<PAGE>   1

                                    FORM 10-Q

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                  QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

[X]  For the quarterly period ended July 3, 1999
     -------------------------------------------

Commission file number 1-6687
                       ------

                            JOHNSTON INDUSTRIES, INC.
                            -------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                    Delaware                            11-1749980
                    --------                            ----------
         (State or other jurisdiction of             (I.R.S. Employer
         incorporation or organization)            Identification No.)

    105 Thirteenth Street, Columbus, Georgia              31901
    (Address of principal executive offices)            (Zip Code)

                                 (706) 641-3140
                                 --------------
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes      [X]      No       [ ]

The number of shares outstanding of the Registrant's Common Stock as of July 3,
1999 was 10,721,872 shares.



<PAGE>   2


                   JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES


                               INDEX TO FORM 10-Q


                         PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>

                                                                                           PAGE(S)

<S>           <C>                                                                          <C>
ITEM 1.       CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

                    Consolidated Balance Sheets
                         July 3, 1999 and January 2, 1999                                       4

                    Consolidated Statements of Operations
                         Three Months and Six Months ended
                         July 3, 1999 and July 4, 1998                                          5

                    Consolidated Statements of Cash Flows
                         Six Months ended
                         July 3, 1999 and July 4, 1998                                        6-7

                    Notes to Condensed Consolidated Financial Statements                     8-12

ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                    CONDITION AND RESULTS OF OPERATIONS                                     13-19

ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES
                    ABOUT MARKET RISK                                                          20


                           PART II - OTHER INFORMATION


ITEM 1.       LEGAL PROCEEDINGS                                                                21

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                              21

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K                                                 21

              SIGNATURE PAGE                                                                   22

              EXHIBIT 3.1(d) - CERTIFICATE OF DESIGNATION BY
                    THE BOARD OF DIRECTORS                                                  23-27

              EXHIBIT 11 - STATEMENTS OF COMPUTATION OF
                    PER SHARE EARNINGS                                                         28

              EXHIBIT 27 - FINANCIAL DATA SCHEDULE
                    (For SEC Use Only)                                                         29
</TABLE>



                                       2
<PAGE>   3


                         PART I - FINANCIAL INFORMATION


ITEM 1.       CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       3
<PAGE>   4

JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF JULY 3, 1999 AND JANUARY 2, 1999
(in thousands, except per share amounts)
(unaudited)
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                               July 3,          January 2,
                                                                                1999               1999
                                                                            ------------       ------------
<S>                                                                         <C>                <C>
ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                                                $      1,280       $      1,231
   Accounts and notes receivable, net of allowance for
      doubtful accounts of $1,440 and $1,442                                      37,605             34,768
   Inventories                                                                    51,734             58,079
   Assets held for sale                                                            4,093              3,788
   Deferred income taxes                                                           1,867              1,249
   Prepaid expenses and other                                                      5,146              3,111
                                                                            ------------       ------------
      Total current assets                                                       101,725            102,226

Property, plant and equipment-net                                                 92,690             99,486

Goodwill - net of accumulated amortization of $2,043 and $1,728                   10,530             10,845
Intangible asset-pension                                                           1,651              1,651
Other assets                                                                       4,248              5,331
                                                                            ------------       ------------

Total assets                                                                $    210,844       $    219,539
                                                                            ============       ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable                                                         $     12,336       $     13,867
   Accrued expenses                                                               12,417              9,859
   Revolving credit facility                                                      67,147             66,954
   Current maturities of long-term debt                                           55,811              9,989
   Income taxes payable                                                               --                479
                                                                            ------------       ------------
      Total current liabilities                                                  147,711            101,148

Long-term debt - less current maturities                                           1,262             51,109
Other liabilities                                                                  7,855              8,878
Deferred income taxes                                                              9,394             10,130
                                                                            ------------       ------------
   Total liabilities                                                             166,222            171,265

STOCKHOLDERS' EQUITY:
   Common stock, par value $.10 per share; authorized,
      20,000 shares; issued 12,468                                                 1,246              1,246
   Additional paid-in capital                                                     21,445             21,445
   Retained earnings                                                              30,198             33,850
                                                                            ------------       ------------
      Total                                                                       52,889             56,541
   Less treasury stock; 1,746 shares                                              (8,267)            (8,267)
                                                                            ------------       ------------

      Total stockholders' equity                                                  44,622             48,274
                                                                            ------------       ------------

Total liabilities and stockholders' equity                                  $    210,844       $    219,539
                                                                            ============       ============
</TABLE>

See Notes to Condensed Consolidated Financial Statements


                                       4
<PAGE>   5

JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998
(in thousands, except per share amounts)
(unaudited)
-------------------------------------------------------------------------------


<TABLE>
<CAPTION>


                                                            Three Months Ended              Six Months Ended
                                                          -----------------------       -------------------------
                                                           July 3,       July 4,         July 3,         July 4,
                                                            1999           1998           1999            1998
                                                          --------       --------       ---------       ---------
<S>                                                       <C>            <C>            <C>             <C>
Net sales                                                 $ 67,762       $ 69,063       $ 132,794       $ 148,902
                                                          --------       --------       ---------       ---------

Costs and expenses:
   Cost of sales                                            61,575         60,353         119,305         130,413
   Selling, general and administrative                       6,492          6,874          13,051          13,927
   Amortization of goodwill                                    158            156             315             313
   Restructuring and impairment charges                         --             --              --             100
                                                          --------       --------       ---------       ---------
      Total costs and expenses                              68,225         67,383         132,671         144,753
                                                          --------       --------       ---------       ---------
Income (loss) from operations                                 (463)         1,680             123           4,149

Other expenses (income):
   Interest expense                                          3,062          3,451           6,180           6,664
   Interest income                                            (142)          (417)           (370)           (496)
   Other-net                                                  (321)          (228)            135             440
                                                          --------       --------       ---------       ---------
      Total other expenses - net                             2,599          2,806           5,945           6,608

Equity in earnings of equity investee                          150             63             308              63
                                                          --------       --------       ---------       ---------

Loss before benefit for income taxes                        (2,912)        (1,063)         (5,514)         (2,396)

Benefit for income taxes                                    (1,007)          (495)         (1,862)           (893)
                                                          --------       --------       ---------       ---------

Net loss                                                  $ (1,905)      $   (568)      $  (3,652)      $  (1,503)
                                                          ========       ========       =========       =========

Net loss per common share:
   Basic and diluted                                      $  (0.18)      $  (0.05)      $   (0.34)      $   (0.14)
                                                          ========       ========       =========       =========

Weighted average number of common shares outstanding        10,722         10,743          10,722          10,743
                                                          ========       ========       =========       =========
</TABLE>

See Notes to Condensed Consolidated Financial Statements

                                       5
<PAGE>   6

JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998
(in thousands)
(unaudited)
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                    Six Months Ended
                                                               --------------------------
                                                                 July 3,        July 4,
                                                                   1999          1998
                                                               -----------    -----------
<S>                                                            <C>            <C>
OPERATING ACTIVITIES:
   Net loss                                                    $    (3,652)   $    (1,503)
   Adjustments to reconcile net loss to net cash provided
      by operating activities:
         Depreciation                                                9,586          9,974
         Amortization of goodwill                                      315            313
         Amortization of deferred financing costs                    1,015          1,042
         Provision for bad debts                                       170            363
         Loss / (Gain) on disposal of fixed assets                      33            (43)
         Undistributed earnings of equity investee                    (308)           (63)
         Changes in operating assets and liabilities:
            Accounts and notes receivable                           (3,007)           842
            Inventories                                              6,345            (43)
            Deferred income taxes                                   (1,354)          (353)
            Prepaid expenses and other assets                       (1,943)        (1,431)
            Accounts payable                                        (1,508)        (3,736)
            Accrued expenses                                         2,558            210
            Income taxes payable                                      (479)         2,185
            Other liabilities                                       (1,023)           540
                                                               -----------    -----------

            Total adjustments                                       10,400          9,800
                                                               -----------    -----------

         Net cash provided by operating activities                   6,748          8,297
                                                               -----------    -----------

INVESTING ACTIVITIES:
   Additions to property, plant and equipment                       (2,977)        (5,512)
   Decrease in non-operating accounts payable                          (23)          (816)
   Proceeds from sale of fixed assets                                  154            305
   Proceeds from sale of Jupiter assets                                 --            630
                                                               -----------    -----------

      Net cash used in investing activities                         (2,846)        (5,393)
                                                               -----------    -----------
</TABLE>

                                                                      Continued

                                       6
<PAGE>   7

JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998
(in thousands)
(unaudited)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                               Six Months Ended
                                                          -------------------------
                                                            July 3,         July 4,
                                                             1999            1998
                                                          ---------       ---------
<S>                                                       <C>             <C>
FINANCING ACTIVITIES:
   Principal payments of long-term debt                    (136,937)        (13,104)
   Proceeds from issuance of long-term debt                 133,084           8,200
                                                          ---------       ---------

      Net cash used in financing activities                  (3,853)         (4,904)
                                                          ---------       ---------

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS             49          (2,000)

CASH AND CASH EQUIVALENTS:
   Beginning of Period                                        1,231           2,284
                                                          ---------       ---------

   End of Period                                          $   1,280       $     284
                                                          =========       =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
   Cash paid (received) during the period for:
      Interest                                            $   5,777       $   6,106
                                                          =========       =========

      Income taxes                                        $     (30)      $  (2,525)
                                                          =========       =========
</TABLE>



See Notes to Condensed Consolidated Financial Statements              Concluded


                                       7
<PAGE>   8

JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 3, 1999 AND JANUARY 2, 1999, AND FOR THE SIX MONTHS ENDED JULY 3,
1999 AND JULY 4, 1998
(in thousands except share and per share amounts)
(unaudited)

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

1.       BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include
the accounts of Johnston Industries, Inc. ("Johnston"), its direct wholly owned
subsidiary, Johnston Industries Alabama, Inc. ("JI Alabama") and its indirect
wholly owned subsidiaries, Johnston Industries Composite Reinforcements, Inc.
("JICR") and Greater Washington Investments, Inc. ("GWI") (collectively, the
"Company"). All significant intercompany balances have been eliminated in
consolidation.

The accompanying interim condensed consolidated financial statements have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. In the opinion of
management, the unaudited condensed consolidated financial statements reflect
all adjustments which are necessary for a fair presentation. All such
adjustments, other than those relating to restructuring and loss on impairment,
are of a normal recurring nature. Operating results for the three months and six
months ended July 3, 1999 are not necessarily indicative of the results that may
be expected for the entire year. The condensed consolidated financial statements
included herein should be read in conjunction with the financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended January 2, 1999.

2.       ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments imbedded in other contracts, and for hedging activities.
It requires that, at adoption, hedging relationships should be designated anew
and that entities recognize all derivatives as either assets or liabilities in
the statement of financial position and to measure those instruments at fair
value. The accounting for changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. As issued,
this statement is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999.

In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133." This statement defers the effective date for SFAS No. 133,
which will now be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The adoption of SFAS No. 133 is not expected to
have a material impact on the Company.


                                       8
<PAGE>   9


INVENTORIES

3.       Inventories consisted of the following:

-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                 July 3, 1999       January 2, 1999
                                                                                ---------------    ----------------
<S>                                                                             <C>                <C>
Inventories-FIFO cost flow assumption
     Finished goods..........................................................   $        30,195    $         33,136
     Work-in process.........................................................             7,390               8,793
     Raw materials...........................................................            10,542              12,317
     Direct materials and supplies...........................................             4,461               4,687
                                                                                ---------------    ----------------
                                                                                         52,588              58,933
     Less LIFO reserve.......................................................              (854)               (854)
                                                                                ---------------    ----------------
         Inventories - LIFO cost flow assumption.............................   $        51,734    $         58,079
                                                                                ===============    ================
</TABLE>

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

4.       ASSETS HELD FOR SALE

Assets held for sale consisted of the following:

-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                 July 3, 1999       January 2, 1999
                                                                                ---------------    ----------------
<S>                                                                             <C>                <C>
Jupiter investments..........................................................   $         3,577    $          3,272
Other real estate............................................................               516                 516
                                                                                ---------------    ----------------
                                                                                $         4,093    $          3,788
                                                                                ===============    ================
</TABLE>
-------------------------------------------------------------------------------

Concurrent with the acquisition of Jupiter National, Inc. in March 1996, the
Company's management made the decision to discontinue the venture capital
investment segment of Jupiter's operation. The remaining portfolio investments,
which have not been disposed of, are included in assets held for sale.

5.       PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                 July 3, 1999       January 2, 1999
                                                                                ---------------    ----------------
<S>                                                                             <C>                <C>
Land ........................................................................   $           933    $            935
Buildings....................................................................            36,899              36,105
Machinery and equipment......................................................           204,575             202,680
                                                                                ---------------    ----------------
                                                                                        242,407             239,720
Less accumulated depreciation................................................          (149,717)           (140,234)
                                                                                ---------------    ----------------
     Property, plant, and equipment - net....................................   $        92,690    $         99,486
                                                                                ===============    ================
</TABLE>

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


                                       9
<PAGE>   10


6.       LONG-TERM DEBT AND REVOLVING CREDIT FACILITY

Long-term debt consisted of the following:

-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                 July 3, 1999       January 2, 1999
                                                                                ---------------    ----------------
<S>                                                                             <C>                <C>
Term loans...................................................................   $        55,448    $         59,402
Revolving credit facility....................................................            67,147              66,954
Purchase money mortgage debt  ...............................................               870                 913
Industrial development note (net of unamortized discount)....................               460                 439
Capital lease obligations....................................................               295                 344
                                                                                ---------------    ----------------
Total........................................................................           124,220             128,052
Less current maturities and revolving credit facility........................          (122,958)            (76,943)
                                                                                ---------------    ----------------
                                                                                $         1,262    $         51,109
                                                                                ===============    ================
</TABLE>

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

The Company has a credit agreement with a syndicate of lenders (the "Bank Credit
Agreement"), which was entered into on March 28, 1996. The Bank Credit
Agreement, as amended to date, provides aggregate loans of up to $160,000,
including a revolving credit loan (the "Revolving Credit Facility") of up to
$80,000, a term loan for $40,000 ("Term Loan A") and a term loan for an
additional $40,000 ("Term Loan B"). The maturity date for all borrowings under
the Bank Credit Agreement is July 1, 2000.

As of July 3, 1999, the Company had outstanding borrowings under the Bank Credit
Agreement of $122,595 and $7,415 unused under the Revolving Credit Facility net
of $125 of standby letters of credit.

Covenants and Restrictions - Under the terms of the Bank Credit Agreement,
substantially all assets are pledged as collateral for the borrowings under the
Bank Credit Agreement. The Bank Credit Agreement requires the Company to
maintain certain financial ratios and specified levels of tangible net worth,
places a limit on the Company's level of capital expenditures and its ability to
effect certain types of mergers or acquisitions, and permits the Company to pay
cash dividends on its Common Stock provided certain financial tests are met.
Under these financial tests, at July 3, 1999, the Company was not permitted to
declare or pay cash dividends.

Proceeds from the sale of certain defined assets are generally applied against
the term loans in inverse order of the loan maturities.

Amendments to the Bank Credit Agreement - The Bank Credit Agreement has been
amended several times, the latest amendment of which was executed on April 1,
1999 (the "1999 Amendment") to modify certain covenants. Although the Company
was in compliance with existing covenants at January 2, 1999, it had anticipated
the need for amendments to cover periods beyond January 2, 1999, without which,
technical noncompliance with certain financial covenants was considered to be
imminent. In addition to covenant modifications, the 1999 Amendment also
included an increase in interest rates of 1/2 of 1% which took effect on April
4, 1999. As of July 3, 1999, the Company was in compliance with the covenants
under the Bank Credit Agreement.

The increase in interest rates is geared to maintenance of certain ratios. If
the Company's financial position, and the related ratios improve, the amended
agreement provides for a decrease in interest rates for Term Loan A and the
Revolving Credit Facility.

In addition to limited covenant modifications, which were effective through
January 2, 1999, and increased interest rates, a March 30, 1998 amendment (the
"March 1998 Amendment") required the Company to adopt new cash management
procedures during the second quarter of 1998, which included establishment of a
lock-box with instruction for customers to remit payments directly to the
lock-box. As a result of this lock-box arrangement, generally accepted
accounting principles required the Company to classify the Revolving Credit
Facility, which has


                                       10
<PAGE>   11

a maturity date of July 1, 2000, as a current liability. Pursuant to the March
1998 Amendment, the Company agreed that a collateral monitoring arrangement
should be put into effect whereby the Company is required, through an
independent collateral monitoring agent, to report certain financial data on a
periodic basis to the lenders.

The Company paid amendment fees as a result of both the 1999 Amendment and the
March 1998 Amendment in an amounts equal to 1/4 of 1% of Term Loan A, Term Loan
B, and the Revolving Credit Facility, respectively.

As of July 1, 1999, all borrowings under the Bank Credit Agreement have a
maturity date of July 1, 2000 and have been classified as a current liability.

7.       EARNINGS PER SHARE

Earnings per share is not presented on a diluted basis, as the effect of
dilutive securities is anti-dilutive due to net losses for all periods
presented.

8.       INCOME TAXES

The benefit for income taxes as computed under SFAS No. 109, "Accounting for
Income Taxes", is comprised of the following:

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

<TABLE>
<CAPTION>

                                                                                         Six Months Ended
                                                                                -----------------------------------
                                                                                 July 3, 1999        July 4, 1998
                                                                                ---------------    ----------------
<S>                                                                             <C>                <C>
Federal:
     Current.................................................................   $          (951)   $           (829)
     Deferred................................................................              (708)                (27)
                                                                                ---------------    ----------------
                                                                                         (1,659)               (856)
State:
     Current.................................................................              (108)                (15)
     Deferred................................................................               (95)                (22)
                                                                                ---------------    ----------------
                                                                                           (203)                (37)


Benefit for income taxes.....................................................   $        (1,862)   $           (893)
                                                                                ===============    ================
</TABLE>

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

The reconciliation of the Company's effective income tax benefit rate to the
Federal statutory rate of 34% follows:

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

<TABLE>
<CAPTION>

                                                                                         Six Months Ended
                                                                                -----------------------------------
                                                                                 July 3, 1999        July 4, 1998
                                                                                ---------------    ----------------

<S>                                                                             <C>                <C>
Federal income tax benefit at statutory rate.................................   $        (1,875)   $           (815)
State income tax benefit, net of Federal tax benefit.........................              (134)                (24)
Amortization of goodwill.....................................................               107                 106
Other - net..................................................................                40                (160)
                                                                                ---------------    ----------------
                                                                                $        (1,862)   $           (893)
                                                                                ---------------    ----------------
Effective rate...............................................................             33.77%             37.27%
                                                                                ===============    ================
</TABLE>

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

The effective tax rates in 1999 and 1998 were affected by the amortization of
goodwill and other operating expenses, which are not tax deductible.


                                       11
<PAGE>   12


9.      SEGMENT AND RELATED INFORMATION

The Company's principal operations include manufacturing and marketing of
finished and unfinished (greige) fabrics plus processing and marketing of
textile waste fibers and fabrics. The Company's operations are organized around
manufacturing processes and its reportable business segments include the Greige
Fabrics Division, the Finished Fabrics Division and the Fiber Products Division.
All remaining operations have been aggregated as "All Other". Segments are
evaluated on the basis of income (loss) on continuing operations before income
taxes. Intersegment transactions are generally recorded at cost.

Financial and related information for business segments is as follows:

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

<TABLE>
<CAPTION>

                                                   Greige      Finished     Fiber         All      Reconciling
               Period                              Fabrics     Fabrics     Products     Other      Eliminations  Consolidated
------------------------------------------------   -------     -------     --------     -----      ------------  ------------
<S>                                                <C>         <C>         <C>        <C>          <C>           <C>
As of and for the six months ended July 3, 1999
Trade revenues                                     $ 59,867    $ 50,131     $16,810    $   5,986     $      --     $ 132,794
Intersegment revenues                                 2,943       2,452         368           --        (5,763)           --
Income (loss) before income taxes                        74       1,247       1,017       (7,852)           --        (5,514)
Total assets                                        100,764      69,722      21,686      333,924      (315,252)      210,844


As of and for the six months ended July 4, 1998
Trade revenues                                     $ 75,731    $ 50,449     $17,384    $   5,338     $      --     $ 148,902
Intersegment revenues                                 3,652       1,902         538           --        (6,092)           --
Income (loss) before income taxes                     8,224      (2,218)      1,227       (9,629)           --        (2,396)
Total assets                                        111,207      72,094      19,238      408,846      (387,237)      224,148

</TABLE>

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

10.      RELATED PARTY TRANSACTIONS

Redlaw Industries, Inc. ("Redlaw"), a stockholder, was the commissioned sales
agent for the Company for substantially all sales of the Company's products into
Canada under the terms of a non-exclusive sales agency agreement from May 1994
until December 1998. As of July 4, 1998 there was approximately $186 of
inventory located at a warehouse in Canada, which was supervised by Redlaw, and
there were accrued commissions payable to Redlaw of $21. Commissions of
approximately $93 and $175, respectively, were paid to Redlaw for the three
months and the six months ended July 4, 1998.


                                       12
<PAGE>   13


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

General

The accompanying unaudited condensed consolidated financial statements include
the accounts of Johnston Industries, Inc. ("Johnston"), its direct wholly owned
subsidiary, Johnston Industries Alabama, Inc. ("JI Alabama") and its indirect
wholly owned subsidiaries, Johnston Industries Composite Reinforcements, Inc.
("JICR") and Greater Washington Investments, Inc. ("GWI") (collectively, the
"Company").

Results of Operations

During the past twelve months, world demand for U.S. textile products has
lessened. This is a result of a combination of factors, including the strong
U.S. Dollar and financial instability in many regions of the world. In addition,
textile imports into the U.S., particularly apparel, have increased sharply as
foreign producers seek U.S. dollars to offset weakness in their domestic
economies. These factors have led to deflationary price pressures on textile
products and increased competition from both foreign producers, as described
above, and U.S. producers seeking to offset lost demand by entering the
Company's markets. Management believes that though there may have been certain
fundamental shifts in world textile markets, such as apparel, the recent trend
of opportunistic, price driven purchasing in many of the Company's markets is
not sustainable. By necessity, these markets will gravitate back to high
quality, service-oriented manufacturers that can best satisfy the customer's
long-term needs.

Although net sales for the second quarter of 1999 increased by $2.7 million from
the first quarter of 1999, net sales for the three months and six months ended
July 3, 1999 decreased $1.3 million and $16.1 million, respectively, from the
three months and six months ended July 4, 1998. An analysis of changes in net
sales by market is as follows (in thousands)
<TABLE>
<CAPTION>

                                                                                   2nd Qtr 1999        YTD 1999
                                                                                 Incr/(Decr) from  Incr/(Decr) from
                                                                                   2nd Qtr 1998        YTD 1998
                                                                                  ---------------  ----------------
<S>                                                                               <C>              <C>
Industrial/Automotive...........................................................  $           550  $           (892)
Home Furnishings/Hospitality....................................................           (4,410)          (16,785)
Apparel.........................................................................            2,376             1,959
Specialty Markets/Miscellaneous.................................................              183              (390)
                                                                                  ---------------  ----------------
     Net Trade Sales............................................................  $        (1,301) $        (16,108)
                                                                                  ===============  ================
</TABLE>


-    Sales of industrial and automotive fabrics for the quarter increased
     slightly compared to the second quarter of 1998. Sales for the second
     quarter reflect increased volume in non-automotive coated fabrics plus
     addition of a new industrial fabric customer. Reduced sales of these
     fabrics for the first six months of 1999 were largely the result of
     inventory management programs initiated by two separate customers.
-    Overall sales of home furnishing and hospitality fabrics for the quarter
     and the first six months of 1999 declined heavily from the levels recorded
     for the three months and six months ended July 4, 1998. Reduced sales of
     upholstery substrate fabrics of the type produced by the Greige Fabrics
     Division account for the majority of this reduction. Currency and economic
     difficulties in Eastern Europe arising during the second quarter of 1998
     sharply impacted demand for fabrics produced by customers of the Greige
     Fabrics Division. Economic conditions in this region of the world have
     precluded a recovery of this demand to date. To a lesser degree, decreased
     sales of residential furniture fabrics, casual furniture fabrics and
     top-of-the-bed fabrics contribute to the overall decline. Sales of napery
     fabrics by the Finished Fabrics Division continued to grow, partially
     offsetting the declines as discussed above.
-    The Greige Fabrics Division capitalized on certain short-term opportunities
     to sell apparel fabrics at attractive margins during early 1998. During the
     second quarter of 1999, the Greige Fabrics Division booked an increased
     level of apparel orders at lower margins, but this trend is not expected to
     extend beyond a short period of time.

                                       13
<PAGE>   14
-    Sales to specialty markets reflect declines in sales of yarn by the Greige
     Fabrics Division and sales of remnants by the Fiber Products Division.
     Additionally, a fire at the Fiber Products Division's DeWitt Plant in March
     1999 (see discussion below at Legal and Other Matters) necessitated
     shipments from the Lantuck Plant, in Lanett, Alabama, to service
     mid-western customers. Despite this short-term action, post-fire inventory
     was not sufficient to fully meet demand, and the DeWitt Plant has operated
     near capacity, while rebuilding its available for sale stock, since
     production resumed in April 1999. Competitive conditions have driven prices
     for sales yarn very low, making it difficult to move yarn profitably. The
     Company's Composite Reinforcement operation, however, recorded double digit
     growth compared to the same periods in 1998, mitigating, in part, the
     effect of the declines described above.

The Company's backlog of customer orders was $57.6 million at July 3, 1999,
$49.4 at January 2, 1999 and $69.4 million at July 4, 1998. Compared to the
order backlog at July 4, 1998, the July 3, 1999 order backlog reflects the
impact of currency and economic difficulties in Eastern Europe and South America
on the Company's customers. Although order backlog had reached an unusually low
level at January 2, 1999, it had risen to $64.4 million by the end of January
1999, and has stabilized since that time. Management expects softness in demand
for most of the markets in which the Company sells its products and import
pressure on greige decorative programs to continue through at least the third
quarter of 1999. However, while no assurances can be given, management expects
some moderate strengthening in markets for certain greige decorative fabrics
during the latter half of 1999.

Gross margin as a percentage of net sales for the three months and six months
ended July 3, 1999 was 9.1% and 10.2% compared to 12.5% and 12.4% for the same
periods in 1998, respectively. Lower capacity utilization associated with
decreased revenues has contributed to reduced gross margin for both the second
quarter and the first six months of 1999. Depressed virgin cotton prices have
driven prices for recycled textile waste products to new lows, negatively
affecting margins for the Fiber Products Division. Additionally, these margins
have been further weakened by increased shipping costs during the quarter when
mid-western customers were serviced from the Lantuck Plant in Lanett, Alabama
following the DeWitt Plant fire (see discussion below at Legal and Other
Matters).

For the three months and six months ended July 3, 1999, selling, general and
administrative expenses decreased by $382 thousand (5.6%) and $873 thousand
(6.3%), respectively, from the same periods in 1998. Decreased sales of certain
upholstery fabrics have resulted in reduced selling costs. Additionally,
professional services associated with a 1997 realignment were substantially
concluded in April 1998.

Interest expense was $3.1 million and $6.2 million, respectively, for the three
months and six months ended July 3, 1999 compared to $3.5 million and $6.7
million for the three months and six months ended July 4, 1998. Changes in
interest expense reflect the effects of both reduced average borrowings and
increased average rates associated with the March 30, 1998 and April 1, 1999
amendments to the Company's bank credit agreement (the "Bank Credit Agreement"),
as discussed below. Obligations under the Bank Credit Agreement at July 3, 1999
were $3.8 million less than obligations at January 2, 1999 and $10.1 million
less than obligations at July 4, 1998.

During the first six months of 1999 and 1998, respectively, approximately $419
thousand and $480 thousand of deferred loan costs were charged to Other-net.
These amounts represent the unamortized balance of original loan costs and prior
amendment costs which are related to provisions of the Bank Credit Agreement
which were amended on March 30, 1998 and April 1, 1999, respectively. In March
1999, approximately $346 thousand of deferred loan costs were capitalized in
connection with the 1999 amendment and are being amortized over the remaining
term of the 1999 amendment, which is effective through January 1, 2000. A net
amount of approximately $223 thousand has been recorded in Other-net in 1999 for
insurance proceeds receivable as a result of fire damage at the Fiber Products
Division's DeWitt Plant (see discussion below at Legal and Other Matters).

Liquidity and Capital Resources

The Company's needs for capital resources have been filled through cash
generated from operating activities and have been supported by availability of
borrowings under its Bank Credit Agreement, which was entered into on March 28,
1996. The Bank Credit Agreement, as amended to date, provides aggregate loans of
up to $160 million


                                       14
<PAGE>   15

including a revolving credit loan (the "Revolving Credit Facility") of up to $80
million, a term loan for $40 million ("Term Loan A") and a term loan for an
additional $40 million ("Term Loan B"). The maturity date for all borrowings
under the Bank Credit Agreement is July 1, 2000.

As of July 3, 1999, the Company had outstanding borrowings under the Bank Credit
Agreement of $122.6 million, and $7.4 million unused under the Revolver net of
$125 thousand in standby letters of credit. Principal payments since January 2,
1999 have reduced outstanding borrowings under the Bank Credit Agreement by $3.8
million.

Under the terms of the Bank Credit Agreement, substantially all assets are
pledged as collateral for the borrowings under the Bank Credit Agreement. The
Bank Credit Agreement requires the Company to maintain certain financial ratios
and specified levels of tangible net worth, places a limit on the Company's
level of capital expenditures and its ability to effect certain types of mergers
or acquisitions, and permits the Company to pay cash dividends on its Common
Stock provided certain financial tests are met. Under these financial tests, at
July 3, 1999, the Company was not permitted to declare and pay cash dividends.

Proceeds from the sale of certain defined assets are generally applied against
the term loans in inverse order of the loan maturities.

The Bank Credit Agreement has been amended several times, the latest amendment
of which was executed on April 1, 1999 (the "1999 Amendment") to modify certain
covenants. Although the Company was in compliance with existing covenants at
January 2, 1999, it had anticipated the need for amendments to cover periods
beyond January 2, 1999, without which, technical noncompliance with certain
financial covenants was considered to be imminent. In addition to covenant
modifications, the 1999 Amendment also included an increase in interest rates of
1/2 of 1% which took effect on April 4, 1999. As of July 3, 1999, the Company
was in compliance with the covenants under the Bank Credit Agreement.

The increase in interest rates is geared to maintenance of certain ratios. If
the Company's financial position, and the related ratios improve, the amended
agreement provides for a decrease in interest rates for Term Loan A and the
Revolving Credit Facility.

In addition to limited covenant modifications, which were effective through
January 2, 1999, and increased interest rates, a March 30, 1998 amendment (the
"March 1998 Amendment") required the Company to adopt new cash management
procedures during the second quarter of 1998, which included establishment of a
lock-box with instruction for customers to remit payments directly to the
lock-box. As a result of this lock-box arrangement, generally accepted
accounting principles required the Company to classify the Revolving Credit
Facility, which has a maturity date of July 1, 2000, as a current liability.
Pursuant to the March 1998 Amendment, the Company agreed that a collateral
monitoring arrangement should be put into effect whereby the Company is
required, through an independent collateral monitoring agent, to report certain
financial data on a periodic basis to the lenders.

The Company paid amendment fees as a result of both the 1999 Amendment and the
March 1998 Amendment in amounts equal to 1/4 of 1% of Term Loan A, Term Loan B,
and the Revolving Credit Facility, respectively.

As of July 1, 1999, all borrowings under the Bank Credit Agreement have a
maturity date of July 1, 2000 and have been classified as a current liability.

On September 28, 1998, the Company entered into an agreement with Boeing Capital
Corporation, a subsidiary of The Boeing Company, which provides for leasing of
manufacturing equipment up to $10 million. As of July 3, 1999, approximately
$7.3 million of equipment had been placed on lease schedules and cumulative
spending on projects in progress under the leasing program was approximately
$2.7 million.

Cash flow provided by operating activities provided for capital reinvestment of
approximately $3.0 million, plus a reduction in obligations under the Bank
Credit Agreement of $3.8 million during the six months ended July 3, 1999. While
total long-term financing and short-term borrowings have been reduced by
approximately 7.4% over the last

                                       15
<PAGE>   16

twelve months, the Company continues to be highly leveraged in comparison to
periods preceding March of 1996. In consideration of the high levels of
indebtedness, management continues to focus its efforts on reduction of debt and
associated debt service costs. Although available cash has been adequate to
sustain the Company's operations, cash used for debt service and debt reduction
under the Bank Credit Agreement and cash used in the Company's capital
expenditure plan have strained the Company's available liquid assets. Management
expects improvements in cash generation from improved operating results, from
continued discipline in cost containment, reduction in inventories, judicious
review of its short term capital expenditure plans, and use of leasing programs
in lieu of cash purchases for portions of its capital investment plan. Although
no assurance can be given that cash provided by operating and financing
activities will be sufficient or that a replacement financial agreement will be
in place before the maturity of the existing Bank Credit Agreement, management
believes that through careful planning and constraint of discretionary cash
expenditures, cash generated by operations and cash available under the Bank
Credit Agreement will be sufficient to satisfy the Company's liquidity
requirements for at least the next year.

Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments imbedded in other contracts, and for hedging activities.
It requires that, at adoption, hedging relationships should be designated anew
and that entities recognize all derivatives as either assets or liabilities in
the statement of financial position and to measure those instruments at fair
value. The accounting for changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. As issued,
this statement is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999.

In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133." This statement defers the effective date for SFAS No. 133,
which will now be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The adoption of SFAS No. 133 is not expected to
have a material impact on the Company.

Year 2000

As a result of computer programs which historically were written using a two
rather than four digit convention to define the year component of dates, a
concern commonly known as the Year 2000 ("Year 2000") issue has arisen globally.
Computer programs and equipment that use a two digit convention may not be able
to differentiate between the 20th and 21st centuries (e.g. "00" could be either
1900 or 2000). This could result in system failures or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.

Year 2000 Plan - In 1997, the Company began systematic replacement of legacy
software applications, both purchased and developed in-house, with purchased
software as to which the vendor has represented to be Year 2000 compliant or the
vendor has indicated that subsequent releases will be Year 2000 compliant prior
to July 1999. During 1998, the Company appointed a Year 2000 Coordinator,
assembled a Year 2000 Team, and prepared a Year 2000 Plan. The Company's Year
2000 Plan is subject to modification and is revised periodically as additional
information is developed.

The Company's plan to resolve potential Year 2000 problems involved the
following four phases: assessment, remediation, testing, and implementation.
Contingency plans, including data back-up, disaster recovery, and possible
modifications to procurement and production scheduling, will be developed during
the second half of 1999. Assessment of significant computer application systems
was completed in 1998. All systems were considered to be vulnerable until
objective data could be obtained and in the case of packaged software, until
vendor certification was obtained, to support our assessment. Several of the
Company's computer application systems were determined to be Year 2000 compliant
and the remainder were identified for replacement or remediation.

                                       16
<PAGE>   17

The majority of the Company's application systems are being completely replaced
by packaged systems represented as being Year 2000 compliant. The largest
replacement project began in August 1997 for the Company's Finished Fabrics
Division. Replacement for the Fiber Products Division, which is considerably
less sophisticated than the Finished Fabrics systems, began in November 1998.
Once software is replaced or reprogrammed, a working model is prepared and work
proceeds to testing and implementation. These phases run concurrently for
different systems. The replacements, as identified above, are expected to be
completed by September 1999. For the remaining computer application systems
which will not be replaced, remediation is underway and subsequent testing is
expected to be completed by October 1999. Management believes that lines of code
for systems requiring remediation, as opposed to replacement, represent only a
small percentage of the total lines of computer code in service.

For personal computers which are critical to operations or which are part of
decision support systems, the hardware, operating systems, and application
software are being reviewed for compliance. The Company is upgrading or
replacing all such systems once they are identified as out of compliance.
Management believes that better than 90 percent of personal computers, which
will be identified as critical, have been upgraded or replaced to date.

Year 2000 Exposure for Products - Based on a review of its product line, the
Company has determined that all of the products it has sold and will continue to
sell contain no electronic or computerized components which would require
remediation to be Year 2000 compliant. Accordingly, the Company believes that it
does not have material exposure as it relates to the Company's products.

Third Party Readiness - The Company has material relationships with third
parties whose failure to be Year 2000 compliant could have material adverse
impacts on the Company's business, operations or financial condition. Third
parties considered by the Company's Year 2000 Team to be in this category ("Key
Business Partners") include critical suppliers, significant customers, financial
institutions, and utility providers. In conjunction with identification of Key
Business Partners, the Company's assessment of Year 2000 risk included
evaluation of production equipment, building systems, and critical services
provided by Key Business Partners.

Production (manufacturing) and building (telephone, alarm, fire control, climate
control, etc.) equipment is being investigated for compliance. Additionally, the
Company screens all purchases to insure that all new equipment acquisitions are
compliant. The Key Business Partner representing each model of equipment in use
is being contacted to determine (a) if the equipment contains any hardware or
software with Year 2000 exposure, (b) if any equipment with Year 2000 exposure
is non-compliant, and (c) if upgrades or enhancements will be provided for all
non-compliant equipment. To date, the majority of Key Business Partners
representing production and building equipment have been contacted and most have
responded. The Company is not presently aware of any equipment at risk for which
remedial upgrades or enhancements will not be available. Contingency plans will
be prepared for any vulnerable equipment for which remediation is not available
on a timely basis, practical, or possible.

Vendors and suppliers of raw materials, operating supplies, utilities, plus
financial and other critical services are being surveyed for Year 2000
readiness, and the Company's Year 2000 Team is meeting with those who are
identified as Key Business Partners. Responses from vendors and suppliers of
less critical importance to our business are being evaluated and follow-up
action is being taken by the Company as it deems appropriate. All of the vendors
which have been identified as Key Business Partners for these goods and services
have been contacted and substantially all have responded.

Significant customers identified by the Company's Year 2000 Team as Key Business
Partners are being contacted for the purpose of assessing Year 2000
preparedness. A majority of customers, which have been identified as Key
Business Partners, have now responded. The Company is not presently aware of any
customer identified as a Key Business Partner who has been determined to be at
risk and whose failure as a result of Year 2000 exposure would materially impact
the Company's business, operations or financial condition.

To date, the Company is not aware of any Key Business Partner who has been
identified as vulnerable and whose failure would materially impact the Company's
business, operations or financial condition. The Company's Year 2000 Team is
presently engaged in follow up with Key Business Partners who had earlier
indicated they would complete preparations during the third quarter of 1999.
Although no assurance can be given that acceptable alternatives can be developed
to mitigate a failure of business partners to achieve Year 2000 compliance, the
Company will monitor business partners for exposure and to the extent
practicable, contingency plans will be evaluated for any critical business
partner who may be vulnerable.

                                       17
<PAGE>   18

Year 2000 Risks and Costs - As a result of the upgrades described above and
assuming the projects in progress are completed in a satisfactory manner, the
Company believes that the Year 2000 issue will not pose significant operational
problems for the Company's computer systems and that it will be prepared in time
to minimize any material impact to the Company's business, operations or
financial condition. Failure to achieve a timely state of readiness or failure
of a Key Business Partner or other third party to effectively remediate their
affected systems could have a materially adverse impact on the Company's
business operations, or financial condition. The Company anticipates completing
the Year 2000 project no later than October 1999.

The cost of addressing the Year 2000 issues has been and will continue to be
substantially absorbed in the budget for improvement in management information
systems and by normal costs for administrative and technical employees. The
Company does not anticipate incurring significant third party costs to test or
reprogram systems, however the Company has from time to time retained contract
programmers and consultants to work on discrete projects or review aspects of
the Company's information systems, and will continue this practice into the
foreseeable future. Management believes that the cost of Year 2000 modifications
will not have a material effect on its business, operations or financial
condition.

The Company has a high level of dependence on computer application systems,
which are used to drive the business, and manufacturing equipment, which may
include advanced computerized controls. The Company believes that a number of
Key Business Partners also rely on such systems and equipment. There can be no
guarantee that the software replacement projects will be successful or that the
vendors supplying software to the Company will provide new software releases
that are Year 2000 compliant. In addition, there can be no assurances that there
will not be problems identified when screening production and support equipment,
and ancillary systems and that such problems will not have a material effect on
the Company's business, operations or financial condition. Additionally, as the
Company relies on representations given by its Key Business Partners and other
third parties, there can be no assurances that all such representations are
accurate and effective in identifying Key Business Partners and other third
parties potentially at risk and that unidentifiable risk will not have a
material adverse impact on the Company's business, operations or financial
condition.

Legal and Other Matters

The Company is periodically involved in legal proceedings arising in the
ordinary conduct of business. Management does not expect that such proceedings
will have a material adverse effect on the Company's consolidated financial
position, results of operations or liquidity. During 1997, management became
aware of certain industrial espionage activities that targeted the Company and
several other textile manufacturers, allegedly carried out by agents of a large
competitor. On October 8, 1998, the Company filed suit in Alabama seeking
recourse for damages and losses resulting from these alleged activities. The
case is currently in the discovery process.

On Thursday March 11, 1999, a fire damaged the Company's DeWitt Plant in DeWitt,
Iowa. The fire is believed to have started in an electrical junction box in the
warehouse. The warehouse incurred substantial damage and other portions of the
facility received lesser damage caused by smoke, heat and water. The DeWitt
Plant, which produces insulator pads for the Fiber Products Division, resumed
operations on April 12, 1999. Management believes that substantially all losses
associated with this fire will be recovered through property and business
interruption insurance, however, no assurances can be given as to when or
whether acceptable settlements will be reached with the Company's insurance
provider.

From time to time the Company receives unsolicited indications of interest
relating to the acquisition of the Company or certain assets of the Company by
others. While management and the Board of Directors reviews each offer in
accordance with the appropriate discharge of their fiduciary duties to the
shareholders of the Company, neither the Company or any of its operations are
currently considered "for sale" as management believes that current market
conditions are not advantageous for a premium sales opportunity.



                                       18
<PAGE>   19

Risks and Uncertainties

Except for historical information contained herein, the matters set forth in
this report are forward looking statements which are intended to be covered by
the "Safe Harbor" provisions of the "Private Securities Litigation Reform Act of
1995" and are subject to certain risks and uncertainties that could cause actual
results to differ materially from those in, or which could be expected based on,
such forward looking statements. The Company's expectations regarding future
sales and profits assume, among other things, reasonable continued growth in the
general economy which affects demand for the Company's products, and reasonable
stability in raw materials pricing, changes in which affect customer purchasing
decisions as well as the Company's prices and margins. The costs and benefits of
the Company's discontinuance of Jupiter venture capital investments may vary
from the Company's expectations with respect to anticipated proceeds from the
sale of assets. For a further discussion of risks and uncertainties associated
with the Company's business, readers are referred to the cautionary statement
set forth in Item 1 of the Company's annual report on Form 10-K for the year
ended January 2, 1999, which cautionary statement is incorporated by reference
herein.



                                       19
<PAGE>   20

ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from changes in interest rates and changes
in commodity prices. Exposure to interest rate risk relates to variable rate
obligations under the Company's Bank Credit Agreement which permits the Company
to allocate its total obligations between prime and LIBOR rate basis. Interest
rate swap agreements are utilized to manage overall borrowing costs and reduce
exposure to adverse fluctuations in interest rates. An interest rate swap
agreement is currently in place under which the Company pays an average of
certain LIBOR based variable rates on $26.5 million notional principal. This
agreement, which was entered into on June 3, 1999, expires on July 1, 2000, also
contains interest rate caps which further limit interest rate exposures. If
interest rates related to the Company's LIBOR obligations increased by 100 basis
points over the rates in effect at January 2, 1999, interest expense, after
considering the effects of interest rate swap agreements, would increase by
approximately $1 million in 1999. These amounts were determined by considering
the impact of hypothetical interest rates on the Company's borrowing cost and
interest rate swap agreements. The analyses do not consider the effects of the
overall reduced debt levels anticipated in 1999. Further, in the event of a
change of such magnitude, management would likely take actions to further
mitigate its interest rate exposures. An April 1, 1999 amendment to the
Company's bank credit agreement included an increase in interest rates of 1/2%
which took effect on April 4, 1999.

The Company purchases cotton through approximately ten established merchants
with whom it has long standing relationships. The majority of the Company's
purchases are executed using "on-call" contracts. These on-call arrangements are
used to insure that an adequate supply of cotton is available for the Company's
requirements. Under on-call contracts, the Company agrees to purchase specific
quantities for delivery on specific dates, with pricing to be determined at a
later time. Prices are set according to prevailing prices, as reported by the
New York Cotton Exchange, at the time of the Company's election to fix specific
contracts.

Cotton contracts with a fixed price at July 3, 1999 was valued at $6.4 million
compared to $7.4 million at January 2, 1999, and is scheduled for delivery from
July through October of 1999. At July 3, 1999, the Company had unpriced on-call
contracts for deliveries between October 1, 1999 and November 1, 2000. Based on
the prevailing price at July 3, 1999, the value of these commitments is
approximately $2.5 million for deliveries between October and December of 1999
and approximately $7.8 million for deliveries between January and November of
2000. As commodity price aberrations are generally short-term in nature, and
have not historically had a significant long-term impact on operating
performance, financial instruments are not used to hedge commodity price risk.

The Company does not utilize financial instruments for trading or other
speculative purposes.

                                       20
<PAGE>   21

                   JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES

                           PART II. OTHER INFORMATION


ITEM 1.       LEGAL PROCEEDINGS

No reportable legal proceedings arose in the quarter ended July 3, 1999.

ITEM 2.       CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.       DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On May 26, 1999, the Annual Meeting of Stockholders was held at the Company's
offices located at 105 Thirteenth Street, Columbus, Georgia 31901. There were
present in person or by proxy 10,037,426 shares of Common Stock entitled to
vote. The only matter submitted to a vote of security holders was the election
of directors. The following shares were voted for election of nominees for
Director:


<TABLE>
<CAPTION>
         Nominee                   No. of Shares in Favor          Withheld
         -------                   ----------------------          --------
         <S>                       <C>                             <C>
         J. Reid Bingham                  9,900,672                 136,754
         Allyn P. Chandler                9,898,954                 138,472
         John A. Friedman                 9,898,672                 138,754
         William J. Hart                  9,900,672                 136,754
         Gaines R. Jeffcoat               9,902,084                 135,342
         D. Clark Ogle                    9,900,672                 136,754
         C. Philip Stanley                9,902,084                 135,342
</TABLE>

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

          3.1(d)  Certificate of Designation by the Board of Directors

         11       Statements of Computation of Per Share Earnings

         27       Financial Data Schedule (for SEC use only)

(b)      Reports on Form 8-K

         None.


                                       21
<PAGE>   22


JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------

                                   SIGNATURES



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













                                           JOHNSTON INDUSTRIES, INC.




Dated:        August 17, 1999              By:    /s/James J. Murray
      ----------------------------            ---------------------------------
                                                  James J. Murray
                                                  Executive Vice President and
                                                  Chief Financial Officer
                                                  (Principal Accounting Officer)


                                       22