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

                       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, 2002

[ ] 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.

                                ____

     The aggregate market value of the Common Stock held by non-affiliates of
the registrant as of June 11, 2002 (computed by reference to the closing price
on the American Stock Exchange on such date), was approximately $13,231,697.

     The number of shares of the registrant's Common Stock outstanding at June
11, 2002 was 7,571,239 shares.

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

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Annual Report to Shareholders of Friedman Industries,
Incorporated for the fiscal year ended March 31, 2002 -- Part II.

     Proxy Statement for the 2002 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 pipe manufacturing and processing, steel
processing and steel and pipe distribution business.

     The Company has two product and service groups: coil and tubular products.
Significant financial information relating to the Company's product and service
groups for the last three years is contained in Note 7 of the Consolidated
Financial Statements of the Company's Annual Report to Shareholders for the
fiscal year ended March 31, 2002, which financial statements are incorporated
herein by reference in Item 8 hereof.

  Coil Products

     The Company purchases 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 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 Lone Star plant. The Lone Star plant purchases its
supply of steel from LSS and other suppliers at competitive prices determined at
the time of purchase. Loss of LSS as a source of coil supply could have a
material adverse effect on the Company's business.

     At the Company's Hickman facility, the Company warehouses and processes
hot-rolled steel coils which are purchased primarily from Nucor Steel Company
("NSC"), which is located approximately one-half mile from the Hickman facility.
In addition, since December 2001, the Company's newly-formed XSCP Division
located in Hickman purchases and markets excess prime and secondary hot-rolled
coils received from NSC. 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. The Hickman
facility operates a cut-to-length line which has 84 inch wide and one-half inch
thick capability. The Company also operates 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.

     In November 2001, the Company ceased operations at its coil processing
facility in Houston, Texas.

  Tubular Products

     Through its Texas Tubular Products Division ("TTP") in Lone Star, Texas,
the Company manufactures, purchases, processes and markets tubular products.

                                        2

     TTP operates 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. 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 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 exceed the capability of the pipe mill.

     The Company also 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 products and services during each of the Company's
last three fiscal years:

                 PRODUCT AND SERVICE GROUPS                   2002    2001    2000
                 --------------------------                   ----    ----    ----
                                                                     
Coil Products...............................................   53%     57%     65%
Tubular Products............................................   47%     43%     35%

     Coil Products. The Company's coil products are sold to approximately 360
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, 2002, 2001 and 2000,
six, seven and six customers, respectively, accounted for approximately 25% of
the Company's sales of coil products. No coil product customer accounted for as
much as 10% of the Company's total sales during those years.

     The Company sells substantially all of its coil products through its own
sales force. At March 31, 2002, the sales force was comprised of a vice
president and four 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 340
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 13% of the Company's total sales in fiscal 2002.

     The Company sells its tubular products through its own sales force
comprised of a vice president 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.

  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.

                                        3

     The Company believes that in times of normal supply and market conditions
its ability to compete is dependent upon its ability to offer 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, 2002, the Company had approximately 130 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:

                                     POSITION, OFFICES WITH THE COMPANY
         NAME          AGE            AND FAMILY RELATIONSHIPS, IF ANY
         ----          ---           ----------------------------------
                       
  Jack Friedman.....   81    Chairman of the Board of Directors and Chief
                               Executive Officer since 1970, Director since
                               1965, brother of Harold Friedman
  Harold Friedman...   72    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...   55    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......   56    Senior Vice President -- Finance since 1995
                               (formerly Vice President since 1990), Treasurer
                               since 1980 and Secretary since May 1992
  Thomas Thompson...   51    Senior Vice President -- Sales and Marketing since
                               1995, formerly Vice President -- Sales since 1990

                                        4

ITEM 2. PROPERTIES

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

                                  APPROXIMATE                              TYPE OF
           LOCATION                  SIZE           OWNERSHIP           CONSTRUCTION
           --------               -----------       ---------           ------------
                                                          
Lone Star, Texas
  Plant -- Coil Products......  42,260 sq. feet    Owned(1)        Steel frame/siding
  Plant -- Texas Tubular
     Products.................  76,000 sq. feet    Owned(1)        Steel frame/siding
  Offices -- Coil Products....  1,200 sq. feet     Owned(1)        Steel building
  Offices -- Texas Tubular
     Products.................  5,000 sq. feet     Owned(1)        Cinder block
  Land -- Coil Products.......    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.........  70,000 sq. feet    Owned(1)(4)     Rigid steel frame
                                                                     and steel siding
  Offices.....................  4,000 sq. feet     Owned(1)(4)     Brick veneer; steel
                                                                     building
  Land........................     12 acres        Owned(1)(4)               --
Hickman, Arkansas
  Plant and Warehouse -- Coil
     Products.................  42,600 sq. feet    Owned(1)        Steelframe/siding
  Offices -- Coil Products....  2,500 sq. feet     Owned(1)        Cinder block/wood frame
  Land -- Coil Products.......    26.19 acres      Owned(1)                  --

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

(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 through
    December 31, 2002.

(3) The office lease is with a nonaffiliated party, expires April 30, 2008, and
    provides for an annual rental of $27,264.

(4) In November 2001, the Company closed its coil products facility in Houston,
    Texas. The Company intends to sell these assets.

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

                                    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, 2002, entitled "Description of
Business -- Range of High and Low Sales Prices of Common Stock" and "Description
of Business -- Cash Dividends Declared Per Share of Common Stock", which
sections are hereby incorporated herein by reference.

     The information required by Item 201(d) of Regulation S-K is hereby
incorporated herein by reference from Item 12 of this report.

     The approximate number of shareholders of record of Common Stock of the
Company as of April 26, 2002 was 530.

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, 2002, 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, 2002, entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations".

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not material

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, 2002, are hereby incorporated herein by reference:

        Consolidated Balance Sheets -- March 31, 2002 and 2001

        Consolidated Statements of Earnings -- Years ended March 31, 2002, 2001
        and 2000

        Consolidated Statements of Stockholders' Equity -- Years ended March 31,
        2002, 2001 and 2000

        Consolidated Statements of Cash Flows -- Years ended March 31, 2002,
        2001 and 2000

        Notes to Consolidated Financial Statements -- March 31, 2002

        Report of Independent Auditors

     Information with respect to supplementary financial information relating to
the Company appears in Note 8 -- 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, 2002.

     The following supplementary schedule for the Company for the year ended
March 31, 2002, 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

                                    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 2002 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 2002 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 2002 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 2002 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 2002 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 2002 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 2002 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 2002 fiscal year.

                                        7

                                    PART IV

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

     (a) Documents included in this report

        EXHIBIT
          NO.                                    DESCRIPTION
        -------                                  -----------
                      
       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         -- Reference is made to Exhibits 10.3, 10.6, 10.8, 10.11,
                            10.13 and 10.14 described in this Item 14(a).
            10.1         -- 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.
           *10.2         -- 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.
            10.3         -- Amended and Restated Letter Agreement dated April 1,
                            1995, between the Company and Texas Commerce Bank
                            National Association ("TCB") 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.
            10.4         -- Lease Agreement between Judson Plaza, Inc. and the
                            Company dated March 16, 1996, regarding the lease of
                            office space (filed as an exhibit to and incorporated by
                            reference from the Company's Annual Report on Form 10-K
                            for the year ended March 31, 1996).
           *10.5         -- Friedman Industries, Incorporated 1996 Stock Option Plan
                            (filed as an exhibit to and incorporated by reference
                            from the Company's Annual Report on Form 10-K for the
                            year ended March 31, 1997).
            10.6         -- First Amendment to Amended and Restated Letter Agreement
                            between the Company and TCB dated April 1, 1997 (filed as
                            an exhibit to and incorporated by reference from the
                            Company's Annual Report on Form 10-K for the year ended
                            March 31, 1997).
            10.7         -- ISDA Master Agreement between the Company and TCB dated
                            July 21, 1997 (filed as an exhibit to and incorporated by
                            reference from the Company's Report on Form 10-Q for the
                            three months ended June 30, 1997).
            10.8         -- Second Amendment to Amended and Restated Letter Agreement
                            between the Company and TCB dated July 21, 1997 (filed as
                            an exhibit to and incorporated by reference from the
                            Company's Report on Form 10-Q for the three months ended
                            June 30, 1997).
           *10.9         -- First Amendment to the Friedman Industries, Incorporated
                            1989 Incentive Stock Option Plan (filed as an exhibit to
                            and incorporated by reference from the Company's Report
                            on Form 10-Q for the three months ended September 30,
                            1997).

                                        8

        EXHIBIT
          NO.                                    DESCRIPTION
        -------                                  -----------
                      
           *10.10        -- Friedman Industries, Incorporated 2000 Non-Employee
                            Director Stock Plan (filed as an exhibit to and
                            incorporated by reference from the Company's Registration
                            Statement on Form S-8 (Registration No. 333-47262)).
            10.11        -- Third Amendment to the Amended and Restated Letter
                            Agreement dated April 1, 1999 between the Company and
                            Chase Bank of Texas (filed as an exhibit to and
                            incorporated by reference from the Company's report on
                            Form 10-Q for the three months ended June 30, 1999).
            10.12        -- Addendum to Lease Agreement between Judson Plaza, Inc.
                            and the Company dated April 12, 2001 (filed as an exhibit
                            to and incorporated by reference from the Company's
                            report on Form 10-Q for the three months ended June 30,
                            2001).
            10.13        -- Fourth Amendment to the Amended and Restated Letter
                            Agreement dated June 1, 2001 between The Chase Manhattan
                            Bank and the Company (filed as an exhibit to and
                            incorporated by reference from the Company's report on
                            Form 10-Q for the three months ended June 30, 2001).
            10.14        -- Revolving Promissory Note dated June 1, 2001 between the
                            Company and The Chase Manhattan Bank (filed as an exhibit
                            to and incorporated by reference from the Company's
                            report on Form 10-Q for the three months ended June 30,
                            2001).
          **13.1         -- The Company's Annual Report to Shareholders for the
                            fiscal year ended March 31, 2002.
          **21.1         -- List of Subsidiaries.
          **23.1         -- Consent of Independent Auditors.

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

 * Management contract or compensation plan.

** Filed herewith.

     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 2002:

          None

                                        9

                                   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, 2002.

                                            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.

                      SIGNATURE                                     TITLE                   DATE
                      ---------                                     -----                   ----

                  /s/ JACK FRIEDMAN                    Chairman of the Board, Chief     June 28, 2002
- -----------------------------------------------------    Executive Officer and
                    Jack Friedman                        Director (Principal Executive
                                                         Officer)

                 /s/ HAROLD FRIEDMAN                   Vice Chairman of the Board and   June 28, 2002
- -----------------------------------------------------    Director
                   Harold Friedman

                 /s/ WILLIAM E. CROW                   President, Chief Operating       June 28, 2002
- -----------------------------------------------------    Officer and Director
                   William E. Crow

                 /s/ BENNY B. HARPER                   Senior Vice                      June 28, 2002
- -----------------------------------------------------    President -- Finance and
                   Benny B. Harper                       Treasurer (Principal
                                                         Financial and Accounting
                                                         Officer)

                 /s/ CHARLES W. HALL                   Director                         June 28, 2002
- -----------------------------------------------------
                   Charles W. Hall

                  /s/ ALAN M. RAUCH                    Director                         June 28, 2002
- -----------------------------------------------------
                    Alan M. Rauch

                 /s/ HERSHEL M. RICH                   Director                         June 28, 2002
- -----------------------------------------------------
                   Hershel M. Rich

                 /s/ KIRK K. WEAVER                    Director                         June 28, 2002
- -----------------------------------------------------
                   Kirk K. Weaver

                 /s/ JOE L. WILLIAMS                   Director                         June 28, 2002
- -----------------------------------------------------
                   Joe L. Williams

                                        10

                       FRIEDMAN INDUSTRIES, INCORPORATED
                                 HOUSTON, TEXAS

                           ANNUAL REPORT ON FORM 10-K
                           YEAR ENDED MARCH 31, 2002

                               ITEM 14(a)1 AND 2

                        LIST OF FINANCIAL STATEMENTS AND
                         FINANCIAL STATEMENT SCHEDULES

                                        11

                                   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, 2002 and 2001

        Consolidated Statements of Earnings -- Years ended March 31, 2002, 2001
        and 2000

        Consolidated Statements of Stockholders' Equity -- Years end March 31,
        2002, 2001 and 2000

        Consolidated Statements of Cash Flows -- Years ended March 31, 2002,
        2001 and 2000

        Notes to Consolidated Financial Statements -- March 31, 2002

        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

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

                       FRIEDMAN INDUSTRIES, INCORPORATED

          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        DESCRIBE         DESCRIBE(A)    END OF PERIOD
         -----------           ----------   ----------   -----------------   -------------   -------------
                                                                              
Year ended March 31, 2002
  Allowance for doubtful
     accounts receivable
     (deducted from related
     asset account)..........    $7,276      $128,095                          $128,095         $7,276
                                 ======      ========         ======           ========         ======
Year ended March 31, 2001
  Allowance for doubtful
     accounts receivable
     (deducted from related
     asset account)..........    $7,276      $ 83,862                          $ 83,862         $7,276
                                 ======      ========         ======           ========         ======
Year ended March 31, 2000
  Allowance for doubtful
     accounts receivable
     (deducted from related
     asset account)..........    $7,276                                                         $7,276
                                 ======      ========         ======           ========         ======

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

(A) Accounts and notes receivable written off.

                                       S-1

                                 EXHIBIT INDEX

        EXHIBIT
          NO.                                    DESCRIPTION
        -------                                  -----------
                      
    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            -- Reference is made to Exhibits 10.3, 10.6, 10.8, 10.11,
                            10.13 and 10.14 described in this Item 14(a).
         10.1            -- 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.
        *10.2            -- 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.
         10.3            -- Amended and Restated Letter Agreement dated April 1,
                            1995, between the Company and Texas Commerce Bank
                            National Association ("TCB") 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.
         10.4            -- Lease Agreement between Judson Plaza, Inc. and the
                            Company dated March 16, 1996, regarding the lease of
                            office space (filed as an exhibit to and incorporated by
                            reference from the Company's Annual Report on Form 10-K
                            for the year ended March 31, 1996).
        *10.5            -- Friedman Industries, Incorporated 1996 Stock Option Plan
                            (filed as an exhibit to and incorporated by reference
                            from the Company's Annual Report on Form 10-K for the
                            year ended March 31, 1997).
         10.6            -- First Amendment to Amended and Restated Letter Agreement
                            between the Company and TCB dated April 1, 1997 (filed as
                            an exhibit to and incorporated by reference from the
                            Company's Annual Report on Form 10-K for the year ended
                            March 31, 1997).
         10.7            -- ISDA Master Agreement between the Company and TCB dated
                            July 21, 1997 (filed as an exhibit to and incorporated by
                            reference from the Company's Report on Form 10-Q for the
                            three months ended June 30, 1997).
         10.8            -- Second Amendment to Amended and Restated Letter Agreement
                            between the Company and TCB dated July 21, 1997 (filed as
                            an exhibit to and incorporated by reference from the
                            Company's Report on Form 10-Q for the three months ended
                            June 30, 1997).
        *10.9            -- First Amendment to the Friedman Industries, Incorporated
                            1989 Incentive Stock Option Plan (filed as an exhibit to
                            and incorporated by reference from the Company's Report
                            on Form 10-Q for the three months ended September 30,
                            1997).

        EXHIBIT
          NO.                                    DESCRIPTION
        -------                                  -----------
                      
        *10.10           -- Friedman Industries, Incorporated 2000 Non-Employee
                            Director Stock Plan (filed as an exhibit to and
                            incorporated by reference from the Company's Registration
                            Statement on Form S-8 (Registration No. 333-47262)).
         10.11           -- Third Amendment to the Amended and Restated Letter
                            Agreement dated April 1, 1999 between the Company and
                            Chase Bank of Texas (filed as an exhibit to and
                            incorporated by reference from the Company's report on
                            Form 10-Q for the three months ended June 30, 1999).
         10.12           -- Addendum to Lease Agreement between Judson Plaza, Inc.
                            and the Company dated April 12, 2001 (filed as an exhibit
                            to and incorporated by reference from the Company's
                            report on Form 10-Q for the three months ended June 30,
                            2001).
         10.13           -- Fourth Amendment to the Amended and Restated Letter
                            Agreement dated June 1, 2001 between The Chase Manhattan
                            Bank and the Company (filed as an exhibit to and
                            incorporated by reference from the Company's report on
                            Form 10-Q for the three months ended June 30, 2001).
         10.14           -- Revolving Promissory Note dated June 1, 2001 between the
                            Company and The Chase Manhattan Bank (filed as an exhibit
                            to and incorporated by reference from the Company's
                            report on Form 10-Q for the three months ended June 30,
                            2001).
       **13.1            -- The Company's Annual Report to Shareholders for the
                            fiscal year ended March 31, 2002.
       **21.1            -- List of Subsidiaries.
       **23.1            -- Consent of Independent Auditors.

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

 * Management contract or compensation plan.

** Filed herewith.

                                                                    EXHIBIT 13.1

                               THE COMPANY'S ANNUAL
                             REPORT TO SHAREHOLDERS FOR
                        THE FISCAL YEAR ENDED MARCH 31, 2002

                                    FRIEDMAN
                                   INDUSTRIES
                                  INCORPORATED

                                      2002
                                 ANNUAL REPORT

                                               FRIEDMAN INDUSTRIES, INCORPORATED

                              FINANCIAL HIGHLIGHTS

                                                        2002             2001
                                                    ------------     ------------
                                                               
         Net sales................................   $97,817,956     $120,395,583
         Net earnings.............................      $940,039       $2,927,582
         Net earnings per share (Basic)...........         $0.12            $0.39
         Cash dividends per share.................         $0.11            $0.16
         Stockholders' equity.....................   $30,491,351      $30,378,150
         Stockholders' equity per share (Basic)...         $4.03            $4.01
         Working capital..........................   $25,009,882      $27,959,527

TO OUR SHAREHOLDERS:

     The Company, and the steel industry in general, experienced a very
difficult year due primarily to soft market conditions for steel products and
services. During the year, many steel companies ceased operations and/or
declared bankruptcy and, as can be seen above in the financial highlights, the
Company's performance was adversely affected by these conditions.

     The Houston coil processing facility was closed in November 2001.
Management believed that the capital required to run this facility could be more
efficiently deployed in other Company business.

     In December 2001, the Company formed the XSCP Division, which is located
adjacent to the Company's coil processing facility in Hickman, Arkansas. XSCP
Division purchases and markets excess prime and secondary hot-rolled steel coils
received from Nucor Steel Company.

     Finally, I regret to report the death of Henry Spira, a director of the
Company since 1965. Mr. Spira died on June 14, 2002 at the age of 97. Mr. Spira
had been associated with the Company since 1941. Those who knew him appreciated
his honesty, integrity and good judgment. He will be greatly missed.

     You are cordially invited to attend the Annual Meeting of Shareholders to
be held on September 4, 2002. The meeting will be held at 11:00 a.m. in the
office 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

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

Dale Ray
Vice President

Howard Henderson
Vice President of Operations -- Texas Tubular Division

Robert Sparkman
Vice President of Sales -- Coil Divisions

Dan Vivian
Vice President of Operations -- Hickman Coil Facility

William Walker
Vice President of Sales -- Texas Tubular Division

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
  www.friedmanindustries.com

COUNSEL
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010

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

TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
59 Maiden Lane
New York, New York 10007

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
Counsel, 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

Kirk K. Weaver
Chairman of the Board and
Chief Executive Officer,
LTI Technologies, Inc.
(technical services)
Houston, Texas

Joe L. Williams
Chairman and Chief Executive Officer,
Wisenberg Insurance + Risk Management
(insurance and risk management)
Houston, Texas

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, 2002 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

                                               FRIEDMAN INDUSTRIES, INCORPORATED

DESCRIPTION OF BUSINESS

     Friedman Industries, Incorporated is in the pipe manufacturing and
processing, steel processing and steel and pipe distribution business.

     At its facilities in Lone Star, 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. Since
December 2001, through its newly-formed XSCP Division located in Hickman,
Arkansas, the Company also purchases and markets excess prime and secondary
hot-rolled coils received from Nucor Steel Company ("NSC"). 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 NSC. Loss of LSS or NSC as a source of coil supply could have a
material adverse effect on the Company's business.

     The Company sells its coil products and processing services directly
through the Company's own sales force to approximately 360 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 Division located in Lone
Star, Texas, manufactures, purchases, processes and markets tubular products
("pipe"). The Company sells pipe nationally to approximately 340 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 such 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 two product and
service groups, coil and tubular products, is contained in Note 7 of Notes to
the Company's Consolidated Financial Statements appearing herein.

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

                                                                FISCAL 2002               FISCAL 2001
                                                              ----------------        -------------------
                                                              HIGH        LOW         HIGH          LOW
                                                              ----        ----        -----        ------
                                                                                       
First Quarter...............................................  3.49        2.66        4.00         3.0625
Second Quarter..............................................  3.32        2.21        4.25         3.0625
Third Quarter...............................................  2.75        2.30        3.875        2.75
Fourth Quarter..............................................  2.75        2.35        2.89         2.75

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

               CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK

                                                              FISCAL 2002        FISCAL 2001
                                                              -----------        -----------
                                                                           
First Quarter...............................................     $.04               $.04
Second Quarter..............................................     $.03               $.04
Third Quarter...............................................     $.03               $.04
Fourth Quarter..............................................     $.01               $.04

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

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

     The approximate number of shareholders of record of the Company as of April
26, 2002 was 530.

                                        3

FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED BALANCE SHEETS

ASSETS

                                                                        MARCH 31
                                                              ----------------------------
                                                                  2002            2001
                                                              ------------    ------------
                                                                        
CURRENT ASSETS:
     Cash and cash equivalents..............................  $  4,683,894    $    669,076
     Accounts receivable....................................     7,485,217      10,584,735
     Inventories............................................    23,502,201      28,817,375
     Other..................................................       135,676         160,143
                                                              ------------    ------------
          TOTAL CURRENT ASSETS..............................    35,806,988      40,231,329
PROPERTY, PLANT AND EQUIPMENT:
     Land...................................................       221,543         221,543
     Buildings and yard improvements........................     3,981,154       3,346,912
     Machinery and equipment................................    16,910,763      16,458,899
     Less accumulated depreciation..........................   (13,963,024)    (13,201,590)
                                                              ------------    ------------
                                                                 7,150,436       6,825,764
OTHER ASSET:
     Cash value of officers' life insurance.................     1,029,031         953,419
                                                              ------------    ------------
          TOTAL ASSETS......................................  $ 43,986,455    $ 48,010,512
                                                              ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                        MARCH 31
                                                              ----------------------------
                                                                  2002            2001
                                                              ------------    ------------
                                                                        
CURRENT LIABILITIES:
     Accounts payable and accrued expenses..................  $  9,353,386    $ 10,443,848
     Current portion of long-term debt......................       833,750         800,000
     Dividends payable......................................        75,710         302,746
     Income taxes payable...................................        87,472         127,209
     Contribution to profit sharing plan....................       260,000         288,000
     Employee compensation and related expenses.............       186,788         309,999
                                                              ------------    ------------
          TOTAL CURRENT LIABILITIES.........................    10,797,106      12,271,802
LONG-TERM DEBT, less current portion........................     2,053,438       4,800,000
DEFERRED INCOME TAXES.......................................       481,560         447,560
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS.................       163,000         113,000
STOCKHOLDERS' EQUITY:
     Common stock, par value $1:
       Authorized shares -- 10,000,000
       Issued and outstanding shares -- 7,571,239 in 2002
          and 7,568,839 in 2001.............................     7,571,239       7,568,839
     Additional paid-in capital.............................    27,707,309      27,703,829
     Retained deficit.......................................    (4,787,197)     (4,894,518)
                                                              ------------    ------------
          TOTAL STOCKHOLDERS' EQUITY........................    30,491,351      30,378,150
                                                              ------------    ------------
          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........  $ 43,986,455    $ 48,010,512
                                                              ============    ============

See accompanying notes.

                                        4

                                               FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED STATEMENTS OF EARNINGS

                                                             YEAR ENDED MARCH 31
                                                  -----------------------------------------
                                                     2002           2001           2000
                                                  -----------   ------------   ------------
                                                                      
Sales...........................................  $97,817,956   $120,395,583   $120,267,809
Costs and expenses:
     Cost of products sold......................   91,890,596    110,855,198    111,602,851
     Selling, general and administrative........    4,317,313      4,686,085      4,479,215
     Interest expense...........................      278,719        624,431        546,160
                                                  -----------   ------------   ------------
                                                   96,486,628    116,165,714    116,628,226
                                                  -----------   ------------   ------------
                                                    1,331,328      4,229,869      3,639,583
Interest and other income.......................       92,974        205,862        158,602
                                                  -----------   ------------   ------------
          EARNINGS BEFORE FEDERAL INCOME
            TAXES...............................    1,424,302      4,435,731      3,798,185
Federal income taxes:
     Current....................................      450,263      1,454,149      1,227,384
     Deferred...................................       34,000         54,000         64,000
                                                  -----------   ------------   ------------
                                                      484,263      1,508,149      1,291,384
                                                  -----------   ------------   ------------
          NET EARNINGS..........................  $   940,039   $  2,927,582   $  2,506,801
                                                  ===========   ============   ============
Average number of common shares outstanding:
  Basic.........................................    7,571,239      7,568,839      7,547,624
  Diluted.......................................    7,571,239      7,568,839      7,547,624
Net earnings per share:
  Basic.........................................  $       .12   $        .39   $        .33
  Diluted.......................................  $       .12   $        .39   $        .33

CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY

                                                                 ADDITIONAL     RETAINED
                                                      COMMON       PAID-IN      EARNINGS
                                                      STOCK        CAPITAL      (DEFICIT)
                                                    ----------   -----------   -----------
                                                                      
          BALANCE AT MARCH 31, 1999...............  $6,828,387   $25,725,195   $(5,130,803)
Net earnings......................................         --            --      2,506,801
Exercise of stock options.........................      16,021        36,666           --
Issuance of Directors' shares.....................       2,000         5,750           --
Stock dividend (5%)...............................     341,805     1,110,866    (1,454,108)
Cash dividends ($0.18 per share)..................         --            --     (1,365,629)
                                                    ----------   -----------   -----------
          BALANCE AT MARCH 31, 2000...............   7,188,213    26,878,477    (5,443,739)
Net earnings......................................         --            --      2,927,582
Exercise of stock options.........................      19,547        11,924           --
Issuance of Directors' shares.....................       2,000         5,500           --
Stock dividend (5%)...............................     359,079       807,928    (1,167,007)
Cash dividends ($0.16 per share)..................         --            --     (1,211,354)
                                                    ----------   -----------   -----------
          BALANCE AT MARCH 31, 2001...............   7,568,839    27,703,829    (4,894,518)
Net earnings......................................         --            --        940,039
Issuance of Directors' shares.....................       2,400         3,480           --
Cash dividends ($0.11 per share)..................         --            --       (832,718)
                                                    ----------   -----------   -----------
          BALANCE AT MARCH 31, 2002...............  $7,571,239   $27,707,309   $(4,787,197)
                                                    ==========   ===========   ===========

See accompanying notes.

                                        5

FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                    YEAR ENDED MARCH 31
                                          ---------------------------------------
                                             2002          2001          2000
                                          -----------   -----------   -----------
                                                             
OPERATING ACTIVITIES
     Net earnings.......................  $   940,039   $ 2,927,582   $ 2,506,801
     Adjustments to reconcile net
       earnings to net cash provided by
       (used in) operating activities:
          Depreciation..................      903,050     1,047,579     1,043,103
          Directors' shares issued......        5,830         7,500         7,750
          Benefit from deferred taxes...       34,000        54,000        64,000
          Gains on disposal of property,
            plant and equipment.........      (24,660)          --            --
     Changes in operating assets and
       liabilities:
          Accounts receivable...........    3,099,518     2,948,815    (4,823,822)
          Inventories...................    5,315,174    (5,906,866)   (3,004,339)
          Other assets..................       24,467      (102,642)       61,706
          Accounts payable and accrued
            expenses....................   (1,090,462)    3,996,310     1,607,978
          Contribution to profit sharing
            plan........................      (28,000)       14,000        22,000
          Employee compensation and
            related expenses............      (73,211)       (1,314)      (76,080)
          Federal income taxes
            payable.....................      (39,737)     (129,697)      188,384
                                          -----------   -----------   -----------
          Net cash provided by (used in)
            operating activities........    9,066,008     4,855,267    (2,402,519)
INVESTING ACTIVITIES
     Purchase of property, plant, and
       equipment........................   (1,245,180)     (399,263)     (225,838)
     Proceeds from sale of asset........       42,118           --            --
     Increase in cash value of officers'
       life insurance...................      (75,612)      (98,500)      (62,710)
                                          -----------   -----------   -----------
          Net cash used in investing
            activities..................   (1,278,674)     (497,763)     (288,548)
FINANCING ACTIVITIES
     Cash dividends paid................   (1,059,704)   (1,195,051)   (1,488,670)
     Proceeds from borrowings of
       long-term debt...................      101,250           --      5,000,000
     Principal payments on long-term
       debt.............................   (2,814,062)   (2,800,000)   (3,800,000)
     Payments on loans against life
       insurance........................          --       (167,587)     (426,630)
     Cash paid on fractional shares from
       stock dividend...................          --         (1,079)       (1,437)
     Cash received from exercised stock
       options..........................          --         31,471        52,687
                                          -----------   -----------   -----------
          Net cash used in financing
            activities..................   (3,772,516)   (4,132,246)     (664,050)
                                          -----------   -----------   -----------
          Increase (decrease) in cash
            and cash equivalents........    4,014,818       225,258    (3,355,117)
     Cash and cash equivalents at
       beginning of year................      669,076       443,818     3,798,935
                                          -----------   -----------   -----------
          Cash and cash equivalents at
            end of year.................  $ 4,683,894   $   669,076   $   443,818
                                          ===========   ===========   ===========

See accompanying notes.

                                        6

                                               FRIEDMAN INDUSTRIES, INCORPORATED

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

March 31, 2002

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.

     REVENUE RECOGNITION:  Revenues are recognized when title transfers which is
generally upon shipment of products. Costs associated with shipping and handling
of products are included in cost of products sold.

     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:

                                                             YEAR ENDED MARCH 31
                                                          -------------------------
                                                             2002          2001
                                                          -----------   -----------
                                                                  
Coil....................................................  $ 7,883,776   $12,106,418
Tubular.................................................   15,618,425    16,710,957
                                                          -----------   -----------
                                                          $23,502,201   $28,817,375
                                                          ===========   ===========

     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. The carrying
value of LIFO inventories, net of lower of cost or market reserves of $600,000
at March 31, 2002, approximated the FIFO value. There were no lower of cost or
market reserves at March 31, 2001.

     During the year ended March 31, 2002, coil inventory quantities were
reduced. This reduction resulted in liquidation of LIFO inventory quantities
being carried at higher costs prevailing in prior years as compared with the
costs of fiscal 2002 purchases, the effect of which was not material to the
financial statements.

     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.

     SUPPLEMENTAL CASH FLOW INFORMATION:  The Company paid interest of
approximately $278,700 in 2002, $637,300 in 2001, and $560,000 in 2000. The
Company paid income taxes, net of refunds, of $408,900 in 2002, $1,583,800 in
2001, and $1,039,000 in 2000.

     USE OF ESTIMATES:  The preparation of financial statements in conformity
with accounting principles generally accepted in the United States 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.

     FINANCIAL INSTRUMENTS:  Financial instruments include accounts receivable,
accounts payable, revolving loans payable, long-term debt and an interest rate
swap agreement. Management believes the fair value of accounts receivable and
accounts payable approximates their carrying value due to their short-term
nature. The fair value of revolving loans payable and long-term debt is
estimated to approximate the carrying amount at March 31, 2002. The Company has
certain off

                                        7

FRIEDMAN INDUSTRIES, INCORPORATED

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

balance sheet obligations, including operating leases, which are not material to
the financial statements.

     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 $12.5 million, $17.0 million, and $11.0 million in 2002, 2001 and
2000, respectively. Loss of LSS as a customer could have a material adverse
effect on the Company's business.

     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 condition of its customers
and generally does not require collateral. Generally, receivables are due within
30 days.

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, 273,714 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):

                                                     2002                   2001                   2000
                                             --------------------    -------------------    -------------------
                                                         WEIGHTED               Weighted               Weighted
                                                         AVERAGE                Average                Average
                                                         EXERCISE               Exercise               Exercise
                                              SHARES      PRICE      Shares      Price      Shares      Price
                                             --------    --------    -------    --------    -------    --------
                                                                                     
Outstanding at beginning of year.........     400,048     $4.14      419,593     $4.02      437,174     $3.98
Granted..................................      27,959     $2.45           --        --           --        --
Exercised................................          --        --      (19,547)    $1.62      (17,581)    $2.99
Canceled.................................    (273,714)    $4.59           --     $  --           --     $  --
                                             --------     -----      -------     -----      -------     -----
Outstanding at end of year...............     154,293     $3.01*     400,046     $4.14      419,593     $4.02
                                             ========                =======                =======
Exercisable at end of year...............     154,293     $3.01      400,046     $4.14      419,593     $4.02
Weighted average fair value of options
  granted during the year................                 $ .61                    N/A                    N/A

* Range of $2.45 to $4.73 per share and a weighted average remaining life of 5.0
  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 Statements of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, net earnings and
earnings per share would have been reduced by 1.14%, 0.0%, and 0.7% in 2002,
2001, and 2000, 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 3.4%, a dividend yield of 3.3%,
volatility factor of the expected market price of the Company's common stock of
0.37, and a weighted average expected life of the option of four years.

     The Company has 1,000,000 authorized shares of 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

                                        8

                                               FRIEDMAN INDUSTRIES, INCORPORATED

2. CAPITAL STOCK AND STOCK OPTIONS (CONTINUED)

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, 2004, the Company may borrow up to $10 million at an interest
rate no greater than the bank's prime rate. At March 31, 2002, the Company had
borrowings outstanding under the revolving facility of $2 million. 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. As of March 31, 2002, the principal
amount of indebtedness outstanding under the term credit facility was $800,000.
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. The effect of the swap is not
significant. The annual principal payments required on long-term debt during the
next five years are as follows:

                                                            
2003........................................................   $  833,750
2004........................................................    2,034,950
2005........................................................       18,488
2006........................................................          --
2007........................................................          --
                                                               ----------
     Total..................................................   $2,887,188
                                                               ==========

     In July 1995, the Company borrowed against the cash surrender value of
officers' life insurance policies (the "borrowings"). The Company repaid
$167,587 of the loans against the cash surrender value of officers' life
insurance policies during the year ended March 31, 2001. At March 31, 2002, the
Company owed $111,043 at an interest rate of 5% relative to 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.

4. EARNINGS PER SHARE

     Basic and dilutive net income per share is computed based on the following
information:

                                                       YEAR ENDED MARCH 31
                                               ------------------------------------
                                                  2002         2001         2000
                                               ----------   ----------   ----------
                                                                
BASIC
Net income...................................  $  940,039   $2,927,582   $2,506,801
                                               ==========   ==========   ==========
Average common shares........................   7,571,239    7,568,839    7,547,624
                                               ==========   ==========   ==========
DILUTIVE
Net income...................................  $  940,039   $2,927,582   $2,506,801
                                               ==========   ==========   ==========
Average common shares........................   7,571,239    7,568,839    7,547,624
Common share equivalents:
  Warrants...................................         --           --           --
  Options....................................         --           --           --
                                               ----------   ----------   ----------
Total common share equivalents...............         --           --           --
                                               ----------   ----------   ----------
Average common shares and common
  equivalents................................   7,571,239    7,568,839    7,547,624
                                               ==========   ==========   ==========

                                        9

FRIEDMAN INDUSTRIES, INCORPORATED

5. 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 (liabilities) are as follows:

                                                            MARCH 31
                                                      ---------------------
                                                        2002        2001
                                                      ---------   ---------
                                                            
DEFERRED TAX LIABILITIES:
  Depreciation......................................  $(633,650)  $(607,560)
                                                      ---------   ---------
Total deferred tax liabilities......................   (633,650)   (607,560)
DEFERRED TAX ASSETS:
  Inventory capitalization..........................     90,264      95,621
  Postretirement benefits other than pensions.......     21,420      38,420
  Other.............................................     40,406      25,959
                                                      ---------   ---------
Total deferred tax assets...........................    152,090     160,000
                                                      ---------   ---------
Net deferred tax liabilities........................  $(481,560)  $(447,560)
                                                      =========   =========

6. PROFIT SHARING PLAN AND OTHER POSTRETIREMENT BENEFITS

     The Company has a defined contribution 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 $260,000 for
the year ended March 31, 2002, $288,000 for the year ended March 31, 2001, and
$274,000 for the year ended March 31, 2000. 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 $30,500,
$39,000 and $40,000 for the years ended March 31, 2002, 2001, and 2000,
respectively.

7. INDUSTRY SEGMENT DATA

     The Company is engaged in pipe manufacturing and processing, steel
processing and steel and pipe distribution. Within the Company, there are two
product and service groups: coil and tubular products. Coil products involves
converting steel coils into flat sheet and plate steel cut to customer
specifications and reselling steel coils. Through its Texas Tubular Division,
the Company manufactures, purchases, processes and markets tubular products.

                                        10

                                               FRIEDMAN INDUSTRIES, INCORPORATED

7. INDUSTRY SEGMENT DATA (CONTINUED)

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

                                                             YEAR ENDED MARCH 31
                                                  -----------------------------------------
                                                     2002           2001           2000
                                                  -----------   ------------   ------------
                                                                      
NET SALES:
  Coil..........................................  $51,880,290   $ 68,517,334   $ 77,842,307
  Tubular.......................................   45,937,666     51,878,249     42,425,502
                                                  -----------   ------------   ------------
          TOTAL NET SALES.......................  $97,817,956   $120,395,583   $120,267,809
                                                  ===========   ============   ============
OPERATING PROFIT:
  Coil..........................................  $   416,998   $  1,028,425   $  1,950,771
  Tubular.......................................    2,285,873      5,034,620      3,414,479
                                                  -----------   ------------   ------------
          TOTAL OPERATING PROFIT................    2,702,871      6,063,045      5,365,250
  Corporate expenses............................   (1,092,824)    (1,208,745)    (1,179,506)
  Interest expense..............................     (278,719)      (624,431)      (546,160)
  Interest and other income.....................       92,974        205,862        158,601
                                                  -----------   ------------   ------------
          TOTAL EARNINGS BEFORE TAXES...........  $ 1,424,302   $  4,435,731   $  3,798,185
                                                  ===========   ============   ============
IDENTIFIABLE ASSETS:
  Coil..........................................  $18,489,064   $ 23,914,639   $ 25,728,057
  Tubular.......................................   19,703,080     22,374,098     18,183,058
                                                  -----------   ------------   ------------
                                                   38,192,144     46,288,737     43,911,115
  General corporate assets......................    5,794,311      1,721,775      1,195,675
                                                  -----------   ------------   ------------
          TOTAL ASSETS..........................  $43,986,455   $ 48,010,512   $ 45,106,790
                                                  ===========   ============   ============
DEPRECIATION:
  Coil..........................................  $   723,812   $    685,126   $    701,526
  Tubular.......................................      154,504        338,933        327,206
  Corporate and other...........................       24,733         23,520         14,371
                                                  -----------   ------------   ------------
                                                  $   903,049   $  1,047,579   $  1,043,103
                                                  ===========   ============   ============
CAPITAL EXPENDITURES:
  Coil..........................................  $ 1,106,403   $    117,205   $    116,172
  Tubular.......................................      138,777        258,745         49,248
  Corporate and other...........................          --          23,313         60,418
                                                  -----------   ------------   ------------
                                                  $ 1,245,180   $    399,263   $    225,838
                                                  ===========   ============   ============

     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 and
service groups.

                                        11

FRIEDMAN INDUSTRIES, INCORPORATED

8. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

     The following is a summary of unaudited quarterly results of operations for
the years ended March 31, 2002 and 2001:

                                                       Quarter Ended
                                  -------------------------------------------------------
                                    June 30     September 30   December 31     March 31
                                     2001           2001           2001          2002
                                  -----------   ------------   -----------    -----------
                                                                  
Net sales.......................  $27,885,663   $24,975,561    $20,483,410    $24,473,322
Gross profit....................    1,871,493     1,698,707        781,671      1,575,489
Net earnings....................      440,097       397,319       (194,189)       296,812
Net earnings per share:
  Basic.........................         0.06          0.05          (0.03)          0.04
  Diluted.......................         0.06          0.05          (0.03)          0.04

                                                       Quarter Ended
                                  -------------------------------------------------------
                                    June 30     September 30   December 31     March 31
                                     2000           2000           2000          2001
                                  -----------   ------------   -----------    -----------
                                                                  
Net sales.......................  $32,274,930   $31,064,827    $27,834,551    $29,221,275
Gross profit....................    2,593,299     2,478,949      2,176,288      2,291,849
Net earnings....................      805,518       804,679        645,590        671,795
Net earnings per share:
  Basic(1)......................         0.11          0.11           0.09           0.09
  Diluted(1)....................         0.11          0.11           0.09           0.09

(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.

                                        12

                                               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, 2002 and 2001, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 2002. 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 auditing standards generally accepted
in the United States. 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, 2002 and 2001, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended March 31, 2002, in conformity with accounting principles generally
accepted in the United States.

                                            ERNST & YOUNG LLP
May 17, 2002
Houston, Texas

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

SELECTED FINANCIAL DATA

                                                                   YEAR ENDED MARCH 31
                                     --------------------------------------------------------------------------------
                                         2002            2001             2000             1999             1998
                                     ------------    -------------    -------------    -------------    -------------
                                                                                         
Net sales..........................  $ 97,817,956    $ 120,395,583    $ 120,267,809    $ 124,719,640    $ 148,840,724
Net earnings.......................       940,039        2,927,582        2,506,801        3,540,811        4,809,992
Total assets.......................    43,986,455       48,010,512       45,106,790       41,023,377       46,039,361
Long-term debt.....................     2,053,438        4,800,000        7,600,000        6,400,000        6,366,666
Stockholders' equity...............    30,491,351       30,378,150       28,622,951       27,422,779       25,732,957
Net earnings per share:
  Basic............................          0.12             0.39             0.33             0.47             0.64
  Diluted..........................          0.12             0.39             0.33             0.47             0.63
Cash dividends declared per share
  adjusted for stock dividends.....          0.11             0.16             0.18             0.25             0.25

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

FRIEDMAN INDUSTRIES, INCORPORATED

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

Year ended March 31, 2002 compared to year ended March 31, 2001

     During the year ended March 31, 2002, sales, cost of products sold and
gross profit decreased $22,577,627, $18,964,602 and $3,613,025, respectively,
from the comparable amounts recorded during the year ended March 31, 2001. Both
coil and tubular operations experienced decreased sales during fiscal 2002.
Sales of coil products and services declined approximately $16,637,000 due to a
decrease in tons sold of approximately 8% and a decrease in the average selling
price per ton of approximately 17%. Sales of tubular products declined
approximately $5,941,000 due primarily to a decrease in the average selling
price per ton of approximately 10%. During fiscal 2002, soft market conditions
and related lack of demand continued to have the effect of generating intense
competition for available sales which adversely affected coil and tubular
operations. Gross profit earned on sales of coil products and services and
tubular goods decreased approximately 28% and 43%, respectively. Management
believes the soft market conditions for the Company's products and services were
related to the overall weakness in the United States economy.

     Selling, general and administrative costs declined $368,772 from the amount
recorded during fiscal 2001. This decline was associated primarily with variable
expenses related to volume and/or earnings.

     Interest expense decreased $345,712 from the comparable amount recorded
during fiscal 2001. This decrease was related principally to reductions in
interest rates and debt associated with working capital requirements.

     Interest and other income decreased $112,888 primarily as the result of
substantial decreases in interest rates paid on invested cash positions during
fiscal 2002.

     Federal income taxes during fiscal 2002 decreased $1,023,886 from the
comparable amount recorded during fiscal 2001. This decrease was related to the
decline in earnings before taxes as the effective tax rates were the same for
both years.

Year ended March 31, 2001 compared to year ended March 31, 2000

     During the year ended March 31, 2001, sales increased $127,774 and cost of
products sold decreased $747,653 from the comparable amounts recorded during the
year ended March 31, 2000, which resulted in an increase in gross profit of
$875,427. Gross profit earned on tubular sales increased $1,792,702 but was
partially offset by a decline of $917,275 in gross profit earned on coil sales.
Tubular operations benefited from improved market conditions during fiscal 2001
and recorded an increase in tons shipped of approximately 16%. Conversely, soft
market conditions for coil products had the effect of generating intense
competition for available sales and decreasing gross profit. Tons of coil
products sold during fiscal 2001 declined approximately 13%. Gross profit as a
percent of sales was 7.2% and 7.9% during fiscal 2000 and 2001, respectively.
This improvement was associated primarily with improved tubular operations as
noted above.

     Interest expense increased $78,271 from the amount recorded during fiscal
2000. This increase was related primarily to an increase in debt associated with
working capital requirements.

     Interest and other income increased $47,260 from the amount recorded during
fiscal 2000. This increase resulted primarily from other income associated with
the increase in the cash surrender value of life insurance policies.

     Federal income taxes increased $216,765 as the result of the increase in
earnings before taxes. The effective tax rates were the same for both fiscal
2001 and 2000.

                                        14

                                               FRIEDMAN INDUSTRIES, INCORPORATED

FINANCIAL CONDITION, LIQUIDITY AND SOURCES OF CAPITAL

     The Company remained in a strong, liquid position at March 31, 2002.
Current ratios were 3.32 and 3.28 at March 31, 2002 and March 31, 2001,
respectively. Working capital was $25,009,882 at March 31, 2002 and $27,959,527
at March 31, 2001. During fiscal 2002, the Company maintained assets and
liabilities at levels it believed were commensurate with operations.
Accordingly, several components comprising working capital at March 31, 2002 and
March 31, 2001 changed substantially. Cash increased $4,014,818 and accounts
receivable, inventories and accounts payable declined $3,099,518, $5,315,174 and
$1,090,462, respectively. Also, the Company reduced its long term debt by
$2,746,562. The Company expects to continue to monitor and evaluate these
balance sheet components depending on changes in market conditions and the
Company's operations.

     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, 2004, the Company may borrow up to $10 million at an interest rate no
greater than the bank's prime rate. At March 31, 2002, the Company had
borrowings outstanding under the revolving facility of $2 million. 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,
2002, the principal amount of indebtedness outstanding under the term facility
was $.8 million.

     In November 2001, the Company ceased operations at its coil facility in
Houston, Texas. Management believed that the capital required to run the
facility could be more efficiently deployed in other Company business. No loss
was incurred as a result of this closure and the Company intends to sell or
relocate the assets of the Houston facility.

     During fiscal 2002, the Company invested approximately $1,100,000 in
capital asset additions related to its newly-formed XSCP Division.

     Notwithstanding the current market conditions, the Company believes that
its cash flow from operations and borrowing capability under its revolving line
of credit facility are adequate to fund its expected cash requirements for the
next 24 months.

INFLATION

     During fiscal 2002, the Company believes that inflation had little effect
on its operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not material

CRITICAL ACCOUNTING POLICIES

     The preparation of consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. Our only accounting policy which requires significant
estimates and judgments is the valuation of LIFO inventories in our quarterly
reporting. Our quarterly valuation of inventory requires estimates of the year
end quantities which is inherently difficult. Historically, these estimates have
been materially correct. On an on-going basis, we evaluate estimates and
judgments. We based our estimates on historical experience and on various other
assumptions that we believed to be reasonable under the circumstances.

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 changes in the
demand and prices for the Company's products, changes in the demand for steel
and steel products in general, and the Company's success in executing its
internal operating plans.

                                        15

FRIEDMAN INDUSTRIES, INCORPORATED

TEN YEAR FINANCIAL SUMMARY

                                                                   YEAR ENDED MARCH 31
                                  --------------------------------------------------------------------------------------
                                     2002           2001           2000           1999           1998           1997
                                  -----------   ------------   ------------   ------------   ------------   ------------
                                                                                          
Net sales.......................  $97,817,956   $120,395,583   $120,267,809   $124,719,640   $148,840,724   $119,920,966
Earnings........................  $   940,039   $  2,927,582   $  2,506,801   $  3,540,811   $  4,809,992   $  3,630,071
Current assets..................  $35,806,988   $ 40,231,329   $ 36,945,378   $ 32,534,040   $ 39,347,548   $ 33,357,160
Current liabilities.............  $10,797,106   $ 12,271,802   $  8,377,279   $  6,758,038   $ 13,437,178   $ 10,172,672
Net working capital.............  $25,009,882   $ 27,959,527   $ 28,568,099   $ 25,776,002   $ 25,910,370   $ 23,184,488
Total assets....................  $43,986,455   $ 48,010,512   $ 45,106,790   $ 41,023,377   $ 46,039,361   $ 38,117,191
Stockholders' equity............  $30,491,351   $ 30,378,150   $ 28,622,951   $ 27,422,779   $ 25,732,957   $ 22,781,959
Earnings as a percent of
    Net sales...................          1.0            2.4            2.1            2.8            3.2            3.0
    Stockholders' equity........          3.1            9.6            8.8           12.9           18.7           15.9
Average number of common shares
  outstanding: Basic(2).........    7,571,239      7,568,839      7,547,624      7,528,702      7,512,901      7,489,943
Per share
  Net earnings per share:
    Basic(2)....................        $ .12         $ 0.39         $ 0.33         $ 0.47         $ 0.64         $ 0.48
  Stockholders' equity(2).......        $4.03         $ 4.01         $ 3.79         $ 3.64         $ 3.43         $ 3.04
Cash dividends per common
  share(2)......................        $0.11         $ 0.16   $       0.18         $ 0.25         $ 0.25         $ 0.18
Stock dividend declared.........          --             --              5%             5%             5%             5%

                                                    YEAR ENDED MARCH 31
                                  -------------------------------------------------------
                                      1996          1995          1994           1993
                                  ------------   -----------   -----------    -----------
                                                                  
Net sales.......................  $106,849,181   $97,968,805   $70,908,065    $56,230,967
Earnings........................  $  2,836,768   $ 2,458,132   $ 1,691,075(1) $   806,272
Current assets..................  $ 27,524,670   $25,956,555   $21,014,281    $16,542,769
Current liabilities.............  $  6,410,527   $ 5,816,334   $ 5,534,143    $ 3,549,495
Net working capital.............  $ 21,114,143   $20,140,221   $15,480,138    $12,993,274
Total assets....................  $ 32,812,986   $32,074,862   $27,184,421    $20,491,441
Stockholders' equity............  $ 20,428,936   $18,722,781   $17,430,337    $16,528,543
Earnings as a percent of
    Net sales...................           2.7           2.5           2.4            1.4
    Stockholders' equity........          13.9          13.1           9.7            4.9
Average number of common shares
  outstanding: Basic(2).........     7,446,076     7,444,041     7,440,888      7,440,328
Per share
  Net earnings per share:
    Basic(2)....................        $ 0.38        $ 0.33        $ 0.23(1)      $ 0.11
  Stockholders' equity(2).......        $ 2.74        $ 2.52        $ 2.34         $ 2.22
Cash dividends per common
  share(2)......................        $ 0.15        $ 0.16        $ 0.11         $ 0.07
Stock dividend declared.........            5%            5%            5%             5%

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

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

(2) Adjusted for stock dividends.

                                    Friedman
                                   Industries
                                  Incorporated
                                      Logo

                                                                    EXHIBIT 21.1

                                   SUBSIDIARIES

ROYAL FASTENERS CORPORATION             Texas Corporation             100% owned

                                                                    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 17, 2002,
included in the 2002 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, presents fairly in all material respects the information set
forth therein.

     We also consent to the incorporation by reference in the Registration
Statement (Form S-8) pertaining to the 1996 Stock Option Plan, 1995 Non-Employee
Director Plan, as amended, the 1989 Incentive Stock Option Plan, as amended, and
the 2000 Non-Employee Director Stock Plan of our report dated May 17, 2002, with
respect to the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial statement schedules included in this Annual Report (Form 10-K) of
Friedman Industries, Incorporated.

Houston, Texas
June 27, 2002