UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996. OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission File Number 1-4433. ARMATRON INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Massachusetts 04-1052250 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Two Main Street Melrose, Massachusetts 02176 (Address of principal executive offices) (Zip Code) (617) 321-2300 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No ____ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ______ No ______ APPLICABLE ONLY TO CORPORATE ISSUERS: The number of shares of Common Stock (par value $1) outstanding at July 31, 1996 is 2,459,749 shares. ARMATRON INTERNATIONAL, INC. File No. 1-4433 ------------------- PAGE(S) PART I - FINANCIAL INFORMATION Item 1 - Financial Statements 				 Consolidated Condensed Balance Sheets - June 30, 1996 and 1995, and September 30, 1995 3 - 4 Consolidated Condensed Statements of Operations for the three and nine months ended June 30, 1996 and 1995 5 Consolidated Condensed Statements of Cash Flows for the nine months ended June 30, 1996 and 1995 6 Notes to Consolidated Condensed Financial Statements 7 - 8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 11 PART II - OTHER INFORMATION Item 6(b) Reports on Form 8-K 12 SIGNATURE 13 Page 2 ARMATRON INTERNATIONAL, INC. Consolidated Condensed Balance Sheets June 30, 1996 and 1995, and September 30, 1995 (Dollars in Thousands) (Unaudited) (Audited) June 30, September 30, 1996 1995 1995 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 230 $ 340 $1,322 Trade accounts receivable,net 4,618 2,712 2,189 Inventories (Note 2) 2,196 3,218 2,225 Deferred tax asset 165 165 165 Prepaids & other current assets 203 405 154 ______ ______ ______ Total Current Assets 7,412 6,840 6,055 MACHINERY & EQUIPMENT, NET 711 742 952 OTHER ASSETS 108 107 249 Total Assets $8,231 $7,689 $7,256 ====== ====== ====== The accompanying notes are an integral part of the consolidated condensed financial statements. Page 3 ARMATRON INTERNATIONAL, INC. Consolidated Condensed Balance Sheets June 30, 1996 and 1995, and September 30, 1995 (Dollars in Thousands) (Unaudited) (Audited) June 30, Sept. 30, 1996 1995 1995 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $1,811 $ 790 $1,112 Accrued liabilities (Note 3) 1,335 770 705 Notes Payable (Note 5) - 192 - Total Current Liabilities 3,146 1,752 1,817 LONG-TERM DEBT (NOTE 4) 4,715 4,715 4,715 STOCKHOLDERS' EQUITY: Common stock, par value $1 per share, 6,000,000 shares authorized; shares issued at June 30, 1996 and 1995, and September 30, 1995, 2,606,481 shares 2,606 2,606 2,606 Paid-in capital 6,770 6,770 6,770 Retained earnings (deficit) (8,620) (7,768) (8,266) 756 1,608 1,110 Less: Treasury stock at cost - 146,732 at June 30, 1996 and September 30, 1995, and 146,727 at June 30, 1995 386 386 386 Total Stockholders' Equity 370 1,222 724 Total Liabilities & Stockholders' Equity $8,231 $7,689 $7,256 ====== ====== ====== The accompanying notes are an integral part of the consolidated condensed financial statements. Page 4 ARMATRON INTERNATIONAL, INC. Consolidated Condensed Statements of Operations for the Three and Nine Month Periods Ended June 30, 1996 and 1995 (Dollars in Thousands Except Per Share Data) (Unaudited) Three Months Nine Months Ended June 30, Ended June 30, 1996 1995 1996 1995 Net Sales $6,717 $4,666 $10,909 $ 8,731 Cost of Products Sold 4,785 3,500 8,563 7,413 Selling, general and administrative expenses 1,055 771 2,339 2,047 Interest expense-related parties 119 119 359 367 Interest expense-third parties 28 23 37 31 Other (income) expense - net (4) (14) (37) (68) Net Income (Loss) $ 734 $ 267 $ (352) $(1,059) ====== ====== ====== ======= Per Share: Net Income (Loss) $ .30 $ .11 $ (.14) $ (.43) ====== ====== ====== ======= Weighted average number of common shares outstanding 2,459,749 2,459,754 2,459,749 	2,459,754 The accompanying notes are an integral part of the consolidated condensed financial statements. Page 5 ARMATRON INTERNATIONAL, INC. Consolidated Condensed Statements of Cash Flows for the Nine Months Ended June 30, 1996 and 1995 (Dollars in Thousands) (Unaudited) Nine Months Ended June 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (352) $(1,059) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation 286 329 Loss on disposal of equipment (1) - Change in operating assets & liabilities (980) (1,232) Net cash flow from (used for) operating activities: (1,047) (1,962) CASH FLOWS FROM INVESTING ACTIVITIES Payments for machinery and equipment (45) (472) Net cash flow used for investing activities: (45) (472) CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings (payments) on third party line of credit - 192 Payments on long-term debt-related parties - (425) Payments on long-term debt-third parties Net cash flow used for financing activities: - (233) NET DECREASE IN CASH AND CASH EQUIVALENTS (1,092) (2,667) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,322 3,007 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 230 $ 340 ====== ======= SUPPLEMENTAL INFORMATION: Interest paid - related parties $ 41 $ 367 Interest paid - third parties $ 37 $ 31 Income taxes paid $ - $ - The accompanying notes are an integral part of the consolidated condensed financial statements. Page 6 ARMATRON INTERNATIONAL, INC. Notes to Consolidated Condensed Financial Statements 1. OPINION OF MANAGEMENT In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (including normal recurring adjustments) necessary to present fairly the consolidated financial position as of June 30, 1996 and 1995, and September 30, 1995, and the consolidated statements of operations and cash flows for the three and nine months ended June 30, 1996 and 1995. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 1995. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The year-end balance sheet data was derived from audited financial statements, but does not include disclosures required by generally accepted accounting principles. The accompanying unaudited, consolidated condensed financial statements are not necessarily indicative of future trends or the Company's operations for the entire year. 2. INVENTORIES Inventories are stated on a first-in, first-out (FIFO) method at the lower of cost or market. Inventories consisted of the following: (In Thousands) (Unaudited) (Audited) June 30, September 30, 1996 1995 1995 Purchased Components $1,796 $1,330 $1,606 Work in Process 80 100 84 Finished Goods 320 1,788 535 $2,196 $3,218 $2,225 ====== ====== ====== Page 7 ARMATRON INTERNATIONAL, INC. Notes to Consolidated Condensed Financial Statements 3. ACCRUED LIABILITIES Accrued liabilities consist of the following as of: (In thousands) (Unaudited) (Audited) June 30, September 30, 1996 1995 1995 Salaries, commissions and benefits....... $ 434 $382 $321 Professional fees........................ 68 45 52 Warranty costs........................... 40 30 64 Advertising costs........................ 233 192 135 Other.................................... 560 121 133 $1,335 $770 $705 ====== ==== ==== 4. LONG-TERM DEBT 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. The Company had $4,715,000 outstanding under this line of credit at June 30, 1996. 5. NOTE PAYABLE The Company has a $3,500,000 revolving line of credit from a commercial finance company which expires in December 1996. This line of credit is collateralized by all assets of the Company. The terms of this agreement include a borrowing limit which fluctuates depending on the levels of accounts receivable and inventory which collaterlize the borrowings. Interest on amounts outstanding is payable at 2 1/4% over the commercial base rate. The commercial base rate was 8 1/4% at June 30, 1996. As of June 30, 1996, the Company had outstanding letters of credit amounting to approximately $624,000 under this agreement. Page 8 ARMATRON INTERNATIONAL, INC. Management's Discussion and Analysis of Financial Conditions and Results of Operations LIQUIDITY AND CAPITAL RESOURCES During the nine months ended June 30, 1996, operating activities used $1,047,000 in cash. Trade accounts receivable increased $2,429,000. The net loss was $352,000. Accounts Payable and other current liabilities increased $699,000 and $630,000 respectively. Investing activities used $45,000 for the purchase of equipment. As a result, primarily of these factor, cash and cash equivalents decreased $1,092,000. The Company has a revolving line of credit from a commercial finance company which provides aggregate borrowings of $3,500,000 and which expires in December 1996. Borrowings made against this line of credit are collateralized by all assets of the Company. As of June 30, 1996, the Company was contingently liable for outstanding letters of credit of approximately $624,000 under this 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 payable at 10%, requires monthly payment 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 on June 30, 1996. The ratio of current assets to current liabilities was 2.4 at June 30, 1996 as compared to 3.3 at September 30, 1995 and 3.9 at June 30, 1995. The ratio of consolidated debt to consolidated net worth was 21.2 at June 30, 1996, 9.0 at September 30, 1995, and 5.3 at June 30, 1995. Sales terms for the Industrial Products segment are 30 days net, and following industry trade practice, the Consumer Products segment offers extended payment terms for delivery of existing seasonal product items such as the Flowtron leaf eater, bugkiller, biomister, compost bin and yard carts, resulting in fluctuating requirements for working capital. The Company anticipates it will have less fluctuating requirements for working capital for its new product items, the plastic Handy Hauler Yard Cart and plastic Storemore Storage Shed, as these items are subject to less seasonal fluctuations than existing product lines. The Company made an investment of $45,000 in capital expenditures in the first three quarters of fiscal year 1996. These expenditures were mainly for tooling and dies used in production. The Company anticipates commitments of $88,000 for capital expenditures during the remaining quarter of fiscal 1996. 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 investment in capital expenditures in fiscal 1996. Page 9 Other sources of financing, provided by the Company's principal stockholder, are available to finance any working capital deficiencies. RESULTS OF OPERATIONS The results of consolidated operations for the quarter ended June 30, 1996 resulted in net income of $734,000, or $.30 per share, as compared with net income of $267,000, or $.11 per share in the same period of the previous year. The Company distributes its products primarily to major retailers throughout the United States, with some products distributed under customer labels. Substantially all of the Company's sales, as well as accounts receivable, relate to business activities with such retailers. Sales increased $2,051,000 to $6,717,000 for the three months ended June 30, 1996, as compared to $4,666,000 for the corresponding period in the previous year. The increase in sales was attributable to sales of storage sheds, bugkillers and the ECHOVISION obstacle detection device. Operating profit is the result of deducting operating expenses excluding interest expense, general corporate expenses, and income taxes from total revenue. Operations within the Consumer Products segment consist of the manufacture and distribution of Flowtron leaf-eaters, bugkillers, biomisters, compost bins, yard carts and storage sheds. Sales and operating profits for the Consumer Products segment in the third quarter were approximately $6,344,000 and $996,000, respectively, as compared to $4,656,000 and $692,000, respectively, in the previous year. Sales increased $1,688,000 due to increased sales of bugkillers and storage sheds. Product lines within the Consumer Products segment are subject to seasonal fluctuations, with most shipments occurring in the third and fourth quarters of the Company's fiscal year. The Industrial Products segment has introduced electronic obstacle avoidance systems for automotive applications. Production began in January 1996. Sales and operating income for the Industrial Products segment in the third quarter of 1996 were $373,000 and $83,000 respectively, as compare to sales of $10,000 and operating losses of $75,000, in the previous year. Selling, general and administrative expenses increased $284,000 to $1,055,000 for the quarter ended June 30, 1996, when compared to the previous year. Page 10 The results of consolidated operations for the nine months ended June 30, 1996 resulted in a net loss of $352,000 or $.14 per share, as compared with a net loss of $1,059,000, or $.43 per share in the same period of the previous year. Sales increased $2,178,000 to $10,909,000 for the nine months ended June 30, 1996, as compared to $8,731,000 for the corresponding period in the previous year. Sales and operating profits for the Consumer Products segment for the nine months ended June 30, 1996 were approximately $10,319,000, and $644,000, respectively, as compared to $8,691,000 and $144,000, respectively, in the previous year. The increase in sales was responsible for the increase in operating profit. Sales and operating profits for the Industrial Products segment during the nine months ended June 30, 1996 were approximately $590,000 and $9,000, respectively, as compared to sales of $40,000 and operating losses of $254,000, in the previous year. Selling, general and administrative expenses increased $292,000 to $2,339,000. A tax benefit from the losses on operations for the nine month periods ended June 30, 1996 was not reflected in the statement of consolidated operations because the net operating losses could neither be carried back to previous years and future recognition was not certain. Page 11 ARMATRON INTERNATIONAL, INC. PART II Item 6b. Reports on Form 8-K The Company did not file any reports on Form 8-K for the quarter ended June 30, 1996. Page 12 ARMATRON INTERNATIONAL, INC. File No. 1-4433 ------------------- Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. ARMATRON INTERNATIONAL, INC. (Registrant) Date: August 1996 /s/ Charles J. Housman Charles J. Housman, President and Treasurer Date: August 1996 /s/ Richard M. Housman Richard M. Housman, Controller Page 13