1996

                                   Annual Report




ARMATRON INTERNATIONAL INC.



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


FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
                                                                      Years Ended September 30,
                                                                1996            1995             1994
---------------------------------------------------------------------------------------------------------

<S>                                                         <C>             <C>              <C>
Net Sales                                                   $ 13,750,000    $ 12,017,000     $ 13,286,000
---------------------------------------------------------------------------------------------------------

Operating Profit (Loss)                                     $     13,000    $ (1,159,000)    $   (934,000)
---------------------------------------------------------------------------------------------------------

Net Loss                                                    $   (495,000)   $ (1,557,000)    $ (1,212,000)
---------------------------------------------------------------------------------------------------------

Stockholders' Equity                                        $    229,000    $    724,000     $  2,281,000
---------------------------------------------------------------------------------------------------------

Stockholders' Equity Per Common Share                       $        .09    $        .29     $        .93
---------------------------------------------------------------------------------------------------------

Weighted Average Number of Common Shares Outstanding           2,459,749       2,459,749        2,459,754
---------------------------------------------------------------------------------------------------------


Loss Per Share of Common Stock:

   Net Loss                                                 $       (.20)    $      (.63)    $       (.49)
=========================================================================================================
</TABLE>


TO OUR STOCKHOLDERS


      New product introduction and increased sales of ECHOVISION grew the fiscal
year's  sales by  14.3%  from  $12,017,000  to  $13,750,000  and  decreased  the
comparative loss from $1,557,000 to $495,000.

      We're disappointed despite the improved  performance.  Production problems
experienced  in the  introduction  of the garden shed  negatively  affected  the
opportunity for additional  market  penetration and the recent relocation of our
molding facility has caused further production delays.  Additional equipment and
a larger  storage area has resolved  this  problem and we  anticipate  continued
growth with this new product.

      ECHOVISION,  like many new technology/new  market products,  has undergone
changes in response to user feedback.  The original ECHOVISION products required
the  driver,  in  a  tractor/trailer  application,  to  separately  connect  and
disconnect   the  system.   These   products   also  required  too  much  driver
interpretation  of the warning signals.  Second generation  ECHOVISION  products
have incorporated driver friendly information algorithms and have eliminated the
necessity  for the driver to make  extra  connections  significantly  increasing
driver acceptance.

      FEDERAL EXPRESS ordered  ECHOVISION  systems  installed on all new pick-up
and delivery vans manufactured from January 1, 1996 through the end of November.
Driver  feedback  has been  overwhelmingly  positive  and  early  accident  data
indicates safety  effectiveness  exceeding  program  objectives.  The program is
currently undergoing a comprehensive evaluation at FEDERAL EXPRESS.

      Mr.  William  Welsh,  a member of the Board of Directors  since 1982,  has
decided to retire.  We thank Bill for his dedicated service to Armatron and wish
him well.

      With  the  support  of our  Board  and  management  team,  we  have  every
confidence in Armatron and the challenges  ahead. We are buoyed by the continued
and loyal  efforts  of our  associates  and the  support  of our  customers  and
stockholders. We will continue to work hard to justify your trust.



                                         /s/ CHARLES J. HOUSMAN

                                         Charles J. Housman
                                         President & Chairman of the Board



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



ASSETS (Note 6)



<TABLE>
<CAPTION>
                                                                                           September 30,
                                                                                        1996           1995

<S>                                                                                 <C>            <C>
CURRENT ASSETS:
  Cash and cash equivalents (Note 1)..............................................  $ 1,849,000    $ 1,322,000
  Trade accounts receivable (less allowance for doubtful accounts of $176,000 in
   1996 and $179,000 in 1995).....................................................    2,121,000      2,189,000
  Current portion of other receivable.............................................       39,000         32,000
  Inventories (Note 2)............................................................    2,349,000      2,225,000
  Deferred tax asset (Note 8).....................................................      130,000        165,000
  Prepaid and other current assets................................................      148,000        122,000
                                                                                    --------------------------
         Total Current Assets ....................................................    6,636,000      6,055,000



PROPERTY AND EQUIPMENT, net (Note 3)..............................................      637,000        952,000



OTHER ASSETS (Note 4).............................................................      202,000        249,000
                                                                                    $ 7,475,000    $ 7,256,000
                                                                                    ==========================
</TABLE>


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



                                                     CONSOLIDATED BALANCE SHEETS


LIABILITIES AND STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                      September 30,
                                                                                   1996           1995

<S>                                                                             <C>            <C>
CURRENT LIABILITIES:
  Accounts payable...........................................................   $ 1,171,000    $ 1,112,000
  Accrued liabilities (Note 5)...............................................     1,285,000        705,000
                                                                                --------------------------
      Total Current Liabilities .............................................     2,456,000      1,817,000
                                                                                --------------------------

LONG-TERM DEBT related parties (Note 6)......................................     4,715,000      4,715,000
                                                                                --------------------------

DEFERRED RENT (Note 1) ......................................................        75,000             --
                                                                                --------------------------

COMMITMENTS AND CONTINGENCIES (Note 10)

STOCKHOLDERS' EQUITY (Note 7):
  Common stock, par value $1 per share; authorized 6,000,000 shares; issued 
   2,606,481 shares in 1996 and 1995.........................................     2,606,000      2,606,000
  Additional paid-in capital.................................................     6,770,000      6,770,000
  Accumulated deficit........................................................    (8,761,000)    (8,266,000)
                                                                                --------------------------
                                                                                    615,000      1,110,000
Less:
  Treasury stock at cost--146,732 shares in 1996 and 1995....................       386,000        386,000
                                                                                --------------------------
      Total Stockholders' Equity ............................................       229,000        724,000
                                                                                --------------------------
                                                                                $ 7,475,000    $ 7,256,000
                                                                                ==========================
</TABLE>


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



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


STATEMENTS OF CONSOLIDATED OPERATIONS
For the Years Ended September 30, 1996, 1995 and 1994



<TABLE>
<CAPTION>
                                                                1996            1995            1994

<S>                                                         <C>             <C>             <C>
Net Sales ...............................................   $ 13,750,000    $ 12,017,000    $ 13,286,000
Cost of products sold....................................     11,054,000      10,570,000      11,253,000
                                                            --------------------------------------------
Gross margin.............................................      2,696,000       1,447,000       2,033,000
Selling, general and administrative expenses.............      2,625,000       2,541,000       3,113,000
Provision for (recovery of) bad debts....................         62,000          65,000        (146,000)
                                                            --------------------------------------------

Operating Profit (Loss) .................................          9,000      (1,159,000)       (934,000)
                                                            --------------------------------------------

Other Income (Expense):
Interest expense--third parties..........................        (49,000)        (41,000)         (6,000)
Interest expense--related party..........................       (480,000)       (488,000)       (494,000)
Other income--net........................................         60,000         131,000          57,000
                                                            --------------------------------------------
Other income (expense)--net..............................       (469,000)       (398,000)       (443,000)
                                                            --------------------------------------------

Loss before income taxes ................................       (460,000)     (1,557,000)     (1,377,000)

Income tax (benefit) expense (Note 8)....................         35,000              --        (165,000)
                                                            --------------------------------------------

Net Loss ................................................   $   (495,000)   $ (1,557,000)   $ (1,212,000)
                                                            ============================================

Net Loss per Share of Common Stock ......................   $       (.20)   $       (.63)   $       (.49)
                                                            ============================================

Weighted Average Number of Common Shares Outstanding.....      2,459,749       2,459,749       2,459,754
                                                            ============================================
</TABLE>


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




                                           STATEMENTS OF CONSOLIDATED CASH FLOWS
                           For the Years Ended September 30, 1996, 1995 and 1994


<TABLE>
<CAPTION>
                                                                     1996           1995            1994

<S>                                                              <C>            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .....................................................   $  (495,000)   $ (1,557,000)   $ (1,212,000)
  Adjustments to reconcile net loss to net cash flows from 
   operating activities:
    Depreciation and amortization.............................       395,000         453,000         616,000
    Deferred tax (benefit) expense............................        35,000              --        (165,000)
    Provision (recovery) for bad debts........................        62,000          65,000        (146,000)
    Loss on disposal of equipment.............................         1,000              --          35,000
    (Increase) decrease in:
      Accounts receivable.....................................         6,000         160,000         (42,000)
      Inventories.............................................      (124,000)        712,000         315,000
      Prepaid and other current assets........................       (26,000)        144,000        (124,000)
      Other assets............................................         9,000         (32,000)       (105,000)
    Increase (decrease) in:
      Accounts payable........................................        59,000        (275,000)        576,000
      Other current liabilities...............................       580,000         (85,000)        (37,000)
      Deferred rent...........................................        75,000              --              --
                                                                 -------------------------------------------
        Net Cash Flow from (used for) Operating Activities....       577,000        (415,000)       (289,000)
                                                                 -------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Payment for purchases of equipment and patents..............       (50,000)       (780,000)       (146,000)
                                                                 -------------------------------------------
        Net Cash Flow used for Investing Activities...........       (50,000)       (780,000)       (146,000)
                                                                 -------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on long-term debt--third parties...................            --          (1,000)        (16,000)
  Payments on long-term debt--related party...................            --        (425,000)       (110,000)
  Loan origination costs......................................            --         (63,000)             --
                                                                 -------------------------------------------
        Net Cash Flow used for Financing Activities...........            --        (489,000)       (126,000)
                                                                 -------------------------------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .........       527,000      (1,684,000)       (561,000)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ...............     1,322,000       3,006,000       3,567,000
                                                                 -------------------------------------------

CASH AND CASH EQUIVALENTS AT END OF YEAR .....................   $ 1,849,000    $  1,322,000    $  3,006,000
                                                                 ===========================================

SUPPLEMENTAL INFORMATION:
  Interest paid--third parties................................   $    49,000    $     41,000    $      6,000
  Interest paid--related party................................   $    41,000    $    528,000    $    454,000
  Income taxes paid...........................................   $        --    $         --    $         --
</TABLE>


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



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



CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended September 30, 1996, 1995 and 1994


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

<S>                           <C>         <C>          <C>          <C>            <C>        <C>          <C>
Balance,
  September 30, 1993........  2,606,481   $2,606,000   $6,770,000   $(5,497,000)   (146,727)  $(386,000)   $ 3,493,000
Net loss....................         --           --           --    (1,212,000)         --          --     (1,212,000)
----------------------------------------------------------------------------------------------------------------------


Balance,
  September 30, 1994........  2,606,481    2,606,000    6,770,000    (6,079,000)   (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
======================================================================================================================
</TABLE>


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



1.    SUMMARY OF 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.

      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.  Depreciation
      expense was  $363,000,  $426,000 and  $616,000  for fiscal 1996,  1995 and
      1994,  respectively.  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.

      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 for its operating facility
      over  the term of the  lease on a  straight-line  basis.

      Advertising

      The Company  expenses  advertising  as incurred.  Advertising  expense was
      $322,000,   $295,000  and  $248,000  for  fiscal  1996,   1995  and  1994,
      respectively. 

      Income Taxes

      Effective  October  1,  1993  the  Company  adopted  Financial  Accounting
      Standard No. 109 (SFAS No. 109)  "Accounting for Income Tax". SFAS No. 109
      changes  the  Company's  method of  accounting  for income  taxes from the
      income statement approach,  recognized by Accounting  Principles Board No.
      11 to an asset and  liability  approach.  As permitted by SFAS No. 109 the
      Company opted not to restate the financial  statements  for prior periods.

      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.

2.    INVENTORIES

      Inventories consist of the following at September 30:

<TABLE>
<CAPTION>
                                                       1996           1995

            <S>                                    <C>            <C>
            Raw Materials.......................   $ 1,632,000    $ 1,606,000
            Work in Process.....................        65,000         84,000
            Finished Goods......................       652,000        535,000
                                                   --------------------------
                                                   $ 2,349,000    $ 2,225,000
                                                   ==========================
</TABLE>

3.    PROPERTY AND EQUIPMENT

      Property and equipment consist of the following at September 30:

<TABLE>
<CAPTION>
                                                                          1996          1995

             <S>                                                      <C>           <C>
             Land and buildings....................................   $    80,000   $    80,000
             Furniture and fixtures................................       396,000       391,000
             Machinery and equipment...............................     1,830,000     1,902,000
             Capitalized tooling costs.............................     3,808,000     3,773,000
                                                                      -------------------------
                                                                        6,114,000     6,146,000
             Less accumulated depreciation and amortization........     5,477,000     5,194,000
                                                                      -------------------------
                                                                      $   637,000   $   952,000
                                                                      =========================
</TABLE>

4.    OTHER ASSETS

      Other assets consists of the following at September 30:

<TABLE>
<CAPTION>
                                                                          1996        1995

            <S>                                                        <C>         <C>
            Other receivable, net of current portion.................  $  89,000   $ 104,000
            Note receivable--employee, due under terms of an annual
             renewable note, interest payable monthly at an annual
             rate of 6%, secured by a second mortgage................    100,000     100,000
            Other....................................................     13,000      45,000
                                                                       ---------------------
                                                                       $ 202,000   $ 249,000
                                                                       =====================
</TABLE>

5.    ACCRUED LIABILITIES

      Accrued liabilities consist of the following as of September 30:

<TABLE>
<CAPTION>
                                                                    1996           1995

            <S>                                                 <C>            <C>
            Salaries, commissions and benefits...............   $   365,000    $   321,000
            Warranty costs...................................        40,000         64,000
            Advertising costs................................       145,000        135,000
            Interest.........................................       439,000             --
            Other............................................       296,000        185,000
                                                                --------------------------
                                                                $ 1,285,000    $   705,000
                                                                ==========================
</TABLE>

6.    DEBT

      Long-term debt consists of the following as of September 30:

<TABLE>
<CAPTION>
                                                                    1996          1995

                                                                <C>           <C>
                                                                $ 4,715,000   $ 4,715,000
                                                                =========================
</TABLE>

      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  payable  at 10%,  requires  monthly  payments  of
      interest only, is payable in full in October 1997 and is collateralized by
      all assets of the Company.  The Company had $4,715,000  outstanding  under
      this line of credit at September 30, 1996 and 1995. The maximum borrowings
      against this line during  fiscal 1996 were  $4,715,000.  Repayment of this
      line of credit is  subordinate  to the  repayment  of any and all balances
      outstanding  on the  revolving  line of credit  described  below.  Related
      interest  expense incurred in the years ended September 30, 1996, 1995 and
      1994 were $480,000, $488,000 and $494,000,  respectively. At September 30,
      1996 interest  payments  totaling $439,000 for the period November 1, 1995
      to  September  30, 1996 were in arrears.  On December 11, 1996 the Company
      received a waiver for the  covenant  violation.  The period of this waiver
      extends through October 1, 1997.

      The  Company  has a revolving  line of credit  with a  commercial  finance
      company which permits combined  borrowings of up to $3,500,000 in cash and
      letters of credit.  This line of credit  expires in  December  1996 and is
      collateralized  by all assets of the Company.  The terms of this agreement
      include a borrowing  limit  which  fluctuates  depending  on the levels of
      account  receivable  and inventory  which  collateralize  the  borrowings.
      Interest on amounts outstanding is payable on a monthly basis at an annual
      rate of 2-1/4% over the prime rate which was 8-1/4% at September 30, 1996.
      As of  September  30, 1996 the Company had  outstanding  letters of credit
      amounting to approximately $331,000 under this agreement.  This instrument
      approximates  its fair value as the  underlying  interest  rate is tied to
      market rates. The loan agreement contains various covenants  pertaining to
      the maintenance of working capital,  net worth and other  conditions.  The
      Company is required to maintain  continuing  working capital of $4,800,000
      and adjusted net worth,  as defined in the loan agreement of $400,000.  At
      September 30, 1996, working capital was $4,180,000,  which is in violation
      of the loan agreement.  On December 20, 1996 the Company received a waiver
      for the covenant  violation and renewed this revolving  credit line.  (See
      Note 13.)

      A summary of borrowings on commercial  finance  company and bank revolving
      credit agreements and unused lines of credit for the years ended September
      30, 1996, 1995 and 1994 is as follows:

<TABLE>
<CAPTION>
                                                                 1996            1995            1994

          <S>                                                <C>             <C>             <C>
          Average borrowings during year...................  $   313,638     $   394,129     $        --
          Average interest rate during year................        10.67%          11.25%            7.5%
          Maximum borrowings during year...................  $ 1,365,000     $ 1,330,000     $        --
          Unused line of credit at September 30............  $ 3,169,000     $ 3,354,000     $ 2,196,000
</TABLE>

7.    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,
      1996, 1995 and 1994 is summarized below:

<TABLE>
<CAPTION>
                                                            Options Outstanding
                                                           Shares    Price Range

            <C>                                            <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
                                                           ======================
</TABLE>

      At  September   30,  1996  and  1995,   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.

8.    INCOME TAXES

      As discussed in the summary of significant accounting policies the Company
      adopted Statement of Financial  Accounting Standards No. 109 as of October
      1, 1993.  The adoption of this change did not have a cumulative  effect on
      the financial position or the net results of operations.

      The provision for income taxes for continuing  operations  consists of the
      following:

<TABLE>
<CAPTION>
                                                                   (000's)
                                                          Year Ended September 30,
                                                         1996       1995       1994

      <S>                                                <C>        <C>        <C>
      CURRENT TAX PROVISION
        Federal.......................................   $  --      $   --     $   --
        State.........................................      --          --         --
                                                         ----------------------------
      TOTAL CURRENT PROVISION.........................      --          --         --
                                                         ----------------------------
      DEFERRED TAX (BENEFIT)/EXPENSE
                                                         ----------------------------
        Federal.......................................    (160)       (545)      (127)
        State.........................................     (39)       (297)       (38)
                                                         ----------------------------
      TOTAL DEFERRED (BENEFIT)/EXPENSE................    (199)       (842)      (165)
                                                         ----------------------------
      CHANGE IN VALUATION ALLOWANCE...................     234         842         --
                                                         ----------------------------
      INCOME TAXES (BENEFIT)/EXPENSE..................   $  35      $   --     $ (165)
                                                         ============================
</TABLE>

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

<TABLE>
<CAPTION>
                                                                 1996           1995

            <S>                                                  <C>            <C>
            Deferred Tax Assets:
              Doubtful Receivables............................   $    78,000    $    80,000
              Inventory Obsolescence and Shrinkage............       225,000        177,000
              Sales Allowances................................        32,000         26,000
              Warranties......................................        18,000         28,000
              Non-qualified Executive Retirement Plan.........       147,000        130,000
              Tax Loss Carryforwards..........................     6,595,000      6,386,000
              Tax Credit Carryforwards........................       439,000        459,000
              Other...........................................       215,000        223,000
                                                                 --------------------------
              Subtotal........................................     7,749,000      7,509,000
                                                                 --------------------------
            Deffered Tax Liabilities:
              Excess of Tax over Book Depreciation............      (114,000)       (73,000)
                                                                 --------------------------
              Net Deferred Tax Assets.........................     7,635,000      7,436,000
              Less Valuation Allowance........................    (7,505,000)    (7,271,000)
                                                                 --------------------------
              NET DEFERRED TAX ASSETS.........................   $   130,000    $   165,000
                                                                 ==========================
</TABLE>

      A  reconciliation  of the federal tax rate to the Company's  effective tax
      rate for 1996, 1995 and 1994 are as follows:

<TABLE>
<CAPTION>
                                                                             % of Pretax Income
                                                                        1996        1995        1994

      <S>                                                              <C>         <C>         <C>
      Federal income tax at statutory rate on loss before taxes.....    35.0%       35.0%       35.0%
      Reduction due to valuation allowance..........................   (29.08)     (35.0)      (44.22)
                                                                       ------------------------------
      Income tax credit at effective rate...........................     5.92%         0%       (9.22)%
                                                                       ==============================
</TABLE>


      For income tax  purposes  the Company has unused  Federal  operating  loss
      carryforwards  of $16,491,000  expiring  through 2011 and State  operating
      loss carryforwards of $13,399,000 expiring through 2001.

      In  addition  to the loss  carryforwards  the  Company  has  research  and
      development and investment tax credit  carryovers of $104,000 and $335,000
      respectively  through  2001  which  are  available  to reduce  future  tax
      liabilities.

      The  realization of the net deferred tax asset of $130,000 is dependent on
      the Company's ability to generate sufficient taxable income in the future.
      In  recognizing  its net  deferred tax assets the Company has used certain
      assumptions about future levels of pretax income.

9.    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 plan.  Company  contributions vest 100% after
      five years.  The  Company's  contributions  amounted to $0 in fiscal years
      1996 and 1995 and $22,000 in 1994.

      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, 1996,  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, 1996.

10.   COMMITMENTS AND CONTINGENCIES

      The Company was obligated at September  30, 1996 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 1996, 1995 and 1994 was $420,000,  $450,000, and
      $625,000,   respectively.  The  future  minimum  lease  commitments  total
      $1,287,000 as follows: $332,000 in fiscal 1997, $325,000 in 1998, $315,000
      in 1999, and $315,000 in 2000.

      Commitments  for the  purchase of molds at  September  30,  1996  totalled
      $60,000.

      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.

11.   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 and storage sheds which  comprise 94
      percent of the  Company's  sales for 1996.  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  has  developed  an  electronic   obstacle  avoidance  system  for
      automotive  applications.  Production  of this unit 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.  The  Company  export  sales are not  significant.  Net sales to a
      single customer  accounted for $2,486,000,  or 18%, of net sales in fiscal
      1996, $2,441,000,  or 20%, of net sales in fiscal 1995, and $4,125,000, or
      31% of net  sales in fiscal  1994.  At  September  30,  1996 the  accounts
      receivable  due  from  this  customer  was  $703,000  or 33% of net  trade
      accounts receivable.

<TABLE>
<CAPTION>
                                                          For the Years Ended September 30,
                                                         1996           1995           1994

<S>                                                  <C>            <C>            <C>
Net sales to unaffiliated customers:
  Consumer Products...............................   $ 12,910,000   $ 11,920,000   $ 13,223,000
  Industrial Products.............................        840,000         97,000         63,000
                                                     ------------------------------------------
      Total net sales.............................   $ 13,750,000   $ 12,017,000   $ 13,286,000
                                                     ==========================================
Operating profit (loss)
  Consumer Products...............................   $    750,000   $    (25,000)  $    542,000
  Industrial Products.............................         29,000       (410,000)      (341,000)
                                                     ------------------------------------------
                                                          779,000       (435,000)       201,000
General corporate expenses........................       (770,000)      (724,000)    (1,135,000)
                                                     ------------------------------------------
Consolidated operating loss.......................          9,000     (1,159,000)      (934,000)
Interest expense..................................       (529,000)      (529,000)      (500,000)
Other income--net.................................         60,000        131,000         57,000
                                                     ------------------------------------------
Loss before income taxes..........................   $   (460,000)  $ (1,557,000)  $ (1,377,000)
                                                     ==========================================
Identifiable assets:
  Consumer Products...............................   $  5,244,000   $  5,766,000   $  6,412,000
  Industrial Products.............................        282,000         61,000         74,000
  Corporate.......................................      1,949,000      1,429,000      3,113,000
                                                     ------------------------------------------
      Total assets................................   $  7,475,000   $  7,256,000   $  9,599,000
                                                     ==========================================
Depreciation:
  Consumer Products...............................   $    359,000   $    422,000   $    610,000
  Industrial Products.............................          4,000          4,000          6,000
  Corporate.......................................             --             --             --
                                                     ------------------------------------------
      Total depreciation and amortization.........   $    363,000   $    426,000   $    616,000
                                                     ==========================================
Capital expenditures:
  Consumer Products...............................   $     40,000   $    780,000   $    146,000
  Industrial Products.............................         10,000             --             --
                                                     ------------------------------------------
      Total capital expenditures..................   $     50,000   $    780,000   $    146,000
                                                     ==========================================
</TABLE>

12.   INTERIM FINANCIAL REPORTING

      The  aggregate  impact on the "Net Loss"  resulting  from  fourth  quarter
      adjustments relating to the reversal of reserves in the amount of $253,000
      which  was  material  and had the  effect  of  decreasing  the Net Loss by
      $253,000 in the fourth quarter.

13. SUBSEQUENT EVENT

      On December  11, 1996 the Company  received a waiver from the realty trust
      for the violation of certain loan covenants (Note 6).

      On December  20, 1996 the  Company  received a waiver from the  commercial
      finance  company for the violation of certain loan covenants (Note 6). The
      Company  renewed  this line of credit  which  expires  in  December  1999.
      Interest on amounts outstanding is payable on a monthly basis at an annual
      rate of 1-3/4% over the prime  rate.  As of October 1, 1996 the Company is
      required  to  maintain   continuing  working  capital  of  not  less  than
      $2,000,000 and adjusted net worth of not less than $2,500,000.



                                               REPORT OF INDEPENDENT ACCOUNTANTS


Stockholders and Directors of ARMATRON INTERNATIONAL, INC.:

We have  audited  the  accompanying  consolidated  balance  sheets  of  Armatron
International,  Inc.  as of  September  30,  1996  and  1995,  and  the  related
consolidated statements of operations,  cash flows and stockholders' equity, for
the years ended  September 30, 1996, 1995 and 1994.  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.  as of  September  30, 1996 and 1995 and the results of its
operations and its cash flows for the years ended  September 30, 1996,  1995 and
1994, in conformity with generally accepted accounting principles.

As discussed in Note 1 to the  consolidated  financial  statements,  the Company
changed  its  method of  accounting  for  income  taxes  during  the year  ended
September 30, 1994.


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

                                           R. J. GOLD & COMPANY, P.C.


Needham, Massachusetts
December 9, 1996
December 20, 1996 as to Note 13.



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


LIQUIDITY AND CAPITAL RESOURCES

In fiscal 1996,  operating  activities generated $577,000 in cash, which was due
primarily to an increase of other  current  liabilities  of $580,000.  Investing
activities  consumed $50,000 for equipment  purchases.  As a result primarily of
these factors, cash and cash equivalents increased $527,000.

In fiscal 1996,  1995 and 1994,  purchases of equipment and patents  amounted to
$50,000, $780,000, and $146,000 respectively. These expenditures were mainly for
tooling and dies used in production of the Company's  lawn and garden  products.
The Company plans to spend  approximately  $465,000 for capital  expenditures in
fiscal  1997.  These  expenditures  will be mainly for  tooling and dies for the
Company's lawn and garden products.

In December  1996,  the Company  renewed  from a  commercial  finance  company a
revolving line of credit which allows  aggregate  borrowings of $3,500,000 to be
used as working capital and which expires in December 1999. The interest rate on
loans shall be 1 3/4% over the prime rate.  The interest  rate on the  revolving
line of credit  which  expires in  December  1996 was 2 1/4% over the prime rate
which was 8 1/4% at  September  30, 1996.  Borrowings  made against this line of
credit are  collateralized  by all assets of the Company.  As of  September  30,
1996, the Company was contingently  liable for outstanding  letters of credit of
approximately $331,000 under this line of credit agreement.

The Company has a $7,000,000 line of credit from 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, is payable in full
in October 1997 and is collateralized by all assets of the Company,  as noted in
Footnote 6. Interest  payments for the period November 1, 1995 through September
30, 1996 are in arrears. The Company had $4,715,000  outstanding under this line
of credit at September  30, 1996.  The maximum  borrowings  against this line of
credit is  subordinate  to the repayment of any and all balances  outstanding on
the revolving line of credit with the commercial finance company.

Production of the ECHOVISION  automotive  obstacle detection system commenced in
January 1996. The financial  requirements  for the program have been  adequately
provided for within the credit lines available.

At September 30, 1996, the Company had unused  operating loss  carryforwards  of
approximately  $16,491,000 for financial  reporting purposes which are available
to be applied  against  taxable income for the years 1997 through 2011. As noted
in Footnote 7 Income  Taxes,  the Company  recorded a Net  Deferred Tax Asset of
$130,000.  The Company expects to realize this asset through improved  operating
performance  achieved through the anticipated  contribution of its new products.
Taxable income for fiscal 1997 must increase to approximately  $317,000 in order
to fully realize the recorded net deferred tax asset.

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 1997.

The Company  believes that its present working  capital,  lines of credit from a
commercial  finance  company and related  party,  and other sources of financing
will be  sufficient  to finance its seasonal  borrowing  needs,  operations  and
investments in capital  expenditures in fiscal 1997. Other sources of financing,
provided by the Company's  principal  stockholder,  are available to finance any
working capital deficiencies.


RESULTS OF OPERATIONS

The conditions  contributing to the 14% increase in sales is an expanded product
line which resulted in an increase of  approximately  4% in the average  selling
price and an increase of 10% in sales volume.

Net sales to one customer  accounted for  approximately  $2,486,000,  or 18%, of
consolidated  net sales in fiscal 1996, as compared to net sales to one customer
of $2,441,000, or 20%, in fiscal 1995, and $4,125,000, or 31%, in fiscal 1994.

In fiscal 1996, selling,  general and administrative expenses increased $84,000,
or 3%, as  compared  to fiscal  1995,  primarily  due to the  increase in sales.
Selling,  general and  administrative  expenses decreased  $572,000,  or 18%, in
fiscal 1995 as compared to fiscal 1994, primarily due to the decrease in sales.

In fiscal 1996, the operating loss decreased  $1,168,000  resulting in operating
income of $9,000 when compared to fiscal 1995. The operating loss in fiscal 1995
was  $1,159,000,  an increase of $225,000 when compared to the operating loss of
$934,000 in fiscal 1994.  Interest expense during fiscal 1996 remained unchanged
when compared to fiscal 1995, and increased  $29,000 to $529,000  between fiscal
1995 and fiscal 1994.

Other income of $60,000 in fiscal  1996,  $131,000 in fiscal 1995 and $57,000 in
fiscal 1994 consists primarily of income earned on short-term investments.

The aggregate effect of all fourth quarter  adjustments as described in Footnote
12 of the financial  statements,  on current years reported operations resulting
from the reversal of reserves for accrued expenses  amounted to $253,000.  These
reversals are not expected to have an impact upon future operations.

The Company believes  inflation did not have a material effect on its results of
operations for fiscal 1996, 1995 or 1994.



FIVE-YEAR FINANCIAL SUMMARY

SELECTED FINANCIAL DATA:


<TABLE>
<CAPTION>
                                                                      Years Ended September 30,
                                                       1996        1995        1994        1993        1992
                                                     (in thousands, except per share data)

<S>                                                  <C>         <C>         <C>         <C>         <C>
Net Sales.........................................   $ 13,750    $ 12,017    $ 13,286    $ 16,174    $ 18,562
Operating Income (Loss)...........................   $     13    $ (1,159)   $   (934)   $ (1,106)   $   (929)
Net Loss..........................................   $   (495)   $ (1,557)   $ (1,212)   $ (1,548)   $ (1,432)

Earnings (Loss) Per Share of Common Stock:
  Operating Income (Loss).........................   $    .01    $   (.47)   $   (.38)   $   (.45)   $   (.38)
  Net Loss........................................   $   (.20)   $   (.63)   $   (.49)   $   (.63)   $   (.58)
                                                     ========================================================

Total Assets......................................   $  7,475    $  7,256    $  9,599    $ 10,398    $ 13,120

Long-Term Obligations.............................   $  4,715    $  4,715    $  5,140    $  5,251    $  6,016
</TABLE>


There were no  dividends  paid on common  shares  during any of the above years.
Under the  financing  agreement,  as set forth in  footnote  6 to the  company's
financial  statements  the Company is restricted  from paying  dividends for the
three-year term of that agreement.

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

Common Stock Information:

The approximate number of shareholders of record at December 2, 1996 was 1,108.

The  following  table  indicates  the  quarterly  high  and low  prices  for the
Company's  common stock on the American Stock Exchange for 1995 and the high and
low bid prices as reported in Over the Counter Bulletin Board for 1996:

<TABLE>
<CAPTION>
                                            1996              1995
      Quarter                               High      Low     High      Low

      <S>                                   <C>       <C>     <C>       <C>
      First..............................     11/16   7/16    1-1/16    11/16
      Second.............................     11/16   1/4     1-1/18    3/4
      Third..............................   2-7/8     1/4     1-1/16    13/16
      Fourth.............................   1-1/8     5/8       15/16   9/16
</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

Craig Spangenberg
   Partner, Spangenberg, Shibley, Traci & Lancione
   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 1996 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.