SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549
                                 FORM 10-K
(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [FEE REQUIRED]
                For the fiscal year ended October 31, 1998
                                    OR
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
     For the transition period from      to     .
                      Commission file Number 2-31520
                         KIT MANUFACTURING COMPANY
          (Exact name of registrant as specified in its charter)
                                California                       95-1525261     
                       (State or other jurisdiction of      (I.R.S. Employer
                       incorporation or organization)     Identification No.)
              530 East Wardlow Road, Long Beach, California        90807   
                (Address of principal executive offices)        (Zip Code)
Registrant's telephone number, including area code (562) 595-7451
Securities registered pursuant to Section 12(b) of the Act:
Title of class:  Common Stock, no par value
Name of each exchange on which registered:  American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:  None
     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.    
Yes   X     No     

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

     The approximate aggregate market value of voting stock held by
non-affiliates of Registrant was $3,155,245 as of January 27, 1999.
                                     
                                 1,110,934
(Number of shares of Common Stock outstanding as of January 22, 1998)

     Certain information called for by Parts I, II and IV is incorporated by
reference to the registrant's Annual Report to shareholders for the fiscal
year ended October 31, 1998 and the information called for by Part III is
incorporated by reference to the registrant's definitive proxy statement to
be filed with the Commission within 120 days after October 31, 1998.
                 The Index to Exhibits appears on page 16.
                         35 pages in total.
                              
                                1
<PAGE>
                             
                              PART I

          Item 1.                    Business
          
                                     General
          
          KIT Manufacturing Company ("Registrant") was incorporated
in California in 1947, as the successor to a business founded in
1945.  A description of Registrant's business during the last fiscal
year appears on page 3 of Registrant's Annual Report to Shareholders
for the fiscal year ended October 31, 1998, which is incorporated
herein by reference.

                 Principal Products Produced and Industry Segments
          
          Registrant designs, manufactures and sells manufactured
housing (mobile homes) which are relocatable, factory-built
dwellings of single, double and triple unit design.  Constructed on wheel
undercarriages, they are towed by truck to locations where they are
set up and connected to utilities.  Registrant also produces
recreational vehicles designed as short-period accommodations for
vacationers and travelers.  These products are travel trailers
designed to be towed behind pickup trucks and fifth wheel travel
trailers designed to be towed behind and attached to special
couplers in the beds of pickup trucks.

          Set forth below are the percentages of revenues
contributed by each class of similar products for the last three
fiscal years:

                                            Products Class         
           Fiscal Year               Manufactured       Recreational
        Ended October 31,              Housing            Vehicles  

             1996                       22%                78%
             1997                       31%                69%
             1998                       43%                57%

          Certain information regarding industry segments is set
forth on page 10 of Registrant's Annual Report to Shareholders for
the fiscal year ended October 31, 1998, which is incorporated herein
by reference.

               Method of Product Distribution
          
          Registrant sells its products to approximately 167 dealers
in 25 states and 21 dealers in Canada.  Exclusive dealerships are not the 
pattern of the industry, and virtually all dealers also sell competing 
products.  Registrant generally produces manufactured housing products 
only against orders received from dealers.  Recreational vehicles are 
built for inventory particularly during the winter months in anticipation of
increased demand during the spring months.  (See "Seasonal Considerations" 
below.) 
Transportation charges are an important 

                                   2
<PAGE>
                                  
          Item 1.   Continued
          
factor in the cost of Registrant's products; therefore, distribution
is generally a function of distance to the various markets and
competitive conditions within these markets.  (See Item 2,
"Properties," for the locations of Registrant's principal plants.)

          Registrant is not dependent upon a single customer or a
few customers and no dealer or group of dealers accounts for a
substantial amount of Registrant's total sales.

          Competitive Conditions

          The recreational vehicle and manufactured housing
industries are highly competitive.  Registrant believes that the
principal methods of competition in these industries are based upon
quality, price, styling, warranty and service of products being
offered.  Registrant also believes that it competes favorably with
respect to these factors in the manufactured housing group and has
recently taken action with respect to the recreational vehicle
product line to ensure it remains competitive in the marketplace. 
There are a large number of firms manufacturing and marketing
products similar to those of Registrant within the geographical area
in which Registrant's products are marketed.  Several of the
manufacturers within these industries are larger than Registrant in
terms of total revenue and resources.

          Backlog

          Registrant does not consider the existence and level of
backlog at any given date to be a significant factor affecting its
business, except in establishing its production schedules.  This is
primarily due to the fact that orders may be cancelled up until the
time the dealer takes delivery, although such cancellations have not
been significant to date.  The dollar amount of backlog, subject to
the above described cancellation provision, was $3,830,356 and
$8,303,771 at October 31, 1998 and 1997, respectively.  All of the
backlog existing at October 31, 1998 is expected to be filled within
the current fiscal year.

          Sources and Availability of Raw Materials

          Registrant purchases raw materials and components from a
number of alternative sources and is not dependent upon any
particular supplier.

          Patents

          Although Registrant's products are marketed under various
trade names, Registrant does not believe that patents, trademarks,
licenses, franchises and concessions are of material importance to
its business.
          
                                 3
<PAGE>
          Item 1.   Continued
          

          Research and Development

          Registrant periodically revises and redesigns its models
in response to consumer demand.  These revisions and redesigns can
be extensive, if necessary, in order to obtain market acceptance. 
Registrant manufactures and sells manufactured housing and
recreational vehicles and engages in new product development.

          Number of Employees

          On October 31, 1998, Registrant had 681 employees at its
manufacturing plants and executive offices.

          Seasonal Considerations

          Registrant's sales and production volume traditionally
increase during the second and third quarters of the fiscal year. 
During fiscal 1998, fifty-three percent of sales were achieved
during the second and third fiscal quarters.

          Government Regulation

          The manufacture and distribution of Registrant's
manufactured housing and recreational vehicle products are subject
to governmental regulation in the United States and Canada at the
federal, state, provincial and local levels.  Compliance with those
governmental regulations, including provisions regulating the
discharge of materials into the environment or otherwise relating to
the protection of the environment, is not expected to have a
material adverse effect on Registrant.

          Business Risks

          Demand for Registrant's products is dependent upon
the availability and cost of gasoline, weather conditions, available
consumer credit and economic conditions.  Relaxed consumer credit
and the up-beat economy favorably affected dealers and retail
purchasers of Registrant's manufactured housing products in fiscal
1998. Nevertheless, KIT's 1999 recreational vehicles models were well
received by the dealers and KIT is optimistic about the favorable
outcome of future operations of this segment.

                                    4
<PAGE>
          Item 1.   Continued
          

          Working Capital

          Accounts receivable balances fluctuate generally with the
timing of shipments during the month since the majority of sales are
either on C.O.D. terms or are financed by dealers through flooring
arrangements with financial institutions.  Recreational vehicle
finished goods inventory balances are subject to seasonal
variations.  (See "Method of Product Distribution" and "Seasonal
Considerations" above.)  A short delivery lead time exists for the
majority of recreational vehicle and manufactured housing raw
material purchases, thereby allowing Registrant to maintain low
levels of raw materials inventory.  Registrant is a party to an
unsecured revolving credit agreement with a bank that provides
financing of seasonal working capital requirements.

          
                                5
<PAGE>
          Item 2.   Properties
          
          Registrant leases general executive and administrative
offices in Long Beach, California.  The lease expires on March 14,
1999.  Registrant owns an 11,160 square foot building, situated on
1.2 acres, housing operational offices in Caldwell, Idaho.  The
following table sets forth certain information about the property
and facilities utilized by Registrant for manufacturing and plant
administrative purposes, and the property leased to others (all
property is owned by Registrant unless otherwise noted):

<TABLE>
<CAPTION>
                                         Approximate   Approximate
Facility And Location                      Acres      Square Feet

Recreational vehicle plants:
     <S>                                     <C>            <C>
     Caldwell, Idaho (R2)                     15.7          55,200
     Caldwell, Idaho (R1)                     15.8          53,000   
     Caldwell, Idaho (RSA)                    10.9          67,800   (1)
     Caldwell, Idaho (Chassis)                  .5           9,000
     McPherson, Kansas                        23.0          47,400   (4)
     McPherson, Kansas                        12.5          67,600   (4)
     Chino, California                        10.0          47,700   (2) 

Manufactured housing plants:

        Caldwell, Idaho                        9.5          99,100   (3)
        Caldwell, Idaho                        2.1          13,200   (1) 


</TABLE>



(1)81,000 square foot Production Facility is being utilized by
   recreational vehicles and by manufactured housing.

(2)Production Facility is leased to third party.

(3)In 1997, 6,600 square foot storage area was added and 28,500
   square foot building addition was also added to the existing
   64,000 square foot Production Facility.
  
(4)In April of 1998, the production activities at this plant
   location were permanently idled.

                                   6
<PAGE>
          Item 3.   Legal Proceedings
          
          Not applicable.

          Item 4.   Submission of Matters to a Vote of Security Holders
          
          Not applicable.








                                   7
<PAGE>

PART II



          Item 5.   Market for Registrant's Common Equity and Related
          Stockholder Matters
          
          Information in response to this item is incorporated by
reference from the information appearing in Registrant's Annual
Report to Shareholders for the fiscal year ended October 31, 1998,
at pages 1 and 12.

          Item 6.   Selected Financial Data
          
          Information in response to this item is incorporated by
reference from the information appearing in Registrant's Annual
Report to Shareholders for the fiscal year ended October 31, 1998,
at page 14.

          Item 7.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations
          
          Information in response to this item is incorporated by
reference from the information appearing in Registrant's Annual
Report to Shareholders for the fiscal year ended October 31, 1998,
at pages 4 and 5.

          Item 8.   Financial Statements and Supplementary Data
          
          Information in response to this item is incorporated by
reference from the Financial Statements and the Notes to Financial
Statements in Registrant's Annual Report to Shareholders for the
fiscal year ended October 31, 1998, at pages 6 through 11 and pages
13 through 15 of the Registrant's Annual Report.

          Item 9.   Disagreements on Accounting and Financial Disclosure
          
               Not applicable.
          
                                  8
<PAGE>
PART III


          Item 10.  Directors and Executive Officers of the Registrant
          
          Information with respect to this item is incorporated by
reference from Registrant's definitive Proxy Statement to be filed
with the Commission within 120 days after the close of Registrant's
fiscal year.

          Item 11.  Executive Compensation
          
          Information with respect to this item is incorporated by
reference from Registrant's definitive Proxy Statement to be filed
with the Commission within 120 days after the close of Registrant's
fiscal year.

          Item 12.  Security Ownership of Certain Beneficial Owners and
          Management
          
          Information with respect to this item is incorporated by
reference from Registrant's definitive Proxy Statement to be filed
with the Commission within 120 days after the close of Registrant's
fiscal year.

          Item 13.  Certain Relationships and Related Transactions
          
          Information with respect to this item is incorporated by
reference from Registrant's definitive Proxy Statement to be filed
with the Commission within 120 days after the close of Registrant's
fiscal year.


                                     9
<PAGE>



PART IV

          Item 14.  Exhibits, Financial Statement Schedules, and Reports on
                    Form 8-K
          
          (a) (1)   Financial Statements
          
                                                              Annual Report
                                                                 Page(s)   

                    Balance Sheets at October 31, 1998 and           
                      1997                                           6
          
                    Statements of Income for each of the three
                      years in the period ended October 31, 1998     7
                     
                    Statements of Shareholders' Equity for each 
                      of the three years in the period ended 
                      October 31, 1998                               7        
                                       
          
                    Statements of Cash Flows for each of
                      the three years in the period ended
                      October 31, 1998                               8        
                                          
                                                  
                    Notes To Financial Statements                    9-11

                    Report of Independent Accountants                12        
                                      
          



          The financial statements and the Report of Independent
Accountants listed in the above index which are included in
Registrant's Annual Report to Shareholders for the fiscal year ended
October 31, 1998 are hereby incorporated by reference.  With the
exception of the items referred to above and in Items 1, 5, 6, 7 and
8, Registrant's Annual Report to Shareholders for the fiscal year
ended October 31, 1998 is not to be deemed filed as part of this
report.

          
                                   10
<PAGE>
          Item 14.    Continued
          
          (a) (2)     Financial Statement Schedules
          
                                                              FORM
                                                              10-K
                                                              PAGE

                      Report of Independent Accountants on
                        Schedules                              12

                      Schedules:
          
                      For each of the three years in the
                        period ended October 31, 1998
          
                        VIII     Valuation and  Qualifying 
                                   Accounts                    13

                          





          Schedules other than those listed above are omitted for
the reason that they are not required or are not applicable, or the
required information is shown in the financial statements or notes
thereto.  Columns omitted from schedules filed have been omitted
because the information is not applicable.

          (a) (3)   Exhibits
          
          (3)   Articles of Incorporation and By-Laws adopted by
                Registrant.
          
          (10)  Material Contracts.
          
                    (A)  1.   Incentive Bonus Plan.
               
          (13) Annual report to security holders.
          
          (b)  Reports on Form 8-K
          
               No reports on Form 8-K were filed during the fiscal
               quarter ended October 31, 1998.
          

                                    11
<PAGE>


REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULES



To the Shareholders and Board of Directors
of KIT Manufacturing Company


          Our report on the financial statements of KIT
Manufacturing Company has been incorporated by reference in this
Form 10-K from page 12 of the 1998 Annual Report to Shareholders of
KIT Manufacturing Company.  In connection with our audits of such
financial statements, we have also audited the related financial
statement schedules listed in the index on page 11 of this Form
10-K.

          In our opinion, the financial statement schedules referred
to above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.


/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP

Los Angeles, California
December 15, 1998




                                    12
<PAGE>

<TABLE>

                                    KIT MANUFACTURING COMPANY
                                                 
                                          SCHEDULE VIII
                                VALUATION AND QUALIFYING ACCOUNTS
                       For The Years Ended October 31, 1998, 1997 And 1996
                                                      


<CAPTION>

           Col. A                   Col. B              Col. C             Col. D       Col. E

                                                       Additions       
                                                    (1)         (2)
                                                 Charged To  Charged To
                                    Balance At     Costs       Other                   Balance At
                                   Beginning Of     And       Accounts    Deductions      End Of
           Description                Period      Expenses    Describe     Describe      Period  

Allowance for doubtful accounts:
  <S>                                 <C>          <C>                     <C>             <C>  
  Year ended October 31, 1996          $44,000      -                       $1,000(A)       $43,000

  Year ended October 31, 1997          $43,000      -                       $1,000(A)       $42,000

  Year ended October 31, 1998          $42,000      -                       $5,000(A)       $37,000

(A)Write-off of uncollectible accounts.

</TABLE>


                                          13
<PAGE>                                 
                            

                                   SIGNATURES


          Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                              KIT Manufacturing Company
                              
                              By:/s/Dan Pocapalia        
                                    Dan Pocapalia
                                Chairman of the Board,
                            Chief Executive Officer and
                                     President
                            
          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:

/s/Dan Pocapalia        Jan.28, 1999   /s/John W.H. Hinrichs Jan.28, 1999
   Dan Pocapalia                          John W.H. Hinrichs
Chairman of the Board,                    Director
Chief Executive Officer
and President (Principal 
Executive Officer)



/s/John F. Zaccaro     Jan.28, 1999    /s/Frank S. Chan     Jan.28, 1999
John F. Zaccaro                           Frank S. Chan
Director                                  Director



/s/Bruce K. Skinner    Jan.28, 1999   /s/Fred W. Chel       Jan.28, 1999
Bruce K. Skinner                         Fred W. Chel
Vice President - Treasurer               Director
(Principal Financial and
Accounting Officer)

                                        14
<PAGE>

                               INDEX TO EXHIBITS

                 EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
        


                                                                 Sequential
                                                                Page Number

         (3)   Articles of Incorporation and By-Laws adopted 
               by Registrant                                      17  
         
         (10)  Material Contracts
         
                    (A)         1.   Incentive Bonus Plan         18  
               
         (13)  Annual Report to Shareholders                      *  
         
       
* Incorporated by reference

                                     15
<PAGE>

       (3)   Articles of Incorporation and By-Laws
       
                The amended and restated Articles of
       Incorporation and By-Laws of the Registrant are hereby
       incorporated by reference from the exhibits to Form 10-K
       (File No. 2-31520) as filed for the fiscal year ended
       October 31, 1987.
       
       
                                       16
<PAGE>

       (10)     Material Contracts
       
             (A)    1.   Incentive Bonus Plan
             
                    Registrant maintains an Incentive Bonus
             Plan under which incentive bonuses may be paid to
             key management personnel pursuant to individual
             agreements relating to the profitability of the
             participant's area of responsibility.  The amount
             of the bonus paid generally increases as the
             profitability of the area of responsibility
             increases.  Time periods for which performance is
             measured include fiscal quarters and in some cases
             fiscal years.  Payments are typically made within
             75 days after the time period for which
             performance is measured.  The agreements are
             reviewed annually and may be terminated at will by
             either party.
       
       
                                     17
<PAGE>
           
                       
                         KIT Manufacturing Company
                               
                           1998 Annual Report
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                                     18
<PAGE>
       <TABLE>
       KIT Manufacturing Company
       Financial Highlights
       <CAPTION>
           
       (Dollars in thousands except per share amounts)

                                       1998      1997      1996      1995          1994
       Operating Results for the
       Year Ended October 31      
<S>                                  <C>       <C>       <C>           <C>       <C>
Sales                                 $61,030   $76,465   $97,158      $101,462   $89,722
Net (loss) income                       $(357)  $(2,312)   $1,431(1)     $1,349(2) $1,891(3)   
Net (loss) income per share:
          Basic                        ($0.32)   ($2.08)    $1.29(1)     $1.21(2)   $1.61(3)
          Diluted                      ($0.32)   ($2.08)    $1.27(1)     $1.21(2)   $1.59(3)

Weighted-average shares outstanding:
          Basic                     1,110,934 1,110,934 1,110,934    1,110,934  1,177,283
          Diluted			                1,110,934 1,110,934 1,130,433    1,110,934  1,189,308

       Working capital                 $6,861    $7,215    $9,984       $8,427     $7,622

       (1)     Includes gain on business interruption claim of $373,000, net of related
               income taxes, or $0.34 per share.
       
       (2)     Includes gain on business interruption claim of $423,000, net of related
               income taxes, or $0.38 per share.
       
       (3)     Includes gain on involuntary conversion of plant facility and equipment and
               business interruption claim $671,000, net of related income taxes, or $0.57 per
               share. 
</TABLE>
       
       
       
       
       
       
      
       
       
       About the Company:
       
       KIT Manufacturing Company produces manufactured
       housing and recreational vehicles marketed by an 
       independent dealer network in 25 states in the West,
       Midwest, South and Southeast, as well as Canada and 
       Japan. KIT homes are permanent living structures 
       that are built utilizing materials similar to conventional
       housing. KIT recreational vehicle products are used
       primarily for camping or vacation travel and provide
       a variety of living accommodations.
       
                                 19
<PAGE>
  
To Our Shareholders:
       
 	Fiscal 1998 was an extremely challenging year for the Company. Sales for 
  recreational vehicles declined 34 percent. This decline was due to several 
  factors. The primary reason was the fact that the recreational vehicle 
  operation in McPherson, Kansas was terminated in March 1998 for economic 
  reasons. 

		Despite the decrease in overall RV sales and the significant costs incurred
  to shut down the McPherson, Kansas plant, the results from operations for 
  this division improved significantly in comparison to fiscal 1997. This was 
  due to cost reductions and design changes incorporated in the RV products 
  which improved overall margins and made the RVs more market competitive. In 
  addition, the Company revised its recreational vehicle marketing programs 
  during fiscal 1998 to capture increased market share. 

		The Company restructured a number of key management positions and made a 
  number of operational facility changes in the RV Division in fiscal 1997 and 
  1998. Management believes that the realignment of the RV Division will 
  provide for a more competitive operating environment which should result in 
  improved performance in fiscal 1999.

		Currently, KIT has initiated a search for a Chief Operating Officer to 
  complete the planned reorganization of the Company. This position will be 
  key to the ongoing operational improvements currently underway for future 
  growth and expansion of the RV and Manufactured Housing Divisions.
	
		The National RV show in Louisville, Kentucky held during the latter part 
  of 1998 provided management with an optimistic view of what lies ahead for 
  fiscal 1999. Our restyled recreational vehicle lines, enhanced by our low 
  and mid-line products, were extremely well received by the dealers. Manage-
  ment believes, based on the enthusiastic response by our dealer body, that 
  the Company will meet the demands of this highly competitive market where 
  the challenge is to provide moderately-priced, high-value products.

		During the latter part of fiscal 1997, the Manufactured Housing Division
  completed its plant expansion, giving this facility a production capacity 
  increase of 40 percent during fiscal 1998. The expansion now gives this 
  division a competitive edge to produce at maximum volume with improved 
  labor efficiencies. As evidence of the changes, operational results for 
  this division improved 125 percent during fiscal 1998 in comparison to 
  fiscal 1997.

		The Manufactured Housing Division began participation in a retail sales 
  partnership during fiscal 1998. The performance of this arrangement has 
  exceeded all of managements' expectations. The division is now reviewing 
  plans for participation in a second retail sales operation which should be 
  completed by March of 1999. A third retail joint venture is currently in 
  the development stage and should be completed by the end of fiscal 1999.
	
		The Company's financial position remains strong. KIT has no long-term debt
  and its line of credit remains unused at fiscal year-end. Working capital, 
  despite a 5 percent decline, is more than sufficient to provide the Company 
  with funds necessary for operational maintenance and growth.
	
		Fiscal 1999 will see the Company continue to concentrate on expanding its 
  market share by providing high quality, high value, innovative products. 
  First quarter operations will see our normal seasonal slowdown, however, 
  management believes that the balance of the fiscal year should yield 
  profitable operating results.

       
  Sincerely,

  /s/Dan Pocapalia     

  Dan Pocapalia
  Chairman, President and
  Chief Executive Officer
       
                                       20
<PAGE>
       
 Recreational Vehicles
       
      KIT is one of the major manufacturers of towable travel trailers and
 fifth-wheels in the United States. KIT's position in the industry is the result
 of 54 years of consistently producing and delivering high quality, high value
 products to our customers.  KIT products are well known for their reliability
 and their retained value and at "trade-in" time. KIT RVs are in high demand 
 in the second time entry-level buyer market and the more knowledgeable buyer.
          
      The baby-boomer generation and younger families are discovering the
 affordability and comfort of recreational vehicle travel. The Company's
 philosophy of uncompromising quality control standards has driven KIT to
 new heights in retail customer loyalty from the oldest to the newest members
 of RV life-style.
       
     KIT's RV products incorporate high quality, reliable name-brand appliances,
 interior components and accessories. In our 1999 product lines, the Company
 has introduced many new innovations in our all-new model lineup in response
 to our customers' demands. In addition to new interiors and external 
 graphics, the 1999 floor plans have been further enhanced to attract a 
 broader base of consumers. These changes will significantly improve KIT 
 dealer base opportunities. 
          
      KIT produces a wide range of recreational vehicle products in its
 manufacturing facilities in Caldwell, Idaho. KIT RV's measure from 19 to 38
 feet in length, are more than eight feet wide and provide sleeping 
 accommodations for 2 to 10 persons.
          
     KIT produces its travel trailers and fifth-wheels under the brand names 
 of Espre', Road Ranger, SunChaser, Companion, Millennium and Patio Hauler.
       
     The entry level Sun Chaser and Espre' brands have been extremely well
 received by the dealer body.  KIT expects that the retail buyers' enthusiastic
 reaction will be to choose those products for the many quality features and
 their low price point.
       
     The Road Ranger  and Companion lines, with over thirty-eight models, are in
 the mid-priced market. These models are configured with a wide range of
 features. The all-new Millennium is our high-end product offering. This line
 has four different models and they provide the largest living and storage 
 areas and feature benefits in their price range. They appeal to the 
 discerning buyer and full-time RVers with a vast selection of features as 
 standard equipment.
       
     Designed for adventure, the Patio Hauler features a cargo area for hauling
 off-road vehicles and other sporting equipment. The cargo area then converts
 to an enclosed patio when the "toys" are removed. The four available floor
 plans all feature the patio concept as well as provide the buyer with a fully
 appointed living area separate from the patio.
          
     Retail prices for the more than 38 KIT floor plans range from $8,500 to
 $58,000. This range covers approximately 80 percent of the travel trailer and
 fifth-wheel market.
          
     More than 120 independent dealers now distribute KIT recreational vehicles
 to the retail consumer throughout the western United States and Western 
 Canada. The Millennium and Patio Hauler models are retailed throughout the 
 continental United States. KIT provides its dealer network system with 
 national media advertising, sales literature, training and special support 
 programs, along with its national reputation for product quality and service.
          
     RV use is a flourishing source of recreation and relaxation for many
 Americans regardless of age or economic background. Over the past 54 years,
 KIT has supplied this growing market with the quality and affordability that 
 fulfills the desires of people who enjoy this type of comfort and convenience.
 The Company continues to strive for excellence in its products and service in
 its quest to make the RV experience a most enjoyable one for its many
 satisfied customers.
       
 Manufactured Housing
       
    The manufactured housing division's recent growth continues to run higher
 than industry average. Value pricing coupled with a continuing emphasis on 
 reducing operating costs has had a positive effect on this division.
       
    Manufactured housing builds both single and multi-sectioned dwellings
 designed to be transported to a prepared homesite. Multi-sectioned homes
 offer the appearance and living space of traditional site-built housing and
 have become the dominant portion of our sales. KIT homes are built in a
 controlled environment which minimizes the variables inherent in outdoor
 construction. By standardizing models we can build homes with greater
 efficiency, and consequently at lower cost, than site-built homes with the 
 same features.
          
    The manufactured housing division continues to aggressively develop new
 products that incorporate innovative floor plans, modern  colors and
 functional design. KIT manufactured homes are distributed from production
 facilities in Caldwell, Idaho through a network of approximately 68 dealers
 located in 9 Western states.
    
    KIT's homes are marketed in five product lines. The Oakcrest 14' wide home
 offers gracious, convenient living in modest floor space. The Royal Oaks 
 home appeals to buyers with an interest in deluxe entry-level housing. Our
 Sierra XL homes are generally larger and provide a wide array of styles and
 custom features. The Golden State line, our most elegant series of homes,
 provides outstanding value for individuals who place a premium on comfort
 and luxury. Living space in the 52 available floor plans range
 from about 530 to more than 2,500 square feet. Retail prices, exclusive of 
 land costs, range from approximately $20,000 to $120,000.
       
    In fiscal 1998, KIT homes enjoyed a greater share of the single family home
 subdivision sites.  With an additional 40% production capacity now available,
 our future in this market should support KIT's housing division expansion.
    
  As the nation continues to search for solutions to the  problem of affordable,
 single-family housing, KIT stands ready to provide attractive, energy-efficient
 homes at competitive prices.
       
       
       
       
                                      21
<PAGE>
       
       
 KIT Manufacturing Company
       
 Management's Discussion And Analysis of Results of Operations and
 Financial Condition

 Results of Operations

 Fiscal 1998 Compared to 1997
	Sales declined 20% to $61.0 million compared to fiscal 1997. The net loss 
 was $357,000, or $0.32 per share, in comparison to a net loss in fiscal 1997
 of $2,312,000, or $2.08 per share. The net losses were primarily from
 operational losses in the RV division. These losses were the result of a
 significant decline in sales due to competitive pricing issues in 1998 and
 1997 and the costs associated with the closure of the McPherson, Kansas RV
 plant in fiscal 1998. The manufactured housing division implemented modest 
 price increases in 1998 and 1997 to counter increases in raw material costs.

	Recreational vehicle division sales decreased 34% to $34.6 million. The
 overall decrease in RV shipments was 30%, down to 2,511 units. This decline
 consisted of a decrease in fifth-wheel model shipments from 1,774 units in
 1997 to 1,056 units in fiscal 1998 and travel trailer shipments of 1,455
 units down from 1,808 shipped in 1997. The model mix tended toward lower
 priced units in fiscal 1998. Because of the results of operations during
 fiscal 1997, the Company made key management changes and realigned the RV
 operations to be more competitive in fiscal 1998. Based on these changes,
 during fiscal 1998, the RV division improved its operating results by 46%.
 Management believes that this division is fully prepared to achieve profitable
 operating results in fiscal 1999.
	
 Manufactured housing sales increased 11% to $26.4 million.  This increase
 reflected a 6% rise in shipments of single-section homes to 103 units and a
 20% increase in shipments of multi-section homes to 677 units. Total unit
 shipments increased 18% to 780 homes in fiscal 1998.

	Gross profit as a percent of sales increased to 8% in comparison to 4% in
 1997. The primary reasons for the increase were an increase in operating 
 efficiencies in both divisions and increased sales volume in manufactured
 housing.

	Selling, general and administrative expenses remained at 9% of sales in 
 comparison to fiscal 1997. The Company increased its selling costs as a 
 percentage of sales in RV's in order to maintain market share as competition
 increased, offset by decreases in administrative expenses.

	Net interest income of $55,000 in 1998, as compared to net interest expense
 of $36,000 in 1997, was the result of higher average cash investments and
 lower average borrowings in fiscal 1998 as compared to fiscal 1997.
	
 Fiscal 1997 compared to 1996
	Sales declined 21% to $76.5 million compared to fiscal 1996. The net loss
 was $2,312,000, or $2.08 per share, in comparison to net income in fiscal
 1996 of $1,431,000, or $1.29 per share. Net income in 1996 included an
 after-tax gain from insurance proceeds on a business interruption claim of
 $373,000, or $0.34 per share. The manufactured housing division implemented
 modest price increases in 1997 and 1996 to counter increases in raw material
 costs.

	Recreational vehicle division sales decreased 30% to $52.7 million. The
 overall decrease in RV shipments was 31% down to 3,582 units in 1997. This
 decline consisted of a decrease in fifth-wheel model shipments from 2,501
 units in 1996 to 1,774 units in fiscal 1997 and travel trailer shipments of
 1,808 units down from 2,728 shipped in 1996. The model mix moved toward
 lower priced units in fiscal 1997. Management believes that the Company is
 fully prepared to meet this continuing trend by offering lower priced units
 in fiscal 1998.

	Manufactured housing sales increased 10% to $23.8 million.  This increase
 reflected a 64% rise in shipments of single-section homes to 97 units and
 an 8% increase in shipments of multi-section homes to 563 units. Total unit
 shipments increased 14% to 660 homes in fiscal 1997.

	Gross profit as a percent of sales decreased to 4% in comparison to 11% in
 1996. The primary reasons for the decrease were a decrease in operating
 efficiencies, lower sales volume and increased material costs.

	Selling, general and administrative expenses remained at 9% of sales in
 comparison to fiscal 1996. The Company increased its selling costs in RV's
 in order to maintain market share as competition increased, offset by
 decreases in administrative costs.

	Net interest expense of $36,000 in 1997, as compared to net interest expense
 of $13,000 in 1996, was the result of higher average borrowing levels as the
 Company maintained its inventories at a higher average level than in fiscal 
 1996.	
	
                                 22
<PAGE>

 Liquidity and Capital Resources
	The financial position of the Company remains strong. The current ratio at
 fiscal-year end 1998 remained at 2.0 in comparison to fiscal 1997.

	In addition to funding capital requirements with available funds, the
 Company, through financing activities, funds seasonal working capital
 requirements with cash from periodic borrowings on its unsecured revolving
 line of credit. See Note 4 of the Notes to Financial Statements for
 discussion of the line of credit. There were no borrowings against the line
 of credit at fiscal year-end 1998 or 1997.

	The Company believes that available funds, supplemented as needed with funds
 available on its line of credit, will provide it with sufficient resources
 to meet present and reasonably foreseeable working capital requirements and
 other cash needs.

 Other
	In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
 No. 130, Reporting Comprehensive Income. This statement, which must be
 adopted by the Company in fiscal 1999, establishes standards for the
 reporting and display of comprehensive income and its components (revenues,
 expenses, gains and losses) in a full set of general-purpose financial
 statements. Also in 1997, the FASB issued Statement No. 131, Disclosures
 About Segments of an Enterprise and Related Information, which establishes 
 standards for the way that companies report information about operating
 segments in annual financial statements, and requires that those companies
 report selected information about operating segments in interim financial
 reports issued to shareholders. This statement must also be adopted in
 fiscal 1999. The Company believes that the adoption of these two new
 standards will not have a material impact on its reported results of
 operations.
	
	The Company has instituted a program to determine whether its computer
 information systems are able to interpret dates beyond the year 1999 (the
 "Year 2000 Compliance Program") and has implemented programming
 modifications to its main operational and financial reporting systems that
 will address these issues. All modified programming is currently operational.
 The Company believes that its present computer information systems software 
 and hardware is Year 2000 compliant and intends to obtain certification of such
 for any purchases of computer software and hardware.

	The Company is also in the process of evaluating non-information technology
 systems, which would include telephone equipment, time-keeping equipment and
 surveillance equipment. The Company expects this evaluation to be completed
 by early 1999.

	The Company is in the process of contacting its major suppliers, service
 vendors and customers regarding Year 2000 compliance and anticipates that
 this phase of the Year 2000 Compliance Program will be completed early in
 fiscal 1999.

	The total cost of the Year 2000 Compliance Program is not expected to be
 material to the Company's financial position or results of operations. To
 date, the Company has spent less than $25,000 on Year 2000 compliance. The
 Company believes that the cost of ensuring Year 2000 compliance for its own
 operational and financial systems will be less than $50,000.

	Although management believes the Company has an adequate plan to be Year
 2000 compliant, there can be no assurance that this program will ultimately
 be successful. The Company believes that it has sufficient resources to
 implement new and modified computer systems and programming to address the
 Year 2000 issue, and, accordingly, has not to date identified the need for
 any contingency planning. However, the Company's ongoing assessment of its
 financial and operations systems and non-information technology systems
 may reveal the need for contingency planning in the future.
	   
 
       
                                     23
<PAGE>

<TABLE>
  KIT Manufacturing Company
  Balance Sheets
  <CAPTION>
       
       October 31,                                              1998          1997
       ASSETS
       Current Assets                                                         
       <S>                                                    <C>         <C>
           Cash and cash investments                           $3,230,000  $3,673,000
           Accounts receivable, net of allowance for doubtful
           accounts of $37,000 in 1998 and $42,000 in 1997      4,041,000  4,533,000 
           Inventories                                          4,821,000  3,402,000 
           Prepaids, income taxes receivable and deferred       1,372,000  2,632,000
               
          Total Current Assets                                 13,464,000 14,240,000     
       
       Property, Plant and Equipment, at cost
           Land                                                   492,000    492,000   
           Buildings and improvements                           7,931,000  7,047,000 
           Machinery and equipment                              3,866,000  4,148,000 
           Construction in progress                               402,000  1,055,000
       
                                                               12,691,000  12,742,000    
              Less accumulated depreciation                    (5,956,000) (5,898,000)
       
                                                                6,735,000   6,844,000
       Other Assets                                               152,000      53,000
             
                                                              $20,351,000  $21,137,000
                                                               
       LIABILITIES AND SHAREHOLDERS' EQUITY                                   
       Current Liabilities                                                         
           Accounts payable                                    $2,688,000   $2,697,000
           Accrued payroll and payroll related liabilities      1,587,000    1,604,000
           Accrued marketing programs                             718,000      809,000
           Accrued expenses                                     1,610,000    1,915,000
          Total Current Liabilities                             6,603,000    7,025,000
       
       Deferred Income Taxes                                    1,480,000    1,487,000 
       
                                                                8,083,000    8,512,000
       Commitments and Contingencies                                               
       Shareholders' Equity                                                        
           Preferred stock, $1 par value; authorized 1,000,000
             shares; none issued                                               
           Common stock, without par value; authorized 5,000,000
             shares; issued and outstanding 1,110,934 shares in
             1998 and 1997                                        750,000      750,000
           Additional paid-in capital                             842,000      842,000
           Retained earnings                                   10,676,000   11,033,000
               Total Shareholders' Equity                      12,268,000   12,625,000

                                                              $20,351,000  $21,137,000

 The accompanying notes are an integral part of these financial statements.

</TABLE>
                                             24
<PAGE>

<TABLE>
       
       KIT Manufacturing Company
       Statements of Income
       <CAPTION>
                                                               
       For the Years Ended October 31,           1998           1997           1996
       <S>                                       <C>            <C>            <C>
       Sales                                     $61,030,000    $76,465,000    $97,158,000
       Costs and expenses    
           Cost of sales                          55,920,000     73,176,000     86,473,000
           Selling, general and admin. expenses    5,583,000      7,074,000      8,911,000
                                                  61,503,000     80,250,000     95,384,000
       
       Operating (loss) income                      (473,000)    (3,785,000)     1,774,000
       
       Other income (expense)
         Interest (expense) income, net               55,000        (36,000)       (13,000)
         Equity in loss of retail sales partnership  (54,000)
         Gain on business interruption claim                                       620,000
           
       (Loss) income before income taxes            (472,000)    (3,821,000)      2,381,000
       (Benefit) provision for income taxes         (115,000)    (1,509,000)        950,000
       
       Net (loss) income                           $(357,000)   $(2,312,000)     $1,431,000
       Net (loss) income per share:
         Basic                                        ($0.32)        ($2.08)          $1.29
         Diluted                                      ($0.32)        ($2.08)          $1.27
       Weighted-average shares outstanding:
         Basic                                     1,110,934      1,110,934       1,110,934
         Diluted                                   1,110,934      1,110,934       1,130,433
       </TABLE>    
       
       <TABLE>
       <CAPTION>
       Statements of Shareholders' Equity                                
                                   Common Stock        Additional     Retained
                                  Shares   Amount   Paid-In Capital   Earnings    Total
       <S>                        <C>       <C>        <C>            <C>         <C>
       Balance, October 31, 1995  1,110,934 $750,000   $842,000       $11,914,000 $13,506,000
           Net income                                                   1,431,000   1,431,000
       Balance, October 31, 1996  1,110,934 $750,000   $842,000       $13,345,000 $14,937,000
           Net loss                                                    (2,312,000) (2,312,000)
       Balance, October 31, 1997  1,110,934 $750,000   $842,000       $11,033,000 $12,625,000
           Net loss                                                      (357,000)   (357,000)
       Balance, October 31, 1998  1,110,934 $750,000   $842,000       $10,676,000 $12,268,000
       
The accompanying notes are an integral part of these financial statements.
       
</TABLE>
       
                                           25
<PAGE>

       
<TABLE>
       
       KIT Manufacturing Company
       Statements of Cash Flows
       <CAPTION>
       
       For the Years Ended October 31,                1998                1997          1996
       Cash Flows From Operating Activities:
       <S>                                          <C>                 <C>            <C>
        Cash received from customers                 $61,523,000         $79,958,000    $96,711,000
        Life Insurance proceeds                                               72,000
        Interest received                                166,000             105,000         53,000
        
        Cash received from operations                 61,689,000           80,135,000    96,764,000 
         
        Cash paid to suppliers and employees          62,710,000           77,565,000    95,593,000              
        Interest paid                                    111,000              141,000        66,000
        Income taxes (received) paid                  (1,263,000)             (47,000)    1,073,000
         
        Cash disbursed for operations                 61,558,000           77,659,000    96,732,000            

     Net cash provided by operating activities            131,000        2,476,000              32,000
       
     Cash Flows From Investing Activities:
     Purchase of property, plant and equipment, net      (780,000)        (969,000)           (434,000)
     Insurance proceeds from business interruption claim                         		            620,000    
     Changes in other current and non-current assets      206,000         (115,000)           (155,000)
       
     Net cash (used in) provided by investing activities (574,000)      (1,084,000)             31,000               

     Cash Flows From Financing Activities:
     Proceeds from line-of-credit borrowings           17,790,000       12,374,000           4,900,000      
     Principal payments on line-of-credit borrowings  (17,790,000)     (12,374,000)         (4,900,000) 
       
     Net cash used in financing activities                  --             --                   --
       
     Net (decrease) increase in cash                     (443,000)       1,392,000              63,000
       
     Cash and cash investments at beginning of year     3,673,000        2,281,000           2,218,000
     Cash and cash investments at end of year          $3,320,000       $3,673,000          $2,281,000
_______________________________________________________________________________________________________       
       Reconciliation of Net (Loss) Income to Net Cash Provided by
          (Used in) Operating Activities:


       Net (loss) income                               $(357,000)      $(2,312,000)         $1,431,000

Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
       
Depreciation                                             639,000           677,000             670,000
Gain on business interruption claim                         --                --		            (620,000)
Decrease (increase) in accounts receivable               492,000         3,493,000            (676,000)
(Increase)decrease in inventories                     (1,419,000)        3,767,000          (1,501,000)
(Decrease) increase in accounts payable and accruals    (429,000)       (1,667,000)            894,000
Change in accrued income taxes                         1,205,000        (1,482,000)           (166,000)
       
      Net cash provided by operating activities         $131,000        $2,476,000             $32,000     
       
The accompanying notes are an integral part of these financial statements.

</TABLE>

                                       26
<PAGE>

KIT Manufacturing Company
Notes to Financial Statements

1. Summary of Significant Accounting Policies 

Cash and Cash Investments
	The Company invests its cash in high quality financial instruments, all of 
which are considered cash equivalents. The Company considers all highly 
liquid financial instruments with a maturity of three months or less at the
time of purchase to be cash equivalents. Cash equivalents are carried at 
cost, which approximates market. The Company also maintains deposits at 
financial institutions in amounts in excess of federally insured limits. 
Management believes that credit risk related to its investments is limited due
to the quality of the investments and the Company's policy which limits credit 
exposure to any one financial institution.

Valuation of Inventories
	Inventories are stated at the lower of cost (last-in, first-out for material
and first-in, first-out for labor and overhead) or market.

Depreciation and Amortization
	For financial reporting purposes, depreciation and amortization of property,
plant and equipment is generally provided for on a straight-line basis, using
estimated useful lives of 10 years for land improvements, 20 to 33-1/3 years 
for buildings and improvements, 3 to 10 years for equipment and lease terms 
for leasehold improvements. Upon sale or disposition of assets, any gain or 
loss is included in the statement of income. Expenditures for maintenance, 
repairs and minor renewals are charged to expense as incurred; expenditures
for betterments and major renewals are capitalized.

Income Taxes
	The Company follows Statement of Financial Accounting Standards No. 109, 
Accounting for Income Taxes, ("SFAS 109"), which requires the recognition of 
deferred tax liabilities and assets for the expected future tax consequences 
of events that have been included in the financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based 
on the difference between the financial statement and tax basis of assets and
liabilities using enacted rates in effect for the year in which the differences
are expected to reverse. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized.

Basic and Diluted Loss or Income Per Share
	In February 1997, the Financial Accounting Standards Board issued Statement 
of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"), 
which was adopted by the Company effective for the year ended October 31, 
1998, as required by the statement. SFAS 128 requires the presentation of 
both basic and diluted loss or income per share on the Statements of Income. 
Basic loss or income per share is computed based on the weighted-average 
number of shares outstanding during each year. Diluted loss or income per share
is computed based on the sum of the weighted-average number of share 
outstanding plus potential common share arising out of stock options issued 
in 1994, unless the inclusion of such options would result in antidilution. 
Loss or income per share information has been restated to conform to the 
requirements of the statement. The Company's loss or income amounts used for 
per share calculations are the same for both the basic and diluted methods.
 	There were no potential common shares included in the calculation of diluted
loss per share for the years ended October 31, 1998 and 1997, because the 
effect would have decreased the loss per share amount and therefore been 
antidilutive. Potential common shares included in the calculation of diluted 
income per share were approximately 19,000 for the year ended October 31, 1996.

Insurance
	The Company is self-insured for workers' compensation for its plant 
locations, officers and directors, and product liability. The Company has 
recognized an estimated potential liability for incurred but not reported 
claims. The Company recognized experience refunds from its medical insurance 
carrier amounting to $230,000 in 1996.

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

Stock Options
	In October 1995, the Financial Accounting Standards Board issued Statement 
of Financial Accounting Standards No. 123, Accounting for Stock Based 
Compensation ("SFAS 123"), which is effective for transactions entered into 
in fiscal years that begin after December 15, 1995. The Company has 
determined that this method of accounting for stock based compensation has no
effect on the financial statements as presented since the most recent stock 
option grants occurred in 1994.

Retail Sales Partnership
	The Company's investment in the Retail Sales Partnership is accounted for 
under the equity method of accounting.

                                    27
<PAGE>
	
2. Business Interruption Claim	
	In mid-June, 1992, the McPherson, Kansas manufactured housing plant facility
was destroyed by a tornado. In addition, all of the manufacturing equipment 
and inventories were lost to water and wind damage. The storm also destroyed 
the finished goods inventory of the RV plant facility in the same location. 
The Company recorded a gain in 1996 of $620,000 for a business interruption 
claim related to this matter.

3. Stock Options
	During June 1994, the Company granted to five officers of the Company, 
options to purchase up to 96,944 shares of the Company's common stock, at 
100% of the then fair value, or $10.38 per share. Also in June 1994, the 
Company granted to one such officer an additional option to purchase up to 
35,056 shares of the Company's common stock, at 110% of the then fair value, 
or $11.41 per share. Options granted vest in four equal annual installments 
beginning one year after the date of the grant. The options to purchase the 
96,944 shares of the Company's common stock stock remains outstanding 
(subject to termination of employment, death or permanent disability
of the holder, as set forth in the option agreements) for a period of 10 years
from the date of grant. The option to purchase the 35,056 additional shares of
the Company's common stock remains outstanding (subject to termination of 
employment, death or permanent disability of the holder, as set forth in the 
option agreements) for a period of 5 years from the date of grant. On October
31, 1998, 1997 and 1996, total unexercised options were 132,000, of which 
132,000, 99,000 and 66,000 options, respectively, were exercisable.

4. Bank Credit Line
	The Company is party to an unsecured revolving credit agreement with a bank 
that provides financing of seasonal working capital requirements. There are 
no compensating balance requirements under the agreement. Major provisions of
the agreement include interest at the lesser of the bank's prime rate or 
market rate, and certain minimum requirements as to the Company's working 
capital and debt-to-equity relationships. At October 31, 1998, there was no 
outstanding balance on the revolving credit line, and the maximum borrowing
permitted was the lesser of $4,000,000 or the sum of 80% of eligible trade 
receivables and 50% of inventories, less any commercial and standby letters 
of credit outstanding up to a maximum of $1,000,000. Interest costs charged 
to expense for the fiscal years 1998, 1997 and 1996 were $111,000, $141,000 
and $66,000, respectively.

5. Commitments and Contingencies
	The Company was contingently liable at October 31, 1998 to various financial
institutions on repurchase agreements in connection with wholesale inventory 
financing. In general, inventory is repurchased by the Company upon customer 
default with a financing institution and then resold through normal 
distribution channels. The total value of finished units subject to such 
agreements as of October 31, 1998 and 1997 was approximately $9,826,000 and 
$12,312,000, respectively.
 In addition, the Company is contingently liable to financial institutions 
for standby letters of credit totalling $778,000 as of October 31, 1998 and 
1997, respectively. These letters of credit were established to satisfy the 
self-insured workers' compensation regulations of the states in which the 
Company conducts manufacturing operations.
 Management does not expect that losses, if any, from the contingencies 
described above will be of material importance to the financial condition or 
earnings of the Company.

<TABLE>
       <CAPTION>
       7.  Inventories
         Inventories are summarized as follows:                           
       October 31,                                    1997           1996 
       <S>                                            <C>            <C>
       Raw material                                   $1,758,000     $1,876,000
       Work in process                                   685,000        907,000
       Finished goods                                  2,378,000        619,000
                                                      $4,821,000     $3,402,000
       
 The excess of current replacement cost over last-in, first-out cost was
$852,000 at October 31, 1998 and $1,189,000 at October 31, 1997.

</TABLE>
       
       
       7. Industry Segment Information
 Information about the Company's operations within industry segments for
the years ended October 31, 1998, 1997, and 1996 is presented on page 13.



       
                                     28
<PAGE>

KIT Manufacturing Company
Notes to Financial Statements
       
<TABLE>
<CAPTION>
8. Income Taxes
          The components of the (benefit) provision for income taxes are as follows:
                   
       For the year ended October 31,       1998           1997           1996 
       Current:                                                 
        <S>                           <C>            <C>                 <C>
         Federal                       $(58,000)      $(1,263,000)        $712,000       
         
         State                                           (266,000)         195,000                 

                                        (58,000)       (1,529,000)         907,000        
       </TABLE>

       <TABLE>
       <CAPTION>
       Deferred:                                                
             <S>                            <C>          <C>              <C>
             Federal                        (46,000)      54,000           47,000        
         
             State                          (11,000)     (34,000)          (4,000) 

                                            (57,000)      20,000           43,000        
         
                                         $ (115,000) $(1,509,000)        $950,000       
</TABLE>
 
<TABLE>
       <CAPTION>
         The sources of deferred taxes were as follows:
       October 31,                          1998           1997           1996 
       <S>                                 <C>          <C>             <C>
       Accrued warranty costs               $197,000     $(160,000)      $(52,000) 
       Workers' compensation reserves         76,000       (60,000)        31,000        
       State income and franchise taxes     (102,000)      167,000          7,000         
       Inventory cost capitalization         (44,000)      105,000        (16,000)      
       Net operating loss carryforwards      (55,000)
       Other                                (129,000)      (32,000)        73,000                                                
                                            $(57,000)      $20,000        $43,000       
</TABLE>         

<TABLE>
<CAPTION>         
       Reconciliation of the effective tax rates and the U.S. statutory tax rate is summarized as follows:
 October 31,                 1998           1997           1996
       <S>                                            <C>           <C>           <C>
       Statutory tax rate                             (34.0%)        34.0%         34.0%
       State tax provision, net of federal tax effect  (1.5)         (1.8)          4.1            
       Tax exempt interest                             (8.3)         (0.2)         (0.3) 
       Adjustment of prior years income tax accruals   16.9
       Other                                            2.5          (3.5)          2.1            
                                                      (24.4%)       (39.5%)        39.9%
</TABLE>       

<TABLE>
       <CAPTION>
       The components of the deferred tax asset and liability are as follows : 
       October 31,                                  1998           1997 
       Deferred tax asset:                                           
          <S>                                   <C>               <C>
          Allowance for doubtful accounts        $20,000           $20,000
          Inventory adjustment                    77,000            33,000
          Accrued expenses                       766,000           862,000
          State income taxes                      32,000           (70,000) 
                                        								$895,000          $845,000
         
       Deferred tax liability:                                            
          Accelerated depreciation              $385,000          $392,000
          Involuntary conversion of plant facility 
            and equipment                      1,095,000         1,095,000
                                                      
                                              $1,480,000        $1,487,000
       
  The Company did not record a valuation allowance against the deferred tax
asset in fiscal 1998 or 1997.
      
</TABLE>
      
                                    29
<PAGE>
       
        
        
                   REPORT OF INDEPENDENT ACCOUNTANTS
       
To the Shareholders and Board of Directors of KIT Manufacturing Company
       
   We have audited the accompanying balance sheets of KIT Manufacturing
Company as of October 31, 1998 and 1997, and the related statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended October 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

   We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
   In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of KIT Manufacturing Company as
of October 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended October 31, 1998, in
conformity with generally accepted accounting principles.
       
Los Angeles, California                 /s/  PricewaterhouseCoopers LLP
December 15, 1998
       
                                      30
<PAGE>
       




<TABLE>
       
       KIT Manufacturing Company
       Industry Segment Information
       
       <CAPTION>
       
       October 31,                         1998           1997           1996 
       (Dollars in thousands)
       <S>                                 <C>            <C>            <C>
       SALES       
            Manufactured housing            $26,410        $23,807        $21,580        
            Recreational vehicles            34,620         52,658         75,578         
            Total sales                     $61,030        $76,465        $97,158       
       
       (LOSS) INCOME BEFORE INCOME TAXES
          Operating (loss) income                                                        
            Manufactured housing             $2,021           $876           $933           
            Recreational vehicles            (2,494)        (4,661)           841          
            Total operating (loss) income      (473)        (3,785)         1,774          
          Interest (expense) income, net         55            (36)           (13) 
    Equity in loss of retail sales partnership  (54)
    Gain on business interruption claim          --              --            620              
          
       (Loss) income before income taxes      $(472)        $(3,821)       $2,381
       
       IDENTIFIABLE ASSETS                                                                                        
            Manufactured housing             $8,983          $8,019        $7,207         
            Recreational vehicles            11,368          13,118        17,932         
            
         Total assets                       $20,351         $21,137       $25,139        
       
       DEPRECIATION          
            Manufactured housing               $289            $259          $234
            Recreational vehicles               350             418           436             
            
         Total depreciation                    $639            $677          $670           
       
       CAPITAL EXPENDITURES            
            Manufactured housing               $337            $872          $127           
            Recreational vehicles               443              97           307              
            
         Total capital expenditures            $780            $969          $434         
          
 Operating (loss) income represents (loss) income before net interest income
 (expense), equity in loss of retail sales partnership, gain on business
 interruption claim and income taxes. Non-direct operating expenses are 
 allocated to industry segments based on a percentage of sales. Identifiable 
 assets, depreciation and capital expenditures are those items that are used 
 in the operations in each industry segment, with jointly used items being 
 allocated based on a percentage of sales.
       
</TABLE>
                                      31
<PAGE>

<TABLE>
       
       KIT Manufacturing Company  
       Selected Financial Data                                                           
       <CAPTION>
                                                                                    
       October 31,                1998      1997      1996      1995      1994 
       (Dollars in thousands 
       except per share amounts)            
       
       FISCAL YEAR
       <S>                        <C>       <C>       <C>        <C>       <C>
         Sales                    $61,030   $76,465   $97,158   $101,462   $87,722   
         Net (loss) income          $(357)  $(2,312)   $1,431(1)  $1,349(2) $1,891(3) 
         Cash dividends paid           $         $         $         $         $         
         Capital expenditures        $780      $969      $434     $1,251    $3,622    
         Depreciation                $639      $677      $670       $597      $478      
       
       AT YEAR-END 
         Working capital           $6,861     $7,215     $9,984     $8,427  $7,622   
         Current ratio              2.0:1      2.0:1      2.1:1      2.0:1   1.9:1     
         Ppty, plnt & equip, net   $6,735     $6,844     $6,319     $6,388  $5,762    
         Total assets             $20,351    $21,137    $25,139    $23,302 $21,891   
         Long-term obligations         $          $          $          $       $         
         Shareholders' equity     $12,268    $12,625    $14,937    $13,506 $12,157   
       
       PER SHARE
        Basic net (loss) income    $(0.32)    $(2.08)     $1.29(1)   $1.21(2)$1.61(3) 
        Diluted net (loss) income  $(0.32)    $(2.08)     $1.27(1)   $1.21(2)$1.59(3) 
        Shareholders' equity       $11.04     $11.36     $13.45     $12.16   $10.94     
       
(1) Includes gain on a business interruption claim of $373,000, net of related income
    taxes, or $0.34 per share.
       
(2) Includes gain on a business interruption claim of $423,000, net of related income
    taxes, or $0.38 per share.
       
(3) Includes gain on involuntary conversion of plant facility and equipment and a
    business interruption claim of $671,000, net of related income taxes, or $0.57
    per share. 

</TABLE>
       
                                      32
<PAGE>

<TABLE>
       
KIT Manufacturing Company
Quarterly Statistics
(Dollars in thousands except per share amounts)     
(Unaudited)
<CAPTION>
Fiscal 1998                             First Quarter  Second Quarter Third Quarter  Fourth Quarter
<S>                                         <C>            <C>            <C>            <C>
Sales                                        $13,819        $16,831        $15,328        $15,052        
Gross profit                                     901          1,514          1,601          1,094   
(Loss) income before income tax benefit         (265)            90            116           (413)
Net (loss) income                               (157)            55             74           (329)     
Basic and diluted net (loss) income per share ($0.14)         $0.05          $0.07         ($0.30)
                                                                                         
Fiscal 1997
<S>                                         <C>            <C>            <C>            <C>
Sales                                        $16,589        $23,134        $20,811        $15,931   
Gross profit                                   1,332          1,026            867             64   
Loss before income taxes                        (546)        (1,249)          (741)        (1,285)
Net loss                                        (322)          (737)          (437)          (816)     
Basic and diluted net loss per share          ($0.29)        ($0.66)        ($0.39)        ($0.74)

</TABLE>


<TABLE>
<CAPTION>
       
       Market Prices of Common Stock
       
       Fiscal 1998      First Quarter  Second Quarter   Third Quarter  Fourth Quarter               
          <S>               <C>           <C>            <C>           <C>
           High              9 1/8         8 1/8          7 7/8         6 1/2
                                                                                         
           Low               6 3/8         6 3/4          6 1/4         4 5/8  
                                                                                         
       Fiscal 1997                                                                                 
           High              11 7/8         12 3/8         10 3/4        9 9/16
                                                                                         
           Low               11             10 1/2          9 1/2        8 1/8  

                                                                                         
 KIT common stock is traded on the American Stock Exchange. The above table reflects
 the high and low sales prices for each quarterly fiscal period in the past two years.
 There are approximately 346 shareholders of record on January 8, 1999.
</TABLE>
       
                                    
                                           33
<PAGE>
       Corporate Information
                                                           
 Directors                              Stock Registrar and Transfer Agent
 Dan Pocapalia                          ChaseMellon Shareholder Services, L.L.C.
 Chairman of the Board,                 Ridgefield Park, New Jersey
 President and Chief
 Executive Officer of KIT                                   
                                                                             
 Fred W. Chel                           Legal Counsel
 Business Consultant,                   O'Melveny & Myers
 Custom Fibreglass                      Los Angeles, California
 Manufacturing Company                        
                                                                              
 Frank S. Chan, Jr.
 Certified Public Accountant, Partner,  Accountants
 Frank S. Chan & Company                PricewaterhouseCoopers LLP
                                        Los Angeles, California                
 John W. H. Hinrichs
 Senior Vice President & Cashier,
 Farmers & Merchants Bank
 of Long Beach                          Form 10-K
                                        A copy of the Company's current annual
 John F.Zaccaro                         report filed with the Securities and
 Vice Chairman,                         Exchange Commission (SEC) on Form 10-K,
 Empower Health Corporation             exclusive of exhibits, will be furnished
                                        to shareholders without charge upon
                                        written request to Marlyce A. Faldetta,
                                        Corporate Secretary, KIT Manufacturing
 Officers                               Company, Post Office Box 848, Long Beach
 Dan Pocapalia                          California 90801.
 Chairman of the Board, President
 and Chief Executive Officer
                                        Executive Offices
 Gerald R. Wannamaker                   KIT Manufacturing Company
 Executive Vice President - Operations  530 East Wardlow Road, P.O. Box 848
                                        Long Beach, California 90801
 Bruce K. Skinner                       (562) 595-7451
 Vice President and Treasurer
                                                           
 Matthew S. Pulizzi                     Annual Meeting of Shareholders
 Vice President - Customer Relations    Tuesday, March 9, 1999, 9:00 A.M.
                                        Long Beach Marriott
 Marlyce A. Faldetta                    4700 Airport Plaza Drive
 Corporate Secretary                    Long Beach, California
       
       
                                            34
<PAGE>