 31, 1997

Report of Independent Auditors

Information with respect to supplementary financial information
relating to the Company appears in Note 7-- Summary of Quarterly Results of
Operations (Unaudited) of the Notes to Consolidated Financial Statements
incorporated herein by reference above in this Item 8 from the Company's Annual
Report to Shareholders for the fiscal year ended March 31, 1997.

The following supplementary schedule for the Company for the year
ended March 31, 1997, is included elsewhere in this report.

Schedule II--Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and, therefore,
have been omitted.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None

PART III

Item 10. Directors and Executive Officers of the Registrant

Information with respect to Item 10 is hereby incorporated herein by
reference from the Company's proxy statement in respect of the 1997 Annual
Meeting of Shareholders, definitive copies of which are expected to be filed
with the Securities and Exchange Commission on or before 120 days after the end
of the Company's 1997 fiscal year.

Item 11. Executive Compensation

Information with respect to Item 11 is hereby incorporated herein by
reference from the Company's proxy statement in respect of the 1997 Annual
Meeting of Shareholders, definitive copies of which are expected to be filed
with the Securities and Exchange Commission on or before 120 days after the end
of the Company's 1997 fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Information with respect to Item 12 is hereby incorporated herein by
reference from the Company's proxy statement in respect of the 1997 Annual
Meeting of Shareholders, definitive copies of which are expected to be filed
with the Securities and Exchange Commission on or before 120 days after the end
of the Company's 1997 fiscal year.

-7-
<PAGE> 8
Item 13. Certain Relationships and Related Transactions

Information with respect to Item 13 is hereby incorporated herein by
reference from the Company's proxy statement in respect of the 1997 Annual
Meeting of Shareholders, definitive copies of which are expected to be filed
with the Securities and Exchange Commission on or before 120 days after the end
of the Company's 1997 fiscal year.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) (1) and (2) -- The response to this portion of Item
14 appears elsewhere in this report as
a separate section of this report.

(3) -- Exhibits

3(i)1 Articles of Incorporation of the
Company, as amended, filed as an
exhibit to the Company's Annual Report
on Form 10-K for the year ended March
31, 1982, and hereby incorporated
herein by reference.

3(i)2 Articles of Amendment to the Articles
of Incorporation of the Company, as
filed with the Texas Secretary of
State on September 22, 1987, filed as
an exhibit to the Company's Annual
Report on Form 10-K for the year ended
March 31, 1988, and hereby
incorporated herein by reference.

3(ii) Bylaws of the Company, amended as of
March 27, 1992, filed as an exhibit to
the Company's Annual Report on Form
10-K for the year ended March 31,
1992, and incorporated herein by
reference.

4.1 Promissory Note of the Company to
Texas Commerce Bank National
Association, dated December 1, 1993,
in the amount of $4,000,000, filed as
an Exhibit to the Company's Quarterly
Report on Form 10-Q for the quarterly
period ended December 31, 1993, and
hereby incorporated herein by
reference.

4.2 Letter Agreement dated March 22, 1993,
as amended by the First Amendment
dated December 31, 1993, by and
between the Company and Texas Commerce
Bank National Association regarding a
$5,000,000 revolving credit line,
filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the
quarterly period ended December 31,
1993, and hereby incorporated herein
by reference.

4.3 Amended and Restated Letter Agreement
dated April 1, 1995, between the
Company and Texas Commerce Bank
National Association regarding an
$8,000,000 revolving line of credit,
filed as an exhibit to the Company's
Annual Report on Form 10-K for the
year ended March 31, 1995, and hereby
incorporated herein by reference.

10.1 Lease Agreement between NCNB Texas
National Bank, as Trustee, and the
Company dated September 10, 1990, and
Addendum No. 1 thereto dated November
11, 1991, filed as an exhibit to the
Company's Annual Report on Form 10-K
for the

-8-
<PAGE> 9
year ended March 31, 1992, and
incorporated herein by reference.

*10.2 1974 Stock Option Plan, as amended
through March 24, 1982, as further
amended on January 21, 1987 and
February 25, 1988, filed as an exhibit
to the Company's Annual Report on Form
10-K for the year ended March 31,
1988, and hereby incorporated herein
by reference.

10.3 Lease, effective September 1, 1990, by
and between Lone Star Steel Company,
Texas & Northern Railway, Inc., a
Texas corporation, and the Company,
filed as an exhibit to the Company's
Current Report on Form 8-K dated
August 1, 1990, and hereby
incorporated herein by reference.

*10.4 Friedman Industries, Incorporated 1989
Incentive Stock Option Plan, filed as
an exhibit to the Company's Annual
Report on Form 10-K for the fiscal
year ended March 31, 1991, and hereby
incorporated herein by reference.

10.5 Promissory Note of the Company to
Texas Commerce Bank National
Association, dated December 1, 1993,
in the amount of $4,000,000 (included
as Exhibit 4.1 hereto).

10.6 Letter Agreement dated March 22, 1993,
as amended by the First Amendment
dated December 31, 1993, by and
between the Company and Texas Commerce
Bank National Association regarding a
$5,000,000 revolving credit line
(included as Exhibit 4.2 hereto).

10.7 Amended and Restated Letter Agreement
dated April 1, 1995, between the
Company and Texas Commerce Bank
National Association regarding an
$8,000,000 revolving line of credit
(included as Exhibit 4.3 hereto).

10.8 Lease Agreement between Judson Plaza,
Inc. and the Company dated March 16,
1996, regarding the lease of office
space. (incorporated by reference to
the Company's Annual Report on Form
10-K for the year ended March 31, 1996)

10.9 Friedman Industries, Incorporated 1996
Stock Option Plan.

10.10 $8,000,000 Revolving Promissory Note
dated April 1, 1997.

10.11 First Amendment to Amended and
Restated Letter Agreement between the
Company and Texas Commerce Bank
National Association dated April 1,
1997.

13.1 The Company's Annual Report to
Shareholders for the fiscal year ended
March 31, 1997.

21.1 List of Subsidiaries.

23.1 Consent of Independent Auditors.
_______________
* Management contract or compensation plan.

Copies of exhibits filed as a part of this Annual Report on Form
10-K may be obtained by shareholders of record at a charge of
$.10 per page. Direct inquiries to: Benny Harper, Senior Vice
President - Finance, Friedman Industries, Incorporated, P. O.
Box 21147, Houston, Texas 77226.

(b) Reports on Form 8-K filed in the fourth quarter of fiscal 1997:

None

-9-
<PAGE> 10
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Friedman Industries, Incorporated has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, and State of Texas, this 27th day of June,
1997.

FRIEDMAN INDUSTRIES, INCORPORATED

By: /s/ Jack Friedman
--------------------------------
Jack Friedman
Chairman of the Board
and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities
and on the dates indicated on behalf of Friedman Industries, Incorporated in
the City of Houston, and State of Texas.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jack Friedman Chairman of the Board, Chief June 27, 1997
- - ------------------------- Executive Officer and Director
Jack Friedman (Principal Executive Officer)

/s/ Harold Friedman Vice Chairman of the Board June 27, 1997
- - ------------------------- and Director
Harold Friedman

/s/ Benny Harper Senior Vice President - Finance and June 27, 1997
- - ------------------------- Treasurer (Principal Financial and
Benny Harper Accounting Officer)

/s/ Henry Spira Director June 27, 1997
- - -------------------------
Henry Spira

/s/ Charles W. Hall Director June 27, 1997
- - -------------------------
Charles W. Hall

/s/ Kirk K. Weaver Director June 27, 1997
- - -------------------------
Kirk K. Weaver

/s/ Alan M. Rauch Director June 27, 1997
- - -------------------------
Alan M. Rauch

/s/ Hershel M. Rich Director June 27, 1997
- - -------------------------
Hershel M. Rich
</TABLE>

-10-
<PAGE> 11
FRIEDMAN INDUSTRIES, INCORPORATED

HOUSTON, TEXAS

ANNUAL REPORT FORM 10-K

YEAR ENDED MARCH 31, 1997

ITEM 14(a)(1) AND (2)

LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES

-11-
<PAGE> 12

FORM 10-K

ITEM 14(a)(1) and (2)

FRIEDMAN INDUSTRIES, INCORPORATED

LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES

The following financial statements of the Company are set forth herewith
in response to Item 14(a)(1) and (2) of this report.

Consolidated Balance Sheets--March 31, 1997 and 1996

Consolidated Statements of Earnings--Years ended March 31, 1997, 1996
and 1995

Consolidated Statements of Stockholders' Equity--Years end March 31,
1997, 1996 and 1995

Consolidated Statements of Cash Flows--Years ended March 31, 1997, 1996
and 1995

Notes to Consolidated Financial Statements--March 31, 1997

Report of Independent Auditors

The following financial statement schedule of the Company are included
in this report.

S-1-Schedule II--Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and, therefore,
have been omitted.

-12-
<PAGE> 13

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

FRIEDMAN INDUSTRIES, INCORPORATED

<TABLE>
<CAPTION>
==================================================================================================================
Column A Column B Column C Column D Column E
- - ------------------------------------------------------------------------------------------------------------------
ADDITIONS
-----------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other Accounts - Deductions - at End
Description of Period Expenses(1) Describe Describe(A) of Period
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1997
Allowance for doubtful
accounts receivable (deducted
from related asset account)..... $ 5,794 $ 5,000 $ 3,518 $ 7,276
======= ======= ======== ======= =======

Year ended March 31, 1996
Allowance for doubtful
accounts receivable (deducted
from related asset account)..... $ 5,970 $ 9,500 $ 9,676 $ 5,794
======= ======= ======== ======= =======

Year ended March 31, 1995
Allowance for doubtful
accounts receivable (deducted
from related asset account)..... $ 5,900 $13,715 $13,645 $ 5,970
======= ======= ======== ======= =======
</TABLE>

- - ----------------
(A) Accounts and notes receivable written off.

S-1
<PAGE> 14
EXHIBIT INDEX

3(ii) Bylaws of the Company, amended as of
March 27, 1992, filed as an exhibit to
the Company's Annual Report on Form
10-K for the year ended March 31,
1992, and incorporated herein by
reference.

<PAGE> 15
year ended March 31, 1992, and
incorporated herein by reference.

10.5 Promissory Note of the Company to
Texas Commerce Bank National
Association, dated December 1, 1993,
in the amount of $4,000,000 (included
as Exhibit 4.1 hereto).

10.9 Friedman Industries, Incorporated 1996
Stock Option Plan.

10.10 $8,000,000 Revolving Promissory Note
dated April 1, 1997.

10.11 First Amendment to Amended and
Restated Letter Agreement between the
Company and Texas Commerce Bank
National Association dated April 1,
1997.

13.1 The Company's Annual Report to
Shareholders for the fiscal year ended
March 31, 1997.

21.1 List of Subsidiaries.

23.1 Consent of Independent Auditors.
_______________
* Management contract or compensation plan.

<PAGE> 1

EXHIBIT 10.8

OFFICE LEASE AGREEMENT

STATE OF TEXAS Section

COUNTY OF GREGG Section

THIS LEASE AGREEMENT, made and entered into as of the 16 day of MARCH, 1996
by and between the Landlord and Tenant hereinafter named.

WITNESSETH:

1. Definitions and Basic Provisions. The following definitions and basic
provisions shall be used in conjunction with and limited by the reference
thereto in the provisions of this lease:

a. "Landlord": Judson Plaza, Inc.

b. "Tenant": Friedman Industries, Inc.

c. "Premises": 1121 Judson Road, Suite 124
Longview, Texas 75601

as generally outlined on the plan attached hereto as Exhibit "A". The
term "rentable area" as used herein, shall refer to (i) (in the case of
single-tenancy floor, all floor area measured from the outside surface of the
outer glass of the building to the outside surface of the opposite outer wall,
excluding only those areas within the outside walls used for building stairs,
fire towers, elevator shafts, flues, vents, stacks, pipe shafts and vertical
ducts, but including any such areas which are for the specific use of a
particular tenant, such as special stairs or elevators; and (ii) in the case
of a partial floor, all floor areas within the outside surface of the outer
glass enclosing the tenant-occupied portion of the floor and measured to the
midpoint of the walls separating areas leased by or held for lease to other
tenants or from areas devoted to corridors, elevator foyers, restrooms,
mechanical rooms, janitor closets, vending areas and other similar facilities
for the use of all tenants on the particular floor (hereinafter sometimes
called "common areas"). No deductions from rentable areas are made for
columns or projections necessary to the building. The rentable area in the
premises has been calculated on the basis of the foregoing definition and is
hereby stipulated for all purposes hereof to be 2596 square feet, whether the
same should be more or less as a result of minor variations resulting from
actual construction and completion of the premises for occupancy so long as
such work is done in accordance with the terms and provisions hereof. The
total rentable area of the building shall be 46,889 square feet.

d. "Lease term": A period of 60 months, commencing on MAY 1,
1996 (the "commencement date") and ending on APRIL 30, 2001.

e. "Basic rental": $24,672.00 per year subject to adjustment as
provided herein.

f. "Monthly rental installment": $2,056.00

g. "Security deposit": $-O-

h. "Permitted use": An office "Development": the property
owned by Landlord known as Judson Plaza, Inc., having a street
address of 1121 and 1125 Judson Road, Longview, Gregg County,
Texas, including the building, all land under and surrounding
the building, and all other improvements thereto.

2. LEASE GRANT. Landlord, in consideration of the rent to be paid and the
other covenants and agreements to be performed by the Tenant and upon the terms
and conditions hereinafter stated, does hereby lease, demise and let unto Tenant
the premises (as defined in Paragraph 1.c. hereof) commencing on the
commencement date (as defined in Paragraph 1.d. hereof, or as adjusted as
hereinafter provided) and ending on the last day of the lease term, unless
sooner terminated as herein provided. Landlord shall not be liable for failure
to give possession of any previous tenant, tenants, or occupants of same, nor
shall such failure impair the validity of this lease, and Tenant agrees to
accept possession of the premises on such date as Landlord is able to tender the
same and such date shall continue for the lease term described in Paragraph 1.d.
hereof. Landlord hereby waives payment of monthly rental installments covering
any period prior to the tendering of possession of the premises to Tenant
hereunder. If Tenant occupies the premises prior to the commencement date
specified in Paragraph 1.d., the commencement date shall be deemed to be changed
to coincide with the date of Tenant's occupancy; however, the expiration date of
the lease shall remain unchanged, and the amount of the basic rental shall be
increased prorata based upon the increased lease term. By occupying the
premises, Tenant shall be deemed to have accepted the same as suitable for the
purpose herein intended and to have acknowledged that the same comply fully with
Landlord's covenants and obligations.

3. RENT. In consideration of this lease, Tenant promises and agrees to pay
Landlord the basic rental (as defined in Paragraph 1.e. hereof) without
deduction, counterclaim, or setoff. It is agreed that, notwithstanding anything
to the contrary, the premises herein are leased for the basic rental for the
lease term hereof, payable at the time of the making of this lease and that the
provisions herein contained for the payment of such rent in monthly rental
installments (as defined in Paragraph 1.f. hereof) are for the convenience of
the Tenant only, and that, upon default in the payment of any monthly rental
installment as herein allowed, the whole of the rent hereby reserved for the
whole of the lease term herein provided for and then remaining unpaid shall, at
the option of the Landlord, become due and payable without notice or demand.

One such monthly rental installment, together with the security deposit (as
defined in Paragraph 1.g. hereof), shall be payable by Tenant to Landlord
contemporaneously with the execution hereof, and a like monthly rental
installment shall be due and payable without notice or demand on or before the
first
<PAGE> 2
day of each succeeding calendar month during the term hereof. A monthly rental
installment for any fractional month at the beginning or the end of the lease
term shall be prorated.

IF THE MONTHLY RENTAL INSTALLMENT IS NOT RECEIVED BY THE LANDLORD ON OR
BEFORE THE 5TH DAY OF THE MONTH FOR WHICH SAID MONTHLY RENTAL INSTALLMENT IS
DUE, a service charge of $35.00 of the monthly rental installment shall become
due and payable in addition to the monthly rental installment owed. Said service
charge is for the purpose of reimbursing Landlord for the extra costs and
expenses incurred in connection with the handling and processing of late monthly
installment payments.

The security deposit shall be held by Landlord without liability for
interest and as security for the performance by Tenant of Tenant's covenants and
obligations under this lease, it being expressly understood that such deposit
shall not be considered an advance payment of rental or a measure of Landlord's
damages in case of default by Tenant. Upon the occurrence of any event of
default by Tenant, Landlord may, from time to tome, without prejudice to any
other remedy, use such deposit to the extent necessary to make good any
arrearages of rent and any other damage, injury, expense or liability caused to
Landlord by such event or default. Following any such application of the
security deposit, Tenant shall pay to the Landlord on demand the amount so
applied in order to restore the security deposit to its original amount. If
Tenant is not then in default hereunder, any remaining balance of such deposit
shall be returned by Landlord to Tenant upon termination of this lease. If
Landlord transfers its interest in the premises during the lease term, Landlord
may assign the security deposit to the transferee and thereafter shall have no
further liability for the return of such security deposit.

4. SERVICES.

a. Landlord agrees to furnish Tenant, while occupying the premises, at
Landlord's sole cost and expense: (i) hot and cold water at those points of
supply provided for general use of tenants; (ii) electrical current for Tenant's
use and occupancy of the premises to the extent reasonably deemed to be standard
by Landlord, provided, however, that all costs for extraordinary or unusual
demand for electrical service shall be borne by Tenant; (iii) heating and air
conditioning at such times as Landlord normally furnishes such services to all
tenants of the building, and at such temperatures and in such amounts as are
reasonably considered by Landlord to be standard; (iv) periodic janitorial
services; (v) replacement of building standard light bulbs and tubes.
Initially, the cost of such services shall be paid by Landlord; provided,
however, that Landlord is entitled to be partially reimbursed for the costs that
it incurs in furnishing these services in accordance with terms and provisions
of Paragraph 5 hereinabove.

b. Landlord does not warrant that any of said specific services will be
free from interruption or stoppage, but nevertheless, Landlord shall use
reasonable diligence to resume any such interrupted or stopped service. Anything
to the contrary notwithstanding, no failure, to any extent, to furnish such
services or any stoppage or interruption of these defined services shall render
Landlord liable in any respect for damages to either person, property or
business, nor shall any such failure, interruption or stoppage of such services
be deemed or construed as an eviction, actual or constructive, of a Tenant, nor
work an abatement of rent, nor relieve Tenant from the obligation to fulfill any
covenant or agreement contained in this lease.

5. LEASEHOLD IMPROVEMENTS. Landlord agrees to install, at Landlord's cost
and expense, except as otherwise stated herein, the improvements described in
Exhibit "B" attached hereto. Landlord has made no representations as to the
condition of the premises or the building, and has made no agreements to
remodel, repair or decorate the premises or the building, except as expressly
set forth herein.

6. USE. Tenant shall use the premises only for the permitted use (as
defined in Paragraph 1.h. hereof). Tenant will not occupy or use the premises,
or permit any portion of the premises to be occupied or used for any business,
or permit any portion of the premises to be occupied or used for any business or
purpose other than the permitted use, or for any use or purpose which is
unlawful in part or in whole or deemed to be disreputable in any manner or extra
hazardous on account of fire, nor will Tenant permit anything to be done which
will in any way increase the rate of fire insurance on the building or its
contents; and in the event that there shall be any increase in the rate of
insurance on the building or its contents created by Tenant's acts or conduct of
business, then such acts of Tenant shall be deemed to be an event of default
hereunder and Tenant hereby agrees to pay to Landlord the amount of such
increase on demand, and acceptance of such payment shall not constitute a waiver
of any of Landlord's other rights provided herein. Tenant will conduct its
business and control its agents, employees and invitees in such a manner as not
to create any nuisance, nor interfere with, annoy or disturb other tenants or
Landlord in management of the building. Tenant will maintain the premises in a
clean, healthful and safe condition and will comply with all laws, ordinances,
orders, rules and regulations (state, federal, municipal and other agencies or
bodies having any jurisdiction thereof) with reference to use, condition or
occupancy of the premises. Tenant will not, without the prior written consent
of the Landlord, paint, install lighting, window coverings or decoration or
install any signs, window or door lettering, or advertising media of any type on
or about the premises or any part thereof. Should Landlord agree in writing to
any of the foregoing items in the preceding sentence, Tenant will maintain such
permitted items in good condition and repair at all times. Tenant shall not have
alcohol or illegal drugs on premises.

7. REPAIRS AND MAINTENANCE.

a. By Landlord: Landlord shall, at its expense, maintain in good
repair and condition, except for reasonable wear and tear, only the roof,
foundation, heating and air conditioning systems, common areas, plumbing,
elevators (if any), fire protection sprinklers (if any), the structural
soundness of the exterior walls, the paving outside the building, and the
landscaping. Landlord shall be responsible for pest eradication. Landlord shall
also be responsible for replacement or repair of windows and glass damaged due
to structural movement, weather conditions, and vandalism by outside persons or
Landlord's agents.

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<PAGE> 3

Tenant shall give immediate written notice to Landlord of the need for repairs
or corrections and Landlord shall proceed promptly to make such repairs or
corrections. Landlord's liability hereunder shall be limited to the cost of
such repairs or corrections.

b. By Tenant: Tenant shall, at its expense and risk, maintain all
other parts of the building, the premises and related facilities in good repair
and condition, including but not limited to repairs (including all necessary
replacements) to the windows, window glass, plate glass, doors and the interior
of the premises in general. Tenant will not in any manner deface or injure the
building, the premises or related facilities and will pay the cost of repairing
any damage or injury done by Tenant or Tenant's agents, employees or invitees.
Tenant shall, throughout the term of this lease, take good care of the
building, the premises and related facilities and keep them free from waste and
nuisance of any kind. If Tenant shall fail to make any repair required
hereunder (including all necessary replacement) within fifteen (15) days after
written notification to do so, Landlord may, at its option, make such repair,
and Tenant shall, upon demand therefor, pay Landlord for the cost thereof
together with interest on any such cost which remains unpaid following such
demand at the highest rate allowed by law.

8. Alterations and Improvements. At the expiration or earlier
termination of this lease, Tenant shall deliver up the premises with all
improvements located thereon (except as otherwise herein provided) in good
repair and condition, reasonable wear and tear expected, and shall deliver to
Landlord all keys to the premises. The cost and expense of any repairs
necessary to restore the condition of the premises to the condition in which
they are to be delivered to Landlord shall be borne by Tenant. Tenant will
not make or allow to be made any alterations or physical additions in or to
the premises without the prior written consent of Landlord, which consent
shall not be unreasonably withheld as to non-structural alterations. All
alterations, additions or improvements (whether temporary or permanent in
character) made in or upon the premises, either by Landlord or Tenant, shall
be Landlord's property on termination of this lease and shall remain on the
premises, without compensation to Tenant. All furniture, movable trade
fixtures and equipment installed by Tenant may be removed by Tenant at the
termination of this lease if Tenant so elects, and shall be removed if
required by Landlord, or if not so removed shall, at the option of Landlord,
become the property of Landlord. All such installments, removals and
restoration shall be accomplished in a good and workmanlike manner so as not
to damage the premises or the primary structure or structural qualities of the
building, or the plumbing, electrical lines or other utilities.

9. Relocation. If the premises covered by this lease constitute less
than 20% of the net rentable area of the floor on which the premises is
located, Landlord reserves the right to relocate the Tenant to other space
within the development comparable to the premises by giving Tenant prior
written notice to Landlord's intention to relocate. Landlord intends to
exercise needs of other Tenants who occupy more than 20% of the net rentable
area of the floor and/or to be able to make a full floor available for lease by
a single Tenant.

10. Common Areas. The use and occupancy by Tenant of the premises
shall include the use in common with others entitled thereto of the common
areas, parking areas, service roads, loading facilities, sidewalks; however, to
the terms and conditions of this agreement and to reasonable rules and
regulations for the use thereof as prescribed from time to time by landlord.

All common areas described above shall at all times be subject to the
exclusive control and management of Landlord, and Landlord shall have the right
from time to time to establish, modify and enforce reasonable rules and
regulations with respect to all facilities and areas mentioned in this
paragraph. Landlord shall reserve the right to construct, maintain and operate
lighting facilities; from time to time to change the area, location, and
arrangements of parking areas and other facilities hereinabove referred to; and
to restrict parking by tenants, their officers, agents, and employees to
employee parking areas.

All common areas and facilities not within the premises which Tenant may
be permitted to use and occupy, are to be used and occupied under a revocable
license, and if the amount of such areas be diminished, Landlord shall not be
subject to liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such diminution of such areas be
deemed a constructive or actual eviction of Tenant.

11. Assignment and Subletting. In the event Tenant desires to assign
or sublet the premises or any part thereof, Tenant shall give Landlord written
notice of such desire at least sixty (60) days prior to the date on which
Tenant desires to make such assignment or sublease. Landlord shall within
thirty (30) days following receipt of such notice notify Tenant in writing that
Landlord elects either (i) to terminate this lease as to the space so affected
as of the date so specified by Tenant, in which event Tenant will be relieved
of all further obligations hereunder as to such space; or (ii) to permit Tenant
to assign or sublet such space, subject, however, to subsequent written
approval of the proposed assignee or sublessee by Landlord, which approval
shall not be unreasonably withheld. If Landlord should fail to notify Tenant
in writing of such election within said thirty-day period, Landlord shall be
deemed to have elected (ii) above, but subsequent written approval by Landlord
of the proposed assignee or sublessee shall be required. If the rental rate
agreed to by Tenant and its subtenant is greater than the rental rate payable
hereunder, such excess rental shall be deemed to be additional rental owed by
Tenant to Landlord and shall be paid to Landlord at the same time and in the
same manner as the basic rental. Consent by Landlord to one or more
assignments or sublettings shall not operate as a waiver of Landlord's rights
as to any subsequent assignments and subletting. Notwithstanding any
assignment or subletting, Tenant and any guarantor or Tenant's obligations
under this lease shall at all times remain fully responsible and liable for the
payment of the rent herein specified and for compliance with all of Tenant's
other obligations under this lease. In the event of the transfer and
assignment by Landlord of its interest in this lease and the building
containing the premises, Landlord shall thereby by released from any further
obligations hereunder, and Tenant agrees to look solely to such successor in
interest of the Landlord for performance of such obligations.

Tenant shall not mortgage, pledge or otherwise encumber its interest in
this lease or in the premises.

<PAGE> 4
12. INDEMNITY. Landlord shall not be liable for and Tenant will
indemnify and save harmless Landlord from all fines, suits, claims, demands,
losses, and actions (including attorney's fees) for any injury to person or
damage to or loss of property on or about the premises of the Development
caused by the negligence or misconduct or breach of this lease by Tenant, its
agents, employees, subtenants, invitees or by any other person entering the
building, the premises or the Development, under express or implied invitation
of Tenant, or arising out of Tenant's use of the building, the premises, or the
Development. Landlord shall not be liable or responsible for any loss or
damage to any property, or death or injury to any person, occasioned by theft,
fire, Act of God, public enemy, injunction, riot, strike, insurrection, war,
court order, requisition of any governmental body or authority, by other
tenants of the building or the Development, or any other matter beyond the
control of Landlord, or for any injury or damage or inconvenience which may
result from the repair or alteration of any part of the building, the premises,
or the Development, or from the failure to make repairs, or from any cause
whatsoever except Landlord's gross negligence.

14. ESTOPPEL CERTIFICATE. Tenant agrees on the Commencement Date, and
from time to time thereafter upon not less than five (5) days prior written
request by Landlord, to execute, acknowledge and deliver to Landlord a
statement in writing, certifying: (i) that this lease is unmodified and in full
force and effect (or, if there have been modifications, that this lease is in
full effect as modified, and setting forth such modifications); (ii) that
Tenant has no defenses, offsets or counterclaims against its obligations to pay
the basic rental and adjusted rental and its obligations to perform its other
covenants under this lease; (iii) that there are no uncured defaults of
landlord or Tenant under this lease; and (iv) the dates to which the basic
rental, additional rental and other charges have been paid. Any such statement
delivered pursuant to this Paragraph 16 may be relied upon by any prospective
purchaser or mortgagee of the Development, or any portion thereof, or any
prospective assignee of such mortgagee.

15. CASUALTY INSURANCE. Landlord shall at all times during the term of
this lease maintain a general policy or policies of insurance. Landlord shall
not be obligated to insure any furniture, equipment, machinery, goods or
supplies not covered by this lease which Tenant may bring or obtain upon the
premises, or any additional improvements which Tenant may construct thereon.

16. INSPECTION. Landlord or Landlord's representatives shall have the
right to enter into and upon any and all parts of the premises at reasonable
hours (i) to inspect same or to clean or make repairs or alterations or
additions as Landlord may deem necessary (but without any obligation to do so,
except as expressly provided for herein), or (ii) to show the premises to
prospective tenants, purchasers or lenders; and Tenant shall not be entitled to
any abatement or reduction of rent by reason thereof, nor shall such be deemed
to be an actual or constructive eviction of Tenant.

17. CONDEMNATION. If, during the term of this lease, or any extension
or renewal thereof, all of the premises should be taken for any public or
quasi-public use under any governmental law, ordinance or regulation or by
right of eminent domain or by private purchase in lieu thereof, this lease
shall terminate and the rent shall be abated during the unexpired portion of
this lease, effective on the date physical possession is taken by the
condemning authority, and Tenant shall have no claim against Landlord for the
value of any unexpired term of this lease.

In the event a portion but not all of the premises shall be taken for
any public or quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain or by private sale in lieu thereof
and the partial taking or condemnation shall render the premises unsuitable
for Tenant's business, then Landlord shall have the option, in its sole
discretion, of terminating this lease, or at Landlord's sole risk and expense,
restoring and reconstructing the premises to the extent necessary to make same
reasonably tenantable. Should Landlord elect to restore the premises, this
lease shall continue in full force and effect with the rent payable during the
unexpired portion of the lease term adjusted to such an extent as may be fair
and reasonable under the circumstances, and Tenant shall have no claim against
Landlord for the value of any interrupted portion of this lease.

In the event of any condemnation or taking, total or partial, Tenant
shall not be entitle to any part of the award or price paid in lieu thereof,
hereby expressly waiving any right or claim to any part thereof, and Landlord
shall receive the full amount of such award or price.

18. FIRE OR OTHER CASUALTY. In the event that the premises should be
totally destroyed by fire, tornado or other casualty, or in the event the
premises or the building should be so damaged that rebuilding or repairs cannot
be completed within ninety (90) days after the date of such damage, either
Landlord or Tenant may, at its option, terminate this lease, in which event the
rent shall be abated during the unexpired portion of this lease effective with
the date of such damage. In the event the premises should be damaged by fire,
tornado or other casualty covered by Landlord's insurance, and if the necessary
rebuilding or repairs can be completed within ninety (90) days after the date
of such damage, or if such rebuilding or repairs would take more than ninety
(90) days to complete but neither Landlord nor Tenant elects to terminate this
lease, then, in either such event, Landlord shall, within thirty (30) days
after the date of such damage, commence to rebuild or repair the premises and
shall proceed with reasonable diligence to restore the premises to
substantially the same condition in which they were immediately prior to the
happening of the casualty, except that Landlord shall not be required to
rebuild,

4
<PAGE> 5
repair or replace any part of the furniture, equipment, fixtures and other
improvements which may have been placed by Tenant or other tenants within the
building or the premises, or related facilities.

In the event that the premises are totally untenantable, Landlord shall
abate the rent during the time the premises are unfit for occupancy. If the
premises are not totally untenable, Landlord shall allow Tenant a fair
diminution of rent during the time the premises are unfit for occupancy. In
the event any mortgages under a deed of trust, security agreement or mortgage
on the Development or the premises should require that the insurance proceeds
be used to retire the mortgage debt, Landlord shall have no obligation to
rebuild and this lease shall terminate upon notice to Tenant. Any insurance
which may be carried by Landlord or Tenant against loss or damage to the
Development or to the premises shall be for the sole benefit of the party
carrying such insurance and under its sole control.

19. HOLDING OVER. IT IS AGREED THAT LEASE AGREEMENT SHALL
AUTOMATICALLY RENEW FOR SIXTY (60) MONTHS AT A RATE NOT TO EXCEED FOUR PERCENT
(4%) APRIL 30, 20001 (DATE); IF NOT CANCELED, IN WRITING, BY EITHER LESSOR OR
LESSEE 30 DAYS PRIOR TO EXPIRATION DATE.

Should Tenant, or any of its successors in interest, continue to hold
the premises, or any part thereof, after the expiration or automatic extension
of this lease, unless otherwise agreed in writing, such holding over shall
constitute and be construed as a tenancy from month to month only, at a
monthly rental equal to twice the sum of the monthly rental installment, plus
the amount of the most current rental adjustment which may have been made
thereto pursuant to Paragraph 4 and 5 hereof. The inclusion of the preceding
sentence shall not be construed as Landlord's consent for the Tenant to hold
over.

21. EVENTS OF DEFAULT. The following events shall be deemed to be
events of default by Tenant under this lease:

a. Tenant shall fail to pay any monthly rental installment or any
portion of the basic rental hereby reserved when due and such failure shall
continue for a period of five days after notice by Landlord;

b. Tenant shall fail to comply with any term, provision or covenant
of this lease, other than the payment of rent, and shall not cure such failure
within five (5) days after written notice thereof to Tenant;

c. Tenant shall make an assignment for the benefit of creditors;

d. Tenant shall file a petition under any section or chapter of
National Bankruptcy Act, as amended, or under any similar law or statute of the
United States or any State thereof, or Tenant shall be adjudged a debtor or
insolvent in any proceeding filed against Tenant thereunder and such
adjudication shall not be vacated or set aside within thirty (30) days;

e. A receiver or Trustee shall be appointed for all or
substantially all of the assets of Tenant and such receivership shall not be
terminated or stayed within thirty (30) days;

f. Tenant shall desert or vacate any substantial portion of the
premises for a period of five (5) or more days.

22. REMEDIES. Upon the occurrence of any event of default specified in
Paragraph 23 hereof, Landlord shall have the option to pursue any one or more
of the following remedies without any notice or demand whatsoever:

a. Terminate this lease in which event Tenant shall immediately
surrender the premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession and expel or remove Tenant
and any other person who may be occupying said premises or any part thereof, by
force if necessary, without being liable for prosecution or any claim of
damages thereof. Tenant agrees to pay to Landlord on demand the amount of all
loss and damage which Landlord may suffer by reason of such termination,
whether through inability to relet the premises on satisfactory terms or
otherwise, including the loss of the basic rental then remaining unpaid;

b. Enter upon and take possession of the premises and expel or
remove Tenant and any other person who may be occupying the premises of any
part thereof, by force if necessary, without being liable for prosecution or
any claim for such damages therefor, and if Landlord so elects, relet the
premises on such terms as Landlord shall deem advisable and receive the rent
thereof. Tenant agrees to pay to Landlord or demand any deficiency in basic
rental that may arise by reason of such reletting; and

c. Enter upon the premises by force if necessary, without being
liable for prosecution of any claim for damages thereof, and do whatever Tenant
is obligated to do under the terms of this lease, and Tenants agrees to
reimburse Landlord on demand for any expenses which Landlord may incur in thus
effective compliance with Tenant's obligations under this lease, and Tenant
further agrees that Landlord shall not be liable for any damages resulting from
such action.

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<PAGE> 6

No re-entry or taking possession of the premises by Landlord shall
be construed as an election on its part to terminate this lease, unless a
written notice of such intention be given to Tenant. Notwithstanding any such
reletting or re-entry or taking possession, Landlord may at any time
thereafter elect to terminate this lease for a previous default. Pursuit of
any of the foregoing remedies shall not preclude pursuit of any of the other
remedies herein provided or constitute a forfeiture or waiver of any rent due
to Landlord hereunder or of any provisions and covenants herein contained.
Landlord's acceptance of rent following an event of default hereunder shall
not be construed as Landlord's waiver of such event of default. No waiver by
Landlord of any violation or breach of any of the terms, provisions, and
covenants herein contained. Forbearance by Landlord to enforce one or more of
the remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of any other violation or default. The loss
or damage that Landlord may suffer by reason of termination of this lease, or
the deficiency from any reletting of the premises as provided for above shall
include without limitation the expense of recovering possession of the
premises and any repairs undertaken by Landlord following recovery of
possession, and the loss of the basic rental then remaining unpaid.

23. SURRENDER OF PREMISES. No act or thing done by the Landlord or its
agents during the term hereby granted shall be deemed an acceptance of a
surrender of the premises, and no agreement to accept a surrender of the
premises shall be valid unless same be made in writing and subscribed by the
Landlord.

24. ATTORNEY'S FEES. Tenant shall pay to Landlord upon demand all
attorney's fees and all expenses and court costs of Landlord incurred in
enforcing any of the obligations of Tenant under this lease.

25. LANDLORD'S LIEN. In addition to the statutory Landlord's lien,
Landlord shall have, at all times, a valid security interest to secure payment
of all rentals and other sums of money becoming due hereunder from Tenant, and
to secure payment of any damages or loss which Landlord may suffer by reason of
breach by Tenant of any covenant, agreement or condition contained herein, upon
all goods, wares, equipment, fixtures, furniture, improvements and other
personal property of Tenant but excluding the financial portfolios of Tenant's
customers presently, or which may hereafter be situated on the demised
premises, and all proceeds therefrom, and such property shall not be removed
therefrom without the consent of the Landlord until all arrearages in rent, as
well as any and all other sums of money then due to Landlord hereunder, shall
first have been paid and discharges and all the covenants, agreements and
conditions hereof have been fully complied with and performed by Tenant. Upon
the occurrence of an event of default by Tenant, Landlord may, in addition to
any other remedies provided herein, enter upon the demised premises and take
possession of any and all goods, wares, equipment, fixtures, furniture,
improvements and other personal property of Tenant but excluding the financial
portfolios of Tenant's customers situated on the premises, without liability
for trespass or conversion, and sell the same at public or private sale, with
or without having such property at the sale, after giving Tenant reasonable
notice of the time and place of any public sale or of the time after which any
private sale is to be made, at which sale Landlord or its assigns may purchase,
unless otherwise prohibited by law. Unless otherwise provided by law, and
without intending to exclude any other manner of giving Tenant reasonable
notice, the requirement of reasonable notice shall be met if such notice is
given in the manner prescribed in Paragraph 30 of this lease at least five (5)
days before the time of sale. The proceeds from any such disposition, less any
and all expenses connected with the taking of possession, holding and selling
of the property (including reasonable attorneys' fees and other expenses), shall
be applied as a credit against the indebtedness secured by the security interest
granted in this paragraph. Any surplus shall be paid to Tenant or as otherwise
required by law; and Tenant shall pay any deficiencies forthwith. Landlord's
statutory lien for rent is not hereby waived, the security interest herein
granted being in addition and supplementary thereto.

26. MECHANIC'S LIEN. Tenant will not permit any mechanic's lien
or liens to be placed upon the premises or the Development during the term
hereof caused by or resulting from any work performed, materials furnished or
obligation incurred by or at the request of Tenant, and in the case of the
filing of any such lien, Tenant will promptly pay same. If default in payment
thereof shall continue for twenty (20) days after written notice thereof from
Landlord to the Tenant, the Landlord shall have the right and privilege at
Landlord's option of paying the same or any portion thereof without inquiry as
to the validity thereof, and any amounts so paid, including expenses and
interest, shall be so much additional indebtedness hereunder due from Tenant to
Landlord and shall be repaid to Landlord immediately on rendition of bill
therefor, together with interest thereon at the highest rate allowed by law.

27. WAIVER OF SUBROGATION. Anything in this lease to the contrary
notwithstanding, the parties hereto waive any and all rights of recovery,
claim, action or cause of action, against each other, their agents, officers,
and employees, for any loss or damage that may occur to the premises hereby
demised, or any improvements thereto, of the Development of which the premises
are a part, by reason of fire, the elements, or any cause which could be
insured against under the terms of standard fire and extended coverage
insurance policies, regardless of cause or origin, including negligence of the
parties hereto, their agents, officers, and employees.

28. NOTICES. Each provision of this lease, or of any applicable
governmental laws, ordinances, regulation, and other requirements with
reference to the sending, mailing or delivery of any notice, or with reference
to the making of any payment by Tenant to Landlord, shall be deemed to be
complied with when and if the following steps are taken:

a. All rent and other payment required to be made by Tenant to
Landlord hereunder shall be payable to Landlord in Gregg County, Longview,
Texas, at the address hereinbelow set forth, or at such

<PAGE> 7
other address as Landlord may specify from time to time by written notice
delivered in accordance herewith;

b. Any notice or document required to be delivered hereunder shall
be deemed to be delivered if actually received and whether or not received when
deposited in the United States mail, postage prepaid, certified or registered
mail (with or without return receipt requested) addressed to the parties hereto
at the respective addresses set out beneath their names below, or at such other
address as they have heretofore specified by written notice delivered in
accordance herewith:

<TABLE>
<CAPTION>
===============================================================================================
LANDLORD MANAGING AGENT TENANT
===============================================================================================
<S> <C> <C>
Judson Plaza, Inc. Judson Plaza, Inc. Friedman Industries, Inc.
P. O. Box 3389 1125 Judson Road, #180 1121 Judson Road, Suite 124
Longview,TX 75606-500 Longview,TX 75601 Longview, Tx. 75601
(903) 234-0024 (903) 758-5208 758-3431
===============================================================================================
</TABLE>

29. FORCE MAJEURE. Whenever a period of time is herein prescribed for
action to be taken by Landlord, the Landlord shall not be liable or responsible
for, and there shall be excluded from the computation of any such period of
time, any delays due to strikes, riots, Acts of God, shortages of labor or
materials, war, governmental laws, regulations or restrictions or any other
causes of any kind whatsoever which are beyond the control of Landlord.

30. SEVERABILITY. If any clause or provision of this lease is illegal,
invalid or unenforceable under present or future laws effective during the term
of this lease, then and in the event, it is the intention of the parties hereto
that the remainder of this lease shall not be affected thereby, and it is also
the intention of the parties to this lease that in lieu of each clause or
provision of this lease that is illegal, invalid, or unenforceable, there be
added as a part of this lease a clause or provision as similar in terms to such
illegal, invalid or unenforceable clause or provision as may be possible and be
legal, valid and enforceable.

31. ENTIRE AGREEMENT; AMENDMENTS; BINDING EFFECT. This lease contains
the entire agreement between the parties and may not be altered, changed or
amended, except by instrument in writing signed by both parties hereto. No
provision of this lease shall be deemed to have been waived by Landlord unless
such waiver be in practice which may grow up between the parties in the
administration of the terms hereof be construed to waive or lessen the right
of Landlord to insist upon the performance by Tenant in strict accordance with
the terms hereof. The terms, provisions, covenants and conditions contained
in this lease shall apply to, inure to the benefit of, and be binding upon the
parties hereto, and upon their respective successors in interest and legal
representatives, except as otherwise herein expressly provided.

32. QUIET ENJOYMENT. Provided Tenant has performed all of the terms,
covenants, agreements and conditions of this lease, including the payment of
rent, to be performed by Tenant, Tenant shall peaceably and quietly hold and
enjoy the premises for the term hereof, without hindrance from Landlord, subject
to the terms and conditions of this lease.

33. RULES AND REGULATIONS. Tenant and Tenant's agents, employees, and
invitees will comply fully with all requirements of the rules and regulations of
the Development and related facilities which are attached hereto as Exhibit "C"
and made a part hereof as though fully set out herein. Landlord shall at all
times have the right to change such rules and regulations or to promulgate other
rules and regulations in such reasonable manner as may be deemed advisable for
safety, care or cleanliness of the Development, the premises, or related
facilities, and for preservation of good order therein, all of which rules and
regulations, changes and amendments will be forwarded to Tenant in writing and
shall be carried out and observed by Tenant. Tenant shall further be
responsible for the compliance with such rules and regulations by the employees,
servants, agents, visitors and invitees of Tenant.

34. BROKER'S OR AGENT'S COMMISSION. Tenant represents and warrants
that there are no claims for brokerage commission of finder's fees in
connection with the execution of this lease, except as listed below, and Tenant
agrees to indemnify and hold harmless Landlord against all liabilities and
costs arising from such claims, including without limitation attorney's fees in
connection therewith.

35. GENDER. Words of any gender used in this lease shall be held and
construed to include any other gender, and words in the singular number shall
be held to include the plural, unless the context otherwise requires.

36. GUARANTY, JOINT AND SEVERAL LIABILITY. If there be more than one
Tenant, the obligations imposed upon the Tenant shall be joint and several. If
there be a guarantor of Tenant's obligations hereunder, the obligations
hereunder imposed upon Tenant shall be the joint and several obligations of
Tenant and such guarantor and Landlord need not first proceed against the
Tenant hereunder before proceeding against such guarantor, nor shall any such
guarantor be released from its guaranty for any reason whatsoever, including
without limitation, in case of any amendments hereto, waivers hereof or failure
to give guarantor any notices hereunder.

37. CAPTIONS. The captions contained in this lease are for convenience
of reference only, and in no way limit or enlarge the terms and conditions of
this lease.

7
<PAGE> 8
38. PLACE OF PERFORMANCE. Tenant shall perform all covenants, conditions
and agreements contained herein, including but not limited to payment of rent,
in Gregg County, Longview. Any suit arising from or relating to this agreement
shall be brought in Gregg County, Texas.

39. NO PERSONAL LIABILITY. Tenant agrees to look solely to Landlord's
interest in the Development for the recovery of any judgment from Landlord, it
being agreed that Landlord, both in its individual corporate capacity and in its
capacity as trustee, and the trust for which the Landlord serves as trustee,
shall never be personally liable for any such judgment.

40. SPECIAL PROVISIONS. NONE

E X E C U T E D AS OF THE DATE FIRST ABOVE WRITTEN.

LANDLORD: TENANT:

JUDSON PLAZA, INC. FRIEDMAN INDUSTRIES, INC.

/s/ L. R. ALSTON /s/ BEN HARPER
- - --------------------------------- -------------------------------
By (signature) By (signature)

L. R. Alston Ben Harper
- - --------------------------------- -------------------------------
Name (please type) Name (please type)

C.E.O. Senior Vice President - Finance
- - --------------------------------- -------------------------------
Title Title

-------------------------------
By (signature)

-------------------------------
Name (please type)

-------------------------------
Title

8
<PAGE> 9
EXHIBIT "A"

Plan showing exact location to be added later and made a part of this lease
agreement.

9
<PAGE> 10
EXHIBIT "B"

Final plans and specifications to be agreed to and initiated by both Landlord
and Tenant and made a part of this lease agreement.

The landlord will construct a passage from Suite 124 to the 448 square
feet presently known as Suite 120.

EXHIBIT "C"

1. Landlord agrees to furnish Tenant two keys to the premises without
charge. Additional keys will be furnished at a nominal charge.

2. Tenant will refer all contractors, contractor's representatives and
installation technicians, rendering any service on or to the premises for
Tenant, to Landlord for Landlord's approval and supervision before performance
of any contractual service. This provision shall apply to all work performed in
the building including installation of telephones, telegraph equipment,
electrical devices and attachments and installation of any nature affecting
floors, walls, woodwork, trim, windows, ceilings, equipment or any physical
portion of the building.

3. No Tenant shall at any time occupy any part of the Development as
sleeping or lodging quarters.

4. Tenant shall not place, install or operate on premises or in any part
of the Development, any engine, stove or machinery, or conduct mechanical
operations or cook thereon or therein, or place or use in or about premises any
explosives, gasoline, kerosene, oil, acids, caustics, or any other inflammable,
explosive, or hazardous material without prior written consent of Landlord.

5. Landlord will not be responsible for lost or stolen personal
property, equipment, money, or jewelry from Tenant's area or public rooms
regardless of whether such loss occurs when area is locked against entry or not.

6. No bird, fowl, dogs, animals or pets of any kind shall be brought
into or kept in or about the Development.

7. Landlord will not permit entrance to Tenant's offices by use of a
passkey controlled by Landlord, to any person at any time without written
permission by Tenant, except employees, contractors, or service personnel
directly supervised or employed by Landlord.

8. None of the entries, passages, doors, elevators, hallways or
stairways shall be blocked or obstructed, or any rubbish, litter, trash, or
material of any nature placed, emptied, or thrown into these areas, nor shall
such areas be used at any time except for ingress or egress by Tenant, Tenant's
agents, employees or invitees.

9. The water closets and other water fixtures shall not be used for any
purpose other than those for which they were constructed. No person shall
waste water by interfering with the faucets or otherwise.

10
<PAGE> 11

10. No person shall disturb the occupants of the building by the use of
any musical instruments, the making of raucous noises, or other unreasonable
use.

11. Nothing shall be thrown out of the windows of the building, or down
the stairways or other passages.

12. Tenant shall not store any materials, equipment, products, etc.,
outside the premises as shown on the plans attached hereto.

13. Tenant shall not erect any sign or insignia upon or in any part of
the Development or other portion of the premises without the prior written
consent of the Landlord.

14. Tenant shall comply with all local and federal codes and ordinances.
In the event of fire or code problems, Tenant shall comply with said
requirements.

15. Tenants and its agents, employees and invitees shall observe and
comply with the driving and parking signs and markers on all the Development
grounds and surrounding areas.

16. Corridor and passage doors when not in use shall be kept closed.

17. All deliveries of other than hand-carried items must be made via the
service entrances and service elevators. Any deliveries of an abnormally large,
bulky or voluminous nature, such as furniture, office machinery, etc., can be
made only after obtaining approval from the Landlord and at those times
specified by the Landlord.

18. Directories will be placed by the Landlord, at Landlord's expense,
in the building and no other directories shall be permitted.

19. No signs, draperies, shutters, window coverings, decorations,
hangings or obstructions of any type shall be placed on the skylights or on any
doors or windows which are visible from outside the premises without the prior
written consent of the Landlord.

20. The Landlord reserves the right to rescind any of these rules and
make such other and further rules and regulations as in the judgment of Landlord
shall from time to time be needed for safety, protection, care, and cleanliness
of the Development, the operation thereof, the preservation of good order
therein, and the protection and comfort of its tenants, their agents, employees
and invitees, including but not limited to rules and regulations regarding hours
of access to the Development, which rules when made and notice thereof given to
a tenant shall be binding upon him in a manner as if originally herein
prescribed. In the event of any conflict, inconsistency or other difference
between the terms and provisions of these rules and regulations and any lease
now or hereafter in effect between Landlord and any tenant in the building,
Landlord shall have the right to rely on the term or provision in either such
lease or such Rules and Regulations which is most restrictive on such tenant and
most favorable to Landlord.

<PAGE> 1
EXHIBIT 10.9

FRIEDMAN INDUSTRIES, INCORPORATED

1996 STOCK OPTION PLAN
<PAGE> 2
FRIEDMAN INDUSTRIES, INCORPORATED

1996 STOCK OPTION PLAN

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Section
-------
<S> <C>
ARTICLE I - PLAN

Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1
Effective Date of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2

ARTICLE II - DEFINITIONS

Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6
Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7
Fair Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8
Incentive Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9
Non-Employee Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.10
Nonqualified Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.11
Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.12
Option Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.13
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.14
Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.15
10% Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.16

ARTICLE III - ELIGIBILITY

ARTICLE IV - GENERAL PROVISIONS RELATING TO OPTIONS

Authority to Grant Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1
Dedicated Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2
Non-Transferability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3
Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4
Changes in the Company's Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5
Election Under Section 83(b) of the Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6

ARTICLE V - OPTIONS

Type of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1
Option Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2
Duration of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3
Amount Exercisable--Incentive Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4
</TABLE>

-i-
<PAGE> 3
<TABLE>
<S> <C>
Exercise of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5
Exercise on Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6
Substitution Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7
No Rights as Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8

ARTICLE VI - ADMINISTRATION

ARTICLE VII - AMENDMENT OR TERMINATION OF PLAN

ARTICLE VIII - MISCELLANEOUS

No Establishment of a Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1
No Employment Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2
Forfeiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3
Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4
Written Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5
Indemnification of the Committee and the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . 8.6
Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.7
Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.8
Other Compensation Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9
Other Options or Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.10
Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.11
</TABLE>

-ii-
<PAGE> 4
ARTICLE I

PLAN

1.1 PURPOSE. This Plan is a plan for key employees (including
officers and employee directors) of the Company and its Affiliates and is
intended to advance the best interests of the Company, its Affiliates, and its
stockholders by providing those persons who have substantial responsibility for
the management and growth of the Company and its Affiliates with additional
incentives and an opportunity to obtain or increase their proprietary interest
in the Company, thereby encouraging them to continue in the employ of the
Company or any of its Affiliates.

1.2 EFFECTIVE DATE OF PLAN. This Plan is effective June 21, 1996,
if within one year of that date it shall have been approved by at least a
majority vote of stockholders voting in person or by proxy at a duly held
stockholders' meeting, or if the provisions of the corporate charter, by-laws
or applicable state law prescribes a greater degree of stockholder approval for
this action, the approval by the holders of that percentage, at a duly held
meeting of stockholders. No Incentive Option or Nonqualified Option shall be
granted pursuant to this Plan after June 21, 2006.

ARTICLE II

DEFINITIONS

The words and phrases defined in this Article shall have the meaning
set out in these definitions throughout this Plan, unless the context in which
any such word or phrase appears reasonably requires a broader, narrower, or
different meaning.

2.1 "AFFILIATE" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than
the Company) in an unbroken chain of corporations ending with the Company if,
at the time of the action or transaction, each of the corporations other than
the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain.
The term "subsidiary corporation" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of the action or transaction, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in the chain.

2.2 "BOARD OF DIRECTORS" means the board of directors of the
Company.

2.3 "CODE" means the Internal Revenue Code of 1986, as amended.

2.4 "COMMITTEE" means the Compensation Committee of the Board of
Directors or such other committee designated by the Board of Directors. The
Committee shall comprise at least two members, all of whom are Non-Employee
Directors.

-1-
<PAGE> 5
2.5 "COMPANY" means Friedman Industries, Incorporated, a Texas
corporation.

2.6 "DISABILITY" means a physical or mental infirmity which, in
the opinion of a physician selected by the Committee, shall prevent the
Employee from earning a reasonable livelihood with the Company or any Affiliate
and which can be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12 months and which:
(a) was not contracted, suffered or incurred while the Employee was engaged in,
or did not result from having engaged in, a felonious criminal enterprise; (b)
did not result from alcoholism or addiction to narcotics; and (c) did not
result from an injury incurred while a member of the Armed Forces of the United
States for which the Employee receives a military pension.

2.7 "EMPLOYEE" means a person employed by the Company or any
Affiliate to whom an Option is granted.

2.8 "FAIR MARKET VALUE" of the Stock as of any date means (a) the
average of the high and low sale prices of the Stock on that date (or, if there
was no sale on such date, on the last preceding date on which there was such a
sale) on the principal securities exchange on which the Stock is listed; or (b)
if the Stock is not listed on a securities exchange, the average of the high
and low sale prices of the Stock on that date (or, if there was no sale on such
date, on the last preceding date on which there was such a sale) as reported on
the NASDAQ National Market System; or (c) if the Stock is not listed on the
NASDAQ National Market System, the average of the high and low bid quotations
for the Stock on that date as reported by the National Quotation Bureau
Incorporated; or (d) if none of the foregoing is applicable, an amount at the
election of the Committee equal to (x) the average between the closing bid and
ask prices per share of Stock on the last preceding date on which those prices
were reported or (y) an amount determined by the Committee in its sole
discretion.

2.9 "INCENTIVE OPTION" means an option granted under this Plan
which is designated as an "Incentive Option" and satisfies the requirements of
Section 422 of the Code.

2.10 "NON-EMPLOYEE DIRECTOR" means a member of the Board of
Directors serving on the Committee who satisfies the criteria of Section 162(m)
of the Code and the definition of Non-Employee Director as that term is defined
in Rule 16b-3 under the Securities Exchange Act of 1934.

2.11 "NONQUALIFIED OPTION" means an option granted under this Plan
other than an Incentive Option.

2.12 "OPTION" means either an Incentive Option or a Nonqualified
Option granted under this Plan to purchase shares of Stock.

2.13 "OPTION AGREEMENT" means the written agreement which sets out
the terms of an Option.

-2-
<PAGE> 6
2.14 "PLAN" means the Friedman Industries, Incorporated 1996 Stock
Option Plan, as set out in this document and as it may be amended from time to
time.

2.15 "STOCK" means the common stock of the Company, $1.00 par
value, or, in the event that the outstanding shares of common stock are later
changed into or exchanged for a different class of stock or securities of the
Company or another corporation, that other stock or security.

2.16 "10% STOCKHOLDER" means an individual who, at the time the
Option is granted, owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of any Affiliate. An
individual shall be considered as owning the stock owned, directly or
indirectly, by or for his brothers and sisters (whether by the whole or half
blood), spouse, ancestors, and lineal descendants; and stock owned, directly or
indirectly, by or for a corporation, partnership, estate, or trust, shall be
considered as being owned proportionately by or for its stockholders, partners,
or beneficiaries.

ARTICLE III

ELIGIBILITY

The individuals who shall be eligible to receive Incentive Options and
Nonqualified Options shall be those key employees of the Company or any of its
Affiliates, including officers and employee directors, as the Committee shall
determine from time to time. However, Jack Friedman and Harold Friedman shall
not be eligible to receive Options under the Plan. In addition, no member of
the Committee shall be eligible to receive any Option or to receive stock,
stock options, or stock appreciation rights under any other plan of the Company
or any of its Affiliates, if to do so would cause the individual not to be a
Non-Employee Director. The Board of Directors may designate one or more
individuals who shall not be eligible to receive any Option under this Plan or
under other similar plans of the Company.

ARTICLE IV

GENERAL PROVISIONS RELATING TO OPTIONS

4.1 AUTHORITY TO GRANT OPTIONS. The Committee may grant to those
key employees of the Company or any of its Affiliates as it shall from time to
time determine Options under the terms and conditions of this Plan. Subject
only to any applicable limitations set out in this Plan, the number of shares
of Stock to be covered by any Option to be granted to an employee of the
Company or any of its Affiliates shall be as determined by the Committee.

4.2 DEDICATED SHARES. The total number of shares of Stock with
respect to which Options may be granted under the Plan shall be 250,000 shares.
The shares may be treasury shares or authorized but unissued shares. The
maximum number of shares subject to Options which may be issued to any Employee
under the Plan during any period of three consecutive years is 75,000 shares.
The number of shares stated in this

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<PAGE> 7
Section 4.2 shall be subject to adjustment in accordance with the provisions of
Section 4.5.

In the event that any outstanding Option shall expire or terminate for
any reason or any Option is surrendered, the shares of Stock allocable to the
unexercised portion of that Option may again be subject to an Option under the
Plan.

4.3 NON-TRANSFERABILITY. Options shall not be transferable by the
Employee otherwise than by will or under the laws of descent and distribution,
and shall be exercisable, during the Employee's lifetime, only by him.

4.4 REQUIREMENTS OF LAW. The Company shall not be required to
sell or issue any Stock under any Option if issuing that Stock would constitute
or result in a violation by the Employee or the Company of any provision of any
law, statute, or regulation of any governmental authority. Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities, upon exercise of any Option, the Company shall not
be required to issue any Stock unless the Committee has received evidence
satisfactory to it to the effect that the holder of that Option will not
transfer the Stock except in accordance with applicable law, including receipt
of an opinion of counsel satisfactory to the Company to the effect that any
proposed transfer complies with applicable law. The determination by the
Committee on this matter shall be final, binding and conclusive. The Company
may, but shall in no event be obligated to, register any Stock covered by this
Plan pursuant to applicable securities laws of any country or any political
subdivision. In the event the Stock issuable on exercise of an Option is not
registered, the Company may imprint on the certificate evidencing the Stock any
legend that counsel for the Company considers necessary or advisable to comply
with applicable law. The Company shall not be obligated to take any other
affirmative action in order to cause the exercise of an Option and the issuance
of shares thereunder, to comply with any law or regulation of any governmental
authority.

4.5 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or
any issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Stock or its rights, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.

If the Company shall effect a subdivision or consolidation of shares
or other capital readjustment, the payment of a stock dividend, or other
increase or reduction of the number of shares of the Stock outstanding, without
receiving compensation for it in money, services or property, then (a) the
number, class, and per share price of shares of Stock subject to outstanding
Options under this Plan shall be appropriately adjusted in such a manner as to
entitle an Employee to receive upon exercise of an Option, for the same
aggregate cash consideration, the equivalent total number and

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<PAGE> 8
class of shares he would have received had he exercised his Option in full
immediately prior to the event requiring the adjustment; and (b) the number and
class of shares of Stock then reserved to be issued under the Plan shall be
adjusted by substituting for the total number and class of shares of Stock then
reserved, that number and class of shares of Stock that would have been
received by the owner of an equal number of outstanding shares of such class of
Stock as the result of the event requiring the adjustment.

If the Company is merged or consolidated with another corporation and
the Company is not the surviving corporation, or if the Company is liquidated
or sells or otherwise disposes of substantially all its assets while
unexercised Options remain outstanding under this Plan, (a) subject to the
provisions of clause (c) below, after the effective date of the merger,
consolidation, liquidation, sale or other disposition, as the case may be, each
holder of an outstanding Option shall be entitled, upon exercise of the Option,
to receive, in lieu of shares of Stock, the number and class or classes of
shares of stock or other securities or property to which the holder would have
been entitled if, immediately prior to the merger, consolidation, liquidation,
sale or other disposition, the holder had been the holder of record of a number
of shares of Stock equal to the number of shares as to which the Option shall
be so exercised; (b) the Committee may waive any limitations set out in or
imposed under this Plan so that all Options, from and after a date prior to the
effective date of the merger, consolidation, liquidation, sale or other
disposition, as the case may be, specified by the Committee, shall be
exercisable in full; and (c) all outstanding Options may be canceled by the
Committee as of the effective date of any merger, consolidation, liquidation,
sale or other disposition, if (i) notice of cancellation shall be given to each
holder of an Option and (ii) each holder of an Option shall have the right to
exercise that Option in full (without regard to any limitations set out in or
imposed under this Plan or the Option Agreement granting that Option) during a
period set by the Committee preceding the effective date of the merger,
consolidation, liquidation, sale or other disposition and, if in the event all
outstanding Options may not be exercised in full under applicable securities
laws without registration of the shares of Stock issuable on exercise of the
Options, the Committee may limit the exercise of the Options to the number of
shares of Stock, if any, as may be issued without registration. The method of
choosing which Options may be exercised, and the number of shares of Stock for
which Options may be exercised, shall be solely within the discretion of the
Committee.

The issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property,
or for labor or services either upon direct sale or upon the exercise of rights
or warrants to subscribe for them, or upon conversion of shares or obligations
of the Company convertible into shares or other securities, shall not affect,
and no adjustment by reason of such issuance shall be made with respect to, the
number, class, or price of shares of Stock then subject to outstanding Options.

4.6 ELECTION UNDER SECTION 83(b) OF THE CODE. No Employee shall
exercise the election permitted under Section 83(b) of the Code without written
approval of the Committee. Any Employee doing so shall forfeit all Options
issued to him under this Plan.

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<PAGE> 9
ARTICLE V

OPTIONS

5.1 TYPE OF OPTION. The Committee shall specify whether a given
Option shall constitute an Incentive Option or a Nonqualified Option.

5.2 OPTION PRICE. The price at which Stock may be purchased under
an Option shall not be less than the greater of: (a) 100% of the Fair Market
Value of the shares of Stock on the date the Option is granted or (b) the
aggregate par value of the shares of Stock on the date the Option is granted.
The Committee in its discretion may provide that the price at which shares of
Stock may be purchased under an Option shall be more than 100% of Fair Market
Value. In the case of any 10% Stockholder, the price at which shares of Stock
may be purchased under an Incentive Option shall not be less than 110% of the
Fair Market Value of the Stock on the date the Incentive Option is granted.

5.3 DURATION OF OPTIONS. No Option shall be exercisable after the
expiration of 10 years from the date the Option is granted. In the case of a
10% Stockholder, no Incentive Option shall be exercisable after the expiration
of five years from the date the Incentive Option is granted.

5.4 AMOUNT EXERCISABLE--INCENTIVE OPTIONS. Each Option may be
exercised from time to time, in whole or in part, in the manner and subject to
the conditions the Committee, in its sole discretion, may provide in the Option
Agreement, as long as the Option is valid and outstanding, provided that no
Option may be exercisable within six (6) months of the date of grant. To the
extent that the aggregate Fair Market Value (determined as of the time an
Incentive Option is granted) of the Stock with respect to which Incentive
Options first become exercisable by the Optionee during any calendar year
(under this Plan and any other incentive stock option plan(s) of the Company or
any Affiliate) exceeds $100,000, the Incentive Options shall be treated as
Nonqualified Options. In making this determination, Incentive Options shall be
taken into account in the order in which they were granted.

5.5 EXERCISE OF OPTIONS. Each Option shall be exercised by the
delivery of written notice to the Committee setting forth the number of shares
of Stock with respect to which the Option is to be exercised, together with:
(a) cash, certified check, bank draft, or postal or express money order payable
to the order of the Company for an amount equal to the option price of the
shares, (b) Stock at its Fair Market Value on the date of exercise, and/or (c)
any other form of payment which is acceptable to the Committee, and specifying
the address to which the certificates for the shares are to be mailed. As
promptly as practicable after receipt of written notification and payment, the
Company shall deliver to the Employee certificates for the number of shares
with respect to which the Option has been exercised, issued in the Employee's
name. If shares of Stock are used in payment of the exercise price, the
aggregate Fair Market Value of the shares of Stock tendered must be equal to or
less than the aggregate exercise price of the shares being purchased upon
exercise of the Option, and any difference must be paid by cash, certified
check, bank draft, or postal or express money

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<PAGE> 10
order payable to the Company. Delivery of the shares shall be deemed effected
for all purposes when a stock transfer agent of the Company shall have
deposited the certificates in the United States mail, addressed to the
Employee, at the address specified by the Employee.

Whenever an Option is exercised by exchanging shares of Stock owned by
the Employee, the Employee shall deliver to the Company certificates registered
in the name of the Employee representing a number of shares of Stock legally
and beneficially owned by the Employee, free of all liens, claims, and
encumbrances of every kind, accompanied by stock powers duly endorsed in blank
by the record holder of the shares represented by the certificates, (with
signature guaranteed by a commercial bank or trust company or by a brokerage
firm having a membership on a registered national stock exchange). The
delivery of certificates upon the exercise of Options is subject to the
condition that the person exercising the Option provide the Company with the
information the Company might reasonably request pertaining to exercise, sale
or other disposition of an Option.

5.6 EXERCISE ON TERMINATION OF EMPLOYMENT. Unless it is expressly
provided otherwise in the Option Agreement, Options shall terminate immediately
upon the severance of employment of the Employee from the Company and all
Affiliates for any reason, with or without cause, other than death, retirement
under the then established rules of the Company, or severance for Disability.
Whether authorized leave of absence or absence on military or government
service shall constitute severance of the employment of the Employee shall be
determined by the Committee at that time.

In determining the employment relationship between the Company and the
Employee, employment by any Affiliate shall be considered employment by the
Company, as shall employment by a corporation issuing or assuming a stock
option in a transaction to which Section 424(a) of the Code applies, or by a
parent corporation or subsidiary corporation of the corporation issuing or
assuming a stock option (and for this purpose, the phrase "corporation issuing
or assuming a stock option" shall be substituted for the word "Company" in the
definitions of parent corporation and subsidiary corporation in Section 2.1,
and the parent-subsidiary relationship shall be determined at the time of the
corporate action described in Section 424(a) of the Code).

DEATH. If, before the expiration of an Option, the Employee, whether
in the employ of the Company or after he has retired or was severed for
disability, dies, the Option shall continue until the earlier of the Option's
expiration date or one year following the date of his death, unless it is
expressly provided otherwise in the Option Agreement. After the death of the
Employee, his executors, administrators or any persons to whom his Option may
be transferred by will or by the laws of descent and distribution shall have
the right, at any time prior to the Option's expiration or termination,
whichever is earlier, to exercise it, to the extent to which he was entitled to
exercise it immediately prior to his death, unless it is expressly provided
otherwise in the Option Agreement.

RETIREMENT. If, before the expiration of an Option, the Employee
shall be retired in good standing from the employ of the Company under the then
established rules of

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<PAGE> 11
the Company, the Option shall terminate on the earlier of the Option's
expiration date or one day less than three months after his retirement. In the
event of retirement, the Employee shall have the right prior to the termination
of the Option to exercise the Option, to the extent to which he was entitled to
exercise it immediately prior to his retirement, unless it is expressly
provided otherwise in the Option Agreement.

DISABILITY. If, before the expiration of an Option, the Employee
shall be severed from the employ of the Company for Disability, the Option
shall terminate on the earlier of the Option's expiration date or one day less
than one year after the date he was severed because of Disability, unless it is
expressly provided otherwise in the Option Agreement. In the event that the
Employee shall be severed from the employ of the Company for disability, the
Employee shall have the right prior to the termination of the Option to
exercise the Option, to the extent to which he was entitled to exercise it
immediately prior to his retirement or severance of employment for Disability,
unless it is expressly provided otherwise in the Option Agreement.

5.7 SUBSTITUTION OPTIONS. Options may be granted under this Plan
from time to time in substitution for stock options held by employees of other
corporations who are about to become employees of or affiliated with the
Company or any Affiliate as the result of a merger or consolidation of the
employing corporation with the Company or any Affiliate, or the acquisition by
the Company or any Affiliate of the assets of the employing corporation, or the
acquisition by the Company or any Affiliate of stock of the employing
corporation as the result of which it becomes an Affiliate of the Company. The
terms and conditions of the substitute Options granted may vary from the terms
and conditions set out in this Plan to the extent the Committee, at the time of
grant, may deem appropriate to conform, in whole or in part, to the provisions
of the stock options in substitution for which they are granted.

5.8 NO RIGHTS AS STOCKHOLDER. No Employee shall have any rights
as a stockholder with respect to Stock covered by his Option until the date a
stock certificate is issued for the Stock.

ARTICLE VI

ADMINISTRATION

This Plan shall be administered by the Committee. All questions of
interpretation and application of this Plan and Options shall be subject to the
determination of the Committee. A majority of the members of the Committee
shall constitute a quorum. All determinations of the Committee shall be made
by a majority of its members. Any decision or determination reduced to writing
and signed by a majority of the members shall be as effective as if it had been
made by a majority vote at a meeting properly called and held. This Plan shall
be administered in such a manner as to permit the Options granted under it
which are designated to be Incentive Options to qualify as Incentive Options.
In carrying out its authority under this Plan, and subject to the terms of this
Plan, the Committee shall have full and final authority and discretion,
including but not limited to the following rights, powers and authorities, to:

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<PAGE> 12
(a) determine the Employees to whom and the time or times
at which Options will be made,

(b) determine the number of shares and the purchase price
of Stock covered in each Option, subject to the terms of the Plan,

(d) accelerate the time at which any outstanding Option
may be exercised,

(e) define the effect, if any, on an Option of the death,
disability, retirement, or termination of employment of the Employee,

(f) prescribe, amend and rescind rules and regulations
relating to administration of this Plan, and

(g) make all other determinations and take all other
actions deemed necessary, appropriate, or advisable for the proper
administration of this Plan.

The actions of the Committee in exercising all of the rights, powers, and
authorities set out in this Article and all other Articles of this Plan, when
performed in good faith and in its sole judgment, shall be final, conclusive
and binding on all parties.

ARTICLE VII

AMENDMENT OR TERMINATION OF PLAN

The Board of Directors of the Company may amend, terminate or suspend
this Plan at any time, in its sole and absolute discretion; provided, however,
that to the extent required to qualify this Plan under Rule 16b-3 promulgated
under Section 16 of the Securities Exchange Act of 1934, as amended, no
amendment that would (a) materially increase the number of shares of Stock that
may be issued under this Plan, (b) materially modify the requirements as to
eligibility for participation in this Plan, or (c) otherwise materially
increase the benefits accruing to participants under this Plan, shall be made
without the approval of the Company's stockholders; and provided further, that
to the extent required to maintain the status of any Incentive Option under the
Code, no amendment that would (a) change the aggregate number of shares of
Stock which may be issued under Incentive Options, (b) change the class of
employees eligible to receive Incentive Options, or (c) decrease the exercise
price for Incentive Options below the Fair Market Value of the Stock at the
time it is granted, shall be made without the approval of the Company's
stockholders. Subject to the preceding sentence, the Board shall have the
power to make any changes in this Plan and in the regulations and
administrative provisions under it or in any outstanding Incentive Option as in
the opinion of counsel for the Company may be necessary or appropriate from
time to time to enable any Incentive Option granted under this Plan

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<PAGE> 13
to continue to qualify as an incentive stock option or such other stock option
as may be defined under the Code so as to receive preferential federal income
tax treatment.

ARTICLE VIII

MISCELLANEOUS

8.1 NO ESTABLISHMENT OF A TRUST FUND. No property shall be set
aside nor shall a trust fund of any kind be established to secure the rights of
any Employee under this Plan. All Employees shall at all times rely solely
upon the general credit of the Company for the payment of any benefit which
becomes payable under this Plan.

8.2 NO EMPLOYMENT OBLIGATION. The granting of any Option shall
not constitute an employment contract, express or implied, nor impose upon the
Company or any Affiliate any obligation to employ or continue to employ any
Employee. The right of the Company or any Affiliate to terminate the
employment of any person shall not be diminished or affected by reason of the
fact that an Option has been granted to him.

8.3 FORFEITURE. Notwithstanding any other provisions of this
Plan, if the Committee finds by a majority vote after full consideration of the
facts that the Employee, before or after termination of his employment with the
Company or an Affiliate for any reason (a) committed or engaged in fraud,
embezzlement, theft, commission of a felony, or proven dishonesty in the course
of his employment by the Company or an Affiliate, which conduct damaged the
Company or Affiliate, or disclosed trade secrets of the Company or an
Affiliate, or (b) participated, engaged in or had a material, financial or
other interest, whether as an employee, officer, director, consultant,
contractor, stockholder, owner, or otherwise, in any commercial endeavor in the
United States which is competitive with the business of the Company or an
Affiliate without the written consent of the Company or Affiliate, the Employee
shall forfeit all outstanding Options, including all exercised Options pursuant
to which the Company has not yet delivered a stock certificate. Clause (b)
shall not be deemed to have been violated solely by reason of the Employee's
ownership of stock or securities of any publicly owned corporation, if that
ownership does not result in effective control of the corporation, and if
written notice of the ownership is given the Committee by the Employee within
60 days after the later of the date on which the Employee is notified of a
grant of an Option under this Plan or the date on which the Employee acquires
the ownership.

The decision of the Committee as to the cause of the Employee's
discharge, the damage done to the Company or an Affiliate, and the extent of
the Employee's competitive activity shall be final. No decision of the
Committee, however, shall affect the finality of the discharge of the Employee
by the Company or an Affiliate in any manner.

8.4 TAX WITHHOLDING. The Company or any Affiliate shall be
entitled to deduct from other compensation payable to each Employee any sums
required by federal, state,

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<PAGE> 14
or local tax law to be withheld with respect to the grant or exercise of an
Option. In the alternative, the Company may require the Employee (or other
person exercising the Option) to pay the sum directly to the employer
corporation. If the Employee (or other person exercising the Option) is
required to pay the sum directly, payment in cash or by check of such sums for
taxes shall be delivered within 10 days after the date of exercise or lapse of
restrictions. The Company shall have no obligation upon exercise of any Option
until payment has been received, unless withholding (or offset against a cash
payment) as of or prior to the date of exercise is sufficient to cover all sums
due with respect to that exercise. The Company and its Affiliates shall not be
obligated to advise an Employee of the existence of the tax or the amount which
the employer corporation will be required to withhold.

8.5 WRITTEN AGREEMENT. Each Option shall be embodied in a written
Option Agreement which shall be subject to the terms and conditions of this
Plan and shall be signed by the Employee and by a member of the Committee on
behalf of the Committee and the Company. The Option Agreement may contain any
other provisions that the Committee in its discretion shall deem advisable
which are not inconsistent with the terms of this Plan.

8.6 INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF DIRECTORS.
With respect to administration of this Plan, the Company shall indemnify each
present and future member of the Committee and the Board of Directors against,
and each member of the Committee and the Board of Directors shall be entitled
without further act on his part to indemnity from the Company for, all expenses
(including attorney's fees, the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of any action, suit, or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
or the Board of Directors, whether or not he continues to be a member of the
Committee or the Board of Directors at the time of incurring the expenses,
including without limitation matters as to which he shall be finally adjudged
in any action, suit or proceeding to have been found to have been negligent in
the performance of his duty as a member of the Committee or the Board of
Directors. However, this indemnity shall not include any expenses incurred by
any member of the Committee or the Board of Directors in respect of matters as
to which he shall be finally adjudged in any action, suit or proceeding to have
been guilty of gross negligence or willful misconduct in the performance of his
duty as a member of the Committee or the Board of Directors. In addition, no
right of indemnification under this Plan shall be available to or enforceable
by any member of the Committee or the Board of Directors unless, within 60 days
after institution of any action, suit or proceeding, he shall have offered the
Company, in writing, the opportunity to handle and defend same at its own
expense. This right of indemnification shall inure to the benefit of the
heirs, executors or administrators of each member of the Committee or the Board
of Directors and shall be in addition to all other rights to which a member of
the Committee or the Board of Directors may be entitled as a matter of law,
contract, or otherwise.

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<PAGE> 15
8.7 GENDER. If the context requires, words of one gender when
used in this Plan shall include the others and words used in the singular or
plural shall include the other.

8.8 HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of this Plan and shall
not be used in construing the terms of this Plan.

8.9 OTHER COMPENSATION PLANS. The adoption of this Plan shall not
affect any other stock option, incentive or other compensation or benefit plans
in effect for the Company or any Affiliate, nor shall this Plan preclude the
Company from establishing any other forms of incentive or other compensation
for employees of the Company or any Affiliate.

8.10 OTHER OPTIONS. The grant of an Option shall not confer upon
the Employee the right to receive any future or other Options under this Plan,
whether or not Options may be granted to similarly situated Employees, or the
right to receive future Options upon the same terms or conditions as previously
granted.

8.11 GOVERNING LAW. The provisions of this Plan shall be
construed, administered, and governed under the laws of the State of Texas.

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<PAGE> 1
EXHIBIT 10.10
REVOLVING PROMISSORY NOTE
(this "Note")

U.S. $8,000,000.00 April 1, 1997 ("Date")

FOR VALUE RECEIVED, FRIEDMAN INDUSTRIES, INCORPORATED (the "Maker"), a Texas
corporation, promises to pay to the order of TEXAS COMMERCE BANK NATIONAL
ASSOCIATION (the "Bank") on or before April 1, 2000 (the "Termination Date"),
at its banking house at 712 Main Street, Houston, Harris County, Texas, or at
such other location as the Bank may designate, in lawful money of the United
States of America, the lesser of: (i) the Principal sum of EIGHT MILLION AND NO
100THS DOLLARS (U.S. $8,000,000.00) or (ii) the aggregate unpaid principal
amount of all loans made by the Bank hereunder (each such loan being a "Loan"),
which may be outstanding on the Termination Date ("Maximum Loan Total"). Each
Loan shall be due and payable on the Interest Period maturity date agreed to by
the Bank and the Maker with respect to such Loan (the "Maturity Date"),
provided that the principal of any Loan that becomes due and payable on a
Maturity Date preceding the Termination Date and that is not repaid on such
Maturity Date (with the proceeds of a Loan made by the Bank at the request of
the Maker or otherwise) shall be deemed to be automatically (without the
requirement of any request for advance or other action on the part of the
Maker) repaid in full by an advance of (and such maturing Loan shall
automatically be deemed to be converted to) a Prime Rate Loan for an Interest
Period of 30 days. SUBJECT TO THE LIMITATIONS SET FORTH HEREIN, THE MAKER MAY
BORROW, REPAY AND REBORROW HEREUNDER AND THERE IS NO LIMITATION ON THE NUMBER
OF LOANS MADE HEREUNDER SO LONG AS THE TOTAL UNPAID PRINCIPAL AMOUNT AT ANYTIME
OUTSTANDING DOES NOT EXCEED THE MAXIMUM LOAN TOTAL (AS HEREINAFTER DEFINED).

The loans may be either CD Rate Loans (as hereinafter defined), Prime Rate
Loans (as hereinafter defined) or Eurodollar Loans (as hereinafter defined).

The Maker shall pay interest on each Prime Rate Loan for the Interest Period
(as hereinafter defined) with respect thereto at a rate per annum equal to the
lesser of: (i) the Prime Rate (as hereinafter defined) in effect from time to
time (the "Effective Prime Rate"); or (ii) the Highest Lawful Rate (as
hereinafter defined), which interest shall be due and payable on the first day
of each calendar month and on the last day of each Interest Period.

The Maker shall pay interest on each CD Rate Loan for the Interest Period with
respect thereto at a rate per annum equal to the lesser of: (i) the CD Rate (as
hereinafter defined) for such Interest Period plus one and one half of one
percent (1.50%) (the "Effective CD Rate"); or (ii) the Highest Lawful Rate,
which interest shall be due and payable on the last day of each such Interest
Period, and if such Interest Period has a duration exceeding one (l) month, on
the first day of each month during such Interest Period.

The Maker shall pay interest on each Eurodollar Loan for the Interest Period
with respect thereto on the unpaid principal amount thereof at a rate per annum
equal to the lesser of: (i) he Eurodollar Rate (as hereinafter defined) plus
one and one half of one percent 1.50%) (the "Effective Eurodollar Rate"); or
(ii) the Highest Lawful Rate, which interest shall be due and payable on the
last day of each such Interest Period, and if such Interest Period has a
duration exceeding one month, on the first day of each month during such
Interest Period.

Any amount not paid when due with respect to principal (whether at Maturity
Date, by acceleration or otherwise), costs, expenses, and to the extent
permitted by applicable law, interest, shall bear interest at a rate per annum
equal to the lesser of: (i) the Prime Rate in effect from time to time; or (ii)
the Highest Lawful Rate, which interest shall be due and

Signed for Identification
Page 1 of 8 By:____________________
<PAGE> 2
payable on demand. The principal of any Loan shall be deemed past due if not
paid on or before the Maturity Date or any earlier maturity date resulting from
acceleration in accordance with the terms of this Note or as provided by law or
otherwise. Interest accrued and unpaid with respect to any loan shall be
deemed past due if not paid on or before the applicable interest payment due
date as provided for herein.

Notwithstanding the foregoing, if at any time the effective rate of interest
which would otherwise he payable on any Loan evidenced by this Note exceeds the
Highest Lawful Rate, the rate of interest to accrue on the unpaid principal
balance of such Loan during all such times shall be limited to the Highest
lawful Rate, but any subsequent reductions in such interest rate shall not
become effective to reduce such interest rate below the Highest Lawful Rate
until the total amount of interest accrued on the unpaid principal balance of
such Loan equals the total amount of interest which would have accrued if the
Effective Prime Rate, Effective CD Rate or Effective Eurodollar Rate, whichever
is applicable, had at all times been in effect.

Each Loan shall be in an amount not less than $10,000.00 and an integral
multiple of $10,000.00. Interest with respect to Prime Rate Loans shall be
calculated on the basis of a 365 day year or 366 day year, as the case may be,
for the actual number of days elapsed. Interest with respect to CD Rate Loans
and Eurodollar loans shall be calculated on the basis of a 360 day year for the
actual days elapsed, unless such calculation would result in a usurious
interest rate, in which case such interest shall be calculated on the basis of
a 365 day or 366 day year, as the case may be.

The following terms shall have the respective meanings indicated:

"Assessment Rate" means, for any date, the annual rate
(rounded upwards, if not already a whole multiple of 1/16 of 1%, to
the next higher 1116 of 1%) most recently estimated by the Bank as the
then current net annual assessment rate that will be employed in
determining amounts payable by the Bank to the Federal Deposit
Insurance Corporation for insurance by the Corporation of time
deposits made in dollars at its domestic offices.

"Board" shall mean the Board of Governors of the Federal
Reserve System of the United States.

"Borrowing Date" means any Business Day on which the Bank
shall make a Loan hereunder.

"Business Day" means a day: (i) on which the Bank and
commercial banks in New York City are generally open for business; and
(ii) with respect to Eurodollar Loans, on which dealings in United
States Dollar deposits are carried out in the Eurodollar interbank
markets.

"CD Rate" for any Interest Period means, for each CD Rate
Loan, an interest rate per annum determined by the Bank to be the sum
of: (a) the rate per annum obtained by dividing: (i) the consensus bid
rate obtained from certificate of deposit dealers of recognized
standing selected by the Bank for' the purchase at face value of
certificates of deposit of the Bank in an amount approximately equal
to the Bank's CD Rate loan during such Interest Period and with a
maturity equal to such Interest Period at 9:00 a.m. (Houston, Texas
tine) (or as soon thereafter as practicable) on the first day of such
Interest Period, by (ii) Statutory Reserves; plus (b) the Assessment
Rate.

Signed for Identification
Page 2 of 8 By:____________________
<PAGE> 3
"CD Rate Loan" means a Loan which bears interest at a rate
determined by reference to the CD Rate.

"Eurodollar Lending Office" means the office of the
Bank-located at 712 Main Street, Houston, Texas, or such other office
of the Bank as the Bank may from time to time specify to the Maker.

"Eurodollar Loan" means a Loan which hears interest at a rate
determined by reference to the Eurodollar Rate.

"Eurodollar Rate" means, for each Eurodollar Loan, an interest
rate per annum determined by the Bank by dividing: (i) the rate per
annum determined by the Bank at or before 10:00 a.m. (Houston, Texas
time) (or as soon thereafter as practicable) two Business Days before
the first day of such Interest Period to be the rate per annum at
which deposits of dollars are offered to the Bank by prime banks in
whatever Eurodollar interbank market may be selected by the Bank in
its sole discretion, acting in good faith, at the tune of
determination and in accordance with the usual practice in such market
for delivery on the first day of such Interest Period in immediately
available funds and for a period equal to such Interest Period and in
an amount substantially equal to the amount of the Bank's Eurodollar
loan during such Interest Period; by (ii) Statutory Reserves.

"Highest Lawful Rate" as used herein shall mean the maximum
nonusurious interest rate permitted from time to time to be contracted
for, taken, reserved, charged or received on any loan under applicable
federal or Texas laws, whichever permits the higher lawful rate;
provided, however, that in the event: (i) such maximum nonusurious
interest rate shall, at any time or times during the term of a Loan
evidenced hereby, be reduced to a rate less than the maximum
nonusurious rate in effect on the date of such Loan; and (ii)
applicable law permits contracting for, taking, reserving, charging,
and receiving on such Loan throughout the duration thereof the maximum
nonusurious rate in effect on the date such Loan was made, then and at
all such times the Highest Lawful Rate shall be the maximum
nonusurious rate permitted to be contracted for, taken, reserved,
charged or received on such loan under applicable law in effect on the
date of such Loan. At all such times, if any, as Texas law shall
establish the Highest Lawful Rate, the Highest Lawful Rate shall be
the "indicated rate ceiling" (as defined in Tex. Rev. Civ. Stat. art.
5069-1.04) from time to time in effect.

"Interest Period" means, with respect to any Loan, the period
commencing on the Borrowing Date and ending on the Maturity Date,
consistent with the following provisions. The duration of each
Interest Period shall be:

(a) in the case of a Prime Rate loan, a period selected
by the Maker;

(b) in the case of a CD Rate Loan, 30, 60 or 90 days; and

in each case as selected by the Maker and agreed to by the Bank. The
Makers choice of Interest Period is also subject to the following
limitations:

(i) No Interest Period shall end on a date after
the Termination Date; and

Signed for Identification
Page 3 of 8 By:____________________
<PAGE> 4
(ii) If the last day of an Interest Period would
be a day other than a Business Day, the
Interest Period shall end on the next
succeeding Business Day (unless the Interest
Period relates to a Eurodollar Loan and the
next succeeding Business Day is in a
different calendar month than the day on
which the Interest Period would otherwise
end, in which case the Interest Period shall
end on the next preceding Business Day).

"Prime Rate" shall mean the rate of interest per annum
determined from time to time by the Bank as its prime rate in effect
at its principal office in Houston, Texas and thereafter entered in
the minutes of its Loan and Discount Committee; each change in the
Prime Rate: shall be effective on the date such change is determined;
without special notice to the Maker or any other person or entity.
THE PRIME RATE IS A REFERENCE RATE AND DOES NOT NECESSARILY REPRESENT
THE LOWEST OR BEST RATE ACTUALLY CHARGED TO ANY CUSTOMER AND ANY
STATEMENT, REPRESENTATION OR WARRANTY IN THAT REGARD OR TO THAT
EFFECT' IS EXPRESSLY DISCLAIMED BY THE BANK. THE BANK MAY MAKE LOANS
AT RATES OF INTEREST AT, ABOVE OR BELOW THE PRIME RATE.

"Prime Rate Loan" means a Loan which bears inter~t at a rate
determined by reference to the Prime Rate.

"Statutory Reserves" shall mean the difference (expressed as a
decimal) of the number one minus the aggregate of the maximum reserve
percentages (including, without limitation, any marginal, special,
emergency, or supplemental reserves) expressed as a decimal
established by the Board and any other banking authority to which the
Bank is subject: (a) with respect to the CD Rate, for new negotiable
time deposits in dollars of over $100,000 with maturities
approximately equal to the applicable Interest Period; and (b) with
respect to the Eurodollar Rate, for Eurocurrency Liabilities (as
defined in Regulation D of the Board). Such reserve percentages shall
include, without limitation, those imposed under such Regulation D.
Eurodollar Loans shall be deemed to constitute Eurocurrency
Liabilities and as such shall be deemed to be subject to such reserve
requirements without benefit of or credit for proration, exceptions or
offsets which may be available from time to time to any Bank under
such Regulation D. Statutory Reserves shall be adjusted automatically
on and as of the effective date of any change in any reserve
percentage.

The unpaid principal balance of this Note at any time shall be the total ,f all
Loans made by the Bank to or for the benefit of the Maker, less the amount of
all payments of principal made hereon by or for the account of the Maker. The
Bank's records shall serve as presumptive evidence of any and all amounts
outstanding hereunder.

Any loan which the Bank makes hereunder shall be made on the Maker's
irrevocable notice, given not later than 10:00 A.M. (Houston, Texas time) on,
in the case of Eurodollar Loans, the third Business Day prior to the proposed
Borrowing Date or, in the case of Prime Rate Loans or CD Rate Loans, the first
Business Day prior to the proposed Borrowing Date, from the Maker to the Bank.
Each such notice of a requested borrowing (a "Notice of Requested Borrowing")
under this paragraph may be oral or written, and shall specify: (i) the
requested amount of such Loan; (ii) the proposed Borrowing Date; (iii) whether
the requested Loan is to be a Prime Rate Loan, CD Rate loan or Eurodollar Loan;
and (iv) the Interest Period for such Loan. If any Notice of Requested
Borrowing shall be oral, the Maker shall deliver to the Bank prior to the
Borrowing Date a confirmatory written Notice of Requested Borrowing.

Signed for Identification
Page 4 of 8 By:____________________
<PAGE> 5
If at any time the Bank determines in good faith (which determination shall be
conclusive) that any change in any applicable law, rule or regulation or in the
interpretation, application or administration thereof makes it unlawful, or any
central bank or other governmental authority asserts that it is unlawful, for
the Bank or its foreign branch or branches to maintain or fund any Loan by
means of dollar deposits obtained in any Eurodollar interbank market (any of
the above being described as a "Eurodollar Event"), then, at the option of the
Bank, the aggregate principal amount of the Bank's Eurodollar Loans then
outstanding, which Loans are directly affected by such Eurodollar Event, shall
be prepaid by the Maker. Upon the occurrence of any Eurodollar Event, and at
any time thereafter so long as such Eurodollar Event shall continue, the Bank
may exercise iL'.. aforesaid option by giving written notice thereof to the
Maker.

Any prepayment of any Eurodollar Loan which is required under the preceding
paragraph shall be made, together with accrued and unpaid interest and all
other amounts payable to the Bank under this Note with respect to such prepaid
Eurodollar Loan on the date stated in the notice to the Maker referred to
above, which date ("required prepayment date") shall be not less than 15 days
from the date of such no! ice. If any Eurodollar Loan is required to be
prepaid under the preceding paragraph, the Bank shall make on the required
prepayment date a Prime Rate Loan in the same principal amount and with an
Interest Period ending on the same day as the Eurodollar Loan so prepaid.

If any domestic or foreign law, treaty, rule or regulation (whether bow in
effect or hereinafter enacted or promulgated, including Regulation D of the
Board of Governors of the Federal Reserve System) or any interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof (whether or not having the force of
law):

(a) changes, imposes, modifies, applies or deems
applicable any reserve, special deposit or similar
requirements in respect of any such Loan (excluding
those for which the Bank is fully compensated
pursuant to adjustments made in the definition of the
CD Rate) or against assets of, deposits with or for
the account of, or credit extended or committed by,
the Bank; or

(b) imposes on the Bank or the interbank eurocurrency
deposit and transfer market or the market for
domestic bank certificates or deposit any other
condition 'affecting any such Loan;

and the result of any of the foregoing is to impose a cost to the Bank of
agreeing to make, funding or maintaining any such Loan or to reduce the amount
of any sum receivable by the Bank in respect of any such Loan, then the Bank
may notify the Maker in writing of the happening of such event and the Maker
shall upon demand pay to the Bank such additional amounts as will compensate
the Bank for such costs. Without prejudice to the survival of any other
agreement of the Maker under this Note, the obligations of the Maker under this
paragraph shall survive the termination of this Note

The Maker may on any Business Day prepay the outstanding principal amount of
any Prime Rate Loan, in whole or in part, together with accrued interest to the
date of such prepayment on the principal amount prepaid. Partial prepayments
of any Loan shall be in an aggregate principal amount of $10,000.00 or a
greater integral multiple of $10,000.00. The Maker may on the applicable
Maturity Date of any CD Rate Loan or Eurodollar Loan pay the outstanding
principal amount of any such CD Rate Loan or Eurodollar loan, in whole or in
part, together with accrued interest to the date of such prepayment on the
principal amount prepaid. Except as specified in this paragraph, the Maker
shall have no right to prepay any Loan.

Signed for Identification
Page 5 of 8 By:____________________
<PAGE> 6
The Maker will indemnify the Bank against, and reimburse the Bank on demand
for, any loss, cost or expense incurred or sustained by the Bank (including
without limitation any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by the Bank to
fund or maintain Loans bearing interest at the CD Rate or the Eurodollar Rate)
as a result of: (a) any payment or prepayment (whether permitted by the Bank or
required hereunder or otherwise) of all or a portion of any Eurodollar loan or
CD Rate Loan on a day other than Maturity Date of such Loan; (b)any payment or
prepayment, whether required hereunder or otherwise, of any Eurodollar Loan or
CD Rate Loan made after the delivery of a Notice of Requested Borrowing but
before the applicable Borrowing Date if such payment or prepayment prevents the
proposed Loan from becoming fully effective; or (c) the failure of any
Eurodollar Loan or CD Rate Loan to be made by the Bank due to any action or
inaction of the Maker. For purposes of this paragraph, funding losses arising
by reason of liquidation or reemployment of deposits or other funds acquired by
the Bank to fund or maintain loans bearing interest at the CD Rate or
Eurodollar Rate shall be calculated as the remainder obtained by subtracting:
(i) the yield (reflecting both stated interest rate and discount, if any) to
maturity of obligations of the United States Treasury in an amount equal or
comparable to such Loan for the period of time commencing on the date of the
payment, prepayment or change of rate as provided above and ending on the last
day of the subject Interest Period; from (ii) the interest payable at the CD
Rate or Eurodollar Rate for the period commencing on the date of such payment,
prepayment or change of rate and ending on the last day of such Interest
Period. Such funding losses and other costs and expenses shall be calculated
and billed by the Bank and such bill shall, as to the costs incurred, be
conclusive absent manifest error.

If after the date of this Note, the Bank shall have determined that the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by the
Bank with any request or directive regarding capital adequacy (whether or rot
having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on the
Bank's capital as a consequence of making any Loans hereunder to a level below
that which the Bank could have achieved but for such adoption, change or
compliance (taking into consideration the Bank's policies with respect to
capital adequacy) by an amount deemed by the Bank in good faith to be material,
then from time to time, the Maker shall pay to the Bank such additional amount
or amounts as will compensate the Bank for such reduction.

A certificate of the Bank setting forth such amount or amounts as shall be
necessary to compensate the Bank as specified in the immediately four preceding
paragraphs above shall be delivered as soon as practicable to the Maker and
shall be conclusive and binding, absent manifest error, provided that such
certificate is prepared in good faith and on a reasonable basis. The Maker
shall pay the Bank the amount shown as due on any such certificate within 15
days after the Bank delivers such certificate. In preparing such certificate,
the Bank may employ such assumptions and allocations of costs and expenses as
it shall in good faith deem reasonable and may use any reasonable averaging and
attribution method.

If any payment of interest or principal herein provided for is not paid when
due then the owner or holder of this Note may at its option, by notice to the
Maker, declare the unpaid principal balance of all Loans, all accrued and
unpaid interest thereon and all other amounts payable under this Note to be
forthwith due and payable, whereupon the Loans, all such interest and all such
amounts shall become and be forthwith due and payable in full, without
presentment, demand, protest, notice of intent to accelerate, notice of actual
acceleration or further notice of any kind, all of which are hereby expressly
waived by the Maker.

Signed for Identification
Page 6 of 8 By:____________________
<PAGE> 7
If default is made in the payment of this Note and it is placed in the hands of
an attorney for collection, or collected through probate or bankruptcy
proceedings, or if suit is brought on the same, the Maker agrees to pay
reasonable attorneys' fees and all costs and expenses.

This Note (i) is issued by the Maker to evidence Loans outstanding from time to
time not to exceed in the aggregate the Maximum Loan Total; (ii) is the
Revolving Note as defined in that certain Amended and Restated Letter Agreement
dated as of April 1, 1995 as amended by the First Amendment to Amended and
Restated Letter Agreement of even Date herewith, executed by and between the
Maker and the Bank and delivered to the Bank (the "Letter Agreement"); and
(iii) is subject to and accorded all the rights and protections under the terms
and conditions of the Letter Agreement.

The Maker warrants and represents to the Bank, and to all other owners and/or
holders of any indebtedness evidenced hereby, that all Loans evidenced by this
Note are for business, commercial, investment or other similar purpose and not
primarily for personal, family, household or agricultural use, as such terms
are used in Chapter One of the Texas Credit Code, Tex. Rev. Civ. Stat.
arts. 5069-1.01 et. seq.

The Maker warrants and represents to the Bank and to all other tenens or
holders of this Note that no Loans shall be used for the purchase or carrying
of any 'margin stock" within the meaning of Regulation "U" of the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part 221, as in effect on
the date hereof.

Except as otherwise specified in this Note, the Maker and any and all ~makers,
endorsers, guarantors and sureties hereby severally waive grace, presentment,
demand, notice of default, notice of intent to accelerate, notice of
acceleration, and all other demands and notices of any nature or type
whatsoever, in connection with the delivery, acceptance, performance, default,
dishonor or enforcement of, or entry of judgment in connection with this Note,
and further waive the filing of suit hereon for the purpose of fixing
liability.

THIS NOTE SHALL BE GOVERNED BY AND Construed, IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
THIS NOTE SHALL BE PERFORMABLE FOR ALL PURPOSES IN HARRIS COUNTY, TEXAS, AND
THE MAKER AND THE BANK AGREE THAT HARRIS COUNTY, TEXAS IS PROPER VENUE FOR ANY
ACTION OR PROCEEDING BROUGHT BY THE MAKER OR THE BANK, WHETHER IN CONTRACT,
TORT, OR OTHERWISE. ANY ACTION OR PROCEEDING AGAINST THE MAKER MAY BE BROUGHT
IN ANY STATE OR FEDERAL COURT IN HARRIS COUNTY, TEXAS. THE MAKER HEREBY
IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND
(III) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY
SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS
AN INCONVENIENT FORUM. THE MAKER AGREES THAT SERVICE OF PROCESS UPON IT MAY BE
MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS
SPECIFIED BELOW.

The Maker and the Bank expressly agree, pursuant to Article 15.10(b) of Chapter
15 ("Chapter 15") of the Texas Credit Code, that Chapter 15 shall not apply to
this Note or to any Loan and that this Note and all such Loans shall not be
governed by or subject to the provisions of Chapter IS in any manner
whatsoever.

It is the intention of the Maker and the Bank to comply with usury laws in
force in the State of Texas and in the United States of America as applicable.
Anything in this Note to the

Signed for Identification
Page 7 of 8 By:____________________
<PAGE> 8
contrary notwithstanding, the Maker shall never be required to pay unearned
interest on this Note and shall never be required to pay interest on this Note
at a rate in excess of the Highest Lawful Rate, and if the effective rate of
interest which would otherwise be payable under this Note would exceed the
Highest Lawful Rate, or if the holder of the Note shall receive any unearned
interest or shall receive monies that are deemed to constitute interest which
would increase the effective rate of interest payable under this Note to a rate
in excess of the Highest Lawful Rate, then: (i) the amount of interest which
would otherwise be payable under this Note shall be reduced to the amount
allowed under applicable law; and (ii) any unearned interest paid by the Maker
or any interest paid by the Maker in excess of the Highest Lawful Rate shall,
at the option of the holder of this Note, be either refunded to the Maker or
credited on the principal of this Note. It is further agreed that, without
limitation of the foregoing, all calculations of the rate of int~est contracted
for, charged or received by the Bank or any holder of this Note that are made
for the purpose of determining whether such rate exceeds the Highest Lawful
Rate shall be made, to the extent permitted by usury laws applicable 10 the
Bank (now or hereafter enacted), by amortizing, prorating and spreading in
equal pants during the period of the full stated term of the Loans evidenced by
this Note all interest at any time contracted for, charged or received by the
Bank in connection therewith.

The Bank reserves the right in its sole discretion without notice to the Maker,
to sell participations or assign its interest, or both in all or pant of the
Loans, the Note, or the Line of Credit.

THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

IN WITNESS WHEREOF, the Maker has executed this Note effective the day, month
and year first aforesaid.

MAKER: FRIEDMAN INDUSTRIES, INCORPORATED

By: /s/ Benny Harper
---------------------------------
Name: Benny Harper
---------------------------------
Title: Sr. Vice President-Finance
---------------------------------

Acknowledged for purposes of
notice pursuant to the above
cited statute by:

TEXAS COMMERCE BANK NATIONAL ASSOCIATION

By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------

Signed for Identification
Page 8 of 8 By:____________________

<PAGE> 1
EXHIBIT 10.11

FIRST AMENDMENT TO AMENDED AND RESTATED LETTER AGREEMENT
(with Borrowing Base)

THIS FIRST AMENDMENT TO AMENDED AND RESTATED LETTER AGREEMENT (this
"Amendment") dated effective as of April 1, 1997 (the "Effective Date"), is by
and between FRIEDMAN INDUSTRIES, INCORPORATED ("Borrower"), and TEXAS COMMERCE
BANK NATIONAL ASSOCIATION, a national banking association ("Bank").

PRELIMINARY STATEMENT. Bank and Borrower have entered into an Amended And
Restated Letter Agreement dated as of April 1, 1995 ("Credit Agreement"). The
"Agreement", as used in the Credit Agreement, shall also refer to the Credit
Agreement as amended by this Amendment. All capitalized terms defined in the
Credit Agreement and not otherwise defined herein shall have the same meanings
herein as in the Credit Agreement. Bank and Borrower have agreed to amend the
Credit Agreement to the extent set forth herein, and in order to, among other
things, renew, modify and extend the Commitment.

NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the parties hereto, Bank and Borrower hereby agree as follows:

1. Revolving Credit Note. Section 1.1 of the Credit Agreement is amended
by substituting the following for the Section 1.1 of the Credit Agreement:

"Subject to the terms and conditions hereof, the Bank agrees to make
loans ("Loan" or "Loans") to Borrower from time to time before the
Termination Date, as defined in the First Amendment to Amended and
Restated Letter Agreement dated as of April 1, 1997 (the "First
Amendment"), between Bank and Borrower, not to exceed at any one time
outstanding $8,000,000.00 (the "Commitment"), Borrower having the
right to borrow, repay and reborrow. Bank and Borrower agree that
Chapter 15 of the Texas Credit Code shall not apply to-this Agreement,
the Note or any Loan. The Loans shall be evidenced by and shall bear
interest and be payable as provided in the promissory note of Borrower
dated the Effective Date, as defined in the First Amendment (together
with any and all renewals, extensions, modifications, replacements,
and rearrangements thereof and substitutions therefor, the "Note"),
which is given in renewal, modification and extension of that certain
promissory note dated April 1, 1995 maturing April 1, 1998 in the
original principal amount of $8,000.000.00 (including all prior notes
of which said note represents a renewal, extension, modification,
increase, substitution, rearrangement or replacement thereof, the
"Renewed Note"). The parties hereto agree that there is as of the
Effective Date, as defined in the First Amendment, an outstanding
principal balance of $4,000,000.00 under the Note leaving a balance as
of the Effective Date, as defined in the First Amendment, of
$4,000,000.00 under the Commitment available for Loans subject to the
terms and conditions of this Agreement. The "Note" as used in the
Credit Agreement shall also refer to the "Note" as used in this
Amendment. The purpose of the Loans is: business (working capital
support).

Page 1 of 3
<PAGE> 2
2. Termination Date is hereby defined as the earlier of: (a) April 1,
2000; or (b) the date on which the maturity of the Notes is accelerated in
accordance with Section 5 of the Credit Agreement.

3. Section 2.1(c) of the Credit Agreement is amended to read "December
31, 1996" in lieu of "December 31, 1994" for the date of the last financial
statement delivered to the Bank.

4. Section 4.2(e) of the Credit Agreement is amended to have a minimum
Fixed Charge Ratio of 1.25 : 1.00 in lieu of 1.00 :1.00

5. The Credit Agreement is amended to add Exhibit A, attached hereto for
all purposes which shall be a quarterly compliance certificate as further
described therein.

6. Borrower hereby represents and warrants to the Bank that after giving
effect to the execution and delivery of this Amendment: (a) the representations
and warranties set forth in the Credit Agreement are true and correct on the
date hereof as though made on and as of such date; and (b) no Event of Default,
or event which with passage of time, the giving of notice or both would become
an Event of Default, has occurred and is continuing as of the date hereof.

7. This Amendment shall become effective as of the Effective Date upon
its execution and delivery by each of the parties named in the signature lines
below, and the "Agreement" as used in the Credit Agreement shall also refer to
the Credit Agreement as amended by this Amendment.

8. Borrower further acknowledges that each of the other Loan Documents is
in all other respects ratified and confirmed, and all of the rights, powers and
privileges created thereby or thereunder are ratified, extended, carried
forward and remain in full force and effect except as the Credit Agreement is
amended by this Amendment.

9. This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed an original and all of which taken together shall
constitute but one and the same agreement.

10. This Amendment shall be included within the definition of "Loan
Documents" as used in the Agreement.

11. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS AND AS APPLICABLE, THE LAWS OF THE UNITED STATES
OF AMERICA.

THIS WRITTEN AMENDMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN
AGREEMENT AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS & COMMERCE CODE,
AND REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

Page 2 of 3
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed effective as of the Effective Date.

BORROWER: FRIEDMAN INDUSTRIES, INCORPORATED

By /s/ Benny Harper
------------------------------------
Name: Benny Harper
---------------------------------
Title: Sr. Vice President-Finance
--------------------------------
Address:
------------------------------

BANK: TEXAS COMMERCE BANKNATIONAL
ASSOCIATION

By
------------------------------------
Name:
---------------------------------
Title:
--------------------------------
Address:
------------------------------

Page 3 of 3

<PAGE> 1

FRIEDMAN
INDUSTRIES,
INCORPORATED

1997
ANNUAL REPORT
<PAGE> 2

FRIEDMAN INDUSTRIES, INCORPORATED

- - --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net sales................................ $119,920,966 $106,849,181
Net earnings............................. $3,630,071 $2,836,768
Net earnings per share*.................. $0.56 $0.44
Cash dividends per share*................ $0.21 $0.18
Stock dividend........................... 5% 5%
Stockholders' equity..................... $22,781,959 $20,428,936
Stockholders' equity per share*.......... $3.52 $3.18
Working capital.......................... $23,184,488 $21,114,143

* Adjusted for stock dividends.
</TABLE>

- - --------------------------------------------------------------------------------

TO OUR SHAREHOLDERS:

The Company is pleased to report record sales of approximately $120,000,000
in fiscal 1997. As can be seen in the above highlights, both sales and earnings
in fiscal 1997 improved from the respective amounts recorded during fiscal 1996.
These improvements were primarily related to the Company's tubular operations
which benefited from stronger demand in fiscal 1997 and from efficiencies
associated with increased production.

In fiscal 1998, the Company intends to install a 2-Hi rolling mill at the
Arkansas coil processing facility. This rolling mill will be capable of
processing steel up to 74 inches in width and up to 1/2 inch in thickness in a
coil-to-coil mode or directly from coil to cut-to-length processing.

You are invited to attend the Annual Meeting of Shareholders to be held on
August 22, 1997. The meeting is scheduled for 11 a.m. in the offices of
Fulbright & Jaworski L.L.P., 1301 McKinney, Houston, Texas.

Sincerely,

/s/ JACK FRIEDMAN

Jack Friedman
Chairman of the Board
and Chief Executive Officer

1
<PAGE> 3

FRIEDMAN INDUSTRIES, INCORPORATED

OFFICERS

Jack Friedman
Chairman of the Board and
Chief Executive Officer

Harold Friedman
Vice Chairman of the Board

William E. Crow
President and Chief Operating Officer

Benny Harper
Senior Vice President -- Finance
and Secretary/Treasurer

Thomas Thompson
Senior Vice President -- Sales and Marketing

Ronald L. Burgerson
Vice President

Ted Henderson
Vice President

Dale Ray
Vice President

Charles W. Hall
Assistant Secretary

DIRECTORS

Jack Friedman
Chairman of the Board and
Chief Executive Officer

Harold Friedman
Vice Chairman of the Board

Charles W. Hall
Partner, Fulbright & Jaworski L.L.P. (law firm)
Houston, Texas

Alan M. Rauch
President, Ener-Tex
International, Inc.
(oilfield equipment sales)
Houston, Texas

Hershel M. Rich
Private investor and
business consultant
Houston, Texas

Henry Spira
Retired; Former Vice President,
Friedman Industries, Incorporated
Houston, Texas

Kirk K. Weaver
President,
Parkans International, L.L.C.
(recycling services),
Houston, Texas;
Chairman of the Board and
Chief Executive Officer,
LTI Technologies, Inc.
(technical services)
Houston, Texas

COMPANY OFFICES
MAIN OFFICE
4001 Homestead Road
Houston, Texas 77028
713-672-9433

SALES OFFICE
1121 Judson Road
Longview, Texas 75606
903-758-3431

COUNSEL
Fulbright & Jaworski L.L.P.
1301 McKinney, 51st Floor
Houston, Texas 77010

AUDITORS
Ernst & Young LLP
1221 McKinney, Suite 2400
Houston, Texas 77010

TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005

STOCK EXCHANGE LISTING
American Stock Exchange
(Trading symbol: FRD)

APPROXIMATE NUMBER OF
SHAREHOLDERS OF RECORD
730 at May 23, 1997

ANNUAL REPORT ON FORM 10-K

Shareholders may obtain without charge a copy of the Company's Annual Report on
Form 10-K for the year ended March 31, 1997 as filed with the Securities and
Exchange Commission. Written requests should be addressed to: Benny Harper,
Senior Vice President, Friedman Industries, Incorporated, P.O. Box 21147,
Houston, Texas 77226.

2
<PAGE> 4

FRIEDMAN INDUSTRIES, INCORPORATED

DESCRIPTION OF BUSINESS

Friedman Industries, Incorporated is in the steel processing and
distribution business. The Company has two product groups: coil processing
(steel sheet and plate) and tubular products.

At its facilities in Lone Star, Texas, Houston, Texas and Hickman,
Arkansas, the Company processes semi-finished, hot-rolled steel coils into flat,
finished sheet and plate, and sells these products on a wholesale,
rapid-delivery basis in competition with steel mills, importers and steel
service centers. The Company also processes customer-owned coils on a fee basis.
The Company purchases a substantial amount of its annual coil tonnage from Lone
Star Steel Company ("LSS") and Nucor Steel Company ("NSC"). Loss of LSS or NSC
as a source of coil supply could have a material adverse effect on the Company's
business.

Steel sheet and plate and coil processing services are sold directly
through the Company's own sales force to approximately 420 customers located
primarily in the midwestern, southwestern and southeastern sections of the
United States. These products and services are sold principally to steel
distributors and to customers fabricating steel products such as storage tanks,
steel buildings, farm machinery and equipment, construction equipment,
transportation equipment, conveyors and other similar products.

The Company, through its Texas Tubular Products operation located in Lone
Star, Texas, markets and processes pipe. In addition, this division manufactures
pipe of which a substantial amount is sold to LSS. Pipe is sold nationally to
approximately 330 customers. The Company processes its own tubular products and
processes pipe for LSS on a fee basis. The Company purchases a substantial
portion of its annual supply of pipe and coil material used in pipe production
from LSS. Loss of LSS as a source of pipe and coil material supply or as a
customer of manufactured pipe could have a material adverse effect on the
Company's business.

Significant financial information relating to the Company's product groups
is contained in Note 6 of Notes to the Company's Consolidated Financial
Statements appearing herein.

------------------
RANGE OF HIGH AND LOW SALES PRICES OF COMMON STOCK

<TABLE>
<CAPTION>
FISCAL YEAR 1997 FISCAL YEAR 1996
----------------- -----------------
HIGH LOW HIGH LOW
---- ----- ---- -----
<S> <C> <C> <C> <C>
First Quarter............................................... 4 3/4 3 7/8 4 7/8 3 3/4
Second Quarter.............................................. 5 4 3/16 4 5/8 3 3/4
Third Quarter............................................... 6 5/8 4 1/2 4 7/16 3 9/16
Fourth Quarter.............................................. 6 5 1/4 4 3 7/16
</TABLE>

------------------

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK

<TABLE>
<CAPTION>
FISCAL YEAR 1997 FISCAL YEAR 1996
----------------- ------------------
CASH STOCK CASH STOCK
---- ----- ---- -----
<S> <C> <C> <C> <C>
First Quarter............................................... $.05 $ .05
Second Quarter.............................................. $.05 $ .05
Third Quarter............................................... $.06 $.045
Fourth Quarter.............................................. $.06 5% $ .05 5%
(Per share amounts above have not been adjusted to reflect stock dividends.)
</TABLE>

3
<PAGE> 5

FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
March 31
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 168,245 $ 595,216
Accounts receivable, less allowance for doubtful
accounts of $7,276 in 1997 and $5,794 in 1996........ 11,902,925 9,423,204
Inventories............................................ 21,203,665 17,391,625
Other.................................................. 82,325 114,625
----------- -----------
TOTAL CURRENT ASSETS.............................. 33,357,160 27,524,670
PROPERTY, PLANT AND EQUIPMENT:
Land................................................... 198,021 198,021
Buildings and yard improvements........................ 2,695,913 2,687,730
Machinery and equipment................................ 11,724,974 11,699,234
Less accumulated depreciation.......................... (9,909,444) (9,316,572)
----------- -----------
4,709,464 5,268,413
OTHER ASSETS:
Cash value of officers' life insurance(Note 3)......... 50,567 19,903
----------- -----------
TOTAL ASSETS...................................... $38,117,191 $32,812,986
=========== ===========
</TABLE>

4
<PAGE> 6

FRIEDMAN INDUSTRIES, INCORPORATED

LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
March 31
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses.................. $ 8,112,096 $ 4,739,206
Current portion of long-term debt (Note 3)............. 800,000 800,000
Dividends payable...................................... 369,715 291,709
Income taxes payable................................... 256,434 53,047
Contribution to profit-sharing plan (Note 5)........... 242,000 216,000
Employee compensation and related expenses............. 392,427 310,565
----------- -----------
TOTAL CURRENT LIABILITIES......................... 10,172,672 6,410,527
LONG-TERM DEBT, less current portion (Note 3)............... 4,600,000 5,400,000
DEFERRED INCOME TAXES (Note 4).............................. 449,560 460,523
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (Note 5)........ 113,000 113,000
STOCKHOLDERS' EQUITY (Note 2):
Common stock, par value $1:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 6,161,994 in 1997
and 5,834,195 in 1996............................. 6,161,994 5,834,195
Additional paid-in capital............................. 22,377,246 21,444,360
Retained earnings...................................... (5,757,281) (6,849,619)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY........................ 22,781,959 20,428,936
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $38,117,191 $32,812,986
=========== ===========
</TABLE>

See accompanying notes.

5
<PAGE> 7

FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
Year Ended March 31
-----------------------------------------
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Sales........................................... $119,920,966 $106,849,181 $97,968,805
Costs and expenses:
Cost of products sold...................... 109,801,719 98,435,636 90,701,372
Selling, general and administrative........ 4,196,358 3,567,785 3,227,646
Interest expense........................... 509,275 617,629 399,098
------------ ------------ -----------
114,507,352 102,621,050 94,328,116
------------ ------------ -----------
5,413,614 4,228,131 3,640,689
Interest and other income....................... 86,493 70,001 83,753
------------ ------------ -----------
EARNINGS BEFORE FEDERAL INCOME
TAXES............................... 5,500,107 4,298,132 3,724,442
Federal income taxes:
Current.................................... 1,880,999 1,423,588 1,186,466
Deferred................................... (10,963) 37,776 79,844
------------ ------------ -----------
1,870,036 1,461,364 1,266,310
------------ ------------ -----------
NET EARNINGS.......................... $ 3,630,071 $ 2,836,768 $ 2,458,132
============ ============ ===========
Average number of common shares outstanding..... 6,470,094 6,432,200 6,430,443
============ ============ ===========
NET EARNINGS PER SHARE................ $ .56 $ .44 $ .38
============ ============ ===========
</TABLE>

CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
---------- ----------- -----------
<S> <C> <C> <C>
Balance at March 31, 1994......................... $5,289,598 $19,678,497 $(7,537,758)
Net earnings...................................... -- -- 2,458,132
Exercise of stock options......................... 1,216 1,411 --
Stock dividend (5%)............................... 264,044 891,149 (1,157,100)
Cash dividends -- ($.18 per share)................ -- -- (1,166,408)
---------- ----------- -----------
BALANCE AT MARCH 31, 1995............... 5,554,858 20,571,057 (7,403,134)
Net earnings...................................... -- -- 2,836,768
Issuance of Directors' shares..................... 2,000 6,625 --
Stock dividend (5%)............................... 277,337 866,678 (1,145,690)
Cash dividends -- ($.18 per share)................ -- -- (1,137,563)
---------- ----------- -----------
BALANCE AT MARCH 31, 1996............... 5,834,195 21,444,360 (6,849,619)
Net earnings...................................... -- -- 3,630,071
Exercise of stock options......................... 34,482 33,103 --
Issuance of Directors' shares..................... 2,000 7,625 --
Stock dividend (5%)............................... 291,317 892,158 (1,185,068)
Cash dividends -- ($.21 per share)................ -- -- (1,352,665)
---------- ----------- -----------
BALANCE AT MARCH 31, 1997............... $6,161,994 $22,377,246 $(5,757,281)
========== =========== ===========
</TABLE>

See accompanying notes.

6
<PAGE> 8

FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended March 31
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings....................... $ 3,630,071 $ 2,836,768 $ 2,458,132
Adjustments to reconcile net
earnings to cash provided by
(used in) operating activities:
Depreciation.................. 645,591 616,991 575,336
Directors' shares issued...... 9,625 8,625 --
Provision for losses on
accounts receivable......... 5,000 9,500 13,645
Provision for deferred
taxes....................... (10,963) 37,776 79,844
(Increase) decrease in operating
assets:
Accounts receivable........... (2,484,721) (762,068) (993,999)
Inventories................... (3,812,040) (832,851) (3,699,588)
Other......................... 32,300 (52,007) 71,906
Increase (decrease) in operating
liabilities:
Accounts payable and accrued
expenses.................... 3,372,890 468,397 (479,001)
Contribution to profit-sharing
plan........................ 26,000 16,000 20,000
Employee compensation and
related expenses............ 81,862 57,440 60,376
Postretirement benefit other
than pensions............... -- -- 36,000
Federal income taxes
payable..................... 203,387 38,389 14,658
----------- ----------- -----------
Net cash provided by (used in)
operating activities........ 1,699,002 2,442,960 (1,842,691)
INVESTING ACTIVITIES
Purchase of property, plant and
equipment........................ (86,642) (470,210) (470,612)
(Increase) decrease in cash value
of officers' life insurance...... (30,664) 683,210 (69,206)
Other.............................. -- -- 16,315
----------- ----------- -----------
Net cash (used in) provided by
investing activities........ (117,306) 213,000 (523,503)
FINANCING ACTIVITIES
Cash dividends paid................ (1,274,659) (1,123,596) (1,097,661)
Proceeds from borrowings of
long-term debt................... -- -- 4,000,000
Principal payments on long-term
debt............................. (800,000) (1,600,000) (200,000)
Cash paid on fractional shares from
stock dividend................... (1,593) (1,675) (1,907)
Cash received from exercised stock
options.......................... 67,585 -- --
----------- ----------- -----------
Net cash (used in) provided by
financing activities........ (2,008,667) (2,725,271) 2,700,432
----------- ----------- -----------
(Decrease) increase in cash
and cash equivalents........ (426,971) (69,311) 334,238
Cash and cash equivalents at
beginning of year................ 595,216 664,527 330,289
----------- ----------- -----------
Cash and cash equivalents at
end of year................. $ 168,245 $ 595,216 $ 664,527
=========== =========== ===========
</TABLE>

See accompanying notes.

7
<PAGE> 9

FRIEDMAN INDUSTRIES, INCORPORATED

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of Friedman Industries, Incorporated and its subsidiary (which are
collectively referred to herein as the "Company"). All material intercompany
amounts and transactions have been eliminated.

CASH AND CASH EQUIVALENTS: The Company considers all highly liquid debt
instruments purchased with maturities of three months or less to be cash
equivalents.

INVENTORIES: The following is a summary of inventory by product group:

<TABLE>
<CAPTION>
MARCH 31
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Coil................................................... $ 8,900,962 $ 7,033,949
Tubular................................................ 12,302,703 10,357,676
----------- -----------
$21,203,665 $17,391,625
=========== ===========
</TABLE>

Coil inventory consists primarily of raw materials. Tubular inventory
consists of both raw materials and finished goods. Inventories are valued at the
lower of cost or replacement market. Cost for the Company's coil inventory is
determined under the last-in, first-out ("LIFO") method. Cost for tubular
inventories is determined using the first-in, first-out ("FIFO") method. At
March 31, 1997 and 1996, the current replacement cost of LIFO inventories
exceeded their LIFO value by approximately $3,072,000 and $2,857,000,
respectively.

PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated on
the basis of cost. Depreciation is calculated principally by the straight-line
method over the estimated useful lives of the various classes of assets.
Interest costs incurred during construction projects are capitalized as part of
the cost of such assets.

EARNINGS PER SHARE: Earnings per share are based on the weighted average
number of common shares outstanding. Stock options are not included in the
computation of the weighted average number of common shares outstanding, since
their effect is not significant. Fully diluted earnings per share are not
presented because they are not materially dilutive.

All applicable per share amounts herein have been retroactively adjusted to
give effect to a 5% stock dividend distributed May 23, 1997.

SUPPLEMENTAL CASH FLOW INFORMATION: The Company paid interest of
approximately $508,000 in 1997, $679,000 in 1996 and $373,000 in 1995. The
Company paid income taxes, net of refunds, of $1,678,000 in 1997, $1,385,000 in
1996 and $1,130,000 in 1995.

USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

FINANCIAL INSTRUMENTS: The carrying value of the Company's financial
instruments approximate fair value.

ECONOMIC RELATIONSHIP: Lone Star Steel Company ("LSS") and Nucor Steel
Company ("NSC") supply a significant amount of steel products to the Company.
Loss of either of these mills as a source of supply could have a material
adverse effect on the Company. Additionally, the Company derives revenue by
selling a substantial amount of its manufactured pipe to LSS and by providing
tubular processing services for LSS. Total sales to LSS were approximately $17.8
million,

8
<PAGE> 10

FRIEDMAN INDUSTRIES, INCORPORATED

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

$15.6 million and $10.4 million in 1997, 1996 and 1995, respectively. Loss of
this mill as a customer could have a material adverse effect on the Company's
business.

2. CAPITAL STOCK AND STOCK OPTIONS

Under the Company's 1989 and 1996 Incentive Stock Option Plans, incentive
options were granted to certain officers and key employees to purchase Common
Stock of the Company. Pursuant to the terms of the plans, 52,248 additional
options may be granted. All options have 10-year terms and become fully
exercisable at the end of six months of continued employment. The following is a
summary of activity relative to options outstanding during the years ended March
31 (adjusted for stock dividends):

<TABLE>
<CAPTION>
1997 1996 1995
-------------------- ------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year........ 96,857 $2.04 85,832 $1.87 87,240 $1.87
GRANTED................................. 320,237 4.73 11,025 3.40 --
EXERCISED............................... (36,206) 1.87 -- (1,408) 1.87
------- ------ ------
OUTSTANDING AT END OF YEAR.............. 380,888 4.32* 96,857 2.04 85,832 1.87
======= ====== ======
EXERCISABLE AT END OF YEAR.............. 170,636 3.10 96,857 2.04 85,832 1.87
WEIGHTED-AVERAGE FAIR VALUE OF OPTIONS
GRANTED DURING THE YEAR............... $1.11 $0.80
</TABLE>

* Range of $1.87 to $5.30 per share and a weighted average remaining life of 8.7
years

The Company follows Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25"), in accounting for its employee stock
options. Under APB 25, because the exercise price of the company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized. Had the Company followed the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation, the effect would be a 6% reduction in
net earnings and earnings per share for 1997 and no effect for 1996 and 1995.
The fair value of options was estimated using a Black-Scholes option pricing
model with the following weighted-average assumptions: risk-free interest rates
of 6.5%; a dividend yield of 3.8%; volatility factor of the expected market
price of the Company's common stock of .28; and a weighted-average expected life
of the option of 4 years.

The Company has 1,000,000 authorized shares of the Cumulative Preferred
Stock with a par value of $1 per share. The Stock may be issued in one or more
series; and the Board of Directors is authorized to fix the designations,
preferences, rights, qualifications, limitations, and restrictions of each
series, except that any series must provide for cumulative dividends and must be
convertible into Common Stock.

3. LONG-TERM DEBT

The Company's long-term debt consists of a term note payable and borrowings
under a line of credit. The term note payable of $1,400,000 and $2,200,000 at
March 31, 1997 and 1996, respectively, bears an interest rate equal to the
lending bank's prime rate. Principal payments in the amount of $200,000 plus
interest are made quarterly through December 1, 1999. Borrowings under the line
of credit were $4,000,000 at March 31, 1997 and 1996. The line of credit
facility provides borrowings of up to $8,000,000, is unsecured, bears interest
at a maximum rate of the bank's prime rate, and expires on April 1, 2000. There
are no commitment fees or compensating balance requirements under this
arrangement. The annual principal payments required on long-term debt during the
next five years are as follows: 1998 -- $800,000; 1999 -- $600,000; and 2001 --
$4,000,000.

9
<PAGE> 11

FRIEDMAN INDUSTRIES, INCORPORATED

3. LONG-TERM DEBT (CONTINUED)

In July 1995, the Company borrowed $708,168 at an average interest rate of
6.9% against the cash surrender value of officers' life insurance policies (the
"borrowings"). The borrowings do not require specific repayment terms except
that in case of a death, that portion of the borrowings related to the death
will be deducted from the proceeds of the life insurance policy. The proceeds of
the borrowings were used to reduce the term note.

4. INCOME TAXES

Deferred income taxes are provided for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for tax purposes. Significant components of the Company's
consolidated deferred tax assets and liability are as follows:

<TABLE>
<CAPTION>
MARCH 31
-------------------
1997 1996
-------- --------
<S> <C> <C>
DEFERRED TAX LIABILITY:
Depreciation........................................ $558,624 $553,401
DEFERRED TAX ASSETS:
Inventory capitalization............................ 62,517 52,488
Postretirement benefits other than pensions......... 38,420 38,420
Other............................................... 8,127 1,970
-------- --------
Total deferred tax assets............................. 109,064 92,878
-------- --------
Net deferred tax liability............................ $449,560 $460,523
======== ========
</TABLE>

5. PROFIT-SHARING PLAN AND OTHER POSTRETIREMENT BENEFITS

The Company has a defined contribution plan (the "Plan") covering
substantially all employees, including officers. Company contributions, which
are made at the discretion of the Board of Directors in an amount not to exceed
15% of the total compensation paid during the year to all eligible employees,
were $242,000 for the year ended March 31, 1997, $216,000 for the year ended
March 31, 1996, and $200,000 for the year ended March 31, 1995. Contributions,
Plan earnings, and forfeitures of terminated participants' nonvested accounts
are allocated to the individual accounts of participating employees based on
compensation received during the Plan year and years of active service with the
Company.

In addition, certain health care benefits are provided for retired
employees. Employees with a minimum of 20 years of employment with the Company
who retire at age 65 or older are eligible. The Company has not funded the cost
of the postretirement health care plan.

6. INDUSTRY SEGMENT DATA

The Company is engaged in the steel processing and distribution business.
Within the Company there are two product groups, coil processing (steel sheet
and plate) and tubular products. Coil processing converts steel coils into flat
sheet and plate steel cut to customer specifications. Through its Texas Tubular
operation, the Company purchases, processes, manufactures and markets tubular
products. This operation processes its own tubular products and processes pipe
on a fee basis for LSS.

10
<PAGE> 12

FRIEDMAN INDUSTRIES, INCORPORATED

6. INDUSTRY SEGMENT DATA (CONTINUED)

The following is a summary of significant financial information relating to
the product groups:

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
-----------------------------------------
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
NET SALES:
Coil processing....................... $ 66,979,133 $ 63,811,709 $64,138,520
Tubular............................... 52,941,833 43,037,472 33,830,285
------------ ------------ -----------
TOTAL NET SALES............... $119,920,966 $106,849,181 $97,968,805
============ ============ ===========
OPERATING PROFIT:
Coil processing....................... $ 1,578,403 $ 1,856,750 $ 1,975,775
Tubular............................... 5,933,923 4,218,560 3,147,319
------------ ------------ -----------
TOTAL OPERATING PROFIT........ 7,512,326 6,075,310 5,123,094
Corporate expenses.................... (1,589,437) (1,229,550) (1,083,307)
Interest expense...................... (509,275) (617,629) (399,098)
Interest and other income............. 86,493 70,001 83,753
------------ ------------ -----------
TOTAL EARNINGS BEFORE TAXES... $ 5,500,107 $ 4,298,132 $ 3,724,442
============ ============ ===========
IDENTIFIABLE ASSETS:
Coil processing....................... $ 18,345,255 $ 15,132,983 $14,312,010
Tubular............................... 19,474,470 16,998,998 16,309,266
------------ ------------ -----------
37,819,725 32,131,981 30,621,276
General corporate assets.............. 297,466 681,005 1,453,586
------------ ------------ -----------
TOTAL ASSETS.................. $ 38,117,191 $ 32,812,986 $32,074,862
============ ============ ===========
DEPRECIATION:
Coil processing....................... $ 316,714 $ 310,840 $ 287,308
Tubular products...................... 322,071 299,714 280,982
Corporate and other................... 6,806 6,437 7,046
------------ ------------ -----------
$ 645,591 $ 616,991 $ 575,336
============ ============ ===========
CAPITAL EXPENDITURES:
Coil processing....................... $ 16,895 $ 108,765 $ 298,832
Tubular products...................... 66,057 359,737 167,293
Corporate assets...................... 3,690 1,708 4,487
------------ ------------ -----------
$ 86,642 $ 470,210 $ 470,612
============ ============ ===========
</TABLE>
Operating profit is total revenue less operating expenses, excluding
general corporate expenses, interest expense, and interest and other income.
Corporate assets consist primarily of cash and cash equivalents and cash value
of officers' life insurance. There are no sales between product groups.

11
<PAGE> 13

FRIEDMAN INDUSTRIES, INCORPORATED

7. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of unaudited quarterly results of operations for
the years ended March 31, 1997 and 1996 (per share amounts have been adjusted
for subsequent stock dividends):

<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------
June 30 September 30 December 31 March 31
1996 1996 1996 1997
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................... $28,751,479 $29,486,754 $28,468,809 $33,213,924
Gross profit............................ 2,622,513 2,530,609 2,298,822 2,667,303
Net earnings............................ 930,812 957,992 791,309 949,958
Net earnings per share.................. 0.14 0.15 0.12 0.15
</TABLE>

<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------
June 30 September 30 December 31 March 31
1995 1995 1995 1996
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................... $28,752,665 $26,208,387 $25,559,420 $26,328,709
Gross profit............................ 2,266,467 1,775,718 2,033,081 2,338,279
Net earnings............................ 783,214 554,018 684,456 815,080
Net earnings per share(1)............... .12 .09 .11 .13
</TABLE>

(1) The sum of the quarterly net income per share amounts does not equal the
annual amount reported, as per share amounts are computed independently for
each quarter and for the full year based on the respective weighted average
common shares outstanding.

8. CONCENTRATION OF RECEIVABLES

The Company's sales are concentrated primarily in the midwestern,
southwestern and southeastern sections of the United States, and are principally
to customers in the steel distributing and fabricating industries. The Company
performs periodic credit evaluations of the financial condition of its customers
and generally does not require collateral. Generally, receivables are due within
30 days.

12
<PAGE> 14

FRIEDMAN INDUSTRIES, INCORPORATED

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Friedman Industries, Incorporated

We have audited the accompanying consolidated balance sheets of Friedman
Industries, Incorporated as of March 31, 1997 and 1996, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Friedman
Industries, Incorporated at March 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended March 31, 1997, in conformity with generally accepted accounting
principles.

/s/ ERNST & YOUNG LLP

May 30, 1997
Houston, Texas

------------------------------------------

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 119,920,966 $ 106,849,181 $ 97,968,805 $ 70,908,065 $ 56,230,967
Net earnings......................... 3,630,071 2,836,768 2,458,132 1,691,075(A) 806,272
Total assets......................... 38,117,191 32,812,986 32,074,862 27,184,421 20,491,441
Long-term debt....................... 4,600,000 5,400,000 7,000,000 3,800,000 --
Stockholders' equity................. 22,781,959 20,428,936 18,722,781 17,430,337 16,528,543
Net earnings per share............... 0.56 0.44 0.38 0.26(A) 0.13
Cash dividends declared per share
adjusted for stock dividends....... 0.21 0.18 0.18 0.12 0.09
</TABLE>

(A) Includes the cumulative effect of accounting changes which increased net
earnings $77,000 ($.01 per share).

See also Note 1 of Notes to the Company's Consolidated Financial Statements
herein which describes the Company's relationship with its primary suppliers of
steel products.

13
<PAGE> 15

FRIEDMAN INDUSTRIES, INCORPORATED

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS

Year ended March 31, 1997 compared to year ended March 31, 1996

During the year ended March 31, 1997, sales, cost of products sold and
gross profit increased $13,071,785, $11,366,083 and $1,705,702, respectively,
from the comparable amounts recorded during the year ended March 31, 1996. Each
of these increases was primarily related to the Company's tubular operations.
Stronger demand for tubular products during fiscal 1997 supported improved sales
and gross profit and contributed to a substantial increase in volume and
production levels. Margins earned on sales increased from 7.9% in fiscal 1996 to
8.4% in fiscal 1997. This increase was primarily related to tubular operations
which benefited from the above noted demand factor and from efficiencies related
to increased production.

Selling, general and administrative expenses increased $628,573 from the
amount recorded during fiscal 1996. This increase was primarily related to
variable expenses associated with volume and/or earnings such as employee
incentive bonuses, commissions and supplies.

Interest expense during fiscal 1997 declined $108,354 from the amount
recorded during fiscal 1996. This decline was primarily related to a decline in
interest rates paid on borrowed funds and reductions in long term debt in fiscal
1997.

Interest and other income increased $16,492. This increase was primarily
related to the sale of machinery and equipment during fiscal 1997.

Federal income taxes increased $408,672 from the amount recorded in fiscal
1996. This increase was related to the increase in earnings before taxes as the
effective tax rates were the same for both years.

Year ended March 31, 1996 compared to year ended March 31, 1995

During the year ended March 31, 1996, sales, cost of products sold and
gross profit increased $8,880,376, $7,734,264 and $1,146,112, respectively, from
the comparable amounts recorded during the year ended March 31, 1995. The sales
increase was primarily related to the Company's tubular operations which
benefited from stronger market conditions for its products and recorded a
substantial increase in volume. The increase in cost of products sold primarily
resulted from the increase in sales noted above. Gross profit increased as a
result of the increase in sales combined with an improved margin rate. Margins
earned on sales increased from 7.4% in fiscal 1995 to 7.9% in fiscal 1996. This
improvement was primarily related to tubular operations which benefited from
both stronger market conditions for its products and efficiencies associated
with increased production.

Selling, general and administrative expenses increased $340,139 from the
amount recorded during fiscal 1995. This increase primarily resulted from
increases in variable expenses which were associated with increased volume
and/or earnings.

Interest expense increased $218,531 from the comparable amount recorded in
fiscal 1995. This increase was primarily related to interest paid on borrowings
under the Company's bank line of credit which were outstanding twelve months in
fiscal 1996 compared to approximately four months in fiscal 1995. Borrowings
under this line of credit were used to support working capital.

Federal income taxes increased $195,054 from the amount recorded in fiscal
1995. This increase was related to the increase in earnings before taxes as the
effective tax rates were the same for both years.

14
<PAGE> 16

FRIEDMAN INDUSTRIES, INCORPORATED

FINANCIAL CONDITION, LIQUIDITY AND SOURCES OF CAPITAL

At March 31, 1997, the Company maintained a strong, liquid position as
evidenced by a debt to equity ratio of .20 and by a current ratio of 3.3. In
December 1993, the Company borrowed $4,000,000 from a bank to support the
construction and operation of its new steel processing facility located in
Hickman, Arkansas (the "Hickman Division"). This note is a five year term note
that bears interest at the bank's floating prime rate and requires quarterly
principal payments of $200,000 plus interest through December 1, 1998. The
Company also has available a line of credit facility with a bank, which provides
for borrowings up to $8,000,000, is unsecured, bears interest at a maximum rate
of the bank's floating prime rate and expires on April 1, 2000. At March 31,
1997, the Company had a loan balance of $4,000,000 outstanding under this
facility in support of working capital.

During the year ended March 31, 1998, the Company expects to make capital
improvements to the Hickman Division. For this purpose the Board of Directors
has approved an expenditure of $3,500,000 and has authorized management to fund
the expenditure with additional financing. The Company believes that its cash
flow from operations and borrowing capability under its line of credit facility
and subsequent borrowings related to the Hickman Division are adequate to fund
its expected cash requirements for the year ending March 31, 1998.

FORWARD-LOOKING STATEMENTS

From time to time, the company may make certain statements that contain
"forward-looking" information as defined in the Private Securities Litigation
Reform Act of 1996) and that involve risk and uncertainty. These forward-looking
statements may include, but are not limited to, future results of operations,
future production capacity and product quality. When used in this Form 10-K,
expressions such as "belief", "expect" and similar expressions are intended to
identify forward-looking statements. Forward-looking statements may be made by
management orally or in writing including, but not limited to, this Management's
Discussion and Analysis of Financial Condition and Results of Operations section
and other sections of the Company's filings with the Securities and Exchange
Commission under the Securities Act of 1933 and the Securities Exchange Act of
1934. Actual results and trends in the future may differ materially depending on
a variety of factors including but not limited to, the success of the Company's
capital improvements at the Hickman facility, changes in the demand and prices
for the Company's products and changes in the demand for steel and steel
products in general, and the Company's success in executing its internal
operating plans.

15
<PAGE> 17

FRIEDMAN INDUSTRIES, INCORPORATED

TEN YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales........................... $119,920,966 $106,849,181 $97,968,805 $70,908,065 $56,230,967 $42,609,330
Earnings............................ $ 3,630,071 $ 2,836,768 $ 2,458,132 $ 1,691,075(1) $ 806,272 $ 483,720
Current assets...................... $ 33,357,160 $ 27,524,670 $25,956,555 $21,014,281 $16,542,769 $15,537,203
Current liabilities................. $ 10,172,672 $ 6,410,527 $ 5,816,334 $ 5,534,143 $ 3,549,495 $ 2,849,637
Net working capital................. $ 23,184,488 $ 21,114,143 $20,140,221 $15,480,138 $12,993,274 $12,687,566
Total assets........................ $ 38,117,191 $ 32,812,986 $32,074,862 $27,184,421 $20,491,441 $19,619,875
Stockholders' equity................ $ 22,781,959 $ 20,428,936 $18,722,781 $17,430,337 $16,528,543 $16,277,792
Earnings as a percent of
Net sales....................... 3.0 2.7 2.5 2.4 1.4 1.1
Stockholders' equity............ 15.9 13.9 13.1 9.7 4.9 3.0
Average number of common and
common equivalent shares(3)....... 6,470,094 6,432,200 6,430,443 6,427,719 6,427,235 6,427,235
Per share
Earnings from operations(3)....... $ 0.56 $ 0.44 $ 0.38 $ 0.26(1) $ 0.13 $ 0.08
Stockholders' equity(3)........... $ 3.52 $ 3.18 $ 2.91 $ 2.71 $ 2.57 $ 2.53
Cash dividends per common
share(3).......................... $ 0.21 $ 0.18 $ 0.18 $ 0.12 $ 0.09 $ 0.07
Stock dividend declared............. 5% 5% 5% 5% 5% 5%

<CAPTION>
YEAR ENDED MARCH 31
------------------------------------------------------
1991 1990 1989 1988
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales........................... $50,264,851 $50,043,949 $53,499,476 $59,255,966
Earnings............................ $ 866,259 $ 1,560,701 $ 1,830,861(2) $ 3,449,368
Current assets...................... $16,826,544 $16,731,964 $19,592,919 $18,110,425
Current liabilities................. $ 2,501,178 $ 1,783,375 $ 4,695,397 $ 3,514,402
Net working capital................. $14,325,366 $14,948,589 $14,897,522 $14,596,023
Total assets........................ $20,936,487 $19,042,527 $21,803,286 $20,498,322
Stockholders' equity................ $16,274,914 $16,186,557 $15,715,223 $15,288,709
Earnings as a percent of
Net sales....................... 1.7 3.1 3.4 5.8
Stockholders' equity............ 5.3 9.6 11.7 22.6
Average number of common and
common equivalent shares(3)....... 6,427,235 6,427,235 6,330,710 6,287,561
Per share
Earnings from operations(3)....... $ 0.13 $ 0.24 $ 0.29(2) $ 0.55
Stockholders' equity(3)........... $ 2.53 $ 2.52 $ 2.48 $ 2.43
Cash dividends per common
share(3).......................... $ 0.12 $ 0.17 $ 0.26 $ 3.47
Stock dividend declared............. 5% 5% 5% 10%
</TABLE>

- - ------------

(1) Includes the cumulative effect of accounting changes which increased net
earnings $77,000 ($.01 per share).

(2) Includes an after-tax loss of $544,500 ($0.09 per share) due to an
extraordinary item.

(3) Adjusted for stock dividends.

<PAGE> 1
Exhibit 21.1

SUBSIDIARIES

Royal Fasteners Corporation Texas corporation 100% owned

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Friedman Industries, Incorporated of our report dated May 30, 1997, included
in the 1997 Annual Report to Shareholders of Friedman Industries, Incorporated.

Our audits also included the financial statement schedule of Friedman
Industries, Incorporated listed in the response to Item 14(a). This schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.

/s/ Ernst & Young LLP
ERNST & YOUNG LLP

Houston, Texas
May 30, 1997

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) FORM 10K
FOR YEAR ENDED MARCH 31, 1997.
</LEGEND>
<CIK> 0000039092
<NAME> FRIEDMAN INDUSTRIES INCORPORATED

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 168,245
<SECURITIES> 0
<RECEIVABLES> 11,902,925
<ALLOWANCES> 0
<INVENTORY> 21,203,665
<CURRENT-ASSETS> 33,357,160
<PP&E> 14,618,908
<DEPRECIATION> 9,909,444
<TOTAL-ASSETS> 38,117,191
<CURRENT-LIABILITIES> 10,172,672
<BONDS> 4,600,000
0
0
<COMMON> 6,161,994
<OTHER-SE> 16,619,965
<TOTAL-LIABILITY-AND-EQUITY> 38,117,191
<SALES> 119,920,966
<TOTAL-REVENUES> 119,920,966
<CGS> 109,801,719
<TOTAL-COSTS> 113,998,077
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 509,275
<INCOME-PRETAX> 5,500,107
<INCOME-TAX> 1,870,036
<INCOME-CONTINUING> 3,630,071
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,630,071
<EPS-PRIMARY> .56
<EPS-DILUTED> .56

</TABLE>