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, 1997
                                    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 $4,469,930 as of January 16, 1998.
                                     
                                 1,110,934
(Number of shares of Common Stock outstanding as of January 16, 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, 1997 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, 1997.
                 The Index to Exhibits appears on page 16.
                         33 pages in total.

                              <PAGE>1

                              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 2 of Registrant's Annual Report to Shareholders
for the fiscal year ended October 31, 1997, 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 and double 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  

             1995                       27%                73%
             1996                       22%                78%
             1997                       31%                69%

          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, 1997, which is incorporated herein
by reference.

               Method of Product Distribution
          
          Registrant sells its products to approximately 219 dealers
in 35 states, 33 dealers in Canada and 1 dealer in Japan.  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 
          
                              <PAGE>2
                                  
          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 $8,303,771 and
$8,247,330 at October 31, 1997 and 1996, respectively.  All of the
backlog existing at October 31, 1997 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 only and does not engage in new product
development.

          Number of Employees

          On October 31, 1997, Registrant had 726 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 1997, fifty-seven 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
1997.  However, unfavorable spring and early summer weather
conditions coupled with higher than normal pricing pressures
depressed recreational vehicle sales as compared to fiscal 1996. 
Nevertheless, KIT's 1998 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,
1997.  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
     McPherson, Kansas                        12.5          67,600
     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.
  


                                 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, 1997,
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, 1997,
at page 11.

          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, 1997,
at page 3.

          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, 1997, at pages 4 through 9 and pages
12 through 14 of this Form 10-K.

          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, 1997 and           
                      1996                                           4
          
                    Statements of Income for each of the three
                      years in the period ended October 31, 1997     5
                     
                    Statements of Shareholders' Equity for each 
                      of the three years in the period ended 
                      October 31, 1997                               5        
                                       
          
                    Statements of Cash Flows for each of
                      the three years in the period ended
                      October 31, 1997                               6        
                                          
                                                  
                    Notes To Financial Statements                    7-9

                    Report of Independent Accountants                9        
                                      
          



          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, 1997 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, 1997 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, 1997
          
                        VIII     Valuation and  Qualifying 
                                   Accounts                    13

                          IX     Short-Term Borrowings         14





          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, 1997.
          

                                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 9 of the 1997 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/Coopers & Lybrand, L.L.P.
COOPERS & LYBRAND L.L.P.

Los Angeles, California
December 15, 1997




                                                12
<PAGE>
<TABLE>

                                    KIT MANUFACTURING COMPANY
                                                 
                                          SCHEDULE VIII
                                VALUATION AND QUALIFYING ACCOUNTS
                       For The Years Ended October 31, 1997, 1996 And 1995
                                                      


<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, 1995          $44,000                -                -         $44,000

  Year ended October 31, 1996          $44,000                -          $1,000(A)       $43,000

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

</TABLE>


                                                13
                                                 
                                                 
<PAGE>
<TABLE>

                                   KIT MANUFACTURING COMPANY
                                          SCHEDULE IX
                                     SHORT-TERM BORROWINGS
                      For The Years Ended October 31, 1997, 1996 And 1995
                                                      
<CAPTION>

        Col.A             Col.B         Col.C           Col.D       Col.E              Col.F
                                       
                         Balance At                 Maximum Amount   Weighted Average  Weighted Average
Category Of Aggregate     End Of Weighted Average  Outstanding       Outstanding      Interest Rate  
Borrowings                Period  Interest Rate   During The Period(B) During The Period(C) During The Period(C)

Year ended October 31, 1995:
<S>                            <C>      <C>             <C>            <C>                      <C>
Unsecured revolving 
credit agreement (A)           -0-         *            $1,300,000      $722,000                  8.8%

Year ended October 31, 1996:

Unsecured revolving 
credit agreement (A)           -0-         *            $1,600,000      $697,000                  8.0%

Year ended October 31, 1997:

Unsecured revolving 
credit agreement (A)           -0-         *            $5,500,000      $1,600,000                8.5%

(A)The Registrant 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 bank's prime rate and certain minimum 
requirements as to the Registrant's working capital 
and debt to equity relationships.  The maximum 
borrowing permitted is the lesser of $7,500,000 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.

(B)Based on month-end balances.
(C)Based on the daily balances and interest rates 
  during the year.

*Not applicable.


</TABLE>


                                                   14
<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.26, 1998   /s/John W.H. Hinrichs Jan.26, 1998
   Dan Pocapalia                          John W.H. Hinrichs
Chairman of the Board,                    Director
Chief Executive Officer
and President (Principal 
Executive Officer)



/s/John F. Zaccaro     Jan.26, 1998    /s/Frank S. Chan      Jan.26, 1998
John F. Zaccaro                           Frank S. Chan
Director                                  Director



/s/Bruce K. Skinner    Jan.26, 1998   /s/Fred W. Chel       Jan.26, 1998
Bruce K. Skinner                         Fred W. Chel
Vice President - Treasurer               Director
(Principal Financial and
Accounting Officer)

                                    15
                                     
                                     
                                
<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
                                    16
                               
                                   <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.
       
       
                              17
                               
                                <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.
       
       
                              18
                               
                                <PAGE>
           
                       KIT Manufacturing Company
                               
                           1997 Annual Report
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               
                                          19
                               
                                <PAGE>
       <TABLE>
       KIT Manufacturing Company
       Financial Highlights
       <CAPTION>
           
       (Dollars in thousands except per share amounts)

                                       1997      1996      1995      1994          1993
       Operating Results for the
       Year Ended October 31      
       <S>                            <C>       <C>       <C>           <C>       <C>
       Sales                          $76,465   $97,158   $101,462      $89,722   $59,122
       Net (loss) income               (2,312)    1,431(1)   1,349(2)     1,891(3)     33   
       Per share                       ($2.08)    $1.29(1)   $1.21(2)     $1.61(3)  $0.02     
       Shares outstanding           1,110,934 1,110,934  1,110,934    1,177,283    1,472,389
       Working capital                 $7,215    $9,984     $8,427        $7,622  $10,832

       (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 35 states in the West,
       Midwest, South and Southeast sectors and 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.
       
       
                           <PAGE>20
                                  To Our Shareholders:
       
          KIT's fiscal year sales for recreational vehicles were very soft due 
 to the fact that our entry level models were not competitively priced.  
 Because of this pricing issue, we were not able to meet the market 
 demand of the first time RV buyers who are extremely price conscious.  
 The RV pricing situation, along with extreme competitive pressures in our 
 market segment, resulted in a sales decline of 21 percent during fiscal 1997.  
 The reduction in RV sales volume couple with increased marketing incentives 
 and a decrease in sales of higher margin recreational vehicles contributed 
 to a loss from operations of over $3,700,000.
       
          As a result of the loss from operations, the net financial 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 for 1996 included an after-tax
 gain from a business interruption claim of $373,000, or $.34 per share.  This
 gain was the result of an insurance claim arising from the 1992 tornado
 destruction of our McPherson, Kansas manufactured housing facility.  This
 plant was closed in 1992.
       
          Because of the disappointing results from recreational vehicle
 operations during fiscal 1997, the Company has made a number of key management
 changes to the RV division.  In addition to the administrative changes, KIT
 has realigned the RV manufacturing facilities for a more competitive
 production environment.  The purpose of the operational restructuring is to
 prepare for growth opportunities presented by the ever changing RV market.
       
        The most recent National RV show in Louisville, Kentucky held during the
 latter part of 1997 provided management with an optimistic view of what lies
 ahead for fiscal 1998.  Our restyled recreational vehicle lines, enhanced by
 our new low-end product introduction, were extremely well received by the
 dealers.  Based on the enthusiastic response, management believes that the
 Company is well positioned to meet the demands of this highly competitive
 market where the challenge is to provide moderately-priced, high-valued
 products.
       
          The manufactured housing division completed its plant expansion during
 fiscal 1997, giving this facility a production capacity increase of 40%.  The
 additional capacity, as well as the progress made through several operational
 changes, has positioned this division to take advantage of the expanding
 demand for the KIT manufactured home in all of our sales regions.
       
         The Company remains in a strong financial position to take advantage of
 anticipated current and future demand.  KIT has no long term debt and its
 line of credit remains unused at the fiscal year end.  In addition, working
 capital remained stable in comparison to fiscal 1996 and its current assets
 remain at more than double current liabilities.
       
          Fiscal 1998 will see the Company continue to concentrate on providing
 existing and new dealers with high quality, high value, innovative products. 
 First quarter operations will see our normal seasonal slowdown, however,
 management believes that the second quarter and balance of the fiscal year
 should yield a drastic reduction in the losses incurred in fiscal 1997.
       
 Sincerely,
       
 Dan Pocapalia
 Chairman, President and
 Chief Executive Officer
       
       
       
                           <PAGE>21
                                
       
 Recreational Vehicles
       
      KIT is one of the largest manufacturers of towable travel trailers and
 fifth-wheels in the United States. KIT's position in the industry is the result
 of 53 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 are in high demand in the
 second time buyer market.
          
      The baby-boomer generation along with 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 1998 product lines, the Company
 has introduced many new innovations in our models in response to our
 customers' requests. In addition to new interiors, the 1998 floor plans have
 been further enhanced. Because of these changes, KIT has been able to
 significantly improve its dealer network. 
          
      KIT produces a wide range of recreational vehicle products in its
 manufacturing facilities in Caldwell, Idaho and McPherson, Kansas. KIT
 RV's measure from 19 to 39 feet in length, are more than eight feet wide and
 provide sleeping accommodations from 2 to 10 persons.
          
     KIT produces its travel trailers and fifth-wheels under the brand names of
 Road Ranger, Companion, Elite, Cordova, Sportsmaster, Sportsmaster
 Classic, Patio Hauler, and our newest entry level brands, the Espre' and the
 Sun Chaser.
       
     The new 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 floor plans, are in
 the mid-priced market. These models are configured with a wide range of
 features.  Road Ranger Elite and Companion Cordova models are our
 high-end product offering. These models provide the largest living and
 storage areas in their price range. They appeal to the discerning buyer and
 offer a vast selection of features as standard equipment.  At the low-end of
 the mid-priced market, KIT offers the Sportsmaster and Sportsmaster Classic.

     The Sportsmaster Classic line will be new for the coming winter and spring
 selling seasons.
       
     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 five 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 30 KIT floor plans range from $9,800 to
 $52,000. This range covers approximately 80 percent of the travel trailer and
 fifth-wheel market.
          
     More than 220 independent dealers now distribute KIT recreational vehicles
 to the retail consumer throughout the continental United States, Canada and
 Japan. 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 53 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 continues its profitable operations. Value
 pricing coupled with a continuing emphasis on reducing operating costs has
 had a positive effect on the financial results of the housing products
 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. Introduced in 1994, the Briercrest was designed specifically with
 subdivision application in mind as the home is sold with an attached garage
 and is basement applicable. 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 1997, 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.
       
       
       
       
                              22
                               
                                  <PAGE>
       
       
 KIT Manufacturing Company
       
    Management's Discussion And Analysis of Results of Operations and
 Financial Condition
       
 Results of Operations
       
 Fiscal 1997 Compared to 1996
       
     Sales declined 21% to $76.5 million compared to fiscal 1996.  The net
 loss was $2,312,00, or $2.08 per share, in comparison to net income in fiscal
 1996 of $1,431,000, or $1.29 per share.  The net loss stemmed mainly from
 operational losses in the RV division.  These losses were the result of a
 significant decline in sales due to competitive pricing issues. 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 cost
 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.  This decline
 consisted of a decrease of  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.  Because of the results from operations, the Company has
 made key management changes and has realigned the RV manufacturing
 facilities for a more competitive production environment.  Based on these
 changes, 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 9.2% 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.
          
    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.
       
       
       
 Fiscal 1996 Compared to 1995
       
    Sales declined 4% to $97.2 million compared to fiscal 1995. Net income
 increased to $1,431,000, or $1.29 per share, compared to $1,349,000, or $1.21
 per share, in fiscal 1995. Net income in 1996 and 1995 includes an after
 tax-gain from insurance proceeds on a business interruption claim of
 $373,000, or $.34 per share, and $423,000 or $.38 per share, respectively.
          
  Recreational vehicle division sales increased 2% to $75.6 million.  Overall RV
 shipments decreased 5% to 5,229 units. Travel trailer shipments declined
 15% to 2,728 units. Fifth-wheel model shipments increased to 2,501 units
 from 2,320 shipped in 1995. 
          
    Manufactured housing sales declined 21% to $21.6 million. Total unit
 shipments decreased 26% to 578 homes in fiscal 1996 in comparison to 781
 homes shipped in 1995. 
          
    Gross profit as a percent of sales increased to 11% in comparison to 9.2% in
 1995. The primary reasons for the increase were an increase in operating
 efficiencies, sales volume and a decline in start-up costs at the new RV and
 manufactured housing facilities
          
    Selling, general and administrative expenses increased 13% to 9.2% of sales
 in comparison to fiscal 1995 as the Company increased its RV selling costs in
 the face of increased competition.
          
   Net interest income of $13,000 in 1996, as compared to net interest income of
 $42,000 in 1995, was the result of higher average borrowing levels than in
 1995.
       
 Liquidity and Capital Resources
       
    The financial position of the Company continues to remain strong. The
 current ratio at fiscal year 1997 was 2.0 in comparison to 2.1 in fiscal 1996
 due to a decrease in receivables, inventories and trade payables. 
          
    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 1997 or 1996.
          
    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.
       
       
       <PAGE>23
       <TABLE>
       KIT Manufacturing Company
       Balance Sheets
       <CAPTION>
       
       October 31,                                              1997          1996 
       ASSETS
       Current Assets                                                         
       <S>                                                    <C>         <C>
           Cash and cash investments                           $3,673,000  $2,281,000     
           Accounts receivable, net of allowance for doubtful
           accounts of $42,000 in 1997 and $43,000 in 1996      4,533,000  8,026,000 
           Inventories                                          3,402,000  7,169,000 
           Prepaids and income taxes receivable and deferred    2,632,000  1,241,000 
               
          Total Current Assets                                 14,240,000  18,717,000     
       
       Property, Plant and Equipment, at cost
           Land                                                   492,000    492,000   
           Buildings and improvements                           7,047,000  6,856,000 
           Machinery and equipment                              4,148,000  4,233,000 
           Construction in progress                             1,055,000    175,000
       
                                                               12,742,000  11,756,000     
              Less accumulated depreciation                    (5,898,000) (5,437,000)
       
                                                                6,844,000   6,319,000
       Other Assets                                                53,000     103,000
             
                                                              $21,137,000  $25,139,000    
                                                               
       LIABILITIES AND SHAREHOLDERS' EQUITY                                   
       Current Liabilities                                                         
           Accounts payable                                    $2,697,000   $3,685,000     
           Accrued payroll and payroll related liabilities      1,604,000    2,256,000 
           Accrued marketing programs                             809,000    1,104,000 
           Accrued expenses                                     1,915,000    1,664,000 
           Income taxes payable                                                 24,000          
          Total Current Liabilities                             7,025,000    8,733,000 
       
       Deferred Income Taxes                                    1,487,000    1,469,000 
       
                                                                8,512,000   10,202,000    
       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
             1997 and 1996                                        750,000      750,000        
           Additional paid-in capital                             842,000      842,000   
           Retained earnings                                   11,033,000   13,345,000     
               Total Shareholders' Equity                      12,625,000   14,937,000
                                                              $21,137,000  $25,139,000    
       The accompanying notes are an integral part of these financial statements.
       </TABLE>
       
       <PAGE>24
       
       <TABLE>
       
       KIT Manufacturing Company
       Statements of Income
       <CAPTION>
                                                               
       For the Years Ended October 31,           1997           1996          1995 
       <S>                                       <C>            <C>           <C>
       Sales                                     $76,465,000    $97,158,000   $101,462,000
       Costs and expenses    
           Cost of sales                          73,176,000     86,473,000     92,098,000
           Selling, general and admin. expenses    7,074,000      8,911,000      7,872,000
                                                  80,250,000     95,384,000     99,970,000
       
       Operating (loss) income                    (3,785,000)     1,774,000      1,492,000
       
       Other income (expense)
           Interest (expense) income, net            (36,000)       (13,000)        42,000
          Gain on business interruption claim                       620,000        701,000
       
       (Loss) income before income taxes          (3,821,000)     2,381,000      2,235,000
       (Benefit) provision for income taxes       (1,509,000)       950,000        886,000
       
       Net (loss) income                         $(2,312,000)    $1,431,000     $1,349,000
       Net (loss) income per share                    ($2.08)         $1.29          $1.21          
       
       Shares outstanding                          1,110,934      1,110,934      1,110,934
       </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, 1994  1,110,934 $750,000   $842,000       $10,565,000 $12,157,000
           Net income                                                   1,349,000   1,349,000
       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
       
       The accompanying notes are an integral part of these financial statements.
       </TABLE>
       
       
       <PAGE>25
       
       <TABLE>
       
       KIT Manufacturing Company
       Statements of Cash Flows
       <CAPTION>
       
       For the Years Ended October 31,                1997                1996          1995 
       Cash Flows From Operating Activities:
       <S>                                           <C>                 <C>            <C>
         Cash received from customers                $79,958,000         $96,711,000    $100,449,000
         Life Insurance proceeds                          72,000
         Interest received                               105,000              53,000      87,000
        
        Cash received from operations                 80,135,000          96,764,000     100,536,000 
         
       Cash paid to suppliers and employees           77,565,000          95,593,000     101,061,000
         Interest paid                                   141,000              66,000          45,000
         Income taxes (received) paid                    (47,000)          1,073,000         908,000
         
       Cash disbursed for operations                  77,659,000          96,732,000     102,014,000
       
Net cash provided by (used in) operating activities    2,476,000              32,000      (1,478,000)
       
     Cash Flows From Investing Activities:
        Purchase of property, plant and equipment, net  (969,000)           (434,000)     (1,251,000)
        Insurance proceeds from business interruption claim                  620,000         701,000
        Changes in other current and non-current assets (115,000)           (155,000)       (379,000)
       
Net cash (used in) provided by investing activities   (1,084,000)             31,000        (929,000)
       
     Cash Flows From Financing Activities:
     Proceeds from line-of-credit borrowings          12,374,000             4,900,000      2,800,000
     Principal payments on line-of-credit borrowings (12,374,000)           (4,900,000)    (2,800,000)
       
       Net cash used in financing activities                  --                   --        --
       
       Net increase (decrease) in cash                 1,392,000                63,000     (2,407,000)
       
       Cash and cash investments at beginning of year  2,281,000             2,218,000      4,625,000
       Cash and cash investments at end of year       $3,673,000            $2,281,000     $2,218,000
       
       Reconciliation of Net (Loss) Income to Net Cash Provided by
          (Used in) Operating Activities:
       Net (loss) income                             $(2,312,000)           $1,431,000      $1,349,000
       Adjustments to reconcile net (loss) income to net cash
          provided by (used in) operating activities:
       
       Depreciation                                      677,000               670,000         597,000
       Gain on business interruption claim                    --              (620,000)       (701,000)
       Decrease (increase) in accounts receivable      3,493,000              (676,000)     (1,209,000)
       Decrease (increase) in inventories              3,767,000            (1,501,000)     (1,575,000)
       (Decr.) incr. in accts payable and accruals    (1,667,000)              894,000          29,000
       (Decrease) increase in income taxes payable    (1,482,000)             (166,000)         32,000
       
Net cash provided by (used in) operating activities   $2,476,000               $32,000     $(1,478,000)
       
       The accompanying notes are an integral part of these financial statements.
       </TABLE>
       
       <PAGE>26
              KIT Manufacturing Company
       Notes to Financial Statements
       
                            1. Summary of Significant Accounting Policies
       
                                     Cash  and Cash Investments
  The Company places its temporary cash investments, all of which are considered
cash equivalents, in high quality financial instruments. 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
       
                   Income Per Share
   Income per share amounts are based on the weighted average number of common 
shares outstanding during the year.
       
                   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, and $195,000 in 1995.
       
                   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 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.
       
       
       
                   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 manufacturing plant in the same location.
The Company recorded gains in 1996 and 1995 of $620,000 and $701,000,
respectively, for a business interruption claim  relative to this matter.
       
       <PAGE>27
       
                   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 remain 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, 1997, 1996, and 1995,
total unexercised options were 132,000, of which 132,000, 66,000 and 33,000
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, 1997, there was no outstanding
balance on the revolving credit line, and the maximum borrowing permitted
was the lesser of $7,500,000 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 1997, 1996 and 1995 were $141,000, $66,000, and $45,000,
respectively.
        
                   5. Commitments and Contingencies
   The Company was contingently liable at October 31, 1997 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, 1997 and 1996 was approximately $12,312,000 and $15,644,000,
respectively.
                       
   In addition, the Company is contingently liable to financial institutions for
standby letters of credit totalling $778,000 and $748,000 as of October 31, 1997
and 1996, 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>
       6. Income Taxes
          The components of the (benefit) provision for income taxes are as follows:
                   
       For the year ended October 31,       1997           1996           1995 
       Current:                                                 
             <S>                            <C>            <C>            <C>
         Federal                       $(1,263,000)        $712,000       $724,000
         
             State                        (266,000)         195,000        216,000
         
                                        (1,529,000)         907,000        940,000
       </TABLE>
       <TABLE>
       <CAPTION>
       Deferred:                                                
             <S>                            <C>            <C>            <C>
             Federal                        54,000           47,000        (19,000)
         
             Stae                          (34,000)          (4,000)       (35,000)
                                       
                                            20,000           43,000        (54,000)
         
                                       $(1,509,000)        $950,000       $886,000
       </TABLE>
       <TABLE>
       <CAPTION>
         The sources of deferred taxes were as follows:
       October 31,                          1997           1996           1995 
       <S>                                  <C>            <C>            <C>
       Accrued warranty costs               $(160,000)     $(52,000)      $(59,000)
       Workers' compensation reserves         (60,000)       31,000        (35,000)
       State income and franchise taxes       167,000         7,000         70,000
       Inventory cost capitalization          105,000       (16,000)      (121,000)
       Accelerated depreciation                18,000        70,000         92,000
       Product liability reserves and other   (50,000)        3,000         (1,000)
                                       
                                              $20,000       $43,000       $(54,000)
       </TABLE>
       
       
       <PAGE>28
       <TABLE>
       
       KIT Manufacturing Company
       Notes to Financial Statements
       <CAPTION>
       
       6. Income Taxes Continued                                               
       Reconciliation of the effective tax rates and the U.S. statutory tax rate is summarized as follows:
       For the year ended October 31,                 1997           1996           1995
       <S>                                            <C>            <C>            <C>
       Statutory tax rate                             (34.0%)        34.0%          34.0%
       State tax provision, net of federal tax effect  (1.8)          4.1            5.3
       Tax exempt interest                             (0.2)         (0.3)          (0.4)
       Other                                           (3.5)          2.1            0.7
                                                      (39.5%)        39.9%          39.6%
       </TABLE>
       
       <TABLE>
       <CAPTION>
       The components of the deferred tax asset and liability are as follows : 
       October 31,                                  1997           1996 
       Deferred tax asset:                                           
          <S>                                       <C>            <C>
          Allowance for doubtful accounts              $20,000        $20,000
          Inventory adjustment                          33,000        138,000
          Accrued expenses                             862,000        592,000
          State income taxes                           (70,000)        97,000
                                                      $845,000       $847,000
         
       Deferred tax liability:                                            
          Accelerated depreciation                    $392,000       $374,000
          Involuntary conversion of plant facility
            and equipment                            1,095,000      1,095,000
                                                      
                                                    $1,487,000     $1,469,000
       
       The Company did not record a valuation allowance against the deferred tax
       asset in fiscal 1997 or 1996.
       </TABLE>
       
       <TABLE>
       <CAPTION>
       7.  Inventories
         Inventories are summarized as follows:                           
       October 31,                                    1997           1996 
       <S>                                            <C>            <C>
       Raw material                                   $1,876,000     $3,413,000
       Work in process                                   907,000      1,230,000
       Finished goods                                    619,000      2,526,000
                                                      $3,402,000     $7,169,000
       
       The excess of current replacement cost over last-in, first-out cost was
       $1,189,000 at October 31, 1997 and $1,234,000 at October 31, 1996.
       </TABLE>
       
       
       8. Industry Segment Information
       Information about the Company's operations within industry segments for
       the years ended October 31, 1997, 1996, and 1995 is presented on page 10.
        
        
                   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, 1997 and 1996, and the related statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended October 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended October 31, 1997, in
conformity with generally accepted accounting principles.
       
Los Angeles, California                   Coopers & Lybrand, L.L.P.
December 15, 1997
       
       
       <PAGE>29
       
       <TABLE>
       
       KIT Manufacturing Company
       Industry Segment Information
       
       <CAPTION>
       
       October 31,                         1997           1996           1995 
       (Dollars in thousands)
       <S>                                 <C>            <C>            <C>
       SALES       
            Manufactured housing            $23,807        $21,580        $27,304   
            Recreational vehicles            52,658         75,578         74,158    
            Total sales                     $76,465        $97,158       $101,462  
       
       (LOSS) INCOME BEFORE INCOME TAXES
          Operating (loss) income                                                        
            Manufactured housing               $876           $933           $(53)     
            Recreational vehicles            (4,661)           841          1,545     
            Total operating (loss) income    (3,785)         1,774          1,492 
          Interest (expense) income, net        (36)           (13)            42   
         Gain on business interruption claim     --            620            701  
          
       (Loss) income before income taxes    $(3,821)        $2,381         $2,235    
       
       IDENTIFIABLE ASSETS                                                                                        
            Manufactured housing             $8,019         $7,207         $6,447    
            Recreational vehicles            13,118         17,932         16,855    
            
         Total assets                       $21,137        $25,139        $23,302   
       
       DEPRECIATION          
            Manufactured housing               $259           $234           $232 
            Recreational vehicles               418            436            365  
            
         Total depreciation                    $677           $670           $597 
       
       CAPITAL EXPENDITURES            
            Manufactured housing               $872           $127           $253 
            Recreational vehicles                97            307            998  
            
         Total capital expenditures            $969           $434         $1,251    
          
     Operating (loss) income represents (loss) income before net interest income
 (expense), 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>
       
       <PAGE>30
       
       <TABLE>
       
       KIT Manufacturing Company  
       Selected Financial Data                                                           
       <CAPTION>
                                                                                    
       October 31,                1997      1996      1995      1994      1993 
       (Dollars in thousands 
       except per share amounts)            
       
       FISCAL YEAR
       <S>                        <C>       <C>       <C>        <C>       <C>
         Sales                    $76,465   $97,158   $101,462   $87,722   $59,122   
         Net (loss) income        $(2,312)   $1,431(1)  $1,349(2) $1,891(3)    $33
         Cash dividends paid           $         $         $         $         $         
         Capital expenditures        $969      $434     $1,251    $3,622    $1,804
         Depreciation                $677      $670       $597      $478      $331 
       
       AT YEAR-END 
         Working capital          $7,215     $9,984     $8,427    $7,622   $10,832   
         Current ratio             2.0:1      2.1:1      2.0:1     1.9:1     2.7:1     
         Prop., plt. & eqpt., net $6,844     $6,319     $6,388    $5,762    $3,965    
         Total assets            $21,137    $25,139    $23,302   $21,891   $21,308   
         Long-term obligations   $          $          $         $         $         
         Shareholders' equity    $12,625    $14,937    $13,506   $12,157   $13,930   
       
       PER SHARE
         Net (loss) income        $(2.08)     $1.29(1)   $1.21(2)  $1.61(3)  $0.02
         Shareholders' equity     $11.36     $13.45     $12.16    $10.94     $9.46     
       
(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>
       
       
       <PAGE>31
       
       <TABLE>
       
       KIT Manufacturing Company
       Quarterly Statistics
       (Dollars in thousands except per share amounts)     
       (Unaudited)
       <CAPTION>
       Fiscal 1997           First Quarter  Second Quarter Third Quarter  Fourth Quarter
       <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)          (733)          (437)          (816)     
       Net loss per share       ($0.29)        ($0.66)        ($0.39)        ($0.74)
                                                                                         
       Fiscal 1996
       <S>                     <C>            <C>            <C>            <C>
       Sales                   $17,971        $28,679        $23,924        $26,584   
       Gross profit              1,954          3,450          3,206          2,075     
       Income before income taxes   11            839          1,415            116  
       Net income                    7            503            826 (1)         95   
       Net income per share      $0.01          $0.45          $0.74 (1)      $0.09     
                                                                                         
       (1)    Includes gain on a business interruption claim of $373,000, net of
              related income taxes, or $0.34 per share.  
       </TABLE>
       <TABLE>
       
       <CAPTION>
       
       Market Prices of Common Stock
       
       Fiscal 1997      First Quarter  Second Quarter   Third Quarter  Fourth Quarter               
            <S>              <C>            <C>            <C>            <C>
           High              11 7/8         12 3/8         10 3/4          9 9/16
                                                                                         
           Low               11             10 1/2             9 1/2           8 1/8  
                                                                                         
       Fiscal 1996                                                                                 
           High              14 1/4         16 1/4          15 1/4        13 7/8    
                                                                                         
           Low               11             10 1/4          10 1/8        10 1/4    
                                                                                         
 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 9, 1998.
       </TABLE>
       
                                    
                                                  32
                                    
                                    
                                     <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                Coopers & Lybrand L.L.P.
                                        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
 President and Executive Producer,      Exchange Commission (SEC) on Form 10-K,
 The International Health and           exclusive of exhibits, will be furnished
 Medical Film Festival, Inc.            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 10, 1998, 9:00 A.M.
                                        Long Beach Marriott
 Marlyce A. Faldetta                    4700 Airport Plaza Drive
 Corporate Secretary                    Long Beach, California
       
       
       33
       <PAGE>