FRIEDMAN INDUSTRIES INC, 10-K405, 1999-06-29

FRIEDMAN INDUSTRIES INC
10-K405, 1999-06-29
STEEL WORKS, BLAST FURNACES & ROLLING & FINISHING MILLS

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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, 1999

[ ] 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)

<TABLE>
<S> <C>
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)
</TABLE>

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

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

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock, $1 Par Value American Stock Exchange
</TABLE>

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, 1999 (computed by reference to the closing price
on the American Stock Exchange on such date), was approximately $18,070,000.

The number of shares of the registrant's Common Stock outstanding at June
18, 1999 was 7,184,662 shares.

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<PAGE> 2

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Shareholders of Friedman Industries,
Incorporated for the fiscal year ended March 31, 1999 -- Part II.

Proxy Statement for the 1999 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
Consolidated Financial Statements of the Company's Annual Report to Shareholders
for the fiscal year ended March 31, 1999, 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 purchases 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 purchases its supply of
steel from LSS and other suppliers at competitive prices determined at the time
of purchase. During fiscal 1999 and 1998, the Company purchased approximately
69% and 77%, 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 temper pass 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 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. In April 1999, the Company completed the
installation of a 2-Hi temper pass mill at the Hickman facility that is 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 the temper pass process improves product quality which expands sales
opportunities while reducing scrap loss.

2
<PAGE> 3

Tubular Products

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

TTP employs various pipe processing equipment including threading 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 TTP 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. In addition, LSS sells
pipe to the Company 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. Loss of LSS as a source of supply or as a customer could
have a material adverse effect on the Company's business.

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 1999 1998 1997
-------------- ---- ---- ----
<S> <C> <C> <C>
Coil Processing............................................. 69% 59% 56%
Tubular Products............................................ 31% 41% 44%
</TABLE>

Coil Processing (Steel Sheet and Plate). The Company's coil processing
products and services are sold to approximately 400 customers located primarily
in the midwestern, southwestern and southeastern sections of the United States.
The Company's principal customers for these products and services are steel
distributors and 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, 1999, 1998 and 1997, six, nine and seven
customers, respectively, accounted for approximately 25% of the Company's sales
of coil processing products. No coil processing 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, 1999, the sales force was comprised of a
manager and five professional sales personnel under the direction of the senior
vice president of sales and marketing. Salesmen are paid on a salary and
commission basis.

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 310
customers. The Company's principal customers of these products are steel and
pipe distributors, piling contractors and LSS. Sales of pipe to LSS accounted
for approximately 6% of the Company's total sales in fiscal 1999.

The Company sells its tubular products through its own sales force
comprised of a manager and three professional sales personnel under the
direction of the senior vice president of sales and marketing. Salesmen are paid
on a salary and commission basis.

3
<PAGE> 4

Competition

The Company is 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 Company believes that in times of normal supply and market conditions
its ability to compete 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 meeting customer specifications on a rapid delivery
basis.

Employees

At March 31, 1999, the Company had approximately 135 full-time employees.

Executive Officers of the Company

The following table sets forth the name, age, officer positions and family
relationships, 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 RELATIONSHIPS, IF ANY
---- --- ----------------------------------
<S> <C> <C>
Jack Friedman.... 78 Chairman of the Board of Directors and Chief
Executive Officer since 1970, Director since
1965, brother of Harold Friedman
Harold 69 Vice Chairman since 1995, formerly President and
Friedman....... Chief Operating Officer since 1975, Executive
Vice President from 1973 to 1975, Director since
1965, brother of Jack Friedman
William E. 52 President and Chief Operating Officer since 1995,
Crow........... formerly Vice President since 1981 and formerly
President of Texas Tubular Products Division
since August 1990
Benny Harper..... 53 Senior Vice President -- Finance since 1995
(formerly Vice President since 1990), Treasurer
since 1980 and Secretary since May 1992
Thomas 48 Senior Vice President -- Sales and Marketing since
Thompson....... 1995, formerly Vice President -- Sales since 1990
Ronald 60 Vice President since 1974
Burgerson......
Dale Ray......... 53 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.

4
<PAGE> 5

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) --
Hickman, Arkansas
Plant and Warehouse -- Coil
Processing................. 42,600 sq. feet Owned(1) Steelframe/siding
Offices -- Coil Processing.... 1,800 sq. feet Owned(1) Cinder block
Land -- Coil Processing....... 26.19 acres Owned(1) --
</TABLE>

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(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 period beginning December 29, 1998 and ending December 31, 2002.

(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.

5
<PAGE> 6

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, 1999, 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 28, 1999 was 670.

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, 1999, 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, 1999, entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations".

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, 1999, are hereby incorporated herein by reference:

Consolidated Balance Sheets -- March 31, 1999 and 1998

Consolidated Statements of Earnings -- Years ended March 31, 1999, 1998
and 1997

Consolidated Statements of Stockholders' Equity -- Years ended March 31,
1999, 1998 and 1997

Consolidated Statements of Cash Flows -- Years ended March 31, 1999,
1998 and 1997

Notes to Consolidated Financial Statements -- March 31, 1999

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, 1999.

The following supplementary schedule for the Company for the year ended
March 31, 1999, 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

6
<PAGE> 7

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 1999 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 1999 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 1999 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 1999 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 1999 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 1999 fiscal year.

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 1999 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 1999 fiscal year.

7
<PAGE> 8

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents included in this report

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1 and 2 -- The responses to this section of Item 14 appears in this
report as a separate section of this report.
3 -- Exhibits
3.1 -- 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
incorporated herein by reference.
3.2 -- 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 incorporated herein by reference.
3.3 -- 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 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
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 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 year ended March 31, 1992, and incorporated
herein by reference.
10.2 -- 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 incorporated herein by reference.
*10.3 -- 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 incorporated herein by reference.
10.4 -- 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).
10.5 -- 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).
</TABLE>

8
<PAGE> 9

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.6 -- 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).
10.7 -- 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).
*10.8 -- Friedman Industries, Incorporated 1996 Stock Option Plan
(incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended March 31, 1997).
10.9 -- $8,000,000 Revolving Promissory Note dated April 1, 1997
(incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended March 31, 1997).
10.10 -- First Amendment to Amended and Restated Letter Agreement
between the Company and Texas Commerce Bank National
Association dated April 1, 1997 (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended March 31, 1997).
10.11 -- ISDA Master Agreement between the Company and Texas
Commerce Bank National Association ("TCB") dated July 21,
1997 (incorporated by reference to the Company's Report
on Form 10-Q for the three months ended June 30, 1997).
10.12 -- Advancing Promissory Note of the Company to TCB dated
July 21, 1997 (incorporated by reference to the Company's
Report on Form 10-Q for the three months ended June 30,
1997).
10.13 -- Second Amendment to Amended and Restated Letter Agreement
between the Company and TCB dated July 21, 1997
(incorporated by reference to the Company's Report on
Form 10-Q for the three months ended June 30, 1997).
*10.14 -- First Amendment to the Friedman Industries, Incorporated
1989 Incentive Stock Option Plan (incorporated by
reference to the Company's Report on Form 10-Q for the
three months ended September 30, 1997).
*10.15 -- Friedman Industries, Incorporated 1995 Non-Employee
Director Stock Plan and First Amendment thereto dated
effective August 22, 1997, (incorporated by reference to
the Company's Annual Report on Form 10K for the year
ended March 3, 1998).
13.1 -- The Company's Annual Report to Shareholders for the
fiscal year ended March 31, 1999.
21.1 -- List of Subsidiaries.
23.1 -- Consent of Independent Auditors.
27.1 -- Financial Data Schedule.
</TABLE>

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* 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 1999:

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 28th day of June, 1999.

FRIEDMAN INDUSTRIES, INCORPORATED

By: /s/ JACK FRIEDMAN
----------------------------------
Jack Friedman
Chairman of the Board
and Chief Executive 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
--------- ----- ----
<C> <S> <C>

/s/ JACK FRIEDMAN Chairman of the Board, Chief June 18, 1999
- ----------------------------------------------------- Executive Officer and
Jack Friedman Director (Principal Executive
Officer)

/s/ HAROLD FRIEDMAN Vice Chairman of the Board and June 28, 1999
- ----------------------------------------------------- Director
Harold Friedman

/s/ WILLIAM E. CROW President, Chief Operating June 18, 1999
- ----------------------------------------------------- Officer and Director
William E. Crow

/s/ BENNY B. HARPER Senior Vice June 28, 1999
- ----------------------------------------------------- President -- Finance and
Benny B. Harper Treasurer (Principal
Financial and Accounting
Officer)

/s/ HENRY SPIRA Director June 28, 1999
- -----------------------------------------------------
Henry Spira

Director June , 1999
- -----------------------------------------------------
Charles W. Hall

/s/ KIRK K. WEAVER Director June 28, 1999
- -----------------------------------------------------
Kirk K. Weaver

/s/ ALAN M. RAUCH Director June 28, 1999
- -----------------------------------------------------
Alan M. Rauch

/s/ HERSHEL M. RICH Director June 25, 1999
- -----------------------------------------------------
Hershel M. Rich
</TABLE>

10
<PAGE> 11

FRIEDMAN INDUSTRIES, INCORPORATED
HOUSTON, TEXAS

ANNUAL REPORT ON FORM 10-K
YEAR ENDED MARCH 31, 1999

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, 1999 and 1998

Consolidated Statements of Earnings -- Years ended March 31, 1999, 1998
and 1997

Consolidated Statements of Stockholders' Equity -- Years end March 31,
1999, 1998 and 1997

Consolidated Statements of Cash Flows -- Years ended March 31, 1999,
1998 and 1997

Notes to Consolidated Financial Statements -- March 31, 1999

Report of Independent Auditors

The following financial statement schedule of the Company is 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
BEGINNING COSTS AND OTHER ACCOUNTS -- DEDUCTIONS -- BALANCE AT
DESCRIPTION OF PERIOD EXPENSES(1) DESCRIBE DESCRIBE(A) END OF PERIOD
----------- ---------- ----------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1999
Allowance for doubtful
accounts receivable
(deducted from related
asset account)......... $7,276 $ 15,365 $ 15,365 $7,276
====== ======== ====== ======== ======
Year ended March 31, 1998
Allowance for doubtful
accounts receivable
(deducted from related
asset account)......... $7,276 $200,000 $200,000 $7,276
====== ======== ====== ======== ======
Year ended March 31, 1997
Allowance for doubtful
accounts receivable
(deducted from related
asset account)......... $5,794 $ 5,000 $ 3,518 $7,276
====== ======== ====== ======== ======
</TABLE>

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

(A) Accounts and notes receivable written off.

S-1
<PAGE> 14

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.7 -- 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).
*10.8 -- Friedman Industries, Incorporated 1996 Stock Option Plan
(incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended March 31, 1997).
10.9 -- $8,000,000 Revolving Promissory Note dated April 1, 1997
(incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended March 31, 1997).
10.10 -- First Amendment to Amended and Restated Letter Agreement
between the Company and Texas Commerce Bank National
Association dated April 1, 1997 (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended March 31, 1997).
10.11 -- ISDA Master Agreement between the Company and Texas
Commerce Bank National Association ("TCB") dated July 21,
1997 (incorporated by reference to the Company's Report
on Form 10-Q for the three months ended June 30, 1997).
10.12 -- Advancing Promissory Note of the Company to TCB dated
July 21, 1997 (incorporated by reference to the Company's
Report on Form 10-Q for the three months ended June 30,
1997).
10.13 -- Second Amendment to Amended and Restated Letter Agreement
between the Company and TCB dated July 21, 1997
(incorporated by reference to the Company's Report on
Form 10-Q for the three months ended June 30, 1997).
*10.14 -- First Amendment to the Friedman Industries, Incorporated
1989 Incentive Stock Option Plan (incorporated by
reference to the Company's Report on Form 10-Q for the
three months ended September 30, 1997).
*10.15 -- Friedman Industries, Incorporated 1995 Non-Employee
Director Stock Plan and First Amendment thereto dated
effective August 22, 1997, (incorporated by reference to
the Company's Annual Report on Form 10K for the year
ended March 31, 1998).
13.1 -- The Company's Annual Report to Shareholders for the
fiscal year ended March 31, 1999.
21.1 -- List of Subsidiaries.
23.1 -- Consent of Independent Auditors.
27.1 -- Financial Data Schedule
</TABLE>

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

* Management contract or compensation plan.

(b) Reports on Form 8-K filed in the fourth quarter of fiscal 1999:

None

<PAGE> 1

FRIEDMAN
INDUSTRIES,
INCORPORATED

1999
ANNUAL REPORT
<PAGE> 2
FRIEDMAN INDUSTRIES, INCORPORATED

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

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Net sales................................ $124,719,640 $148,840,724
Net earnings............................. $3,540,811 $4,809,992
Net earnings per share (Basic)*.......... $0.49 $0.67
Cash dividends per share*................ $0.26 $0.27
Stock dividend........................... 5% 5%
Stockholders' equity..................... $27,422,779 $25,732,957
Stockholders' equity per share
(Basic)*............................... $3.82 $3.60
Working capital.......................... $25,776,002 $25,910,370
* Adjusted for stock dividends.
</TABLE>
- --------------------------------------------------------------------------------

TO OUR SHAREHOLDERS:

Sales and earnings declined from the respective amounts recorded during
fiscal 1998. These declines were primarily attributable to a decline in the
Company's tubular operations which were adversely affected by the significant
downturn in the energy sector of the economy during fiscal 1999.

The temper pass mill at the Arkansas coil facility became operational in
April 1999. Management believes this mill will improve the Company's ability to
provide quality hot-rolled steel products.

You are invited to attend the Annual Meeting of Shareholders scheduled to
be held on August 27, 1999. The meeting will be held at 11:00 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 B. Harper
Senior Vice President -- Finance
and Secretary/Treasurer

Thomas N. 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

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

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

SALES OFFICE -- TUBULAR PRODUCTS
P.O. Box 0388
Lone Star, Texas 75668
903-639-2511
WEB SITE ADDRESS
www.friedmanindustries.com

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
DIRECTORS

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

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

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

APPROXIMATE NUMBER OF
SHAREHOLDERS OF RECORD
670 at May 28, 1999

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, 1999 as filed with the Securities and
Exchange Commission. Written requests should be addressed to: Benny B. 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 400 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, purchases, processes, manufactures and markets tubular products
("pipe"). The Company sells pipe nationally to approximately 310 customers and
sells a substantial amount of manufactured pipe to LSS. 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 1999 FISCAL 1998
----------------- -----------------
HIGH LOW HIGH LOW
---- ----- ---- -----
<S> <C> <C> <C> <C>
First Quarter............................................... 8 3/8 6 3/8 6 3/8 5 1/8
Second Quarter.............................................. 7 3/8 4 3/8 9 1/2 6
Third Quarter............................................... 5 11/16 4 1/2 9 1/2 5 13/16
Fourth Quarter.............................................. 5 3/8 3 3/4 7 11/16 5 1/2
</TABLE>

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

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK

<TABLE>
<CAPTION>
FISCAL 1999 FISCAL 1998
------------------ ------------------
CASH STOCK CASH STOCK
----- ----- ----- -----
<S> <C> <C> <C> <C>
First Quarter............................................... $.075 $ .07
Second Quarter.............................................. $ .07 $.075
Third Quarter............................................... $ .07 $.075
Fourth Quarter.............................................. $ .06 5% $.075 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
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 3,798,935 $ 1,361,693
Accounts receivable, less allowance for doubtful
accounts of $7,276 in 1999 and 1998.................. 8,709,728 13,205,113
Inventories............................................ 19,906,170 24,586,863
Other.................................................. 119,207 193,879
------------ ------------
TOTAL CURRENT ASSETS.............................. 32,534,040 39,347,548
PROPERTY, PLANT AND EQUIPMENT:
Land................................................... 221,543 198,021
Buildings and yard improvements........................ 3,317,088 2,882,358
Machinery and equipment................................ 15,879,803 13,999,439
Less accumulated depreciation.......................... (11,127,089) (10,468,859)
------------ ------------
8,291,345 6,610,959
OTHER ASSET:
Cash value of officers' life insurance................. 197,992 80,854
------------ ------------
TOTAL ASSETS...................................... $ 41,023,377 $ 46,039,361
============ ============
</TABLE>

LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
MARCH 31
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses.................. $ 4,839,560 $ 10,925,023
Current portion of long-term debt...................... 800,000 800,000
Dividends payable...................................... 410,563 486,886
Income taxes payable................................... 68,522 344,465
Contribution to profit sharing plan.................... 252,000 280,000
Employee compensation and related expenses............. 387,393 600,804
------------ ------------
TOTAL CURRENT LIABILITIES......................... 6,758,038 13,437,178
LONG-TERM DEBT, less current portion........................ 6,400,000 6,366,666
DEFERRED INCOME TAXES....................................... 329,560 389,560
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS................. 113,000 113,000
STOCKHOLDERS' EQUITY:
Common stock, par value $1:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 6,828,387 in 1999
and 6,491,808 in 1998............................. 6,828,387 6,491,808
Additional paid-in capital............................. 25,725,195 23,680,628
Retained deficit....................................... (5,130,803) (4,439,479)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY........................ 27,422,779 25,732,957
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 41,023,377 $ 46,039,361
============ ============
</TABLE>

See accompanying notes.
4
<PAGE> 6
FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Sales.......................................... $124,719,640 $148,840,724 $119,920,966
Costs and expenses:
Cost of products sold..................... 114,363,659 135,981,231 109,801,719
Selling, general, and administrative...... 4,694,933 5,193,206 4,196,358
Interest expense.......................... 443,686 431,498 509,275
------------ ------------ ------------
119,502,278 141,605,935 114,507,352
------------ ------------ ------------
5,217,362 7,234,789 5,413,614
Interest and other income...................... 147,506 53,080 86,493
------------ ------------ ------------
EARNINGS BEFORE FEDERAL INCOME
TAXES.............................. 5,364,868 7,287,869 5,500,107
Federal income taxes:
Current................................... 1,884,057 2,537,877 1,880,999
Deferred.................................. (60,000) (60,000) (10,963)
------------ ------------ ------------
1,824,057 2,477,877 1,870,036
------------ ------------ ------------
NET EARNINGS......................... $ 3,540,811 $ 4,809,992 $ 3,630,071
============ ============ ============
Average number of common shares outstanding:
Basic........................................ 7,170,192 7,155,144 7,133,279
Diluted...................................... 7,214,675 7,289,077 7,133,279
Net earnings per share:
Basic........................................ $ .49 $ .67 $ .51
Diluted...................................... $ .49 $ .66 $ .51
</TABLE>

CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL DEFICIT
---------- ----------- -----------
<S> <C> <C> <C>
Balance at March 31, 1996......................... $5,834,195 $21,444,360 $(6,849,619)
Net earnings...................................... -- -- 3,630,071
Exercise of stock options......................... 34,482 33,103 --
Issuance of Directors' shares..................... 2,000 7,625 --
Stock dividend (5%)............................... 291,317 892,158 (1,185,068)
Cash dividends ($.19 per share)................... -- -- (1,352,665)
---------- ----------- -----------
BALANCE AT MARCH 31, 1997............... 6,161,994 22,377,246 (5,757,281)
Net earnings...................................... -- -- 4,809,992
Exercise of stock options......................... 20,077 17,467 --
Issuance of Directors' shares..................... 2,000 16,500 --
Stock dividend (5%)............................... 307,737 1,269,415 (1,579,431)
Cash dividends ($0.27 per share).................. -- -- (1,912,759)
---------- ----------- -----------
BALANCE AT MARCH 31, 1998............... 6,491,808 23,680,628 (4,439,479)
Net earnings...................................... -- -- 3,540,811
Exercise of stock options......................... 10,202 8,211 --
Issuance of Directors' shares..................... 2,000 9,000 --
Stock dividend (5%)............................... 324,377 2,027,356 (2,355,039)
Cash dividends ($0.26 per share).................. -- -- (1,877,096)
---------- ----------- -----------
BALANCE AT MARCH 31, 1999............... $6,828,387 $25,725,195 $(5,130,803)
========== =========== ===========
</TABLE>

See accompanying notes.

5
<PAGE> 7
FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings....................... $ 3,540,811 $ 4,809,992 $ 3,630,071
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation.................. 671,735 665,908 645,591
Loss on disposal of property,
plant, and equipment........ -- 26,008 --
Directors' shares issued...... 11,000 18,500 9,625
Benefit from deferred taxes... (60,000) (60,000) (10,963)
Decrease (increase) in operating
assets:
Accounts receivable........... 4,495,385 (1,302,188) (2,479,721)
Inventories................... 4,680,693 (3,383,198) (3,812,040)
Other......................... 74,672 (72,517) 32,300
(Decrease) increase in operating
liabilities:
Accounts payable and accrued
expenses.................... (6,085,463) 2,812,809 3,372,890
Contribution to profit sharing
plan........................ (28,000) 38,000 26,000
Employee compensation and
related expenses............ (213,411) 208,377 81,862
Federal income taxes
payable..................... (275,943) 48,994 203,387
----------- ----------- -----------
Net cash provided by operating
activities.................. 6,811,479 3,810,685 1,699,002
INVESTING ACTIVITIES
Purchase of property, plant, and
equipment........................ (2,352,122) (2,593,410) (86,642)
Increase in cash value of officers'
life insurance................... (117,138) (30,287) (30,664)
----------- ----------- -----------
Net cash (used in) investing
activities.................. (2,469,260) (2,623,697) (117,306)
FINANCING ACTIVITIES
Cash dividends paid................ (1,954,156) (1,795,890) (1,274,659)
Proceeds from borrowings of
long-term debt................... 833,334 2,566,666 --
Principal payments on long-term
debt............................. (800,000) (800,000) (800,000)
Cash paid on fractional shares from
stock dividend................... (2,568) (1,859) (1,593)
Cash received from exercised stock
options.......................... 18,413 37,543 67,585
----------- ----------- -----------
Net cash (used in) provided by
financing activities........ (1,904,977) 6,460 (2,008,667)
----------- ----------- -----------
Increase (decrease) in cash
and cash equivalents........ 2,437,242 1,193,448 (426,971)
Cash and cash equivalents at
beginning of year................ 1,361,693 168,245 595,216
----------- ----------- -----------
Cash and cash equivalents at
end of year................. $ 3,798,935 $ 1,361,693 $ 168,245
=========== =========== ===========
</TABLE>

See accompanying notes.

6
<PAGE> 8
FRIEDMAN INDUSTRIES, INCORPORATED

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of Friedman Industries, Incorporated, and its subsidiary (collectively,
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>
YEAR ENDED MARCH 31
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Coil................................................... $10,652,830 $12,984,266
Tubular................................................ 9,253,340 11,602,597
----------- -----------
$19,906,170 $24,586,863
=========== ===========
</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 method. At March 31,
1998, the replacement cost of LIFO inventories exceeded their LIFO value by
approximately $2,782,000. At March 31, 1999, LIFO replacement cost was
approximately the same as the LIFO value.

During the year ended March 31, 1999, coil inventory quantities were
reduced. This reduction resulted in liquidation of LIFO inventory quantities
carried at higher costs prevailing in prior years as compared with the cost of
fiscal 1999 purchases, the effect of which decreased net earnings by
approximately $200,000.

PROPERTY, PLANT, AND EQUIPMENT: Property, plant, and equipment are stated
on the basis of cost. Depreciation is calculated primarily 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: In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128, Earnings per
Share, which is required to be adopted for financial statements issued for
periods ending after December 31, 1997. The statement replaces primary and fully
diluted earnings per share with basic and diluted earnings per share. The
Company adopted this new standard in the quarter ended December 31, 1997. This
new standard did not have a significant effect on earnings per share. The
difference between weighted average shares outstanding used for basic and
diluted earnings per share is the effect of stock options.

All applicable per share amounts herein have been retroactively adjusted to
give effect to a 5% stock dividend distributed May 28, 1999.

SUPPLEMENTAL CASH FLOW INFORMATION: The Company paid interest of
approximately $777,000 in 1999, $513,000 in 1998, and $508,000 in 1997. The
Company paid income taxes, net of refunds, of $2,180,000 in 1999, $2,455,000 in
1998, and $1,678,000 in 1997.

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 consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
7
<PAGE> 9
FRIEDMAN INDUSTRIES, INCORPORATED

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS: The carrying value of the Company's financial
instruments approximates fair value.

ECONOMIC RELATIONSHIP: Lone Star Steel Company ("LSS") and Nucor Steel
Company 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. Total sales to LSS were
approximately $8.0 million, $21.7 million, and $17.8 million in 1999, 1998, and
1997, respectively. Loss of the LSS 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, 26,628 additional
options may be granted. All options have ten-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>
1999 1998 1997
------------------- ------------------- -------------------
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.......... 396,243 $4.04 419,928 $3.91 106,785 $1.85
GRANTED................................... 30,975 $4.97 -- -- 353,061 $4.29
EXERCISED................................. (10,860) $1.70 (23,685) $1.70 (39,918) $1.70
------- ------- -------
OUTSTANDING AT END OF YEAR................ 416,358 $4.18* 396,243 $4.04 419,928 $3.91
======= ======= =======
EXERCISABLE AT END OF YEAR................ 385,383 $4.12 397,793 $4.04 188,124 $2.81
WEIGHTED AVERAGE FAIR VALUE OF OPTIONS
GRANTED DURING THE YEAR................. $1.73 N/A $1.01
</TABLE>

* Range of $1.70 to $4.97 per share and a weighted average remaining life of 8.2
years.

The Company follows Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25"), 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, net earnings and earnings per share would have been
reduced by .5%, 1.3% and 6% in fiscal 1999, 1998 and 1997, respectively. 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 four 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 has a credit arrangement with a bank which provides for a
revolving line of credit facility (the "revolving facility") and a term credit
facility (the "term credit facility"). Pursuant to the revolving facility which
expires April 1, 2002, the Company may borrow up to $8 million at an interest
rate no greater than the bank's prime rate. At March 31, 1999, the Company had
borrowings
8
<PAGE> 10
FRIEDMAN INDUSTRIES, INCORPORATED

3. LONG-TERM DEBT (CONTINUED)
outstanding under the revolving facility of $4 million. The term credit facility
included borrowings of $1.2 million from the previous term note and also
provided for additional advances up to $3.5 million, all of which converted to a
term loan on December 31, 1998. The amount outstanding under the term credit
facility bears interest at a stated rate of LIBOR plus 1.25% and requires
quarterly principal payments of $200,000 plus accrued interest through March 1,
2003. In July 1997, the Company entered into a swap transaction with the bank
pursuant to which it exchanged the term credit facility's LIBOR-based interest
rate obligation for a fixed interest rate obligation of 8% to remain in effect
for the entire term of the term credit facility. As of March 31, 1999, the
principal amount of indebtedness outstanding under the term credit facility was
$3.2 million. The annual principal payments required on long-term debt during
the next five years are as follows:

<TABLE>
<S> <C>
2000........................................................ $ 800,000
2001........................................................ 800,000
2002........................................................ 800,000
2003........................................................ 4,800,000
2004........................................................ --
----------
Total.................................................. $7,200,000
==========
</TABLE>

In July 1995, the Company borrowed $708,168 at an average interest rate of
7.1% against the cash surrender value of officers' life insurance policies (the
"borrowings"). The borrowings do not require specific repayment terms except
that in the case of death, the borrowings related to the life insurance policy
will be deducted from the proceeds of such policy.

During 1999, interest cost of approximately $270,000 was capitalized as
part of the construction costs of property, plant, and equipment.

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 amount used for tax purposes. Significant components of the Company's
consolidated deferred tax assets and liability are as follows:

<TABLE>
<CAPTION>
MARCH 31
---------------------
1999 1998
--------- ---------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Depreciation..................................... $(470,625) $(530,040)
Other............................................ -- (27,924)
--------- ---------
Total deferred tax liabilities..................... (470,625) (557,964)
DEFERRED TAX ASSETS:
Inventory capitalization......................... 85,908 76,089
Postretirement benefits other than pensions...... 38,420 38,420
Other............................................ 16,737 53,895
--------- ---------
Total deferred tax assets.......................... 141,065 168,404
--------- ---------
Net deferred tax liabilities....................... $(329,560) $(389,560)
========= =========
</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 $252,000 for the year ended March 31, 1999, $280,000 for the year ended
9
<PAGE> 11
FRIEDMAN INDUSTRIES, INCORPORATED

5. PROFIT-SHARING PLAN AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
March 31, 1998, and $242,000 for the year ended March 31, 1997. 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.

Employees of the Company may participate in a 401(k) retirement plan (the
"401(k) plan"). Employees are eligible to participate in the 401(k) plan when
the employee has completed one year of service. Under the 401(k) plan,
participating employees may defer a portion of their pretax earnings up to
certain limits prescribed by the Internal Revenue Service. The Company provides
matching contributions under the provisions of the plan. Employees fully vest in
the Company's matching contributions upon the completion of 7 years of service.
Contribution expense related to the 401(k) plan was approximately $50,000 and
$60,000 for the years ended March 31, 1999 and 1998, respectively.

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.

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

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES:
Coil processing....................... $ 86,409,139 $ 87,619,322 $ 66,979,133
Tubular............................... 38,310,501 61,221,402 52,941,833
------------ ------------ ------------
TOTAL NET SALES............... $124,719,640 $148,840,724 $119,920,966
============ ============ ============
OPERATING PROFIT:
Coil processing....................... $ 4,773,761 $ 1,876,097 $ 1,578,403
Tubular............................... 2,210,841 7,593,430 5,933,923
------------ ------------ ------------
TOTAL OPERATING PROFIT........ 6,984,602 9,469,527 7,512,326
Corporate expenses.................... (1,323,554) (1,803,240) (1,589,437)
Interest expense...................... (443,686) (431,498) (509,275)
Interest and other income............. 147,506 53,080 86,493
------------ ------------ ------------
TOTAL EARNINGS BEFORE TAXES... $ 5,364,868 $ 7,287,869 $ 5,500,107
============ ============ ============
IDENTIFIABLE ASSETS:
Coil processing....................... $ 24,030,442 $ 25,404,991 $ 18,345,255
Tubular............................... 12,913,517 19,054,950 19,474,470
------------ ------------ ------------
36,943,959 44,459,941 37,819,725
General corporate assets.............. 4,079,418 1,579,420 297,466
------------ ------------ ------------
TOTAL ASSETS.................. $ 41,023,377 $ 46,039,361 $ 38,117,191
============ ============ ============
</TABLE>

10
<PAGE> 12
FRIEDMAN INDUSTRIES, INCORPORATED

6. INDUSTRY SEGMENT DATA (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
DEPRECIATION:
Coil processing....................... $ 326,577 $ 317,851 $ 316,714
Tubular products...................... 335,794 337,485 322,071
Corporate and other................... 9,364 10,572 6,806
------------ ------------ ------------
$ 671,735 $ 665,908 $ 645,591
============ ============ ============
CAPITAL EXPENDITURES:
Coil processing....................... $ 2,316,306 $ 2,372,483 $ 16,895
Tubular products...................... 33,216 200,635 66,057
Corporate assets...................... 2,600 20,292 3,690
------------ ------------ ------------
$ 2,352,122 $ 2,593,410 $ 86,642
============ ============ ============
</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 the cash
value of officers' life insurance. There are no sales between product groups.

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, 1999 and 1998 (per share amounts have been adjusted
for subsequent stock dividends):

<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------
June 30 September 30 December 31 March 31
1998 1998 1998 1999
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................... $38,923,169 $32,178,289 $26,938,496 $26,679,686
Gross profit............................ 2,921,393 2,867,212 2,131,504 2,435,872
Net earnings............................ 1,022,748 1,015,084 681,700 821,279
Net earnings per share:
Basic................................. 0.14 0.14 0.10 0.11
Diluted(1)............................ 0.14 0.14 0.09 0.11
</TABLE>

<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------
June 30 September 30 December 31 March 31
1997 1997 1997 1998
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................... $38,300,432 $36,961,370 $34,300,676 $39,278,246
Gross profit............................ 3,234,811 2,895,901 2,767,442 3,961,339
Net earnings............................ 1,176,564 1,017,931 1,009,148 1,606,349
Net earnings per share:
Basic(1).............................. 0.16 0.14 0.14 0.22
Diluted............................... 0.16 0.14 0.14 0.22
</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 primarily
to customers in the steel distributing and fabricating industries. The Company
performs periodic credit evaluations of the financial conditions of its
customers and generally does not require collateral. Generally, receivables are
due within 30 days.
11
<PAGE> 13
FRIEDMAN INDUSTRIES, INCORPORATED

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Friedman Industries, Incorporated

We have audited the accompanying consolidated balance sheets of Friedman
Industries, Incorporated as of March 31, 1999 and 1998, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 1999. 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, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended March 31, 1999, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP

May 29, 1999
Houston, Texas

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

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $ 124,719,640 $ 148,840,724 $ 119,920,966 $ 106,849,181 $ 97,968,805
Net earnings....................... 3,540,811 4,809,992 3,630,071 2,836,768 2,458,132
Total assets....................... 41,023,377 46,039,361 38,117,191 32,812,986 32,074,862
Long-term debt..................... 6,400,000 6,366,666 4,600,000 5,400,000 7,000,000
Stockholders' equity............... 27,422,779 25,732,957 22,781,959 20,428,936 18,722,781
Net earnings per share:
Basic............................ 0.49 0.67 0.51 0.40 0.35
Diluted.......................... 0.49 0.66 0.51 0.40 0.35
Cash dividends declared per share
adjusted for stock dividends..... 0.26 0.27 0.19 0.16 0.16
</TABLE>

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.
12
<PAGE> 14
FRIEDMAN INDUSTRIES, INCORPORATED

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

Year ended March 31, 1999 compared to year ended March 31, 1998

During the year ended March 31, 1999, sales, cost of products sold and
gross profit declined $24,121,084, $21,617,572 and $2,503,512, respectively,
from the comparable amounts recorded during the year ended March 31, 1998. These
declines were primarily attributable to the Company's tubular operations which
were adversely affected by a significant downturn in the energy sector of the
U.S. economy in fiscal 1999. This downturn had the effect of reducing demand for
tubular products and generating intense competition for available sales. An
increase in gross profit associated with coil operations was more than offset by
a decrease in gross profit relative to tubular operations. Gross profit as a
percentage of sales decreased from 8.6% in fiscal 1998 to 8.3% in fiscal 1999.
Margins earned on tubular sales declined significantly in fiscal 1999 and offset
improved margins earned on coil sales.

Selling, general and administrative expenses declined $498,273 from the
amount recorded in fiscal 1998. This decline was primarily related to a decrease
in variable expenses attributable to reduced volume and/or earnings and to a
decline in bad debt expense.

Interest and other income during fiscal 1999 increased $94,426 from the
amount recorded in fiscal 1998. This increase was primarily related to other
income associated with an increase in the cash surrender value of officers' life
insurance.

Federal income taxes decreased $653,820 from the amount recorded during
fiscal 1998 due to reduced earnings before taxes. The effective tax rate was the
same for fiscal 1999 and 1998.

Year ended March 31, 1998 compared to year ended March 31, 1997

During the year ended March 31, 1998, sales, cost of products sold and
gross profit increased $28,919,758, $26,179,512 and $2,740,246, respectively,
from the comparable amounts recorded during the year ended March 31, 1997. These
increases were primarily related to an increase of approximately 24% in tons
sold of tubular and coil products. This increase in volume resulted primarily
from strong demand for tubular products and from the Company aggressively
marketing coil products to increase its market share. Gross profit as a
percentage of sales increased from 8.4% in fiscal 1997 to 8.6% in fiscal 1998.
This increase was primarily related to tubular operations which benefited from
stronger market conditions and from efficiencies associated with increased
production.

Selling, general and administrative expenses increased $996,848 from the
amount recorded during fiscal 1997. This increase was primarily related to
variable expenses related to increased volume and/or earnings such as incentive
bonuses, commissions, supplies and other variable expenses. In addition, the
Company recorded increases in bad debt expense and sales expenses associated
primarily with additional sales personnel.

Interest expense during fiscal 1998 declined $77,777 from the amount
recorded in fiscal 1997. This decrease was primarily associated with reductions
in term debt and a decline in interest rates paid on borrowed funds in fiscal
1998. Interest costs associated with advances of additional term debt were
related to construction cost and were capitalized.

Interest and other income declined $33,413. This decline was primarily
related to the loss on the sale of fixed assets.

Federal income taxes increased $607,841 from the amount recorded in fiscal
1997. This increase resulted from the increase in earnings before taxes as the
effective tax rates were the same for both years.
13
<PAGE> 15
FRIEDMAN INDUSTRIES, INCORPORATED

FINANCIAL CONDITION, LIQUIDITY AND SOURCES OF CAPITAL

The Company remained in a strong, liquid position at March 31, 1999.
Current ratios were 4.8 and 2.9 at March 31, 1999 and March 31, 1998,
respectively. Working capital was $25,776,002 at March 31, 1999 and $25,910,370
at March 31, 1998.

The Company has a credit arrangement with a bank which provides for a
revolving line of credit facility (the "revolving facility") and a term credit
facility (the "term facility"). Pursuant to the revolving facility which expires
April 1, 2002, the Company may borrow up to $8 million at an interest rate no
greater than the bank's prime rate. At March 31, 1999, the Company had
borrowings outstanding under the revolving facility of $4 million. The term
facility included borrowings of $1.2 million from the previous term note and
also provided for additional advances up to $3.5 million, all of which converted
to a term loan on December 31, 1998. The amount outstanding under the term
facility bears interest at a stated rate of LIBOR plus 1.25% and requires
quarterly principal payments of $200,000 plus accrued interest through March 1,
2003. In July 1997, the Company entered into a swap transaction with the bank
pursuant to which it exchanged the term facility's LIBOR-based interest rate
obligation for a fixed interest rate obligation of 8% to remain in effect for
the entire term of the term facility. As of March 31, 1999, the principal amount
of indebtedness outstanding under the term facility was $3.2 million.

The Company believes that its cash flow from operations and borrowing
capability under its line of credit and term debt facilities are adequate to
fund its expected cash requirements for the year ended March 31, 2000.

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. 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 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 its Hickman, Arkansas 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.

EFFECT OF YEAR 2000 ISSUE

The Year 2000 Issue is the result of computer programming being written
using two digits rather than four to define the applicable year. Any of the
Company's systems, as well as those of suppliers, third party payors and
customers, having date sensitive logic may interpret a date using "00" as the
year 1900 rather than 2000. This may cause inaccurate processing or possible
system failure and may potentially disrupt operations. This disruption may
result in, among other things, a temporary inability to process transactions,
send bills for services or engage in similar normal business activities.

In 1998, the Company completed an assessment of the readiness of its
internal computer systems and related applications to accommodate date-sensitive
information relating to the year 2000 and developed a plan to resolve all major
issues by the end of 1999. As a result, the Year 2000 issue is not expected to
pose significant operational or financial problems for the Company.

The Company will continue to analyze systems and services that utilize
date-embedded codes that may experience operational problems when the year 2000
is reached. The Company will continue to communicate with its suppliers,
third-party payors and customers to coordinate
14
<PAGE> 16
FRIEDMAN INDUSTRIES, INCORPORATED

Year 2000 compliance. Because the ability of these third parties to address
their Year 2000 issues is outside the Company's control, the failure of third
parties to adequately address their respective Year 2000 issues may have a
material adverse effect on the Company's results of operations and financial
condition.

The foregoing statements are intended to be and are hereby designated "Year
2000 Readiness Disclosure" statements within the meaning of the Year 2000
Information and Readiness Disclosure Act.

15
<PAGE> 17

FRIEDMAN INDUSTRIES, INCORPORATED

TEN YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
--------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales......................... $124,719,640 $148,840,724 $119,920,966 $106,849,181 $97,968,805 $70,908,065
Earnings.......................... $ 3,540,811 $ 4,809,992 $ 3,630,071 $ 2,836,768 $ 2,458,132 $ 1,691,075(1)
Current assets.................... $ 32,534,040 $ 39,347,548 $ 33,357,160 $ 27,524,670 $25,956,555 $21,014,281
Current liabilities............... $ 6,758,038 $ 13,437,178 $ 10,172,672 $ 6,410,527 $ 5,816,334 $ 5,534,143
Net working capital............... $ 25,776,002 $ 25,910,370 $ 23,184,488 $ 21,114,143 $20,140,221 $15,480,138
Total assets...................... $ 41,023,377 $ 46,039,361 $ 38,117,191 $ 32,812,986 $32,074,862 $27,184,421
Stockholders' equity.............. $ 27,422,779 $ 25,732,957 $ 22,781,959 $ 20,428,936 $18,722,781 $17,430,337
Earnings as a percent of
Net sales..................... 2.8 3.2 3.0 2.7 2.5 2.4
Stockholders' equity.......... 12.9 18.7 15.9 13.9 13.1 9.7
Average number of common shares
outstanding: Basic(2)........... 7,170,192 7,155,144 7,133,279 7,091,501 7,089,563 7,086,560
Per share
Net earnings per share:
Basic(2)...................... $ 0.49 $ 0.67 $ 0.51 $ 0.40 $ 0.35 $ 0.24(1)
Stockholders' equity(2)......... $ 3.82 $ 3.60 $ 3.19 $ 2.88 $ 2.64 $ 2.46
Cash dividends per common
share(2)........................ $ 0.26 $ 0.27 $ 0.19 $ 0.16 $ 0.16 $ 0.11
Stock dividend declared........... 5% 5% 5% 5% 5% 5%

<CAPTION>
YEAR ENDED MARCH 31
------------------------------------------------------
1993 1992 1991 1990
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales......................... $56,230,967 $42,609,330 $50,264,851 $50,043,949
Earnings.......................... $ 806,272 $ 483,720 $ 866,259 $ 1,560,701
Current assets.................... $16,542,769 $15,537,203 $16,826,544 $16,731,964
Current liabilities............... $ 3,549,495 $ 2,849,637 $ 2,501,178 $ 1,783,375
Net working capital............... $12,993,274 $12,687,566 $14,325,366 $14,948,589
Total assets...................... $20,491,441 $19,619,875 $20,936,487 $19,042,527
Stockholders' equity.............. $16,528,543 $16,277,792 $16,274,914 $16,186,557
Earnings as a percent of
Net sales..................... 1.4 1.1 1.7 3.1
Stockholders' equity.......... 4.9 3.0 5.3 9.6
Average number of common shares
outstanding: Basic(2)........... 7,086,027 7,086,027 7,086,027 7,086,027
Per share
Net earnings per share:
Basic(2)...................... $ 0.11 $ 0.07 $ 0.12 $ 0.22
Stockholders' equity(2)......... $ 2.33 $ 2.30 $ 2.30 $ 2.28
Cash dividends per common
share(2)........................ $ 0.08 $ 0.07 $ 0.11 $ 0.15
Stock dividend declared........... 5% 5% 5% 5%
</TABLE>

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

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

(2) Adjusted for stock dividends.
<PAGE> 18

[FRIEDMAN INDUSTRIES INCORPORATED LETTERHEAD]

<PAGE> 1

EXHIBIT 21.1

SUBSIDIARIES

<TABLE>
<S> <C> <C>
Royal Fasteners Corporation...................... Texas Corporation 100% owned
</TABLE>

<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 29, 1999,
included in the 1999 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.

ERNST & YOUNG LLP

Houston, Texas
May 29, 1999

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10K
YEAR ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 3,798,935
<SECURITIES> 0
<RECEIVABLES> 8,709,728
<ALLOWANCES> 0
<INVENTORY> 19,906,170
<CURRENT-ASSETS> 32,534,040
<PP&E> 19,418,434
<DEPRECIATION> 11,127,089
<TOTAL-ASSETS> 41,023,377
<CURRENT-LIABILITIES> 6,758,038
<BONDS> 6,400,000
0
0
<COMMON> 6,828,387
<OTHER-SE> 20,594,392
<TOTAL-LIABILITY-AND-EQUITY> 41,023,377
<SALES> 124,719,640
<TOTAL-REVENUES> 124,719,640
<CGS> 114,363,659
<TOTAL-COSTS> 119,058,592
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 443,686
<INCOME-PRETAX> 5,364,868
<INCOME-TAX> 1,824,057
<INCOME-CONTINUING> 3,540,811
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,540,811
<EPS-BASIC> 0.49
<EPS-DILUTED> 0.49

</TABLE>