Nematron Announces Third Quarter Results | Automation.com

Nematron Announces Third Quarter Results

Ann Arbor, MI, November 1, 2001 — Nematron Corporation (Amex: NMN), a leading producer of PC-based industrial control solutions, reported today its operating results for the three- and nine-month periods ended September 30, 2001 and a reduction of the third quarter loss compared to the second quarter results. Revenue totaled $4,358,000 and $13,908,000 for its third quarter and nine-month periods ended September 30, 2001, respectively, decreases of 30.3% and 9.4% from the year earlier periods. Net loss for the third quarter ended September 30, 2001 was $1,016,000 ($0.06 per share), compared to a net loss of $411,000 ($0.03 per share) for the year earlier period, and for the nine-month period ended September 30, 2001 net loss was $3,272,000 ($0.21 per share) compared to a net loss of $1,077,000 ($0.08 per share) for the year earlier period. The net loss for the third quarter narrowed by $221,000 from the second quarter loss, and cash used in operations decreased by $155,000 in the third quarter compared to the second quarter. 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 third quarter and nine-month periods ended September 30, 2001, non-cash charges totaled $662,000 and $1,901,000, respectively, compared to $500,000 and $1,395,000, respectively, for the year earlier periods.

The decreases in revenue for the current three- and nine-month periods result primarily from reduction of revenues from sales of bundled product and other industrial computers, offset in part by the engineering and hardware revenues generated by A-OK Controls and Optimation, companies acquired by Nematron on June 30, 2000 and March 31, 2001, respectively.

Revenues generated under the Company’s major automotive program declined $1.5 million during the nine month period ended September 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 September 30, 2001 decreased to 22.2% of net revenue from 25.0% in the year earlier period, and for the nine-month period ended September 30, 2001 decreased to 20.1% from 27.1% 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 a unit decrease in higher margin bundled system sales under the major automotive controls program. Operating expenses decreased by $114,000 and $92,000 for the three- and nine-month periods ended September 30, 2001, respectively, decreases of 6.4% and 1.7% from the year earlier periods, primarily as a result of significant decreases in Nematron-based expenses, offset in part by the effect of the operations of the acquired companies.


Interest expense increased by $106,000 in the three-month period ended September 30, 2001 compared to the year earlier period. Lower average borrowing levels and a lower average interest rate accounted for a $31,000 decrease, but the decrease was offset by $137,000 of non-cash interest 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 $526,000 in the nine-month period ended September 30, 2001, with higher average borrowing levels accounting for $184,000 of the increase and $342,000 resulted from non-cash interest expense related to the beneficial conversion feature of convertible warrants.

Other income (expense) was not significant in the three- and nine-month periods ended September 30, 2001, while the Company realized a $378,000 gain in the nine-month period ended September 30, 2000 from the sale of an unused domain name.

“With the state of the current economy, many of our customers have put their capital spending plans on hold, and that translates into traditional hardware-based revenues being at a lower level than last year. However, the acquisitions of A-OK Controls and Optimation have bolstered other revenue sources so that we are now generating higher revenues from service and from operator interface and connectivity products,” said Matt Galvez, President and CEO. “We have reduced our costs and expenses to better match a lower revenue level, and in the third quarter we cut operating expenses by $180,000, or 10%, from the second quarter. Because of these adjustments, and in spite of a modest quarter to quarter revenue reduction, we decreased our sequential quarterly loss by 18% and used $155,000 less operating cash in the most recent quarter than in the previous quarter.”

Addressing the Company’s product plans strategies, Mr. Galvez stated, “Following on the heels of our acquisition of Optimation and through focused product development work, Nematron will be introducing in the next several quarters exciting lower-cost products that, based on initial customer response, we believe will be highly competitive in the marketplace. We believe that these new products, together with our best-in-class control software, will capture an increasing share of an expanding market.”

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 significant change in general economic conditions, competitive products and pricing, reductions in customer demand, changes in customer requirements, the ability to integrate the acquired entities, component price changes, new product introduction delays, latent deficiencies in products, and additional factors described in our SEC reports.

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 informatiom,visit our web site http://www.nematron.com.




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