U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

[X]



[  ]

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-23242

WEBCO INDUSTRIES, INC.(Exact name of registrant as specified in its charter)

Oklahoma                                                                                       73-1097133               (State
or other jurisdiction
                                                                                (I.R.S.
Employer
           of incorporation or
organization)
                                                                         
Identification Number)

9101 West 21st Street
Sand Springs, Oklahoma 74063
(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code - (918) 241-1000

Common Stock, par value $.01
(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 XNo

Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [ X ]

As of September 30, 2002, the aggregate market
value of the voting stock held by non-affiliates of the registrant was $8,987,000.

On September 30, 2002, the number of shares
outstanding of the registrant's common stock, $.01 par value, was 7,081,723 shares.







|WEBCO INDUSTRIES, INC. AND SUBSIDIARY                                                                             |     
|----------------------------------------------------------------------------------------------------------------- | ----
|TABLE OF CONTENTS                                                                                                 |     
|                                                                                                                  | Page
|PART I                                                                                                            |     
|Item 1. Business                                                                                                  | 3   
|Item 2. Properties                                                                                                | 13  
|Item 3. Legal Proceedings                                                                                         | 14  
|Item 4. Submission of Matters to a Vote of Security Holders                                                       | 14  
|                                                                                                                  |     
|PART II                                                                                                           |     
|Item 5. Market for Registrant's Common Stock and Related
    Stockholder Matters                                  | 14  
|Item 6. Selected Financial Data                                                                                   | 15  
|Item 7. Management's Discussion and Analysis of Financial
    Condition and
                Results of Operations | 16  
|Item 7A. Quantitative and Qualitative
    Disclosures about Market Risk                                           | 23  
|Item 8. Financial Statements and Supplementary Data                                                               | 24  
|Item 9. Changes in and Disagreements with Accountants on
    Accounting and
                Financial Disclosure  | 43  
|                                                                                                                  |     
|PART III                                                                                                          |     
|Item 10. Directors and Executive Officers of the Registrant                                                       | 43  
|Item 11. Executive Compensation                                                                                   | 43  
|Item 12. Security Ownership of Certain Beneficial Owners and
    Management                                       | 43  
|Item 13. Certain Relationships and Related Transactions                                                           | 43  
|                                                                                                                  |     
|PART IV                                                                                                           |     
|Item 14. Exhibits, Financial Statement Schedules and Reports
    on Form 8-K                                      | 44  



WEBCO INDUSTRIES, INC. AND SUBSIDIARY

FORM 10-K

PART I

ITEM 1. BUSINESS

General 
        Webco Industries, Inc., an Oklahoma
corporation, was founded in 1969 by F. William Weber, Chairman of the Board and Chief
Executive Officer. Webco is a manufacturer and distributor of high-quality carbon steel,
stainless steel and other high alloy tubing products designed to industry and customer
specifications. Webco's tubing products consist primarily of pressure tubing, including
heat exchanger and boiler tubing, and specialty tubing for use in consumer durable and
capital goods. The Company's long-term strategy involves the pursuit of niche markets
within the tubing industry through the deployment of leading-edge manufacturing and
information technology. The Company has three production facilities in Oklahoma and
Pennsylvania and five distribution facilities in Oklahoma, Texas, Illinois and Michigan,
serving more than 950 customers throughout North America.

In May 2002, the Company
sold substantially all of the assets of its QuikWater Division and treated the disposal as
a discontinued operation. The reader should refer to Note 5 - Discontinued
Operation, in the footnotes to the consolidated financial statements of this Form 10-K for
additional information regarding this matter.

Unless the context otherwise
requires, the information contained in this report, and the terms "Webco" and
the "Company" when used in this report, include Webco Industries, Inc. and its
subsidiary, Phillips & Johnston, Inc. ("P&J"), on a consolidated basis.

Industry Overview
        Tubing producers occupy a niche between the
primary steel producers and customers who utilize precision tubing in the manufacture of
products primarily for the capital goods and consumer durable goods industries. As
contrasted with commodity pipe producers, tube mills manufacture products which are
engineered and tailored for more specialized and critical end-use applications.

The tubing industry was once
dominated by the major integrated steel producers. Over time, these integrated producers
lost their competitive advantage and have largely withdrawn from this segment. In
addition, the industry continues to undergo consolidation, as well as rationalization of
less efficient producers. The industry continues to be highly fragmented and is currently
comprised of independent producers that occupy relatively focused market niches.

The tubing industry has been
affected by several trends that are expected to continue over the next several years.
First, customers increasing emphasis on just-in-time inventory methods has required
tube producers to increase operating efficiencies to accommodate more frequent, but
smaller sized orders, and has caused tube producers to place greater emphasis on
technology advances, inventory management and cost control. Second, customers
desires to cut operating costs through the outsourcing of specific processing functions,
such as tube manufacturing, have created the opportunity for third-party tube producers to
replace production from captive mills. The slow-down in the U.S. economy, the volume of
foreign steel imports coming into U.S. markets, recent trade tariffs, and domestic
over-capacity has caused volatility in the price of finished goods and the cost of steel
sheet coil, the principal raw material used in the manufacture of tubing products.



TUBING MANUFACTURING PROCESSES

Manufactured Products

Electric Resistance Carbon Steel Weld Process: The Company
maintains inventories of carbon steel sheet coils from which it manufactures tubing using
electric resistance welding. This steel is in the form of a continuous sheet, typically 48
to 60 inches wide, between .049 and .500 inches thick, and weighing approximately 15 to 20
tons.

All customer orders for
manufactured products are entered into a computerized order entry system, and the
appropriate steel coil inventory is then selected and scheduled for processing in
accordance with the customers delivery date and product specifications. The Company
attempts to maximize efficiency by combining orders to optimize size rollings.

The manufacturing cycle
begins with the slitting of wide coils into narrower bands. The outside diameter of the
tube to be produced determines the width of the slit band. Steel coils over .180 inches
thick used at the Sand Springs facility are slit to pre-designated widths by outside
vendors. Steel coils less than .180 inches thick in Sand Springs, and substantially all
coils in Oil City, are slit at the facility using Company equipment. Conversion from slit
band to carbon and alloy tubes is accomplished by (i) continuously roll forming into the
desired tubular diameter; (ii) continuously welding the edges; and (iii) cutting to
approximate finished length or multiples thereof. After the tube has been welded, and
depending upon product specifications, it may be moved to three further processing
stations for annealing (heat treatment through an atmospherically controlled roller hearth
furnace), straightening through rotary straighteners, and finishing (i.e., cut-to-length,
non-destructive test, stencil, oil coat and package). The Company also utilizes outside
vendors for certain value-added processing. The Company has stringent quality control
standards in place at each stage of the manufacturing process.

This process produces welded
pressure and specialty tubing and cold draw hollows (the raw material for the cold drawing
process, which does not go through the finishing process). Hollows are primarily for
specific pressure and specialty tubing cold draw orders, however, smaller amounts are
produced for inventory.

Carbon Steel Cold Drawing Process: The Company maintains
inventories of welded and seamless tube hollows, which is raw material for the cold
drawing process to produce various pressure and specialty tubing products. Most of the
welded hollows are manufactured by the Companys own weld mills, while seamless
hollows are all purchased from other manufacturers. The Company currently offers
precision, made-to-order cold drawn products from .05 inch to .50 inch in wall thickness
for pressure and specialty tubing applications. Cold drawing permits greater flexibility
and precision (as compared to the welding process) in meeting customer specifications of
tube diameters, wall thickness and other characteristics.

Cold drawing orders are
entered into a computerized order entry system. Raw materials are selected to optimize
yields and efficiency and to meet the customers specifications and required delivery
schedule. After the proper material has been selected for each specific order, it is cut
to the desired length. The tube is then (i) pickled and lubricated through a series of
tanks, (ii) pointed to taper the tube end, and (iii) cold drawn through a die (cold
reduction of outside diameter and inside diameter and elongation of tube). After the cold
drawn tube has been manufactured to finished size, it is moved to three additional
processing stations for annealing, straightening and finishing. The Company also utilizes
outside vendors for certain value-added processing. The cold draw process produces
pressure tubing and specialty tubing products.

Welded Stainless Tube Process: The manufacturing cycle for the
stainless steel and high alloy weld mill operations begins with customer orders being
entered into the computerized order entry system. After receipt of steel coils slit to a
pre-designated width by the vendor, slit coils are selected and fed into the stainless
weld mills to be formed into a tubular shape and welded by an automated gas or laser
welding process. Tubes are then annealed, cooled, straightened, stenciled,
non-destructively tested, cut to length and packaged for shipment. For some special
customer requirements, the tubing is coiled to lengths up to 40,000 feet. Much of the
processing is performed in a continuous operation. The Company also utilizes outside
vendors for certain value-added processing. Stainless processing produces pressure and
specialty tubing and small diameter stainless pipe. The majority of stainless products are
made-to-order.

Tubing Facilities
        The Company has three manufacturing facilities
for producing carbon or stainless steel tubing products. The largest facility is located
in Sand Springs, Oklahoma, which produces a wide range of carbon steel pressure and
specialty tubing products. This facility has been in operation since the Company began in
1969. The Company also has a facility in Oil City, Pennsylvania, which produces carbon
steel pressure and specialty tubing products. The third facility in Mannford, Oklahoma,
produces stainless steel and high alloy tubing and pipe products.

The following table sets
forth the processing and other techniques performed at Webco's facilities:

|                                        | Manufacturing      | Distributionl 
|--------------------------------------- | ------------------ | --------------
|                                        | Sand Springs,Okla. | Oil City,Penn.
|Cold Drawing                            | X                  | X             
|Slitting                                | X                  | X             
|Welding                                 | X                  | X             
|Annealing                               | X                  | X             
|Straightening                           | X                  | X             
|Cut-to-Length                           | X                  | X             
|Integral Finning                        |                    |               
|Electronic Non-Destrutive Testing:      |                    |               
|Eddy Current                            | X                  | X             
|Ultra-Sonic                             | X                  | X             
|Hydro-Static Testing                    | X                  |               
|Stenciling                              | X                  | X             
|Bending                                 |                    |               
|Bar Coding                              | X                  | X             
|Computerized Shop
        Floor Control | X                  | X             
|Metallurgical Lab                       | X                  | X             
|Spectrometer                            | X                  |               
|Statistical Process
        Control     | X                  | X             



INDUSTRY SEGMENTSThe Company applies the provisions of Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information"(FAS 131). Prior to the quarter ended April 30,
2002, the Company had two reportable segments: Tubing Products and QuikWater, representing
the Company's two strategic business units offering different products. However, as
discussed in Note 5 - Discontinued Operation, in the footnotes to the consolidated
financial statements of this Form 10-K, the QuikWater segment was disposed of on May 10,
2002 leaving one remaining segment. The Company internally evaluates its business by
facility, however, because of the similar economic characteristics of the tubing
operations, including the nature of products, processes and customers, those operations
have been aggregated for segment determination purposes. As a result of the QuikWater
disposal, the Company's continuing operations only include activities related to the
manufacturing and distribution of tubular products principally made of carbon, stainless
and high alloy steels.

PRODUCTS

Pressure and Specialty Tubing ProductsThe Company produces tubing for
a wide variety of markets and end-use applications. The Company seeks to identify niche
markets and customers that have been serviced by high cost and low service competitors.
The percentage breakdown of net sales of the Company's main products were as follows for
the last three fiscal years:

2002-
    2001-
    2000-Pressure tubing and pipe
    38 %
    35 %
    30 %Specialty tubing
    59
    61
    66Freight, scrap and other
    3
    4
    4Total
    100 %===
    100 %===
    100 %===


Following is a detailed
description of the Companys tubing products by the major end-use markets:

Pressure Tubing and Pipe: The
Company is a full service manufacturer and distributor of pressure tubing and pipe, which
includes tubing utilized in heat exchanger, boiler and piping applications. The Company
supplies a variety of pressure tubing and pipe products to the refining, petrochemical,
chemical, pulp and paper, pharmaceutical, gas transmission and electric power industries.
These industries are serviced by the Company's three manufacturing and two distribution
facilities in Oklahoma, Pennsylvania, and Texas. Through its manufacturing facilities and
sourcing partners, the Company offers carbon steel, alloy steel, stainless steel,
nonferrous, nickel alloy and various other tubular products to these industries. Such
products may be welded or seamless and may be cut, bent and/or finned to customer
specifications at the distribution warehouses. The Company believes that its manufacturing
capabilities for carbon steel, alloy steel and stainless steel, provide a strategic
advantage over its distribution competitors. The Company also believes that its
distribution capabilities provide a strategic advantage over its manufacturing
competitors.

Over the past two years, the
pressure tubing and pipe industry has been impacted by declining demand in the
petrochemical, pulp and paper and power generation industries. Foreign imports, including
both raw coils and finished tubes and pipe, have slowed due to U.S. import tariffs imposed
in the Spring of 2002, which in turn has driven up prices for domestic raw coils and some
finished products. Bankruptcies and plant closings have also reduced the overall domestic
capacity serving the pressure tubing and pipe markets. The Company believes that its
current financial position, production capacity and product offerings will enable it to
realize the benefits associated with an improvement in market conditions for pressure
tubing and stainless pipe, when and if such improvement occurs. The Company also expects
to further grow this line of business by expanding its product offerings to its existing
customer base.

Specialty Tubing: Specialty
tubing consists of tubular goods made of carbon and stainless steel, copper, brass,
aluminum and surgical steel. Most of the products the Company manufactures from its cold
draw processes are for specialty tube applications. Through its manufacturing capabilities
and its sourcing partners, the Company provides tubing to a variety of end use
applications. These end-uses include, but are not limited to the following: instruments
for the petrochemical industry, hydraulic cylinders, automotive components, appliances,
down-hole oil & gas applications, heating and ventilation, farm equipment and a wide
variety of consumer durable (such as automobiles, lawn and garden equipment, etc.) and
capital goods. In many cases, the Company provides just-in-time inventory management for
its customers via its manufacturing and distribution capabilities and/or through its
distributor customers and partners. The Company is a relatively small producer in the
overall specialty tubing market, but continues to pursue niche opportunities for growth.

In conjunction with the
increased stainless capacity and the completed expansion in Oil City, the Company has
targeted the specialty tubing market as a growth area over the next several years. This
market continues to undergo a major change in which final assembly manufacturers
(automotive, appliance, etc.) outsource component parts and emphasize just-in-time
inventory management to reduce production costs. Webco believes that this market, which is
largely comprised of original equipment manufacturers ("OEMs"), provides an
opportunity for the Company to gain market share by utilizing its technological
capabilities to offer superior quality, on-time delivery, customer service, and customized
products at competitive prices.

Quarterly Effects and Seasonality
        Order rates generally tend to be lower during
mid-summer and December as many of the Companys customers schedule plant shutdowns
for plant maintenance. In addition, the Company experiences some seasonality in stainless
products during its third fiscal quarter, which may result in reduced net sales and income
for that period.

BacklogThe Companys firm backlog
of orders at July 31, 2002 and 2001 were approximately $31.3 million and $28.2 million,
respectively. Orders, including a portion of the orders considered firm, are generally
cancelable by the customer until work has commenced and the Company has committed
resources; thereafter, orders are generally cancelable by the customer only upon payment
of a cancellation penalty, which may include costs for raw materials, tooling,
engineering, etc. The Company's backlog is not necessarily indicative of the expected
level of future revenues and can be affected by product mix, since the different markets
served by the Company have differing lead times and order flow processes. During 2002, the
Company changed its method of tracking its backlog and the 2001 figure has been updated
accordingly.

CompetitionTube manufacturing is a highly
competitive market, evidenced by several bankruptcies in the last 18 months, in which
companies compete on the basis of price, quality, service and ability to deliver orders on
a timely basis. Public data concerning the size of the markets in which the Company
participates is not readily available since many of the large competitors are privately
held or do not provide detailed segment disclosures of their facilities. The Company
believes that it is a domestic leader in the manufacture and distribution of pressure
tubing and certain stainless steel and high alloy tubing products. The Company believes
that its manufacturing capabilities, in both carbon and stainless steel, provide a
strategic advantage over its distribution competitors. Although the Company has a small
share of the overall specialty tubing market, management believes that it is well
positioned to increase its market share over the next several years by continuing to focus
on niche applications.

The Companys major
competitors include Tubes, Inc. and Lone Star Technologies for carbon pressure tubing,
Rath/Gibson Tube, Synalloy Corporation and Associated Tube for stainless pressure
products, and Copperweld LTV, PTCAlliance, Metalmatic and Lone Star Technologies for
specialty tubing. Certain of these competitors are larger and have access to greater
financial resources than the Company. Most of these competitors are unionized.

The Company believes that
its non-union status, geographic balance, focused niche strategy, product quality,
information technology, customer service and continued emphasis on technological
innovations position it to compete effectively within each of its niche markets.

Quality ControlThe supply of quality products
and service is critical to the Companys success. To help foster continuous
improvements in quality and service, the Company adheres to a total quality management
system based upon ISO 9000 quality system standards. In early 1994, the Company achieved
ISO 9002 certification at its Sand Springs, Oklahoma manufacturing facility. ISO 9002
certification at its Oil City, Pennsylvania manufacturing facility was achieved in early
1995. In May 2000, the Company achieved ISO 9002 certification at its Mannford, Oklahoma
manufacturing facility. The Company has obtained QS-9000 certification at its Sand
Springs, Oil City and Mannford facilities. In support of the total quality management
system, the Company has created an environment that emphasizes and utilizes teamwork to
support continuous improvement of quality and service.

Fundamental to the
Companys quality system is the control of the product and process, from raw material
procurement to the ultimate delivery of finished goods to the Companys customers. On
a test basis, physical and chemical analyses are performed on raw materials to verify that
their mechanical and dimensional properties, cleanliness, and surface characteristics meet
Company and industry requirements. The Company has also developed stringent process
controls, including Statistical Process Control, non-destructive testing methods, and
standardized operating and inspection procedures, to provide assurance of quality, and to
ensure that the customers requirements are met throughout the manufacturing process.

SuppliersThe Company purchases steel
sheet coil from a number of primary steel producers including, but not limited to, Nucor,
Wheeling-Pittsburgh Steel Corp. and Gallatin Steel for carbon steel, and Allegheny Rodney
and AvestaPolarit for stainless steel. Webco monitors and purchases some raw material from
foreign sources as economic conditions dictate. However, the greatest percentage of
Company purchases are from domestic suppliers. The Company orders steel to specified
physical characteristics and chemistry. By purchasing in large quantities at consistent
predetermined intervals, Webco is able to obtain quality raw materials at competitive
prices. All increments of the cost of purchasing and landing steel are continuously
monitored, reviewed and acted upon. Webco believes that it is not dependent on any one of
its suppliers for raw materials, however, interruptions in supply from its main suppliers
could impact the landed cost of new purchases.

The Company also purchases
finished pressure and specialty tubing made from carbon and stainless steel, copper,
brass, aluminum and surgical steel from foreign and domestic sources as economic
conditions and customer demand dictate. The Company orders the tubing to specified
physical characteristics and chemistry based on industry and customer specifications.
Webco believes that it is not dependent on any one of its suppliers for finished goods,
however, interruptions in supply could impact customer deliveries and the cost of new
purchases.

Webco understands that the
Company's supplier base for materials is critical to its economic health. Constant effort
is directed towards developing long-term partners who can provide acceptable quality,
competitive prices and dependable delivery, and are, themselves, economically stable.

Marketing and Customer ServiceThe Companys sales and marketing efforts
for its products are directed by the Senior Vice President of Tubing Operations, the
President of P&J, and Webco's product sales managers. These efforts are supported by
its distribution organization, internal and external sales staff and technical services
group. The Company also emphasizes the use of its technical and engineering support staff
in its product development and marketing efforts. The Companys technical services,
operating, engineering, quality, sales, product planning and purchasing staffs work
closely with customers and suppliers to develop products that meet specific customer
applications. Variables in the product development process include the steels
microstructure, chemistry, mechanical properties, surface finish, machinability, and
product consistency. The Company believes this process is essential to its sales effort
and provides the Company with a competitive advantage.

Customers and DistributionThe Company manufactures and distributes
tubular products for sale to a diverse group of more than 950 customers. No single
customer represents in excess of 6.5% of the Companys net sales. The Companys
ten largest customers represent approximately 29% of net sales. The majority of the
Companys sales are made directly to industrial customers, including manufacturers of
heat exchangers, high efficiency home heating furnaces, appliances, automotive components,
power generation equipment, waste heat recovery systems, industrial and commercial
boilers, and other consumer durable goods.

While the Company ships
product throughout North America, many of its markets and customers are located within a
500-mile radius of its manufacturing and distribution locations. As it concerns these
markets and customers, this geographic advantage places the Company in a more cost
competitive position relative to many of its competitors. The Company transports product
for local delivery via Company-owned or leased vehicles. Longer distance deliveries are
generally made via independent trucking firms.

The Company offers its
finished product for shipment directly from its three manufacturing locations. In
addition, the Company also inventories finished goods and functions as its own distributor
for some of its markets. Such markets and customers are served on a just-in-time basis
from the Companys distribution locations in Oklahoma, Texas, Illinois and Michigan.
Finished goods inventories for distribution generally are suitable for sale to many
customers and generally are not unique to a specific customers needs.

The Company believes that
its long-term relationships with many of its customers are a significant factor in its
business and that pricing, quality, service and the ability to deliver orders on a timely
basis are the most critical factors in maintaining these relationships. Company executive
officers actively participate in the Companys marketing efforts and have developed
strong business relationships with senior management of many of the Companys
principal customers.

Government RegulationThe Companys manufacturing and
distribution facilities are subject to many federal, state, and local requirements
relating to the protection of the environment. The Company continually examines ways to
reduce emissions and waste and reduce costs related to environmental compliance. The
Company has an in-house environmental team leading the Companys environmental
program. Managements philosophy is to implement environmental controls that meet or
exceed current and foreseeable legal requirements. Management believes the Company is in
material compliance with all environmental laws, does not anticipate any material
expenditure to meet environmental requirements, and generally believes that its processes
and products do not present any unusual environmental concerns.

The Companys
operations are also governed by laws and regulations relating to workplace safety and
worker health, principally the Occupational Safety and Health Act and regulations
thereunder which, among other requirements, establish noise and dust standards. Management
believes it is in material compliance with these laws and regulations and does not believe
that future compliance with such laws and regulations will have a material adverse effect
on its results of operations or financial condition.

The Company is subject to
the regulatory and reporting requirements of the Sarbanes-Oxley Act of 2002. Management
believes it is in material compliance with the new provisions set forth under the Act.
Management does anticipate, however, that current and future compliance with such
provisions will result in increased audit and legal fees.

EmployeesAs of September 30, 2002, the Company employed
767 people. None of the Companys employees are covered by collective bargaining
agreements. The Company has never experienced a significant work stoppage and considers
its employee relations to be good.

Key-Man Insurance        The Company maintains two key-man,
whole-life insurance policies on F. William Weber, Chairman of the Board and Chief
Executive Officer. Both policies have a $500,000 face value and the Company pays the
premiums and is the beneficiary on each. At July 31, 2002, the policies had a cash
surrender-value of approximately $820,000. The Company is evaluating the necessity of
maintaining these policies for the future.



FORWARD-LOOKING STATEMENTS

Certain statements in this
Annual Report on Form 10-K, including statements preceded by, or predicated upon the words
"anticipates", "appears", "believes", "expects",
"hopeful", "plans" or "should", constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other important factors that could cause the actual results,
performance or achievements of the Company, or industry results, to differ materially from
any future results, performance or achievements expressed or implied herein. Such risks,
uncertainties and factors include, among others:

General Economic and Business Conditions
        Many of the Companys products are sold to
industries that experience significant fluctuations in demand based on economic conditions
or other matters beyond their control. No assurance can be given that the Company will be
able to increase or maintain its level of sales in periods of economic stagnation or
downturn, government regulation, war, terrorist attack or other potential disruptions.
Furthermore, no assurance can be given that the Company will not incur significant losses
on accounts receivable or inventory as a result of a deteriorating economy.

Competition from Imports
        The volume and pricing of imported tubular
products significantly impacts the domestic tubular products market. While U.S. trade
tariffs have increased the cost of rolled steel coils, many of the types of products that
compete with those manufactured by the Company are not being affected by the tariffs
imposed in the Spring of 2002. In addition, the strength of the U.S. Dollar, lower labor
costs in other countries and volume motives of some foreign importers could create
circumstances where product pricing is at levels that are marginally profitable or even
unprofitable. The Company believes that import levels and import pricing are affected by,
among other things, the strength of the U.S. Dollar, overall worldwide demand for tubular
products, global economic conditions, the trade practices of and government subsidies to
foreign producers, lower labor costs in other countries and the weakness or absence of
governmentally imposed trade restrictions or tariffs in the United States. Given the
uncertainty in the U.S. economy and certain economies of Asia, South America and Eastern
Europe, competition from foreign imports should be expected to continue.

Changes in Manufacturing Technology
        Over the past 10 years, there have been
significant advances in the technology relating to the manufacture of carbon and stainless
steel tubing. Such advances have impacted the speed at which tubing can be manufactured,
the quality of the tubing, and the types and thickness of materials that can be welded
into tubes. Staying current with advances in manufacturing technologies is necessary to be
competitive with other domestic producers and foreign imports or to be able to provide
goods for customers advancing manufacturing needs and processes. Staying current
with advances in manufacturing technologies and capabilities requires investment of
capital. Manufacturers that do not keep pace with current manufacturing technologies may
be unable to compete against more efficiently priced products. Due to the volatility of
the domestic steel industry in recent years, there can be no assurances that Company
operations, capital availability and economic conditions will continue to allow the
Company to maintain current technologies.

Banking Environment
        In the course of managing the National economy,
the Federal Reserve affects policy that impacts the cost and availability of money within
the United States banking system. These policy decisions, along with the quality of the
economy, have a direct impact upon bank credit policies and the cost of funds. Continued
tightening of credit availability could negatively impact the Company's ability to
refinance its debt upon maturity or to refinance at terms that are not more costly than
the current debt structure. Increases in interest rates could materially impact results of
operations and cash flows given current debt levels.

Monetary Policy
        The relative strength of the U.S. Dollar to
foreign currencies has caused, in many industries, a flight of manufacturing capacity to
countries where there exists an economic advantage over U.S. manufacturers. As a result,
certain competitors may have an economic advantage over the Company due to the Company's
U.S. domicile. Further, the relative strength of the U.S. Dollar has caused many companies
that consume tubular products to relocate to other countries or to pursue the economic
advantage of using suppliers located in foreign countries.

Raw Material Costs and Availability
        The Company's largest component of cost of
sales is raw material costs. These costs can vary over time due to changes in steel
pricing which are influenced by numerous factors beyond the control of the Company,
including general economic conditions, foreign imports, domestic competition, labor costs,
import duties and tariffs and other trade restrictions. Typically, the Company passes on
these changes in cost to customers. However, reductions in the Company's raw material
costs may lag behind pressure on the Company's sales prices or increases in raw material
costs may precede increases in the Company's sales prices, if increased at all, thus
affecting the Company's profit margins. Current import tariffs on steel coils has resulted
in increased prices for raw materials as demand for domestic steel coils has increased and
many domestic steel coil producers are operating at or near capacity. The Company's
ability to procure raw material has a direct impact on operational efficiencies and
continuing supply to customers. Given the financial condition of certain domestic
suppliers and the supply and demand imbalances created by the import tariffs, there can be
no assurances that raw material supplies will not be interrupted. Supplier work stoppages
due to labor related issues could also have a significant impact on the available supply
of raw materials. Although the Company has long-term relationships with steel coil vendors
to hopefully ensure a continued supply of raw material, continuing price increases could
have a significant impact on profitability and operating cash flows. Increasing raw
material prices during a period of soft demand for tubular products can have a significant
negative impact on margins due to an inability to raise sales prices accordingly.

Industry Capacity
        The Company and many of its competitors, in
both the stainless and carbon steel tubing markets, expanded production capacity over the
past decade to the point of over-capacity in many markets, putting downward pressure on
pricing. The influx of foreign goods into the U.S. market further pressured prices and
margins and forced some in the industry to exit the business. The Company has added
capacity in recent years and continues to look for additional opportunities to do so, but
only in connection with strategic opportunities in certain niche markets and the benefits
related to current manufacturing technology.

Domestic Competition
        Tube manufacturing is a highly competitive
market in which companies compete on the basis of price, quality, service and ability to
fill orders on a timely basis. The Company has different competitors within each of its
markets served, some of which are larger and have greater financial resources than the
Company. Sales of some of the Companys products represent a high percentage of the
market demand for these products, and could be targeted by competitors. Competition from
companies operating under bankruptcy protection also poses a threat to pricing as such
companies reduce their cost structure and concentrate on short-term cash flow.

Loss of Significant Customers and Customer Work Stoppages
        The Company sells its tubular products to a
diverse group of more than 950 customers. No single customer represents in excess of 6.5%
of the Companys 2002 net sales, and the Companys ten largest customers
represent approximately 29% of 2002 net sales. However, the loss of any significant
customer, or a work stoppage at a significant customer or in an important end-use sector,
such as automotive, could have an adverse effect on the Companys operating results.
In addition, the strength of the U.S. Dollar, lower labor costs in other countries and
volume motives of some foreign importers could create circumstances where customers are
lost as a result of their inability to remain competitive or relocating to a foreign
country.

Customer Claims
        The Company manufactures tubular products to
customer specifications. Company products are used in highly technical applications that
require stringent controls over quality and the supply chain. From time to time, customers
can, and do, make claims against the Company for amounts that exceed the Company's
replacement policy. There can be no assurances that such claims will not deviate from
historical experience and have a material impact on the results of operations and cash
flows of the Company.

Technical and Data Processing Capabilities
        The Company operates all of its facilities on
an integrated computer system, which handles all sales, production, accounting and
procurement functions. A failure by the Companys system for an extended period of
time, or the Company's failure to find adequate solutions to any technical and data
processing issues that may arise, could result in a significant interruption to the
Company's operations. The Company expects to increasingly utilize the Internet in its
business functions and an interruption in service could result in disruptions to the
Company's operations. While employing redundant systems is cost prohibitive, the Company
continually evaluates its disaster recovery procedures in an attempt to mitigate such
risks and exposures. On an on-going basis, the Company must continue to invest in its
information technology capabilities to satisfy increasing customer demands for
communication and interfacing requirements. There can be no assurances that the Company
will have the capital availability to make all necessary investments.

Insurance costs and availability
        The Company maintains property and casualty and
liability insurance policies, along with other policies, deemed appropriate for the
Company's business environment. The Company's insurance program is evaluated each year by
management and an outside insurance broker. Subsequent to September 11, 2001, the Company
incurred substantial increases in its insurance premiums, as did most industries, which
has forced management to look at different coverage options, including, but not limited
to, higher deductibles, coverage levels and new carriers, to try and mitigate the rising
costs. Management believes its current insurance program is appropriate for its business
purpose, but there can be no assurances that a significant claim against, or loss by, the
Company will not exceed insurance coverage levels, or fall outside coverage limitations,
and have a material adverse impact on the Company's operations or financial condition.



ITEM 2. PROPERTIES

The Companys principal
properties presently consist of three manufacturing plants and five distribution
facilities. The following sets forth the location, area, and whether the property is owned
or leased for all existing facilities:

|Location                                                            | Area                        | Owned or
    Leased                                                                
|------------------------------------------------------------------- | --------------------------- | -----------------------------------------------------------------------------------
|Sand Springs, OklahomaManufacturing Facility                        | 281,000 square feet26 acres | Owned                                                                              
|                                                                    |                             |                                                                                    
|Sand Springs, OklahomaDistribution Facility                         | 50,000 square feet18 acres  | Owned                                                                              
|                                                                    |                             |                                                                                    
|Mannford, OklahomaManufacturing Facility                            | 138,000 square feet13 acres | Owned                                                                              
|                                                                    |                             |                                                                                    
|Nederland, TexasDistribution Facility                               | 25,500 square feet          | Long-term lease with a
    purchase Option of the greater of 93% of FMV or $475,000
|                                                                    |                             |                                                                                    
|Beaumont, TexasStorage Facility                                     | 23,200 square feet          | Short-term lease (1 yr)                                                            
|                                                                    |                             |                                                                                    
|Oil City, PennsylvaniaManufacturing Facility                        | 205,000 square feet8 acres  | Owned                                                                              
|                                                                    |                             |                                                                                    
|Titusville, PennsylvaniaCutting Facility                            | 49,200 square feet          | Long-term lease                                                                    
|                                                                    |                             |                                                                                    
|Sand Springs, OklahomaCorporate Offices                             | 24,400 square feet          | Long-term lease with a
    Purchase option of $750,000                             
|                                                                    |                             |                                                                                    
|Tulsa, OklahomaFinning Facility                                     | 28,000 square feet          | Long-term lease                                                                    
|                                                                    |                             |                                                                                    
|Glen Ellyn, IllinoisP&J Corporate Offices and Distribution Facility | 25,700 square feet          | Long-term lease                                                                    
|                                                                    |                             |                                                                                    
|Lyndon, IllinoisDistribution Facility                               | 33,700 square feet          | Long-term lease                                                                    
|                                                                    |                             |                                                                                    
|Grand Rapids, MichiganDistribution Facility                         | 55,000 square feet          | Long-term lease                                                                    

The Company considers all of
its properties, both owned and leased, together with the related machinery and equipment
contained therein, to be well maintained, in good operating condition, and suitable and
adequate to carry on the Companys business.



ITEM 3. LEGAL PROCEEDINGS

The Company is a party to
various lawsuits and claims arising in the ordinary course of business. Management, after
review and consultation with legal counsel, believes that any liability resulting from
these matters would not materially affect the results of operations or the financial
position of the Company. The Company maintains liability insurance against risks arising
out of the normal course of business.



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

There were no
matters submitted to Webco security holders during the fourth quarter of fiscal year 2002.



PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Webco's common stock is
traded on the American Stock Exchange ("AMEX") under the symbol "WEB."
At the close of business on September 30, 2002, there were 272 holders of record of
Webco's common stock. The quarterly prices of Webco's common stock were as follows:

Fiscal Year 2002:
    High
    LowFourth Quarter
    5.24
    3.75Third Quarter
    5.40
    3.10Second Quarter
    3.60
    2.30First Quarter
    3.30
    1.80Fiscal Year 2001:Fourth Quarter
    4.35
    2.50Third Quarter
    3.50
    1.37Second Quarter
    2.69
    .63First Quarter
    3.25
    2.25


Dividends
        The Company currently intends to retain
earnings to support its growth strategy and reduce debt and does not anticipate paying
dividends in the foreseeable future. The Board of Directors may reconsider or revise this
policy from time to time based upon conditions then existing, including the Company's
results of operations, financial condition, and capital requirements, as well as other
factors the Board of Directors may deem relevant. Under the Company's loan agreement, the
Company may not pay dividends without the lenders consent.



ITEM 6. SELECTED FINANCIAL DATA

The following table presents
selected financial information for the Company as of the end of and for each of the five
years in the period ended July 31, 2002, which has been derived from the audited
Financial Statements of the Company. Prior years' Net Sales, Gross Profit and Income from
Operations figures have been restated as a result of the QuikWater divestiture. The reader should refer to Part II, Item 8: Note 5 - Discontinued Operation, in
the footnotes to the consolidated financial statements of this Form 10-K for additional
information regarding this matter.

The selected financial data
should be read in conjunction with the Financial Statements of the Company and notes
thereto and "Management's Discussion and Analysis of Financial Condition and Results
of Operations" appearing elsewhere in this Form 10-K.

|WEBCO INDUSTRIES, INC. AND SUBSIDIARY
    Selected Financial Data
    For the Years Ended July 31,(Dollars in thousands, except per share data)
|-----------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                               
|Income Statement Data:                                                                                                                         
|Net sales                                                                                                                                      
|Gross profit                                                                                                                                   
|Income from operations (2)                                                                                                                     
|                                                                                                                                               
|Income (loss) from continuing
    operations                                                                                                   
|Loss from discontinued
    operation (1)                                                                                                       
|Net income (loss) (3)                                                                                                                          
|                                                                                                                                               
|Diluted earnings (loss) per
    share (3):                                                                                                     
|Income (loss) from continuing
    operations                                                                                                   
|Loss from discontinued
    operation (1)                                                                                                       
|Net income (loss)                                                                                                                              
|                                                                                                                                               
|Pro forma net income (4)                                                                                                                       
|Pro forma diluted income per
    share (4)                                                                                                     
|                                                                                                                                               
|Balance Sheet Data:                                                                                                                            
|Working capital                                                                                                                                
|Total assets                                                                                                                                   
|Long-term debt (net of
    current portion)                                                                                                    
|Stockholders' equity                                                                                                                           

(1)  The loss from the discontinued operation for all years relates to the
operations of QuikWater and the sale of that segment in 2002. See Note 5 to the
consolidated financial statements of this Form 10-K.
(2)  Fiscal year 2000 includes a $414,000 ($257,000, or $.03 per diluted share after
tax) charge related to the write-off of certain tubing equipment. See Note 4 to the
consolidated financial statements of this Form 10-K.
(3)  P&J was an S-Corporation for Federal and State income tax purposes through
June 29, 1998, and accordingly did not incur any Federal or State income taxes prior to
that date.
(4)  The 1998 period presented has been adjusted on a pro forma basis for assumed
Federal and state income taxes for P&J, which had not previously recognized income
taxes due to its S-Corporation status. Pro forma income taxes were based upon the
statutory (Federal & state) tax rate of 38 percent.



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion should be read in conjunction with the
"Selected Financial Data" and the Financial Statements of the Company and notes
thereto appearing elsewhere in this Form 10-K.

Overview
        The Company's philosophy is to pursue growth
and profitability through the identification of niche markets for tubular products that
require a high level of value engineering that can be dominated from an industry or
customer standpoint. The Company uses its quality standards, information technology,
customer service and manufacturing technology to achieve such market penetration.

The Company experienced
improved income from continuing operations during the year ended July 31, 2002, primarily
due to the improved operating performance of the Oil City, Pennsylvania facility after
completion of the plant expansion in April 2001, as shown in the following table (dollars
in thousands):

|                                                  | Quarters
    Ended |                
|------------------------------------------------- | ------------------ | ---------------
|                                                  | October 31,2001    | January 31,2002
|Net sales                                         | $ 39,834           | $ 38,204       
|Gross profit                                      | 4,721              | 4,387          
|Income from continuing
    operations, net of tax | 441                | 1,343          



The second quarter of fiscal
2002 was positively impacted by the previously disclosed litigation award of $980,000
after-tax. Please see Part II, Item 8: "Supplementary Data" of this Form 10-K
for complete quarterly financial data.

In May 2002, the Company
sold substantially all of the assets of its QuikWater Division and treated the disposal as
a discontinued operation. The reader should refer to Note 5 - Discontinued
Operation, in the footnotes to the consolidated financial statements of this Form 10-K for
additional information regarding this matter.

Results of Operations
        The following table sets forth certain income
statement data for each of the three years in the period ended July 31, 2002 (certain
amounts may not calculate due to rounding and prior year figures have been restated as a
result of the QuikWater divestiture as discussed above):

|                                                         | 2002         | 2001                  | 2000        
|-------------------------------------------------------- | ------------ | --------------------- | ------------
|                                                         | DollarAmount | %
    of Net Sales    | DollarAmount
|                                                         |              | (Dollars in Millions) |             
|Net sales                                                | $156.3       | 100.0%                | $148.3      
|Gross profit                                             | 18.8         | 12.0                  | 14.9        
|Selling, general
    and
        administrative expenses | 12.5         | 8.0                   | 12.6        
|Income from
    operations                               | 7.9          | 5.1                   | 2.3         



Fiscal 2002 Compared with Fiscal 2001
        Pressure and Specialty Tubing Product sales
increased $8.0 million, or 5.4 percent, to $156.3 million in 2002 from $148.3 million in
2001. The increase in net sales is primarily the result of the additional production
gained from the Oil City, Pennsylvania expansion, new market opportunities and improved
pressure tubing volumes. Pricing pressure remains strong throughout the specialty
stainless tubing markets. Tonnages were depressed in the prior year due to the disruptions
to the operations at the Oil City plant as a result of the expansion construction at that
location for much of the year.

Gross profit for Pressure
and Specialty Tubing Products increased to $18.8 million, or 12.0 percent of net sales, in
2002 from $14.9 million, or 10.1 percent of net sales, in 2001. The increase is a function
of Oil City being fully operational after the major expansion was completed during the
third quarter of fiscal 2001. Shipped tonnages improved 5.5% over fiscal 2001 mostly due
to new market opportunities, production efficiencies and improved pressure tubing volumes.
In fiscal 2001, a one-week suspension at the Sand Springs facility in August and higher
operating expenses at the Oil City facility due to the on-going plant construction
negatively impacted margins. Margins were further reduced by higher natural gas prices at
all facilities during fiscal 2001.

Selling, general and
administrative remained basically unchanged at $12.5 million in fiscal 2002 compared with
$12.6 million in fiscal 2001. The Company did realize a reduction of $499,000 in
information technology expenses during fiscal 2002 as a result of cost saving measures
implemented during fiscal 2001. This decrease was partially offset by a decline in sales
commission income of $180,000. The Company also realized a $236,000 gain on the sale of
real estate that was included as part of selling, general and administrative expenses in
2001.

In January 2002, the Company
recorded a litigation award from a previously disclosed lawsuit against a equipment
vendor. The total judgment of $1.58 million has been collected, and the Company does not
anticipate any further action by either party in the case.

Interest expense for fiscal
2002 decreased to $2,988,000 (net of $35,000 capitalized) from $4,731,000 (net of $375,000
capitalized) in fiscal 2001. The decrease in interest prior to interest capitalization is
the result of the average level of debt under the bank Loan and Security Agreement
decreasing $6.7 million to $41.8 million for 2002 as compared with $48.5 million for 2001.
In addition, the average interest rate decreased to 5.96 percent in 2002 from 8.87 percent
in 2001. The Company has historically elected for its term debt and a significant portion
of its outstanding revolver to bear interest at a floating rate based on LIBOR. Lower
borrowing levels have resulted from improved operating cash flow and the Company's focus
on debt reduction and working capital management. LIBOR, much like the prime rate,
experienced significant decreases during calendar year 2001, which led to the reduction in
the average interest rate. With the current LIBOR and prime rate levels and the Company's
new bank agreement with its primary lender, the Company believes its current average
interest rate is sustainable, and could improve slightly, at least until the underlying
LIBOR and prime rates begin to increase. However, a significant increase in interest rates
could have a material impact on the Company's results of operations and cash flows. The reader should refer to Part II, Item 7A: "Quantitative and Qualitative
Disclosures about Market Risk" of this Form 10-K for additional information regarding
this matter.

The steel industry is
characterized by changing customer demands, foreign competition, government influence on
raw material and finished good import prices, as evidenced by the recent decision
regarding tariffs, and financial instability among domestic steel producers. Due to the
tariffs enacted over the steel trade cases as well as the resulting supply and demand
imbalances, the Company's cost of carbon steel coils has increased significantly. At this
time, management believes prices are peaking and is undertaking strategies, such as
reducing inventory order quantities and maintaining competitive sales prices, to try and
manage higher cost steel inventories. The Company's ability to raise prices to offset
increasing steel costs may prove to be difficult, which could result in unrealizable
inventory values and a decline in profit margins. Although every effort is made to ensure
the accuracy of internal forecasting, any significant changes in demand or finished good
and raw material prices could have a significant impact on the value of the Company's
inventory and reported operating results.

On March 31, 2002, the Board
of Directors approved a plan of divestiture for the Company's QuikWater Division and on
May 10, 2002, the Company sold substantially all of the assets of that segment. The
purchase price for the assets was $100,000 paid in cash at closing and an additional
$300,000 that could be realized based on future earnings of the new entity. None of the
additional $300,000 was recorded on the sale due to management's assessment of the
contingent nature of the amount. The sale of the QuikWater Division represents a disposal
of a business segment under Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" (FAS 144).
Accordingly, current year results of the QuikWater segment have been classified as
discontinued, and prior periods have been restated. A loss of $914,000 was recorded on the
disposal of the business segment, net of realized proceeds, which includes $80,000 of
related disposal costs. The reader should refer to Part II, Item 8: Note 5 - Discontinued
Operation, in the footnotes to the consolidated financial statements of this Form 10-K for
additional information regarding this matter.



Fiscal 2001 Compared with Fiscal 2000
        Pressure and Specialty Tubing Product sales
increased $6.0 million, or 4.2 percent, to $148.3 million in 2001 from $142.3 million in
2000. The increase in net sales reflects a 5.0 percent increase in the average net sales
price per ton realized during 2001. The overall increase in the average net sales price
per ton reflects a product mix shift resulting from the growth in sales of the
Companys stainless and pressure tubing products during 2001 combined with a decrease
in sales of lower priced carbon specialty tubing products.

Gross profit for Pressure
and Specialty Tubing Products decreased to $14.9 million, or 10.1 percent of net sales, in
2001 from $19.1 million, or 13.4 percent of net sales, in 2000. This decrease is a
function of a 9.1 percent increase in the average manufactured cost per ton of tubing
sold, driven mostly by increased raw material prices most notably in stainless material,
offset by the 5.0 percent increase in the average net selling price per ton, noted above.
A one-week suspension at the Sand Springs facility in August and higher payrolls and
operating expenses at the Oil City facility due to the plant expansion negatively impacted
margins in 2001. Margins were further reduced by increased natural gas prices and
continued pricing pressure in the carbon specialty tubing product markets. Pricing
pressure remained strong throughout the specialty stainless tubing markets.

During the fourth quarter of
fiscal 2000, the Company recorded a $414,000 pre-tax charge related to the write-down of
underutilized tubing equipment that the Company anticipates selling.

Selling, general and
administrative expenses decreased 9.4 percent to $12.6 million in fiscal 2001 from $13.9
million in fiscal 2000. The decrease in 2001 was primarily the result of a decrease of
$189,000 in legal fees principally related to labor matters, a $516,000 decrease in
information technology expenses incurred as a result of cost cutting efforts and
completion of the initial installation of SAP and a $350,000 decrease in administrative
labor and overhead expenses realized as a result of certain cost savings measures
implemented during the first and second quarters of fiscal 2001. The Company also realized
a $236,000 gain on the sale of real estate that is included as part of selling, general
and administrative expenses in 2001.

Interest expense for fiscal
2001 increased to $4.7 million (net of $375,000 capitalized) from $4.0 million (net of
$313,000 capitalized) in fiscal 2000. The increase in interest prior to interest
capitalization is the result of the average level of debt under the bank Loan and Security
Agreement increasing $3.8 million to $48.5 million for 2001 as compared with $44.7 million
for 2000. In addition, the related average interest rate increased to 8.9 percent in 2001
from 8.8 percent in 2000. The Company has historically elected for its term debt and a
significant portion of its outstanding revolver to bear interest at a floating rate based
on LIBOR. Higher borrowing levels resulted from declines in operating cash flow and the
expansion in Oil City, Pennsylvania. LIBOR, much like the prime rate, experienced
decreases during fiscal 2001, however, due to the amortization of loan costs to interest
expense and the Companys amended bank agreement with its primary lender, the Company
did not fully realize the benefit of those decreases.

The reader should refer to
Part II, Item 8: Note 5 - Discontinued Operation, in the footnotes to the consolidated
financial statements of this Form 10-K for additional information regarding the
divestiture of the QuikWater segment during 2002.



Liquidity and Capital Resources
        Net cash provided by operations was $12.0
million, $3.2 million and $4.2 million in fiscal 2002, 2001 and 2000, respectively.
Inventories increased in 2002, decreased in 2001 and increased in 2000. The increase in
inventory in 2002 was the result of overall increases in raw material prices and the
Companys decision to make strategic volume purchases in anticipation of rising
prices, as was the case in 2000. Inventories decreased in 2001 primarily due to
management's efforts to reduce raw material inventory levels at the manufacturing
facilities, which was partially offset by increases in finished goods levels. Accounts
payable increased in 2002 and 2000 primarily as a result of the increase in inventory.
Over the past three years, the Company has on average turned its steel inventories
approximately 4 times per year.

Net cash used in investing
activities was $2.7 million, $5.4 million and $10.5 million in fiscal 2002, 2001 and 2000,
respectively. Capital spending in 2002 was limited to upgrading existing equipment with
improved technology and mill additions at the Company's stainless plant. During the third
quarter of fiscal 2001, the Company completed the expansion of the Oil City facility,
which included the installation of a new mill along with other supporting equipment and
plant construction. In 2000, the Company added a new mill and upgraded technology on
existing mills at the stainless plant, completed the installation of its ERP system, and
continued the expansion of facilities and machinery at its Oil City plant.

The Companys capital
requirements have historically been to fund equipment purchases and for general working
capital needs resulting from the growth that the Company has experienced. The Company has
followed an aggressive capital expenditure plan as part of its growth strategy and to
enable it to continue to be a leader in tubular manufacturing technologies. With the major
expansion project in Oil City completed in late 2001, the Company continues to focus on
debt reduction and working capital management. Capital spending plans for 2003 primarily
consist of further additions at the stainless plant and minor projects and normal
maintenance spending, which is expected to be in the range of $4.0 to $5.0 million for the
year. The Company currently intends to retain earnings to support this strategy and does
not anticipate paying dividends in the foreseeable future.

On June 14, 2002, the
Company's senior debt facilities were refinanced with the Company's primary lender to
provide for a term loan of $15.5 million, and a line of credit of $32 million. As of July
31, 2002, the Company had $15.3 million outstanding on the senior debt facility term loan
and $22.1 million on the related revolving line of credit. The maturity
date of the debt facilities is May 1, 2005 and the loans are collateralized by
substantially all of the Companys assets. The Company may have borrowings and
outstanding letters of credit ($1,025,000 at July 31, 2002) under the revolving credit
facility up to the lesser of $32 million or an amount determined by a formula based on the
amount of eligible inventories and accounts receivable. At July 31, 2002, $5.9 million
($4.9 million at September 30, 2002) was available for borrowing on the line of credit
under the terms of the note agreement. Principal payments on the term loan of $184,500,
plus interest, are due each month until maturity. Along with the scheduled principal
payments, the Company is required to make additional principal payments based on 50
percent of excess cash flow not to exceed $221,500 per quarter, or $2,658,000 on a
cumulative basis over the term of the debt facility, beginning in the fourth quarter
ending July 31, 2002. An additional payment of $221,500 was made during the first quarter
of 2003 based on the Company's performance in the fourth quarter of 2002.

The Company's debt facility
contains covenants regarding debt coverage and the ratio of liabilities to equity. The
covenants also limit capital expenditures and dividends and require the Company to
maintain a minimum average borrowing base availability without considering the $32 million
revolving loan cap. As of July 31, 2002, the Company was in compliance with all such
covenants under the existing facility.

The Company has arranged
financing with various public agencies related to the Oil City facility, of which, $2.55
million is outstanding and no additional amounts remain available for borrowing as of July
31, 2002. The agency loans are collateralized by the underlying real estate and/or
equipment. The notes mature over a 3 to 9 year period and bear interest at rates ranging
from 3 to 5 percent.

P&J has a line of credit
agreement for $2,000,000 and a term loan of $500,000 with its primary lender. As of July
31, 2002, the Company had $197,000 outstanding on the term loan and $200,000 under the
line of credit. The line of credit matures on November 30, 2002, and the term loan matures
in April 2004. Both loans are collateralized by P&Js assets. At July 31, 2002,
$1.8 million was available for borrowing under the line of credit.

In addition to the above
debt arrangements, the Company leases certain buildings and machinery and equipment under
non-cancelable operating leases. Under certain of these leases the Company is obligated to
pay property taxes, insurance, repairs and other costs related to the leased property.

The Company enters into
purchase commitments with steel vendors as part of the ordinary course of business. The
Company is currently committed on outstanding purchase orders for inventory approximating
$32.1 million. In addition, the Company has on its premises, raw material on consignment
from certain vendors valued at approximately $2.8 million.

The following table sets
forth the future minimum payments required under the above debt and lease agreements at
July 31, 2002:

|                             | Payments Due
    by Fiscal Year
|---------------------------- | -------------------------------
|Contractual Obligations      | 2003                           
|Senior Long-Term Debt        | $ 2,436                        
|Senior Line of Credit        | -                              
|Public Agency Long-Term Debt | 333                            
|P&J Long-Term Debt           | 109                            
|P&J Line of Credit           | 200                            
|Operating Leases             | 2,156                          
|Other                        | 57                             
|Total Cash
    Obligations   | $ 5,291====                    

In the past, the Company has
funded its capital growth expenditures with a combination of cash flow from operations and
debt. The Company is currently focused on reducing debt and working capital management. Capital spending plans for fiscal year 2003 primarily consist offurther
additions at the stainless plant and minor projects and normal maintenance spending, which
is expected to be in the range of $4.0 to $5.0 million for the year. Management believes
its current capital structure is adequate for current operations and to allow for planned
capital additions and improvements. Interest rate increases or lack of capital
availability could limit capital spending or the working capital necessary to take
advantage of growth opportunities.

Related Party Transactions
        The reader should refer to Part II, Item 8:
Note 13 - Related Party Transactions, in the footnotes to the consolidated financial
statements of this Form 10-K for additional information regarding such transactions during
2002 and 2001.

Significant Accounting Policies 
        The Company's significant accounting policies
require the application of significant judgment by management in selecting the appropriate
assumptions for calculating financial estimates. By their nature, these judgments are
subject to an inherent degree of uncertainty. These judgments are based on historical
experience, terms of existing purchase arrangements, observance of trends in the industry,
information provided by customers and information provided from outside sources, as
appropriate. Significant accounting policies include:

Revenue Recognition  The Company recognizes revenue inaccordance with SEC Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements (SAB 101), as amended by SAB 101A and 101B. SAB 101
requires that four basic criteria must be met before revenue can be recognized: (1)
persuasive evidence of an arrangement exists; (2) delivery has occurred or services
rendered; (3) the fee is fixed and determinable; and (4) collectibility is reasonably
assured. Company product is made to customer or industry specifications at an agreed upon
price as typically specified in the customer purchase order. Title passes to the customer
at the point of shipment along with all the risks and rewards of ownership. Customer
orders are not released for shipment unless the customer is in good credit standing with
the Company, which is internally evaluated by the Company's credit manager on an on-going
basis. Should changes in conditions cause management to determine these criteria are not
met for certain future transactions, revenue recognition would be delayed until such time
the transactions become realizable and fully earned.

Inventories  The Company values inventory at the lower of the
actual cost to purchase and/or manufacture or the current estimated market value of the
inventory. Cost for raw materials, work-in-process, finished goods and maintenance parts
and supplies are determined on the weighted average cost method. The Company regularly
reviews inventory quantities on hand and records a provision for excess and obsolete
inventory based primarily on inventory aging and forecasts of product demand and pricing.
The steel industry is characterized by changing customer demands, government influence on
raw material and finished good import prices, as evidenced by the recent decision
regarding tariffs, and financial instability among domestic steel producers that could
result in significant increases or decreases in inventory pricing or increases in excess
or obsolete inventory quantities on hand. The Company's estimates of future product demand
may prove to be inaccurate, in which case the provision required for excess and obsolete
inventory may have been understated or overstated. Although every effort is made to ensure
the accuracy of internal forecasting, any significant changes in demand or finished good
and raw material prices could have a significant impact on the value of the Company's
inventory and reported operating results.

Self-Insurance Reserves  The Company self-insures both a
medical coverage program and an Oklahoma workers' compensation program for its employees.
The determination of reserves and expenses for these benefits is dependent on claims
experience and the selection of certain assumptions used by actuaries in evaluating
incurred, but not yet reported, amounts. Reserves for claims under both programs are
accrued based upon the Company's estimate of the aggregate liability for claims (including
claims incurred, but not yet reported). Significant changes in actual experience under
either program or significant changes in assumptions may materially affect self-insured
medical or workers' compensation reserves and future expense.

Accounting for Certain Long-Lived Assets  The Company
evaluates its assets for impairment in accordance with Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (FAS 144). FAS 144 is effective for fiscal years beginning after December 15,
2001 with early application encouraged. The Company reviews its long-lived assets for
impairment based on estimated future non-discounted cash flows attributable to the assets.
In the event such cash flows are not expected to be sufficient to recover the recorded
value of the assets, the assets are written down to their estimated fair values. While the
Company believes its estimates of future cash flows are reasonable, different assumptions
regarding such cash flows could materially affect the evaluations.

Deferred Taxes  The Company recognizes deferred tax assets
and liabilities based on the differences between the financial statement carrying amounts
and the tax basis of assets and liabilities. Deferred tax assets are regularly reviewed
for recoverability and, if deemed necessary, an appropriate valuation allowance is
established based on historical taxable income, projected future taxable income, and the
expected timing of the reversals of existing temporary differences. If the Company were
unable to generate sufficient future taxable income, or if there is a material change in
the actual effective tax rates or time period within which the underlying temporary
differences become taxable or deductible, the Company could be required to establish a
valuation allowance against all or a significant portion of the deferred tax assets, thus
resulting in a substantial increase in the effective tax rate and a material adverse
impact on net income.

New Accounting Pronouncements
        In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" (FAS 143). FAS 143 is effective for fiscal years beginning after June
15, 2002 and establishes an accounting standard requiring the recording of the fair value
of liabilities associated with the retirement of long-lived assets in the period in which
the liability is incurred. The Company does not believe the future impact from the
adoption of FAS 143 on its financial position or results of operations will be material.

In August 2001, the FASB
issued Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (FAS 144). FAS 144 is effective for
fiscal years beginning after December 15, 2001 with early application encouraged. This
statement supersedes Statement of Financial Accounting Standards No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
and amends Accounting Principles Board Opinion No. 30 for the accounting and reporting of
discontinued operations, as it relates to long-lived assets. The Company adopted FAS 144
in accounting for the discontinued operation in the period ended April 30, 2002. The other
provisions of FAS 144 regarding impairment did not have a material impact on the financial
position and results of operations of the Company.

In April 2002, the FASB
issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" (FAS 145). The provisions of this statement related to the rescission of
Statement No. 4 shall be applied in fiscal years beginning after May 15, 2002. The Company
will adopt this statement beginning with fiscal year 2003. In the future, the Company will
classify the gain or loss as a result of an early extinguishment of debt, as other income
or expense, rather than an extraordinary item, as a result of this new standard. Adoption
of this standard will have no affect on reported net income (loss).

In June 2002, the FASB
issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (FAS 146). The provisions of this
statement are effective for exit or disposal activities that are initiated after December
31, 2002. This Statement requires that a liability or a cost associated with an exit or
disposal activity be recognized and measured initially at fair value only when the
liability is incurred. The Company does not expect FAS 146 to have a significant impact on
the consolidated financial statements.

Outstanding Litigation
        The Company is party to various lawsuits and
claims arising in the ordinary course of business. Management, after review and
consultation with legal counsel, believes that any liability resulting from these matters
would not materially affect the results of operations or the financial position of the
Company. The Company maintains liability insurance against risks arising out of the normal
course of business.



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk The Company's primary risk relates
to changes in interest rates on its long-term debt under its senior debt facility. At July
31, 2002, the senior debt facility represented $37.4 million of the total debt outstanding
of $40.5 million. A significant amount of the remaining debt of $3.1 million bears
interest at fixed rates between 3 and 5 percent. The Company's senior term and revolving
debt bear interest at a floating rate based on the London Interbank Offered Rate
("LIBOR") or the Prime Rate. Accordingly, the Company believes the carrying
value of its variable rate, long-term debt approximates fair value. The Company has not
entered into derivative contracts or other financial instruments for speculative or
trading purposes. Furthermore, the Company has not used financial instruments in the past,
such as interest rate swaps or hedges, to minimize the impact of interest rate
fluctuations on earnings and cash flow, however, management could use such instruments if
warranted based on estimates of future interest rates. Using the average outstanding
long-term debt under the senior debt facility for fiscal 2002 of $41.8 million, a one
percent change in the floating rates would change annual cash flow and earnings before
income taxes by approximately $418,000.

Inventory Risk  The steel industry is characterized by
changing customer demands, foreign competition, government influence on raw material and
finished good import prices, as evidenced by the recent decision regarding tariffs, and
financial instability among domestic steel producers. Due to the tariffs enacted over the
steel trade cases as well as the resulting supply and demand imbalances, the Company's
cost of carbon steel coils has increased significantly. At this time, management believes
prices are peaking and is undertaking strategies, such as reducing inventory order
quantities and maintaining competitive sales prices, to try and manage higher cost steel
inventories. The Company's ability to raise prices to offset increasing steel costs may
prove to be difficult, which could result in unrealizable inventory values and a decline
in profit margins. Although every effort is made to ensure the accuracy of internal
forecasting, any significant changes in demand or finished good and raw material prices
could have a significant impact on the value of the Company's inventory and reported
operating results.

Natural Gas Risk  The Company uses natural gas in significant
quantities as part of its manufacturing processes. From time to time, the Company
experiences significant increases and decreases in the price of natural gas. The Company's
ability to raise prices to offset increasing gas costs may prove to be difficult, which
could result in declines in profit margins. The Company is not currently a party to any
derivative contracts or other financial instruments involving natural gas. Management
could use such instruments if warranted based on estimates of future prices. The average
amount of natural gas used per month in fiscal 2002 ranged from 30,000 to 35,000 mcf per
month. Based on expected usage, a one dollar per mcf change in the price of natural gas
could change annual cash flow and earnings before income taxes up to $420,000.



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Shareholders of

Webco Industries, Inc.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Webco Industries, Inc. and
subsidiary at July 31, 2002 and 2001, and the results of their operations and their cash
flows for each of the three years in the period ended July 31, 2002, in conformity with
accounting principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the index appearing under item
14(a)(2), presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted our audits
of these statements in accordance with auditing standards generally accepted in the United
States of America which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.



PricewaterhouseCoopers LLP

Tulsa, Oklahoma
September 25, 2002





|WEBCO
    INDUSTRIES, INC. AND SUBSIDIARY                                                                                             
|--------------------------------------------------------------------------------------------------------------------------------------
|CONSOLIDATED
    BALANCE SHEETS                                                                                                       
|July 31, 2002
    and 2001                                                                                                            
|(Dollars in
    thousands, except share amounts and par value)                                                                        
|                                                                                                                                      
|ASSETS                                                                                                                                
|Current assets:                                                                                                                       
|Cash                                                                                                                                  
|Accounts receivable,
    net                                                                                                          
|Inventories                                                                                                                           
|Prepaid expenses                                                                                                                      
|Deferred income tax
    asset                                                                                                         
|Total current assets                                                                                                                  
|Property, plant and equipment, net                                                                                                    
|Notes receivable from related parties                                                                                                 
|Other assets, net                                                                                                                     
|Total assets                                                                                                                          
|                                                                                                                                      
|LIABILITIES AND
    STOCKHOLDERS' EQUITY                                                                                              
|Current liabilities:                                                                                                                  
|Accounts payable                                                                                                                      
|Accrued liabilities                                                                                                                   
|Current portion of
    long-term debt                                                                                                 
|Total current liabilities                                                                                                             
|Long-term debt                                                                                                                        
|Deferred income tax liability                                                                                                         
|Commitments and contingencies (Note 8)                                                                                                
|Stockholders' equity:                                                                                                                 
|Common stock, $.01
    par value, 12,000,000 shares authorized,7,081,723 and 7,073,723 shares issued
    and outstanding, respectively
|                                                                                                                                      
|Additional paid-in
    capital                                                                                                        
|Retained earnings                                                                                                                     
|Total stockholders' equity                                                                                                            
|Total liabilities and stockholders' equity                                                                                            



The accompanying notes are an integral part of the consolidated
financial statements.



|WEBCO
    INDUSTRIES, INC. AND SUBSIDIARY                  
|-----------------------------------------------------------
|CONSOLIDATED
    STATEMENTS OF OPERATIONS                  
|For the Years
    Ended July 31, 2002, 2001 and 2000       
|(Dollars and shares in thousands, except per share amounts)
|                                                           
|Net Sales                                                  
|Cost of Sales                                              
|Gross Profit                                               
|Selling, general and
    administrative expenses           
|Litigation award                                           
|Special item: asset write-off                              
|Income from operations                                     
|Interest expense                                           
|Income (loss) before income taxes                          
|Provision (benefit) for income
    taxes                   
|Income (loss) from continuing
    operations               
|Loss on discontinued operation,
    net of tax             
|Net income (loss)                                          
|                                                           
|Net income (loss) per common share
    - basic:            
|Continuing operations                                      
|Discontinued operation                                     
|Net income (loss)                                          
|                                                           
|Net income (loss) per common share
    - diluted:          
|Continuing operations                                      
|Discontinued operation                                     
|Net income (loss)                                          
|                                                           
|Weighted average common shares
    outstanding:            
|Basic                                                      
|Diluted                                                    



The accompanying notes are an integral part of the consolidated
financial statements.



|WEBCO
    INDUSTRIES, INC. AND SUBSIDIARY
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
    For the Years Ended July 31, 2002, 2001 and 2000
    (Dollars in thousands)
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                             
|                                                                                                                                                                             
|Balances, July 31, 1999                                                                                                                                                      
|Net loss                                                                                                                                                                     
|Balances, July 31, 2000                                                                                                                                                      
|Net loss                                                                                                                                                                     
|Balances, July 31, 2001                                                                                                                                                      
|Proceeds from stock options exercised                                                                                                                                        
|Net Income                                                                                                                                                                   
|Balances, July 31, 2002                                                                                                                                                      



The accompanying notes are an integral part of the consolidated
financial statements.



|WEBCO INDUSTRIES, INC. AND SUBSIDIARY                                                                                                                              
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                                                                              
|For the Years Ended July 31, 2002, 2001
    and 2000                                                                                                               
|(Dollars
    in thousands)                                                                                                                                         
|                                                                                                                                                                   
|Cash flows from operating
    activities:                                                                                                                          
|Net income (loss)                                                                                                                                                  
|Adjustments to reconcile net
    income (loss) to netCash provided by operating activities:                                                                        
|Loss on disposal of discontinued
    operation                                                                                                                     
|Depreciation and amortization                                                                                                                                      
|(Gain) loss on disposition of
    Property, plant and equipment                                                                                                    
|Deferred tax expense (benefit)                                                                                                                                     
|(Increase) decrease in:                                                                                                                                            
|Accounts receivable                                                                                                                                                
|Inventories                                                                                                                                                        
|Prepaid expenses                                                                                                                                                   
|Increase (decrease) in:                                                                                                                                            
|Accounts payable                                                                                                                                                   
|Accrued liabilities                                                                                                                                                
|Net change from discontinued
    operation                                                                                                                         
|Net cash provided by operating
    activities                                                                                                                      
|                                                                                                                                                                   
|Cash flows from investing
    activities:                                                                                                                          
|Capital expenditures                                                                                                                                               
|Proceeds from sale of property,
    plant and equipment                                                                                                            
|Repayment of stockholder advances                                                                                                                                  
|Other                                                                                                                                                              
|Net change from discontinued
    operation                                                                                                                         
|Net cash used in investing
    activities                                                                                                                          
|                                                                                                                                                                   
|Cash flows from financing
    activities:                                                                                                                          
|Proceeds from long-term debt                                                                                                                                       
|Principal payments on long-term
    debt                                                                                                                           
|Proceeds from stock options
    exercised                                                                                                                          
|Debt issue costs                                                                                                                                                   
|Increase (decrease) in book
    overdrafts                                                                                                                         
|Net cash provided by (used in)
    financing activities                                                                                                            
|Net increase (decrease) in cash                                                                                                                                    
|Cash, beginning of period                                                                                                                                          
|Cash, end of period                                                                                                                                                
|                                                                                                                                                                   
|Supplemental disclosure of cash
    flow information:
    Interest paid, net of amount capitalized of $35, $375, 
    and $313 in 2002, 2001 and 2000, respectively
|Income taxes paid                                                                                                                                                  



The accompanying notes are an integral part of the consolidated financial
statements.



WEBCO INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS - Webco is a full service manufacturer and
distributor of high-quality carbon steel, stainless steel and other metal tubing products
designed to industry and customer specifications. Webco's tubing products consist
primarily of: pressure tubing, including heat exchanger tubing, boiler tubing and pipe,
and specialty tubing for use in consumer durable and capital goods. The Company's
subsidiary, P&J, represents several manufacturers who produce various specialty
tubular products made from copper, brass, aluminum and stainless and carbon steel, among
others. This access to additional tubing products allows the Company to better serve its
customers by offering a full range of tubular products. The Company, headquartered in Sand
Springs, Oklahoma, has three production facilities in Oklahoma and Pennsylvania and five
distribution facilities in Oklahoma, Texas, Illinois and Michigan, serving more than 950
customers throughout North America.

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Webco Industries, Inc. ("Webco" or together with its
subsidiary, the "Company") and its wholly owned subsidiary Phillips &
Johnston, Inc. ("P&J"), a Chicago based sales organization and value-added
processor of tubular products. All significant intercompany accounts and transactions have
been eliminated in the accompanying financial statements. In May, 2002, the
Company sold substantially all of the assets of its QuikWater Division and the disposal
was treated as a discontinued operation. As a result, the following footnotes have been
adjusted to conform to the restated financial statements. The reader should refer to Note
5 - Discontinued Operation for additional information regarding this matter.

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,
disclosure of contingent assets and liabilities, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.

RECLASSIFICATIONS - Certain prior year balances in the consolidated
financial statements and footnotes have been reclassified to conform with the current year
presentation.

CONCENTRATIONS - The Company maintains its cash in bank deposit
accounts, which at times may exceed the federal insurance limits. As of July 31, 2002 and
2001, the Company had cash in banks totaling $814,000 and $886,000, respectively, in
excess of federal depository insurance limits, respectively. The Company has not
experienced any losses on such accounts in the past.

BOOK OVERDRAFTS - Included in accounts payable at July 31,
2002 and 2001, are outstanding checks in excess of bank deposits totaling $404,000 and
$289,000, respectively.

ACCOUNTS RECEIVABLE - Accounts receivable represent short-term
credit granted to the Company's customers for which collateral is generally not required.
Accounts receivable at July 31, 2002 and 2001, are net of an allowance for
uncollectible amounts of $663,000 and $620,000, respectively. Credit risk on receivables
is considered by management to be limited due to the variety of industries served and
geographic dispersion of customers.



WEBCO INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

INVENTORIES - The Company values inventory at the
lower of the actual cost to purchase and/or manufacture or the current estimated market
value of the inventory. Cost for raw materials, work-in-process, finished goods and
maintenance parts and supplies are determined on the weighted average cost method. The
Company regularly reviews inventory quantities on hand and records a provision for excess
and obsolete inventory based primarily on inventory aging and forecasts of product demand
and pricing.Inventories at July 31, 2002 and 2001 are net of reserves for
obsolescence of $1,580,000 and $853,000, respectively.

PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment,
including tooling, is stated at historical cost and includes interest capitalized on major
construction projects. Gains or losses on sales and retirements of property are reflected
in operations. Depreciation is computed using the straight-line method over the following
estimated useful lives: buildings and improvements - 10 to 40 years, machinery and
equipment - 3 to 25 years, computer equipment and software  3 to 7 years, and
furniture and fixtures - 3 to 10 years. Repair and maintenance costs are expensed as
incurred.

Depreciation expense for the years ended July 31, 2002, 2001 and 2000,
amounted to $6,998,000, $6,140,000 and $5,499,000, respectively. Fully depreciated assets
still in use at July 31, 2002 and 2001, amounted to $15,625,000 and $13,179,000,
respectively.

ACCOUNTING FOR CERTAIN LONG-LIVED ASSETS - The Company evaluates
its assets for impairment in accordance with Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets"("SFAS 144"). The Company reviews its long-lived assets for
impairment based on estimated future nondiscounted cash flows attributable to the assets.
In the event such cash flows are not expected to be sufficient to recover the recorded
value of the assets, the assets are written down to their estimated fair values. The Company had adopted the provisions of FAS 144 in accounting for the
discontinued operation in the period ended April 30, 2002 (Note 5). In addition, the other
provisions of FAS 144 regarding impairment did not have an impact on the financial
position and results of operations of the Company.

SELF-INSURANCE RESERVES - The Company self-insures both a medical
coverage program and a Oklahoma workers' compensation program for its employees. The
determination of reserves and expenses for these benefits is dependent on claims
experience and the selection of certain assumptions used by actuaries in evaluating
incurred, but not yet reported, amounts. Reserves for claims under both programs are
accrued based upon the Company's estimate of the aggregate liability for claims (including
claims incurred, but not yet reported). Significant changes in actual experience under
either program or significant changes in assumptions may materially affect self-insured
medical or workers' compensation reserves and future expense. The reader should refer to
Note 8 in these financial statements for additional information on this matter.

INCOME TAXES - The Company accounts for income taxes in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). The provisions of SFAS No. 109 require
the recording of deferred tax assets and liabilities to reflect the expected tax
consequences in future years of differences between the tax basis of assets and
liabilities and their financial statement carrying amounts. Deferred tax assets are
regularly reviewed for recoverability and, if deemed necessary, an appropriate valuation
allowance is established based on historical taxable income, projected future taxable
income, and the expected timing of the reversals of existing temporary differences. If the

Company were unable to
generate sufficient future taxable income, or if there is a material change in the actual
effective tax rates or time period within which the underlying temporary differences
become taxable or deductible, the Company could be required to establish a valuation
allowance against all or a significant portion of the deferred tax assets, thus resulting
in a substantial increase in the effective tax rate and a material adverse impact on
operating results. The reader should refer to Note 7 in these financial statements for
additional information on this matter.





REVENUE RECOGNITION - The Company recognizes revenue
inaccordance with SEC Staff Accounting Bulletin No.
101, Revenue Recognition in Financial Statements (SAB 101), as amended by SAB 101A and
101B. SAB 101 requires that four basic criteria must be met before revenue can be
recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or
services rendered; (3) the fee is fixed and determinable; and (4) collectibility is
reasonably assured. Company product is made to customer or industry specifications at an
agreed upon price as typically specified in the customer purchase order. Title passes to
the customer at the point of shipment along with all the risks and rewards of ownership.
Customer orders are not released for shipment unless the customer is in good credit
standing with the Company, which is internally evaluated by the Company's credit manager
on an on-going basis. Should changes in conditions cause management to determine these
criteria are not met for certain future transactions, revenue recognition would be delayed
until such time the transactions become realizable and fully earned. In addition, the
Company recognizes outbound freight expense and shipping and handling costs as a component
of cost of sales, while amounts charged to customers for such costs are included in
revenue.

EARNINGS PER SHARE - Earnings per share are calculated based on the
number of weighted average common shares outstanding, including the effect of dilutive
options when applicable, in accordance with the computation, presentation and disclosure
requirements of Financial Accounting Standards Board Statement No. 128, "Earnings Per
Share" ("SFAS No. 128").

NEW ACCOUNTING PRONOUNCEMENTS - In July 2001, the FASB issued
Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" (FAS 143). FAS 143 is effective for fiscal years beginning after June
15, 2002 and establishes an accounting standard requiring the recording of the fair value
of liabilities associated with the retirement of long-lived assets in the period in which
the liability is incurred. The Company does not believe the future impact from the
adoption of FAS 143 on its financial position or results of operations will be material.

In April 2002, the FASB
issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" (FAS 145). The provisions of this statement related to the rescission of
Statement No. 4 shall be applied in fiscal years beginning after May 15, 2002. The Company
will adopt this statement beginning with fiscal year 2003. In the future, the Company will
classify any gain or loss as a result of the early extinguishment of debt, as an other
income or expense, rather than an extraordinary item, as a result of this new standard.
Adoption of this standard will have no affect on reported net income (loss).

In June 2002, the FASB
issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (FAS 146). The provisions of this
statement are effective for exit or disposal activities that are initiated after December
31, 2002. This Statement requires that a liability or a cost associated with an exit or
disposal activity be recognized and measured initially at fair value only when the
liability is incurred. The Company does not expect FAS 146 to have a significant impact on
the consolidated financial statements.



WEBCO INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

2. INVENTORIES

Inventories at July 31, 2002
and 2001, consisted of the following:

2002
    2001(Dollars in
    Thousands)Raw materials
    $ 13,341
    $ 11,269Work-in-process
    1,538
    1,908Finished goods
    16,637
    17,558Maintenance parts and supplies
    2,791
    2,616Total inventories
    $ 34,307=====
    $ 33,351=====




3. PROPERTY, PLANT AND EQUIPMENT

Net property, plant and equipment at July
31, 2002 and 2001, consisted of the following:

2002
    2001(Dollars in
    Thousands)Land
    $ 1,247
    $ 1,247Buildings and improvements
    18,487
    18,432Machinery and equipment
    83,202
    81,496Computer equipment and software
    9,410
    9,341Furniture and fixtures
    1,130
    1,225Construction in progress
    1,264
    416114,740
    112,157Less accumulated depreciation and
    amortization
    51,766
    45,067Net property, plant and equipment
    $ 62,974=====
    $ 67,090=====




4. SPECIAL ITEM: ASSET WRITE-OFF

During the fourth
quarter of fiscal 2000, based upon a review of the Companys long-lived assets, the
Company recorded a non-cash charge of $414,000 related to the write-down of certain tubing
equipment that the Company anticipates selling.



WEBCO INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

5. DISCONTINUED OPERATION

On March 31, 2002, the Board
of Directors approved a plan of divestiture for the Company's QuikWater Division and on
May 10, 2002, the Company sold substantially all of the assets of this segment. The
purchase price for the assets was $100,000 paid in cash at closing and an additional
$300,000 that could be realized based on future earnings of the new entity. None of the
additional $300,000 was recorded on the sale due to management's assessment of the
contingent nature of the amount. The sale of the QuikWater Division represents a disposal
of a business segment under Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" (FAS 144).
Accordingly, current year results of the QuikWater segment have been classified as
discontinued, and prior periods have been restated. A pre-tax loss of $914,000 was
recorded on the disposal of the business segment, net of realized proceeds, which includes
$80,000 of related disposal costs.

Net sales and loss from the
discontinued operation are as follows:

|                                                         | 2002                       | 2001         | 2000          
|-------------------------------------------------------- | -------------------------- | ------------ | --------------
|                                                         | (Dollars
    in Thousands)
|Net Sales                                                | $ 1,912=====               | $ 3,481===== | $ 2,648=====  
|                                                         |                            |              |               
|Pre-tax loss from operations of discontinued
    segment | (550)                      | (175)        | (2,476) (1)   
|Pre-tax loss on disposal of
    business segment         | (914)                      | -            | -             
|Income tax benefit                                       | 556                        | 67           | 915           
|Loss on discontinued operation,
    net of tax           | $ (908)=====               | $ (108)===== | $ (1,561)=====

(1)

Assets and liabilities of the discontinued operation were as follows:

July 31, 2002
    July 31, 2001(Dollars
    in Thousands)Inventory
    $
           -
    $    772Other current assets
    3
    307Property, plant and
    equipment, net
    -
    98Current
    liabilities
    (250)
    (521)Net assets
    (liabilities) of discontinued operation
    $ (247)=====
    $
        656=====




WEBCO INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

6. LONG-TERM DEBT

Long-term debt at July 31, 2002 and 2001, consisted of the following:

2002
    2001(Dollars
    In Thousands)Term loans (A)
    $ 15,316
    $ 26,311Revolving loan (A)
    22,103
    20,270Revolving loan (B)
    200
    -Term loan (C)
    197
    298Real estate and equipment term loans (D)
    2,548
    2,961Other
    96
    11240,460
    49,952Less current maturities
    3,135
    3,942Long-term debt
    $ 37,325=====
    $ 46,010=====


Based upon the borrowing
rates currently available to the Company for borrowings with similar terms and average
maturities, the Company believes that the carrying amount of its long-term debt
approximates fair value.

1. The Company has a $15.5 million term loan and a $32 million revolving line of credit
    with its primary lender group. The term loans and revolving credit loan bear interest at
    the prime rate (4.75% at July 31, 2002) plus 1.50% in the case of the term loan or plus
    1.25% in the case of revolving loan advances. At the Companys option, borrowings
    under any facility can bear interest at LIBOR (1.84% at July 31, 2002) plus 3.25% in the
    case of the term loan or plus 3.0% in the case of revolving loan advances. Interest rate
    margin percentages (percentage paid over prime or LIBOR) may drop subject to Company
    performance and the achievement of certain covenant ratio levels and borrowing base
    availability.

1. P&J has a line-of-credit agreement for $2,000,000. The line of credit matures on
    November 30, 2002, bears interest at the lesser of prime rate (4.75% at July 31, 2002) or
    LIBOR (1.84% at July 31, 2002) plus 2%, and is collateralized by P&J's assets and
    guaranteed by Webco.

1. The Company's subsidiary, P&J, has a $500,000 term note with a bank, which matures
    in April 2004. The note bears interest at 7.5% with monthly installments of $10,000, and
    is collateralized by P&Js assets and guaranteed by Webco.

1. These loans were entered into with various public agencies payable in monthly
    installments aggregating approximately $32,000, including interest, at rates ranging from
    3 to 5 percent. The notes are collateralized by the underlying real estate and/or
    equipment and mature over a 3 to 9 year period.

At July 31, 2002, the
aggregate future maturities of long-term debt are as follows: 2003 - $3,135,000; 2004 -
$2,669,000; 2005 - $33,079,000; 2006 - $299,000; 2007 - $307,000; and thereafter -
$971,000.



WEBCO INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

7. INCOME TAXES

The provision for income taxes for fiscal 2002, 2001 and 2000 consists
of the following:

2002
    2001
    2000(Dollars
    in Thousands)Current:Federal
    $
             -
    $
             -
    $
             -State
    57
    80
    166Deferred:Federal
    1,618
    (897)
    115State
    190
    (106)
    13Total income tax expense (benefit)
    $ 1,865=====
    $ (923)=====
    $
        294=====


The actual income tax
expense (benefit) for fiscal 2002, 2001 and 2000 differs from income tax based on the
federal statutory rate (34%) due to the following:

2002
    2001
    2000(Dollars in
    Thousands)Expected tax expense (benefit)
    $ 1,653
    $ (822)
    $
         282State income taxes, net of federal benefit
    194
    (97)
    33Other
    18
    (4)
    (21)Total income tax expense (benefit)
    $
    1,865=====
    $ (923)=====
    $
         294=====


At July 31, 2002 and 2001, deferred tax
assets and deferred tax liabilities consisted of the following:

|                                                       | 2002                   | 2001          
|------------------------------------------------------ | ---------------------- | --------------
|                                                       | (Dollars in Thousands)
|Net current deferred tax assets
    (liabilities):     |                        |               
|Accounts receivable                                    | $ 252                  | $ 236         
|Inventories                                            | 681                    | 515           
|Accrued liabilities                                    | 1,620                  | 1,459         
|Net current deferred tax asset                         | $ 2,553=====           | $ 2,210=====  
|                                                       |                        |               
|Net non-current deferred tax
    assets (liabilities): |                        |               
|Property plant and equipment                           | $ (13,831)             | $ (13,929)    
|General business credit carry
    forward              | 62                     | 38            
|Alternative minimum tax credit
    carry forward       | 452                    | 452           
|Intangible assets                                      | -                      | 358           
|State tax credits                                      | 258                    | -             
|Operating loss carry forwards                          | 2,198                  | 3,815         
|Net non-current deferred tax
    liability             | $ (10,861)=====        | $ (9,266)=====

At July 31, 2002, the Company has operating
loss carry forwards for regular tax purposes of approximately $5,500,000, which expire in
2015 to 2016.



WEBCO INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

8. COMMITMENTS AND CONTINGENCIES

LITIGATION - In August 1997, the Company filed an
action against a vendor relating to certain cut-off equipment sold to the Company, which
did not perform to specifications. The case sought recoveries for the cost of the
equipment and other incidental and consequential damages, including lost profits, suffered
by the Company. On May 27, 1999 a jury awarded the Company $1.1 million on its claims.
Both the Company and the vendor appealed the verdict. In January 2002, The Tenth Circuit
Court of Appeals entered a decision in the case. The Company's award was affirmed and
increased to add prejudgment interest, but the Company's petition to re-consider the
exclusion of other incidental and consequential damages was denied. The total judgment of
$1.58 million has been collected, and neither party is expected to appeal the decision.

The Company is party to
various lawsuits and claims arising in the ordinary course of business. Management, after
review and consultation with legal counsel, considers that any liability resulting from
these matters would not materially affect the results of operations or the financial
position of the Company.

LEASES - The Company leases certain buildings and machinery and
equipment under non-cancelable operating leases. Under certain of these leases the Company
is required to pay property taxes, insurance, repairs and other costs related to the
leased property. At July 31, 2002, future minimum payments under non-cancelable
leases accounted for as operating leases are $2,156,000 in 2003; $1,550,000 in 2004;
$1,340,000 in 2005; $1,066,000 in 2006; and $944,000 in 2007. Total rent expense for all
operating leases was $3,109,000, $2,916,000 and $2,268,000 in 2002, 2001 and 2000,
respectively.

SELF-INSURANCE - The Company maintains a hospitalization and
medical coverage program for its employees. Claims under this program are limited to
annual losses of $75,000 per participant plus an additional aggregating deductible of
$65,000 for losses in excess of the per participant limit, and aggregate annual claims of
up to $2,000,000 through the use of a stop-loss insurance policy. Additionally, the
Company self-insures Oklahoma workers' compensation claims up to $300,000 per occurrence
and retains a maximum aggregate liability of $1,000,000 per one-year policy term with
respect to all occurrences. The Company has a performance bond in the amount of $550,000
on file with the State of Oklahoma Workers Compensation Court, as required by
self-insurance regulations. Provisions for claims under both programs are accrued based
upon the Company's estimate of the aggregate liability for claims (including claims
incurred, but not yet reported). The total reserve for self-insurance medical and
workers compensation was $1,103,000 and $1,445,000 at July 31, 2002 and 2001,
respectively.

PURCHASE COMMITMENTS - At July 31, 2002 the Company was
committed on outstanding purchase orders for inventory approximating $32.1 million.
Additionally, the Company had on its premises, at July 31, 2002, raw material on
consignment from certain vendors valued at approximately $2.8 million.



9. EMPLOYEE BENEFIT PLANS

The Company maintains 401-K
benefit plans covering all employees meeting certain service requirements. The plans
includes a cash or deferred compensation arrangement permitting elective contributions to
be made by the participants. Company contributions are made at the discretion of the Board
of Directors and are made in cash to the participants accounts. Company contributions were
$308,000, $346,000 and $327,000 in fiscal 2002, 2001 and 2000, respectively.



WEBCO INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

10. STOCKHOLDERS' EQUITY AND STOCK OPTIONS

In January 1994, the
Company's stockholders approved the 1994 Stock Incentive Plan (the "Plan"), in
which directors, employees and consultants are eligible to participate. Four types of
benefits may be granted in any combination under the Plan: incentive stock options,
non-qualified stock options, restricted stock and stock appreciation rights. The Plan also
provides for certain automatic grants to outside directors. All options expire ten years
from the date of grant (except in the case of 10 percent shareholders, which expire five
years from the date of grant) and are exercisable at a price which is at least equal to
fair market value on the date of grant (110% of fair market value in the case of 10
percent shareholders). The employee options vest evenly over a period of two to five years
from the date of grant. The maximum number of shares of common stock with respect to which
incentive stock options, non-qualified stock options, restricted stock, and stock
appreciation rights that may be issued under the Plan is 1,050,000.

Activity under the Plan for
the last three fiscal years was as follows:

Number ofShares
    Weighted AverageExercise PriceBalance, July 31, 1999
    538,000
    6.58Granted
    230,300
    4.17Forfeited
    (36,800)
    6.03Balance, July 31, 2000
    731,500
    5.85Granted
    138,000
    1.60Forfeited
    (61,500)
    5.88Balance, July 31, 2001
    808,000
    5.12Granted
    15,000
    2.80Exercised
    (8,000)
    1.50Forfeited
    (79,500)
    5.61Balance, July 31, 2002
    743,500======
    5.07


Outstanding options and exercisable options
at July 31, 2002 were as follows:

Exercise Prices
    Number
    OfShares
    Weighted Average
    RemainingContractual Life
    Weighted
    AverageExercise PriceOutstanding:$1.44 - $2.80
    145,000
    8.4 years
    $1.73$3.31 - $5.75
    220,300
    6.8 years
    $4.34$6.13 - $8.75
    378,200
    4.4 years
    $6.77Exercisable:$1.44 - $2.80
    136,600
    8.4 years
    $1.67$3.31 - $5.75
    118,480
    6.5 years
    $4.49$6.13 - $8.75
    349,140
    4.3 years
    $6.73


As of July 31, 2001 and
2000, exercisable options were 433,820 and 332,460, respectively, with weighted average
exercise prices of $6.20 and $6.48, respectively.



WEBCO INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



The fair value of options
granted in fiscal years 2002, 2001 and 2000 reported below has been estimated at the date
of grant using a Black-Scholes option pricing model with the following assumptions:

2002
    2001
    2000Weighted average life
    6.0 years
    4.1 years
    4.0 yearsRisk-free interest rate
    5.34%
    5.52 - 6.0%
    5.92 - 6.26%Expected volatility
    63%
    59%
    55%Expected dividend yield
    None
    None
    None


The Black-Scholes option
valuation model was developed for use in estimating the fair value of traded options that
have no vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the expected stock
price volatility. Because the Companys options have characteristics significantly
different from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in the opinion of management,
the existing models do not necessarily provide a reliable single measure of fair value of
its options. The weighted average estimated fair value of employee stock options, whose
exercise price equals the market value on the grant date, granted during 2002, 2001 and
2000 was $1.75, $.81 and $1.92 per share, respectively. The weighted average exercise
price and estimated fair value of employee stock options, whose exercise price exceeds the
market value on the grant date, granted during 2000 was $4.00 and $1.69, respectively.
There were no options granted in 2002 or 2001 with an exercise price exceeding market
value on the grant date.

For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense over the
options vesting period. The Companys pro forma information for fiscal years
2002, 2001 and 2000 is as follows:

2002
    2001
    2000Pro forma net income (loss)
    $ 1,928,000=======
    $ (1,743,000)=======
    $ (1,253,000)=======Pro forma net income (loss) per
    share, diluted
    $
          0.27======
    $
        ( 0.25)======
    $
         (0.18)======


The above SFAS No. 123 pro forma disclosures
are not necessarily representative of the effect SFAS No. 123 will have on the pro forma
disclosure of future years.



WEBCO INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

11. EARNINGS PER SHARE

Presented below is a
reconciliation of the differences between actual weighted average shares outstanding,
which are used in computing basic earnings per share, and diluted weighted average shares,
which are used in computing diluted earnings per share.

2002
    2001
    2000(shares in
    thousands)**Basic EPS:**Weighted average shares outstanding
    7,077
    7,074
    7,074Effect of dilutive securities: Options
    74
    -
    -**Diluted EPS:**Diluted weighted average shares outstanding
    7,151====
    7,074====
    7,074====Anti-dilutive options outstanding (1):Number of options
    596====
    808====
    732====Weighted average exercise price
    $ 5.89====
    $ 5.12====
    $ 5.85====


(1) - Anti-dilutive options and their average exercise prices were not included in the
computation of diluted earnings per share due to either a loss in the period or the option
exercise prices being greater than the average market price of the common shares.



12. SEGMENT INFORMATION

The Company applies the
provisions of Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information"(FAS 131). Prior to the quarter
ended April 30, 2002, the Company had two reportable segments: Tubing Products and
QuikWater, representing the Company's two strategic business units offering different
products. However, as discussed in Note 5, the QuikWater segment was disposed of on May
10, 2002 leaving one remaining segment. The Company internally evaluates its business by
facility, however, because of the similar economic characteristics of the tubing
operations, including the nature of products, processes and customers, those operations
have been aggregated for segment determination purposes. As a result of the QuikWater
disposal, the Company's continuing operations only include activities related to the
manufacturing and distribution of tubular products principally made of carbon and
stainless steel.

The Company produces tubing
for a wide variety of markets and end-use applications. The percentage breakdown of net
sales of the Company's main products were as follows for the last three fiscal years:

2002
    2001
    2000Pressure tubing and pipe
    38 %
    35 %
    30 %Specialty tubing
    59
    61
    66Freight, scrap and other
    3
    4
    4Total
    100 %===
    100 %===
    100 %===




WEBCO INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

13. RELATED PARTY TRANSACTIONS

In October 1995, the Company
entered into an agreement with an entity owned by the majority stockholders to subcontract
certain manufacturing services. Beginning in late 2000, the Company contracted with the
same entity to subcontract the production of QuikWater units, which ceased with the
disposal of QuikWater in May 2002. Payments made by the Company under the agreements
totaled $423,000 and $603,000 in fiscal 2002 and 2001, respectively. In addition, the
Company charges this entity for certain shared benefits and services, including health
benefits and technical assistance. During fiscal year 2002, the Company had billed charges
of $110,000 and received payments of $222,000. The outstanding receivable balance was
$876,000 and $988,000 at July 31, 2002 and 2001, respectively. As of the end of fiscal
year 2002, the Company had discontinued almost all sharing of such benefits and services
with this entity.

The Company purchases
certain specialty packaging and shipping materials from an entity owned by the principal
stockholder. Payments of $135,800 were made by the Company in fiscal 2002 and $142,200
were made in fiscal 2001. In addition, the Company charges this entity for certain shared
benefits and services, including health benefits and technical assistance. During fiscal
year 2002, the Company had billed charges of $10,000 and received payments of $28,000. The
outstanding receivable balance was $4,000 and $22,000 at July 31, 2002 and 2001,
respectively. Subsequent to year-end, this entity was sold by the principal stockholder.

The Company leases its
distribution facility in Nederland, Texas from an entity owned by certain Company
executives. The amount of the monthly lease payments was determined at the beginning of
the lease by an independent evaluation. During 2002, 2001 and 2000, lease expense under
the agreement totaled $64,800 in each year.

Advances were made from time
to time during fiscal 1998 and prior years (none during 1999-2002) to the principal
stockholder with the highest amount outstanding being $1,200,000 in 2002 and 2001. The
balance outstanding at July 31, 2002 and 2001, was $1,200,000. The advance is evidenced by
a five-year promissory note from the principal stockholder and is collateralized by
Company stock and is also a personal obligation. The note bears interest at 3.97 percent
and is payable at maturity of the note on June 30, 2007. Accrued interest on the note
receivable was $663,000 and $594,000 at July 31, 2002 and 2001, respectively, and is
included in notes receivable from related parties in the accompanying balance sheet.

Other advances on various
terms were made to certain executives prior to fiscal 2000, with the highest amounts
outstanding being $518,000 and $448,000 in 2002 and 2001, respectively. The balance
outstanding at July 31, 2002 and 2001 was $518,000 and $448,000, respectively. Certain of
the advances are collateralized by shares of the Company's common stock and are also
personal obligations of the respective officers. The advances are evidenced by five-year
promissory notes bearing interest at 3.97 percent and maturing on December 31, 2006. Accrued interest on the notes receivable from related parties totaled $24,000 and
$19,000 at July 31, 2002 and 2001, respectively, and is included in notes receivable from
related parties in the accompanying balance sheet.





|WEBCO INDUSTRIES, INC.                                   
|---------------------------------------------------------
|SUPPLEMENTAL CONSOLIDATED
    QUARTERLY FINANCIAL DATA   
|(UNAUDITED)                                              
|(Dollars in thousands, except
    per share data)        
|                                                         
|                                                         
|                                                         
|                                                         
|2002                                                     
|Net sales                                                
|Gross profit                                             
|Income from operations                                   
|Income from continuing
    operations, net of tax        
|Loss from discontinued
    operation, net of tax         
|Net income (loss)                                        
|Net income (loss) per diluted
    share:                 
|Continuing operations                                    
|Net income (loss)                                        
|Weighted average shares
    outstanding, diluted         
|                                                         
|                                                         
|                                                         
|                                                         
|2001                                                     
|Net sales                                                
|Gross profit                                             
|Income (loss) from operations                            
|Income (loss) from continuing
    operations, net of tax 
|Income (loss) from discontinued
    operation, net of tax
|Net income (loss)                                        
|Net income (loss) per diluted
    share:                 
|Continuing operations                                    
|Net income (loss)                                        
|Weighted average shares
    outstanding, diluted         

The sum of earnings per share for the
four quarters may not equal the total earnings per share for the year due to changes in
the average number of common shares outstanding and rounding

Quarterly figures for fiscal
years 2002 and 2001 have been restated to reflect the Company's divestiture of the
QuikWater Division on May 10, 2002. The Company sold substantially all of the assets of
this segment. The sale of the QuikWater Division represents a disposal of a business
segment under Statement of Financial Accounting Standards No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" (FAS 144). Accordingly, current year
results of the QuikWater segment have been classified as discontinued, and prior periods
have been restated. The restatement had no effect on net income (loss). The reader should
refer to Part II, Item 8: Note 5 - Discontinued Operation, in the footnotes to the
consolidated financial statements of this Form 10-K for additional information regarding
this matter.



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

There have been no changes in or
disagreements between the Company and its independent auditors.



PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is
hereby incorporated by reference from the Company's definitive proxy statement for the
Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission
(the "Commission") within 120 days of the end of the Company's fiscal year.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is
hereby incorporated by reference from the Company's definitive proxy statement for the
annual Meeting of Stockholders to be filed with the Commission within 120 days of the end
of the Company's fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is
hereby incorporated by reference from the Company's definitive proxy statement for the
annual Meeting of Stockholders to be filed with the Commission within 120 days of the end
of the Company's fiscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is
hereby incorporated by reference from the Company's definitive proxy statement for the
annual Meeting of Stockholders to be filed with the Commission within 120 days the end of
the Company's fiscal year.



PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS

ON FORM 8-K

(a) The following documents are filed as part of this report:

(1) Financial Statements of Webco Industries, Inc. which are included in Part II, Item
8:

Report of Independent Accountants

Consolidated Balance Sheets as of July 31,
2002 and 2001

Consolidated Statements of Operations for
each of the three years in the period ended July 31, 2002

Consolidated Statements of Stockholders'
Equity for each of the three years in the period ended July 31, 2002

Consolidated Statements of Cash Flows for
each of the three years in the period ended July 31, 2002

Notes to Consolidated Financial Statements

Supplemental Consolidated Quarterly
Financial Data (Unaudited)

(2) Financial Statement Schedule:

Schedule II - Valuation and Qualifying
Accounts

(3) Exhibits:



ExhibitNumber  Description

3 (i)        Form of Amended and Restated
Certificate of Incorporation (incorporated by reference to Exhibit 3(i) to the Company's
Registration Statement on Form S-1, No. 33-72994).

3 (ii)        By-Laws (incorporated by reference to
Exhibit 3(ii) to the Company's Registration Statement on Form S-1, No. 33-72994).

10.1        1994 Stock Incentive Plan, as amended
(incorporated by reference to the Company's Registration Statement on Form S-8, No.
333-91754).

10.2        Lease, dated October 22, 1996, between
the Company and Baker Performance Chemicals Incorporated (incorporated by reference to
Exhibit 10.3 to the Company's Form 10-K dated July 31, 1997, File No. 0-23242).

10.3        Eployment Agreements expiring December
31, 2002, between the Company and F. William Weber and Dana S. Weber (incorporated by
reference to Exhibits 10.4 and 10.5, respectively, to the Company's Form 10-K dated July
31, 1997, File No. 0-23242), and Christopher L. Kowalski (incorporated by reference to
Exhibit 10.7 to the Company's Form 10-K dated July 31, 1998, File No. 0-23242).

10.4        Lease, dated March 16, 1998, between the
Company and Tubular Properties, Ltd. (incorporated by reference to Exhibit 10.8 to the
Company's Form 10-K dated July 31, 1998, File No. 0-23242).

10.5        Agreement and Plan of Reorganization
dated as of June 29, 1998 by and among Webco Industries, Inc., P&J Acquisition Corp.,
Phillips & Johnston, Inc., Christopher L Kowalski and Robert N. Pressly (incorporated
by reference to Exhibit 99.1 to the Company's Form 8-K dated June 29, 1998, File No.
0-23242).

10.6        Loan Agreement, dated December 1, 1998,
between the Pennsylvania Economic Development Financing Authority and Webco Industries,
Inc. (incorporated by reference to Exhibit 10.11 to the Company's Form 10-Q dated January
31, 1999, File No. 0-23242).

10.7        Reimbursement Agreement, dated as of
December 1, 1998, between American National Bank and Trust Company of Chicago and Webco
Industries, Inc. (incorporated by reference to Exhibit 10.12 to the Company's Form 10-Q
dated January 31, 1999, File No. 0-23242).

10.8        Sale of assets of QuikWater Division
dated as of May 10, 2002 by and among Webco Industries, Inc. and Quik Water Systems,
Inc.(Acquisition Corp.) (incorporated by reference to the Company's Form 8-K dated May 10,
2002, File No. 0-23242).

10.9        Loan and Security Agreement, dated as of
June 14, 2002, between American National Bank and Trust Company of Chicago, as agent,
certain financial institutions as lender, and the Company (incorporated by reference to
Exhibit 99.2 to the Company's Form 8-K dated June 14, 2002, File No. 0-23242).

23.1        Consent of PricewaterhouseCoopers LLP.

(b)           Reports on Form 8-K:
               
     Form 8-K dated May 10, 2002, File No. 0-23242
               
     Form 8-K dated June 14, 2002, File No. 0-23242



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.

**WEBCO INDUSTRIES, INC**.

October 29, 2002
             By: /s/ F.
William Weber                                               
F. William Weber
                                               
Chairman, Chief Executive 
                                               
Officer and Director

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.

October 29, 2002
             By: /s/ F.
William Weber                                               
F. William Weber
                                               
Chairman, Chief Executive
                                               
Officer and Director

October 29, 2002
             By: /s/ Dana
S. Weber                                               
Dana S. Weber
                                               
President, Chief Operating Officer
                                               
and Director

October 29, 2002
             By: /s/
Michael P. Howard                                               
Michael P. Howard
                                               
Chief Financial Officer

October 29, 2002
             By: /s/
Christopher L. Kowalski                                               
Christopher L. Kowalski
                                               
President-Phillips & Johnston, Inc.
                                               
and Director

October 29, 2002
             By: /s/ Jack
D. McCarthy                                               
Jack D. McCarthy
                                               
Director

October 29, 2002
             By: /s/
Kenneth E. Case                                               
Kenneth E. Case
                                               
Director

October 29, 2002
             By: /s/
Bradley S. Vetal                                               
Bradley S. Vetal
                                               
Director



CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the
Annual Report of Webco Industries, Inc. (the "Company") on Form 10-K for the
period ended July 31, 2002 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, F. William Weber, Chief Executive Officer, and I,
Michael P. Howard, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that,
based on my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the
    Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the
    financial condition and results of operations of the Company.



This certification is deemed
to accompany this Annual Report on Form 10-K, but is not deemed "filed" for
purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise.

/s/ F. William Weber
                                       
/s/ Michael P. HowardF. William Weber
                                            
Michael P. Howard
Chief Executive Officer
                                    
Chief Financial Officer
October 29, 2002
                                            October
29, 2002



CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002



I, F. William Weber, Chief Executive Officer, certify that:

1. I have reviewed this annual report on Form 10-K of Webco Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a
    material fact or omit to state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were made, not misleading with
    respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information
    included in this annual report, fairly present in all material respects the financial
    condition, results of operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report;



Date: October 29, 2002

/s/ F. William Weber 
F. William Weber
Chief Executive Officer



CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002



I, Michael P. Howard, Chief Financial Officer, certify that:

1. I have reviewed this annual report on Form 10-K of Webco Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a
    material fact or omit to state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were made, not misleading with
    respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information
    included in this annual report, fairly present in all material respects the financial
    condition, results of operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report;



Date: October 29, 2002

/s/ Michael P. Howard 
Michael P. Howard
Chief Financial Officer



**WEBCO INDUSTRIES, INC.****SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS****For the Three Years Ended July 31, 2002**(Dollars in Thousands)

AdditionsDescription
    Balance at Beginning of Period
    Charged to Costs and Expenses
    Charged to OtherAccounts
    (1)Deductions
    Balance at End of PeriodAllowance for bad debts:2000
    217
    35
    -
    (15)
    2372001
    237
    387
    -
    (4)
    6202002
    620
    410
    -
    (367)
    663Reserve for inventoryObsolescence:2000
    591
    1,087
    -
    (1,112)
    5662001
    566
    1,314
    -
    (1,027)
    8532002
    853
    2,477
    -
    (1,750)
    1,580




1. Amounts represent write-offs, net of recoveries or disposals.