<PAGE>   1

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

(Mark One)

              [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended JUNE 30, 2001


             [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the transition period from       to
                                                 -----    ----
Commission File Number: 0-21142


                              NEMATRON CORPORATION
        (Exact name of small business issuer as specified in its charter)

<TABLE>
<S>                                                                     <C>
                        MICHIGAN                                                     38-2483796
(State or other jurisdiction of incorporation or organization)          (I.R.S. Employer Identification No.)
</TABLE>


                 5840 INTERFACE DRIVE, ANN ARBOR, MICHIGAN 48103
               (Address of principal executive offices) (Zip Code)

                                 (734) 214-2000
                (Issuer's telephone number, including area code)

         Check whether the issuer (1) has filed all reports required to be filed
by section 13 or 15(d) of the Securities Exchange Act during the past 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.
         [X] YES     [ ] No

         State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:

      No par value Common Stock: 15,744,472 OUTSTANDING AS OF JULY 25, 2001

Transitional Small Business Disclosure Format:  [ ] YES    [X] NO

================================================================================

<PAGE>   2


                         PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                      NEMATRON CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                       JUNE 30, 2001 AND DECEMBER 31, 2000

<TABLE>
<CAPTION>
                                                                          JUNE 30,
                                                                            2001          DECEMBER 31,
                                                                         (UNAUDITED)          2000
                                     ASSETS
                                     ------
<S>                                                                    <C>              <C>
Current assets:
     Cash and cash equivalents                                         $     150,664    $      74,712
     Accounts receivable, net of allowance for doubtful
         accounts of $86,000 at June 30, 2001 and  $78,000
         at December 31, 2000                                              4,743,093        5,407,593
     Inventories (Note 3)                                                  2,600,922        1,956,255
     Prepaid expenses and other current assets                               291,313          315,556
                                                                       -------------    -------------
              Total current assets                                         7,785,992        7,754,116
Property and equipment, net of accumulated depreciation
         of $7,077,471 at June 30, 2001 and $6,703,078 at
         December 31, 2000                                                 2,397,461        2,544,041
Other assets:
     Software and related development costs, net of amortization
         of  $3,340,521 at June 30, 2001 and $2,805,592 at
         December 31, 2000                                                 3,152,678        3,369,660
     Goodwill and other intangible assets, net of amortization of
         $2,820,855 at June 30, 2001 and $2,589,652 at
         December 31, 2000                                                 3,877,700        3,212,345
                                                                       -------------    -------------
              Net other assets                                             7,030,378        6,582,005
                                                                       -------------    -------------

              Total assets                                             $  17,213,831    $  16,880,162
                                                                       =============    =============

                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------
Current liabilities:
     Notes payable to banks (Note 4)                                   $   2,325,468    $   2,059,318
     Accounts payable                                                      1,656,816        1,642,039
     Deferred revenue and other accrued expenses                           2,136,156        2,011,825
     Convertible subordinated debt (Note 5)                                1,063,200              -
     Current maturities of long-term debt (Note 6)                         3,459,583        3,953,908
                                                                       -------------    -------------
              Total current liabilities                                   10,641,223        9,667,090
Long-term debt, less current maturities (Note 6)                                 -                -
                                                                       -------------    -------------
              Total liabilities                                           10,641,223        9,667,090
Shareholders' equity:
     Common stock, no par value, 30,000,000 shares authorized;
         shares issued and outstanding: 15,744,472 at June 30, 2001
         and 13,969,616 at December 31, 2000                              32,512,088       30,892,089
     Accumulated comprehensive loss                                           (6,113)          (1,606)
     Accumulated deficit                                                 (25,933,367)     (23,677,411)
                                                                       -------------    -------------
              Total shareholders' equity                                   6,572,608        7,213,072
                                                                       -------------    -------------

              Total liabilities and shareholders' equity               $  17,213,831    $  16,880,162
                                                                       =============    =============
</TABLE>



                                     Page 2
<PAGE>   3


ITEM 1. FINANCIAL STATEMENTS - CONTINUED

                      NEMATRON CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                    FOR THE THREE-AND SIX-MONTH PERIODS ENDED
                             JUNE 30, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED JUNE 30,            SIX MONTHS ENDED JUNE 30,
                                                                ---------------------------            -------------------------
                                                                 2001               2000               2001               2000
                                                              (UNAUDITED)        (UNAUDITED)        (UNAUDITED)        (UNAUDITED)
<S>                                                           <C>                <C>                <C>                <C>
Net revenues                                                  $  4,764,477       $  3,857,531       $  9,549,827       $  9,096,419
Cost of revenues                                                 3,755,279          2,886,791          7,717,992          6,508,025
                                                              ------------       ------------       ------------       ------------

              Gross profit                                       1,009,198            970,740          1,831,835          2,588,394
Operating expenses:
     Product development costs                                     123,764            133,018            238,120            258,344
     Selling, general, administrative                            1,733,400          1,534,276          3,289,842          3,247,619
                                                              ------------       ------------       ------------       ------------
     Total operating expenses                                    1,857,164          1,667,294          3,527,962          3,505,963
                                                              ------------       ------------       ------------       ------------

Operating loss                                                    (847,966)          (696,554)        (1,696,127)          (917,569)
Other income (expense):
     Interest expense                                             (397,392)           (72,013)          (567,518)          (147,625)
     Sundry income (expense)                                         7,164              3,285              7,690            378,169
                                                              ------------       ------------       ------------       ------------
     Total other income (expense)                                 (390,228)           (68,728)          (559,828)           230,544
                                                              ------------       ------------       ------------       ------------

Loss before income taxes                                        (1,238,194)          (765,282)        (2,255,955)          (687,025)
Income tax benefit (Note 7)                                            -0-             10,800                -0-             21,600
                                                              ------------       ------------       ------------       ------------

Net loss                                                      $ (1,238,194)      $   (754,482)      $ (2,255,955)      $   (665,425)
                                                              ============       ============       ============       ============

Per share amounts (Note 8):
     Basic and diluted                                        $      (0.08)      $      (0.06)      $      (0.15)      $      (0.05)
                                                              ============       ============       ============       ============
Weighted average shares
outstanding (Note 8):
     Basic and diluted                                          15,520,749         12,612,069         14,765,862         12,608,750
                                                              ============       ============       ============       ============
</TABLE>

                      NEMATRON CORPORATION AND SUBSIDIARIES
             CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
        FOR THE THREE-AND SIX-MONTH PERIODS ENDED JUNE 30, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED JUNE 30,            SIX MONTHS ENDED JUNE 30,
                                                                ---------------------------            -------------------------
                                                                 2001               2000               2001               2000
                                                              (UNAUDITED)        (UNAUDITED)        (UNAUDITED)        (UNAUDITED)
<S>                                                           <C>                <C>                <C>                <C>
Net loss                                                       $(1,238,194)         $(754,482)       $(2,225,955)         $(665,425)
Other comprehensive income -
    equity adjustment from
    foreign translation                                               (118)           (12,603)            (4,507)           (19,256)
                                                               -----------          ---------        -----------          ---------

Comprehensive loss                                             $(1,238,312)         $(767,085)       $(2,260,462)         $(684,681)
                                                               ===========          =========        ===========          =========
</TABLE>




                                     Page 3
<PAGE>   4



ITEM 1. FINANCIAL STATEMENTS - CONTINUED

                      NEMATRON CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                         FOR THE SIX-MONTH PERIODS ENDED
                             JUNE 30, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                            SIX MONTHS ENDED JUNE 30,
                                                                            -------------------------
                                                                              2001             2000
                                                                           (UNAUDITED)      (UNAUDITED)
<S>                                                                      <C>              <C>
Cash flows from operating activities:
     Net loss                                                            $(2,255,955)     $  (665,425)
     Adjustments to reconcile net loss to net cash flows
     provided by operating activities:
         Depreciation                                                        267,688          312,951
         Amortization                                                        766,141          582,032
         Non-cash interest expense for beneficial conversion feature
              (Note 5)                                                       205,200              -
         Deferred income tax benefit                                             -            (21,600)
         Loss on disposal of equipment                                         2,308            6,464
         Changes in assets and liabilities that provided (used) cash:
              Accounts receivable                                            846,592        2,576,251
              Inventories                                                    773,652         (892,119)
              Prepaid expenses and other current assets                       28,333         (263,141)
              Accounts payable                                               (82,407)         (70,044)
              Deferred revenue and accrued expenses                         (276,002)        (621,959)
                                                                         -----------      -----------

              Net cash provided by operating activities                      275,550          943,410
                                                                         -----------      -----------

Cash flows from investing activities:
     Acquisition of A-OK Controls, Inc., net of cash acquired (Note 2)           -         (2,772,561)
     Acquisition of Optimation, Inc., net of cash acquired (Note 2)         (278,877)             -
     Additions to capitalized software development costs                    (317,946)        (362,399)
     Additions to property and equipment                                     (84,147)        (139,567)
     Proceeds from disposals of property and equipment                         1,983            2,750
                                                                         -----------      -----------

              Net cash used in investing activities                         (678,987)      (3,271,777)
                                                                         -----------      -----------

Cash flows from financing activities:
     Proceeds from issuance of convertible subordinated notes
         and warrants (Note 5)                                             1,200,000              -
     Proceeds from issuance of common stock                                  278,000              -
     Proceeds from long-term debt agreement                                      -          1,500,000
     Payments of long-term debt                                             (558,814)        (124,056)
     Increase (decrease) in notes payable to bank                           (373,850)         742,929
     Payments of deferred financing fees                                     (61,440)         (30,545)
                                                                         -----------      -----------

              Net cash provided by financing activities                      483,896        2,088,328
                                                                         -----------      -----------

Foreign currency translation effect                                           (4,507)         (19,256)
                                                                         -----------      -----------

Net increase (decrease) in cash and cash equivalents                          75,952         (259,295)

Cash and cash equivalents at beginning of period                              74,712          356,668
                                                                         -----------      -----------

Cash and cash equivalents at end of period                               $   150,664      $    97,373
                                                                         ===========      ===========
</TABLE>


                                                         Continued on next page.



                                     Page 4
<PAGE>   5


ITEM 1. FINANCIAL STATEMENTS - CONTINUED

                      NEMATRON CORPORATION AND SUBSIDIARIES
           CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED
                         FOR THE SIX-MONTH PERIODS ENDED
                             JUNE 30, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                            SIX MONTHS ENDED JUNE 30,
                                                                            -------------------------
                                                                              2001             2000
                                                                           (UNAUDITED)      (UNAUDITED)
<S>                                                                       <C>              <C>
Non-cash financing and investing activities:
     Fair value of assets acquired from Optimation, Inc.,
       including goodwill                                                 $2,459,727
     Less liabilities assumed                                             (1,180,850)
     Less common stock issued                                             (1,000,000)
                                                                          ----------

              Net cash paid for Optimation, Inc. (Note 2)                 $  278,877
                                                                          ==========

     Fair value of assets acquired from A-OK Controls,
       including goodwill                                                                  $6,291,086
     Less liabilities assumed                                                              (2,268,525)
     Less common stock issued                                                              (1,250,000)
                                                                                           ----------

              Net cash paid for A-OK Controls, Inc. (Note 2)                               $2,772,561
                                                                                           ==========

Supplemental disclosures of cash flow information:
     Cash paid for interest                                                 $334,429         $160,203
     Cash paid for income taxes                                                  -                -
</TABLE>



                                     Page 5
<PAGE>   6


ITEM 1. FINANCIAL STATEMENTS - CONTINUED

                      NEMATRON CORPORATION AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                         FOR THE SIX-MONTH PERIODS ENDED
                             JUNE 30, 2001 AND 2000


NOTE 1 - BASIS OF PRESENTATION

         The accompanying consolidated financial statements include the accounts
of Nematron Corporation (the "Company") and its wholly-owned subsidiaries,
Nematron Limited, a United Kingdom corporation, Nematron Canada Inc., a Canadian
corporation, A-OK Controls Engineering, Inc. ("A-OK Controls"), a Michigan
corporation, and Optimation, Inc. ("Optimation"), an Alabama corporation. All
significant intercompany transactions and balances have been eliminated in
consolidation. The Company acquired 100% of the equity of A-OK Controls and
Optimation effective on June 30, 2000 and March 30, 2001, respectively (see Note
2). The consolidated condensed financial statements presented herein include the
results of operations of A-OK Controls and Optimation since June 30, 2000 and
March 31, 2001, respectively.

         In the opinion of management, all adjustments (consisting solely of
normal recurring adjustments) considered necessary for a fair presentation of
the consolidated financial statements for the interim periods have been
included. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission's rules and regulations, although the Company believes that
the disclosures are adequate to make the information presented not misleading.
It is suggested that these condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report on Form 10-KSB.

         The results of operations for the three- and six-month periods ended
June 30, 2001 and 2000 are not necessarily indicative of the results to be
expected for the full year.


NOTE 2 - ACQUISITIONS

         Acquisition of A-OK Controls

         On June 30, 2000, the Company completed its acquisition of A-OK
Controls, an Auburn Hills, Michigan-based provider of automation control
engineering and system integration services. The Company recorded this
transaction using the purchase method of accounting.

         The purchase price was approximately $4,538,000, including expenses of
approximately $186,000. Under the terms of the related A-OK Controls Stock
Purchase Agreement, the Company issued 604,186 shares of its common stock to the
former A-OK Controls shareholder in exchanges for 100% of the outstanding equity
of A-OK Controls. Additionally, the Company paid the former shareholder of A-OK
Controls $2,750,000 cash and agreed to pay the remaining amount of $352,000
after December 31, 2000. In connection with the A-OK Controls Stock Purchase
Agreement, the Company also entered into a three-year employment agreement and a
five-year agreement not to compete with A-OK Controls' former shareholder.



                                     Page 6
<PAGE>   7


         The allocation of the total purchase price to assets acquired and
liabilities assumed as of the June 30, 2000 acquisition date are as follows:

<TABLE>
<S>                                                             <C>
                  Cash                                          $    42,000
                  Accounts receivable and other current assets    3,490,000
                  Equipment                                         611,000
                  Intangible assets, including goodwill           2,559,000
                  Current notes payable                          (1,420,000)
                  Other current liabilities                        (675,000)
                  Long-term debt                                   (109,000)
                                                                -----------

                  Total purchase price - A-OK Controls          $ 4,538,000
                                                                ===========
</TABLE>

         Acquisition of Optimation

         On March 30, 2001, the Company completed its acquisition of Optimation,
a Huntsville, Alabama-based company that develops, produces and markets
industrial communications and display products for industrial automation. The
Company recorded this transaction using the purchase method of accounting.

         The purchase price was approximately $1,660,000, including expenses of
approximately $60,000. Under the terms of the related Optimation Stock Purchase
Agreement, the Company issued 1,483,680 shares of its common stock to the former
Optimation shareholders in exchanges for 100% of the outstanding equity of
Optimation. Additionally, the Company paid the former Optimation shareholders
$300,000 and agreed to pay the former Optimation shareholders $300,000 ninety
days after the acquisition. In connection with the Optimation Stock Purchase
Agreement, the Company also entered into three-year employment agreements and
three-year agreements not to compete with Optimation's president and
vice-president, both of who were Optimation shareholders.

         The allocation of the total purchase price to assets acquired and
liabilities assumed as of the March 30, 2001 acquisition date are as follows:

<TABLE>
<S>                                                             <C>
                  Cash                                          $    21,000
                  Accounts receivable and other current assets    1,605,000
                  Equipment                                          19,000
                  Intangible assets, including goodwill             835,000
                  Current notes payable                            (640,000)
                  Other current liabilities                        (137,000)
                  Long-term debt                                    (43,000)
                                                                -----------

                  Total purchase price - Optimation             $ 1,660,000
                                                                ===========
</TABLE>

         The following unaudited pro forma summary presents the consolidated
results of operations as if the acquisition of A-OK Controls and Optimation had
occurred on January 1, 2000, the earliest period presented in this Form 10-QSB,
and does not purport to be indicative of either what would have occurred had the
acquisition of A-OK Controls and Optimation actually been consummated at that
date or the Company's future results of operations:

<TABLE>
<CAPTION>
                                        Three Months Ended June 30,    Six Months Ended June 30,
                                        ---------------------------    -------------------------
                                           2001            2000            2001         2000
                                           ----            ----            ----         ----
<S>                                      <C>            <C>              <C>          <C>
         Revenues                        $4,764,000     $7,017,000       $9,961,000   $15,259,000
         Net loss                        (1,227,000)      (786,000)      (2,261,000)     (419,000)
         Loss per share, diluted             $(0.08)        $(0.05)          $(0.15)       $(0.03)
</TABLE>




                                     Page 7
<PAGE>   8


NOTE 3 - INVENTORIES

      Inventories consist of the following at June 30, 2001 and December 31,
2000:

<TABLE>
<CAPTION>
                                                                          JUNE 30,         DECEMBER 31,
                                                                            2001               2000
<S>                                                                      <C>              <C>
      Purchased parts and accessories                                    $ 2,019,309      $ 1,544,890
      Work in process                                                        207,740          105,742
      Finished goods, demo units and service stock                           373,873          305,623
                                                                         -----------      -----------

          Total inventory                                                $ 2,600,922      $ 1,956,255
                                                                         ===========      ===========
</TABLE>


NOTE 4 - NOTES PAYABLE TO BANK

         The Company and its A-OK Controls subsidiary are parties to two loan
and security agreements, amended through April 12, 2001 (the "Agreements"), with
a Wisconsin-based bank. The Agreements provide for a total of $6.0 million in
two lines of credit, a $2.9 million term loan and a $1.5 million special
accommodation advance for the purpose of the Company's acquisition of A-OK
Controls on June 30, 2000. The Agreements provide for credit facilities through
November 2003, and may be extended for an additional one-year period at the
option of the Company, unless the lender gives prior notice of termination.

         The amount available under the lines of credit are limited by a
borrowing formula that allows for advances up to a maximum of the sum of
specified percentages of eligible accounts receivable, less the amount, if any,
of outstanding letters of credit issued by the Company. Amounts borrowed under
the lines of credit facilities total $1,725,468 at June 30, 2001, and such
borrowings bear interest at the prime rate plus 2.5% (9.25% effective rate at
June 30, 2001). Based upon such borrowing formula, $584,000 of the available
lines is eligible for advance at June 30, 2001. The lines of credit and the term
loans (see Note 6) are collateralized by substantially all assets of the Company
and a mortgage on the Company's Ann Arbor facility.

         The Company's wholly owned subsidiary, Optimation, is party to a loan
and security agreement with an Alabama-based bank. The agreement, amended
through July 9, 2001, provides for a total line of credit of $620,000. The
amount available under the line of credit is limited by a borrowing formula that
allows for advances up to a maximum of the sum of specified percentages of
eligible accounts receivable and inventory. Amounts borrowed under the line of
credit facility total $600,000 at June 30, 2001, and such borrowings bear
interest at the prime rate plus .50% (7.25% effective rate at June 30, 2001).
Based upon such borrowing formula, $20,000 of the available line is eligible for
advance at June 30, 2001. The agreement provides for line of credit facility
through November 1, 2001. The Optimation line of credit is collateralized by
substantially all assets of Optimation, a guaranty by Nematron and a partial
guaranty by Optimation's president.


NOTE 5 - CONVERTIBLE SUBORDINATED DEBT

      In March and April 2001, the Company sold $1,200,000 of principal amount
of convertible subordinated promissory notes, bearing interest at 10% per annum
("Subordinated Notes") and warrants to purchase a total of 800,000 shares of
Common Stock ("Warrants"). The Subordinated Notes are due August 31, 2001 and
may be prepaid at any time prior to maturity. The Company intends to complete a
private offering of equity securities by August 31, 2001. If such offering is
completed, the Noteholders may convert the principal amount of the Subordinated
Notes and accrued interest thereon into the same class of shares that the
Company issues in such offering at a conversion price per share equal to the
offering price per share of the shares sold in such offering. The Subordinated
Notes become due and payable immediately if the issuance of the shares into
which the Subordinated Notes may be converted is not approved by shareholders of
the Company by the later of August 31, 2001 or the date of its 2001 annual
shareholders meeting. If the Company does not complete an equity financing
pursuant to which it receives gross proceeds of at least $5 million by August
31, 2001 (the "Proposed Equity Offering"), the Noteholders may convert the
principal amount of the Subordinated Notes and accrued interest thereon into
shares of Common Stock at $0.30 per share. However, if the daily closing price
of the Common Stock, as traded on the



                                     Page 8
<PAGE>   9

American Stock Exchange, falls below $0.30 per share for five consecutive days,
the conversion price will be adjusted downward to the lowest price during such
five trading day period.

      The Warrants, which are non-assignable, allow the holders to purchase
Common Stock at $0.30 per share (the "Per Share Warrant Price") at any time
until March 31, 2006. If at any time prior to the exercise of the Warrants the
daily closing price of the Common Stock, as traded on the American Stock
Exchange, falls below the Per Share Warrant Price for five consecutive days, the
Per Share Warrant Price will be adjusted downward to the lowest price during
such five trading day period. In the event that the Company completes the
Proposed Equity Offering at less than the Per Share Warrant Price, the holders
have the option to exchange the Warrants for warrants to purchase a greater
number of shares based on the difference between the Per Share Warrant Price and
the Proposed Equity Offering price per share. Because the Per Share Warrant
Price was less than the closing price of the Common Stock, as traded on the
American Stock Exchange, on the dates the notes were sold, the Warrants were
ascribed a value of $342,000 and such amount was credited to shareholders
equity, and the Subordinated Notes were ascribed a value of $858,000. The value
of the beneficial conversion will be charged to interest over the life of the
Subordinated Note, resulting in a total non-cash charge to interest expense of
$342,000 between April 1, 2001 and August 31, 2001, including $205,200 for the
three-month period ended June 30, 2001.


NOTE 6 - LONG-TERM DEBT

      The bank agreements governing the lines of credit (see Note 4) and the
term loans contain several financial covenants, including specified levels of
tangible net worth, interest coverage and debt service coverage. The terms of
the Agreements also prohibit the payment of dividends, limit the amount of
annual capital expenditures and include other restrictive covenants. On March 1,
2001, the bank agreements were amended to reduce the available lines of credit
from $8.0 million to $6.0 million. On April 12, 2001, the Agreements were
further amended and the covenant violations that existed at December 31, 2001
and at the date of the amendment were waived effective December 31, 2000, new
covenants were established and the credit facility was extended for an
additional one-year period to be in place through November 2003.

      The Company reported to its senior bank lender that it is not in
compliance with the tangible net worth covenant as of June 30, 2001, and that
the Company may not meet its annual interest coverage and debt service coverage
covenants which will be measured as of December 31, 2001.. The senior bank
lender has not notified the Company as to its plans, but it has a right to take
any action permitted under the Credit Agreement and related agreements in the
future without any notice to the Company. The lender and management are
discussing management plans to cure the defaults, including, without limitation,
a capital infusion by accredited investors. This capital infusion, if
successful, may cure the tangible net worth covenant, but it will not cure the
debt service and interest coverage covenants. Management is hopeful, however,
that a successful capital infusion will cause the lender to continue its
forbearance. In view of the continuing default, the Company has classified all
indebtedness to the lender as current liabilities.

      Long-term debt includes the following debt instruments at June 30, 2001
and December 31, 2000:

<TABLE>
<CAPTION>
                                                                          JUNE 30,          DECEMBER  31,
                                                                            2001                 2000
<S>                                                                      <C>                <C>
Term note payable to a bank, interest at prime plus 2.5% (9.25%
    effective rate as of June 30, 2001), payable in monthly
    installments of $16,111 through November 2002 at which
    time any remaining principal and interest thereon is due             $2,610,000           $ 2,706,667
Term note payable to a bank, interest at prime plus 3.0%, (9.75%
    effective rate as of June 30, 2001), payable in monthly
    installments of $62,500 through August 2002 at which time
    the remaining principal and interest thereon is due                     812,500             1,187,500
Capitalized lease obligations and other notes                                37,083                59,741
                                                                         ----------           -----------

    Total long-term debt                                                  3,459,583             3,953,908

Less current maturities                                                        --              (3,953,908)
                                                                         ----------           -----------

Long-term debt, less current maturities                                  $3,459,583           $      --
                                                                         ==========           ===========
</TABLE>



                                     Page 9
<PAGE>   10

NOTE 7 - TAXES ON INCOME

         The current tax benefits computed for the three-and six-month periods
ended June 30, 2000 reflects the tax benefit associated with the amortization of
non-deductible acquired intangible assets during the same period.

         The Company has net operating loss carryforwards ("NOLs") of
approximately $20.2 million that may be applied against future taxable income.
The NOLs expire in varying amounts from 2004 and through 2020. Utilization of
these NOLs is subject to annual limitations under current Internal Revenue
Service regulations. The Company has established a valuation allowance for the
estimated amount of the total limitation on the utilization of the NOLs.
Realization of net deferred tax assets associated with the NOLs is dependent
upon generating sufficient taxable income prior to their expiration.


NOTE 8 - EARNINGS PER SHARE

         Basic earnings per share ("EPS") are based on the weighted average
number of shares outstanding for each period presented because common stock
equivalents are anti-dilutive. Diluted earnings per share is the same as basic
earnings per share for all periods presented because the inclusion of options
and warrants would have an antidilutive effect on loss per share during all
periods presented.

         Information as to options and warrants outstanding that have been
excluded from the computation of diluted earnings per share is as follows:

<TABLE>
<CAPTION>
                                        Three Months Ended June 30,    Six Months Ended June 30,
                                        ---------------------------    -------------------------
                                           2001            2000            2001         2000
                                           ----            ----            ----         ----
<S>                                       <C>            <C>              <C>          <C>
         Options:
           Number                         2,230,692      1,076,906        2,230,692    1,076,906
           Expiration dates               2003-2011      2003-2010        2003-2011    2003-2010
         Warrants:
           Number                           997,678        197,678          997,678      197,678
           Expiration dates               2002-2006           2002        2002-2006         2002
</TABLE>




                                    Page 10
<PAGE>   11


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS

         The Company acquired 100% of the equity of A-OK Controls effective at
the close of business on June 30, 2000, and acquired 100% of the equity of
Optimation effective at the close of business on March 30, 2001. The
consolidated condensed financial statements include the results of operations of
A-OK Controls and Optimation (the "acquired companies") since June 30, 2000 and
March 31, 2001, respectively.

THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 2001 COMPARED WITH THE THREE- AND
SIX-MONTH PERIODS ENDED JUNE 30, 2000

         Net revenues for the three- and six-month periods ended June 30, 2001
increased $907,000 (23.5%) and $453,000 (5.0%), respectively, to $4,764,000 and
$9,550,000, respectively, compared to the same periods last year. The revenue
increases are primarily attributable to revenues of the acquired companies
totaling $2,245,000 and $3,125,000 during the three- and six-month periods ended
June 30, 2001, offset by decreases in sales of hardware products and bundled
Industrial Control Computers under a major supply program with a major
automotive company. Management expects that net revenues for the last six months
of 2001 will be consistent with the year earlier period totals, based on
existing scheduled production releases and scheduled and anticipated service
schedules.

         Gross profit for the three- and six-month periods ended June 30, 2001
increased $38,000 (4.0%) and decreased $757,000 (29.2%), respectively, to
$1,009,000 and $1,832,000, respectively, compared to the same periods last year.
Gross profit as a percentage of net revenues for the three- and six-month
periods ended June 30, 2001 was 21.2% and 19.2% respectively, compared to 25.2%
and 28.5% in the same periods last year. The decreases in gross profit
percentage resulted from the effect of fixed cost on lower hardware-based
revenues in the current periods and from a lower percentage of sales of higher
margin bundled hardware/software products under the major supply program with a
major automotive company in the current periods compared to the same periods
last year. Additionally, the percentage of high margin software sales decreased
in both the three- and six-month periods ended June 30, 2001, resulting in a
deterioration of overall gross profit margin. Management expects that gross
profit margins will remain relatively constant throughout the year as the mix of
sales in the remaining quarters of 2001 is expected to be similar to the sales
mix experienced in the first six months of the year, based on the current
backlog and forecasts.

         Product development expenses for the three- and six-month periods ended
June 30, 2001 decreased $9,000 (7.0%) and $20,000 (7.8%), respectively, to
$124,000 and $238,000, respectively, compared to the same periods last year. The
decrease is attributable to a slightly smaller development staff in the current
periods compared to a year ago. Management expects that product development
expenses will decrease slightly in the remaining quarters of 2001 as staff
levels and new software development efforts are planned to decrease from current
levels.

         Selling, general and administrative expenses for the three- and
six-month periods ended June 30, 2001 increased $199,000 (13.0%) and $42,000
(1.3%) to $1,733,000 and $3,290,000, respectively, compared to the comparable
periods last year. The increase in selling, general and administrative expenses
resulted primarily from sales and administrative expenses of the acquired
companies during the periods. During the three-month period ended June 30, 2001,
the acquired companies incurred $526,000 of selling, general and administrative
expenses while historical expenses decreased by $327,000 over the year earlier
period. During the six-month period ended June 30, 2001, the acquired companies
incurred $932,000 of selling, general and administrative expenses while
historical expenses decreased by $890,000 over the year earlier period.
Management expects that selling, general and administrative expenses for the
last six months of 2001 will remain consistent with the level of expenses
incurred in the first half of the year.

         Interest expense for the three- and six-month periods ended June 30,
2001 increased $325,000 (451.8%) and $420,000 (284.4%), respectively, to
$397,000 and $568,000, respectively, compared to $72,000 and $147,000,
respectively, for the comparable periods last year. Interest expense for both
the three- and six-month periods ended June 30, 2001 includes $205,000 of
non-cash interest expense related to the beneficial conversion feature of
warrants sold in March and April 2001 wherein the conversion price of the
warrants is below the market price of the common stock, into which the warrants
may be converted, on the date of the sale of the warrants and convertible
subordinated debt which raised $1.2 million. The total discount to market,
assuming all warrants will be converted to common stock, totals $342,000, and
such amount is being amortized to interest expense over the term of the
convertible subordinated debt, April




                                    Page 11
<PAGE>   12

through August 2001, at $68,400 per month. Absent the non-cash charge for the
beneficial conversion feature described above, the increase in interest expense
for the three- and six-month periods ended June 30, 2001 increased $120,000 and
$215,000, respectively, compared to the comparable 2000 periods. The increase in
interest expense in each period results form increased borrowing levels
beginning June 30, 2000 when the Company funded a portion of the purchase price
of A-OK Controls with bank borrowings.

         Sundry income (expense) for the three-month period ended June 30, 2001
was $7,000 versus $3,000 for the comparable 2000 period and was not significant
for either period. Sundry income (expense) for the six-month period ended June
30, 2001 was $8,000 versus $ $378,000 for the comparable 2000 period; the
$378,000 for the 2000 period resulted from of an unused domain name during the
period.


LIQUIDITY AND CAPITAL RESOURCES

         Primary sources of liquidity are cash generated from operations, short
term subordinated debt and the Company's three secured lines of credit that
total $6.6 million. As of June 30, 2001, the Company had $2,325,000 outstanding
under the lines of credit and approximately $584,000 of additional borrowing
capacity available under such credit lines. The Company has two lines of credit
with its principal bank providing two lines of credit totaling $6.0 million
through November 2003. The Company also has a secured line of credit through its
wholly owned subsidiary, Optimation, with an Alabama-based bank, and such line
of credit is for $620,000 through November 2001. The Company intends, prior to
its November maturity date, to renew the Optimation credit line for an
additional year.

         The Company reported to its senior bank lender that it is not in
compliance with the tangible net worth covenant as of June 30, 2001, and that
the Company may not meet its annual interest coverage and debt service coverage
covenants which will be measured as of December 31, 2001.. The senior bank
lender has not notified the Company as to its plans, but it has a right to take
any action permitted under the Credit Agreement and related agreements in the
future without any notice to the Company. The lender and management are
discussing management plans to cure the defaults, including, without limitation,
a capital infusion by accredited investors. This capital infusion, if
successful, may cure the tangible net worth covenant, but it will not cure the
debt service and interest coverage covenants. Management is hopeful, however,
that a successful capital infusion will cause the lender to continue its
forbearance. In view of the continuing default, the Company has classified all
indebtedness to the lender as current liabilities.

         The Company's operations generated $276,000 of cash in the first six
months of 2001, including a $1,290,000 positive effect from changes in working
capital items.

         In the short term, the Company will be required to repay its $1.2
million principal amount of subordinated notes unless such notes are converted
by the holders. The Company also has commitments to make payments approximating
$500,000 on term debt prior to year end 2001. Management intends to complete an
equity offering to accredited investors prior to August 31, 2001 whereby the
Company would raise a minimum of $5 million, a portion of the proceeds of which
would be applied to the repayment of the subordinated notes. If such offering is
not completed, the Company expects the subordinated notes to be converted into
common stock.

         Based upon the Company's existing working capital of $376,000,
forecasted revenue and expense levels and forecasted lines of credit
availability, and assuming the conversion of the subordinated notes to common
stock, the Company believes it has sufficient liquidity to satisfy its
liabilities as they become due. The Company believes that its long-term
liquidity needs will be satisfied through the proceeds of the private equity
offering it expects to complete on or prior to August 31, 2001.

         Management can offer no assurance that the private placement of
securities will be successful, nor if the private placement occurs, that the
equity raised will be sufficient persuade the bank to continue its forbearance
on calling the debt because of the continuing covenant violations. If the
private placement is not successful, the Company will not have sufficient
liquidity to satisfy its liabilities and obligations as they become due and it
may be forced to curtail its operations.




                                    Page 12
<PAGE>   13




UNCERTAINTIES RELATING TO FORWARD LOOKING STATEMENTS

     "Item 2. Management's Discussion and Analysis or Plan of Operation" and
other parts of this Form 10-QSB contain certain "forward-looking statements"
within the meaning of the Securities Act of 1934, as amended. While the Company
believes any forward-looking statements it has made are reasonable, actual
results could differ materially since the statements are based on current
management expectations and are subject to risks and uncertainties. These risks
and uncertainties include, but are not limited to the following:

     -    Uncertainties discussed elsewhere in "Management's Discussion and
          Analysis or Plan of Operation" above;

     -    The potential inability to raise additional equity or debt financing
          in a sufficient amount to sustain operations and allow management to
          execute its strategies;

     -    The potential inability to modify bank covenants as it may be
          necessary from time to time or continue the lender's forbearance
          exercising its remedies;

     -    The inability of the Company to successfully implement its strategy to
          capitalize on the industrial automation market migration from closed
          architecture PLCs to open architecture PC-based solutions;

     -    Changes in Company strategy;

     -    The potential inability of the Company to utilize its newly formed
          manufacturers representative sales channel to increase sales over
          prior year levels;

     -    The ability of the Company to effectively and efficiently integrate
          the operations of acquired companies;

     -    The decline of economic conditions in general and conditions in the
          automotive manufacturing industry in particular;

     -    Competitive factors (including the introduction or enhancement of
          competitive products);

     -    Changes in customer requirements;

     -    A reduction in demand for the Company's products and services;

     -    Reductions in product life cycles;

     -    Pricing pressures that may result in materially reduced selling prices
          for the Company's products;

     -    Component price increases, component availabilities and the
          availability of replacement or substitute components;

     -    Delays in introduction of planned hardware and software product
          offerings;

     -    Software defects and latent technological deficiencies in new
          products;

     -    Unforeseen increases in operating expenses;

     -    Adverse fluctuations in foreign exchange rates;

     -    The inability to attract or retain sales and/or engineering talent;
          and

     -    Evolving industrial automation industry standards.




                                    Page 13
<PAGE>   14



                           PART II - OTHER INFORMATION

ITEM 5.  OTHER INFORMATION

(A)  The Company has established the date for its 2001 Annual Meeting of
     Shareholders as September 6, 2001. Shareholder proposals intended to be
     presented at the 2001 Annual Meeting of Shareholders which are eligible for
     inclusion in the Company's Proxy Statement for that meeting under the
     applicable rules of the Securities and Exchange Commission must be received
     by the Company not later than August 6, 2001 if they are to be included in
     the Company's Proxy Statement relating to that meeting. This is a change
     from the 2000 Proxy Statement which stated that such proposals must be
     received by the Company by December 20, 2000. Such proposals should be
     addressed to the Secretary at the Company's principal executive offices and
     should satisfy the requirements applicable to shareholder proposals
     contained in the Company's bylaws.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits included herewith are set forth on the Index to Exhibits, which is
     incorporated herein by reference.

(b)  During the quarter ended June 30, 2001, the Company filed a report on Form
     8-K dated as of April 3, 2001 reporting information under Item 5 pertaining
     to the Company's March 30, 2001 acquisition of 100% of the outstanding
     equity of Optimation, Inc. There were no financial statements filed with
     the report.



                                   SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                  NEMATRON CORPORATION

                                  BY:

JULY 26, 2001                     /S/ MATTHEW S. GALVEZ
-------------------------------   ----------------------------------------------
DATE                              MATTHEW S. GALVEZ, PRESIDENT & CEO
                                  (DULY AUTHORIZED OFFICER)

JULY 26, 2001                     /S/ DAVID P. GIENAPP
--------------------------------  ----------------------------------------------
DATE                              DAVID P. GIENAPP, EXECUTIVE VICE PRESIDENT -
                                  FINANCE & ADMINISTRATION
                                  (CHIEF ACCOUNTING OFFICER)




                                    Page 14
<PAGE>   15



                                INDEX TO EXHIBITS


Exhibit Number             Description of Exhibit


       4.0                 Modification and Amendment to Loan Documents
                           Regarding the Revolving Credit and Security Agreement
                           dated July 9, 1999, by and between Optimation, Inc.
                           and Compass Bank.




                                    Page 15