<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON D.C. 20549

                                    FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998

                                       OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
        SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                   TO                             
                              ------------------    ----------------------

COMMISSION FILE NUMBER  0-2901

                            KRUG INTERNATIONAL CORP.
                            ------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                    Ohio                                     31-0621189
                    ----                                     ----------
(STATE OR OTHER JURISDICTION OF INCORPORATION               (I.R.S. EMPLOYER
                OR ORGANIZATION)                             IDENTIFICATION NO.)

            900 Circle 75 Parkway, Suite 1300, Atlanta, Georgia 30339
            ---------------------------------------------------------
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
                                   (ZIP CODE)

                                 (770) 933-7000
                                 --------------
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

               1290 Hercules Drive, Suite 120 Houston, Texas 77058
               ---------------------------------------------------
                 (FORMER ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

         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
filings requirements for the past 90 days.

Yes    X      No
     ----         ----


The number of Common Shares, without par value, outstanding as of August 14,
1998 was 5,035,430.



                                       
<PAGE>   2
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                   KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                 June 30,   March 31,
                                                                   1998       1998
                                                                 --------   ---------
<S>                                                              <C>        <C>
                                     ASSETS

Current Assets:
  Cash and cash equivalents                                      $ 9,443    $ 4,205
  Receivables - net                                                9,814     10,314
  Inventories (Note C)                                             4,702      5,000
  Prepaid expenses                                                   945        664
  Net current assets of discontinued operations (Note H)               -      4,527
                                                                 -------    -------

     Total Current Assets                                         24,904     24,710

Property, Plant and Equipment, At Cost                            11,380     10,461
  Less accumulated depreciation                                    5,190      4,863
                                                                 -------    -------
     Property, Plant and Equipment - Net                           6,190      5,598

Pension Asset                                                      1,565      1,557
Deferred Tax Assets                                                2,543      2,529
Other Assets                                                       1,755      5,185
                                                                 -------    -------
     Total Assets                                                $36,957    $39,579
                                                                 =======    =======

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
  Accounts payable                                               $ 7,782    $ 9,482
  Accrued expenses (Note F)                                        4,104      4,972
  Income taxes                                                        64        323
  Net current liabilities of discontinued operations (Note H)        450          -
  Current maturities of long-term debt                             1,594      1,238
                                                                 -------    -------
     Total Current Liabilities                                    13,994     16,015
Long-term Debt                                                     5,720      5,465
Net Non-current Liabilities of Discontinued Operations (Note H)      766          -
                                                                 -------    -------
     Total Liabilities                                            20,480     21,480

Shareholders' Equity:
  Common shares, no par value;
    Issued and outstanding, 5,256,230 at June 30, 1998
     and 5,198,730 at March 31, 1998                               2,628      2,599
  Additional paid-in capital                                       4,831      4,590
  Retained earnings                                                9,336     10,222
  Treasury shares, at cost, 159,600 shares at June 30, 1998         (881)         -
  Accumulated Other Comprehensive Income --
    Foreign currency translation adjustment                        1,180      1,305
    Minimum pension liability adjustment                            (617)      (617)
                                                                 -------    -------
     Total Shareholders' Equity                                   16,477     18,099
                                                                 -------    -------

       Total Liabilities and Shareholders' Equity                $36,957    $39,579
                                                                 =======    =======
</TABLE>
            See notes to condensed consolidated financial statements

<PAGE>   3
                   KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
                        (In thousands, except per share)


<TABLE>
<CAPTION>

                                                                 THREE MONTHS ENDED
                                                                      June 30,
                                                              ------------------------
                                                                1998             1997
                                                               -----             ----
<S>                                                           <C>               <C> 
Revenues                                                      $11,744           $19,705

Cost of Goods Sold                                             10,929            17,906
Selling and Administrative Expenses                             2,114             1,273
                                                              -------           -------

Operating Profit (Loss)                                        (1,299)              526

Other Income (Expense):
  Interest expense                                               (142)             (251)
  Interest income                                                 116                --
  Equity in loss of Wyle Laboratories, Inc.                      (123)               --
  Other income -- net (Note E)                                  176                 4
                                                              -------           -------

Earnings (Loss) From Continuing Operations
  Before Income Taxes                                          (1,272)              279

Income Tax Expense (Benefit) -- (Note D)                          (38)               96
                                                              -------           -------

Earnings (Loss) From Continuing Operations                     (1,234)              183

Earnings From Discontinued Operations
 (net of tax of $55 as of June 30, 1998 and $429
 as of June 30, 1997) (Note H)                                    348               902
                                                              -------           -------

Net Earnings (Loss)                                           $  (886)          $ 1,085
                                                              =======           =======

Earnings (Loss) Per Share:
  Continuing Operations:
    Basic                                                     $ (0.24)          $  0.04
                                                              =======           =======
    Diluted                                                   $ (0.24)          $  0.04
                                                              =======           =======

  Net Earnings (Loss):
    Basic                                                     $ (0.17)          $  0.21
                                                              =======           =======
    Diluted                                                   $ (0.17)          $  0.21
                                                              =======           =======

Average Common Shares Outstanding:
    Basic                                                       5,215             5,151
                                                              =======           =======
    Diluted                                                     5,230             5,183
                                                              =======           =======
</TABLE>


           See notes to condensed consolidated financial statements.
<PAGE>   4

                   KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED
                                                                 June 30,
                                                           --------------------
                                                            1998          1997
                                                           ------        ------
<S>                                                        <C>           <C>

Net Cash Provided by (Used In) Operating Activities        $(1,959)      $ 1,953

Cash Flows From Investing Activities:
  Expenditures for property, plant and equipment             (118)          (214)
  Proceeds from sale of Sowester Ltd. - net                 7,985             -- 
  Proceeds from sale of land                                  188             31
  Purchases of treasury shares                               (881)            --
  Other investments                                          (132)            --
                                                           ------        -------
     Net Cash Provided by (Used In) Investing 
      Activities                                            7,042           (183)

Cash Flows From Financing Activities:
  Payments on long-term debt                                 (215)           (13)
  Proceeds from exercise of stock options                     270             --
  Bank borrowings - net                                        --         (1,158)
                                                           ------        -------                             
     Net Cash Provided by (Used in)
     Financing Activities                                      55         (1,171)
              
 Effect of Exchange Rate Changes on Cash                      100             10
                                                           ------        -------
Net Increase in Cash                                        5,238            609            
Cash at Beginning of Period                                 4,205            105
                                                           ------        -------

Cash at End of Period                                      $9,443        $   714
                                                           ======        =======
Cash Paid For:
   Income taxes                                            $  325        $    --
                                                           ======        =======
   Interest                                                $  260        $   326
                                                           ======        =======
Non-Cash Investing and Financing Activities:
  Capital leases                                           $  831        $   367
                                                           ======        =======

</TABLE>


            See notes to condensed consolidated financial statements
<PAGE>   5


                    KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        THREE MONTHS ENDED JUNE 30, 1998
                             (DOLLARS IN THOUSANDS)

NOTE A -- BASIS OF PRESENTATION

         The unaudited Condensed Consolidated Financial Statements for the three
months ended June 30, 1998 have been prepared in accordance with Rule 10-01 of
Regulation S-X of the Securities and Exchange Commission and, as such, do not
include all information required by generally accepted accounting principles.
These Condensed Consolidated Financial Statements should be read in conjunction
with the consolidated financial statements included in the Corporation's Annual
Report on Form 10-K filed on June 16, 1998. In the opinion of management, the
Condensed Consolidated Financial Statements, which are unaudited, include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position and results of operations for the periods
indicated. The results of operations for the three months ended June 30, 1998
are not necessarily indicative of the results that may be expected for the
entire fiscal year or any other interim period.

NOTE B -- ACQUISITION OF KLIPPAN LIMITED

         On October 2, 1997, the Corporation's U.K. housewares and child safety
subsidiary purchased all the issued capital shares of Klippan Limited, a
manufacturer of children's automobile safety seats and accessories in the United
Kingdom and Scandinavia, for a purchase price of approximately $3,900. The
acquisition was financed under the Corporation's U.K. bank credit facility. The
acquisition was accounted for using the purchase method of accounting. Pro-forma
financial information of Klippan Limited is included in the Corporation's Form
10-K for the fiscal year ended March 31, 1998.

NOTE C -- INVENTORIES

<TABLE>
<CAPTION>
                               June 30,     March 31,
                                1998          1998
                               --------     ---------

<S>                            <C>          <C>      
Finished goods                 $  1,287     $   1,599
Work-in-process                     294         1,194
Raw materials and supplies        3,121         2,207
                               --------     ---------
                               $  4,702     $   5,000
                               ========     =========
</TABLE>

NOTE D -- INCOME TAXES

         The provision (benefit) for income taxes is composed of the following:

<TABLE>
<CAPTION>
                                   Three Months Ended June 30,
                               -------------------------------
                                 1998                    1997
                               --------                 ------
<S>                            <C>                  <C>      

Domestic                       $         -          $       17
Foreign                                (38)                 79
                               -----------          ----------
                               $       (38)         $       96
                               ===========          ==========
</TABLE>

<PAGE>   6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE E -- OTHER INCOME -- NET

         During the quarter ended June 30, 1998, the Corporation sold land in
Dayton, Ohio for a pre-tax gain of $176. This property was excess to the
Corporation's needs and had been listed for sale. The net proceeds of the sale
were used for working capital.

NOTE F -- RESTRUCTURING CHARGES AND ACCRUED EXPENSES

         In January 1998, the Corporation announced the restructuring of its
Housewares and Child Safety Products Segment, including the consolidation of two
U.K. manufacturing facilities and the relocation of its German sales offices. At
June 30, 1998, accrued expenses included restructuring charges of $717 which
related primarily to rent and lease exit costs payable through June 1999 for a
leased manufacturing facility in England which is no longer in use and $154 of
restructuring charges, which relate primarily to rent (net of expected sublease
rental income) and other expenses payable through June 1999, on the Dayton, Ohio
offices vacated by the Corporation in 1996.

NOTE G -- MERGER OF SUBSIDIARIES

         In March 1998, the Corporation merged its Life Sciences and Engineering
subsidiaries, KRUG Life Sciences Inc. and Technology/Scientific Services, Inc.,
with Wyle Laboratories, Inc. ("Wyle"). The Corporation received convertible
preferred shares equal to thirty-eight percent of the combined entity plus cash
and the assumption of the subsidiaries' working capital debt. The transaction
has been accounted for as a "tax-free" merger, and the Corporation reports its
investment in Wyle on the equity method of accounting. During the quarter ended
June 30, 1998, the Corporation reported a loss of $123 relating to its equity in
Wyle. The Corporation currently has no investment in Wyle recorded on its books
and, accordingly, will report future profits or losses of Wyle only when its
investment account exceeds zero. At June 30, 1998, Wyle reported aggregate
equity of $4,897 on its balance sheet.

NOTE H -- DISCONTINUED OPERATIONS

         On April 16, 1998, the Corporation sold its Leisure Marine Subsidiary
to a company formed by the Segment's management. The purchase price was
approximately $15,000 comprised of approximately $8,100 in cash, deferred
payments of $800 due within one year and the assumption of approximately $6,100
of debt. As a result of the disposal, the Corporation reported a gain of $348
under discontinued operations for the quarter ended June 30, 1998.

         In prior years, the Corporation discontinued the operations and
disposed of substantially all of the net assets of its Industrial Segment.
Remaining obligations related to this segment include leases for property in
Knoxville, Tennessee and Toronto, Canada, and product liability claims related
to products sold prior to the disposal of the Industrial Segment.

NOTE I -- COMPREHENSIVE INCOME

         Effective April 1, 1998, the Corporation adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement
requires that all items recognized under accounting standards as components of
comprehensive earnings be reported in financial statements. This Statement also
requires that an entity classify items of other comprehensive earnings by their
nature in an annual financial statement. Other comprehensive earnings for the
Corporation includes foreign currency translation adjustments. Total
comprehensive earnings for the three month periods ended June 30, 1998 and 1997
were as follows:

<TABLE>
<CAPTION>
                                           Three Months Ended
                                       June 30,          June 30,
                                        1998               1997
<S>                                   <C>                <C>
Net earnings (loss):                   $(866)             $1,085
Other comprehensive
earnings net of tax:
Change in equity due to
foreign currency
translation adjustments                 (125)                244
                                       -----              ------
Comprehensive earnings                  $991              $1,329
                                       =====              ======
</TABLE>
<PAGE>   7


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

FINANCIAL SUMMARY

<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED
                                                                                 June 30,
                                                                           --------------------
                                                                             1998        1997
                                                                           --------    --------
<S>                                                                        <C>         <C>     
REVENUES:
Housewares and Child Safety                                                $ 11,744    $  9,595
                                                                           --------    --------
Life Sciences and Engineering                                                    --      10,110
                                                                           $ 11,744    $ 19,705
                                                                           ========    ========
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES:
Operating Profit (Loss):
Housewares and Child Safety                                                $   (961)   $    111
Life Sciences and Engineering                                                    --         692
                                                                           --------    --------
                                                                               (961)        803
Corporate expense                                                              (338)       (277)
                                                                           --------    --------
Operating Profit (Loss)                                                      (1,299)        526
Other income - net                                                              176           4
Interest expense - net                                                          (26)       (251)
Equity in loss of Wyle Laboratories, Inc.                                      (123)         --
                                                                           --------    --------
Earnings (Loss) From Continuing Operations Before Income Taxes             $ (1,272)   $    279
                                                                           ========    ========

CAPITAL ADDITIONS:
Housewares and Child Safety                                                $    101    $    198
Life Sciences and Engineering                                                    --          16
Other                                                                            17          --
                                                                           --------    --------
                                                                           $    118    $    214
                                                                           ========    ========
</TABLE>

GENERAL

         During March 1998, the Corporation merged KRUG Life Sciences Inc. and
Technology/Scientific Services, Inc., its two subsidiaries which comprised the
Life Sciences and Engineering Segment, with Wyle Laboratories, Inc. in exchange
for a 38% equity interest in Wyle. Accordingly, the Corporation is reporting for
the quarter ended June 30, 1998 its equity in Wyle's losses as a single line
item in its condensed consolidated statements of earnings pursuant to APB No.
18. For the quarter ended June 30, 1997, the Life Sciences and Engineering
Segment is reported as continuing operations in the condensed consolidated
statements of earnings.


<PAGE>   8

         In April 1998, the Corporation sold its Leisure Marine subsidiary and
the results of operations of the Segment are included in discontinued operations
for the quarter ended June 30, 1998 and 1997, respectively.

RESULTS OF OPERATIONS

         Revenues of the Housewares and Child Safety Products Segment (the
Corporation's continuing operations segment) for the first quarter of fiscal
1999 increased by $2,149 or 22% to $11,744 over $9,595 for the same quarter in
fiscal 1998. The increased sales were due to the acquisition of Klippan Limited
and its four European subsidiaries ("Klippan") on October 2, 1997. Klippan,
which manufactures children's automobile safety seats, added $3,489 of revenues
in the first quarter of fiscal 1999. The favorable effect of currency
translation contributed $94 of revenue to the Segment. Sales at Beldray Limited,
which includes child safety gates previously manufactured by Hago Products,
decreased $1,340 in the quarter, primarily the Corporation believes, as a result
of disruptions in manufacturing and delivery schedules resulting from the
consolidation of Hago's manufacturing operations into the Beldray plant.

         The operating loss of $961 incurred in the Housewares and Child Safety
Segment for the quarter ended June 30, 1998, resulted primarily from
transitional manufacturing difficulties in connection with the Hago plant
consolidation, which was completed in May 1998. In addition, Klippan has
undertaken a comprehensive product redevelopment program for its children's
automobile safety seats which resulted in costs during the quarter of
approximately $125. The new children's automobile safety seats will be
introduced in late August 1998, but the Corporation does not anticipate
significant sales of the new products before the third fiscal quarter. The
Company also believes current sales of Klippan's children's automobile safety
seats were adversely affected due to customers anticipating the new products and
deferring current purchases.

         During the fiscal 1999 first quarter, the Corporation recognized its
portion of Wyle's loss, which resulted from certain of Wyle's fixed-priced
hardware contracts. Also included in the first quarter results is a pre-tax gain
of $176 from the sale of excess land in Dayton, Ohio.

         Interest expense decreased $109 or approximately 43% during the quarter
as a result of debt repayments in April 1998 in connection with the sale of the
Leisure Marine Segment. The Corporation also earned interest income during the
period of $116 on cash received from the Wyle merger and the sale of the Leisure
Marine Segment.

         The Corporation recorded an income tax benefit of $38 in the fiscal
1999 first quarter. The tax benefit is substantially less than the statutory tax
rate due to losses recorded by the Housewares and Child Safety Products Segment
which cannot be deducted currently. Such losses resulted in tax loss
carryforwards in the United Kingdom and Germany which may be available to offset
a portion of future income, if any.

         The loss from continuing operations was $1,234 ($0.24 per share) in the
first quarter of fiscal 1999 compared to earnings from continuing operations of
$183 ($0.04 per share) in the first quarter of fiscal 1998. The loss in the
first quarter of fiscal 1999 is due primarily to operating losses in the
Housewares and Child Safety Products Segment and the recognition of the
Corporation's portion of Wyle's loss. The loss from continuing operations for
the current quarter was somewhat offset by other income, representing a gain of
$176 on the sale of excess land in Dayton, Ohio. The net loss for the quarter
was $886 ($0.17 per share) compared to net earnings of $1,085 ($0.21 per share)
in the same quarter last year. The gain of $348 from the sale of the
Corporation's Leisure Marine Segment is presented as "Earnings From Discontinued
Operations" in the current quarter.


<PAGE>   9

     In fiscal 1989, the Corporation discontinued the operations of its
Industrial Segment and subsequently disposed of substantially all related net
assets. However, obligations remain relating to leased property in Knoxville,
Tennessee, leased property in Toronto, Canada, and product liability claims for
products manufactured and sold prior to the disposal of the Segment. The
Corporation reviewed the provision for losses from such discontinued operations
during the quarter and no changes were deemed necessary.

LIQUIDITY AND CAPITAL RESOURCES

         The Corporation used $1,959 of cash from operating activities during
the first quarter of fiscal 1999, primarily as a result of the operating loss,
the restructuring costs related to the U.K. plant consolidation and increased
working capital requirements of the Housewares and Child Safety Products
Segment. The increase in the cash balance from March 31, 1998 to June 30, 1998
is due primarily to the cash proceeds of the sale of Sowester Limited in April
1998, net of debt paid off in connection with the sale.

         In April 1998, the Corporation announced that it would repurchase for
cash in the open market up to 200,000 of its common shares. As of June 30, 1998,
the Corporation had purchased 159,600 shares at a cost of $881. In August 1998,
the Corporation's Board of Directors authorized the purchase of an additional
100,000 shares. As of August 14, 1998 the Corporation had repurchased a total of
220,800 shares.

         At June 30, 1998, the Corporation had outstanding debt of $5,689 under
a variable rate loan and term loan with a U.K. bank. The debt is payable in
quarterly installments and matures in fiscal 2005. In addition, the Corporation
has a $3,335 line of credit for its U.K. subsidiaries with a U.K. bank, all of
which was unused at June 30, 1998. The U.K. loan agreements are collateralized
by substantially all of the Corporation's U.K. assets, including approximately
$5,689 of cash, from the proceeds of the sale of the Leisure Marine Segment.
Such cash is restricted pending the renegotiation of the U.K. bank debt. The
agreements contain affirmative and negative covenants (including financial
covenants relating to cash flow and tangible net worth requirements) and are
cross guaranteed among the U.K. subsidiaries. The Corporation expects to
renegotiate its U.K. bank debt in fiscal 1999 and reduce the outstanding amount.
At June 30, 1998, the Corporation had no outstanding U.S. debt. The Corporation
believes it has adequate financing in both the U.S. and U.K. to support its
current level of operations.

YEAR 2000 COMPLIANCE

         Some older computer programs and systems were written using two digits
rather than four to define the applicable year (for example, 98 to denote 1998).
As a result, those computer programs have software which may recognize a date
using "00" as the year 1900 rather than the year 2000. This may result in a
computer system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.

         The Corporation has replaced certain of its financial and operational
systems in the normal course of business during the last two years to enhance or
better meet its functional business and operational requirements. Management
believes that such replacements substantially meet or address its Year 2000
issues. In addition to such normal replacement, the Corporation may be required
to modify some of the existing software and hardware in order for its computer
systems to function properly with respect to dates in the year 2000 and
thereafter. The estimated cost of the remaining replacement and modification for
the Year 2000 issue is not considered material to the Corporation's earnings or
financial position.

         The Corporation has initiated a communication process with its
significant vendors and customers to determine the extent to which the
Corporation's interface systems are vulnerable to failure as a result of those
third parties unremediated Year 2000 issues. There can be no assurance that the
systems of other companies on which the Corporation's systems rely will be
timely converted and will not have an adverse affect on the Corporation's
systems.

         The Corporation estimates that its Year 2000 project will be completed
not later than December 31, 1999, which the Corporation believes is prior to the
anticipated impact on its operating systems. The Corporation believes that
modifications to existing software and hardware and new software minimize the
risk of significant operational problems for its computer systems as a result of
the Year 2000 issue. However, if such replacements and modifications are not
made timely, or key third parties do not remediate their Year 2000 issues
timely, the Year 2000 issue could have a material impact on the operations of
the Corporation.

CERTAIN CAUTIONARY STATEMENTS

         In addition to historical information, Items 1 and 2 of this document
contain certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 which may include, without limitation,
statements regarding management's outlook for each of its businesses and the
sufficiency of the Corporation's liquidity and sources of capital. These
forward-looking statements are subject to certain risks, uncertainties and other
factors which could cause actual results to differ materially from those
anticipated, including, without limitation, restrictions imposed by debt
agreements, competition in the Housewares and Child Safety Products business and
for government and commercial services provided by Wyle, the regulatory
environment for the Corporation's businesses, consolidation trends in the
Corporation's businesses, competition in the acquisition market, changes in
exchange rates, increases in raw material prices and labor rates, the purchasing
practices of significant customers, the availability of qualified management and
staff personnel in each business segment and claims for product liability from
continuing and discontinued operations.

<PAGE>   10

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.


PART II.  OTHER INFORMATION

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

         On July 13, 1998, the Corporation held its Annual Meeting of
Shareholders. At the meeting, three directors, Charles Linn Haslam, Karen B.
Brenner and Bernee D.L. Strom, were elected to two-year terms of office expiring
at the Annual Meeting of Shareholders in 2000. 4,589,120 shares were voted in
favor of electing Mr. Haslam and 137,924 shares were withheld. 4,588,949 shares
were voted in favor of electing Ms. Brenner and 138,095 shares were withheld.
4,588,949 shares were voted in favor of electing Ms. Strom and 138,095 shares
were withheld.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         (A) Exhibit 27 - Financial Data Schedule (for SEC use only).

         (B) Reports on Form 8-K - On May 1, 1998, the Corporation filed a
report on Form 8-K and reported pursuant to Item 2 - Acquisition or Disposition
of Assets, the sale of Sowester Limited to a corporation formed by Sowester
Limited's management. On April 16, 1998, the Corporation filed a report on Form
8-K and reported pursuant to Items 5 that its Board of Directors authorized the
Corporation to repurchase for cash in the open market up to 200,000 Common
Shares of KRUG International Corp.


<PAGE>   11


                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, KRUG
International Corp. has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

                                              KRUG International Corp.

                                              By:  /s/  Mark J. Stockslager
                                                   -------------------------
                                                   Mark J. Stockslager
                                                   Principal Accounting Officer





Dated: August 14, 1998