1997


           Annual Report


           ARMATRON INTERNATIONAL INC.



 /
/ ARMATRON INTERNATIONAL, INC. AND SUBSIDIARY
----------------------------------------------


FINANCIAL HIGHLIGHTS


<TABLE>
<CAPTION>

                                                    Years Ended September 30,
                                                 1997           1996          1995
--------------------------------------------------------------------------------------

<S>                                           <C>            <C>           <C>
Net Sales                                     $13,314,000    $13,750,000   $12,017,000

--------------------------------------------------------------------------------------

Operating Profit (Loss)                       $  (244,000)   $     9,000    $(1,159,000)

---------------------------------------------------------------------------------------

Net Loss                                      $  (286,000)   $  (495,000)   $(1,557,000)

---------------------------------------------------------------------------------------

Weighted Average Number of Common 
 Shares Outstanding                             2,459,749      2,459,749      2,459,749

---------------------------------------------------------------------------------------

Loss Per Share of Common Stock:
  Net Loss                                    $      (.12)   $      (.20)   $      (.63)
                                              =========================================

---------------------------------------------------------------------------------------
</TABLE>


TO OUR STOCKHOLDERS


         The economic challenges of the consolidation and closings in the
retail industry has heightened the competitive marketplace. While we maintained
the sales position in the lawn and garden segment, we experienced a decrease in
the industrial products sector. Sales declined from $13,750,000 to $13,314,000
with a consolidated loss of $286,000 as compared to a loss of $495,000 for the
prior fiscal year.

         As I advised in my last letter, Federal Express installed Echovision
systems on all new pick-up and delivery vans from January 1, 1996 through the
end of November and after a comprehensive six-month evaluation approved the
continuation of the program for all new pick-up and delivery vans starting in
July 1997. Additional testing programs are in process with a number of other
major fleet operators and we anticipate similar results during this fiscal
period.

         Expanded product offerings in the lawn and garden market is increasing
our retailing penetration and will afford the opportunity for a larger market
share.

         Mr. Craig Spangenberg, a member of the Board of Directors since 1981,
will not stand for reelection this year. His dedicated service during his
tenure is greatly appreciated and we all wish him well.

         The challenges will not diminish in the coming year and while we
continue to experience pricing pressure in the lawn and garden market, the
expanding product offerings and increasing market penetration together with the
increasing Echovision potential should return the Company to profitability.

         The continuing support and understanding exhibited by our employees
and stockholders is greatly appreciated and will bode well in renewing the
Company's growth plans.


                                        /s/ CHARLES J. HOUSMAN
                                            Charles J. Housman
                                            President & Chairman of the Board


 /
/ ARMATRON INTERNATIONAL, INC. AND SUBSIDIARY
----------------------------------------------


ASSETS


<TABLE>
<CAPTION>

                                                                          September 30,
                                                                      1997           1996

<C>                                                                <C>            <C>
CURRENT ASSETS:
  Cash and cash equivalents......................................  $ 1,126,000    $ 1,849,000
  Trade accounts receivable (less allowance for doubtful 
   accounts of $116,000 in 1997 and $176,000 in 1996)............    2,389,000      2,121,000
  Inventories....................................................    2,711,000      2,349,000
  Deferred taxes.................................................      113,000        130,000
  Prepaid and other current assets...............................      165,000        187,000
                                                                   --------------------------
      Total Current Assets ......................................    6,504,000      6,636,000



PROPERTY AND EQUIPMENT , net  ..................................       589,000        637,000



OTHER ASSETS ...................................................       171,000        202,000
                                                                   --------------------------
                                                                   $ 7,264,000    $ 7,475,000
                                                                   ==========================
</TABLE>


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


CONSOLIDATED BALANCE SHEETS


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)


<TABLE>
<CAPTION>
                                                                          September 30,
                                                                      1997            1996

<S>                                                                <C>            <C>
CURRENT LIABILITIES:
  Accounts payable.............................................    $   695,000    $ 1,171,000
  Other current liabilities....................................      1,825,000      1,304,000
  Current portion under capital lease obligations..............         18,000             --
                                                                   --------------------------
      Total Current Liabilities ...............................      2,538,000      2,475,000
                                                                   --------------------------

LONG-TERM DEBT, related parties................................      4,715,000      4,715,000
                                                                   --------------------------
LONG-TERM CAPITAL LEASE OBLIGATIONS, net of current portion....         30,000             --
                                                                   --------------------------
DEFERRED RENT, net of current portion .........................         38,000         56,000
                                                                   --------------------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIENCY):
  Common stock, par value $1 per share; 6,000,000 shares 
   authorized; 2,606,481 shares issued at September 30, 1997
   and 1996....................................................      2,606,000      2,606,000
  Additional paid-in capital...................................      6,770,000      6,770,000
  Accumulated deficit..........................................     (9,047,000)    (8,761,000)
                                                                   --------------------------
                                                                       329,000        615,000

Less: Treasury stock at cost--146,732 at September 30, 1997 
 and 1996......................................................        386,000        386,000
                                                                   --------------------------
      Total Stockholders' Equity (Deficiency) .................        (57,000)       229,000
                                                                   --------------------------

      Total Liabilities and Stockholders' Equity (Deficiency)..    $ 7,264,000    $ 7,475,000
                                                                   ==========================
</TABLE>


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


 /
/ ARMATRON INTERNATIONAL, INC. AND SUBSIDIARY
---------------------------------------------- 


STATEMENTS OF CONSOLIDATED OPERATIONS
For the Years Ended September 30, 1997, 1996 and 1995


<TABLE>
<CAPTION>

                                                              1997            1996            1995

<S>                                                       <C>             <C>             <C>
Net Sales .............................................   $ 13,314,000    $ 13,750,000    $ 12,017,000
Cost of products sold..................................     11,126,000      11,054,000      10,570,000
                                                          --------------------------------------------
Gross margin...........................................      2,188,000       2,696,000       1,447,000
Selling, general and administrative expenses...........      2,492,000       2,625,000       2,541,000
Provision for (recovery of) bad debts..................        (60,000)         62,000          65,000
                                                          --------------------------------------------

Operating Profit (Loss) ...............................       (244,000)          9,000      (1,159,000)
                                                          --------------------------------------------

Other Income (Expense):
Interest expense--third parties........................        (57,000)        (49,000)        (41,000)
Interest expense--related parties......................       (478,000)       (480,000)       (488,000)
Interest income........................................         62,000          57,000          72,000
Unusual item...........................................        450,000              --              --
Other income (expense).................................         (2,000)          3,000          59,000
                                                          --------------------------------------------
Other income (expense)--net............................        (25,000)       (469,000)       (398,000)
                                                          --------------------------------------------

Loss before income taxes ..............................       (269,000)       (460,000)     (1,557,000)

Provision for income taxes.............................         17,000          35,000              --
                                                          --------------------------------------------

Net Loss ..............................................   $   (286,000)   $   (495,000)   $ (1,557,000)
                                                          ============================================

Net Loss per Share of Common Stock ....................   $      (0.12)   $      (0.20)   $      (0.63)
                                                          ============================================

Weighted Average Number of Common Shares Outstanding...      2,459,749       2,459,749       2,459,749
                                                          ============================================
</TABLE>


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


STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Years Ended September 30, 1997, 1996 and 1995


<TABLE>
<CAPTION>

                                                                   1997           1996           1995

<S>                                                            <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................    $  (286,000)   $  (495,000)   $ (1,557,000)
  Adjustments to reconcile net loss to net cash flows from 
   operating activities:
    Depreciation and amortization..........................        333,000        395,000         453,000
    Amortization of deferred rent..........................        (18,000)            --              --
    Deferred taxes.........................................         17,000         35,000              --
    Provision (recovery) for bad debts.....................        (60,000)        62,000          65,000
    Loss on disposal of equipment..........................             --          1,000              --
    Unusual item...........................................       (450,000)            --              --
  Changes in operating assets and liabilities:
    Accounts receivable....................................       (208,000)         6,000         160,000
    Inventories............................................       (362,000)      (124,000)        712,000
    Prepaid and other current assets.......................         64,000        (26,000)        144,000
    Other assets...........................................        (18,000)         9,000         (32,000)
    Accounts payable.......................................       (476,000)        59,000        (275,000)
    Other current liabilities..............................        520,000        580,000         (85,000)
    Deferred rent..........................................             --         75,000              --
                                                               ------------------------------------------
      Net cash flow from (used for) operating activities...       (944,000)       577,000        (415,000)
                                                               ------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of equipment..........................          2,000             --              --
  Payments for machinery and equipment.....................       (222,000)       (50,000)       (780,000)
  Proceeds from sale of former subsidiary .................        450,000             --              --
                                                               ------------------------------------------
      Net cash flow from (used for) investing activities...        230,000        (50,000)       (780,000)
                                                               ------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on capital lease obligations....................         (9,000)            --              --
  Payments on long-term debt--third parties................             --             --          (1,000)
  Payments on long-term debt--related parties..............             --             --        (425,000)
  Loan origination costs...................................             --             --         (63,000)
                                                               ------------------------------------------
      Net cash flow used for financing activities..........         (9,000)            --        (489,000)
                                                               ------------------------------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ......       (723,000)       527,000      (1,684,000)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............      1,849,000      1,322,000       3,006,000
                                                               ------------------------------------------

CASH AND CASH EQUIVALENTS AT END OF YEAR ..................    $ 1,126,000    $ 1,849,000    $  1,322,000
                                                               ==========================================
</TABLE>


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


 /
/ ARMATRON INTERNATIONAL, INC. AND SUBSIDIARY
----------------------------------------------


<TABLE>
<CAPTION>
                                                                                                                  Total
                                        Common Stock                                      Treasury Stock       Stockholders'
                                   ----------------------    Paid-In     Accumulated   ---------------------      Equity
                                    Shares       Amount      Capital       Deficit      Shares      Amount     (Deficiency)
                                   ---------   ----------   ----------   -----------   ---------   ---------   -------------

<S>                                <C>         <C>          <C>          <C>           <C>         <C>          <C>
Balance, September 30, 1994 .....  2,606,481   $2,606,000   $6,770,000   $(6,709,000)  (146,727)   $(386,000)   $ 2,281,000
Increase in treasury stock.......         --           --           --            --         (5)          --             --
Net loss.........................         --           --           --    (1,557,000)        --           --     (1,557,000)
---------------------------------------------------------------------------------------------------------------------------


Balance, September 30, 1995 .....  2,606,481    2,606,000    6,770,000    (8,266,000)  (146,732)    (386,000)       724,000
Net loss.........................         --           --           --      (495,000)        --           --       (495,000)
---------------------------------------------------------------------------------------------------------------------------


Balance, September 30, 1996 .....  2,606,481    2,606,000    6,770,000    (8,761,000)  (146,732)    (386,000)       229,000
Net loss.........................         --           --           --      (286,000)        --           --       (286,000)
---------------------------------------------------------------------------------------------------------------------------


Balance, September 30, 1997 .....  2,606,481   $2,606,000   $6,770,000   $(9,047,000)  (146,732)   $(386,000)   $   (57,000)
===========================================================================================================================
</TABLE>


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



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

   The Company operates principally in two segments, the Consumer Products
   segment and the Industrial Products segment. Operations in the Consumer
   Products segment involve the manufacture and distribution of Flowtron
   leafeaters, bugkillers, yard carts, storage sheds and dog houses which
   comprised 97% and 94% of the Company's sales for the years ended September
   30, 1997 and 1996, respectively. The Company distributes its consumer
   products primarily to major retailers throughout the United States, with
   some products distributed under customer labels. Substantially all of this
   segment's sales and accounts receivable related to business activities with
   such retailers. The Industrial Products segment markets electronic obstacle
   avoidance systems for transportation and automotive applications. Production
   of these systems began in fiscal 1996. There are no intercompany sales
   between segments.

2. SIGNIFICANT ACCOUNTING POLICIES

   Principles of Consolidation

   The consolidated financial statements include the accounts of Armatron
   International, Inc. and its wholly owned subsidiary. All intercompany
   balances and transactions have been eliminated in consolidation. Certain
   reclassifications have been made to prior year amounts to conform with the
   current year presentation.

   Revenue Recognition

   Revenue from product sales is recognized at the time the products are
   shipped. Following industry trade practice, the Company offers extended
   payment terms for delivery of seasonal items.

   Cash and Cash Equivalents

   The Company considers all highly liquid instruments purchased with an
   original maturity of less than three months to be cash equivalents. The
   Company invests excess funds in short-term, interest-bearing obligations,
   including reverse repurchase agreements and commercial paper.

   The Company has no requirements for compensating balances. The Company
   maintains its cash in bank deposit accounts which, at times, may exceed
   Federally insured limits and in deposit accounts at its commercial finance
   company. The Company has not experienced any losses in such accounts. The
   Company believes it is not exposed to any significant credit risk on cash
   and cash equivalents.

   Inventories 

   Inventories are stated on a first-in, first-out (FIFO) basis at the lower of
   cost or market.

   Property and Equipment

   Property and equipment are stated at cost. Depreciation is computed based 
   upon the estimated useful lives of the various assets using the straight-
   line method with annual rates of depreciation of 10 to 33-1/3%. Capitalized
   tooling costs are amortized over three years. Leasehold improvements are
   amortized over the lesser of the term of the lease or the estimated useful 
   life of the related assets. Tooling and molding costs are charged to a
   deferred cost account as incurred, prepaid tooling, until the tool or mold
   is completed. Upon completion the costs are transferred to a property/
   equipment account. Depreciation expense was $325,000, $363,000 and $426,000
   for fiscal 1997, 1996 and 1995, respectively. Maintenance and repairs are
   charged to operations as incurred. Renewals and betterments which materially
   extend the life of assets are capitalized and depreciated. Upon disposal, 
   the asset cost and related accumulated depreciation are removed from their
   respective accounts. Any resulting gain or loss is reflected in earnings.

   Deferred Rent

   Deferred rent results from amortizing the lease related to the Company's 
   operating facility over the term of the lease on a straight-line basis.

   Advertising

   The Company expenses advertising as incurred. Advertising expense was 
   $213,000, $322,000 and $295,000 for fiscal 1997, 1996 and 1995,
   respectively.

   Income Taxes 

   Deferred income taxes are provided for temporary differences between 
   financial statement and income tax reporting principally from the
   carryforward of unused net operating losses, tax credits, and alternative
   minimum taxes.

   Fair Value of Financial Instruments

   The carrying value of cash and cash equivalents and long-term debt
   approximate their fair value based on instruments with similar terms and
   maturities.

   Use of Estimates

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

   Earnings (Loss) Per Share

   Earnings (loss) per share of common stock is computed on the basis of
   weighted average number of common shares outstanding in each year.

3. CONCENTRATION OF CREDIT RISK

   Financial instruments, which potentially subject the Company to
   concentration of credit risk, consist principally of trade accounts
   receivable. If any of the Company's major customers fail to pay the Company
   on a timely basis, it could have a material adverse effect on the Company's
   business, financial condition and results of operations.

   For the year ended September 30, 1997, two customers accounted for
   approximately 42% of the Company's net sales. At September 30, 1997, these
   customers accounted for approximately 57% of the Company's trade accounts
   receivable balance.

   For the year ended September 30, 1996, a single customer accounted for
   approximately 18% of the Company's net sales. At September 30, 1996, this
   customer accounted for approximately 33% of the Company's trade accounts
   receivable balance.

   The Company's export sales are not significant.

4. SUPPLEMENTAL CASH FLOW INFORMATION

   The Company's cash payments for interest and income taxes and the Company's
   non-cash investing and financing activities for the years ended September
   30, 1997, 1996 and 1995 were as follows:

<TABLE>
<CAPTION>

                                                               1997      1996      1995

      <S>                                                    <C>       <C>       <C>
      Interest - related parties..........................   $    --   $49,000   $ 41,000
      Interest - third parties............................   $57,000   $41,000   $528,000

      Income taxes........................................   $    --   $    --   $     --

      Non-cash investing and financing activities:
        Capital expenditures financed by capital lease....   $57,000   $    --   $     --

</TABLE>

5. MAJOR SUPPLIERS

   The Company currently purchases its plastic storage sheds, yard carts and
   dog houses from one supplier. This supplier manufactures these products in
   accordance with the Company's designs and specifications. The Company
   believes that other suppliers could provide the required products although
   comparable terms may not be realized. A change in suppliers could cause a
   delay in scheduled deliveries of the products to the Company's customers and
   a possible loss of revenue, which would adversely affect the Company's
   results of operations.

6. INVENTORIES

   Inventories consisted of the following at September 30:

<TABLE>
<CAPTION>


                                                               1997         1996
     
      <S>                                                   <C>          <C>
      Raw Material, primarily purchased components.......   $1,680,000   $1,632,000
      Work in Process....................................       21,000       65,000
      Finished Goods.....................................    1,010,000      652,000
                                                            -----------------------
                                                            $2,711,000   $2,349,000
                                                            =======================
</TABLE>

7.  PROPERTY AND EQUIPMENT

   Property and equipment consisted of the following at September 30:

<TABLE>
<CAPTION>

                                                                  1997          1996

      <S>                                                      <C>           <C> 
      Leasehold improvements..............................     $  149,000    $   80,000
      Furniture and fixtures..............................        396,000       396,000
      Machinery and equipment ............................      1,828,000     1,830,000
      Capitalized tooling cost............................      3,980,000     3,808,000
                                                               ------------------------
                                                                6,353,000     6,114,000
      Less accumulated depreciation and amortization......      5,764,000     5,477,000
                                                               ------------------------
                                                               $  589,000    $  637,000
                                                               ========================
</TABLE>

8. OTHER ASSETS

   Other assets consisted of the following at September 30:

<TABLE>
<CAPTION>

                                                                     1997       1996

      <S>                                                          <C>        <C>
      Other receivable, net of current portion..................   $ 64,000   $ 89,000
      Note receivable--employee, due under terms of an annual
       renewal note, interest payable monthly at an annual rate
       of 6%, secured by a second mortgage......................    100,000    100,000
      Other.....................................................      7,000     13,000
                                                                   -------------------
                                                                   $171,000   $202,000
                                                                   ===================
</TABLE>

9. OTHER CURRENT LIABILITIES

   Other current liabilities consisted of the following at September 30:

<TABLE>
<CAPTION>

                                                    1997         1996

      <S>                                        <C>          <C>
      Salaries, commissions and benefits......   $  399,000   $  365,000
      Sales allowances and incentives.........      163,000           --
      Professional fees.......................       78,000       79,000
      Warranty costs..........................       37,000       40,000
      Advertising costs.......................       82,000      145,000
      Interest, due to related parties........      917,000      439,000
      Other...................................      149,000      236,000
                                                 -----------------------
                                                 $1,825,000   $1,304,000
                                                 =======================
</TABLE>

10. DEBT

   Long-term debt

   The Company has a $7,000,000 line of credit with a realty trust operated for
   the benefit of the Company's principal shareholders. This line of credit,
   with interest at 10%, requires monthly payments of interest only, and is
   collateralized by all assets of the Company. In August 1997, the Company
   renewed this line of credit with the realty trust under the same terms and
   conditions and extended the maturity date to October 1, 1998 therefore this
   line of credit has been classified as long-term on the accompanying balance
   sheet. The Company had $4,715,000 outstanding under this line of credit at
   September 30, 1997 and 1996. Repayment of this line of credit is subordinate
   to the repayment of any and all balances outstanding on the revolving line
   of credit from a commercial finance company which is further described
   below. Related interest expense incurred in the years ended September 30,
   1997, 1996 and 1995 was $478,000, $480,000 and $488,000. At September 30,
   1997, interest payments of $917,000 associated with this line were in
   arrears for the period November 1, 1995 to September 30, 1997. On November
   26, 1997 the Company received a waiver for the covenant violation related to
   the interest payments. The period of this waiver extends through October 1,
   1998. 

   Note Payable

   The Company has a revolving line of credit agreement with a commercial 
   finance company which permits combined borrowings up to $3,500,000 in cash
   and letters of credit. This credit agreement is collateralized by all assets
   of the Company and expires in December 1999. The terms of this agreement 
   include a borrowing limit which fluctuates depending on the levels of 
   accounts receivable and inventory which collateralize the borrowings. The 
   agreement contains various covenants pertaining to maintenance of working
   capital, net worth and other conditions. Interest on amounts outstanding is
   payable on a monthly basis at an annual rate of 1 3/4% over the commercial 
   base rate. The commercial base rate was 8.5% at September 30, 1997. At 
   September 30, 1997, the Company had outstanding letters of credit amounting
   to $175,000 and approximately $2,359,000 was available, pursuant to the 
   borrowing formula, under this credit agreement.

   A summary of borrowings on commercial finance company and bank revolving 
   credit agreements and unused lines of credit for the years ended September
   30, 1997, 1996, and 1995 were as follows:

<TABLE>
<CAPTION>

                                                1997          1996          1995

   <S>                                       <C>           <C>           <C>
   Average borrowings during the year        $   96,000    $  313,638    $  394,129
   Average interest rate during the year          10.25%        10.67%        11.25%
   Maximum borrowings during the year        $  912,000    $1,365,000    $1,330,000
   Unused line of credit at September 30     $3,283,000    $3,169,000    $3,354,000

</TABLE>

11. STOCK OPTIONS

   The Company's incentive stock option plan terminated December 1, 1990.
   Options were granted to officers and key employees to purchase common shares
   at prices not less than the fair market value on the date of grant. Options
   are exercisable in varying installments and expire in varying periods which
   may not exceed ten years from the date of the grant.

   Information concerning stock options for the years ended September 30, 1997,
   1996 and 1995 is summarized below:

<TABLE>
<CAPTION>

                                                 Options Outstanding
                                               Shares      Price Range

      <S>                                      <C>         <C>
      September 30, 1994................       20,000      $1.75--$2.50
        Granted.........................         --             --
        Exercised.......................         --             --
        Canceled........................         --             --
                                               ------------------------
      September 30, 1995................       20,000      $1.75--$2.50
        Granted.........................         --             --
        Exercised.......................         --             --
        Canceled........................         --             --
                                               ------------------------
      September 30, 1996................       20,000      $1.75--$2.50
        Granted.........................         --             --
        Exercised.......................         --             --
        Canceled........................         --             --
                                               ------------------------
      September 30, 1997 ...............       20,000      $1.75--$2.50
                                               ========================
</TABLE>

   At September 30, 1997 and 1996, options for 20,000 shares were exercisable.
   The expiration dates of the options range from 1998 to 1999. The average
   exercise price of outstanding options is $2.27.

12. INCOME TAXES

   The provision for income taxes consists of the following:

<TABLE>
<CAPTION>

                                                        (000's)
                                                Year Ended September 30,
                                                 1997    996       1995
							 
      <S>                                       <C>      <C>       <C>
      CURRENT TAX PROVISION
        Federal.............................    $  --    $  --     $  --
        State...............................       --       --        --
                                                ------------------------
      TOTAL CURRENT PROVISION...............       --       --        --
                                                ------------------------

      DEFERRED TAX (BENEFIT)/EXPENSE				
        Federal.............................      201     (160)     (545)
        State...............................      137      (39)     (297)
                                                ------------------------
      TOTAL DEFERRED (BENEFIT)/EXPENSE......      338     (199)     (842)
      CHANGE IN VALUATION ALLOWANCE.........     (321)     234       842
                                                ------------------------
      INCOME TAXES (BENEFIT)/EXPENSE........    $  17    $  35     $  --
                                                ========================
</TABLE>

   The significant items comprising the deferred tax assets and liabilities
   are as follows at September 30:

<TABLE>
<CAPTION>

                                                         1997              1996

      <S>                                             <C>            <C> 
      Deferred Tax Assets:
        Doubtful receivables.......................   $   51,000     $   78,000
        Inventory obsolescence and shrinkage.......      235,000        225,000
        Sales allowances...........................       46,000         32,000
        Warranties.................................       17,000         18,000
        Non-qualified executive retirement plan....      147,000        147,000
        Tax loss carryforwards.....................    6,620,000      6,595,000
        Tax credit carryforwards...................      268,000        439,000
        Other......................................            0        215,000
                                                      -------------------------
          Subtotal.................................    7,384,000      7,749,000
      Deferred Tax Liabilities:
        Excess of tax over book depreciation.......      (87,000)      (114,000)
                                                      -------------------------
      Net Deferred Tax Assets......................    7,297,000      7,635,000
      Less Valuation Allowance.....................   (7,184,000)    (7,505,000)
                                                      -------------------------
      NET DEFERRED TAX ASSETS......................   $  113,000     $  130,000
                                                      =========================
</TABLE>

   A reconciliation of the federal tax rate to the Company's effective tax rate
   for fiscal 1997, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>

                                                                         % of Pretax Income
                                                                       1997     1996     1995

      <S>                                                              <C>      <C>      <C>
      Federal income tax at statutory rate on loss before taxes....    35.0%    35.0%    35.0%
      Reductions and adjustments of the valuation allowance........   (28.6)   (27.4)   (35.0)
                                                                      -----------------------
      Effective income tax rate...................................      6.4%     7.6%     0%
                                                                      =======================
</TABLE>

   Changes in the valuation allowance are due to expiration of net operating
   loss carryforward, tax credit carryovers and the estimated future
   realization of their tax benefits. The reduction of these tax benefits are
   reflected in these financial statements as an income tax expense.

   For income tax purposes the Company has unused Federal operating loss 
   carryforwards of $16,581,000 expiring through 2012 and State operating loss 
   carryforwards of $12,221,000 expiring through 2002.

   In addition to the loss carryforwards the Company has research and
   development and investment tax credit carryovers of $54,000 and $214,000,
   respectively, through 2001 which are available to reduce future tax
   liabilities.

   The realization of the net deferred tax asset of $113,000 is dependent on 
   the Company's ability to generate sufficient taxable income in the future.
   The Company's expectation about realization of deferred assets could change
   if near-term estimates of future taxable income during the carryforward
   period are reduced.

13. BENEFIT PLANS

   The Company has a 401(k) Savings Plan whereby employees may voluntarily
   defer a portion of their compensation and the Company matches a portion of
   the employee deferral. All employees with at least one year of continuous
   service are eligible for the savings plan. Company contributions vest 100%
   after five years. The Company has made no contributions to this savings plan
   in each of the three years ended September 30, 1997.

   The Company also has a retirement plan for certain senior executives. The 
   benefits payable under this retirement plan are based upon a formula which
   allows for the offset of benefits under other offered retirement plans and
   Social Security benefits. At September 30, 1997, the unfunded benefit
   obligation of this retirement plan was approximately $331,000. The Company
   has made no contributions to this retirement plan in each of the three years
   ended September 30, 1997.

14. COMMITMENTS AND CONTINGENCIES

   The Company was obligated at September 30, 1997 under certain operating
   leases for various types of equipment and the Company's operating facility.
   The lease for the operating facility expires in September 2000. Rental
   expense for fiscal 1997, 1996 and 1995 was $366,000, $420,000 and $450,000,
   respectively. The future minimum lease commitments total $972,000 as
   follows: $333,000 in fiscal 1998, $323,000 in 1999, and $316,000 in 2000.

   Commitments for the purchase of capital expenditures at September 30, 1997
   totaled $20,000.

   In January 1991, the California Department of Health Services (DHS) issued a
   Corrective Action Order (CAO) against the Company and a former subsidiary
   The CAO requires the Company and a former subsidiary to comply with a
   Cleanup and Abatement Order which had been issued in 1990 against the
   Company for soil contamination at the site of the former subsidiary. To
   date, no determination has been made with regard to the extent of any
   environmental damage and who may be liable. The Company does not believe,
   based on the information available at this time, that the outcome of this
   matter will have a material adverse effect on its financial position or
   results of operations.

15. CAPITAL LEASE

   In February 1997, the Company financed approximately $57,000 of leasehold
   improvements under a 3 year lease financing agreement with a finance
   company. This lease arrangement has been accounted for as a financing
   transaction. The subject leasehold improvements are recorded as an asset for
   financial statement purposes and are being depreciated accordingly. The
   future minimum lease payments under this capital lease are as follows:

<TABLE>

               <S>                                <C>
               1998............................   $ 24,000
               1999............................     24,000
               2000............................     10,000
                                                  --------
                                                    58,000
               Imputed interest...............     (10,000)
                                                  --------
               Capital lease obligation .......   $ 48,000
                                                  ========
</TABLE>

16. RELATED PARTY TRANSACTIONS

   The Company paid $60,000 for legal services in each of the years ended
   September 30, 1997, 1996 and 1995 to a law firm to which a Director of the
   Company is a member.

   As further described in footnote 10 the Company has a $7,000,000 line of
   credit arrangement from a realty trust operated for the benefit of the
   Company's principal shareholders.

17. UNUSUAL ITEM

   In fiscal 1989 the Company sold one of its wholly owned subsidiaries and
   pursuant to the sales agreement, the Company would receive an additional
   payment of $450,000 if this subsidiary was subsequently resold. In the
   fourth quarter of fiscal 1997 the former subsidiary was resold and the
   Company received $450,000 in cash and has recognized this gain as an unusual
   item in the accompanying Statement of Operations.

18. BUSINESS SEGMENT INFORMATION

   The Company operates principally in two segments, the Consumer Products
   segment and the Industrial Products segment. Operations in the Consumer
   Products segment involve the manufacture and distribution of Flowtron
   leaf-eaters, bugkillers, yard carts, storage sheds and dog houses which
   comprised 97% and 94% of the Company's sales for the years ended September
   30, 1997 and 1996, respectively. The Company distributes its consumer
   products primarily to major retailers throughout the United States, with
   some products distributed under customer labels. Substantially all of this
   segment's sales and accounts receivable related to business activities with
   such retailers.

   The Industrial Products segment markets electronic obstacle avoidance 
   systems for transportation and automotive applications. Production of 
   these systems began in fiscal 1996.

   There are no intercompany sales between segments.

   Operating profit is total revenue less operating expenses excluding interest
   expense, general corporate expenses and income taxes. Identifiable assets
   by industry segment are those assets that are identified in the operation of
   each of the Company's segments. Corporate assets are principally cash and
   other assets.

<TABLE>
<CAPTION>

                                               For the Years Ended September 30,
                                              1997           1996          1995

   <S>                                     <C>            <C>           <C>
   Net sales to unaffiliated customers:
     Consumer Products..................   $12,898,000    $12,910,000   $11,920,000
     Industrial Productys...............       416,000        840,000        97,000
                                           ----------------------------------------
       Total net sales..................   $13,314,000    $13,750,000   $12,017,000
                                           ========================================

   Operating profit (loss)
     Consumer Products..................   $   631,000    $   750,000   $   (25,000)
     Industrial Products................      (244,000)        29,000      (410,000)
                                           ----------------------------------------
                                               387,000        779,000      (435,000)

   General corporate expenses...........   $  (631,000)   $  (770,000)  $  (724,000)
                                           ----------------------------------------
   Consolidated operating loss..........   $  (244,000)   $     9,000   $(1,159,000)
									
   Interest expense.....................      (535,000)      (529,000)     (529,000)
   Interest income......................        62,000         57,000        72,000
   Unusual item.........................       450,000             --            --
   Other income (expense)...............        (2,000)         3,000        59,000
                                           ----------------------------------------
   Loss before income taxes.............   $  (269,000)   $  (460,000)  $(1,557,000)
                                           ========================================

   Identifiable assets:
     Consumer Products..................   $ 5,637,000    $ 5,244,000   $ 5,766,000
     Industrial Products................       330,000        282,000        61,000
     Corporate..........................     1,297,000      1,949,000     1,429,000
                                           ----------------------------------------
       Total assets.....................   $ 7,264,000    $ 7,475,000   $ 7,256,000
                                           ========================================

   Depreciation:
     Consumer Products..................   $   301,000    $   359,000   $   422,000
     Industrial Products................         5,000          4,000         4,000
     Corporate..........................            --             --            --
                                           ----------------------------------------
       Total depreciation...............   $   306,000    $   363,000   $   426,000
                                           ========================================

   Capital expenditures:
     Consumer Products..................   $   277,000    $    40,000   $   780,000
     Industrial Products................         2,000         10,000            --
                                           ----------------------------------------
       Total capital expenditures.......   $   279,000    $    50,000   $   780,000
                                           ========================================
</TABLE>



REPORT OF INDEPENDENT ACCOUNTANTS


Stockholders and Directors of Armatron International, Inc. and Subsidiary:

We have audited the accompanying consolidated balance sheets of Armatron
International, Inc. and Subsidiary as of September 30, 1997 and 1996, and the
related consolidated statements of operations, cash flows and stockholders'
equity (deficiency), for the years ended September 30, 1997, 1996 and 1995.
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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. 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 consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of Armatron
International, Inc. and Subsidiary as of September 30, 1997 and 1996 and the
results of its operations and its cash flows for the years ended September 30,
1997, 1996 and 1995, in conformity with generally accepted accounting
principles.




                                       /s/ R.J. GOLD & COMPANY, P.C.
                                           R.J. Gold & Company, P.C

Needham, Massachusetts
November 26, 1997


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
 CONDITION AND RESULTS OF OPERATIONS


OVERVIEW

The Company operates principally in two segments, the Consumer Products segment
and the Industrial Products segment. Operations in the Consumer Products
segment involve the manufacture and distribution of Flowtron leaf-eaters,
bugkillers, yard carts, storage sheds and dog houses which comprised 97% and
94% of the Company's sales during the years ended September 30, 1997 and 1996,
respectively. The Company distributes its consumer products primarily to major
retailers throughout the United States, with some products distributed under
customer labels. Substantially all of this segment's sales and accounts
receivable related to business activities with such retailers. The Industrial
Products segment markets electronic obstacle avoidance systems for
transportation and automotive applications. Production of these systems began
in fiscal 1996. There are no intercompany sales between segments. For the year
ended September 30, 1997, two customers accounted for 42% of the Company's net
sales. At September 30, 1997, these customers accounted for 57% of the
Company's trade accounts receivable balance. If any of the Company's major
customers fail to pay the Company on a timely basis, it could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company currently purchases its plastic storage sheds, yard
carts and dog houses from one supplier. This supplier manufactures these
products in accordance with the Company's designs and specifications. The
Company believes that other suppliers could provide the required products
although comparable terms may not be realized. A change in suppliers could
cause a delay in scheduled deliveries of the products to the Company's
customers and a possible loss of revenue, which would adversely affect the
Company's results of operations.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary cash requirements are for operating expenses, including
labor costs, raw material purchase and funding of accounts receivable.
Historically, the Company's sources of cash have been borrowings from banks and
finance companies and notes from related parties.

During the year ended September 30, 1997, operating activities used $944,000 in
cash primarily due to an increase in trade accounts receivable of $208,000, an
increase in inventories of $362,000 and a decrease in accounts payable of
$476,000.

The Company has a $3,500,000 revolving line of credit agreement with commercial
finance company. This credit agreement is collateralized by all assets of the
Company and expires in December 1999. The terms of this agreement include a
borrowing limit which fluctuates depending on the levels of accounts receivable
and inventory which collateralize the borrowings. The agreement contains
various covenants pertaining to maintenance of working capital, net worth and
other conditions. Interest on amounts outstanding is payable at 1 3/4% over the
commercial base rate. The commercial base rate was 8.5% at September 30, 1997.
At September 30, 1997, the Company had outstanding letters of credit amounting
to $175,000 and approximately $2,359,000 was available, pursuant to the
borrowing formula, under this credit agreement.

The Company has a $7,000,00 line of credit with a realty trust operated for the
benefit of the Company's principal shareholders. This line of credit, with
interest at 10%, requires monthly payments of interest only, and is
collateralized by all assets of the Company. In August 1997, the Company
renewed this line of credit with the realty trust under the same terms and
conditions and extended the maturity date to October 1, 1998. The Company had
$4,715,000 outstanding under this line of credit at September 30, 1997 and
1996. Repayment of this line of credit is subordinate to the repayment of any
and all balances outstanding on the revolving line of credit from a commercial
finance company. At September 30, 1997, interest payments of $917,000
associated with this line were in arrears for the period November 1, 1995 to
September 30, 1997. On November 26, 1997, the Company received a waiver for the
covenant violation related to the interest payments. The period of this waiver
extends through October 1, 1998.

Sales terms for the Industrial Products segment are 30 days net. Following
industry trade practice, the Consumer Products segment offers extended payment
terms for delivery of seasonal product items such as bugkillers, electric
leaf-eaters, biomisters, compost bins, yard carts and storage sheds, resulting
in fluctuating requirements for working capital.

During the year ended September 30, 1997, the Company made cash investments of
$222,000 in capital expenditures primarily for tooling and dies used in
production and financed approximately $57,000 of leasehold improvements. As of
September 30, 1997, the Company had commitments of approximately $20,000 for
future capital expenditures.

In January 1991, the California Department of Health Services (DHS) issued a
Corrective Action Order (CAO) against the Company and a former subsidiary. The
CAO requires the Company and a former subsidiary to comply with a Cleanup and
Abatement Order which had been issued in 1990 against the Company for soil
contamination at the site of the former subsidiary. To date, no determination
has been made with regard to the extent of any environmental damage and who may
be liable. The Company does not believe, based on the information available at
this time, that the outcome of this matter will have a material adverse effect
on its financial position or results of operation.

Management is of the opinion that, unless there is a significant rise in
interest rates, inflation will not be an important factor in fiscal 1998.

The Company believes that its present working capital, credit arrangements with
a commercial finance company and related party, and other sources of financing
will be sufficient to finance its seasonal borrowing needs, operations and
investment in capital expenditures in fiscal 1998. Other sources of financing,
provided by the Company's principal stockholder, are available to finance any
working capital deficiencies.

RESULTS OF OPERATIONS

Year ended September 30, 1997

The results of consolidated operations for the year ended September 30, 1997
resulted in a net loss of $286,000, or $.12 per share, as compared with a net
loss of $495,000, or $.20 per share for fiscal 1996. Sales decreased $436,000,
or 3.2%, to $13,314,000 for the year ended September 30, 1997, as compared to
sales of $13,750,000 for the year ended September 30, 1996. The decrease in
sales was primarily due to a decrease in sales volume of the Industrial
Products segment.

Sales and operating profit for the Consumer Products segment for the year ended
September 30, 1997 were approximately $12,898,000 and $631,000, respectively,
as compared to sales of $12,910,000 and an operating profit of $750,000 for the
year ended September 30, 1996. The decrease in operating profit was primarily
due to underutilization of this segment's facilities.

Sales for the Industrial Products segment for the year ended September 30, 1997
were approximately $416,000 and its operating loss was $244,000 for the year
ended September 30, 1997, as compared to sales of $840,000 and an operating
profit of $29,000 for the year ended September 30, 1996. The decrease in sales
was primarily due to a customer delaying shipments of the Company's obstacle
avoidance systems while it tested and evaluated the Company's systems for a
period of six months. This customer, a major express mail and delivery service
company, completed its testing in July 1997 and has determined that the
Company's obstacle avoidance systems will be placed on each of its newly
acquired delivery vehicles as they are placed in service. The decrease in
operating profit was primarily due to the decreased sales and the
underutilization of this segment's facilities.

Selling, general and administrative expenses decreased $133,000, or 5.1%, to
$2,492,000 for the year ended September 30, 1997, as compared to $2,625,000 for
the year ended September 30, 1996. As a percentage of sales, selling, general
and administrative expenses were 18.7% in fiscal 1997 as compared to 19.1% in
fiscal 1996. The decrease was due to the Company's continuing efforts to
contain costs.

In fiscal 1989 the Company sold one of its wholly owned subsidiaries and
pursuant to the sales agreement, the Company would receive an additional
payment of $450,000 if this subsidiary was subsequently resold. In the fourth
quarter of fiscal 1997 the former subsidiary was resold and the Company
received $450,000 in cash and has recognized this gain as an unusual item.

Additional tax benefits from losses on operations for the year ended September
30, 1997 were offset by changes to the related valuation allowance.

Year ended September 30, 1996

The results of consolidated operations for the year ended September 30, 1996
resulted in a net loss of $495,000, or $.20 per share, as compared with a net
loss of $1,557,000, or $.63 per share for fiscal 1995. Sales increased
$1,733,000, or 14.4%, to $13,750,000 for the year ended September 30, 1996, as
compared to sales of $12,017,000 for the year ended September 30, 1995. The
increase in sales was primarily attributable to a 10% increase in sales volume
and a 4% increase in the average selling price of the Company's products.

Sales and operating profit for the Consumer Products segment for the year ended
September 30, 1996 were approximately $12,910,000 and $750,000, respectively,
as compared to sales of $11,920,000 and an operating loss of $25,000 for the
year ended September 30, 1995. The increase in operating profit was
attributable to lower operating expenses due to the Company's cost containment
efforts.

Sales for the Industrial Products segment for the year ended September 30, 1996
were approximately $840,000 and had an operating profit of $29,000 for the year
ended September 30, 1996, as compared to sales of $97,000 and an operating loss
of $410,000 for the year ended September 30, 1995. The increase in sales was
due to a customer rescheduling and delaying of shipments of the Company's
systems. The operating profit was primarily due to increased sales volume of
the Company's systems.

Selling, general and administrative expenses decreased $84,000, or 3.3%, to
$2,625,000 for the year ended September 30, 1996, as compared to $2,541,000 for
the year ended September 30, 1995. As a percentage of sales, selling, general
and administrative expenses were 19.1% in fiscal 1996 as compared to 21.1% in
fiscal 1995. The decrease was due to the Company's continuing efforts to
contain costs.

Additional tax benefits from losses on operations for the year ended September
30, 1996 were offset by changes to the related valuation allowance.

The Company believes inflation did not have a material effect on its results of
operations for fiscal 1997, 1996 or 1995.


FIVE-YEAR FINANCIAL SUMMARY

SELECTED FINANCIAL DATA:


<TABLE>
<CAPTION>

                                                               Years Ended September 30,
                                                 1997        1996        1995        1994        1993
                                                         (in thousands, except per share data)

<S>                                            <C>         <C>         <C>         <C>         <C>
Net Sales....................................  $ 13,314    $ 13,750    $ 12,017    $ 13,286    $ 16,174
Operating Income (Loss)......................  $   (244)   $      9    $ (1,159)   $   (934)   $ (1,106)
Net Loss.....................................  $   (286)   $   (495)   $ (1,557)   $ (1,212)   $ (1,548)

Earnings (Loss) Per Share of Common Stock:
  Net Loss...................................  $   (.12)   $   (.20)   $   (.63)   $   (.49)   $   (.63)
                                               ========================================================

Total Assets.................................  $  7,264    $  7,475    $   7,256   $  9,599    $ 10,398

Long-Term Obligations........................  $  4,745    $  4,715    $   4,715   $  5,140    $  5,251
</TABLE>


There were no dividends paid on common shares during any of the above years.
Under the financing agreement, as set forth in footnote 10 to the company's
financial statements the Company is restricted from paying dividends for the
term of that agreement.

-------------------------------------------------------------------------------

Common Stock Information:

The approximate number of shareholders of record at December 1, 1997 was 1,093.

The following table indicates the fiscal quarterly high and low prices for the
Company's common stock and the high and low bid prices as reported in Over the
Counter Bulletin Board for 1997 and 1996:

<TABLE>
<CAPTION>

                                        1997            1996
       Fiscal Quarter               High    Low     High     Low

       <S>                         <C>      <C>    <C>       <C>
       First...................      3/4    3/8      11/16   7/16
       Second..................    2 7/8    1/4      11/16   1/4
       Third...................    2 1/4    1/4    2 7/8     1/4
       Fourth..................     15/16   5/16   1 1/8     5/8
</TABLE>


BOARD OF DIRECTORS

Charles J. Housman
President, Treasurer & Chairman of the Board

Edward L. Housman
President, Automatic Radio International

Elliot J. Englander
Member, Englander, Finks, Ross, Cohen & Brander, P.C.
Attorneys at Law


OFFICERS

Charles J. Housman, President, Treasurer

Sal DeYoreo, Vice President

Elliot J. Englander, Clerk


AUDITORS
R. J. Gold & Company, P.C.

GENERAL COUNSEL
Englander, Finks, Ross, Cohen & Brander, P.C.

TRANSFER AGENT
American Stock Transfer & Trust Co.

STOCK TRADING
Over the Counter Bulletin Board

FORM 10-K

A copy of the Company's Fiscal 1997 Annual Report on Form 10-K to the
Securities and Exchange Commission is available to Stockholders, without
charge, upon written request to the Company: 

Armatron International, Inc.
Two Main Street
Melrose, MA 02176


                            /
                           / ARMATRON
                           -------------------
                             INTERNATIONAL INC.