Nematron Announces Increased Second Quarter 2001 Revenue | Automation.com

Nematron Announces Increased Second Quarter 2001 Revenue

Ann Arbor, MI, July 30, 2001 — Nematron Corporation (Amex: NMN), a leading producer of PC-based industrial control solutions, reported today its operating results for the three- and six-month periods ended June 30, 2001. Revenue totaled $4,764,000 and $9,550,000 for its second quarter and six-month periods ended June 30, 2001, respectively, increases of 23.5% and 5.0% over the year earlier periods.
Net loss for the second quarter ended June 30, 2001 was $1,238,000 ($0.08 per share), compared to a net loss of $754,000 ($0.06 per share) for the year earlier period, and for the six-month period ended June 30, 2001 was $2,256,000 ($0.15 per share) compared to a net loss of $665,000 ($0.05 per share) for the year earlier period. Operating results for each period include non-cash charges for depreciation, amortization of intangible assets (including goodwill) and interest relating to convertible warrants with a conversion feature below market price. For the second quarter and six-month periods ended June 30, 2001, non-cash charges totaled $730,000 and $1,239,000, respectively, compared to $443,000 and $895,000, respectively, for the year earlier periods.
The increase in revenue for the current three- and six-month periods resulted primarily from the revenues generated by A-OK Controls and Optimation, companies acquired by Nematron on June 30, 2000 and March 31, 2001, respectively, offset in part by reduction of revenues from sales of bundled product and other industrial computers during the current periods. Revenues generated under the Company's major automotive program declined $1.2 million during the six month period ended June 30, 2001 compared to the year earlier period. That contract, under which the Company had been delivering bundled hardware and software systems since 1998, was largely completed in the first quarter of 2001.
Gross profit margin for the three-month period ended June 30, 2001 decreased to 21.2% from 25.2% in the year earlier period, and for the six-month period ended June 30, 2001 decreased to 19.2% from 28.5% in the year earlier period. These decreases result primarily from the effects of product mix, of fixed and semi-fixed costs on lower hardware-based revenue levels in the current periods, and of unit decrease in higher margin bundled system sales under the major automotive controls program. Operating expenses increased by $190,000 and $22,000 for the three- and six-month periods ended June 30, 2001, respectively, compared to the year earlier periods primarily from the effect of the operations of the acquired companies, offset in part by significant decreases in Nematron-based expenses.
Interest expense increased by $325,000 in the current three-month period ended June 30, 2001 compared to the year earlier period. Higher average borrowing levels accounted for $120,000 of the increase while $205,000 of the increase resulted from non-cash interest expense related to the beneficial conversion feature of convertible warrants sold in March and April 2001 with a common stock conversion feature below market price at the date of sale. Interest expense increased by $420,000 in the current six-month period ended June 30, 2001, with higher average borrowing levels accounting for $215,000 of the increase and 205,000 resulting from non-cash interest expense related to the beneficial conversion feature of convertible warrants.
Other income (expense) was not significant in the current three- and six-month 2001 periods, while the Company realized a $378,000 gain in the six-month period ended June 30, 2000 from the sale of an unused domain name.
"With the completion of our multi-year automotive controls program early in 2001 and with the softening of the economy, especially in the discretionary areas of capital spending, Nematron's traditional revenues should continue in the near term at lower levels than in the past few years. However, the acquisitions of A-OK Controls and Optimation have bolstered our revenue sources so that we are now generating revenue at a level ahead of last year," said Matt Galvez, President and CEO. "We have also reduced our costs and expenses throughout the consolidated organization and will continue to do so until our customers' capital spending returns to more normal levels."
Addressing the Company's long-term strategies, Mr. Galvez stated, "With the recent acquisition of Optimation and through continuing product development work, we will be introducing the low-cost products demanded by customers as the industrial marketplace emerges from its current depressed levels. I believe that these new products, together with our best-in-class control software, will capture an increasing market share in a competitive marketplace."
The discussion in this news release includes forward-looking statements based on current management expectations. Factors that could cause future results to differ from these expectations include: a change in general economic conditions, particularly in the automotive markets, competitive factors (such as the introduction or enhancements of competitive products and pricing pressures), reductions in product demand, changes in customer requirements, the ability to integrate the operations of acquired entities in an efficient and effective manner, component price increases, product introduction delays, latent deficiencies in new products, and additional factors described in the Company's reports filed with the SEC.
Nematron has been setting the standard in PC-based control solutions since the birth of the industry. Nematron is the only company that designs, manufactures and services complete and proven Control and Information Stations for today's factory automation needs, and has significant applications and reference in nearly every manufacturing industry. For additional information, visit our web site http://www.nematron.com.


Operations Data:
(Dollars in thousands) Three Months Ended June 30, Six Months Ended June 30,
2001 2000 % Change 2001 2000 % Change

Net revenues $4,764 $3,858 23.5% $9,550 $9,096 5.0%
Cost of revenues 3,755 2,887 30.1 7,718 6,508 18.6
Gross profit 1,009 971 4.0 1,832 2,588 (29.2)

Gross margin 21.2% 25.2% (15.8) 19.2% 28.5% (32.6)
Operating expenses:
Product development costs 124 133 (7.0) 238 258 (7.8)
Selling, general and administrative 1,733 1,534 13.0 3,290 3,248 1.3
1,857 1,667 11.4 3,528 3,506 0.6
Operating loss (848) (696) 21.7 (1,696) (918) 84.9
Interest and other, net (390) (69) 467.8 (560) 231 n/m
Loss before tax benefit (1,238) (765) 61.8 (2,256) (687) 228.4
Tax benefit -0- 11 -0- 22
Net loss $(1,238) $(754) 64.1 $ (2,256) $(665) 239.0

Loss per share:
Basic and diluted $(0.08) $(0.06) $(0.15) $(0.05)
Weighted average shares
outstanding:
Basic and diluted 15,520 12,612 14,766 12,609

Financial Position:
(Dollars in thousands) 6-30-01 12-31-00 6-30-01 12-31-00

Cash and cash equivalents $ 151 $ 75 Current liabilities $10,641 $ 9,667
Other current assets 7,635 7,679 Long term obligations -0- -0-
Total current assets 7,786 7,754 Total liabilities 10,641 9,667
Property and equipment, net 2,398 2,544 Stockholders' equity 6,573 7,213
Intangible assets, net 7,030 6,582
Total assets $17,214 $16,880 Total liabilities & equity $17,214 $16,880
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