Nematron Reports First Quarter Operating Results |

Nematron Reports First Quarter Operating Results

Ann Arbor, MI, May 1, 2001 — Nematron Corporation (Amex: NMN), a leading designer and manufacturer of industrial automation solutions, today reported operating results for its first quarter ended March 31, 2001.

Revenues in the quarter ended March 31, 2001 totaled $4,785,000, a decrease of $454,000, or 8.7%, over the comparable quarter of 2000. Net loss in the first quarter of 2001 totaled $1,018,000 ($0.07 per diluted share), compared to net income of $89,000 ($0.01 per diluted share) in the comparable 2000 quarter. The decrease in revenue in the current quarter results primarily from an 82% decrease in program business under an automotive contract and a 30% decline in non-program sales, offset in part by service integration revenues generated by the Company's A-OK Controls subsidiary acquired in June 2000. The decrease in net income for the current quarter results primarily from the effect of the decrease in revenue and other income.

"The first quarter 2001 results are in line with expectations, largely because of the completion of the major automotive program, but also because of the slowdown in capital spending in the industrial sector," said Matthew Galvez, President and CEO. "Because of the current state of industrial automation activity, we also anticipate lower revenues and net results in the second quarter of 2001 compared to last year. However, beginning in April we should experience a positive contribution to revenues and net results from the operations of Optimation, Inc. which Nematron acquired on March 31st of this year. Additionally, we have increased our product development efforts and our marketing and sales initiatives to counteract the industry-wide slowdown in capital spending."

Gross profit margins decreased 13.7% in the first quarter of 2001 to 17.2% compared to 30.9% in the comparable quarter of 2000. This decrease results primarily from shifts in product mix in the current period primarily because of the lower shipments of higher-margin bundled hardware/software products under the major automotive program.

Operating expenses decreased by 9.1% in the first quarter of 2001 versus the comparable quarter of 2000. This decrease results from controls on general and administrative costs, offset in part by increases in promotional initiatives compared to the year earlier period. Interest expense increased $95,000 in the first quarter of 2001 to $170,000 compared to $76,000 in the comparable quarter of 2000 because of higher debt levels. Other income in the first quarter of 2001 was $1,000 compared to $375,000 in the comparable quarter of 2000 that resulted from the sale in 2000 of an unused domain name.

"Our financial position reflects a current ratio of 1.0 and long-term debt represents 27% of total capitalization," said David Gienapp, CFO. "As a result of the financial health of Optimation which we acquired on March 30th, proceeds from subordinated notes sold in late March and early April, and other factors, we completed an amendment to our bank financing agreement and are now in compliance with the revised financial covenants included therein."

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 or automotive market conditions, competitive factors (including the introduction or enhancement of competitive products), pricing pressures, changes in customer requirements, evolving industry standards, 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

Financial tables follow.

Operating Data (Dollars in thousands, except per share data):

Three Months Ended March 31,
2001 2000 % Change
Net revenues $4,785 $5,239 (8.7)%
Cost of revenues 3,962 3,621 9.4
Gross profit 823 1,617 (49.1)
Gross margin percentage 17.2% 30.9% (44.3)
Product development costs 115 125 (8.8)
SG&A 1,556 1,713 (9.2)
Total operating expenses 1,671 1,838 (9.1)
Operating expenses as a % of revenue 34.9% 35.1% (0.5)
Operating loss (848) (221) 283.8
Sundry income 1 375 n/m
Interest expense (170) (76) 125.0
Income (loss) before tax benefit (1,018) 78 n/m
Tax benefit -0- 11 n/m
Net income (loss) $(1,018) $ 89 n/m

Earnings per share: Basic $ (0.07) $ 0.01
Diluted $ (0.07) $ 0.01
Weighted shares O/S: Basic 14,003 12,605
Diluted 14,003 13,292

Financial Position (Dollars in thousands):
March 31, December 31, Increase
(Dollars in thousands) 2001 2000 (Decrease)
Cash and cash equivalents $ 65 $ 75 $ (10)
Other current assets 8,640 7,679 961
Total current assets 8,705 7,754 951
Property and equipment, net 2,464 2,544 (80)
Capitalized software & other intangibles, net 7,226 6,582 644
Total assets $18,395 $16,880 $1,515

Current liabilities $ 8,177 $ 9,667 $(1,490)
Long term obligations 2,715 -0- 2,715
Shareholders' equity 7,503 7,213 290
Total liabilities and shareholders' equity $18,395 $16,880 $1,515
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