FORM 10-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549




(Mark One)
  X    ANNUAL REPORT PURSUANT TO SECTION 13 or 15(D) OF THE SECURITIES
       EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the fiscal year ended September 25, 1999

	OR

_____  TRANSITION REPORT PURSUANT TO SECTION 13 or 15(D) OF THE
       SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from __________________ to ________________.

Commission File No.  0-22416

KENTUCKY ELECTRIC STEEL, INC.
(Exact name of Registrant as specified in its charter)


            Delaware                                     61-1244541
(State or other jurisdiction of                      (I.R.S. Employer
incorporation or organization)                         Identification
                                                           Number)

P. O. Box 3500, Ashland, Kentucky 41105-3500
(Address of principal executive office, Zip code)

(606) 929-1222
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:  None

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

Common Stock, par value $.01 per share
(Title of Class)

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  ( )



(Cover Page 1 of 2 Pages


Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Registration S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in  definitive proxy
or information statement incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.  (X)

Aggregate market value of the voting stock held by non-affiliates of
the Registrant based on the closing price on December 10, 1999:
$9,452,707.

Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of December 10, 1999:

4,075,358 shares of Common Stock, par value $.01 per share.




DOCUMENTS INCORPORATED BY REFERENCE


Portions of the registrant's Proxy Statement for the Annual
Meeting of Shareholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14(a) are incorporated herein by
reference in response to items 10 through 13 in Part III of this
report.

(Cover Page 2 of 2 Pages)
<PAGE>



KENTUCKY ELECTRIC STEEL, INC.

FORM 10-K


TABLE OF CONTENTS


                                                                  Page

PART I ..........................................................   4

     Item 1.  Business ..........................................   4
     Item 2.  Properties ........................................  10
     Item 3.  Legal Proceedings .................................  11
     Item 4.  Submission of Matters to a Vote of Security Holders  11

PART II .........................................................  12

     Item 5.  Market for Registrant's Common Equity and Related
              Shareholder Matters ...............................  12
     Item 6.  Selected Financial Data ...........................  12
     Item 7.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations ...............  13
     Item 7A. Qualitative and Quantitative Disclosure about
              Market Risk .......................................  20
     Item 8.  Financial Statements and Supplementary Data .......  20
     Item 9.  Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure ...............  20

PART III ........................................................  21


     Item 10. Directors and Executive Officers of the Registrant   21
     Item 11. Executive Compensation ............................  21
     Item 12. Security Ownership of Certain Beneficial
              Owners and Management .............................  21
     Item 13. Certain Relationships and Related Transactions ....  21

PART IV .........................................................  22


     Item 14. Exhibits, Financial Statement Schedules and
              Reports on Form 8-K ...............................  22

SIGNATURES ......................................................  25

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE  .....................  26


<PAGE>














KENTUCKY ELECTRIC STEEL, INC.

PART I


Item 1.	Business


General

Kentucky Electric Steel, Inc., a Delaware corporation
incorporated in August, 1993 (the "Company"), owns and operates a
steel mini-mill near Ashland, Kentucky. As a mini-mill producer of bar
flats, the Company recycles steel from scrap, a process designed to
result in lower production costs than those of integrated steel mills,
which produce steel by processing iron ore and other raw materials in
blast furnaces.  Bar flats are produced to a variety of specifications
and fall primarily into two general quality levels - merchant bar
quality steel bar flats ("MBQ Bar Flats") for generic types of
applications, and special bar quality steel bar flats ("SBQ Bar
Flats"), where more precise customer specifications require the use of
various alloys, customized equipment and special production procedures
to insure that the finished product meets critical end-use performance
characteristics.  The Company is a leading manufacturer of SBQ Bar
Flats for the cold drawn bar converter and truck trailer support beam
markets. Approximately 80% of the Company's sales are of SBQ Bar
Flats.

The Company completed a two-phase capital expenditure program in
fiscal 1996. The first phase expanded the Company's casting, rolling
and finishing capacity and increased the size range of products the
Company produces.  The second phase, installation of a ladle
metallurgy facility, removed the refining cycle from the electric arc
furnace, thereby increasing total melting capacity.

The Company manufactures over 2,600 different SBQ Bar Flat items
which are sold to a variety of relatively small volume niche markets,
including the leaf-spring suspension market for light and heavy-duty
trucks, mini-vans and utility vehicles, cold drawn bar converters,
certain specialty applications for steel service centers, truck
trailer manufacturers and other miscellaneous markets.  The Company's
mill was specifically designed to manufacture wider and thicker bar
flats up to three inches in thickness and twelve inches in width that
are required by these markets. In addition, the Company employs a
variety of specially designed equipment which is necessary to
manufacture SBQ Bar Flats to the specifications demanded by its
customers.  Although the Company specializes in SBQ Bar Flats,
particularly in the thicker and wider sections, it also, to a much
lesser extent, competes in the MBQ Bar Flat market.

The Company's business strategy is to increase its share of the
SBQ Bar Flat market and to expand into related niche market
applications where it can profitably supply products for special
customer needs.  The completion of the capital expenditure program
increased the range of thickness and width of the Company's products,
thereby creating the capacity for the Company to expand its business
primarily by increasing the number of products it sells to existing
customers and the development of new customers. The Company has
increased its shipments of the thicker, wider products from fiscal
1998 to fiscal 1999 and has continued to limit its sales to the leaf-
spring suspension market.

Manufacturing Operations

The Company recycles steel by melting steel scrap in two 50-ton
electric arc furnaces.  The molten steel is then taken to the ladle
metallurgy facility where a variety of alloys are added to make
different grades of steel in accordance with customer specifications.
The refined molten steel is then poured into a continuous caster to
produce continuous strands of steel with cross-sectional dimensions
ranging from approximately 16 to 72 square inches. The Company can
utilize up to four continuous strands in producing certain sizes.  The
strands are cut to produce billets of specified length which are
reheated to approximately 2,300 degrees Fahrenheit at the Company's
rolling mill and fed through a series of roll stands to reduce their
size and form them into steel bar sections.  These sections emerge
from the rolling mill, are uniformly cooled on a cooling bed, and are
cut to lengths specified by the customer.  The cut bar flats are
stacked into bundles ready for shipment.

The production capacity of finished products from the Company's
rolling and finishing facilities is approximately 400,000 tons per
year but can vary with product mix.  The annual production capacity of
the melting and casting operation is approximately 330,000 tons of
finished product.  Thus, the Company is able to finish more product in
its rolling operations than it is capable of producing with its
melting facilities.  The Company's ultimate goal is to balance its
operations at approximately 400,000 tons per year. The Company sold
244,000 tons of finished goods in 1999 which constitutes 74% of its
melting and casting capacity.

The Company transports its products by common carrier, generally
shipping by truck and by rail.  The Company has railroad sidings at
its facilities.


Capital Improvements and Expansion

Annual capital expenditures over the last five fiscal years have
averaged $7.2 million, which includes $2.8 million expended in fiscal
year 1999.

The Board of Directors has approved the fiscal 2000 capital
expenditure plan for approximately $1.7 million, which includes
completion of various projects began in fiscal 1999, as well as
equipment upgrades and replacements.


Primary Markets and Products

The Company is primarily a special bar quality ("SBQ") producer
of alloy and carbon steel bar flats.  Its primary markets are
manufacturers of leaf-spring suspensions, cold drawn bar converters,
flat bed truck trailer manufacturers and steel service centers.


Leaf-Spring Suspension Market.  High tensile SBQ spring steel is
produced to customer and industry specifications for use in leaf-
spring assemblies.  These assemblies are utilized in light, medium and
heavy duty trucks, trailers, mini-vans and four-wheel drive vehicles
with off-road capability.  The trend toward tapered leaf-spring
products and air-ride suspension continues.  These products use
somewhat less steel but they are manufactured from larger cross
section bar flats that match the Company's manufacturing strengths.

Cold Drawn Bar Converters Market.  The Company sells its expanded
range of SBQ hot rolled bar products to cold drawn bar manufacturers.
KESI's product range, 1/4" through 3" in thickness and 2" through 12"
in width, enables the Company to supply practically all the sizes
needed by the converters.  The converters remove the scale from the
hot rolled bar and draw it through a carbide die.  The drawing reduces
the cross section, improves surface and internal properties, and
produces a more exacting tolerance bar.  The end product is sold
directly to original equipment manufacturers and through distributors,
with the majority being sold by steel service centers.


Steel Service Centers Market.  Approximately 30% of all steel
shipments to the end-user are distributed through steel service
centers, making this the largest single market for steel
manufacturers.  The Company sells both MBQ and SBQ bar flats into this
market.  The majority of its sales consist of the less competitive
heavier section sizes and difficult to make grades.


Truck Trailers Market.  The Company is a significant supplier of SBQ
Bar Flats for flat bed trailer support beam flange material.  This
material is engineered and produced to exacting specifications
consistent with trailer manufacturers' requirements.


Miscellaneous Markets.  The Company supplies other markets including
metal building, grader blades, agricultural equipment, construction/
fabricating, railroad and industrial chain manufacturers. The products
furnished to these markets are primarily SBQ Bar Flats along with a
mixture of MBQ Bar Flats.

Although the Company has not focused its sales efforts on MBQ Bar
Flats, attention to select sizes of MBQ Bar Flats has provided good
balance for the Company's manufacturing facilities.  Within the MBQ
Bar Flat market, the Company has concentrated its sales on specialty
items as opposed to higher volume commodity products.  Targeted
opportunities within this market match the Company's ability to
produce thicker, wider bar flats described in "Business - General."


Customers

The Company sells to over 350 customers. Several wholly-owned
subsidiaries of Republic Technologies International represented
approximately 13.5% of sales for fiscal 1999. Two wholly-owned
subsidiaries of Niagara Corporation represented 11.0% of net sales for
fiscal 1999.  No other customer accounted for more than 10% of sales
in fiscal 1999. The loss of a principal customer could have a material
adverse effect on the Company's operations.

The Company's foreign sales as a percentage of total sales were
8.6% in fiscal 1999. These sales consisted primarily of leaf-spring
suspension products shipped to Canada and Mexico.


Marketing

Senior management of the Company is directly involved in sales
to new and existing customers.  Sales are nationwide and in certain
foreign markets. Sales efforts are performed by seven in-house sales
personnel and six manufacturers' representative companies.  The
efforts of these sales representatives are directed by the Company's
Vice President, Sales and Marketing.
Competition and Other Market Factors

The domestic and foreign steel industries are characterized by
intense competition.  The Company competes with domestic and foreign
producers, many of whom have financial resources substantially greater
than those available to the Company.  The Company has identified its
principal competition from the following sources:  (i) in its leaf-
spring suspension market, the Company faces competition from five
North American mills; (ii) in its cold drawn bar converters market,
the Company competes with five North American mills; (iii) in the
steel service center market, the Company encounters competition from
numerous North American mills; and (iv) in its truck trailer market,
the Company competes with one North American mill.  One company, which
competes in the leaf spring market, is currently in the construction
phase of a plan to increase the capacity of its plant and to expand
the size range of the products it manufactures.  The Company believes
that the principal competitive factors affecting its business are
quality, service, price and geographic location.


Backlog and Seasonality

As of September 25, 1999, the Company had firm orders for
approximately 52,000 tons representing approximately $24.1 million in
sales, as compared with approximately 54,000 tons representing
approximately $26.0 million in sales, at September 26, 1998.

The Company operates on a continuous basis with only occasional
scheduled shutdowns for heavy maintenance work.  The Company's
operations are not subject to seasonal fluctuations in operations or
sales.


Raw Materials

The principal raw material used in the Company's steel mill is
ferrous scrap.  Ferrous scrap is derived from, among other sources,
discarded automobiles, appliances, structural steel, railroad cars and
machinery.  The purchase price of scrap is subject to market
conditions largely beyond the control of the Company.  The Company is
located in an area where scrap is generally available and typically
maintains less than one month of scrap supply.  Historically, price
fluctuations of scrap have had no material long-term impact on the
Company.  However, while the Company has generally been successful in
passing on scrap cost increases through price increases, the effect of
steel imports, market price competition and under-utilized industry
capacity has in the past, and could in the future, limit the Company's
ability to increase prices.  One scrap dealer supplied approximately
34% of the Company's scrap in fiscal 1999.  In an attempt to insure an
adequate source of raw materials, however, the Company has identified,
inspected and purchased scrap from over 30 dealers.

	The Company's manufacturing process consumes large amounts of
electricity, which the Company purchases from Kentucky Power Company,
d/b/a American Electric Power ("AEP").  An abundant regional supply of
coal, used in producing electricity, helps keep the Company's energy
costs relatively low.  Prior to November 13, 1997, the Company
purchased electricity from AEP under an Interruptible Power Contract
("Prior Contract") which was terminable by either party upon 12 months
notice and under which AEP could interrupt service during times of
peak demand.  Effective November 13, 1997, the Company and AEP entered
into a contract for Operating Reserve Interruptible Electric Service
("1997 Contract") which will have a minimum term of five years unless
the Company gives AEP at least one year's notice of termination.  The
1997 Contract limits AEP's right to interrupt service to only those
instances that an AEP unit goes offline or that AEP is responsible to
share reserves with other electrical generators pursuant to the East
Central Area Reliability Coordination Agreement (ECAR), and any such
interruption can be no more than 30 minutes in duration.


Employees

As of September 25, 1999, the Company employed 407 people,
approximately 77% of whom are members of the United Steelworkers of
America.  The Company's current five-year collective bargaining
agreement expires in September 2004.  The Company believes that its
wage rates and benefits are competitive with other mini-mills.

The Company offers no postretirement employee health care
benefits or other benefit program subject to accounting under the
provisions of Statement of Financial Accounting Standards No. 106 -
"Employers' Accounting for Postretirement Benefits other than
Pensions".


Environmental and Regulatory Matters

The Company is subject to federal, state, and local
environmental laws and regulations concerning, among other matters,
wastewater discharge, air emissions and furnace dust disposal.  As
with similar mills in the industry, the Company's furnaces are
classified as generating hazardous waste (K061) because they produce
certain types of dust containing lead, chromium and cadmium ("Furnace
Dust").  The Company currently collects and handles Furnace Dust
through a contract with Horsehead Resource Development Company, Inc.
("HRD"), which reclaims from the waste dust certain materials for
reuse and arranges for further recycling or disposal of the residual
material.  Some of the Furnace Dust generated by the Company and
shipped to HRD was processed at HRD's Palmerton, Pennsylvania facility
(the "Palmerton Site"), which is the subject of a civil action ("Civil
Action") filed in the United States District Court for the Middle
District of Pennsylvania by USEPA (No. CV. 98-654) seeking recovery of
costs for alleged environmental contamination at the Palmerton Site.
HRD has negotiated a Consent Decree and a settlement of $4,984,000
with USEPA for the approximately 250 companies which sent 3,348,287
tons of Furnace Dust to the Palmerton Site.  On October 16, 1998, the
Company executed the Consent Decree in the Civil Action.  On December
10, 1999, the U. S. District Court approved and entered the Consent
Decree, which will require the payment of $64,950.18 for the Company's
1.3032 percent volumetric share of the Furnace Dust sent to the
Palmerton Site.  In consideration of this payment, the Company will be
relieved of any liability that the Company may have for contribution
or claims for response costs incurred in connection with the Palmerton
Site as provided by Sections 113(f)(2) and 122(g)(5) of the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended. HRD has represented to the Company that HRD will
pay USEPA the entire settlement of $4,984,000.  However, should HRD
not pay the $4,984,000 to USEPA, the Company will be required to pay
$64,950.18.

Between 1981 and 1983, the prior operator (the "Prior Operator")
disposed of Furnace Dust in the Cooksey Brother's landfill, in
Cannonsburg, Kentucky ("Cooksey Landfill"). Before 1981 the Prior
Operator disposed of Furnace Dust in other locations, including a
strip mine.  The Company did not assume any liability for disposal at
the Cooksey Landfill or such other sites in the acquisition agreement
pursuant to which the Company acquired its mini-mill in 1993.  The
Cooksey Landfill is operating pursuant to a permit and bond issued and
approved by the Kentucky Division of Waste Management, and the Company
has no reason to believe that the Cooksey Landfill or other sites are
likely targets for listing as a Kentucky "uncontrolled site" or
federal superfund site. On May 5, 1999, the Company was notified by
the Kentucky Division of Waste Management ("DWM") that as a result of
a RCRA Facility Assessment ("RFA") conducted in 1986 and 1987 while
the Company's mill was operated by the Prior Operator, that DWM
requests that the Company undertake a RCRA Facility Investigation
("RFI") and, if necessary, therefore, a RCRA Corrective Measures Study
("CMS") and, if necessary, therefore, a RCRA Corrective Measures
Implementation ("CMI").  On June 8, 1999, the Company was notified by
DWM that the Company's mill had been listed with 32 other sites in
Kentucky as a high priority for clean-up on the RCRA Corrective Action
Baseline List of Facilities.  The Company has not made a determination
as to whether the Prior Operator released any hazardous waste at its
site and has not agreed to undertake the RFI and is continuing
negotiations with DWM.  The Company, however, could incur
investigation and/or clean-up expenses in the future with respect to
the operation of the Company's facility by the Prior Operator with
respect to the Cooksey Landfill or such other sites if (1) the sites
are listed as a Kentucky "Uncontrolled Site" or Federal Superfund
Site, (2) DWM required the Company to undertake an RFI, CMS and CMI,
and (3) the Company is not successful in obtaining full
indemnification from the Prior Operator.

	The Company's operations are subject to the Federal Clean Air
Act which provides for regulation, through state implementation of
federal requirements, of the emission of certain air pollutants.  As
required by applicable regulations, on December 14, 1996, the Company
filed a Title V permit application with the Kentucky Division for Air
Quality ("DAQ"). On June 2, 1999, DAQ issued to the Company its Title
V Operating Permit ("Air Permit") with an expiration date of June 2,
2004.  As with similar mills in the industry, the Federal Clean Air
Act required that the Permit include emission limitations and
standards as well as monitoring, recordkeeping, reporting, inspection
and entry requirements to assure compliance with those limits.  The
Company does not know whether it will be able to comply with the Air
Permit without additional capital and/or operating expense.

	The Company's operations are also subject to the Federal Clean
Water Act which provides for regulation through state implementation
of federal requirements of the discharge of certain water pollutants.
On March 19, 1999, the Kentucky Division of Water ("DOW") issued the
Company its Kentucky Pollutant Discharge Elimination System Permit
("Water Permit") with an expiration date of May 31, 2002.  In its
application for the Water Permit, the Company requested that DOW re-
evaluate the temperature limits established in its prior permit.  DOW
has agreed to determine allowable surface water temperatures on a
site-specific basis and has included in the Water Permit a requirement
that the Company conduct a year-long thermal plume study to assess the
impact of the effluent temperature on the aquatic biota in the
receiving stream.  At the completion of the study, DOW will determine
allowable surface water temperatures on a site-specific basis
utilizing available data and the results of the thermal plume study.
The Company, therefore, does not know whether it will be able to
comply with temperature limits without additional capital and/or
operating expense when the limits are determined by DOW.

Further, there can be no assurance that evolving federal and
state environmental requirements or discovery of unknown conditions
will not (1) require the Company to make material expenditures in the
future or (2) affect the Company's ability to obtain permits for its
existing operations or any future expansion. The Company will continue
to plan and budget, as appropriate, for any additional capital and
operating expenses that may be required to upgrade or install new or
additional pollution control equipment in order to comply with all
permits.

On April 29, 1997, the Company ceased melting operations due to
the melting of a radioactive source.  The Company restarted its melt
shop operations on May 11, 1997, after decontamination of the melt
shop and related facilities.  The melting of the radioactive source
resulted in the classification of approximately 13,530 cubic feet of
Furnace Dust and 7,000 cubic feet of baghouse filter bags and related
supplies removed during decontamination as a mixed waste ("Mixed
Waste") as defined in the Federal Facility Compliance Act. On July 29,
1997, the Company entered into a contract with Zhagrus Environmental,
Inc. ("Zhagrus"), an affiliate of Envirocare of Utah, Inc.
("Envirocare"), for the packaging, transportation, treatment and
disposal of the Mixed Waste at the waste disposal facility of
Envirocare at Clive, Utah (the "Envirocare Facility").  The Envirocare
Facility is licensed by the State of Utah to handle and dispose of the
Mixed Waste.  On April 9, 1999, Zhagrus certified to the Company that
Zhagrus has completed the treatment and disposal of the Mixed Waste at
the Envirocare Facility.

Except as otherwise indicated, the Company believes it is in
substantial compliance with applicable environmental laws and
regulations.  Notwithstanding such compliance, if damage to persons or
property or contamination of the environment has been or is caused by
the conduct of the Company's business or by hazardous substances or
wastes used, generated or disposed of by the Company (or possibly by
prior operators of the Company's mini-mill or by third parties), the
Company may be held liable for such damages and be required to pay the
cost of investigation and remediation of such contamination.  The
amount of such liability to the Company could be material.  Changes in
federal or state laws, regulations or requirements or discovery of
unknown conditions could require additional expenditures by the
Company.

Item 2.	Properties

The Company's operations are located on approximately 122 acres
of land near Ashland, Kentucky, next to an interstate highway and a
rail line.  The  Company believes that its facilities are well
maintained, in good condition and adequate and suitable for its
operating needs.  The Company has completed certain capital
expenditures with respect to its properties.  See Item 1 -
Business - "Manufacturing Operations" and "Capital Improvements and
Expansion."

Item 3.	Legal Proceedings

The Company is subject to various claims and lawsuits arising in
the ordinary course of business with respect to commercial, product
liability and other matters, which seek remedies or damages.  Based
upon its evaluation of available information, management does not
believe that any such matters are likely, individually or in the
aggregate, to have a material adverse effect upon the Company's
business, financial position, results of operations or cash flows.
See also Item 1 "Business - Environmental and Regulatory Matters."


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

There were no matters submitted to a vote of shareholders during
the fourth quarter of the fiscal year ended September 25, 1999.

      Executive Officers of the Registrant

Pursuant to General Instruction G(3) of Form 10-K, the following
list is included as an unnumbered Item in Part I of this report in
lieu of being included in the Proxy Statement for the Annual Meeting
of Stockholders scheduled to be held February 1, 2000.

The names, ages and positions of all of the executive officers
of the Registrant as of September 25, 1999 are listed below with their
business experience with the Registrant for the past five years.
Officers are elected annually by the Board of Directors at the first
meeting of directors following the annual meeting of stockholders.
There are no family relationships among these officers, nor any
agreement or understanding between any officer and any other person
pursuant to which the officer was selected.

Charles C. Hanebuth, 55, has been President and Chief Executive
Officer of the Company since its formation in August 1993.  From
November 1990 to October 1993, Mr. Hanebuth was President and Chief
Operating Officer of Kentucky Electric Steel Corporation, a wholly-
owned subsidiary of NS Group, Inc.  Mr. Hanebuth has 20 years
management experience in the steel industry.  Mr. Hanebuth is a
advisory director of Fifth Third Bank Ohio Valley and a director of
Ashland Hospital Corporation, which operates King's Daughters' Medical
Center.

William J. Jessie, 49, a certified public accountant, has been Vice
President, Secretary, Treasurer and Chief Financial Officer of the
Company since its formation in August 1993.  Prior to August 1993, he
was Controller of Kentucky Electric Steel Corporation since 1986.  Mr.
Jessie has 21 years of public accounting experience with national and
local accounting firms.

Joseph E. Harrison, 55, has been Vice President of Sales and Marketing
of the Company since its formation in August 1993.  From February 1991
to August 1993 he was General Sales Manager of Kentucky Electric Steel
Corporation.  Mr. Harrison has over 29 years of sales experience in
the steel industry.

William H. Gerak, 54, has been Vice President of Administration of the
Company since January 1994.  From February 1988 to December 1993 he
was the Director of Human Resources and Labor Relations for Heekin
Can, Inc., a wholly-owned subsidiary of Ball Corporation, a producer
of steel food and aerosol containers, head-quartered in Cincinnati,
Ohio.  Mr. Gerak has over 25 years of human resource and
administrative experience.
<PAGE


PART II


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

The Company's common stock trades on the NASDAQ National Market
under the symbol "KESI."  The following table sets forth, for the
fiscal periods indicated, the high and low closing prices of the stock
on the NASDAQ National Market:

                               Fiscal 1998            Fiscal 1999
                            High         Low        High        Low
      First Quarter      $ 8          $ 4-1/2    $ 4         $ 2-11/16
Second Quarter       7-1/4        4-3/4      3-3/4       2-5/8
      Third Quarter        6-15/16      4-15/16    3-3/8       2-1/2
      Fourth Quarter       5-1/8        3-1/2      4-1/2       2-5/8


On December 10, 1999 there were approximately 1,100 beneficial
owners of the Company's common stock.

The Company currently intends to retain all earnings to support
the development of its business, although the paying of dividends on
its common stock is periodically reviewed.  Certain of the Company's
debt instruments currently restrict the payment of dividends.
Specifically, the debt instruments restrict payment of dividends to
the amount available in a "Restricted Payment Pool" as defined in the
senior note agreement and amended bank credit facility.  See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 6 of the Notes to Consolidated
Financial Statements of the Company.

Item 6.	Selected Financial Data

The selected financial data shown below for the five years in
the period ended September 25, 1999 are derived from the audited
financial statements of the Company.  The information set forth below
should be used in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Financial Statements and related notes thereto included elsewhere
herein.

<TABLE>

                                                   Year Ended
                           Sept. 30,   Sept. 28,   Sept. 27,   Sept. 26,   Sept. 25,
                             1995         1996       1997        1998        1999
                                (In thousands, except share and per share data)
<S>                        <C>         <C>         <C>         <C>         <C>
Income Statement Data:
  Net sales ............   $107,402    $ 98,320    $ 94,652    $109,456    $105,389
  Cost of goods sold ...     91,642      89,783      89,992      97,720      95,140
                            -------     -------     -------     -------     -------
    Gross profit .......     15,760       8,537       4,660      11,736      10,249
  Selling and admini-
    strative expenses ..      7,696       7,391       6,800       7,011       7,627
                            -------     -------     -------     -------     -------
    Operating income (loss)   8,064       1,146      (2,140)      4,725       2,622

  Interest expense .....       (658)     (1,453)     (2,125)     (2,395)     (2,274)
  Interest income and
    other ..............         57          31          34          80       1,234
  Gain on involuntary con-
    version of equipment       -            369        -           -           -
                            -------     -------     -------     -------     -------
    Income (loss) before
     income taxes ......      7,463          93      (4,231)      2,410       1,582
  Income taxes .........      2,812          35      (1,599)        916         604
                            -------     -------     -------     -------     -------
      Net income (loss)    $  4,651    $     58    $ (2,632)   $  1,494    $    978

  Net income (loss)
    per common share -
    basic and diluted...   $    .95    $    .01    $   (.57)   $    .32    $    .24

  Weighted average shares
    outstanding-basic     4,905,456   4,806,161   4,633,315   4,624,671   4,085,480

  Weighted average shares
    outstanding-diluted   4,909,575   4,806,485   4,633,315   4,630,920   4,089,219
Balance Sheet Data:
  Working capital .....    $ 10,324     $14,963     $11,335     $14,153     $15,718
  Total assets ........      72,625      78,433      78,770      80,251      82,941
  Long-term debt (1) ..       7,287      20,000      20,000      20,000      20,000
  Shareholders' equity       38,097      37,110      34,211      35,192      35,252
</TABLE>
(1)	Net of current portion.

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

The following analysis of results of operations and financial
condition of the Company should be read in conjunction with "Selected
Financial Data" and Financial Statements and Supplementary Data
included elsewhere herein.

General

 The Company manufactures special bar quality alloy and carbon
steel bar flats to precise customer specification for sale in a
variety of niche markets. As a result, while the Company's business is
cyclical in nature, the Company has historically generated sufficient
cash flow to meet its capital expenditure and debt service
requirements.


Results of Operations

The following table sets forth the percentages of the Company's
net sales represented by certain income and expense items for the
periods indicated.

                                              Year Ended
                                   September   September   September
                                    27, 1997    26, 1998    25, 1999
    Net sales ....................   100.0%      100.0%      100.0%
    Cost of goods sold ...........    95.1        89.3        90.3
                                     -----       -----       -----
    Gross profit .................     4.9        10.7         9.7
    Selling and administrative
      expenses ...................     7.2         6.4         7.2
                                     -----       -----       -----
    Operating income (loss) ......    (2.3)        4.3         2.5

    Interest expense .............    (2.2)       (2.2)       (2.2)
    Interest income and other ....      -           .1         1.2
                                     -----       -----       -----
    Income (loss) before
      income taxes ...............    (4.5)        2.2         1.5

    Income taxes  ................    (1.7)         .8          .6
                                     -----       -----       -----
    Net income (loss) ............    (2.8%)       1.4%         .9%
 Year Ended September 25, 1999 Compared with Year Ended September 26,
1998

	Net Sales.  Net sales for fiscal 1999 decreased by $4.1 million
(3.7%) to $105.4 million from $109.5 million in fiscal 1998.  The
decrease in net sales is attributable to a 5.2% decline in average
selling prices due to market price reductions, offset by an increase
in tons shipped.  Shipments increased by 1.5% from 240,300 tons in
fiscal 1998 to 244,000 tons in fiscal 1999.

	Cost of Goods Sold. Cost of goods sold for fiscal 1999 decreased
by $2.6 million, or 2.6% to $95.1 million from $97.7 million in fiscal
1998.  As a percentage of net sales, cost of goods sold increased from
89.3% in fiscal 1998 to 90.3% in fiscal 1999.  The decrease in cost of
goods sold reflects a decrease in the per ton cost of tons shipped
offset by the increase in tons shipped.  The decrease in the per ton
cost of tons shipped during fiscal 1999 as compared to fiscal 1998
resulted from lower scrap prices offset by higher conversion costs
primarily due to lower production caused by equipment problems in the
melt shop.

	Gross Profit.  As a result of the above, gross profit for fiscal
1999 decreased by $1.5 million from $11.7 million in fiscal 1998 to
$10.2 million in fiscal 1999.  As a percentage of net sales, gross
profit decreased from 10.7% in fiscal 1998 to 9.7% in fiscal 1999.

	Selling and Administrative Expenses.  Selling and administrative
expenses include salaries and benefits, corporate overhead, insurance,
sales commissions and other expenses incurred in the executive, sales
and marketing, shipping, human resources, and other administrative
departments.  Selling and administrative expenses for fiscal 1999
increased $.6 million, or 8.8% to $7.6 million from $7.0 million for
fiscal 1998.  As a percentage of net sales, such expenses increased
from 6.4% for fiscal 1998 to 7.2% for fiscal 1999.  The increase in
selling and administrative expenses is due primarily to an increase in
legal and professional fees and self-insured health care costs
incurred during fiscal 1999.  The increase in legal and professional
fees is primarily due to legal and consulting fees related to the
Company's electric service contract and a pending trade case with the
Department of Commerce.

	Operating Income.  For the reasons described above, operating
income decreased by $2.1 million (44.5%) from $4.7 million in fiscal
1998 to $2.6 million in fiscal 1999.  As a percentage of net sales,
operating income decreased from 4.3% in fiscal 1998 to 2.5% in fiscal
1999.

	Interest Expense.  Interest expense decreased by $.1 million to
$2.3 million in fiscal 1999 from $2.4 million in fiscal 1998.  The
decrease in interest expense is due to a decrease in both the average
interest rate and the average amount outstanding on the line of
credit.

	Provision (Credit) for Income Taxes.  The Company has recorded a
tax provision of approximately $.6 million in fiscal 1999 as compared
to a tax provision of approximately $.9 million in fiscal 1998 at an
effective tax rate of 38% for both years.  As of September 25, 1999
the Company has net deferred tax assets of $5.9 million, which is net
of a $2.7 million valuation allowance.  Included in the $8.6 million
of gross deferred tax assets is $6.4 million of net operating tax loss
carryforwards which expire beginning in 2011.  The realization of the
deferred tax assets is dependent in part upon generation of sufficient
future taxable income.  Management has considered the levels of
currently anticipated pre-tax income in assessing the required level
of the deferred tax asset valuation allowance.  Taking into
consideration historical pre-tax income levels, the nature of certain
events which adversely affected operations in fiscal 1997, the results
of operations for fiscal 1998 and 1999 and other factors, management
believes it is more likely than not that the net deferred tax asset,
after consideration of the valuation allowance which has been
established, will be realized.  The amount of the net deferred tax
asset considered realizable, however, could be reduced in future years
if estimates of future taxable income during the carryforward period
are reduced.

	Interest Income and Other.  Interest and other income increased
by $1.2 million for fiscal 1999 from $.1 million in fiscal 1998.
Fiscal 1999 includes other income of $1.1 million from a claim
settlement pertaining to the Company's purchase of electrodes during
the years 1992 through 1997.

	Net Income.  As a result of the above, net income decreased by
$.5 million from $1.5 million in fiscal 1998 to $1.0 million in fiscal
1999.  As a percentage of net sales, net income decreased from 1.4% in
fiscal 1998 to .9% in fiscal 1999.

Year Ended September 26, 1998 Compared with Year Ended September 27,
1997

Net Sales.  Net sales for fiscal 1998 increased by $14.8
million, or 15.6%, to $109.5 million from $94.7 million in fiscal
1997.  The increase in sales is attributed to an increase in shipments
and an increase in average selling price.  Shipments increased by
10.7% from 217,000 tons in fiscal 1997 to 240,300 tons in fiscal 1998.
The increase in shipments resulted from the strong demand for the
Company's products during the first three quarters of fiscal 1998, and
from the increase in tons available for shipment due to improvements
in productivity.  Also, shipments for fiscal 1997 were negatively
impacted by the effect on production of the melt shop operations being
shut down for twelve days in order to decontaminate the baghouse
facility, after the detection of a radioactive substance in the
baghouse dust.  The increase in average selling price is attributed to
the price increases implemented on many products during the first half
of fiscal 1998.

Cost of Goods Sold. Cost of goods sold for fiscal 1998 increased
$7.7 million, or 8.6%, to $97.7 million from $90.0 million in fiscal
1997.  As a percentage of net sales, cost of goods sold decreased from
95.1% in fiscal 1997 to 89.3% in fiscal 1998.  The increase in cost of
goods sold reflects the increase in shipments offset by a decrease in
the per ton cost of tons shipped.  The decrease in the per ton cost of
tons shipped during fiscal 1998 as compared to fiscal 1997 resulted
from lower conversion costs due to improvements in productivity,
offset partially by an increase in scrap costs. The cost of goods sold
for fiscal 1997 includes a $2.3 million reimbursement from business
interruption insurance related to the decontamination of the baghouse.

Gross Profit.  As a result of the above, gross profit for fiscal
1998 increased by $7.0 million from $4.7 million in fiscal 1997 to
$11.7 million in fiscal 1998.  As a percentage of net sales, gross
profit increased from 4.9% in fiscal 1997 to 10.7% in fiscal 1998.

Selling and Administrative Expenses.  Selling and administrative
expenses include salaries and benefits, corporate overhead, insurance,
sales commissions and other expenses incurred in the executive, sales
and marketing, shipping, human resources, and other administrative
departments.  Selling and administrative expenses for fiscal 1998
increased $.2 million, or 3.1%, to $7.0 million from $6.8 million for
fiscal 1997.  As a percentage of net sales, such expenses decreased
from 7.2% for fiscal 1997 to 6.4% for fiscal 1998.  The decrease as a
percentage of sales is primarily the result of an increase in net
sales (as discussed above) for fiscal 1998.

Operating Income. Fiscal year 1998 reflected operating income of
$4.7 million as compared to an operating loss of $2.1 million for
fiscal 1997. As a percentage of net sales, operating income increased
from (2.3%)in fiscal 1997 to 4.3% for fiscal 1998.

Interest Expense.  Interest expense increased by $.3 million to
$2.4 million in fiscal 1998 from $2.1 million in fiscal 1997, net of
interest capitalized of $11,000 for fiscal 1997.  The increase is the
result of additional borrowings on the Company's line of credit.

	Provision (Credit) for Income Taxes. The Company has recorded a
tax provision of approximately $.9 million in fiscal 1998 as compared
to a benefit of $1.6 million in fiscal 1997 at an effective tax rate
of 38% for both years. As of September 26, 1998 the Company has net
deferred tax assets of $6.6 million, which is net of a $2.7 million
valuation allowance.  Included in the $9.3 million of gross deferred
tax assets is $5.4 million of net operating tax loss carryforwards
which expire beginning in 2011.  The realization of the deferred tax
assets is dependent in part upon generation of sufficient future
taxable income.  Management has considered the levels of currently
anticipated pre-tax income in assessing the required level of the
deferred tax asset valuation allowance. Taking into consideration
historical pre-tax income levels, the nature of certain events which
adversely affected operations in fiscal 1996 and 1997, the results of
operations for fiscal 1998 and other factors, management believes it
is more likely than not that the net deferred tax asset, after
consideration of the valuation allowance which has been established,
will be realized.  The amount of the net deferred tax asset considered
realizable, however, could be reduced, in the future, if estimates of
future taxable income during the carryforward period are reduced.

Net Income.  As a result of the above, fiscal 1998 reflected net
income of $1.5 million as compared to a net loss of $2.6 million in
fiscal 1997.  As a percentage of net sales, net income increased from
(2.8%) in fiscal 1997 to 1.4% in fiscal 1998.
Liquidity and Capital Resources

Cash flows from operating activities amounted to $2.5 million,
$2.3 million, and $1.3 million in fiscal 1997, 1998 and 1999,
respectively.  Fiscal 1997 operating cash flows reflect the net loss
of $2.6 million and the increase in the net deferred tax asset of $.7
million, which has been partially offset by depreciation of $3.7
million, decrease in accounts receivable of $.5 million and
inventories of $.8 million, and an increase in accounts payable of $.8
million.  The additional depreciation is related to the start-up of
the ladle metallurgy facility.  The decrease in inventories is
primarily related to a reduction in scrap inventory.

	Fiscal 1998 operating cash flows reflect net income of $1.5
million, depreciation and amortization of $3.7 million, and the
decrease in the net deferred tax asset of $1.0 million.  Operating
cash flows were negatively impacted by a $3.8 million increase in
inventories.  The increase in inventories is primarily attributed to
an increase in finished goods inventory offset somewhat by a decrease
in scrap inventory.  The increase in finished goods inventory is due
to lower than anticipated fourth quarter shipments in fiscal 1998 and
lower than normal inventories in fiscal 1997 due to production
problems.

	Fiscal 1999 operating cash flows reflect net income of $1.0
million, depreciation and amortization of $3.6 million and the
decrease in the net deferred tax asset of $.7 million.  Operating cash
flows were negatively impacted by increases in accounts receivable and
inventories of $2.1 million and $2.4 million, respectively.  Also,
operating cash flows were positively impacted by an increase of $1.7
million in trade accounts payable.  The increase in inventories and
accounts payable is primarily due to an increase in scrap and billet
inventory.  The increase in accounts receivable reflects the higher
sales level in the latter part of fiscal 1999.

Cash flows used by investing activities consist of capital
expenditures, net of changes in capital expenditures payables, of $5.1
million, $2.5 million, and $3.4 million in fiscal 1997, 1998 and 1999,
respectively.  The increase in capital expenditures in fiscal 1999 is
primarily due to the payment of retainage on projects completed during
the year.

Cash flows provided from financing activities amounted to $2.6
million, $.2 million, and $2.2 million in fiscal 1997, 1998, and 1999,
respectively.  The $2.6 million in fiscal 1997 reflects $3.1 million
in advances on the Company's line of credit facility offset by $.5
million used for the purchases of treasury stock.  The $.2 million in
fiscal 1998 reflects $.8 million in advances on the Company's line of
credit facility offset by $.6 used for the purchase of treasury stock.
The $2.2 million in fiscal 1999 reflects $3.1 million in advances on
the Company's line of credit facility offset by $1.0 million used to
purchase treasury stock.

Working capital at September 25, 1999, was $15.7 million as
compared to $14.2 million at September 26, 1998.  The current ratio
was 1.6 to 1.0 at September 25, 1999 as compared to 1.6 to 1.0 at
September 26, 1998.  The increase in working capital is primarily
attributed to cash flow generated by operations combined with the
Company's return to a more routine maintenance capital expenditure
level.

	The Company completed its 500,000 share buyback program during
fiscal 1998 and the Board of Directors authorized the repurchase of an
additional 500,000 shares of the Company's common stock. During the
fiscal year ended September 25 1999, the Company repurchased 405,585
shares of its common stock.

The Company's primary ongoing cash requirements are for current
capital expenditures.  In addition, principal payments on the
unsecured senior notes commence on November 1, 2000 and are due in
equal annual installments over six years. The two sources for the
Company's liquidity are internally generated funds and its bank credit
facility.  The Company has a $24.5 million unsecured bank credit
facility which expires January 31, 2002.  Borrowings are limited to
defined percentages of eligible inventory and accounts receivable.  As
of September 25, 1999, the Company had $14.5 million outstanding and
$6.0 million available under its line of credit.  The Company believes
that the bank credit facility and internally generated funds will be
sufficient to fund its ongoing cash needs.


Year 2000 Compliance

      The following Year 2000 discussion is provided in response to
the Securities and Exchange Commission's recent interpretative
statement expressing its view that public companies should include
detailed discussion of Year 2000 issues in their MD&A.

 	The Company has completed an organized program assessing the
issues confronting it related to the "Year 2000 problem", which is the
result of the inability of many computer systems and electronic
equipment to distinguish the Year 2000 from the year 1900.  The
program was designed to assure the Company's information technology
systems and related infrastructure will be Year 2000 compliant.   The
Company divided its Year 2000 issues into three areas including:
computer hardware and software business systems, manufacturing
processing control devices and related systems, and facility support
systems. The Company's Year 2000 program included three phases:  (1)
an audit and assessment phase designed to identify Year 2000 issues;
(2) a modification phase designed to correct Year 2000 issues (this
phase included testing of individual modifications as they were
installed); and (3) a testing phase to test entire systems for Year
2000 compliance after individual modifications were installed and
tested.  All phases of the Company's Year 2000 program are
substantially complete.

	The estimated cost for correction of Year 2000 issues, including
any software and hardware changes and the cost of personnel involved
in working on the project, is approximately $260,000, substantially
all of which has been incurred to date. The Year 2000 updates were
funded out of funds generated from operations and account for less
than 30% of the Company's information technology budget.

     The Company's Year 2000 program also included investigation of
the Year 2000 readiness status of our major vendors and customers.
The Company used letters, questionnaires and protocols to determine
its vendors' and customers' 2000 readiness.  The Company has contacted
all major vendors including energy and scrap suppliers and external
service providers including banks, insurance companies and phone
service providers to determine their Year 2000 compliance status. The
Company has also contacted significant customers to determine their
progress towards Year 2000 compliance and to identify issues, if any,
which might develop if a customer is unable to become year 2000
compliant on a timely basis.  Based upon the responses received, all
of our major vendors and customers indicated they are addressing the
Year 2000 issues on a timely basis.

	The Company has developed a Year 2000 contingency plan in the
event we experience Year 2000 related problems.  The plan includes,
among other actions, reverting to manual systems and controls and
setting internal clocks to earlier dates.

	The Company believes that with the modifications made to its
computer systems and electronic equipment, the Year 2000 issue will
not result in significant operational problems.  However, because of
the uncertainties associated with addressing the Year 2000 problem for
both internal and external systems critical to the Company's
operations, there is a risk of a material adverse effect on the
Company's operations.  While the Company is not aware of any
significant exposure, there can be no assurance that the Year 2000
issue will not have a material impact on the Company's business and
operations.


Impact of Inflation and Changing Prices

While the Company has not experienced any material long-term
adverse effects on operations in recent years because of inflation,
margins have been affected by inflationary conditions.  The Company's
primary cost components are steel scrap, labor, and energy, all of
which are susceptible to domestic inflationary pressures.  Scrap costs
are frequently influenced by supply and demand factors as well as
general economic conditions.  Finished product prices are influenced
by nationwide economic trends and manufacturing capacity within the
steel industry.  While the Company has generally been successful in
passing on cost increases through price increases, the effect of steel
imports, market price competition and under-utilized industry capacity
has in the past, and could in the future, limit the Company's ability
to increase prices.  See "Business - Employees," "Competition and
Other Market Factors," "Raw Materials" and "Manufacturing Operation."



Forward Looking Statements

The matters discussed or incorporated by reference in this
Report on Form 10-K that are forward-looking statements (as defined in
the Private Securities Litigation Reform Act of 1995) involve risks
and uncertainties.  These risks and uncertainties include, but are not
limited to: the reliance on truck and utility vehicle industry; excess
industry capacity; product demand and industry pricing; volatility of
raw material costs, especially steel scrap; intense foreign and
domestic competition; management's estimates of niche market data; the
cyclical and capital intensive nature of the industry; and cost of
compliance with environmental regulations.  These risks and
uncertainties could cause actual results of the Company to differ
materially from those projected or implied by such forward-looking
statements.

Without limiting the foregoing, various statements in the
previous discussion of Year 2000 are likewise forward-looking
statements. These statements include statements of the Company's
expectations, statements with regard to schedules and expected
completion dates and statements regarding expected Year 2000
compliance.  These forward-looking statements are subject to various
risk factors which may materially affect the Company's efforts to
achieve Year 2000 compliance.  These risk factors include, but are not
limited to: the inability of the Company to complete the plans and
modifications that it has identified; the failure of software vendors
to deliver the upgrades and repairs to which they have committed; the
wide variety of information technology systems and components, both
hardware and software, that must be evaluated; and the large number of
vendors and customers with which the Company interacts.  The Company's
assessments of the effects of Year 2000 on the Company are based, in
part, upon information received from third parties and the Company's
reasonable reliance on that information.  Therefore, the risk that
inaccurate information is supplied by third parties upon which the
Company reasonably relied must be considered as a risk factor that
might affect the Company's Year 2000 efforts.  The Company is
attempting to reduce the risks by utilizing an organized approach,
extensive testing, and allowance of ample contingency time to address
issues identified by tests.


Impact of Recent Accounting Pronouncements

See Note 2 "Summary of Significant Accounting Policies" of the
Notes to Consolidated Financial Statements of the Company.


Item 7A.	Qualitative and Quantitative Disclosure about Market Risk

	Management does not believe that there is any material market
risk exposure with respect to derivative or other financial
instruments that would require disclosure under this item.


Item 8.	Financial Statements and Supplementary Data

The financial statements and schedules referenced in Item
14(a)(1) and (a)(2) hereof are included herein and are filed as part
of this report.


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

None.
<PAGE>

PART III


Item 10.	Directors and Executive Officers of the Registrant

The specified information required by this item is incorporated
by reference to the information under the heading "Proposal I:
Election of Directors" in the Proxy Statement as filed with the
Commission or is included under the heading "Executive Officers of the
Registrant" in Part I of this 10-K filing.  The disclosure required by
Item 405 of Regulation S-K is incorporated by reference to the
information under the heading "Compliance with Section 16(a)" of the
Proxy Statement.

Item 11.	Executive Compensation

The specified information required by this item is incorporated
by reference to the information under the heading "Executive
Compensation" in the Proxy Statement as filed with the Commission.

Item 12.	Security Ownership of Certain Beneficial Owners and
Management

The specified information required by this item is incorporated
by reference to the information in the table under the heading "Voting
Securities and Principal Holders Thereof" in the Proxy Statement as
filed with the Commission.

Item 13.	Certain Relationships and Related Transactions

	None.

<PAGE>



PART IV


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

  (a)1.     See Index to Financial Statements and Schedule

  (a)2.	See Index to Financial Statements and Schedule

  (a)3.     Exhibits

     3.1	Certificate of Incorporation of Kentucky Electric Steel,
Inc., filed as Exhibit 3.1 to Registrant's Registration
Statement on Form S-1 (No. 33-67140), and incorporated by
reference herein.

     3.2 	By-Laws of Kentucky Electric Steel, Inc., filed as Exhibit
3.2 to Registrant's Registration Statement on Form S-1
(No. 33-67140), and incorporated by reference herein.

     4.1	Senior Note Agreement between Registrant and a group of
institutional investors.  Filed as Exhibit 4.1 to
Registrant's Form 10-K for the fiscal year ended September
30, 1995, File No. 0-22416, and incorporated by reference
herein.

     4.2	Amended and Restated Loan Agreement between Registrant and
National  City Bank, Kentucky, dated November 1, 1995.
Filed as Exhibit 4.2 to Registrant's Form 10-K for the
fiscal year ended September 30, 1995, File No. 0-22416,
and incorporated by reference herein.

     4.3	Amended and Restated Export Financing Agreement between
Registrant and National City Bank, Kentucky, dated
November 1, 1995.  Filed as Exhibit 4.3 to Registrant's
Form 10-K for the fiscal year ended September 30, 1995,
File No. 0-22416, and incorporated by reference herein.

4.4	First Amendment Agreement to Senior Note Agreement between
Registrant and a group of institutional investors.  Filed
as Exhibit 4.4 to Registrant's Form 10-Q, No. 0-22416,
filed on February 11, 1997, and incorporated by reference
herein.

4.5	Amendment No. 1 to Amended and Restated Loan Agreement
between Registrant and National City Bank, Kentucky.
Filed as Exhibit 4.5 to Registrant's Form 10-Q No. 0-
22416, filed on February 11, 1997, and incorporated by
reference herein.

4.6	Amendment No. 2 to Amended and Restated Loan Agreement
between Registrant and National City Bank, Kentucky.
Filed as Exhibit 4.6 to Registrant's Form 10-Q, No. 0-
22416, filed on February 9, 1998, and incorporated by
reference herein.

     4.7 	Amendment No. 1 to Amended and Restated Export Financing
Agreement  between Registrant and National City Bank,
Kentucky.  Filed as Exhibit 4.7 to Registrant's Form 10-Q,
No. 0-22416, filed on February 9, 1998, and incorporated
by reference herein.


    10.1	Transfer Agreement between NS Group, Inc., Kentucky
Electric Steel Corporation, and Registrant, filed as
Exhibit 10.2 to Registrant's Form 10-K for the fiscal year
ended September 25, 1993, File No. 0-22416, and
incorporated by reference herein.

    10.2	Tax Agreement between NS Group, Inc., Kentucky Electric
Steel Corporation and Registrant, filed as Exhibit 10.3 to
Registrant's Form 10-K for the fiscal year ended September
25, 1993, File No. 0-22416, and incorporated by reference
herein.

    10.3	Form of Indemnification Agreement between Registrant and
Its Executive Officers and Directors, filed as Exhibit
10.4 to Amend- ment No. 1 to Registrant's Registration
Statement on Form S-1 (No. 33-67140), and incorporated by
reference herein.*

    10.4	Registration Rights Agreement between Registrant and NS
Group, Inc., filed as Exhibit 10.7 to Registrant's Form
10-K for the fiscal year ended September 25, 1993, File
No. 0-22416, and incorporated by reference herein.

10.5	Kentucky Electric Steel, Inc. 1993 Employee Stock Option/
Restricted Stock Plan, filed on Registrant's Form S-8 (No.
33-77598), filed on April 12, 1994, and incorporated by
reference herein.*

10.6	Kentucky Electric Steel, Inc. 1993 Transition Stock Option
Plan, filed on Registrant's Form S-8 (No. 33-77598), filed
on April 12, 1994, and incorporated by reference herein.

    10.7	Contract with Morgan-Pomini Company for Rolling and
Finishing End Modernization filed as Exhibit 10.8 to
Registrant's Form 10-Q, No. 0-22416, filed on May 4,
1994, and incorporated by reference herein.

    10.8	The Kentucky Electric Steel, Inc. Salary Continuation
Plan, effective June 7, 1994, as amended, for the
benefit of the Company's eligible salaried employees,
filed as Exhibit 10.8 to Registrant's Form 10-Q, File
No. 0-22416, filed on August 6, 1999, and incorporated
by reference herein.*

    10.9 	The Kentucky Electric Steel, Inc. Executive Severance
Plan, effective June 7, 1994, as amended, for the benefit
of the Company's eligible Executive Officers, filed as
Exhibit 10.9 to Registrant's Form 10-Q, File No. 0-22416,
filed on August 6, 1999, and incorporated by reference
herein.*

    10.10	Employment agreements dated June 7, 1994, as amended,
between Kentucky Electric Steel, Inc. and its four
Executive Officers, filed as Exhibit 10.10 to Registrant's
Form 10-Q, file No. 0-22416, filed on August 6, 1999 and
incorporated by reference herein.*

    10.11	Form of Salary Continuation Agreements entered into
between Kentucky Electric Steel, Inc. and its four
Executive Officers, filed herewith.*



    10.12	The Kentucky Electric Steel, Inc. Key Employee Stock/Loan
Plan, effective February 2, 1995 for the benefit of the
Company's   Executive Officers, filed as Exhibit 10.14 to
Registrant's Form 10-Q, No. 0-22416, filed on February 9,
1995, and incorporated by reference herein.*

    10.13	Contract with EMC International, Inc. for Ladle Metallurgy
Facility, filed as Exhibit 10.15 to Registrant's Form 10-
Q, No. 0-22416, filed on May 16, 1995, and incorporated by
reference herein.

    10.14	Kentucky Electric Steel, Inc. 1994 Employee Stock Option/
Restricted Stock Plan, filed on Registrant's Form S-8 (No.
33-301218), filed on February 12, 1996, and incorporated
by reference herein.*

    10.15	Rights Agreement between Kentucky Electric Steel, Inc. and
EquiServe Trust Company, N.A., dated as of September 1,
1999, filed  as Exhibit 4.8 to Registrant's Form 8-K, File
No. 0-22416, filed on September 14, 1999 and incorporated
by reference herein.

10.16	First Addendum to Agreement with Morgan-Pomini Company for
Rolling and Finishing Fund Modernization, filed as Exhibit
10.15 to Registrant's Form 10-Q, No. 0-22416, filed on
February 11, 1997, and incorporated by reference herein.

10.17	Remediation and Waste Disposal Agreement - Zhagrus
Environmental, Inc., filed as Exhibit 10.16 to
Registrant's Form 10-Q, No. 0-22416 filed on May 12, 1997
and incorporated by reference herein.

10.18	The Kentucky Electric Steel, Inc. 1999 Share Plan for Non-
Employee Directors, filed as Exhibit 10.18 to Registrant's
Form 10-Q, No. 0-22416 filed on August 6, 1999 and
incorporated by reference herein.*

10.19	Form of Promissory Note dated October 6, 1999, between
Kentucky Electric Steel, Inc. and its four executive
officers, filed herewith.*

10.20	Form of Loan Forgiveness Agreement dated October 6, 1999,
between Kentucky Electric Steel, Inc. and its four
executive officers, filed herewith.*

10.21	Trust Under Certain Kentucky Electric Steel Salary
Continuation Agreements dated October 14, 1999, filed
herewith.*

    23	Consent of Arthur Andersen LLP

    27      Financial Data Schedule

     (b)    Reports on Form 8-K

There were no reports on Form 8-K filed during the quarter
ended September 25, 1999.


   *	Indicates management contracts or compensatory plans or
arrangements in which one or more Directors or Executive
Officers of the Company participate or is a party.
<PAGE>





SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) 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.

                                       KENTUCKY ELECTRIC STEEL, INC.


December 10, 1999                   By:  \s\Charles C. Hanebuth
                                         Charles C. Hanebuth
                                         President, Chief Executive
                                         Officer and Chairman


Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.

<TABLE>

Signatures                         Title                      Date
       <S>                                <C>                        <C>

\s\Charles C. Hanebuth       President, Chief Executive Officer    December 10, 1999
Charles C. Hanebuth            and Chairman


\s\William J. Jessie         Vice President, Secretary,            December 10, 1999
William J. Jessie              Treasurer and Chief Financial
                               Officer
                               (Principal Financial and
                               Accounting Officer)

\s\Clifford R. Borland       Director                              December 10, 1999
Clifford R. Borland

\s\Carl E. Edwards, Jr.      Director                              December 10, 1999
Carl E. Edwards, Jr.

\s\J. Marvin Quin, II        Director                              December 10, 1999
J. Marvin Quin, II

\s\David C. Struve           Director                              December 10, 1999
David C. Struve
</TABLE>
<PAGE>







KENTUCKY ELECTRIC STEEL, INC.

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE



Financial Statements                                    Page(s)

Report of Independent Public Accountants ..............   F-1

Consolidated Balance Sheets - September 26, 1998 and
September 25, 1999 ....................................   F-2

Consolidated Statements of Operations - Years ended
September 27, 1997, September 26, 1998
and September 25, 1999 ................................   F-3

Consolidated Statements of Changes in Shareholders'
Equity - Years ended September 27, 1997, September 26,
1998, and September 25, 1999 ..........................   F-4

Consolidated Statements of Cash Flows - Years ended
September 27, 1997, September 26, 1998
and September 25, 1999 ................................   F-5

Notes to Consolidated Financial Statements ............   F-6


Financial Statement Schedule

      Report of Independent Public Accountants ..............   S-1

Schedule II  Valuation and Qualifying Accounts ........   S-2

<PAGE>








REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS





To Kentucky Electric Steel, Inc.:

	We have audited the accompanying consolidated balance sheets of
Kentucky Electric Steel, Inc. (a Delaware corporation) and subsidiary as
of September 26, 1998 and September 25, 1999, and the related
consolidated statements of operations, changes in shareholders' equity
and cash flows for each of the three years in the period ended September
25, 1999.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on
these financial statements based on our audits.

	We conducted our audits in accordance with generally accepted
auditing standards.  Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis for
our opinion.

	In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Kentucky
Electric Steel, Inc. and subsidiary as of September 26, 1998 and
September 25, 1999 and the results of their operations and their cash
flows for each of the three years in the period ending September 25, 1999
in conformity with generally accepted accounting principles.





       Arthur Andersen LLP



Cincinnati, Ohio,
October 27, 1999

<PAGE>














<TABLE>

KENTUCKY ELECTRIC STEEL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
                                                      September     September
                                                       26, 1998      25, 1999
                       ASSETS
<S>                                                   <C>           <C>

   CURRENT ASSETS
     Cash and cash equivalents                        $    150       $    184
     Accounts receivable, less allowance for
       doubtful accounts of $460 in 1998 and
       $430 in 1999                                     12,037         14,180
     Inventories                                        20,363         22,751
     Operating supplies and other current assets         5,206          5,294
     Refundable income taxes                              -               315
     Deferred tax assets                                   648            683
                                                       -------        -------
                  Total current assets                  38,404         43,407
                                                       -------        -------
   PROPERTY, PLANT AND EQUIPMENT
     Land and buildings                                  4,532          4,621
     Machinery and equipment                            42,004         45,324
     Construction in progress                            3,031          2,470
     Less - accumulated depreciation                   (14,772)       (18,307)
                                                       -------        -------
          Net property, plant and equipment             34,795         34,108
                                                       -------        -------
   DEFERRED TAX ASSETS                                   5,990          5,253
                                                       -------        -------
   OTHER ASSETS                                          1,062            173
                                                       -------        -------
          Total assets                                $ 80,251       $ 82,941

        LIABILITIES AND SHAREHOLDERS' EQUITY
   CURRENT LIABILITIES
     Advances on line of credit                       $ 11,397       $ 14,510
     Accounts payable                                    7,056          8,731
     Capital expenditures payable                          857            335
     Accrued liabilities                                 3,834          3,988
     Environmental liabilities                             982           -
     Current portion of long-term debt                     125            125
                                                       -------        -------
          Total current liabilities                     24,251         27,689
                                                       -------        -------
   LONG-TERM DEBT                                       20,000         20,000
                                                       -------        -------
   OTHER LIABILITIES                                       808           -
                                                       -------        -------
          Total liabilities                             45,059         47,689
                                                       -------        -------
   SHAREHOLDERS' EQUITY
     Preferred stock, $.01 par value, 1,000,000
       shares authorized, no shares issued                -              -
     Common stock, $.01 par value, 15,000,000 shares
       authorized 4,985,937 and 5,003,874 shares
       issued, respectively                                 50             50
     Additional paid-in capital                         15,671         15,728
     Less treasury stock - 526,996 and 932,581
       shares at cost, respectively                     (3,254)        (4,272)
     Deferred compensation                                 (73)           (30)
     Retained earnings                                  22,798         23,776
                                                       -------        -------
          Total shareholders' equity                    35,192         35,252
                                                       -------        -------
          Total liabilities and shareholders' equity  $ 80,251       $ 82,941

<FN>

See notes to consolidated financial statements
</TABLE>

<TABLE>
KENTUCKY ELECTRIC STEEL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share and Per Share Data)
<CAPTION>

                                             Year Ended
                                September    September    September
                                 27, 1997     26, 1998     25, 1999
 <S>                            <C>          <C>          <C>
NET SALES                        $ 94,652     $109,456     $105,389
COST OF GOODS SOLD                 89,992       97,720       95,140
                                  -------      -------      -------
       Gross profit                 4,660       11,736       10,249

SELLING AND ADMINISTRATIVE
  EXPENSES                          6,800        7,011        7,627
                                  -------      -------      -------
       Operating income (loss)     (2,140)       4,725        2,622

INTEREST EXPENSE                   (2,125)      (2,395)      (2,274)
INTEREST INCOME AND OTHER              34           80        1,234
                                  -------      -------      -------
       Income (loss) before
         income taxes              (4,231)       2,410        1,582

PROVISION (CREDIT) FOR
  INCOME TAXES                     (1,599)         916          604
                                  -------      -------      -------

       Net income (loss)         $ (2,632)    $  1,494     $    978

NET INCOME (LOSS) PER COMMON
  SHARE -  BASIC AND DILUTED     $   (.57)    $    .32     $    .24


WEIGHTED AVERAGE SHARES
  OUTSTANDING -  BASIC          4,633,315    4,624,671    4,085,480


WEIGHTED AVERAGE SHARES
  OUTSTANDING -  DILUTED        4,633,315    4,630,920    4,089,219















<FN>

See notes to consolidated financial statements
</TABLE>


<TABLE>
KENTUCKY ELECTRIC STEEL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the Three Years in the Period Ended
September 25, 1999

<CAPTION>
(Dollars in Thousands)


                                         Addi-                        De-
                                         tional                     ferred
                          Common Stock   Paid-In    Treasury Stock  Compen- Retained
                         Shares  Amount  Capital   Shares    Amount sation  Earnings  Total
<S>                      <C>     <C>     <C>       <C>       <C>    <C>     <C>       <C>
BALANCE, Sept. 28, 1996 4,974,099  $50  $15,710  (273,000) $(2,165) $(421)  $23,936 $37,110
  Tax effect of
    restricted stock
    recognized differ-
    ently for financial
    reporting and tax
    purposes                 -       -      (66)     -         -       -       -        (66)
  Amortization of
    deferred comp-
    ensation                 -       -     -         -         -      251      -        251
  Issuance of stock         3,889    -       21      -         -       -       -         21
  Purchases of treasury
    stock                    -       -     -      (77,976)    (473)    -       -       (473)
  Net loss                   -       -     -         -         -       -     (2,632) (2,632)
                        ---------   --   ------   -------    -----    ---    ------  ------
BALANCE, Sept. 27, 1997 4,977,988   50   15,665  (350,976)  (2,638)  (170)   21,304  34,211
Tax effect of
    restricted stock
    recognized differ-
    ently for financial
    reporting and tax
    purposes                 -       -      (42)     -         -       -       -        (42)
  Amortization of
    deferred comp-
    ensation                 -       -     -         -         -       97      -         97
  Issuance of stock         7,949    -       48      -         -       -       -         48
  Purchases of treasury
    stock                    -       -     -     (176,020)    (616)    -       -       (616)
  Net income                 -       -     -         -         -       -      1,494   1,494
                        ---------   --   ------   -------    -----    ---    ------  ------

BALANCE, Sept. 26, 1998 4,985,937  $50  $15,671  (526,996) $(3,254)  $(73)  $22,798 $35,192
  Amortization of
    deferred comp-
    ensation                 -       -     -         -         -       43      -         43
  Issuance of Stock        17,937    -       57      -         -       -       -         57
  Purchases of treasury
    stock                    -       -     -     (405,585)  (1,018)    -       -     (1,018)
  Net income                 -       -     -         -         -       -        978     978
                        ---------   --   ------   -------    -----    ---    ------  ------
BALANCE, Sept. 25, 1999 5,003,874  $50  $15,728  (932,581) $(4,272)  $(30)  $23,776 $35,252












<FN>
See notes to consolidated financial statements

</TABLE>
<TABLE>
KENTUCKY ELECTRIC STEEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)

<CAPTION>
                                                Year Ended
                                       September  September  September
                                        27, 1997   26, 1998   25, 1999
<S>                                    <C>        <C>        <C>
Cash Flows From Operating Activities:
  Net income (loss)                      $(2,632)  $ 1,494    $   978
  Adjustments to reconcile net income
    (loss) to net cash flows from
    operating activities:
      Depreciation and amortization        3,737     3,683      3,636
      Change in deferred taxes              (896)    1,169        737
      Change in other                       (158)     (154)        23
      Changes in current assets and
        current liabilities:
          Accounts receivable                536      (460)    (2,143)
          Insurance claim receivable        (900)      900       -
          Inventories                        829    (3,825)    (2,388)
          Operating supplies and other
            current assets                   265      (404)       (88)
          Refundable income taxes           (360)      900       (315)
          Deferred tax assets                223      (191)       (35)
          Accounts payable                   763      (921)     1,675
          Accrued liabilities                 61       134        154
          Environmental liabilities          982      -          (982)
                                          ------    ------     ------
Net cash flows from operating activities   2,450     2,325      1,252
                                          ------    ------     ------
Cash Flows From Investing Activities:
  Capital expenditures                    (3,226)   (2,806)    (2,848)
  Change in capital expenditures payable  (1,858)      310       (522)
                                          ------    ------     ------
Net cash flows from investing activities  (5,084)   (2,496)    (3,370)
                                          ------    ------     ------
Cash Flows From Financing Activities:
  Net advances on line of credit           3,089       762      3,113
  Issuance of common stock                    21        48         57
  Purchases of treasury stock               (473)     (616)    (1,018)
                                          ------    ------     ------
Net cash flows from financing activities   2,637       194      2,152
                                          ------    ------     ------
Net increase in cash and cash
  equivalents                                  3        23         34
Cash and Cash Equivalents -
  Beginning of Period                        124       127        150
                                          ------    ------     ------
Cash and Cash Equivalents -
  End of Period                          $   127   $   150    $   184

Interest Paid, net of amount
  capitalized                            $ 2,142   $ 2,371    $ 2,263

Income Taxes Paid                        $   -     $   200    $   216
<FN>
See notes to consolidated financial statements
</TABLE>
KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)	Nature of Operations

	Kentucky Electric Steel, Inc. (KESI or the Company) owns
and operates a steel mini-mill near Ashland, Kentucky.  The
Company manufactures special bar quality alloy and carbon steel
bar flats to precise customer specifications for sale in a
variety of niche markets.  KESI was capitalized in an initial
public offering of its common stock on October 6, 1993.

(2)	Summary of Significant Accounting Policies

	Principles of Consolidation
	The consolidated financial statements include the accounts of
Kentucky Electric Steel, Inc. and its wholly-owned subsidiary, KESI
Finance Company, which was formed in October 1996 to finance the
ladle metallurgy facility.  All significant intercompany accounts
and transactions have been eliminated.

	Accounting Estimates
	The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period.  Actual results could differ from those estimates.

 	Cash and Cash Equivalents
	Cash includes currency on-hand and deposits with financial
institutions.  Cash equivalents consist of investments with
original maturities of three months or less.  Amounts are stated
at cost, which approximates market value.

	Inventories
	Inventory costs include material, labor and manufacturing
overhead.  Inventories are valued at the lower of average cost or
market.

	Property, Plant and Equipment and Depreciation
	Property, plant and equipment is recorded at cost, less
accumulated depreciation. For financial reporting purposes,
depreciation is provided on the straight-line method over the
estimated useful lives of the assets, generally 3 to 12 years for
machinery and equipment and 15 to 30 years for buildings and
improvements.  Depreciation for income tax purposes is computed using
accelerated methods.  Expenditures for maintenance and repairs are
charged to expense as incurred.  Expenditures for equipment renewals,
which extend the useful life of any asset, are capitalized.  The
Company assesses its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amounts may not
be recoverable.

	The Company capitalizes interest costs as part of the historical
cost of acquiring major capital assets.  Interest cost of $11,000 was
capitalized for the year ended September 27, 1997. No interest was
capitalized for the years ended September 26, 1998 and September 25,
1999, respectively.



	Income Taxes
	The Company accounts for income taxes pursuant to the asset and
liability method. Deferred tax assets and liabilities are recognized
based upon the estimated increase or decrease in taxes payable or
refundable in future years expected to result from reversal of
temporary differences and utilization of carryforwards which exist at
the end of the current year.  Temporary differences represent the
differences between the financial statement carrying amount of assets
and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates scheduled to
apply to taxable income in the years in which the temporary
differences are expected to be settled, and are adjusted in the period
of enactment for the effect of a change in tax law or rates.

	Recent Accounting Pronouncements
	In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 (SFAS No 130),
"Reporting Comprehensive Income", which established standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-
purpose financial statements.  The Company adopted SFAS No. 130 in the
quarter ended December 26, 1998.  For the periods presented herein,
comprehensive income is equal to net income reported.

	In June 1997, the Financial Accounting Standards Board issued
Statement No. 131 (SFAS No. 131) "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes
standards for reporting information about operating segments in annual
financial statements and interim financial reports issued to
shareholders.  It also establishes standards for related disclosures
about products and services, geographic areas, and major customers.
The Company has determined it has no reportable segments as defined
under SFAS No. 131.

	In June 1998, the Financial Accounting Standards Board issued
Statement No. 133 (SFAS No. 133) "Accounting for Derivative
Instruments and Hedging Activities".  SFAS No. 133 establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure
those instruments at fair value.  The Company does not currently have
any derivative financial instruments; therefore, SFAS No. 133 does not
currently apply.  The Company is required to adopt SFAS No. 133
effective as of the beginning of the first quarter of fiscal 2001.

	Fiscal Year End
	The Company's fiscal year ends on the last Saturday of
September.

(3)	Inventories

	Inventories at September 26, 1998 and September 25, 1999 consist
of the following ($000's):
                                              1998         1999
        Raw materials                       $ 1,984      $ 2,824
        Semi-finished and finished goods     18,379       19,927
        Total inventories                   $20,363      $22,751


(4)	Environmental Liabilities

	The Company's melt shop operations were shut down for twelve
days during the third quarter of fiscal 1997 in order to decontaminate
its baghouse facilities after detection of a radioactive substance in
the baghouse dust, a by-product of the melting process.

	The $1.0 million in environmental liabilities recorded as a
current liability on the balance sheet at September 26, 1998
represents final payment due an environmental services company for
treatment and disposal of the contaminated baghouse dust. Payment for
the disposal occurred during fiscal 1999.

(5)	Accrued Liabilities

	Accrued liabilities at September 26, 1998 and September 25, 1999
consist of the following ($000's):
                                                     1998      1999
     Accrued payroll and related liabilities       $ 1,431   $ 1,498
     Accrued insurance and workers' compensation       820       945
     Accrued interest payable                          702       714
     Other                                             881       831
                                                   $ 3,834   $ 3,988

 (6)	Long-Term Debt

	Long-term debt of the Company at September 26, 1998 and September
25, 1999 consists of the following ($000's):

                                                   1998         1999
      Unsecured senior notes, due in equal
        annual installments from November
        2000 through 2005, interest at 7.66%    $ 20,000      $20,000
      Other                                          125          125
                                                  20,125       20,125
      Less - Current portion                        (125)        (125)
                                                $ 20,000      $20,000

	Principal payments on the unsecured senior notes commence on
November 1, 2000 and are due in equal annual installments over six
years.  These notes bear interest at a fixed rate of 7.66% per annum,
with interest paid semi-annually.

	The Company has a $24.5 million unsecured bank credit facility
which expires January 31, 2002.  Borrowings are limited to defined
percentages of eligible inventory and accounts receivable.  Interest
on borrowings accrue at the rate of LIBOR plus 1.35% or the prime rate
minus 1/2%.

	The notes and bank credit facility contain restrictive
covenants, which include, among other restrictions, a maximum ratio of
total funded debt to total capitalization, a minimum fixed charge
coverage ratio, a minimum net worth requirement and restrictions on
the payment of dividends.

	As of September 25, 1999, approximately $14.5 million was
outstanding under the bank credit facility, approximately $.9 million
was utilized to collateralize various letters of credit and $6.0
million was available for additional borrowings.  The weighted average
interest rate on short-term borrowings as of September 26, 1998 and
September 25, 1999 were 7.3% and 7.1%, respectively.

	The estimated fair value of the Company's unsecured senior notes
is estimated using discounted cash flow analysis, based upon the
estimated market rate as of September 25, 1999.  The fair value of the
unsecured senior notes was approximately $19.7 million as of September
25, 1999 and as of September 26, 1998.
(7)	Significant Customers and Foreign Sales

	The Company grants trade credit to customers within the markets
it serves. Sales to the leaf-springs suspension market represented
18.6%, 14.2%, and 12.5% of total sales for fiscal 1997, 1998 and 1999,
respectively.

	One company, through several wholly-owned subsidiaries, which
are customers of the Company, represented 8.7%, 10.4%, and 13.5% of
net sales in fiscal 1997, 1998, and 1999, respectively.  Another
customer, through two wholly-owned subsidiaries, which are customers
of the Company, accounted for 14.0%, 10.4%, and 11.0% of net sales in
fiscal 1997, 1998, and 1999, respectively.  No other customer
accounted for more than 10% of net sales.

	The Company's foreign sales represented 8.5%, 7.5%, and 8.6% of
total sales for 1997, 1998 and 1999, respectively.


(8)	Income Taxes

 	The provision (credit) for income taxes consists of the following
($000's):


                                         1997      1998      1999
          Current:
            Federal                   $  (900)    $ 200     $ (98)
            State                          -         -         -
                                         (900)      200       (98)
          Deferred:
            Federal                      (498)      596       626
            State                        (201)      120        76
                                         (699)      716       702
          Total provision (credit)
            for income taxes          $(1,599)    $ 916     $ 604


	The provision (credit) for income taxes differs from the amount
computed by applying the statutory federal income tax rate to income
before income taxes for the following reasons ($000's):


                                         1997      1998      1999

      Income tax provision (credit)
        at statutory tax rate of 34%  $(1,438)    $ 819     $ 538
      State income taxes, net of
        federal effect                   (103)       64        50
      Other, net                          (58)       33        16
                                      $(1,599)    $ 916     $ 604



	The components of the net deferred tax asset at September 26,
1998 and September 25, 1999 are as follows ($000's):








                                          Sept. 26,    Sept. 25,
                                            1998         1999
      Deferred tax components:
        Property, plant and equipment     $  (307)     $(1,398)
        Intangibles                         2,526        2,314
        AMT credit carryforwards            1,177        1,038
        NOL carryforward                    5,429        6,405
        Other                                 494          258
                                            9,319        8,617
        Valuation allowance                (2,681)      (2,681)

           Net deferred tax assets        $ 6,638      $ 5,936


	For Federal income tax purposes the Company has alternative
minimum tax credit carryforwards of approximately $1.0 million, which
are not limited by expiration dates.  The Company also has gross
operating tax loss carryforwards of approximately $18.8 million, which
expire beginning in 2011.  The Company has recorded deferred tax
assets related to these carryforwards.

	The realization of deferred tax assets is dependent in part upon
generation of sufficient future taxable income.  Management has
considered the levels of currently anticipated pre-tax income in
assessing the required level of the deferred tax asset valuation
allowance.  Taking into consideration historical pre-tax income
levels, the nature of certain events which adversely affected
operations in fiscal 1997, the results of operations for fiscal 1998
and 1999, and other factors, management believes it is more likely
than not that the net deferred tax asset, after consideration of the
valuation allowance which has been established, will be realized.  The
amount of the net deferred tax asset considered realizable, however,
could be reduced if estimates of future taxable income during the
carryforward period are reduced.


(9)	Profit Sharing Plans

	The Company has established profit sharing plans for its
bargaining unit (hourly) and salaried employees.  Generally, the plans
require mandatory contributions of five percent of pretax profits
(with a guaranteed minimum based on hours worked) for the hourly
employees, and an additional discretionary contribution set by the
Board of Directors for salaried employees.  Expense for contributions
was approximately $219,000, $226,000 and $219,000 in fiscal 1997, 1998
and 1999, respectively.


(10)  Earnings Per Share

	Statement of Financial Accounting Standards No. 128 (SFAS No.
128) related to earnings per share requires dual presentation of basic
and diluted earnings per share on the face of the income statement for
all entities with complex capital structures.  The Company adopted
SFAS No. 128 during fiscal 1998.  The following is the reconciliation
of the numerators and denominators of the basic and diluted earnings
per share computations.








                      For the Year Ended         For the Year Ended
                      September 27, 1997         September 26, 1998
                                       Per                       Per
                                      Share                     Share
                    (Loss)  Shares    Amount   Income  Shares   Amount
Amounts for Basic
  Earnings (Loss)
  Per Share        $(2,632) 4,633,315 $(.57)  $1,494  4,624,671  $.32

Effect of Dilutive
  Securities Options   -__      -        -       -        6,249    -

Amounts for Diluted
  Earnings (Loss)
  Per Share        $(2,632) 4,633,315 $(.57)  $1,494  4,630,920  $.32





	                        For the Year Ended
                              September 25, 1999
                                                  Per
                                                 Share
                         Income      Shares     Amount
Amounts for Basic
  Earnings Per Share     $  978     4,085,480    $.24

Effect of Dilutive
  Securities Options         -          3,739      -

Amounts for Diluted
  Earnings Per Share     $  978     4,089,219    $.24

The following options were not included in the computation of diluted
earnings per share because to do so would have been antidilutive for
the applicable period:

					       1997        1998        1999

	Transition stock options     158,702	92,335	56,061
	Employee stock options	     405,168     301,976     378,668
					     563,870     394,311     434,729

See Note 11 for further information regarding options outstanding.


(11)	Stock Option/Restricted Stock Plan

	The Company has Employee Stock Option/Restricted Stock Plans
which provide shares of common stock for awards to eligible employees
in the form of stock options and restricted stock.  Awards under the
Plans may be made to any officer or other key employees of the
Company.  The options become exercisable on a pro rata basis over a
period of four years beginning one year after the grant date, except
for options issued in conjunction with the initial public offering,
which became exercisable over a three-year period, which began on
approval by the stockholders of the 1993 Employee Stock
Option/Restricted Stock Plan in February 1994.  All unexercised
options expire ten years after the date of grant.  Option and
restricted stock prices range from $3.03 to $12.31 per share.



	The plans also provide for the issuance of restricted stock.
The restricted shares vest three years after the grant date.  During
1994 in connection with the initial public offering, 18,000 restricted
shares were granted and issued, and vested on a pro rata basis over a
period of four years beginning one year after the grant date.
Compensation expense of $208,000, $53,000 and $0 was recognized in
fiscal 1997, 1998 and 1999, respectively, as a result of amortization
of restricted stock grants over the vesting periods.  The unamortized
portion of the restricted stock is reflected in deferred compensation
and was $53,000 as of September 27, 1997.  The restricted stock was
fully amortized as of September 26, 1998.

	A summary of transactions in the above plans for fiscal 1998 and
1999 are as follows:

                                    1998                  1999
                                       Weighted-            Weighted-
                                        Average              Average
                              Stock    Exercise     Stock   Exercise
                             Options     Price     Options    Price
  Options outstanding,
    beginning of year        405,168    $ 9.12     386,668   $ 9.15
  Options granted               -          -        91,192     3.03
  Options forfeited          (18,500)     8.46      (8,000)    8.66
  Options outstanding,
    end of year              386,668    $ 9.15     469,860   $ 7.97
  Options exercisable,
    end of year              263,877    $10.24     318,022   $ 9.72
  Restricted shares granted     -                     -
  Options and restricted
    shares available
    for grant                 29,233               191,041


	The 1993 Transition Stock Option Plan (the "Transition Plan") was
approved by the shareholders in 1994.  The Transition Plan was designed
to substitute KESI stock options for previously issued NS Group stock
options. KESI incentive stock options for 186,539 shares of Common Stock
were issued in 1994, with exercise prices varying from $8.76 per share
to $20.86 per share.  A summary of transactions in the plan for fiscal
1998 and 1999 are as follows:


                                    1998                 1999
                                       Weighted-            Weighted-
                                        Average              Average
                              Stock    Exercise     Stock   Exercise
                             Options     Price     Options    Price

  Options outstanding,
    beginning of year        158,702    $14.06      92,335   $10.84
  Options granted               -          -          -         -
  Options forfeited          (24,892)    14.69      (6,340)   11.01
  Options expired            (41,475)    20.86     (29,934)   14.40
  Options outstanding,
    end of year               92,335    $10.84      56,061   $ 8.93
  Options exercisable,
    end of year               92,335    $10.84      56,061   $ 8.93






	The Company accounts for its stock-based compensation plans using
the intrinsic value method in accordance with APB Opinion No. 25 and
related interpretations. Under this method, no compensation cost has been
recognized for the Company's Employee Stock Option Plan for fiscal years
1997, 1998, and 1999.  Had compensation cost for the stock option plans
been determined based on the fair value of the options at the grant
dates, under those plans consistent with the fair value method, pro forma
net income and basic and diluted earnings per share would have been a net
loss of $2.7 million and $.59 per share for fiscal 1997, net income of
$1.4 million or $.30 per share for fiscal 1998, and net income of $.9
million and $.21 per share for fiscal 1999.  These pro forma disclosures
are not likely to be representative of the effect on reported net income
and basic and diluted earnings per share for future years since current
options vest over a three to four year period and additional options are
generally granted each year.  In addition, the pro forma fair value
method has not been applied to options granted in years prior to fiscal
1996.  The weighted-average fair value of options granted in fiscal 1997
and 1999 was $3.15 and $1.64 per share, respectively.  The fair value of
each option is estimated on the date of grant using the Black-Scholes
options pricing model with the following assumptions: weighted average
risk free interest rate of 6.59% for fiscal 1997 and 5.1% for fiscal
1999, weighted average volatility of 38.4% for fiscal 1997 and 39.4% for
fiscal 1999, expected life of eight years and zero dividends.  The
Company did not grant any options in fiscal 1998.

	The following table summarizes information about stock options
outstanding at September 25, 1999 under the Employee Stock
Option/Restricted Stock Plans and the Transition Plan:

<TABLE>
                               Options Outstanding             Options Exercisable
                                   Weighted-
                                   Average      Weighted-                  Weighted-
                         Number    Remaining    Average        Number      Average
      Range of        Outstanding  Contractual  Exercise     Exercisable   Exercise
    Exercise Prices    at 9/25/99    Life        Price       at 9/25/99     Price
    <S>                <C>         <C>          <C>          <C>           <C>
    Employee Stock Option/Restricted Stock Plans:
    $ 3.03 -  3.03       91,192    9.39 Years    $ 3.03           -        $  -
      5.56 -  7.63      161,884    7.13 Years      6.57        101,238       6.78
      9.13 - 12.31      216,784    4.99 Years     11.10        216,784      11.10
    $ 3.03 - 12.31      469,860    6.58 Years    $ 7.97        318,022     $ 9.72

    Transition Plan:
    $ 8.76 -  9.05       55,706    2.88 Years    $ 8.86         55,706     $ 8.86
     19.57 - 19.57          355     .67 Years     19.57            355      19.57
    $ 8.76 - 19.57       56,061    2.87 Years    $ 8.93         56,061     $ 8.93
</TABLE>
	The Company has a key employees' stock loan plan which provides
for the granting of loans to eligible employees for the purchase of
the Company's common stock in the open market.  Under the terms of the
plan, the loans are forgiven, and the related amounts expensed, on a
pro-rata basis over a five-year period of service beginning at the
date of grant.  The unamortized balance due from eligible employees
under the plan is reflected as deferred compensation and shown as a
reduction of shareholders' equity and was $73,000 and $30,000 as of
September 26, 1998 and September 25, 1999, respectively.  In fiscal
1998 and 1999, the Company recognized $44,000 and $43,000 of
compensation expense related to the plan.

	During 1997, the Board of Directors established the Kentucky
Electric Steel, Inc. Share Plan for Non-Employee Directors (the
"Plan"), which provides for the issuance of stock in lieu of cash for
director services.  Under the Plan, 25,000 shares were authorized for
issuance.  In May 1999, the Board of Directors approved the 1999 Share
Plan for Non-Employee Directors, which authorized 25,000 of additional
shares to be used for Directors' compensation.  The Plan provides for
issuance of common stock for at least 60% of the fees payable with
respect to the applicable meeting for each Non-Employee Director.
During fiscal 1998, 7,949 shares were issued at stock prices ranging
from $3.50 to $6.94 per share.  During fiscal 1999, 17,937 shares were
issued at stock prices ranging from $2.91 to $3.41 per share.


(12)	Shareholders' Equity

	Each share of common stock outstanding (and each share of common
stock issued prior to the occurrence of certain events) carries with
it one Preferred Stock Purchase Right (a Right) to purchase at a price
of $40, one-hundredth of a share of Series A Junior Participating
Preferred Stock.  The Rights are exercisable only if a person or group
acquires or announces a tender offer which would result in ownership
of 20% or more of the common stock.  The Company can redeem the Rights
for $.01 per Right at any time prior to the time a person or group
acquires 20% or more of the Company's shares.

	Following the acquisition of 20% or more of the Company's common
stock by a person or group, the holders of the Rights will be entitled
to purchase additional shares of Company common stock at one-half the
then current market price, and, in the event of a subsequent merger or
other acquisition of the Company, to buy shares of common stock of the
acquiring entity at one-half of the market price of those shares. In
neither event, however, would the acquiring person or group be
entitled to purchase shares at the reduced price.

	In connection with the shareholder rights plan, which was
adopted by the Board of Directors on February 27, 1996 and amended and
restated as of September 1, 1999, 150,000 shares of the Company's
1,000,000 authorized shares of preferred stock have been designated as
Series A Junior Participating Preferred Stock.  No shares of the
Series A Junior Participating Preferred Stock have been issued.


(13)  Commitments and Contingencies

	The Company has various commitments for the purchase of
materials, supplies and energy arising in the ordinary course of
business.

	The Company is subject to various claims, lawsuits and
administrative proceedings arising in the ordinary course of business
with respect to commercial, product liability, environmental and other
matters, which seek remedies or damages.  Costs to be incurred in
connection with environmental matters are accrued when the prospect of
incurring costs for testing or remedial action is deemed probable and
such amounts can be estimated.  The Company has no recorded reserves
for environmental matters as of September 25, 1999.  However, new
information or developments with respect to known matters or unknown
conditions could result in the recording of accruals in the periods in
which they become known.  The Company believes that any liability that
may ultimately be determined with respect to commercial, product
liability, environmental or other matters will not have a material
effect on its financial condition or results of operations.


 (14)  Quarterly Financial Data (Unaudited)

	Quarterly results of operations (in thousands, except share and
per share amounts) for fiscal 1998 and fiscal 1999 are as follows:



<TABLE>
                                      First       Second        Third       Fourth
                                     Quarter      Quarter      Quarter      Quarter
<S>                                  <C>          <C>          <C>          <C>

     1998

     Net sales                     $  26,020     $  29,610    $  27,751    $  26,075
     Gross profit                  $   2,340     $   3,423    $   3,457    $   2,516
     Net income                    $      41     $     563    $     652    $     238
     Net income per
       common share -
       basic and diluted           $     .01     $     .12    $     .14    $     .05
     Weighted average shares
       outstanding - basic         4,626,383     4,626,033    4,626,375    4,619,893
     Weighted average shares
       outstanding - diluted       4,643,073     4,630,520    4,630,192    4,619,893


     1999

     Net sales                     $  25,624     $  25,952    $  27,421    $  26,392
     Gross profit                  $   2,075     $   1,961    $   3,711    $   2,502
     Net income (loss)             $     (88)    $    (327)   $   1,269    $     124
     Net income (loss) per
       common share -
       basic and diluted           $    (.02)    $    (.08)   $     .31    $     .03
     Weighted average shares
       outstanding - basic         4,147,178     4,060,355    4,064,920    4,069,469
     Weighted average shares
       outstanding - diluted       4,147,178     4,060,355    4,064,920    4,080,212
</TABLE>
<PAGE>



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To Kentucky Electric Steel, Inc.:

We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Kentucky
Electric Steel, Inc.'s annual report on Form 10-K, and have issued our
report thereon dated October 27, 1999.  Our audit was made for the
purpose of forming an opinion on those statements taken as a whole.
The schedule listed in item 14(a)2 is the responsibility of the
Company's management and is presented for purposes of complying with
the Securities and Exchange Commission's rules and regulations and is
not part of the basic financial statements.  This schedule has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein
in relation to the basic financial statements taken as a whole.



      Arthur Andersen LLP


Cincinnati, Ohio,
October 27, 1999

<PAGE>







                                                           SCHEDULE II



KENTUCKY ELECTRIC STEEL, INC.

VALUATION AND QUALIFYING ACCOUNTS

(Dollars in Thousands)


                                         Reserves Deducted
                                                      from Assets in
                                                       Balance Sheets
                                                      Allowance for
                                                         Doubtful
                                                       Accounts (1)



  BALANCE, September 28, 1996 .......................       390
    Additions:
      Charged to costs and expenses .................       120
    Deductions:
      Net charge-off of accounts deemed uncollectible       (40)
                                                            ---
  BALANCE, September 27, 1997 .......................       470
    Additions:
      Charged to costs and expenses .................       (10)
    Deductions:
      Net charge-off of accounts deemed uncollectible        -
                                                            ---
  BALANCE, September 26, 1998 .......................    $  460
    Additions:
      Charged to costs and expenses .................       (30)
    Deductions:
      Net charge-off of accounts deemed uncollectible        -
                                                            ---
  BALANCE, September 25, 1999 .......................    $  430


  (1)  Deducted from accounts receivable.


<PAGE>