10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FROM THE TRANSITION PERIOD FROM                      TO                      

COMMISSION FILE NUMBER 1-7521

FRIEDMAN INDUSTRIES, INCORPORATED

(Exact name of registrant as specified in its charter)

TEXAS	74-1504405
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

1121 JUDSON ROAD, SUITE 124, LONGVIEW, TEXAS 75601 

(Address of principal executive offices) (Zip Code)

(903) 758-3431

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (Check one):   Yes  ☐    No   ☒

At November 14, 2018, the number of shares outstanding of the issuer’s only class of stock was 7,009,444 shares of Common Stock.

TABLE OF CONTENTS

Part I — FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3. Quantitative and Qualitative Disclosures About Market Risk	14
Item 4. Controls and Procedures	14
Part II — OTHER INFORMATION	15
Item 6. Exhibits	15
SIGNATURES	16

2

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements

FRIEDMAN INDUSTRIES, INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS — UNAUDITED

	September 30, 2018			March 31, 2018 As Adjusted
ASSETS
CURRENT ASSETS:
Cash	$	3,671,139		$	4,052,582
Accounts receivable, net of allowances for bad debts and cash discounts of $21,052 at September 30, 2018 and March 31, 2018		17,450,660			17,458,289
Inventories		54,647,180			45,329,434
Other		1,064,802			429,101
TOTAL CURRENT ASSETS		76,833,781			67,269,406
PROPERTY, PLANT AND EQUIPMENT:
Land		1,452,799			1,452,799
Buildings and yard improvements		8,813,031			8,710,958
Machinery and equipment		39,386,523			39,282,944
Less accumulated depreciation		(35,995,892	)		(35,280,700	)
		13,656,461			14,166,001
OTHER ASSETS:
Cash value of officers’ life insurance and other assets		230,450			217,900
TOTAL ASSETS	$	90,720,692		$	81,653,307
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	12,808,316		$	10,233,431
Income taxes payable		913,139			—
Dividends payable		420,567			140,189
Contribution to retirement plan		135,000			45,000
Employee compensation and related expenses		699,544			612,015
TOTAL CURRENT LIABILITIES		14,976,566			11,030,635
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS		189,917			175,056
DEFERRED INCOME TAX LIABILITY		1,864,320			1,872,166
TOTAL LIABILITIES		17,030,803			13,077,857
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Common stock, par value $1:
Authorized shares — 10,000,000
Issued shares — 8,185,160 at September 30 and March 31, 2018		8,185,160			8,185,160
Additional paid-in capital		29,299,354			29,154,874
Treasury stock at cost (1,175,716 shares at September 30 and March 31, 2018)		(5,475,964	)		(5,475,964	)
Retained earnings		41,681,339			36,711,380
TOTAL STOCKHOLDERS’ EQUITY		73,689,889			68,575,450
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	90,720,692		$	81,653,307

3

FRIEDMAN INDUSTRIES, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED

	Three months ended September 30,						Six months ended September 30,
	2018			2017 As Adjusted			2018			2017 As Adjusted
Net sales	$	53,432,029		$	26,077,710		$	101,625,347		$	49,160,979
Costs and expenses
Costs of goods sold		49,487,488			24,577,299			91,488,328			46,117,258
General, selling and administrative costs		1,289,438			924,525			2,782,178			1,962,919
Interest expense		15,753			—			15,753			—
		50,792,679			25,501,824			94,286,259			48,080,177
Interest and other income		(6,275	)		(4,375	)		(69,050	)		(8,750	)
Earnings before income taxes		2,645,625			580,261			7,408,138			1,089,552
Provision for (benefit from) income taxes:
Current		748,719			15,640			1,815,175			15,640
Deferred		(104,010	)		169,287			(7,846	)		314,248
		644,709			184,927			1,807,329			329,888
Net earnings	$	2,000,916		$	395,334		$	5,600,809		$	759,664
Weighted average number of common shares outstanding:
Basic		7,009,444			7,009,444			7,009,444			7,009,444
Diluted		7,009,444			7,009,444			7,009,444			7,009,444
Net earnings per share:
Basic	$	0.29		$	0.05		$	0.80		$	0.11
Diluted	$	0.29		$	0.05		$	0.80		$	0.11
Cash dividends declared per common share	$	0.06		$	0.01		$	0.09		$	0.02

4

FRIEDMAN INDUSTRIES, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

	Six Months Ended September 30,
	2018			2017 As Adjusted
OPERATING ACTIVITIES
Net earnings	$	5,600,809		$	759,664
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation		715,192			638,480
Deferred taxes		(7,846	)		314,248
Compensation expense for restricted stock		144,480			144,480
Change in postretirement benefits		14,861			3,439
Decrease (increase) in operating assets:
Accounts receivable, net		7,629			155,069
Inventories		(9,317,746	)		(5,627,744	)
Other current assets		(635,701	)		(193,629	)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses		2,574,885			5,676,463
Income taxes payable		913,139			15,640
Contribution to retirement plan		90,000			72,750
Employee compensation and related expenses		87,529			115,057
NET CASH PROVIDED BY OPERATING ACTIVITIES		187,231			2,073,917
INVESTING ACTIVITIES
Purchase of property, plant and equipment		(205,652	)		(182,739	)
Increase in cash surrender value of officers’ life insurance		(12,550	)		(8,750	)
NET CASH USED IN INVESTING ACTIVITIES		(218,202	)		(191,489	)
FINANCING ACTIVITIES
Cash dividends paid		(350,472	)		(140,188	)
NET CASH USED IN FINANCING ACTIVITIES		(350,472	)		(140,188	)
INCREASE (DECREASE) IN CASH		(381,443	)		1,742,240
Cash at beginning of period		4,052,582			1,461,695
CASH AT END OF PERIOD	$	3,671,139		$	3,203,935

5

FRIEDMAN INDUSTRIES, INCORPORATED

CONDENSED NOTES TO QUARTERLY REPORT — UNAUDITED

NOTE A — BASIS OF PRESENTATION

The accompanying unaudited, condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes of Friedman Industries, Incorporated (the “Company”) included in its annual report on Form 10-K for the year ended March 31, 2018.

NOTE B — CHANGE IN ACCOUNTING PRINCIPLE

Effective April 1, 2018, the Company changed its method for valuing prime coil inventory of the coil segment from the last-in, first-out (“LIFO”) method to the average cost method. The effects of the change in accounting principle from LIFO to average cost have been retrospectively applied to all prior periods presented in all sections of this quarterly report on Form 10-Q. The Company believes the average cost method is preferable as it more closely resembles the physical flow of our inventory, it better matches revenues with expenses and it aligns with how we internally manage our business. As a result of the retrospective application of the change in accounting principle, certain financial statement line items in the Company’s consolidated balance sheet as of March 31, 2018, its consolidated statement of operations for the three and six months ended September 30, 2017 and its consolidated statement of cash flows for the six months ended September 30, 2017 were adjusted as presented in the table below. In addition, retained earnings as of April 1, 2017 increased $4,418,318 as a result of the change in accounting principle.

	As Originally Reported			Effect of Change			As Adjusted
Consolidated Statement of Operations, Three Months Ended September 30, 2017
Cost of goods sold		24,700,540			(123,241	)		24,577,299
Income tax provision		146,981			37,946			184,927
Net earnings		310,039			85,295			395,334
Net earnings per share:
Basic		0.04			0.01			0.05
Diluted		0.04			0.01			0.05
Consolidated Statement of Operations, Six Months Ended September 30, 2017
Cost of goods sold		46,520,386			(403,128	)		46,117,258
Income tax provision		205,765			124,123			329,888
Net earnings		480,659			279,005			759,664
Net earnings per share:
Basic		0.07			0.04			0.11
Diluted		0.07			0.04			0.11
Consolidated Statement of Cash Flows, Six Months Ended September 30, 2017
Net earnings		480,659			279,005			759,664
Change in inventories		(5,224,616	)		(403,128	)		(5,627,744	)
Change in deferred income taxes		205,765			108,483			314,248
Change in income taxes payable		-			15,640			15,640
Consolidated Balance Sheet, as of March 31, 2018
Inventories		38,039,332			7,290,102			45,329,434
Deferred income tax liability		103,198			1,768,968			1,872,166
Retained earnings		31,190,246			5,521,134			36,711,380

6

The following table shows the effect of the change in accounting principle from LIFO to average cost on the three and six months ended September 30, 2018:

	As Computed Under LIFO		As Computed Under Average Cost		Effect of Change
Consolidated Statement of Operations, Three Months Ended September 30, 2018
Earnings before income taxes		1,448,925		2,645,625		1,196,700
Income tax provision		353,190		644,709		291,519
Net earnings		1,095,735		2,000,916		905,181
Net earnings per share:
Basic		0.16		0.29		0.13
Diluted		0.16		0.29		0.13
Consolidated Statement of Operations, Six Months Ended September 30, 2018
Earnings before income taxes		3,549,365		7,408,138		3,858,773
Income tax provision		867,318		1,807,329		940,011
Net earnings		2,682,047		5,600,809		2,918,762
Net earnings per share:
Basic		0.38		0.80		0.42
Diluted		0.38		0.80		0.42

NOTE C — NEW ACCOUNTING STANDARDS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 states that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The update supersedes prior revenue recognition guidance, including industry-specific guidance. Effective April 1, 2018, the Company adopted the new standard through the modified retrospective method applied to those contracts that were not completed as of April 1, 2018 and those contracts initiated on or after April 1, 2018. Results for reporting periods beginning on or after April 1, 2018 are presented under the new standard, while prior period amounts are unadjusted and reported in accordance with historic accounting under the prior guidance. The modified retrospective method requires that the cumulative effect of initially applying the new guidance be recorded as an adjustment to the opening balance of retained earnings in the condensed consolidated balance sheet. The adoption of this new accounting guidance did not have an impact on any prior period earnings and no adjustment was recorded to the opening retained earnings balance as of April 1, 2018. The adoption did not have a financial statement impact to the Company but did result in expanded disclosures which are provided in Note H.

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows by adding or clarifying guidance on eight specific cash flow issues. The Company adopted this new guidance effective April 1, 2018. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 establishes a new lease accounting standard that requires lessees to recognize a right of use asset and related lease liability for most leases having lease terms of more than 12 months.  Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases.  This new guidance is effective for annual and interim periods beginning after December 15, 2018, but can be early adopted.  The Company is evaluating the impact that adoption of the provisions of ASU 2016-02 will have on its consolidated financial statements but does not expect a material impact.

NOTE D — INVENTORIES

Inventories consist of prime coil, non-standard coil and tubular materials. Prime coil inventory consists primarily of raw materials, non-standard coil inventory consists primarily of raw materials and tubular inventory consists of both raw materials and finished goods. Effective April 1, 2018, the Company changed the inventory valuation method of its prime coil inventory from the LIFO method to the average cost method. Prime coil inventory value for both periods presented in the table below are based on average cost valuation. Cost for non-standard coil inventory is determined using the specific identification method. Cost for tubular inventory is determined using the average cost method. All inventories are valued at the lower of cost or net realizable value.

7

A summary of inventory values by product group follows:

	September 30, 2018		March 31, 2018 As Adjusted
Prime Coil Inventory	$	22,435,760	$	14,185,858
Non-Standard Coil Inventory		3,882,182		2,971,324
Tubular Raw Material		13,018,944		6,734,076
Tubular Finished Goods		15,310,294		21,438,176
	$	54,647,180	$	45,329,434

Tubular raw material inventory consists of hot-rolled steel coils that the Company will manufacture into pipe. Tubular finished goods inventory consists of pipe the Company has manufactured and new mill reject pipe that the Company purchases from U.S. Steel Tubular Products, Inc. At September 30, 2018, the Company carried quantities of mill reject pipe on hand that exceeded the sales volume for fiscal year ended March 31, 2018. Based on improved market conditions and overall economic conditions as well as recent sales trends, the Company reasonably expects the sales volume for the future twelve month period to approximate or at least be a substantial portion of the September 30, 2018 quantity on hand, hence current classification of this inventory on the Company’s balance sheet. The Company’s projections are subject to significant estimates which may be different from actual results.

NOTE E - DEBT

On December 11, 2017, the Company entered into a loan agreement for a $7,500,000 revolving line of credit facility (the “Credit Facility”) with Citizens National Bank (the “Bank”). The Credit Facility expires on December 11, 2018 and is collateralized by the Company’s accounts receivable and inventory. Borrowings under the credit facility bear interest at the Bank’s prime rate minus 0.55% resulting in an applicable interest rate of 4.70% as of September 30, 2018. Interest payments on amounts advanced are due monthly and principal payments may be made at any time without penalty. All outstanding principal and accrued interest is due upon expiration of the Credit Facility. The Credit Facility contains financial covenants that require the Company to not permit: (1) tangible common shareholders’ equity to be less than $50.0 million and (2) maximum debt to exceed 50% of tangible common shareholders’ equity. At September 30, 2018 and as of the filing date of this Form 10-Q, the Company had no borrowings outstanding under the Credit Facility.

NOTE F — STOCK BASED COMPENSATION

The Company maintains the Friedman Industries, Incorporated 2016 Restricted Stock Plan (the “Plan”). The Plan is administered by the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) and continues indefinitely until terminated by the Board or until all shares allowed by the Plan have been awarded and earned. The aggregate number of shares of the Company’s Common Stock eligible for award under the Plan is 500,000 shares. Subject to the terms and provisions of the Plan, the Committee may, from time to time, select the employees to whom awards will be granted and shall determine the amount and applicable restrictions of each award. Forfeitures are accounted for upon their occurrence.

As of September 30, 2018, the total number of restricted shares awarded under the Plan was 210,000 shares. All of the awarded shares have five year cliff vesting restrictions with vesting occurring on January 4, 2022. No other shares have been awarded under the Plan. The grant date fair value of the awarded shares is $1,444,800 and is being recognized as compensation expense over the 60 month requisite service period. Compensation expense related to stock awards issued under the plan was $72,240 in each of the quarters ended September 30, 2018 and September 30, 2017 and $144,480 in each of the six month periods ended September 30, 2018 and September 30, 2017.

8

NOTE G — SEGMENT INFORMATION (in thousands)

	Three Months Ended September 30,						Six Months Ended September 30,
	2018			2017 As Adjusted			2018			2017 As Adjusted
Net sales
Coil	$	34,828		$	20,128		$	65,957		$	38,138
Tubular		18,604			5,950			35,668			11,023
Total net sales	$	53,432		$	26,078		$	101,625		$	49,161
Operating profit
Coil	$	1,925		$	675		$	5,103		$	1,709
Tubular		1,376			316			3,698			314
Total operating profit		3,301			991			8,801			2,023
Corporate expenses		661			415			1,462			942
Interest & other income		(6	)		(4	)		(69	)		(9	)
Total earnings before taxes	$	2,646		$	580		$	7,408		$	1,090

	September 30, 2018		March 31, 2018 As Adjusted
Segment assets
Coil	$	43,535	$	34,359
Tubular		43,237		43,010
		86,772		77,369
Corporate assets		3,949		4,284
	$	90,721	$	81,653

Corporate expenses reflect general and administrative expenses not directly associated with segment operations and consist primarily of corporate executive and accounting salaries, professional fees and services, bad debts, retirement plan contribution expense, corporate insurance expenses and office supplies. Corporate assets consist primarily of cash and the cash value of officers’ life insurance.

NOTE H — REVENUE

Revenue is generated primarily from contracts to manufacture or process steel products. Most of the Company’s revenue is generated by sales of material out of the Company’s inventory but a portion of the Company’s revenue is derived from processing of customer owned material. Generally, the Company’s performance obligations are satisfied, control of our products is transferred, and revenue is recognized at a single point in time, when title transfers to our customer for product shipped or when services are provided. Revenues are recorded net of any sales incentives. Shipping and other transportation costs charged to customers are treated as fulfillment activities and are recorded in both revenue and cost of sales at the time control is transferred to the customer. Costs related to obtaining sales contracts are incidental and expensed when incurred. Because customers are invoiced at the time title transfers and the Company’s rights to consideration are unconditional at that time, the Company does not maintain contract asset balances. Additionally, the Company does not maintain contract liability balances, as performance obligations are satisfied prior to customer payment for product. The Company offers industry standard payment terms.

9

The Company has two reportable segments: Coil and Tubular. Coil primarily generates revenue from temper passing and cutting to length hot-rolled steel coils. Coil segment revenue consists of three main product types: Prime Coil, Non-Standard Coil and Customer Owned Coil. Tubular primarily generates revenue from the manufacture, distribution and processing of steel pipe. Tubular segment revenue consists of three main product or service types: Manufactured Pipe, Mill Reject Pipe and Pipe Finishing Services. The following table disaggregates our revenue by product for each of our reportable business segments for the three and six month periods ended September 30, 2018 and 2017, respectively:

	Three Months Ended September 30,				Six Months Ended September 30,
	2018		2017		2018		2017
Coil Segment:
Prime Coil		29,575,814		15,459,712		54,351,845		29,735,302
Non-standard Coil		4,894,421		4,442,760		11,004,879		7,811,364
Customer Owned Coil		358,209		225,367		600,920		591,008
		34,828,444		20,127,839		65,957,644		38,137,674
Tubular Segment:
Manufactured Pipe		14,214,209		2,989,288		25,169,596		6,322,722
Mill Reject Pipe		4,306,980		1,814,391		9,727,841		3,036,327
Pipe Finishing Services		82,396		1,146,192		770,266		1,664,256
		18,603,585		5,949,871		35,667,703		11,023,305

NOTE I — SUPPLEMENTAL CASH FLOW INFORMATION

The Company paid income taxes of approximately $721,000 and $8,000 in the six months ended September 30, 2018 and 2017, respectively. The Company paid interest of $15,753 in the six months ended September 30, 2018. The Company paid no interest in the six months ended September 30, 2017. Noncash financing activities consisted of accrued dividends of $630,850 and $70,094 in the six months ended September 30, 2018 and 2017, respectively. In the six months ended September 30, 2017, there was a noncash transaction of $246,000 for the transfer of ownership of a life insurance policy from the Company to an officer upon his retirement.

NOTE J — INCOME TAXES

For the six months ended September 30, 2018, the Company recorded an income tax provision of $1,807,329, or 24.4% of pre-tax income, compared to $329,888, or 30.3% of pre-tax income, for the six months ended September 30, 2017. The provision for the six months ended September 30, 2017 has been adjusted by the retroactive application of the change in accounting principle disclosed in Note B.

On December 22, 2017, the U.S. government signed into law the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act, among other things, lowered the U.S. corporate income tax rate applicable to the Company from 34% to 21% effective January 1, 2018. For the six months ended September 30, 2018, the Company’s effective tax rate differed from the corporate statutory rate due primarily to the inclusion of state tax expenses in the Company’s income tax provision. For the six months ended September 30, 2017, the Company’s effective tax rate differed from the corporate statutory rate due primarily to tax benefits related to the ownership transfer of a life insurance policy from the Company to an officer upon retirement.

While the Company has substantially completed its analysis of the income tax effects of the Tax Act and recorded a reasonable provisional estimate of such effects, certain items related to the Tax Act may differ, possibly materially, due to further refinement of the calculations, changes in interpretations and assumptions made, additional guidance that may be issued by the U.S. government, and actions related to accounting policy decisions the Company may make as a result of the Tax Act. Pursuant to Staff Accounting Bulletin 118 (“SAB 118”) issued by the Securities and Exchange Commission on December 22, 2017, the Company will complete its analysis of these items over a one-year measurement period ending December 22, 2018 and any adjustments during this measurement period will be recorded as discrete adjustments to income tax expense in the period in which adjustments become estimable and/or are finalized.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Friedman Industries, Incorporated is a manufacturer and processor of steel products and operates in two reportable segments; coil products and tubular products.

The coil product segment includes the operation of two hot-roll coil processing facilities; one in Hickman, Arkansas and the other in Decatur, Alabama. Each facility operates a temper mill and a cut-to-length line. The temper mill improves the flatness and surface qualities of the coils and the cut-to-length line levels the steel and cuts the coils into sheet and plate of prescribed lengths. Combined, the facilities are capable of cutting sheet and plate with thicknesses ranging from 14 gauge to ½” thick. The coil product segment sells its prime grade inventory under the Friedman Industries name but also maintains an inventory of non-standard coil products, consisting primarily of mill secondary and excess prime coils, which are sold through the Company’s XSCP division. The coil product segment also processes customer-owned coils on a fee basis. Effective April 1, 2018, the Company changed the inventory valuation method for the coil segment’s prime coil inventory from the LIFO method to the average cost method. The impact of this change in accounting principle to both the current fiscal year periods and, as applied retrospectively, to the comparable periods of the prior fiscal year are disclosed in Note B of this quarterly report on Form 10-Q. Prior period information provided in this Management’s Discussion and Analysis has been updated to reflect the retrospective application of the change in accounting principle.

10

The tubular product segment consists of the Company’s Texas Tubular Products division (“TTP”) located in Lone Star, Texas. TTP operates two electric resistance welded pipe mills with a combined outside diameter (“OD”) size range of 2 3/8” OD to 8 5/8” OD. Both pipe mills are American Petroleum Institute (“API”) licensed to manufacture line pipe and oil country pipe and also manufacture pipe for structural purposes that meets other recognized industry standards. TTP has a pipe finishing facility that threads and couples oil country tubular goods and performs other services that are customary in the pipe finishing process. The pipe finishing facility is API licensed and focuses on threading semi-premium connections. TTP’s inventory consists of raw materials and finished goods. Raw material inventory consists of hot-rolled steel coils that TTP will manufacture into pipe. Finished goods inventory consists of pipe TTP has manufactured and new mill reject pipe that TTP purchases from U.S. Steel Tubular Products, Inc. (“USS”).

Results of Operations

Six Months Ended September 30, 2018 Compared to Six Months Ended September 30, 2017

During the six months ended September 30, 2018, sales, costs of goods sold and gross profit increased $52,464,368, $45,371,070 and $7,093,298, respectively, from the comparable amounts recorded during the six months ended September 30, 2017. The increase in sales was related to both an increase in tons sold and an increase in the average per ton selling price. Tons sold increased approximately 72% from approximately 72,000 tons in the 2017 period to approximately 124,000 tons in the 2018 period. Discussion of the sales improvement is expanded upon at the segment level in the following paragraphs. Gross profit as a percentage of sales increased from approximately 6.2% in the 2017 period to approximately 10.0% in the 2018 period.

Coil Segment

Coil product segment sales for the 2018 period totaled $65,957,644 compared to $38,137,674 for the 2017 period, representing a sales increase of $27,819,970 or approximately 73%. For a more complete understanding of the average selling prices of goods sold, it is helpful to isolate sales generated from processing of customer owned material and sales generated from coil segment inventory. Sales generated from processing of customer owned material totaled $600,920 for the 2018 period compared to $591,008 for the 2017 period. Sales generated from coil segment inventory totaled $65,356,724 for the 2018 period compared to $37,546,666 for the 2017 period. The increase in coil segment sales was driven by an increase in tons shipped from inventory and an increase in the average selling price per ton for these shipments. Inventory tons sold increased from approximately 57,000 tons in the 2017 period to approximately 74,000 tons in the 2018 period. The average per ton selling price related to these shipments increased from approximately $663 per ton in the 2017 period to approximately $883 per ton in the 2018 period. The improved shipping volume for the 2018 period is attributable to increased demand among many of the segment’s customers. Management believes the demand improvement was primarily related to the effects of the U.S. government’s Section 232 steel trade actions, sustained improvement of the U.S. energy industry and the current steel industry and U.S. economic conditions in general. Coil segment operations recorded operating profits of approximately $5,103,000 and $1,709,000 in the 2018 and 2017 periods, respectively.

The Company’s coil segment purchases its inventory from a limited number of suppliers. Loss of any of these suppliers could have a material adverse effect on the Company’s business.

Tubular Segment

Tubular product segment sales for the 2018 period totaled $35,667,703 compared to $11,023,305 for the 2017 period, representing a sales increase of $24,644,398 or approximately 224%. For a more complete understanding of the average selling prices of goods sold, it is helpful to isolate sales generated from the finishing of customer owned pipe and sales generated from tubular segment inventory. Sales generated from finishing of customer owned pipe totaled $770,266 for the 2018 period compared to $1,664,256 for the 2017 period. Sales generated from tubular segment inventory totaled $34,897,437 for the 2018 period compared to $9,359,049 for the 2017 period. The increase in tubular segment sales was driven by an increase in tons shipped from inventory and an increase in the average selling price per ton for these shipments. Tons sold increased from approximately 15,500 tons in the 2017 period to approximately 50,000 tons in the 2018 period. The average per ton selling price related to these shipments increased from approximately $599 per ton in the 2017 period to approximately $697 per ton in the 2018 period. Tubular segment operations recorded operating profits of approximately $3,698,000 and $314,000 in the 2018 and 2017 periods, respectively.

Management believes the improved tubular results are primarily related to the sustained recovery of the U.S. energy industry and the segment’s new product offering of API line pipe. Late in the third quarter of fiscal 2018, TTP began actively producing, marketing and selling line pipe directly to distributors. Shipments of line pipe during the 2018 period totaled approximately 14,000 tons, or approximately 41%, of the 34,500 ton increase in tubular sales volume. Management expects line pipe sales to be a significant component of total tubular segment sales moving forward.

11

Shipments of mill reject pipe during the 2018 period totaled approximately 27,500 tons compared to approximately 8,000 tons during the 2017 period, accounting for approximately 57% of the 34,500 ton increase in tubular sales volume. The increased shipping volume of mill reject pipe is due to improved demand and a concentrated effort to reduce the level of inventory.

Due to fluctuations in our customers’ needs, revenue related to the finishing of customer owned pipe decreased $893,990 in the 2018 period compared to the 2017 period.

USS has been the primary supplier of new mill reject pipe to the Company. In March 2016, USS announced it was temporarily idling pipe production at its Lone Star Tubular Operations facility due to weak market conditions. In December 2016, USS announced plans to permanently idle its #1 pipe mill at the Lone Star facility. In May 2017, USS resumed production at its Lone Star facility’s #2 pipe mill. The Company expects the volume and size range of new mill reject pipe supply from USS to be reduced given the permanent idling of the Lone Star facility’s #1 pipe mill. USS is also a significant customer of the tubular segment’s pipe-finishing facility. Loss of USS as a supplier or customer could have a material adverse effect on the Company’s business. In general, the tubular segment purchases its inventory from a limited number of suppliers. Loss of any of these suppliers could have a material adverse effect on the Company’s business.

General, Selling and Administrative Costs

During the 2018 period, general, selling and administrative costs increased $819,259 compared to the 2017 period. This increase was related primarily to increases in bonuses and commissions associated with the increased earnings and sales volume.

Income Taxes

Income taxes in the 2018 period increased $1,477,441 from the amount recorded in the 2017 period. This increase was related primarily to the increase in earnings before taxes for the 2018 period compared to the 2017 period but partially offset due to effects of the Tax Cuts and Jobs Act (the “Tax Act”) that was enacted by the U.S. government on December 22, 2017. The Tax Act reduced the federal corporate tax rate applicable to the Company from 34% to 21% effective January 1, 2018.

Three Months Ended September 30, 2018 Compared to Three Months Ended September 30, 2017

During the three months ended September 30, 2018 (the “2018 quarter”), sales, costs of goods sold and gross profit increased $27,354,319, $24,910,189 and $2,444,130, respectively, compared to the amounts recorded during the three months ended September 30, 2017 (the “2017 quarter”). The increase in sales was related to both an increase in tons sold and an increase in the average per ton selling price. Tons sold increased approximately 63% from approximately 39,000 tons in the 2017 quarter to approximately 63,500 tons in the 2018 quarter. Discussion of the sales improvement is expanded upon at the segment level in the following paragraphs. Gross profit as a percentage of sales increased from approximately 5.8% in the 2017 quarter to approximately 7.4% in the 2018 quarter.

Coil Segment

Coil product segment sales for the 2018 quarter totaled $34,828,444 compared to $20,127,839 for the 2017 quarter, representing a sales increase of $14,700,605 or approximately 73%. For a more complete understanding of the average selling prices of goods sold, it is helpful to isolate sales generated from processing of customer owned material and sales generated from coil segment inventory. Sales generated from processing of customer owned material totaled $358,209 for the 2018 quarter compared to $225,367 for the 2017 quarter. Sales generated from coil segment inventory totaled $34,470,235 for the 2018 quarter compared to $19,902,472 for the 2017 quarter. The increase in coil segment sales was driven by an increase in tons shipped from inventory and an increase in the average selling price per ton for these shipments. Inventory tons sold increased from approximately 30,500 tons in the 2017 quarter to approximately 38,000 tons in the 2018 quarter. The average per ton selling price related to these shipments increased from approximately $656 per ton in the 2017 quarter to approximately $912 per ton in the 2018 quarter. The improved shipping volume for the 2018 quarter is attributable to increased demand among many of the segment’s customers. Management believes the demand improvement was primarily related to the effects of the U.S. government’s Section 232 steel trade actions, sustained improvement of the U.S. energy industry and the current steel industry and U.S. economic conditions in general. Coil segment operations recorded operating profits of approximately $1,925,000 and $675,000 in the 2018 and 2017 quarters, respectively. Due to seasonality and a reduced number of shipping days, management expects coil segment shipments for the third quarter to decline compared to second quarter volume with third quarter volume in the range of 31,000 tons to 34,000 tons. Management also expects slight margin contraction for the third quarter due primarily to a decline in steel prices.

The Company’s coil segment purchases its inventory from a limited number of suppliers. Loss of any of these suppliers could have a material adverse effect on the Company’s business.

Tubular Segment

Tubular product segment sales for the 2018 quarter totaled $18,603,585 compared to $5,949,871 for the 2017 quarter, representing a sales increase of $12,653,714 or approximately 213%. For a more complete understanding of the average selling prices of goods sold, it is helpful to isolate sales generated from the finishing of customer owned pipe and sales generated from tubular segment inventory. Sales generated from finishing of customer owned pipe totaled $82,396 for the 2018 quarter compared to $1,146,192 for the 2017 quarter. Sales generated from tubular segment inventory totaled $18,521,189 for the 2018 quarter compared to $4,803,679 for the 2017 quarter. The increase in tubular segment sales was driven by an increase in tons shipped from inventory and an increase in the average selling price per ton for these shipments. Tons sold increased from approximately 8,500 tons in the 2017 quarter to approximately 25,500 tons in the 2018 quarter. The average per ton selling price related to these shipments increased from approximately $567 per ton in the 2017 quarter to approximately $722 per ton in the 2018 quarter. Tubular segment operations recorded operating profits of approximately $1,376,000 and $316,000 in the 2018 and 2017 quarters, respectively.

12

Management believes the improved tubular results are primarily related to the sustained recovery of the U.S. energy industry and the segment’s new product offering of API line pipe. Late in the third quarter of fiscal 2018, TTP began actively producing, marketing and selling line pipe directly to distributors. Shipments of line pipe during the 2018 quarter totaled approximately 8,000 tons, or approximately 47%, of the 17,000 ton increase in tubular sales volume. Management expects line pipe sales to be a significant component of total tubular segment sales moving forward. Management expects third quarter line pipe shipments to be approximately 5,000 tons. Management believes this decrease compared to the second quarter volume is primarily related to customers managing year-end inventory levels and a level of uncertainty surrounding the volume and impact of foreign imports when Section 232 quotas reset at the start of 2019.

Shipments of mill reject pipe during the 2018 quarter totaled approximately 13,500 tons compared to 5,000 tons during the 2017 quarter, accounting for approximately 50% of the 17,000 ton increase in tubular sales volume. The increased shipping volume of mill reject pipe is due to improved demand and a concentrated effort to reduce the level of inventory. Management currently expects a decline in volume during the third quarter as desired inventory levels are achieved.

For the third quarter, management expects slight margin contraction related to manufactured pipe sales and expects moderate margin improvement related to mill reject pipe sales but management is unable to accurately estimate whether the net effect will be an overall increase, decrease or neutral impact to total tubular segment margins.

Due to fluctuations in our customers’ needs, revenue related to the finishing of customer owned pipe decreased from $1,146,192 in the 2017 quarter to $82,396 in the 2018 quarter. For the third quarter, management expects a low level of activity similar to that of the second quarter. These revenues are generated at the Company’s pipe finishing facility that commenced operations in May 2017. The facility is designed to function optimally as a high volume processing facility with a small customer base. Operations at the facility have been sporadic as new customer relationships evolve and due to some fluctuation in the energy industry and the steel industry in general. In addition to cultivating existing customer relationships, management continues to seek additional customers that are a strategic fit for the facility. Management will continue to evaluate the long-term operating potential of the facility on a continual basis.

USS has been the primary supplier of new mill reject pipe to the Company. In March 2016, USS announced it was temporarily idling pipe production at its Lone Star Tubular Operations facility due to weak market conditions. In December 2016, USS announced plans to permanently idle its #1 pipe mill at the Lone Star facility. In May 2017, USS resumed production at its Lone Star facility’s #2 pipe mill. The Company expects the volume and size range of new mill reject pipe supply from USS to be reduced given the permanent idling of the Lone Star facility’s #1 pipe mill. USS is also a significant customer of the tubular segment’s pipe-finishing facility. Loss of USS as a supplier or customer could have a material adverse effect on the Company’s business. In general, the tubular segment purchases its inventory from a limited number of suppliers. Loss of any of these suppliers could have a material adverse effect on the Company’s business.

General, Selling and Administrative Costs

During the 2018 quarter, general, selling and administrative costs increased $364,913 compared to the 2017 quarter. This increase was related primarily to increases in bonuses and commissions associated with the increased earnings and sales volume.

Income Taxes

Income taxes in the 2018 quarter increased $459,782 from the amount recorded in the 2017 quarter. This increase was related primarily to the increase in earnings before taxes for the 2018 quarter compared to the 2017 quarter but partially offset due to effects of the Tax Act that was enacted by the U.S. government on December 22, 2017. The Tax Act reduced the federal corporate tax rate applicable to the Company from 34% to 21% effective January 1, 2018.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES 

We believe the Company remained in a strong, liquid position at September 30, 2018. The current ratios were 5.1 and 6.1 at September 30, 2018 and March 31, 2018, respectively. Working capital was $61,857,215 at September 30, 2018 and $56,238,771 at March 31, 2018.

At September 30, 2018, the Company maintained assets and liabilities at levels it believed were commensurate with operations. Changes in balance sheet amounts occurred in the ordinary course of business. Cash decreased as a result of the purchase of property, plant and equipment and the payment of cash dividends partially offset by cash provided by operating activities. The balance of accounts payable and inventory rose considerably due to the volume and timing of inventory purchases for both the Company’s coil and tubular segments. The Company expects to continue to monitor, evaluate and manage balance sheet components depending on changes in market conditions and the Company’s operations.

In December 2017, the Company put into place a $7,500,000 revolving line of credit facility (the “Credit Facility”) that expires December 11, 2018. At September 30, 2018 and as of the filing date of this quarterly report on Form 10-Q, the Company had no borrowings outstanding under the Credit Facility. The Company was not in violation of any terms or covenants related to the Credit Facility as of the filing date of this quarterly report on Form 10-Q. Management expects to renew the Credit Facility prior to its expiration.

The Company believes that its current cash position along with cash flows from operations and borrowing capability due to its financial position are adequate to fund its expected cash requirements for the next 24 months.

13

CRITICAL ACCOUNTING POLICIES

The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Significant estimates that are subject to the Company’s assumptions include the determination of useful lives for fixed assets and the determination of the allowance for doubtful accounts. The determination of useful lives for depreciation of fixed assets requires the Company to make assumptions regarding the future productivity of the Company’s fixed assets. The allowance for doubtful accounts requires the Company to draw conclusions on the future collectability of the Company’s accounts receivable. Actual results could differ from these estimates.

CAUTIONARY NOTE REGARDING 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, as amended) and that involve risk and uncertainty. Such statements may include those risks disclosed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this report. These forward-looking statements may include, but are not limited to, future changes in the Company’s financial condition or results of operations, future production capacity, product quality and proposed expansion plans. 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 U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including the Company’s Annual Report on Form 10-K and its other Quarterly Reports on Form 10-Q. Forward-looking statements include those preceded by, followed by or including the words “will,” “expect,” “intended,” “anticipated,” “believe,” “project,” “forecast,” “propose,” “plan,” “estimate,” “enable,” and similar expressions, including, for example, statements about our business strategy, our industry, our future profitability, growth in the industry sectors we serve, our expectations, beliefs, plans, strategies, objectives, prospects and assumptions, and estimates and projections of future activity and trends in the oil and natural gas industry. These forward-looking statements are not guarantees of future performance. These statements are based on management’s expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. Although forward-looking statements reflect our current beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. 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 for and prices of 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, including any proposed expansion plans. Accordingly, undue reliance should not be placed on our forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except to the extent law requires.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 4. Controls and Procedures

The Company’s management, with the participation of the Company’s principal executive officer (“CEO”) and principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), as of the end of the fiscal quarter ended September 30, 2018. Based on this evaluation, the Company’s CEO and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the fiscal quarter ended September 30, 2018 to ensure that information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

14

FRIEDMAN INDUSTRIES, INCORPORATED

Three Months Ended September 30, 2018

Part II — OTHER INFORMATION

Item 6. Exhibits

Exhibits
3.1	—	Articles of Incorporation of the Company, as amended (incorporated by reference from Exhibit 3.1 to the Company’s Form S-8 filed on December 21, 2016).
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 (incorporated by reference from Exhibit 3.1 to the Company’s Form S-8 filed on December 21, 2016).
3.3	—	Amended and Restated Bylaws of the Company (incorporated by reference from Exhibit 3.2 to the Company’s Form S-8 filed on December 21, 2016).
31.1	—	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Robert Sparkman.
31.2	—	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Alex LaRue.
32.1	—	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Robert Sparkman.
32.2	—	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Alex LaRue.
101.INS	—	XBRL Instance Document.
101.SCH	—	XBRL Taxonomy Schema Document.
101.CAL	—	XBRL Calculation Linkbase Document.
101.DEF	—	XBRL Definition Linkbase Document.
101.LAB	—	XBRL Label Linkbase Document.
101.PRE	—	XBRL Presentation Linkbase Document.

15

SIGNATURES

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

	FRIEDMAN INDUSTRIES, INCORPORATED
Date: November 14, 2018
	By	/s/ Alex LaRue
		Alex LaRue, Chief Financial Officer –
		Secretary and Treasurer (Principal Financial Officer)

16

EX-31.1

EXHIBIT 31.1

I, Robert Sparkman, certify that:

1. I have reviewed this report on Form 10-Q of Friedman Industries, Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 14, 2018

/s/ Robert Sparkman

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

I, Alex LaRue, certify that:

1. I have reviewed this report on Form 10-Q of Friedman Industries, Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 14, 2018

/s/ Alex LaRue

Chief Financial Officer – Secretary and Treasurer

EX-32.1

EXHIBIT 32.1

Certification Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906

of The Sarbanes-Oxley Act of 2002

Not Filed Pursuant to the Securities Exchange Act of 1934

In connection with the Quarterly Report of Friedman Industries, Incorporated (the “Company”) on Form 10-Q for the period ended September 30, 2018, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Robert Sparkman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 14, 2018

By:	/s/ Robert Sparkman
Name:	Robert Sparkman
Title:	President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

Certification Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906

of The Sarbanes-Oxley Act of 2002

Not Filed Pursuant to the Securities Exchange Act of 1934

In connection with the Quarterly Report of Friedman Industries, Incorporated (the “Company”) on Form 10-Q for the period ended September 30, 2018, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Alex LaRue, Chief Financial Officer – Secretary and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 14, 2018

By:	/s/ Alex LaRue
Name:	Alex LaRue
Title:	Chief Financial Officer – Secretary and Treasurer

XML

Document And Entity Information - shares	6 Months Ended
	Sep. 30, 2018	Nov. 14, 2018
Document Information [Line Items]
Entity Registrant Name	FRIEDMAN INDUSTRIES INC
Entity Central Index Key	0000039092
Trading Symbol	frd
Current Fiscal Year End Date	--03-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		7,009,444
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets - Current Period Unaudited - USD ($)	Sep. 30, 2018	Mar. 31, 2018
CURRENT ASSETS:
Cash	$ 3,671,139	$ 4,052,582
Accounts receivable, net of allowances for bad debts and cash discounts of $21,052 at September 30, 2018 and March 31, 2018	17,450,660	17,458,289
Inventories	54,647,180	45,329,434
Other	1,064,802	429,101
TOTAL CURRENT ASSETS	76,833,781	67,269,406
PROPERTY, PLANT AND EQUIPMENT:
Land	1,452,799	1,452,799
Buildings and yard improvements	8,813,031	8,710,958
Machinery and equipment	39,386,523	39,282,944
Less accumulated depreciation	(35,995,892)	(35,280,700)
Property, plant, and equipment, net	13,656,461	14,166,001
OTHER ASSETS:
Cash value of officers’ life insurance and other assets	230,450	217,900
TOTAL ASSETS	90,720,692	81,653,307
CURRENT LIABILITIES:
Accounts payable and accrued expenses	12,808,316	10,233,431
Income taxes payable	913,139
Dividends payable	420,567	140,189
Contribution to retirement plan	135,000	45,000
Employee compensation and related expenses	699,544	612,015
TOTAL CURRENT LIABILITIES	14,976,566	11,030,635
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS	189,917	175,056
DEFERRED INCOME TAX LIABILITY	1,864,320	1,872,166
TOTAL LIABILITIES	17,030,803	13,077,857
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Common stock, par value $1: Authorized shares — 10,000,000 Issued shares — 8,185,160 at September 30 and March 31, 2018	8,185,160	8,185,160
Additional paid-in capital	29,299,354	29,154,874
Treasury stock at cost (1,175,716 shares at September 30 and March 31, 2018)	(5,475,964)	(5,475,964)
Retained earnings	41,681,339	36,711,380
TOTAL STOCKHOLDERS’ EQUITY	73,689,889	68,575,450
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 90,720,692	$ 81,653,307

XML

Condensed Consolidated Balance Sheets - Current Period Unaudited (Parentheticals) - USD ($)	Sep. 30, 2018	Mar. 31, 2018
Allowances for bad debts and cash discounts	$ 21,052	$ 21,052
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, authorized (in shares)	10,000,000	10,000,000
Common stock, issued (in shares)	8,185,160	8,185,160
Treasury stock, shares (in shares)	1,175,716	1,175,716

XML

Condensed Consolidated Statements of Operations - Unaudited - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Net sales	$ 53,432,029	$ 26,077,710	$ 101,625,347	$ 49,160,979
Costs and expenses
Costs of goods sold	49,487,488	24,577,299	91,488,328	46,117,258
General, selling and administrative costs	1,289,438	924,525	2,782,178	1,962,919
Interest expense	15,753		15,753
Costs and expenses, total	50,792,679	25,501,824	94,286,259	48,080,177
Interest and other income	(6,275)	(4,375)	(69,050)	(8,750)
Earnings before income taxes	2,645,625	580,261	7,408,138	1,089,552
Provision for (benefit from) income taxes:
Current	748,719	15,640	1,815,175	15,640
Deferred	(104,010)	169,287	(7,846)	314,248
Income tax	644,709	184,927	1,807,329	329,888
Net earnings	$ 2,000,916	$ 395,334	$ 5,600,809	$ 759,664
Weighted average number of common shares outstanding:
Basic (in shares)	7,009,444	7,009,444	7,009,444	7,009,444
Diluted (in shares)	7,009,444	7,009,444	7,009,444	7,009,444
Net earnings per share:
Basic (in dollars per share)	$ 0.29	$ 0.05	$ 0.80	$ 0.11
Diluted (in dollars per share)	0.29	0.05	0.80	0.11
Cash dividends declared per common share (in dollars per share)	$ 0.06	$ 0.01	$ 0.09	$ 0.02

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Condensed Consolidated Statements of Cash Flows - Unaudited - USD ($)	6 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
OPERATING ACTIVITIES
Net earnings	$ 5,600,809	$ 759,664
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation	715,192	638,480
Deferred taxes	(7,846)	314,248
Compensation expense for restricted stock	144,480	144,480
Change in postretirement benefits	14,861	3,439
Decrease (increase) in operating assets:
Accounts receivable, net	7,629	155,069
Inventories	(9,317,746)	(5,627,744)
Other current assets	(635,701)	(193,629)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses	2,574,885	5,676,463
Income taxes payable	913,139	15,640
Contribution to retirement plan	90,000	72,750
Employee compensation and related expenses	87,529	115,057
NET CASH PROVIDED BY OPERATING ACTIVITIES	187,231	2,073,917
INVESTING ACTIVITIES
Purchase of property, plant and equipment	(205,652)	(182,739)
Increase in cash surrender value of officers’ life insurance	(12,550)	(8,750)
NET CASH USED IN INVESTING ACTIVITIES	(218,202)	(191,489)
FINANCING ACTIVITIES
Cash dividends paid	(350,472)	(140,188)
NET CASH USED IN FINANCING ACTIVITIES	(350,472)	(140,188)
INCREASE (DECREASE) IN CASH	(381,443)	1,742,240
Cash at beginning of period	4,052,582	1,461,695
CASH AT END OF PERIOD	$ 3,671,139	$ 3,203,935

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Note A - Basis of Presentation

6 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

NOTE A — BASIS OF PRESENTATION

The accompanying unaudited, condensed consolidated financial statements have been prepared in accordance with the instructions to Form

10

-Q and do

not

include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes of Friedman Industries, Incorporated (the “Company”) included in its annual report on Form

10

-K for the year ended

March 

31,

2018.

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Note B - Change in Accounting Principle

6 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Accounting Changes [Text Block]

NOTE B — CHANGE IN ACCOUNTING PRINCIPLE

Effective

April 1, 2018,

the Company changed its method for valuing prime coil inventory of the coil segment from the last-in,

first

-out (“LIFO”) method to the average cost method. The effects of the change in accounting principle from LIFO to average cost have been retrospectively applied to all prior periods presented in all sections of this quarterly report on Form

10

-Q. The Company believes the average cost method is preferable as it more closely resembles the physical flow of our inventory, it better matches revenues with expenses and it aligns with how we internally manage our business. As a result of the retrospective application of the change in accounting principle, certain financial statement line items in the Company’s consolidated balance sheet as of

March 31, 2018,

its consolidated statement of operations for the

three

and

six

months ended

September 30, 2017

and its consolidated statement of cash flows for the

six

months ended

September 30, 2017

were adjusted as presented in the table below. In addition, retained earnings as of

April 1, 2017

increased

$4,418,318

as a result of the change in accounting principle.

	As Originally Reported			Effect of Change			As Adjusted
Consolidated Statement of Operations, Three Months Ended September 30, 2017
Cost of goods sold		24,700,540			(123,241	)		24,577,299
Income tax provision		146,981			37,946			184,927
Net earnings		310,039			85,295			395,334
Net earnings per share:
Basic		0.04			0.01			0.05
Diluted		0.04			0.01			0.05
Consolidated Statement of Operations, Six Months Ended September 30, 2017
Cost of goods sold		46,520,386			(403,128	)		46,117,258
Income tax provision		205,765			124,123			329,888
Net earnings		480,659			279,005			759,664
Net earnings per share:
Basic		0.07			0.04			0.11
Diluted		0.07			0.04			0.11
Consolidated Statement of Cash Flows, Six Months Ended September 30, 2017
Net earnings		480,659			279,005			759,664
Change in inventories		(5,224,616	)		(403,128	)		(5,627,744	)
Change in deferred income taxes		205,765			108,483			314,248
Change in income taxes payable		-			15,640			15,640
Consolidated Balance Sheet, as of March 31, 2018
Inventories		38,039,332			7,290,102			45,329,434
Deferred income tax liability		103,198			1,768,968			1,872,166
Retained earnings		31,190,246			5,521,134			36,711,380

The following table shows the effect of the change in accounting principle from LIFO to average cost on the

three

and

six

months ended

September 30, 2018:

	As Computed Under LIFO		As Computed Under Average Cost		Effect of Change
Consolidated Statement of Operations, Three Months Ended September 30, 2018
Earnings before income taxes		1,448,925		2,645,625		1,196,700
Income tax provision		353,190		644,709		291,519
Net earnings		1,095,735		2,000,916		905,181
Net earnings per share:
Basic		0.16		0.29		0.13
Diluted		0.16		0.29		0.13
Consolidated Statement of Operations, Six Months Ended September 30, 2018
Earnings before income taxes		3,549,365		7,408,138		3,858,773
Income tax provision		867,318		1,807,329		940,011
Net earnings		2,682,047		5,600,809		2,918,762
Net earnings per share:
Basic		0.38		0.80		0.42
Diluted		0.38		0.80		0.42

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Note C - New Accounting Standards

6 Months Ended

Sep. 30, 2018

Notes to Financial Statements

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

NOTE C — NEW ACCOUNTING STANDARDS

In

May 2014,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update

No.

2014

-

09,

Revenue from Contracts with Customers (“ASU

2014

-

09”

). ASU

2014

-

09

states that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The update supersedes prior revenue recognition guidance, including industry-specific guidance. Effective

April 1, 2018,

the Company adopted the new standard through the modified retrospective method applied to those contracts that were

not

completed as of

April 1, 2018

and those contracts initiated on or after

April 1, 2018.

Results for reporting periods beginning on or after

April 1, 2018

are presented under the new standard, while prior period amounts are unadjusted and reported in accordance with historic accounting under the prior guidance. The modified retrospective method requires that the cumulative effect of initially applying the new guidance be recorded as an adjustment to the opening balance of retained earnings in the condensed consolidated balance sheet. The adoption of this new accounting guidance did

not

have an impact on any prior period earnings and

no

adjustment was recorded to the opening retained earnings balance as of

April 1, 2018.

The adoption did

not

have a financial statement impact to the Company but did result in expanded disclosures which are provided in Note H.

In

August 2016,

the FASB issued Accounting Standards Update

No.

2016

-

15,

Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU

2016

-

15”

). ASU

2016

-

15

eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows by adding or clarifying guidance on

eight

specific cash flow issues. The Company adopted this new guidance effective

April 1, 2018.

The adoption of this new guidance did

not

have a material impact on the Company’s consolidated financial statements.

In

February 

2016,

the FASB issued Accounting Standards Update

No.

2016

-

02,

Leases (“ASU

2016

-

02”

). ASU

2016

-

02

establishes a new lease accounting standard that requires lessees to recognize a right of use asset and related lease liability for most leases having lease terms of more than

12

months.  Leases with a term of

12

months or less will be accounted for similar to existing guidance for operating leases.  This new guidance is effective for annual and interim periods beginning after

December 

15,

2018,

but can be early adopted.  The Company is evaluating the impact that adoption of the provisions of ASU

2016

-

02

will have on its consolidated financial statements but does

not

expect a material impact.

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Note D - Inventories

6 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Inventory Disclosure [Text Block]

NOTE D — INVENTORIES

Inventories consist of prime coil, non-standard coil and tubular materials. Prime coil inventory consists primarily of raw materials, non-standard coil inventory consists primarily of raw materials and tubular inventory consists of both raw materials and finished goods. Effective

April 1, 2018,

the Company changed the inventory valuation method of its prime coil inventory from the LIFO method to the average cost method. Prime coil inventory value for both periods presented in the table below are based on average cost valuation. Cost for non-standard coil inventory is determined using the specific identification method. Cost for tubular inventory is determined using the average cost method. All inventories are valued at the lower of cost or net realizable value.

A summary of inventory values by product group follows:

	September 30, 2018		March 31, 2018 As Adjusted
Prime Coil Inventory	$	22,435,760	$	14,185,858
Non-Standard Coil Inventory		3,882,182		2,971,324
Tubular Raw Material		13,018,944		6,734,076
Tubular Finished Goods		15,310,294		21,438,176
	$	54,647,180	$	45,329,434

Tubular raw material inventory consists of hot-rolled steel coils that the Company will manufacture into pipe. Tubular finished goods inventory consists of pipe the Company has manufactured and new mill reject pipe that the Company purchases from U.S. Steel Tubular Products, Inc. At

September 30, 2018,

the Company carried quantities of mill reject pipe on hand that exceeded the sales volume for fiscal year ended

March 31, 2018.

Based on improved market conditions and overall economic conditions as well as recent sales trends, the Company reasonably expects the sales volume for the future

twelve

month period to approximate or at least be a substantial portion of the

September 30, 2018

quantity on hand, hence current classification of this inventory on the Company’s balance sheet. The Company’s projections are subject to significant estimates which

may

be different from actual results.

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Note E - Debt

6 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Debt Disclosure [Text Block]

NOTE E - DEBT

On

December 11, 2017,

the Company entered into a loan agreement for a

$7,500,000

revolving line of credit facility (the “Credit Facility”) with Citizens National Bank (the “Bank”). The Credit Facility expires on

December 11, 2018

and is collateralized by the Company’s accounts receivable and inventory. Borrowings under the credit facility bear interest at the Bank’s prime rate minus

0.55%

resulting in an applicable interest rate of

4.70%

as of

September 30, 2018.

Interest payments on amounts advanced are due monthly and principal payments

may

be made at any time without penalty. All outstanding principal and accrued interest is due upon expiration of the Credit Facility. The Credit Facility contains financial covenants that require the Company to

not

permit: (

1

) tangible common shareholders’ equity to be less than

$50.0

million and (

2

) maximum debt to exceed

50%

of tangible common shareholders’ equity. At

September 30, 2018

and as of the filing date of this Form

10

-Q, the Company had

no

borrowings outstanding under the Credit Facility.

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Note F - Stock Based Compensation

6 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE F — STOCK BASED COMPENSATION

The Company maintains the Friedman Industries, Incorporated

2016

Restricted Stock Plan (the “Plan”). The Plan is administered by the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) and continues indefinitely until terminated by the Board or until all shares allowed by the Plan have been awarded and earned. The aggregate number of shares of the Company’s Common Stock eligible for award under the Plan is

500,000

shares. Subject to the terms and provisions of the Plan, the Committee

may,

from time to time, select the employees to whom awards will be granted and shall determine the amount and applicable restrictions of each award. Forfeitures are accounted for upon their occurrence.

As of

September 30, 2018,

the total number of restricted shares awarded under the Plan was

210,000

shares. All of the awarded shares have

five

year cliff vesting restrictions with vesting occurring on

January 4, 2022.

No

other shares have been awarded under the Plan. The grant date fair value of the awarded shares is

$1,444,800

and is being recognized as compensation expense over the

60

month requisite service period. Compensation expense related to stock awards issued under the plan was

$72,240

in each of the quarters ended

September 30, 2018

and

September 30, 2017

and

$144,480

in each of the

six

month periods ended

September 30, 2018

and

September 30, 2017.

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Note G - Segment Information

6 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

NOTE G — SEGMENT INFORMATION (in thousands)

	Three Months Ended September 30,						Six Months Ended September 30,
	2018			2017 As Adjusted			2018			2017 As Adjusted
Net sales
Coil	$	34,828		$	20,128		$	65,957		$	38,138
Tubular		18,604			5,950			35,668			11,023
Total net sales	$	53,432		$	26,078		$	101,625		$	49,161
Operating profit
Coil	$	1,925		$	675		$	5,103		$	1,709
Tubular		1,376			316			3,698			314
Total operating profit		3,301			991			8,801			2,023
Corporate expenses		661			415			1,462			942
Interest & other income		(6	)		(4	)		(69	)		(9	)
Total earnings before taxes	$	2,646		$	580		$	7,408		$	1,090

	September 30, 201 8		March 31, 2018 As Adjusted
Segment assets
Coil	$	43,535	$	34,359
Tubular		43,237		43,010
		86,772		77,369
Corporate assets		3,949		4,284
	$	90,721	$	81,653

Corporate expenses reflect general and administrative expenses

not

directly associated with segment operations and consist primarily of corporate executive and accounting salaries, professional fees and services, bad debts, retirement plan contribution expense, corporate insurance expenses and office supplies. Corporate assets consist primarily of cash and the cash value of officers’ life insurance.

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Note H - Revenue

6 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

NOTE H — REVENUE

Revenue is generated primarily from contracts to manufacture or process steel products. Most of the Company’s revenue is generated by sales of material out of the Company’s inventory but a portion of the Company’s revenue is derived from processing of customer owned material. Generally, the Company’s performance obligations are satisfied, control of our products is transferred, and revenue is recognized at a single point in time, when title transfers to our customer for product shipped or when services are provided. Revenues are recorded net of any sales incentives. Shipping and other transportation costs charged to customers are treated as fulfillment activities and are recorded in both revenue and cost of sales at the time control is transferred to the customer. Costs related to obtaining sales contracts are incidental and expensed when incurred. Because customers are invoiced at the time title transfers and the Company’s rights to consideration are unconditional at that time, the Company does

not

maintain contract asset balances. Additionally, the Company does

not

maintain contract liability balances, as performance obligations are satisfied prior to customer payment for product. The Company offers industry standard payment terms.

The Company has

two

reportable segments: Coil and Tubular. Coil primarily generates revenue from temper passing and cutting to length hot-rolled steel coils. Coil segment revenue consists of

three

main product types: Prime Coil, Non-Standard Coil and Customer Owned Coil. Tubular primarily generates revenue from the manufacture, distribution and processing of steel pipe. Tubular segment revenue consists of

three

main product or service types: Manufactured Pipe, Mill Reject Pipe and Pipe Finishing Services. The following table disaggregates our revenue by product for each of our reportable business segments for the

three

and

six

month periods ended

September 30, 2018

and

2017,

respectively:

	Three Months Ended September 30,				Six Months Ended September 30,
	2018		2017		2018		2017
Coil Segment:
Prime Coil		29,575,814		15,459,712		54,351,845		29,735,302
Non-standard Coil		4,894,421		4,442,760		11,004,879		7,811,364
Customer Owned Coil		358,209		225,367		600,920		591,008
		34,828,444		20,127,839		65,957,644		38,137,674
Tubular Segment:
Manufactured Pipe		14,214,209		2,989,288		25,169,596		6,322,722
Mill Reject Pipe		4,306,980		1,814,391		9,727,841		3,036,327
Pipe Finishing Services		82,396		1,146,192		770,266		1,664,256
		18,603,585		5,949,871		35,667,703		11,023,305

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Note I - Supplemental Cash Flow Information

6 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Cash Flow, Supplemental Disclosures [Text Block]

NOTE I — SUPPLEMENTAL CASH FLOW INFORMATION

The Company paid income taxes of approximately

$721,000

and

$8,000

in the

six

months ended

September 30, 2018

and

2017,

respectively. The Company paid interest of

$15,753

in the

six

months ended

September 30, 2018.

The Company paid

no

interest in the

six

months ended

September 

30,

2017.

Noncash financing activities consisted of accrued dividends of

$630,850

 and

$70,094

in the

six

months ended

September 

30,

2018

and

2017,

respectively. In the

six

months ended

September 30, 2017,

there was a noncash transaction of

$246,000

for the transfer of ownership of a life insurance policy from the Company to an officer upon his retirement.

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Note J - Income Taxes

6 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE J — INCOME TAXES

For the

six

months ended

September 30, 2018,

the Company recorded an income tax provision of

$1,807,329,

or

24.4%

of pre-tax income, compared to

$329,888,

or

30.3%

of pre-tax income, for the

six

months ended

September 30, 2017.

The provision for the

six

months ended

September 30, 2017

has been adjusted by the retroactive application of the change in accounting principle disclosed in Note B.

On

December 22, 2017,

the U.S. government signed into law the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act, among other things, lowered the U.S. corporate income tax rate applicable to the Company from

34%

to

21%

effective

January 1, 2018.

For the

six

months ended

September 30, 2018,

the Company’s effective tax rate differed from the corporate statutory rate due primarily to the inclusion of state tax expenses in the Company’s income tax provision. For the

six

months ended

September 30, 2017,

the Company’s effective tax rate differed from the corporate statutory rate due primarily to tax benefits related to the ownership transfer of a life insurance policy from the Company to an officer upon retirement.

While the Company has substantially completed its analysis of the income tax effects of the Tax Act and recorded a reasonable provisional estimate of such effects, certain items related to the Tax Act

may

differ, possibly materially, due to further refinement of the calculations, changes in interpretations and assumptions made, additional guidance that

may

be issued by the U.S. government, and actions related to accounting policy decisions the Company

may

make as a result of the Tax Act. Pursuant to Staff Accounting Bulletin

118

(“SAB

118”

) issued by the Securities and Exchange Commission on

December 22, 2017,

the Company will complete its analysis of these items over a

one

-year measurement period ending

December 22, 2018

and any adjustments during this measurement period will be recorded as discrete adjustments to income tax expense in the period in which adjustments become estimable and/or are finalized.

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Note B - Change in Accounting Principle (Tables)

6 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]

	As Originally Reported			Effect of Change			As Adjusted
Consolidated Statement of Operations, Three Months Ended September 30, 2017
Cost of goods sold		24,700,540			(123,241	)		24,577,299
Income tax provision		146,981			37,946			184,927
Net earnings		310,039			85,295			395,334
Net earnings per share:
Basic		0.04			0.01			0.05
Diluted		0.04			0.01			0.05
Consolidated Statement of Operations, Six Months Ended September 30, 2017
Cost of goods sold		46,520,386			(403,128	)		46,117,258
Income tax provision		205,765			124,123			329,888
Net earnings		480,659			279,005			759,664
Net earnings per share:
Basic		0.07			0.04			0.11
Diluted		0.07			0.04			0.11
Consolidated Statement of Cash Flows, Six Months Ended September 30, 2017
Net earnings		480,659			279,005			759,664
Change in inventories		(5,224,616	)		(403,128	)		(5,627,744	)
Change in deferred income taxes		205,765			108,483			314,248
Change in income taxes payable		-			15,640			15,640
Consolidated Balance Sheet, as of March 31, 2018
Inventories		38,039,332			7,290,102			45,329,434
Deferred income tax liability		103,198			1,768,968			1,872,166
Retained earnings		31,190,246			5,521,134			36,711,380

	As Computed Under LIFO		As Computed Under Average Cost		Effect of Change
Consolidated Statement of Operations, Three Months Ended September 30, 2018
Earnings before income taxes		1,448,925		2,645,625		1,196,700
Income tax provision		353,190		644,709		291,519
Net earnings		1,095,735		2,000,916		905,181
Net earnings per share:
Basic		0.16		0.29		0.13
Diluted		0.16		0.29		0.13
Consolidated Statement of Operations, Six Months Ended September 30, 2018
Earnings before income taxes		3,549,365		7,408,138		3,858,773
Income tax provision		867,318		1,807,329		940,011
Net earnings		2,682,047		5,600,809		2,918,762
Net earnings per share:
Basic		0.38		0.80		0.42
Diluted		0.38		0.80		0.42

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Note D - Inventories (Tables)

6 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	September 30, 2018		March 31, 2018 As Adjusted
Prime Coil Inventory	$	22,435,760	$	14,185,858
Non-Standard Coil Inventory		3,882,182		2,971,324
Tubular Raw Material		13,018,944		6,734,076
Tubular Finished Goods		15,310,294		21,438,176
	$	54,647,180	$	45,329,434

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Note G - Segment Information (Tables)

6 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three Months Ended September 30,						Six Months Ended September 30,
	2018			2017 As Adjusted			2018			2017 As Adjusted
Net sales
Coil	$	34,828		$	20,128		$	65,957		$	38,138
Tubular		18,604			5,950			35,668			11,023
Total net sales	$	53,432		$	26,078		$	101,625		$	49,161
Operating profit
Coil	$	1,925		$	675		$	5,103		$	1,709
Tubular		1,376			316			3,698			314
Total operating profit		3,301			991			8,801			2,023
Corporate expenses		661			415			1,462			942
Interest & other income		(6	)		(4	)		(69	)		(9	)
Total earnings before taxes	$	2,646		$	580		$	7,408		$	1,090

	September 30, 201 8		March 31, 2018 As Adjusted
Segment assets
Coil	$	43,535	$	34,359
Tubular		43,237		43,010
		86,772		77,369
Corporate assets		3,949		4,284
	$	90,721	$	81,653

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Note H - Revenue (Tables)

6 Months Ended

Sep. 30, 2018

Notes Tables

Disaggregation of Revenue [Table Text Block]

	Three Months Ended September 30,				Six Months Ended September 30,
	2018		2017		2018		2017
Coil Segment:
Prime Coil		29,575,814		15,459,712		54,351,845		29,735,302
Non-standard Coil		4,894,421		4,442,760		11,004,879		7,811,364
Customer Owned Coil		358,209		225,367		600,920		591,008
		34,828,444		20,127,839		65,957,644		38,137,674
Tubular Segment:
Manufactured Pipe		14,214,209		2,989,288		25,169,596		6,322,722
Mill Reject Pipe		4,306,980		1,814,391		9,727,841		3,036,327
Pipe Finishing Services		82,396		1,146,192		770,266		1,664,256
		18,603,585		5,949,871		35,667,703		11,023,305

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Note B - Change in Accounting Principle (Details Textual) - USD ($)	Sep. 30, 2018	Mar. 31, 2018	Apr. 01, 2017
Retained Earnings (Accumulated Deficit), Ending Balance	$ 41,681,339	$ 36,711,380
Change in Inventory Costing Method from LIFO to Average Cost [Member]
Retained Earnings (Accumulated Deficit), Ending Balance			$ 4,418,318

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Note B - Change in Accounting Principle - Change in Accounting Principle From LIFO to Average Cost (Details) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Mar. 31, 2018	Apr. 01, 2017
Costs of goods sold	$ 49,487,488	$ 24,577,299	$ 91,488,328	$ 46,117,258
Income Tax Expense (Benefit), Total	644,709	184,927	1,807,329	329,888
Net earnings	$ 2,000,916	$ 395,334	$ 5,600,809	$ 759,664
Basic (in dollars per share)	$ 0.29	$ 0.05	$ 0.80	$ 0.11
Diluted (in dollars per share)	$ 0.29	$ 0.05	$ 0.80	$ 0.11
Inventories			$ (9,317,746)	$ (5,627,744)
Change in deferred income taxes				314,248
Change in income taxes payable			913,139	15,640
Inventories	$ 54,647,180		54,647,180		$ 45,329,434
Deferred income tax liability	1,864,320		1,864,320		1,872,166
Retained earnings	41,681,339		41,681,339		36,711,380
Earnings before income taxes	2,645,625	$ 580,261	7,408,138	1,089,552
Change in Inventory Costing Method from LIFO to Average Cost [Member]
Retained earnings						$ 4,418,318
Computed under LIFO [Member]
Income Tax Expense (Benefit), Total	353,190		867,318
Net earnings	$ 1,095,735		$ 2,682,047
Basic (in dollars per share)	$ 0.16		$ 0.38
Diluted (in dollars per share)	$ 0.16		$ 0.38
Earnings before income taxes	$ 1,448,925		$ 3,549,365
Previously Reported [Member]
Costs of goods sold		24,700,540		46,520,386
Income Tax Expense (Benefit), Total		146,981		205,765
Net earnings		$ 310,039		$ 480,659
Basic (in dollars per share)		$ 0.04		$ 0.07
Diluted (in dollars per share)		$ 0.04		$ 0.07
Inventories				$ (5,224,616)
Change in deferred income taxes				205,765
Change in income taxes payable
Inventories					38,039,332
Deferred income tax liability					103,198
Retained earnings					31,190,246
Restatement Adjustment [Member] | Change in Inventory Costing Method from LIFO to Average Cost [Member]
Costs of goods sold		$ (123,241)		(403,128)
Income Tax Expense (Benefit), Total		37,946		124,123
Net earnings		$ 85,295		$ 279,005
Basic (in dollars per share)		$ 0.01		$ 0.04
Diluted (in dollars per share)		$ 0.01		$ 0.04
Inventories				$ (403,128)
Change in deferred income taxes				108,483
Change in income taxes payable				$ 15,640
Inventories					7,290,102
Deferred income tax liability					1,768,968
Retained earnings					$ 5,521,134
Restatement Adjustment [Member] | Difference Between LIFO and Average Cost Method [Member]
Income Tax Expense (Benefit), Total	291,519		940,011
Net earnings	$ 905,181		$ 2,918,762
Basic (in dollars per share)	$ 0.13		$ 0.42
Diluted (in dollars per share)	$ 0.13		$ 0.42
Earnings before income taxes	$ 1,196,700		$ 3,858,773

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Note D - Inventories - Summary of Inventory Values by Product Group (Details) - USD ($)	Sep. 30, 2018	Mar. 31, 2018
Inventories	$ 54,647,180	$ 45,329,434
Prime Coil Inventory [Member]
Raw materials	22,435,760	14,185,858
Non-standard Coil Inventory [Member]
Raw materials	3,882,182	2,971,324
Tubular Inventory [Member]
Raw materials	13,018,944	6,734,076
Finished goods	$ 15,310,294	$ 21,438,176

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Note E - Debt (Details Textual) - Citizens National Bank [Member] - Revolving Credit Facility [Member] - USD ($)	6 Months Ended
	Sep. 30, 2018	Dec. 11, 2017
Line of Credit Facility, Maximum Borrowing Capacity		$ 7,500,000
Line of Credit Facility, Interest Rate at Period End	4.70%
Debt Instrument, Minimum Threshold of Shareholders' Equity		$ 50,000,000
Debt Instrument, Debt to Shareholders' Equity Maximum Threshold, Percent		50.00%
Long-term Line of Credit, Total	$ 0
Prime Rate [Member]
Debt Instrument, Basis Spread on Variable Rate	(0.55%)

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Note F - Stock Based Compensation (Details Textual) - 2016 Restricted Stock Plan [Member] - USD ($)	3 Months Ended		6 Months Ended	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2018	Sep. 30, 2017
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	500,000		500,000	500,000
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			210,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			5 years
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Share-based Awards Other than Options	$ 1,444,800		$ 1,444,800	$ 1,444,800
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			5 years
Allocated Share-based Compensation Expense, Total	$ 72,240	$ 72,240		$ 144,480	$ 144,480

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Note G - Segment Information - Segment Information (Details) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Mar. 31, 2018
Total Net Sales	$ 53,432,029	$ 26,077,710	$ 101,625,347	$ 49,160,979
Interest & other income	(6,275)	(4,375)	(69,050)	(8,750)
Total earnings before taxes	2,645,625	580,261	7,408,138	1,089,552
Assets	90,720,692		90,720,692		$ 81,653,307
Coil [Member]
Total Net Sales	34,828,444	20,127,839	65,957,644	38,137,674
Tubular [Member]
Total Net Sales	18,603,585	5,949,871	35,667,703	11,023,305
Operating Segments [Member]
Operating profit (loss)	3,301,000	991,000	8,801,000	2,023,000
Assets	86,772,000		86,772,000		77,369,000
Operating Segments [Member] | Coil [Member]
Total Net Sales	34,828,000	20,128,000	65,957,000	38,138,000
Operating profit (loss)	1,925,000	675,000	5,103,000	1,709,000
Assets	43,535,000		43,535,000		34,359,000
Operating Segments [Member] | Tubular [Member]
Total Net Sales	18,604,000	5,950,000	35,668,000	11,023,000
Operating profit (loss)	1,376,000	316,000	3,698,000	314,000
Assets	43,237,000		43,237,000		43,010,000
Corporate, Non-Segment [Member]
Corporate expenses	661,000	$ 415,000	1,462,000	$ 942,000
Assets	$ 3,949,000		$ 3,949,000		$ 4,284,000

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Note H - Revenue (Details Textual)	6 Months Ended
	Sep. 30, 2018
Number of Reportable Segments	2

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Note H - Revenue - Disaggregation of Revenue (Details) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Net sales	$ 53,432,029	$ 26,077,710	$ 101,625,347	$ 49,160,979
Coil [Member]
Net sales	34,828,444	20,127,839	65,957,644	38,137,674
Coil [Member] | Prime Coil [Member]
Net sales	29,575,814	15,459,712	54,351,845	29,735,302
Coil [Member] | Secondary Coil [Member]
Net sales	4,894,421	4,442,760	11,004,879	7,811,364
Coil [Member] | Customer Owned [Member]
Net sales	358,209	225,367	600,920	591,008
Tubular [Member]
Net sales	18,603,585	5,949,871	35,667,703	11,023,305
Tubular [Member] | Manufactured Pipe [Member]
Net sales	14,214,209	2,989,288	25,169,596	6,322,722
Tubular [Member] | Mill Reject Pipe [Member]
Net sales	4,306,980	1,814,391	9,727,841	3,036,327
Tubular [Member] | Pipe Finishing Services [Member]
Net sales	$ 82,396	$ 1,146,192	$ 770,266	$ 1,664,256

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Note I - Supplemental Cash Flow Information (Details Textual) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Income Taxes Paid		$ 721,000	$ 8,000
Interest Paid, Excluding Capitalized Interest, Operating Activities	$ 0	15,753	0
Dividends Payable		$ 630,850	70,094
Other Significant Noncash Transaction, Value of Consideration Given			$ 246,000

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Note J - Income Taxes (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Income Tax Expense (Benefit), Total	$ 644,709	$ 184,927	$ 1,807,329	$ 329,888
Effective Income Tax Rate Reconciliation, Percent, Total			24.40%	30.30%