NEUTRAL POSTURE ERGONOMICS INC, SB-1/A, 1997-09-05

NEUTRAL POSTURE ERGONOMICS INC
SB-1/A, 1997-09-05
OFFICE FURNITURE (NO WOOD)

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 5, 1997

REGISTRATION NO. 333-33675

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------

PRE-EFFECTIVE AMENDMENT NO. 1

FORM SB-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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NEUTRAL POSTURE ERGONOMICS, INC.

(Name of small business issuer in its charter)

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<C> <C> <C>
TEXAS 2522 74-2563656
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or
organization)
</TABLE>

3904 N. TEXAS AVENUE
BRYAN, TEXAS 77803
(409) 778-0502
(Address and telephone number of principal executive offices
and principal place of business)
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REBECCA E. BOENIGK
CHIEF EXECUTIVE OFFICER
NEUTRAL POSTURE ERGONOMICS, INC.
3904 N. TEXAS AVENUE
BRYAN, TEXAS 77803
(409) 778-0502
(Name, address and telephone number of agent for service)
---------------------

Copies to:

<TABLE>
<C> <C>
GREG R. SAMUEL DAVID E. MORRISON
HAYNES AND BOONE, LLP THOMPSON & KNIGHT, P.C.
901 MAIN STREET 1700 PACIFIC AVENUE
SUITE 3100 SUITE 3300
DALLAS, TEXAS 75202-3789 DALLAS, TEXAS 75201
(214) 651-5000 (214) 969-1700
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE

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<CAPTION>
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share........................... 1,494,000 shares $6.50 $9,711,000 $2,942.72
===================================================================================================================
</TABLE>

(1) Includes shares issuable upon exercise of the Underwriter's over-allotment
option.

(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of Regulation C under the Securities Act of 1933, as amended.

(3) $2,265.15 of this registration fee was paid with the initial filing of this
Registration Statement.

---------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED SEPTEMBER 5, 1997

1,334,000 SHARES

[LOGO]

NEUTRAL POSTURE ERGONOMICS, INC.

COMMON STOCK
---------------------

Of the 1,334,000 shares of Common Stock being offered hereby, 900,000
shares of Common Stock are being offered by Neutral Posture Ergonomics, Inc.
(the "Company") and 434,000 shares of Common Stock are being offered by the
Selling Shareholders. See "Principal and Selling Shareholders" and
"Underwriting." The Company will not receive any proceeds from the sale of the
Common Stock by the Selling Shareholders or from the sale of Common Stock
offered by certain of the Selling Shareholders in connection with any exercise
of the Underwriter's over-allotment option.

Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price per
share will be between $6.00 and $6.50. For information relating to the factors
to be considered in determining the initial public offering price, see
"Underwriting." The Company has applied for inclusion of the Common Stock on the
Nasdaq Stock Market's National Market under the symbol "NTRL."

---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS
OF THE COMMON STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
====================================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNT AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3)................ $ $ $ $
==================================================================================================================
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Does not reflect additional compensation to Huberman Financial, Inc. (the
"Underwriter") in the form of warrants granted to the Underwriter to
purchase 133,400 shares of Common Stock at a price of 120% of the Price to
Public exercisable over a period of four years commencing one year from
consummation of the offering (the "Underwriter's Warrants"). In addition,
the Company and the Selling Shareholders have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting estimated expenses of $ payable by the Company.

(3) Certain of the Selling Shareholders have granted the Underwriter a 45-day
option to purchase up to an additional 160,000 shares of Common Stock,
solely to cover over-allotments, if any. See "Underwriting." If the
Underwriter exercises this option in full, then the total Price to Public,
Underwriting Discount and Commissions, Proceeds to Company and Proceeds to
Selling Shareholders will be $ , $ , $ and
$ , respectively.

The shares of Common Stock are offered by the Underwriter subject to
receipt and acceptance by the Underwriter, and subject to its right to reject
any order in whole or in part. It is expected that certificates representing the
shares of Common Stock will be ready for delivery on or about
, 1997.
---------------------

HUBERMAN FINANCIAL, INC.

The date of this Prospectus is , 1997.
<PAGE> 3

[Picture of chair.]

[Picture of Dr. Jerome Congleton.]

[Jerome J. Congleton, Ph.D., P.E., C.P.E.]

[ERGO 2000(TM) Logo.]

[Picture of Earth.]

[Picture of male and female sitting in the neutral posture position.]

[Neutral Posture(R) chairs are designed to emulate the body position of

weightlessness in space -- free, neutral and without stress.]

[Pictures of ComputErgo(TM).]

[ERGO 2000(TM) Logo.]

[Pictures of chairs.]

[Pictures of employees assembling chairs.]

[Neutral Posture Ergonomics, Inc. Logo]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this prospectus. Except as otherwise specified, the information in
this prospectus (i) gives effect to a 19-for-1 stock dividend (accounted for as
a stock split) effected by the Company on August 11, 1997, (ii) assumes no
exercise of the Underwriter's over-allotment option to purchase additional
shares of stock and (iii) assumes no exercise of the Underwriter's Warrants. A
reference to a "fiscal year" by date refers to the Company's fiscal year ending
June 30 of that calendar year. "Neutral Posture(R)" and "ComputErgo(TM)" are
trademarks of the Company.

THE COMPANY

The Company manufactures, markets and distributes ergonomic chairs based
upon patented and/or patent-pending designs of Jerome Congleton, Ph.D., P.E.,
C.P.E., an ergonomist certified by the Board of Certification in Professional
Ergonomics who serves as a design consultant to, and a director of, the Company.
Based on anthropometrics, the scientific study of the measurements of size,
weight and proportions of the human body, the Company manufactures five series
of ergonomic chairs designed to minimize the physical stress imposed upon the
human body while seated. Virtually all chairs marketed under the Neutral
Posture(R) tradename can be adjusted to accommodate the size, weight and
proportions of body types from as small as the 5th percentile female to as large
as the 95th percentile male. The Company is not aware of any other chair on the
market that (i) is designed by a certified ergonomist, (ii) is designed based on
anthropometric studies, and (iii) has interchangeable key components such as
seats, backs and arms.

The Company believes that the increase in computer users and other domestic
white collar office employees has benefitted, and the anticipated increase in
white collar office employees outside of the United States will benefit, its
ergonomic furniture business. The Company also believes that repetitive stress
injuries, which affect a number of seated workers, have created a market demand
for ergonomically designed products. According to the U.S. Bureau of Labor
Statistics, 62% of all workplace injuries in 1995 resulted from the stress of
repetitive motion on muscles and tendons. In addition, according to the National
Institute for Occupational Safety and Health, repetitive stress injuries cost
employers approximately $20 billion as a result of 2.73 million workers'
compensation claims in 1993. To address this reported problem, the Company
intends to research, create and develop additional ergonomic products consistent
with the Company's philosophy that its designs be based on ergonomic research
and anthropometric data. The Company's customers include AT&T Cellular One, Banc
One Corporation ("Banc One"), Hewlett-Packard Company ("Hewlett-Packard"),
International Business Machines Corporation ("IBM"), Intel Corporation, the
Internal Revenue Service, Lockheed Martin Corporation, Relax the Back
Franchising Company ("Relax the Back"), Sprint Corporation, the State of
Washington, Union Carbide Corporation, United Parcel Service of America, Inc.
("UPS"), the U.S. House of Representatives and U.S. Robotics Corporation.

During the first quarter of calendar year 1998, the Company anticipates
producing a portable ergonomic workstation for the transport and use of a laptop
computer, marketed under the tradename ComputErgo(TM). This patent-pending
product is being designed to help alleviate repetitive stress injuries
associated with the emergence of "alternative officing," utilizing a laptop
computer at any locale other than the traditional office.

The Company was incorporated under the laws of the State of Texas in 1990.
The Company's principal executive offices are located at 3904 N. Texas Ave.,
Bryan, Texas 77803, and its telephone number is (409) 778-0502.
3
<PAGE> 5

THE OFFERING

Common Stock offered by the
Company.................. 900,000 shares

Common Stock offered by the
Selling Shareholders..... 434,000 shares

Common Stock to be
outstanding after the
offering................. 3,200,000 shares(1)

Use of proceeds............ The Company intends to use the net proceeds from
this offering (i) to develop, manufacture and
market ComputErgo(TM), (ii) to seek to obtain ISO
9000 certification, (iii) to enhance the Company's
core products and to develop additional ergonomic
products, (iv) to add engineering and marketing
resources, and (v) for working capital. The Company
will not receive any proceeds from the sale of
shares of Common Stock by the Selling Shareholders
or from the sale of Common Stock offered by certain
of the Selling Shareholders in connection with any
exercise of the Underwriter's over-allotment
option. See "Use of Proceeds" and "Certain
Transactions."

Proposed Nasdaq National
Market symbol............ NTRL
- ---------------

(1) Excludes (i) 200,000 shares of Common Stock reserved for issuance under the
Company's 1997 Omnibus Securities Plan, of which the Company intends to
issue as soon as practicable following consummation of the offering options
to acquire 55,000 shares of Common Stock, (ii) 200,000 shares of Common
Stock reserved for issuance pursuant to options outstanding under the
Company's Amended and Restated 1996 Nonqualified Stock Option Plan, (iii)
133,400 shares of Common Stock subject to the Underwriter's Warrants. See
"Management -- 1997 Omnibus Securities Plan," "Management -- Amended and
Restated 1996 Nonqualified Stock Option Plan" and "Underwriting."

4
<PAGE> 6

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1996 1997
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(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................. $11,064 $ 12,089
Cost of sales............................................. 7,683 7,594
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Gross profit.............................................. 3,381 4,495
Selling, general and administrative expense............... 2,980 3,414
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Operating income.......................................... 401 1,081
Interest expense and other, net........................... 58 78
------- ----------
Income before income taxes................................ 343 1,003
Pro forma income tax expense(1)........................... 128 293
------- ----------
Pro forma net income(1)................................... $ 215 $ 710
======= ==========
Pro forma earnings per share(1)........................... $ .28
==========
Pro forma common shares outstanding....................... 2,500,000
==========
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<CAPTION>
JUNE 30, 1997
------------------------
ACTUAL AS ADJUSTED(2)
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 591 $5,366
Total assets.............................................. 3,698 8,473
Long-term debt, less current portion...................... 607 607
Shareholders' equity...................................... 1,599 6,374
</TABLE>

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(1) Effective as of April 1, 1996, the Company elected to operate as a
Subchapter S corporation under Subchapter S of the Internal Revenue Code of
1986, as amended (the "Code"), and comparable provisions of certain state
tax laws. The amounts shown reflect pro forma provisions for state and
federal income taxes as if the Company had been subject to such income
taxation during the entire fiscal years 1996 and 1997. See "Termination of
Subchapter S Corporation Status" and Note 4 of the Notes to Financial
Statements.

(2) Adjusts the actual amounts to reflect the sale of the shares offered hereby.
See "Termination of Subchapter S Corporation Status" and "Capitalization."

5
<PAGE> 7

RISK FACTORS

In addition to the other information contained in this prospectus,
prospective investors should consider the following factors in evaluating the
Company and its business before purchasing any of the shares of Common Stock
offered hereby.

Strong Competition in the Contract Furniture Industry. The contract
furniture industry is highly competitive, with a significant number of
competitors offering similar products. Many of the Company's competitors are
large and have significantly greater financial, marketing, manufacturing and
technical resources than those of the Company. The Company's most significant
competitors include Steelcase, Inc., Herman Miller, Inc. and Haworth, Inc. These
competitors have a substantial volume of furniture installed at businesses
throughout the country, providing a continual source of demand for further
products and enhancements. Moreover, the products of these competitors have
strong acceptance in the marketplace, and such competitors could develop
alternative product designs which could give them a competitive advantage over
the Company. The Company also competes with numerous smaller ergonomic furniture
companies such as HAG, Inc., Grahl Industries, Inc. and Bodybilt, Inc., a
wholly-owned subsidiary of Ergobilt, Inc. ("Bodybilt"). In addition, the Company
faces significant price competition from its competitors and may encounter
competition from new market entrants. There can be no assurance that the Company
will be able to compete successfully in the future.

Dependence on Key Personnel. The Company's future success will depend on
the continued efforts of Dr. Jerome Congleton, consultant, Rebecca E. Boenigk,
Chairman of the Board and Chief Executive Officer, David W. Campbell, President,
Gregory A. Katt, Vice President, Chief Financial Officer and
Secretary/Treasurer, and David W. Ebner, Vice President of Operations. Dr.
Congleton has a consulting agreement with the Company that expires July 1, 2007.
Mrs. Boenigk and Messrs. Campbell, Katt and Ebner have employment agreements
with the Company which contain non-compete and non-solicitation clauses and
expire July 1, 2000, subject to automatic one-year extensions unless either
party gives 60 days' notice of its intention not to renew. The Company maintains
key person life insurance on Dr. Congleton, Mrs. Boenigk and Mr. Campbell. The
loss of the services of one or more key personnel could have a material adverse
effect on the Company. The Company's success also depends on its ability to
retain its key management, marketing and sales personnel and to attract,
assimilate and retain qualified personnel at a reasonable cost. There can be no
assurance that the Company will be successful in attracting, assimilating and
retaining such personnel. See "Management."

Product Concentration; New Products. At the present time, the Company's
products are primarily limited to five series of ergonomic office chairs
marketed under the Neutral Posture tradename. The Company is subject to the risk
that demand for its existing products may be diminished by changing market
conditions, consumer preferences or competition, any of which could have a
material adverse effect on the Company. There can be no assurance that the
Company will be able to develop additional ergonomic products or that a market
would develop for any such products. Significant expenditures will be necessary
for the Company to offer new products, and it may take an extended period of
time for revenues to cover expenses. In addition, new products may have quality
or other defects in the early stages of introduction that were not anticipated
in the design of those products. The Company cannot determine the effect on
operating results of unanticipated complications in product introductions. If
the Company is able to develop new products, there can be no assurance that they
will achieve market acceptance or otherwise be successfully introduced. Any such
failure may have a material adverse effect on the Company. See
"Business -- Products."

Reliance on Intellectual Property. The Company owns a United States patent
and several trademarks in order to protect certain of its chair designs and
other intellectual property. The Company's patent covering virtually all of the
Neutral Posture chairs expires in October 2003. Because the Company's chairs can
be manufactured with a relatively small investment in infrastructure, expiration
of the patent in 2003 will thereafter leave the Company with few, if any, entry
barriers against existing furniture manufacturers or new market entrants that
desire to make competitive chairs based on the design encompassed by such
patent.

The Company does, however, have several patents pending, including the
patent application covering ComputErgo(TM), and the Company possesses a wide
array of unpatented proprietary know-how and common

6
<PAGE> 8

law trademarks. The Company's ability to compete effectively with other
companies depends, to a significant extent, on its ability to maintain the
proprietary nature of its intellectual property. There can be no assurance as to
the degree of protection offered by the claims of the patent and various
trademarks or the likelihood that patents or trademarks will be issued on
pending or contemplated applications. If the Company were unable to maintain the
proprietary nature of its intellectual property with respect to its current or
any future products, it could have a material adverse effect on the Company. See
"Business -- Patents and Trademarks."

There can be no assurance that any patents or trademarks that the Company
has or may obtain will not be challenged, invalidated, canceled, narrowed or
circumvented, or that the rights granted thereunder will provide significant
proprietary protection of competitive advantages to the Company. There can be no
assurance that, if challenged, the Company's patent or trademarks would be held
valid by a court of competent jurisdiction. If the Company were to lose its
patent covering virtually all of the Company's chairs the Company may need to
rely on its license to use such patent. A 1991 settlement agreement conditions
such license on the Company being majority-owned by Rebecca E. Boenigk and Jaye
E. Congleton, a limitation which would significantly limit the Company's ability
to obtain additional equity capital in the future. In addition, the Company's
competitors may have filed for patent protection which is not as yet a matter of
public knowledge. Moreover, a court could interpret a third party's patents
broadly so as to cover some of the Company's products.

The Company has sought and intends in the future to enforce its
intellectual property rights. In May 1997, the Company initiated arbitration
proceedings against Bodybilt claiming, among other things, patent infringement.
See "Legal Proceedings."

The Company has agreed to pay a perpetual 1% royalty of the net sales of
every ComputErgo(TM) sold by the Company to Texas A&M University, Dr.
Congleton's employer. The Company has been informed that Texas A&M University
will pay Dr. Congleton approximately one-half of its 1% royalty in accordance
with its standard policy. Although the Company does not believe that Texas A&M
University has any claims to Dr. Congleton's inventions, there can be no
assurance that Texas A&M University will not assert such claims in the future
and that, if Texas A&M University does, such claims will not be successful.

Dependence on Suppliers and Subcontractors. The Company's largest supplier,
Leggett & Platt, Inc., is currently the only source of a key component for
Neutral Posture chairs. While the Company has not had any adverse experience
with this supplier, the Company has no binding supply contract with Leggett &
Platt, Inc. Unless alternative supply sources are identified, the Company could
be subject to pricing risks, delivery delays and quality control problems, or
even unavailability of the component, any of which could have a material adverse
effect on the Company. Commencing in October 1997, the Company intends that
Shepherd Products, Inc. ("Shepherd") will begin to manufacture the majority of
the Company's seats and backs. Any disruption in the ability of Shepherd to
manufacture such key components would have a material adverse effect on the
Company.

Economic Factors Affecting the Contract Furniture Industry. Fluctuations in
industry revenues may be driven by a variety of macroeconomic factors, such as
white collar employment levels, corporate cash flows, and non-residential
commercial construction, as well as industry factors such as corporate
reengineering and restructuring, technology demands, ergonomic, health and
safety concerns and corporate relocations. There can be no assurance that
current or future economic or industry trends will not adversely affect the
Company.

Difficulty of Managing Expanding Operations. Since August 1992, the Company
has experienced substantial growth. If the Company continues to grow, the
Company's ability to manage growth successfully will require it to continue to
improve its operations and financial management and to train, motivate,
assimilate and effectively manage its employees. The Company's failure to manage
growth successfully could have a material adverse effect on the Company. The
Company's future success also depends on its continuing ability to attract,
assimilate and retain highly qualified managerial personnel. Competition for
such personnel is intense, and there can be no assurance that the Company will
retain its key managerial employees or that it will be successful in attracting,
assimilating or retaining highly qualified managerial and engineering personnel
in the future.

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<PAGE> 9

Dependence on Significant Customers. The Company's largest customers, the
General Services Administration ("GSA"), UPS, Banc One, Relax the Back, the
State of Washington and Hewlett-Packard accounted for approximately 16.2%,
10.4%, 6.2%, 5.4%, 5.3% and 4.9%, respectively, of its total revenues in fiscal
year 1997. The Company's contract with the GSA which is subject to renegotiation
or termination at the convenience of the GSA expires on January 20, 2001. The
Company has no binding contracts with UPS, Banc One, Relax the Back, the State
of Washington or Hewlett-Packard. One of the Company's dealers has an agreement
with the State of Washington, but there is no long-term contract between the
Company and such dealer. The loss of any of these customers, or a reduction in
any of these customers' purchases, could have a material adverse effect on the
Company.

Possible Acquisitions and Alliances. The Company's growth strategy includes
possible acquisitions and strategic marketing alliances to broaden its product
line. However, no assurance can be given that the Company will be able to find
attractive acquisition or alliance candidates or consummate acquisitions or that
it will successfully integrate or operate any acquired business. In the event
that the Company makes any such acquisition or alliance, there can be no
assurance that any such acquisition or alliance will not have a material adverse
effect on the Company, particularly, in the case of acquisitions, during the
period in which such operations are being integrated into those of the Company.
Furthermore, the Company's ability to make acquisitions or enter into alliances
may depend upon its ability to obtain financing, and there can be no assurance
that the Company will be able to obtain financing on acceptable terms, if at
all.

Uncertain Market Demand. Public awareness of ergonomics and the application
of anthropometrics is limited. There is limited data to validate the potential
market demand for the Company's products. There can be no assurance that this
increased market demand will develop or that the Company will be successful in
marketing ergonomic contract furniture or other products.

Potential Product Liability. The Company is subject to product liability
claims as a result of alleged product design and manufacturing defects. The
Company could be liable for product liability claims for failure to provide
appropriate literature warnings or directions with its products. The Company
also could be liable for product liability claims for defective products or
components as a result of its participation in the distribution of products or
components, even if the Company did not actually design, manufacture or assemble
the products or components. Although the Company has not experienced any
material loss due to product liability claims to date and currently maintains
product liability insurance coverage that it considers appropriate, there can be
no assurance that the amount or scope of the coverage maintained by the Company
will be adequate to protect it in the event a significant product liability
claim is asserted successfully.

Warranty Liability. Various components of the Company's chairs are
warranted against defects in materials or work quality for up to five years. The
Company has not experienced any material loss from warranty claims to date and
maintained a reserve, at June 30, 1997, of $131,000 for such claims. There can
be no assurance, however, that material warranty claims will not be asserted in
the future or, if asserted, that the Company's reserve will be adequate.

Risk of Environmental Liabilities. The past and present business operations
of the Company and the past and present ownership and operation of the
manufacturing plant on real property owned by the Company are subject to
extensive and changing federal, state, local and foreign environmental laws and
regulations, including those relating to discharges to air, water and land, the
handling and disposal of solid and hazardous waste and the cleanup of properties
affected by hazardous substances. The Company cannot predict what environmental
legislation or regulations will be enacted in the future, how existing or future
laws or regulations will be administered or interpreted or what environmental
conditions on its real property may be found to exist. Compliance with more
stringent laws or regulations, or stricter interpretation of existing laws, may
require additional expenditures by the Company, some of which may be material.

Control By Insiders. Following completion of this offering, the Company's
directors, executive officers and their relatives will control approximately
60.8% (53.3% if the Underwriter's over-allotment option is exercised in full) of
the Company's outstanding voting securities and will be in a position to elect
the Company's directors and officers, to control the policies and operations of
the Company and to determine the outcome of corporate transactions or other
matters submitted for shareholder approval. These matters may

8
<PAGE> 10

include mergers, consolidations, the sale of the Company's assets or a change in
control of the Company. The existence of these levels of ownership concentrated
in a few persons makes it unlikely that any other holder of Common Stock will be
able to affect the management or direction of the Company.

Seasonality. Historically, the Company's business has been subject to
seasonality. Typically, the Company's revenue is greater during the second and
third quarters of the Company's fiscal year. These seasonal fluctuations in
sales are due to customer ordering patterns that emphasize purchases in these
two quarters. The Company's results of operations would be adversely and
disproportionately affected if customer ordering patterns were substantially
lower than those normally expected during these two fiscal quarters. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Benefits of Offering to Selling Shareholders. The Selling Shareholders will
realize benefits from the offering that will not be received by persons
purchasing Common Stock in the offering. The Selling Shareholders will benefit
from the increased marketability of their shares of Common Stock and the sale of
certain of their shares of Common Stock in the offering. The aggregate purchase
price of the Selling Shareholders' shares was approximately $167,500. The shares
of Common Stock held by the Selling Shareholders will have an aggregate market
value (based upon an assumed initial offering price of $6.25 per share, the
midpoint of the range of initial public offering prices set forth on the cover
page of the prospectus) immediately following the offering of $11,662,500
(excluding options held by Mr. Campbell), thereby causing substantial dilution
to the persons acquiring Common Stock in the offering. Certain of the Selling
Shareholders will also receive a benefit in the event the over-allotment option
is exercised. See "Use of Proceeds" and "Principal and Selling Shareholders."

Absence of Prior Public Market and Possible Volatility of Stock
Price. Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after this offering. Accordingly, no assurance can be given as
to the liquidity of the Common Stock or the price at which any sales may occur.
The future market price of the Common Stock could be subject to wide
fluctuations in response to a variety of events, including quarter-to-quarter
variations in operating results, news announcements, trading volume, general
market trends, and other factors. In the event the Company's operating results
are below the expectations of the public market investors in one or more future
quarters, it is likely that the price of the Common Stock would be materially
adversely affected. The initial public offering price of the Common Stock has
been determined by negotiations between the Company and the Underwriter and may
not be indicative of the market price of the Common Stock after this offering.
See "Underwriting."

Shares Eligible for Future Sale. Upon completion of this offering, the
Company will have outstanding 3,200,000 shares of Common Stock excluding (i)
200,000 shares of Common Stock reserved for issuance under the Company's 1997
Omnibus Securities Plan, of which the Company intends to issue as soon as
practicable following consummation of the offering options to acquire 55,000
shares of Common Stock, (ii) 200,000 shares of Common Stock reserved for
issuance pursuant to options outstanding under the Company's Amended and
Restated 1996 Nonqualified Stock Option Plan and (iii) 133,400 shares of Common
Stock subject to the Underwriter's Warrants. The shares sold in this offering
may be publicly offered and sold without restriction unless they are purchased
by "affiliates" of the Company. Shares of Common Stock outstanding prior to
completion of this offering will be "restricted securities" under the Securities
Act of 1933, as amended (the "Securities Act"). These "restricted securities"
may be publicly sold only if they are registered under the Securities Act or
pursuant to an applicable exemption from the registration requirements of the
Securities Act, including Rule 144 thereunder. The Company, its executive
officers, directors and current principal shareholders have agreed that, without
the prior written consent of the Underwriter, they will not, directly or
indirectly, sell or otherwise dispose of any of such shares until January 1,
1999. No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, will have on the market
price of the Common Stock. The sale of substantial amounts of Common Stock, or
the perception that such sales could occur, could adversely affect the
prevailing market price for the Common Stock.

9
<PAGE> 11

Dilution. This offering will result in immediate and substantial dilution
in net tangible book value of $4.26 per share to new investors, which amount
represents the difference between an assumed initial public offering price of
$6.25 per share (the midpoint of the range of initial public offering prices set
forth on the cover page of the prospectus) and the net tangible book value per
share after this offering. See "Dilution."

Restrictions on Payment of Dividends; Absence of Dividends. The terms of
the Company's revolving credit facility with its bank lender (the "Revolving
Credit Facility") restrict, among other things, the ability of the Company to
pay dividends. The Company does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future. See "Dividend Policy."

Anti-Takeover Provisions. The Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws of the Company include certain
provisions that may be deemed to have anti-takeover effects and may delay, defer
or prevent a takeover attempt that a shareholder of the Company might consider
to be in the best interests of the Company or its shareholders. These
provisions: (i) classify the Company's Board of Directors into three classes,
each of which will serve for different three year periods, (ii) provide that
only the Board of Directors, the Chairman of the Board, or the beneficial owners
of 25% or more of the outstanding voting capital stock may call special
shareholders' meetings, (iii) require the vote of the holders of at least
two-thirds of the outstanding shares of each class of the Company's capital
stock then entitled to vote thereon for the shareholders to amend or repeal the
Amended and Restated Bylaws or certain provisions of the Amended and Restated
Articles of Incorporation, (iv) require the vote of at least two-thirds of the
members of the Board of Directors to amend or repeal the Amended and Restated
Bylaws, and (v) establish certain advance notice procedures for nomination of
candidates for election as directors and for shareholder proposals to be
considered at shareholders' meetings. See "Description of Capital
Stock -- Special Provisions of the Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws." The requirement that the vote of
the holders of at least two-thirds of the outstanding shares of each class of
the Company's capital stock is necessary for the shareholders to amend or repeal
the Amended and Restated Bylaws or certain provisions of the Amended and
Restated Articles of Incorporation may adversely affect the extent to which
shareholders exercise control over the Company.

Actual Results May Differ from Forward Looking Statements. Statements in
the prospectus that reflect projections or expectations of future financial or
economic performance of the Company, and statements of the Company's plans and
objectives for future operations, including those relating to the Company's
products and services, are "forward looking" statements. No assurance can be
given that actual results or events will not differ materially from those
projected, estimated, assumed or anticipated in any such forward looking
statements. Important factors that could result in such differences, in addition
to the validity of patents, availability of key component parts and other risk
factors identified above, include: general economic conditions in the Company's
markets, including inflation, recession, interest rates and other economic
factors; casualty to or other disruption of the Company's production facility
and equipment; delays and disruptions in the shipment of the Company's products
and raw materials; and other factors that generally affect businesses.

10
<PAGE> 12

TERMINATION OF SUBCHAPTER S CORPORATION STATUS

Since April 1, 1996, the Company has been treated for federal income tax
purposes as a Subchapter S corporation under Subchapter S of the Code. Since
such date, the Company has not been subject to federal income tax, but its
earnings have been included in the taxable income of the Company's shareholders.
The Company has made distributions to its shareholders to enable them to pay
their income tax liabilities attributable to the Company's earnings. For the
period from April 1, 1996 through June 30, 1997, the Company had declared
distributions of $323,000 and had paid $223,000 of this amount to its
shareholders. The Company's status as a Subchapter S corporation will terminate
upon completion of this offering (the "Termination Date"). Prior to the
consummation of the offering, the Company intends to declare a cash dividend to
its existing shareholders. This cash dividend will be in an amount sufficient to
cover the present shareholders' estimated federal and state income tax
obligations attributable to the Company's Subchapter S earnings for the period
from July 1, 1997 through the Termination Date. The dividend will be paid to
these shareholders after consummation of the offering. The Company has no
intention of declaring or paying any other dividend or making any other
distribution to its shareholders after the Termination Date. The Company will be
responsible for the payment of all federal income taxes on the Company's
earnings beginning on the Termination Date and continuing thereafter.

USE OF PROCEEDS

The net proceeds from the sale of the shares of Common Stock offered by the
Company are estimated to be approximately $4.8 million assuming an initial
public offering price of $6.25 per share (the midpoint of the range of initial
public offering prices set forth on the cover page of the prospectus) and after
deducting the underwriting discount and other estimated offering expenses. The
Company will not receive any of the proceeds of any sale of shares of Common
Stock by the Selling Shareholders or from the sale of Common Stock offered by
certain of the Selling Shareholders in connection with any exercise of the
Underwriter's over-allotment option.

Of the net proceeds to the Company, the Company plans to use a portion of
the net proceeds of the offering to (i) develop, manufacture and market
ComputErgo(TM), (ii) enhance the Company's core products and to develop
additional ergonomic products, (iii) seek to obtain ISO 9000 certification, an
internationally developed set of manufacturing facility quality criteria, of its
manufacturing process, (iv) enhance the Company's marketing efforts by, among
other things, hiring two regional sales managers, (v) hire engineering personnel
and (vi) fund its working capital requirements. Pending application of the net
proceeds from this offering, the Company plans to invest all net proceeds in
short-term, interest-bearing, investment grade securities.

11
<PAGE> 13

DIVIDEND POLICY

The Company intends to retain all earnings to provide funds for its
operations and expansion, and therefore does not anticipate paying cash
dividends or making any other distributions on its shares of Common Stock in the
foreseeable future. The terms of the Revolving Credit Facility restrict the
Company's ability to pay dividends to its shareholders. The Company's future
dividend policy will be determined by its Board of Directors based on various
factors, including the Company's operating results, financial condition,
business opportunities, capital requirements, credit restrictions and such other
factors as the Board of Directors may deem relevant.

The Company has been treated for federal income tax purposes as a
Subchapter S corporation under the Code since April 1, 1996. As a result,
earnings of the Company have been subject to taxation at the shareholder level
rather than the corporate level for federal income tax purposes since April 1,
1996. For the period from April 1, 1996 through June 30, 1997, the Company had
declared distributions of $323,000 and had paid $223,000 of this amount to its
shareholders. The Company's status as a Subchapter S corporation will terminate
on the Termination Date. Prior to the consummation of the offering, the Company
intends to declare a cash dividend to its existing shareholders. This cash
dividend will be in an amount sufficient to cover the present shareholders'
estimated federal and state income tax obligations attributable to the Company's
Subchapter S earnings for the period from July 1, 1997 through the Termination
Date. The dividend will be paid to these shareholders after consummation of the
offering. The Company has no intention of declaring or paying any other dividend
or making any other distribution to its shareholders after the Termination Date.
See "Termination of Subchapter S Corporation Status."

12
<PAGE> 14

DILUTION

At June 30, 1997, the Company had a net tangible book value of
approximately $1.6 million, or approximately $.69 per share of Common Stock. Net
tangible book value per share of Common Stock equals the amount of total assets
of the Company less intangible assets, less total liabilities, divided by the
aggregate number of shares of Common Stock outstanding as of June 30, 1997.
After giving effect to the sale of shares of Common Stock offered hereby at an
assumed initial public offering price of $6.25 per share, the midpoint of the
range of initial public offering prices set forth on the cover page of the
prospectus, and the application of the estimated net proceeds therefrom, the net
tangible book value of the Company at June 30, 1997, would have been
approximately $6.4 million, or $1.99 per share. This represents an immediate
increase in net tangible book value of $1.30 per share to existing shareholders,
and an immediate dilution of $4.26 per share to new investors purchasing shares
at the assumed initial public offering price. The following table illustrates
the per share dilution to new investors:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $6.25
Net tangible book value per share before offering......... $ .69
Increase in net tangible book value per share attributable
to new investors....................................... 1.30
-----
Net tangible book value per share after offering............ 1.99
-----
Dilution in net tangible book value per share to new
investors................................................. $4.26
=====
</TABLE>

The following table summarizes the differences in the number of shares of
Common Stock purchased from the Company, the total consideration paid to the
Company and the average price paid per share by the existing shareholders and by
the new investors purchasing shares in this offering at an assumed initial
public offering price of $6.25 per share, the midpoint of the range of initial
public offering prices set forth on the cover page of the prospectus (before
deducting underwriting discounts and commissions and estimated offering
expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION(1) AVERAGE
---------------------- ----------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... 2,300,000 71.9% $ 167,500 2.9% $ .07
New investors.................. 900,000 28.1% 5,625,000 97.1% 6.25
--------- ----- ---------- -----
Total................ 3,200,000 100.0% $5,792,500 100.0%
========= ===== ========== =====
</TABLE>

- ---------------

(1) Sales by the Selling Shareholders in this offering will reduce the number of
shares held by existing shareholders to 1,866,000 shares, or 58.3% of the
total number of shares of Common Stock to be outstanding after this
offering, and will increase the number of shares held by new investors to
1,334,000 shares, or 41.7% of the total number of shares of Common Stock to
be outstanding after this offering. If the over-allotment option is
exercised in full, sales by the Selling Shareholders will reduce the number
of shares held by the existing shareholders to 1,706,000, or 53.3%, and will
increase the number of shares held by new investors to 1,494,000, or 46.7%,
of the total number of shares of Common Stock outstanding after the
offering. The table excludes (i) 200,000 shares of Common Stock reserved for
issuance under the Company's 1997 Omnibus Securities Plan, of which the
Company intends to issue as soon as practicable following consummation of
the offering options to acquire 55,000 shares of Common Stock, (ii) 200,000
shares of Common Stock reserved for issuance pursuant to options outstanding
under the Company's Amended and Restated 1996 Nonqualified Stock Option Plan
and (iii) 133,400 shares of Common Stock subject to the Underwriter's
Warrants. See "Principal and Selling Shareholders," "Management -- 1997
Omnibus Securities Plan," "Management -- Amended and Restated 1996
Nonqualified Stock Option Plan" and "Underwriting."

13
<PAGE> 15

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1997 (i) on an actual basis and (ii) as adjusted to reflect the sale of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $6.25 per share (the midpoint of the range of initial public offering
prices set forth on the cover page of the prospectus) and the application of net
proceeds therefrom as described under "Use of Proceeds." This information should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and the notes
thereto.

<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
ACTUAL AS ADJUSTED(1)
------ --------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt
Current portion of long-term debt......................... $ 26 $ 26
====== ======
Long-term debt, less current portion........................ $ 607 $ 607
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized; no shares issued........................... -- --
Common stock, $.01 par value, 14,000,000 shares
authorized; 2,300,000 shares issued and outstanding,
actual; 3,200,000 shares issued and outstanding, as
adjusted............................................... 23 32
Additional paid-in capital................................ 382 5,148
Retained earnings......................................... 1,373 1,373
Notes receivable -- shareholders.......................... (96) (96)
Deferred compensation..................................... (83) (83)
------ ------
Total shareholders' equity........................ 1,599 6,374
------ ------
Total capitalization.............................. $2,206 $6,981
====== ======
</TABLE>

- ---------------

(1) Adjusts the actual amounts to reflect the sale of the shares offered hereby.
See "Termination of Subchapter S Corporation Status" and "Capitalization".

14
<PAGE> 16

SELECTED FINANCIAL DATA

The following selected financial data are derived from the audited
financial statements. This data should be read in conjunction with the financial
statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.

- ---------------

(1) Effective as of April 1, 1996, the Company elected to operate as a
Subchapter S corporation under Subchapter S of the Code and comparable
provisions of certain state tax laws. The amounts shown reflect pro forma
provisions for state and federal income taxes as if the Company had been
subject to such income taxation during the entire fiscal years 1996 and
1997. See "Termination of Subchapter S Corporation Status" and Note 4 of the
Notes to Financial Statements.

(2) Adjusts the actual amounts to reflect the sale of the shares offered hereby.
See "Termination of Subchapter S Corporation Status" and "Capitalization."

15
<PAGE> 17

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the financial
statements of the Company and notes thereto and the other financial information
included elsewhere in this prospectus.

General. The Company generates revenue through sales of its products to
corporate customers and retailers through independent sales representatives, who
generally are paid a commission for each unit sold. These independent sales
representatives channel sales through dealers located throughout the United
States who acquire the products from the Company at a discount from suggested
retail and then resell the products to the ultimate customers.

The Company's gross profit increased approximately 33% in fiscal year 1997
from the prior fiscal year. The Company attributes this increase in gross profit
to a significant shift in the Company's strategic focus to (i) selling to
dealers through independent sales representatives, instead of selling directly
to end-users, (ii) upgrading the quality of its independent sales
representatives, and (iii) selling higher priced products.

Results of Operations. The following table sets forth the percentage
relationship to net sales of certain items in the Company's statements of income
for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
--------------
1996 1997
----- -----
<S> <C> <C>
Net sales................................................... 100.0% 100.0%
Cost of sales............................................... 69.4 62.8
----- -----
Gross profit................................................ 30.6 37.2
Selling, general and administrative expenses................ 26.9 28.3
----- -----
Operating income............................................ 3.7 8.9
===== =====
</TABLE>

Fiscal Year Ended June 30, 1997 Compared to Fiscal Year Ended June 30, 1996

Net Sales. Net sales for fiscal year 1997 were $12.1 million, increasing
$1.0 million, or approximately 9.3%, from net sales of $11.1 million for fiscal
year 1996. The net sales growth principally resulted from the shift in product
mix to sales of higher priced chairs. Total units sold remained relatively
constant. Consistent with the Company's strategy, however, the Company reduced
its concentration in sales volume to a large lower margin customer while
increasing its units sold to all other customers by 24%.

Gross Profit. Gross profit for fiscal year 1997 was $4.5 million,
increasing $1.1 million, or 32.9%, from gross profit of $3.4 million for fiscal
year 1996. Gross margin increased to 37.2% for fiscal year 1997 from 30.6% for
fiscal year 1996. These increases were achieved through the shift in product mix
discussed in "Net Sales" above.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $3.4 million for fiscal year 1997, increasing
approximately $433,000, or 14.6%, from $3.0 million for fiscal year 1996. As a
percentage of sales, the Company's selling, general and administrative expenses
increased to 28.3% for fiscal year 1997 from 26.9% for fiscal year 1996. The
increases were due to slight salary increases as a result of additional
personnel, increases in payments made pursuant to the Company's cash bonus plan,
increased commission rates on sales and an increase in legal fees of
approximately $270,000 related to arbitration and litigation involving a
competitor.

Operating Income. As a result of the foregoing, operating income for fiscal
year 1997 was $1.1 million, increasing approximately $681,000, or approximately
170%, from $401,000 for fiscal year 1996. As a percentage of sales, operating
income increased to 8.9% for fiscal year 1997 from 3.6% in fiscal year 1996.

16
<PAGE> 18

Quarterly Results of Operations. The Company's quarterly results of
operations may vary significantly depending on factors such as the timing of
large customer orders and variations in the Company's sales product mix. The
results of any particular quarter may not be indicative of the results for the
full year or any future period. Historically, the Company has experienced
seasonal fluctuations in sales and operating income because more orders are
shipped during the second and third quarters of each fiscal year. The following
table sets forth certain unaudited quarterly financial information for the
periods presented which reflect, in the opinion of management, all adjustments
which the Company considers necessary for a fair presentation of the information
set forth therein.

<TABLE>
<CAPTION>
FISCAL YEAR 1996 FISCAL YEAR 1997
------------------------------------------- -------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $2,638 $3,190 $2,886 $2,350 $2,970 $3,052 $3,272 $2,795
Cost of sales................. 1,993 2,084 1,956 1,650 1,849 1,972 2,033 1,740
------ ------ ------ ------ ------ ------ ------ ------
Gross profit.................. 645 1,106 930 700 1,121 1,080 1,239 1,055
Selling, general and
administrative.............. 555 783 841 801 849 859 814 892
------ ------ ------ ------ ------ ------ ------ ------
Operating income.............. 90 323 89 (101) 272 221 425 163
Interest expense and other,
net......................... 16 15 33 (6) 36 30 31 (19)
------ ------ ------ ------ ------ ------ ------ ------
Income before taxes........... 74 308 56 (95) 236 191 394 182
Pro forma income tax(1)....... 27 114 22 (35) 87 (7) 146 67
------ ------ ------ ------ ------ ------ ------ ------
Pro forma net income.......... $ 47 $ 194 $ 34 $ (60) $ 149 $ 198 $ 248 $ 115
====== ====== ====== ====== ====== ====== ====== ======
Gross margin percentage....... 24.5% 34.7% 32.3% 29.8% 37.7% 35.4% 37.8% 37.8%
Operating income percentage... 3.4% 10.1% 3.1% (4.3)% 9.2% 7.2% 13.0% 5.8%
</TABLE>

- ---------------

(1) Beginning with the quarter ended June 30, 1996 through the quarter ended
June 30, 1997, pro forma income taxes are reflected as if the Company were
not a Subchapter S corporation and, therefore, were subject to federal and
state income taxation.

Liquidity and Capital Resources. The Company's principal sources of capital
are net cash provided by operating activities and availability of funds under
the Revolving Credit Facility. The Company's primary capital requirements are to
fund component parts inventory, receivables, research and development
activities, product improvements and shareholder distributions of Subchapter S
earnings.

Cash provided by operating activities totaled $1.4 million (before pro
forma income taxes) for fiscal year 1997, as compared to cash used for operating
activities of $108,000 for fiscal year 1996. The increase in cash flow was
primarily the result of the increased profit margin and changes in working
capital based on improved cash flow management.

Cash used in investing activities totaled $464,000 for fiscal year 1997 and
was primarily comprised of miscellaneous capital expenditures. Cash used in
investing activities totaled $754,000 for fiscal year 1996 and was comprised
primarily of the acquisition of the Company's current land and building for
$625,000 and capital expenditures by the Company. During fiscal year 1998, the
Company expects to continue to make capital expenditures in connection with
manufacturing equipment and computer hardware and software improvements.

Financing activities used funds totaling approximately $1.1 million for
fiscal year 1997 and provided funds of approximately $900,000 for fiscal year
1996. In fiscal year 1997, the Company used cash flow from operations to repay
existing debt and make cash distributions to the Selling Shareholders to pay
federal income taxes related to the net income attributable to them as
shareholders of a Subchapter S corporation for federal income tax purposes. The
funds provided for fiscal year 1996 were used to fund interim working capital
needs and the acquisition of the existing building at which the Company
headquarters are located.

The average number of days of trade accounts receivable outstanding was 42
and 40 for fiscal year 1997 and fiscal year 1996, respectively. The Company
typically sells its products on net 30 day terms and seeks to minimize its
credit risk by performing credit checks. The Company has from time to time
turned overdue accounts receivable over to collection agencies. Bad debt expense
for both periods was negligible.

The Company manages its inventory to maintain a level which meets its
short-term manufacturing needs. Inventory turned 12.0 times in fiscal year 1997
and 12.7 times in fiscal year 1996. With this turnover, the

17
<PAGE> 19

Company had approximately 30 days' worth of component parts inventory on hand
during both periods. These low levels of inventory allow the Company to dedicate
less working capital to inventory, thereby lowering line-of-credit borrowing,
interest, insurance and property tax expenses.

The Company currently maintains a $2.0 million Revolving Credit Facility.
This facility is utilized to fund operating activities, including financing
inventory and increases in receivables, and has been used for shareholder
distributions. Loans made pursuant to the Revolving Credit Facility may be
borrowed, repaid and reborrowed from time to time until termination of the
Revolving Credit Facility on January 21, 1999. Indebtedness under the Revolving
Credit Facility bears interest at the lender's base rate plus one-half of 1% per
annum and is secured by a first lien on accounts receivable, chattel paper,
contract rights, equipment and fixtures, inventory and general intangibles. The
amount available under the Revolving Credit Facility is determined based upon a
percentage of eligible receivables. At June 30, 1997, the interest rate was 9.0%
and no amount was outstanding under the Revolving Credit Facility.

In addition, the Company maintains a term credit facility (the "Term
Facility") in the amount of $500,000. This Term Facility is restricted to
financing equipment or mold purchases. Indebtedness under the Term Facility
would bear interest at the lender's base rate plus one-half of 1% per annum and
is secured by accounts receivable, chattel paper, contract rights, equipment and
fixtures, inventory and general intangibles. At June 30, 1997, no amount had
ever been borrowed under the Term Facility.

At June 30, 1997, the Company had two loans outstanding in the amounts of
$144,000 and $482,000 bearing interest at, respectively, 8.25% and 9.75% per
annum incurred in connection with the Company's acquisition in 1996 of the land
and building currently used by the Company. Both notes are secured by the land,
building and certain equipment, require monthly principal and interest payments
and mature in 2001.

Prior to the consummation of the offering, the Company intends to declare a
cash dividend to its existing shareholders. This cash dividend will be in an
amount sufficient to cover the present shareholders' estimated federal and state
income tax obligations attributable to the Company's Subchapter S earnings for
the period from July 1, 1997 through the Termination Date. The dividend will be
paid to these shareholders after consummation of the offering. The Company has
no intention of declaring or paying any other dividend or making any other
distribution to its shareholders after the Termination Date.

In January 1997, the Company entered into an agreement with a third party
to design and produce injection molds to be utilized in the production process
for approximately $400,000. The Company had paid approximately $150,000 through
June 30, 1997 and expects to pay the remaining $250,000 upon completion of these
molds in October 1997.

The Company believes that cash flow from operations, together with the net
proceeds from this offering and its unused capacity under the Revolving Credit
Facility should be sufficient to fund its anticipated operating needs, capital
expenditures through fiscal year 1998 and payment of the Subchapter S
distributions to the existing shareholders. However, because the Company's
future operating results will depend on a number of factors, including the
demand for the Company's products, the level of competition and general economic
conditions and other factors beyond the Company's control, there can be no
assurance that the Company's capital resources will be sufficient to fund the
Company's operations beyond such date.

New Accounting Standards. In February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement No. 128, Earnings per Share, which is
required to be adopted for fiscal years ending after December 15, 1997. At that
time, the Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement No. 128 on the
calculation of basic earnings per share and fully diluted earnings per share for
fiscal years 1997 and 1996 will not be material.

In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income"
and SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information". Both standards became effective for fiscal years beginning after
December 15, 1997. Early adoption of SFAS 130 is permitted, and early adoption
of SFAS 131 is encouraged. The reporting changes resulting from both of these
standards on the Company will be immaterial.

18
<PAGE> 20

BUSINESS

The Company manufactures, markets and distributes ergonomic chairs based
upon patented and/or patent-pending designs of Jerome Congleton, Ph.D., P.E.,
C.P.E., an ergonomist certified by the Board of Certification in Professional
Ergonomics who serves as a design consultant to, and a director of, the Company.
Based on anthropometrics, the scientific study of the measurements of size,
weight and proportions of the human body, the Company manufactures five series
of ergonomic chairs designed to minimize the physical stress imposed upon the
human body while seated. Virtually all chairs marketed under the Neutral Posture
tradename can be adjusted to accommodate the size, weight and proportions of
body types from as small as the 5th percentile female to as large as the 95th
percentile male. The Company is not aware of any other chair on the market that
(i) is designed by a certified ergonomist, (ii) is designed based on
anthropometric studies, and (iii) has interchangeable key components such as
seats, backs and arms.

The Company believes that the increase in computer users and other domestic
white collar office employees has benefitted, and the anticipated increase in
white collar office employees outside of the United States will benefit, its
ergonomic furniture business. The Company also believes that repetitive stress
injuries, which affect a number of seated workers, have created a market demand
for ergonomically designed products. According to the U.S. Bureau of Labor
Statistics, 62% of all workplace injuries in 1995 resulted from the stress of
repetitive motion on muscles and tendons. In addition, according to the National
Institute for Occupational Safety and Health, repetitive stress injuries cost
employers approximately $20 billion as a result of 2.73 million workers'
compensation claims in 1993. To address this reported problem, the Company
intends to research, create and develop additional ergonomic products consistent
with the Company's philosophy that its designs be based on ergonomic research
and anthropometric data. The Company's customers include AT&T Cellular One, Banc
One, Hewlett-Packard, IBM, Intel Corporation, the Internal Revenue Service,
Lockheed Martin Corporation, Relax the Back, Sprint Corporation, the State of
Washington, Union Carbide Corporation, UPS, the U.S. House of Representatives
and U.S. Robotics Corporation.

Industry Overview. The Company's ergonomic chairs compete in the seating
segment of the office furniture market. This segment represented approximately
25.4% of industry sales in the United States or $2.5 billion in calendar year
1996 and is the second largest industry segment. The Company's share of the
seating market segment was less than one-half of 1% on a dollar basis in
calendar year 1996. According to the Business and Institutional Furniture
Manufacturer's Association ("BIFMA"), the U.S. office furniture market had
estimated sales of $10.0 billion in calendar year 1996. The dollar value of U.S.
office furniture industry shipments has increased in each of the past 15 years,
with the exception of 1991, and, according to BIFMA estimates, had grown at a
compound annual rate of approximately 7.2% over the three year period ended
December 31, 1996.

Growth Strategy. The Company believes that it is well-positioned to achieve
further growth in revenues, profitability and market share. The key elements of
the Company's growth strategy include the following:

- Create Innovative New Products and Broaden Product Line

The Company plans to take a more active approach with respect to the
development of additional ergonomic products while continuing to
aggressively market its Neutral Posture chairs. In furtherance of this
strategy, the Company plans to introduce ComputErgo(TM), a portable
computer workstation, during the first quarter of calendar year 1998. In
addition, the Company intends to seek opportunities to develop or acquire
products that are complementary to the Company's business and philosophy to
leverage its marketing, sales and distribution systems. The Company has
budgeted a portion of the net proceeds of the offering to hire engineering
personnel, who it believes will play a vital role in creating new products
and product enhancements. See "Use of Proceeds."

- Enhance Manufacturing Process

The Company plans to increase its productivity through strategies
designed to improve its manufacturing process. The Company intends to
invest a portion of the net proceeds of the offering to improve tooling
used in production of its core products to reduce production costs and
improve product

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<PAGE> 21

quality. In addition, the Company also will seek to obtain ISO 9000
certification, an internationally developed set of manufacturing facility
quality criteria. The Company believes that becoming ISO 9000 certified
will ensure continued quality in the Company's current operations.

- Expand Existing Distribution Channels

Historically, the majority of the Company's sales were made directly
to corporate customers, but a growing percentage of the Company's sales is
being made through dealers. Generally, the Company's products are marketed
by its approximately 50 independent sales representatives and its sales are
channeled through a network of approximately 320 dealers. To promote
customer satisfaction, these independent sales representatives also are
responsible for maintaining corporate end-user relationships with or on
behalf of the dealers. The Company intends to expand its business with
dealers locally, regionally, nationally and internationally. The Company
also intends to use a portion of the net proceeds of the offering to
enhance its marketing efforts by, among other things, hiring two regional
sales managers.

The Company believes that it will extend its reach to additional
customer groups, including the home office segment, through the Relax the
Back relationship. On January 12, 1997, Relax the Back granted the Company
the exclusive worldwide right to manufacture ergonomic office seating that
bears the Relax the Back trademark and the Relax the Back design. Relax the
Back has exclusive rights to certain component designs manufactured by the
Company. The Relax the Back stores are independently owned and operated and
may elect on a store-by-store basis whether to sell the Company's chairs.
As of June 30, 1997, 82% of the Relax the Back stores carried the Company's
chairs under the Relax the Back trademark.

The Company also markets the Neutral Posture chair in a catalog
published by Boise Cascade Office Products and is scheduled to be published
in Corporate Express' catalog by January 1998. The Company believes that
catalogs provide a convenient and cost-effective way for businesses to
purchase ergonomic furniture and that, over time, it may become a preferred
avenue for certain customers to order ergonomic products such as the
Neutral Posture chair.

- Build Consumer Recognition by Increasing Public Awareness of Benefits of
Ergonomic Products

The Company intends to expand consumer recognition of its products in
the marketplace by increasing awareness of the benefits of ergonomic
products generally and also by publicizing the quality of the Company's
products within the ergonomic products industry. The Company intends to
accomplish this by (i) creating an internet web site by September 1997,
which will provide general information about ergonomics and the Company's
products, (ii) sponsoring speaking engagements by the Company's consultant,
Dr. Jerome Congleton, to organizations such as the Texas Back Institute and
the National Exhibition of Contract Furnishings ("NEOCON"), and (iii)
conducting seminars for dealer groups led by the Chairman of the Board and
Chief Executive Officer, Rebecca E. Boenigk. By focusing on these goals,
the Company seeks to enhance consumer recognition for ergonomic products in
new and emerging markets in addition to improving consumer recognition in
current markets.

Products. The concept for Neutral Posture chairs arose from Dr. Congleton's
research, which is derived from National Aeronautics and Space Administration
("NASA") data concerning the human body's reaction to weightlessness. His
research determined that in weightless conditions the body would naturally
assume a neutral position in which no tendons are extended or retracted and in
which the muscles experience no strain. This neutral position can be simulated
by relaxing all muscles while floating face down in water and represents the
human body's "neutral posture" position. Neutral Posture ergonomic chairs have
up to 12 independent adjustments, allowing an individual to assume this
stress-free posture. A recent, year-long study commissioned by the Cincinnati
Service Center of the Internal Revenue Service ("IRS") published in September
1995 determined that ergonomic programs are an important tool in the improvement
of overall organizational productivity. More specifically, the IRS study
reported that the use of Neutral Posture chairs corresponded with a drop in the
number of physiological signs of musculoskeletal disorders. The IRS study also
reported

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<PAGE> 22

that the Neutral Posture chair increased the employees' comfort and maintained
productivity in the workplace.

Neutral Posture chairs having contoured seats, which constituted over 95%
of the Company's chairs sold in fiscal year 1997, are made with multi-densities
of foam to distribute the user's body weight over a greater surface area than
conventional seating. Additionally, the angle between the backrest and the seat
structure of these chairs can be adjusted to approximate the posture that the
body assumes naturally in the gravity-free environment of space. Five different
seat designs and five different backrest styles provide additional comfort to
meet the personal preferences of customers of various sizes and shapes. The
backrests also contain multi-densities of foam that are shaped to provide
maximum support in the lumbar area. The air lumbar pump, available on four of
the Company's five series of chairs, inflates the lumbar area, allowing the
backrest to conform even more closely to the unique curvature of each person's
back.

Neutral Posture chairs require minimal assembly by the customer and are
delivered with a computer diskette and/or owner's manual that provides each
customer with a visual explanation of how to adjust the chair for maximum
comfort. All frame parts, mechanisms, bases, casters, cylinders, seat pans,
backrests, armrests, foam and J-shaped back uprights of a Neutral Posture chair
are warranted against defects in materials and workmanship for a period of five
years from the date of delivery to the purchaser.

Although the Company does allow pre-approved merchandise returns for a
specified period of time, the Company endeavors to minimize product returns by
offering prompt, on-site customer service and repair through its factory
personnel, its network of dealers or its independent sales representatives.
Neutral Posture chairs' interchangeable components permit easy replacement of
worn or defective components. Product returns to date have been negligible.

The designs for these chairs are based upon a patent purchased from Dr.
Congleton. Dr. Congleton, a consultant to, and director of, the Company, has a
written agreement with the Company that grants him 25% of net royalties
collected by the Company from third parties for products manufactured, used or
sold under license or sublicense of such patent. The Company does not presently
plan to license the patent to third parties except in connection with the
resolution of infringement disputes. See "Certain Transactions."

In May 1997, the Company publicly announced that it anticipates producing a
portable ergonomic workstation for the transport and use of a laptop computer
and other items that would otherwise be carried in a briefcase which workstation
is to be marketed under the tradename ComputErgo(TM). ComputErgo(TM)will provide
laptop users with (i) a fully adjustable portable work surface with two fold-out
wings for documents, an organizer, document file pockets, retractable
power/phone cords and built-in surge protection, and (ii) a compact carrying
case on wheels with a retractable handle. This product was designed to help
alleviate repetitive stress injuries associated with the emergence of
"alternative officing," utilizing a laptop computer at any locale other than the
traditional office. In March 1997, the Company filed a patent application
relating to ComputErgo(TM)with the United States Patent and Trademark Office and
in May 1997 a prototype of ComputErgo(TM)was designed. Although further
engineering of ComputErgo(TM)is necessary, the Company anticipates producing
ComputErgo(TM)by the first quarter of calendar year 1998.

Dr. Congleton, a consultant to, and a director of, the Company, has a
written agreement with the Company to receive a perpetual 3% royalty (exclusive
of Texas A&M University's royalty to Dr. Congleton) of the net sales of every
ComputErgo(TM) sold by the Company. In the future, Dr. Congleton will not
receive any compensation or royalties for his designs other than (i) his annual
consulting fee, and (ii) the royalties from (a) any license or sublicense of the
patent covering virtually all of the Company's chairs, and (b)
ComputErgo(TM)sales. See "Management -- Employment and Consulting Agreements"
and "Certain Transactions." The Company will, however, also pay a perpetual 1%
royalty of the net sales of every ComputErgo sold by the Company to Texas A&M
University, Dr. Congleton's employer. The Company has been informed that Texas
A&M University will pay Dr. Congleton approximately one-half of its 1% royalty
in accordance with its standard policy. Although the Company does not believe
that Texas A&M University has any claims to Dr. Congleton's inventions, there
can be no assurance that Texas A&M University will not assert such claims in the
future and that, if Texas A&M University does, such claims will not be
successful. In addition, a co-inventor of ComputErgo(TM), who assigned his
interest in the related patent rights to the

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<PAGE> 23

Company, has informally asserted that his design company was not paid for
certain development work done on ComputErgo. See "Legal Proceedings."

Research and Development. During fiscal years 1996 and 1997, the Company
spent $352,000 and $224,000, respectively, on research and development. The
Company intends to increase its research and development expenses. See "Use of
Proceeds."

Marketing and Sales. Historically, the vast majority of the Company's sales
were made directly to corporate customers, but a growing percentage of the
Company's sales is being made through dealers. The Company markets its products
and services throughout the United States through approximately 50 independent
sales representatives and its sales are channeled through a network of
approximately 320 dealers. The Company believes that this strategy provides a
strategic advantage relative to many of its competitors. The Company does not
directly employ the independent sales representatives, but rather uses a
commission based incentive system to maintain these relationships. The
commission based incentive system rewards not only the number of units sold, but
the profitability of those sales. The independent sales representatives employ
personalized sales techniques to maintain close contact with the Company's
current customers and develop new customers. The Company's independent sales
force receives extensive training, including annual seminars focused on the
Company's products. The Company intends to use a portion of the net proceeds of
the offering to hire two regional sales managers to provide additional training
and sales management to its independent sales representatives.

In addition to coordinating sales efforts with the Company's independent
sales representatives, the Company's dealers generally handle project
management, installation and maintenance for an account after the initial
product selection and sale. Dealers typically purchase the product at a discount
from retail and resell the product at a higher price. The Company is not
dependent on any one of its dealers, the largest of them accounting for less
than 7% of the Company's fiscal year 1997 sales.

Manufacturing and Distribution. The Company normally operates one shift,
five days per week, at its assembly facility located in Bryan, Texas.
Approximately 31,300 chairs were manufactured during fiscal year 1997. The
Company believes that the maximum capacity of this facility based on one shift
is approximately 100,000 chairs per year. Additional capacity may be achieved by
adding additional shifts. Therefore, the Company believes that production
requirements for the foreseeable future can be satisfied with routine additional
capital investment, which is not expected to be substantial.

At its Bryan facility, the Company applies foam to seats and backs,
upholsters, assembles and does machine work. By November 1997, the Company
intends to have Shepherd injection-mold a majority of its seats and backs, which
is a more efficient and economical process than using its current vacuum-form
process. The injection molds will make an exact duplicate of the Company's seats
and backs each time by heating plastic until molten and injecting it into a
mold. This process eliminates hand-cutting the rough edges from each seat and
back, which is necessary when using vacuum forms. Vacuum forms heat plastic
until pliable and then shapes it over a mold using a suction process. The
Company believes that the use of the injection molds will reduce production
costs and improve product quality.

The Company's manufacturing goals are to: (i) continually improve design
quality, (ii) achieve the best values in purchasing, (iii) uphold stringent
quality controls, and (iv) deliver orders promptly. The Company believes its
production standards are exceptional, with in excess of 99% customer acceptance
for fiscal year 1997. The Company manufactures Neutral Posture chairs primarily
to meet customer orders placed with the Company, which it believes minimizes
finished goods inventory levels.

Raw Materials and Suppliers. The Company has formed close working
relationships with its main suppliers and maintains a low level of inventory.
The Company uses a variety of materials in its manufacturing, including plastic,
foam, steel, fabrics, leathers and upholstery. Management currently maintains no
long-term supply contracts and believes that the supply sources for these
materials are adequate. Certain components of Neutral Posture chairs,
principally the adjustment mechanism, are made by third party manufacturers to
the Company's specifications. The Company is dependent upon its suppliers for
timely delivery and product quality. While the Company's strategy is to maintain
multiple sources of supply, the

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<PAGE> 24

Company's largest supplier, Leggett & Platt, Inc., is currently the only source
of the adjustment mechanism, a key component of the Neutral Posture chair. The
adjustment mechanism is proprietary to the Company. While the Company has not
had any adverse experience with this supplier, the Company does not have a
binding supply contract with Leggett & Platt, Inc.

Design Capabilities. The Company is committed to the creation and design of
quality ergonomic products. Since its inception, the Company has relied upon the
design capabilities of Dr. Jerome Congleton and Rebecca Boenigk.

Customers. The Company has a diversified customer base. The Company's
largest customer group, the various facilities of the GSA, accounted for 16.2%
of the Company's sales for fiscal year 1997. The Company's contract with the GSA
which is subject to renegotiation or termination at the convenience of the GSA
expires on January 20, 2001. In addition to the GSA, the Company's largest
customers include UPS, Banc One, Relax the Back, the State of Washington and
Hewlett-Packard, whose individual sales for fiscal year 1997 represented 10.4%,
6.2%, 5.4%, 5.3% and 4.9%, respectively, of the Company's total revenues. The
Company does not have a binding contract with UPS, Banc One, Relax the Back, the
State of Washington or Hewlett-Packard. One of the Company's dealers has an
agreement with the State of Washington, but there is no long-term contract
between the Company and such dealer. See "Risk Factors -- Dependence on
Significant Customers."

Patents and Trademarks. The Company owns a United States patent on which
virtually all of the Company's chairs are based and several trademarks. The
Company's patent covering virtually all of the Neutral Posture chairs expires in
October 2003. For a discussion of legal proceedings, see "Business -- Legal
Proceedings." Neutral Posture(R), ComputErgo(TM), ERGO 2000(TM), Establishing
the Standard of Acceptability(TM) are trademarks of the Company. In addition,
the Company has several pending patent applications, including the patent
application covering ComputErgo(TM), and possesses a wide array of unpatented
proprietary know-how and common law trademarks. The Company's success and its
ability to compete are dependent in part upon its proprietary technology. While
the Company relies on patent, trademark, trade secret and copyright laws to
protect its technology, the Company believes that factors such as the
technological, creative and design skills of its personnel, new product
developments, frequent product enhancements, name recognition and reliable
product maintenance are also essential to establishing and maintaining a
technology leadership position. There can be no assurance that others will not
develop technologies that are similar or superior to the Company's technology.
See "Risk Factors -- Reliance on Intellectual Property."

Backlog. As of June 30, 1997, the Company's backlog of unfilled orders was
$385,000. At June 30, 1996, the backlog totaled $418,000. The Company expects to
fill all outstanding unfilled orders within one month, except as extended by
customer requested ship dates. The Company manufactures substantially all of its
products to existing orders and, as a result, backlog is not a significant
factor used to predict the Company's long term business prospects.

Properties. The Company's manufacturing and assembly operations are
conducted in its approximately 46,000 square-foot Bryan, Texas facility. The
Company also leases an approximately 1,400 square-foot showroom in the Chicago
Merchandise Mart and an approximately 100 square-foot showroom in Washington,
DC.

Competition. The Company faces significant competition in the contract
furniture market. Neutral Posture chairs compete on the basis of design, health
benefits, comfort, quality, durability, service and price. Existing and future
competitors within the office furniture industry, including Herman Miller, Inc.,
Steelcase Inc. and Haworth, Inc., offer or will offer ergonomic products. There
is also competition from numerous other ergonomic furniture companies such as
HAG Inc., Grahl Industries, Inc. and Bodybilt. Certain of these competitors have
much greater financial and other resources and offer a broader product line than
the Company. The Company believes, however, that smaller competitors are often
constrained by a lack of capital, access to distribution channels, manufacturing
capabilities and/or management expertise.

The Company believes that employers will increasingly seek its products to
enhance employee comfort and productivity through ergonomic design. The Company
believes that the following aspects of its manufacturing, marketing, sales,
distribution and customer service are its competitive strengths: (i) its
products are based on patented and/or patent-pending product designs, (ii)
interchangeable seat, back and

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<PAGE> 25

arm components accommodate a worker's physical attributes, which is advantageous
to a large scale purchaser of contract furniture, (iii) interchangeable
components facilitate on-site service and repair, and (iv) the Company offers
extensive training to its end users, dealers and independent sales
representatives about ergonomics, reducing stress in the workplace and how to
use the Neutral Posture chair.

Employees. As of June 30, 1997, the Company employed 72 full-time
employees, of whom 11 were in management, 14 were in administrative positions
and 47 were in production. None of the Company's employees is subject to any
collective bargaining agreement, and management considers its relations with its
employees to be good.

Environmental Matters. The Company believes that it is substantially in
compliance with all applicable laws and regulations for the protection of the
environment and the health and safety of its employees based upon existing facts
known to management. Compliance with federal, state, local and foreign
environmental regulations relating to the discharge of substances into the
environment, the disposal of hazardous wastes and other related activities may
have an impact on the operations of the Company, but has, since the formation of
the Company in 1990, been accomplished without having a material adverse effect
on the Company. There can be no assurance that such regulations will not change
in the future or that the Company will not incur material costs as a result of
such regulations. The Company's ultimate goal is to reduce and, wherever
possible, eliminate the use and creation of hazardous waste in its manufacturing
processes.

Legal Proceedings. Other than routine litigation matters, the Company is
currently involved in an arbitration proceeding. The arbitration proceeding
involves the Company's United States Patent No. 4,552,404 (the "Patent") which
covers the design of virtually all of the Neutral Posture chairs. In addition, a
ComputErgo(TM) designer has asserted a claim for payment for certain services,
and the Company also is involved from time to time in various routine legal
proceedings incidental to the conduct of its business.

Arbitration Involving the Company's Patent and Related Litigation. On May
21, 1997, the Company initiated arbitration proceedings against Bodybilt
claiming patent infringement, breach of contract, tortious interference,
slander, trade libel and unfair competition. The Company believes that
substantially all of the chairs sold by Bodybilt are designed in such a manner
that they infringe the Patent. The Company intends to enforce what it believes
to be exclusive ownership rights to the Patent by seeking injunctive relief as
well as damages. The demand for arbitration was filed with the American
Arbitration Association pursuant to a mandatory arbitration clause included in
the settlement agreement executed in 1996 between the Company and Bodybilt.

Dr. Jerome Congleton, to whom the Patent was originally issued in 1985,
reacquired the Patent in 1991 in connection with the settlement of litigation
with Bodybilt. Such settlement restricted Dr. Congleton to granting only two
licenses of the Patent. In 1991, Dr. Congleton licensed the right to use the
Patent to Bodybilt and to the Company provided, among other things, that in each
case such licensee, the Company and Bodybilt, not sell or transfer more than 50%
of its assets or outstanding shares of stock. The initial public offering of
common stock of Bodybilt caused the license from Dr. Congleton to Bodybilt to
become null and void. Shortly after the termination of Bodybilt's license, Dr.
Congleton assigned his entire interest in the Patent to the Company. Bodybilt
disputed the validity of this assignment, and filed suit on April 1, 1997,
against Dr. Congleton in the United States District Court for the Southern
District of Texas. Bodybilt asserted that Dr. Congleton breached the Bodybilt
license agreement when he assigned the Patent to the Company. Bodybilt sought a
declaratory judgment as to Dr. Congleton's obligations and limitations under the
Settlement Agreement executed in 1991, recision of the 1991 patent assignment to
Dr. Congleton and indemnification for any patent infringement claims asserted by
the Company against Bodybilt. Although the Company was not named as a party to
the lawsuit, the lawsuit disputed the Company's exclusive rights to own and
enforce the Patent and the Company paid Dr. Congleton's defense costs. On August
22, 1997, the United States District Court for the Southern District of Texas
dismissed Bodybilt's claims against Dr. Congleton for lack of subject matter
jurisdiction.

ComputErgo.(TM) Ronald Kemnitzer, a co-inventor of ComputErgo(TM) who
assigned his interest in the related patent rights to the Company, has
informally asserted that his design company, Kemnitzer Design,

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<PAGE> 26

Inc. ("KDI"), was not paid for the second phase of certain design and
development work done on ComputErgo(TM). Although the Company paid KDI for the
first phase of such work, it did not enter into a written contract for the
second phase (as required by the KDI proposal) and the Company engaged another
design company to perform such work. To date, neither KDI nor Mr. Kemnitzer has
made any written demand for payment for its work under any patent issued with
respect to ComputErgo(TM). The Company believes Mr. Kemnitzer's assertion is
meritless.

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<PAGE> 27

MANAGEMENT

Directors and Executive Officers. The names of the directors and executive
officers of the Company upon completion of the offering and their respective
ages and positions are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Rebecca E. Boenigk................... 33 Chairman of the Board, Chief Executive Officer
and Director
David W. Campbell.................... 55 President and Director
David W. Ebner....................... 36 Vice President of Operations
Gregory A. Katt...................... 39 Vice President, Chief Financial Officer and
Secretary/Treasurer
Dr. Jerome J. Congleton.............. 53 Director
Ronald L. Jones...................... 54 Director
James W. Thompson.................... 45 Director
Cynthia Pladziewicz.................. 40 Director
</TABLE>

It is anticipated that prior to the first annual meeting of shareholders of
the Company following the offering, the directors of the Company will increase
the size of the Company's Board of Directors from six directors to seven
directors and another director who is not an officer or employee of the Company
will be elected to fill the vacancy.

Rebecca E. Boenigk co-founded the Company in 1990 and has served as
Chairman of the Board and Chief Executive Officer since 1996 and served as
President from 1990 to 1996. She currently serves in the class of directors
whose terms expire at the 2000 annual meeting of shareholders. Mrs. Boenigk also
serves on the Industry Advisory Board of the National Science Foundation
Industry/University Cooperative Research Center in Ergonomics at Texas A&M
University. Mrs. Boenigk is a member of the Human Factor and Ergonomic Society.
In 1997, Mrs. Boenigk was awarded, along with her mother, Jaye Congleton, Ernst
and Young's Entrepreneur of the Year award in manufacturing in the Houston
region. Mrs. Boenigk is the daughter of Dr. Jerome Congleton, a director of, and
consultant to, the Company.

David W. Campbell has served as President and a director of the Company
since April 1, 1996, and serves in the class of directors whose terms expire at
the 1998 annual meeting of shareholders. Prior to assuming these positions, from
1994 to 1996, Mr. Campbell was a principal with Pate, Winters and Stone,
Management Consultants. From 1989 to 1994, Mr. Campbell served as a Division
President of Scotsman Industries, Inc., a publicly held manufacturer and
marketer of refrigeration products primarily for the food service industry. From
1987 to 1989, Mr. Campbell served as a Division President of Household
Manufacturing, a division of Household International, Inc., a financial,
retailing and manufacturing conglomerate. Additionally, from 1980 to 1987, Mr.
Campbell served as President, Chief Executive Officer and a director of Booth,
Inc., a publicly traded manufacturer of soft drink dispensing equipment.

David W. Ebner has served as Vice President of Operations since 1995. From
1994 to 1995, Mr. Ebner served as the Company's Plant Manager. From 1982 to
1994, Mr. Ebner was the Manager of Facilities and Operations for CompuAdd, Inc.,
a computer manufacturer and retailer.

Gregory A. Katt has served as Vice President and Chief Financial Officer of
the Company since May 1997 and as Secretary/Treasurer of the Company since
August 1997. Mr. Katt served as Treasurer of American Exploration Company, a
publicly traded oil and gas exploration and production company, from June 1995
to May 1997 and as its Director of Corporate Reporting, Budgeting and Tax from
June 1992 to June 1995.

Dr. Jerome J. Congleton became a director of the Company in August 1997 and
serves in the class of directors whose terms expire at the 1999 annual meeting
of shareholders. Dr. Congleton is also a consultant to the Company. Dr.
Congleton is the inventor of the Neutral Posture chair and has been an associate
professor

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<PAGE> 28

in the Safety Engineering Program at Texas A&M University since 1983 and a
founder and co-director of the National Science Foundation Industry/University
Cooperative Research Center in Ergonomics at Texas A&M University since its
formation in 1994. Dr. Congleton is the father of Mrs. Boenigk, the Chairman of
the Board and Chief Executive Officer of the Company.

Ronald L. Jones became a director of the Company in August 1997 and serves
in the class of directors whose terms expire at the 1999 annual meeting of
shareholders. Since March 1996, Mr. Jones has served as President and Chief
Executive Officer of Sealy Corporation, a manufacturer of mattresses and
boxsprings. From 1988 to 1996, he served as President of Masco Home Furnishings
Inc., a furniture manufacturer. Mr. Jones served as President of HON Industries,
Inc., a publicly traded national manufacturer and marketer of office furniture,
from 1982 to 1988.

James W. Thompson became a director of the Company in August 1997 and
serves in the class of directors whose terms expire at the 2000 annual meeting
of shareholders. Since December 1994, Mr. Thompson has served as President,
Chief Executive Officer and director of Vallen Corporation, a publicly held
distributor of industrial safety and health products designed for the protection
of the individual worker and the workplace environment. Mr. Thompson joined
Vallen Corporation in June 1994 as President and Chief Executive Officer of
Vallen Safety Supply Company. From 1991 to 1994, Mr. Thompson was the Senior
Group Vice President of Westburne, Inc., a publicly traded distributor of
electrical plumbing, HVAC and telecommunications equipment.

Cynthia Pladziewicz became a director of the Company in August 1997 and
serves in the class of directors whose terms expire at the 1998 annual meeting
of shareholders. Since October 1995, Dr. Pladziewicz has worked as a
psychologist at The Well Being Group where she conducts psychological
assessments and pre-surgical psychological screenings, leads psycho-educational
and support groups focused on pain management and consults with physicians
regarding patient treatment related to spine surgery programs. Dr. Pladziewicz
is an attorney who served of counsel to Thompson & Knight, P.C. from 1991 to
June 1997.

Committees of the Board of Directors. The Board of Directors does not
currently have an Audit Committee but anticipates establishing one within 15
days of the date of the prospectus. The Audit Committee will consist of
independent directors selected by the Board of Directors. The functions of the
Audit Committee will be to recommend annually to the Board of Directors the
appointment of the independent auditors of the Company, discuss and review in
advance the scope and the fees of the annual audit and review the results
thereof with the independent auditors, review and approve non-audit services of
the independent auditors, review compliance with existing major accounting and
financial reporting policies of the Company, review the adequacy of the
financial organization of the Company and review management's procedures and
policies relating to the adequacy of the Company's internal accounting controls
and compliance with applicable laws relating to accounting practices.

The Board of Directors does not currently have a Compensation Committee but
anticipates establishing one within 15 days of the date of the prospectus. Prior
to the offering, the Company's senior management was directly involved in
setting compensation for the Company's executives. The functions of the
Compensation Committee will be to review and approve annual salaries, bonuses,
and grants of stock options pursuant to the Company's 1997 Omnibus Securities
Plan and to review and approve the terms and conditions of all material employee
benefit plans or changes thereto. The Compensation Committee will consist of
independent directors selected by the Board of Directors.

Compensation of Directors. Directors who are not also employees of the
Company will receive options to purchase 5,000 shares of Common Stock at an
exercise price equal to the initial public offering price. Such options will
vest one year after the date of grant. See "Management -- 1997 Omnibus
Securities Plan." Such directors will also be paid a fee of $1,000 per board
meeting attended and $750 per board committee meeting attended and will be
reimbursed for out-of-pocket expenses incurred for attendance at such meetings.
Other than with respect to reimbursement of expenses, directors who are
employees of the Company will not receive additional compensation for their
services as a director.

27
<PAGE> 29

Executive Compensation. The following table sets forth, for the year ended
June 30, 1997, individual compensation information for the Chief Executive
Officer of the Company and each of the other most highly compensated executive
officers of the Company who were serving as executive officers at June 30, 1997.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------------- SECURITIES ALL OTHER
FISCAL SALARY BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS (#) ($)
--------------------------- ------ ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Rebecca E. Boenigk....................................... 1997 200,000 78,179 0 13,938(1)
Chairman of the Board and Chief Executive Officer
David W. Campbell........................................ 1997 120,000 50,406 0 6,100(2)
President
Jaye E. Congleton (3).................................... 1997 120,000 60,140 0 12,000(4)
Executive Vice President and Secretary
</TABLE>

- ---------------

(1) Amounts in this column consist of (i) the estimated dollar value of the
benefit to the executive officer of Company-paid premiums on split-dollar
life insurance policies on the life of the executive in the amount of
$12,000 and (ii) the estimated dollar value of the benefit to the executive
officer of the personal use of the Company's automobile in the amount of
$1,938.

(2) Amounts in this column consist of the estimated dollar value of the benefit
to the executive officer and his spouse of Company-paid premiums on life
insurance policies on the life of the executive.

(3) Mrs. Congleton resigned as an officer and director on August 1, 1997.

(4) Amounts in this column consist of the estimated dollar value of the benefit
to the executive officer of Company-paid premiums on split-dollar life
insurance policies on the life of the executive.

Employment and Consulting Agreements. The Company has entered into
employment agreements with Rebecca Boenigk, the Company's Chairman of the Board
and Chief Executive Officer, David W. Campbell, the Company's President, David
W. Ebner, the Company's Vice President of Operations, and Gregory A. Katt, the
Company's Vice President, Chief Financial Officer and Secretary/Treasurer, for a
term expiring on July 1, 2000, subject to automatic one-year extensions unless
either party gives 60 days written notice of its intention not to renew. The
agreement with Mrs. Boenigk provides for a base salary of $200,000, with an
annual bonus based on the attainment of targets set by the Board of Directors.
The agreement with Mr. Campbell provides for a base salary of $135,000 and an
annual bonus based on the attainment of targets set by the Board of Directors.
The agreement with Mr. Ebner provides for a base salary of $75,000 and an annual
bonus based on the attainment of targets set by the Board of Directors. The
agreement with Mr. Katt provides for a base salary of $75,000 and an annual
bonus based on the attainment of targets set by the Board of Directors.
Officers' salaries may be increased at the discretion of the Board of Directors.
The agreements contain non-compete (during the term of the agreement and 18
months thereafter) and confidentiality provisions.

In addition, the Company has entered into a Consulting Agreement, dated as
of July 1, 1997, with Dr. Jerome Congleton. Pursuant to this agreement, Dr.
Congleton receives an annual fee of $90,000 and the agreement terminates on July
1, 2007. The agreement may be terminated at any time by the written mutual
agreement of Dr. Congleton and the Company.

All compensation decisions concerning executive officers have been made by
the Board of Directors. See "Management -- Executive Compensation."

401(k) Plan. The Company intends, but has not taken any steps, to implement
a 401(k) plan for its employees in the foreseeable future.

28
<PAGE> 30

Cash Bonus Plan. The Company has a discretionary cash bonus plan under
which, based on the profitability of the Company, it has in the past and expects
in the future to pay bonuses to officers and employees of the Company. Bonuses
paid are at the discretion of the management of the Company and must be approved
by the Board of Directors.

Amended and Restated 1996 Nonqualified Stock Option Plan. The Board of
Directors and the shareholders approved the Company's Amended and Restated 1996
Nonqualified Stock Option Plan (the "Stock Option Plan") effective as of April
29, 1996. As of June 30, 1997, the Company had outstanding options representing
200,000 shares of Common Stock, representing all of the shares available under
the Stock Option Plan. If at any time within five years after the original date
of grant of any option under the Stock Option Plan, the Company files a
registration statement under the Securities Act, in respect of an underwritten
public offering of its common stock, the Company, at its own expense, shall
register option shares purchased by an optionee, concurrently with the
registration of such other common stock. If all the option shares have not been
registered by optionees within five years after the original date of any option
under the Stock Option Plan, the Company shall file a registration statement
under the Securities Act within 120 days after the expiration of such five year
period. Except for the shares of Common Stock offered by Mr. Campbell and Mr.
Ebner hereby, such registration rights have been waived for this offering.

1997 Omnibus Securities Plan. The Board of Directors and the shareholders
of the Company approved the Company's 1997 Omnibus Securities Plan (the "Plan")
for the employees, directors and consultants of the Company. The number of
shares of Common Stock reserved for issuance under the Plan is 200,000 shares,
of which the Company intends to issue as soon as practicable following
consummation of the offering options to acquire 55,000 shares of Common Stock.
The Plan will be administered by the Compensation Committee of the Board of
Directors. The Compensation Committee may grant stock based compensation to Plan
participants, including nonqualified stock options, incentive stock options
within the meaning of Section 422 of the Code, stock appreciation rights and
restricted stock. In the event of a change of control, all unmatured
installments of any incentive stock option, non-qualified stock option,
restricted stock or stock appreciation right outstanding will automatically be
accelerated and vested or exercisable in full. A change in control of the
Company is deemed to occur upon any of the following events: (i) any
consolidation, merger or share exchange of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a consolidation, merger or share exchange of the Company in
which the holders of the Company's Common Stock immediately prior to such
transaction have the same proportionate ownership of Common Stock of the
surviving corporation immediately after such transaction; (ii) any sale, lease,
exchange or other transfer (excluding transfer by way of pledge or
hypothecation) in one transaction or a series of related transactions, of all or
substantially all of the assets of the Company; (iii) the shareholders of the
Company approve any plan or proposal for the liquidation or dissolution of the
Company; (iv) the cessation of control (by virtue of their not constituting a
majority of directors) of the Board by the individuals (the "Continuing
Directors") who (x) at the date of the Plan were directors or (y) become
directors after the date of the Plan and whose election or nomination for
election by the Company's shareholders, was approved by a vote of at least
two-thirds of the directors then in office who were directors at the date of the
Plan or whose election or nomination for election was previously so approved;
(v) the acquisition of beneficial ownership (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
an aggregate of 20% of the voting power of the Company's outstanding voting
securities by any person or group (as such term is used in Rule 13d-5 under the
Exchange Act) who beneficially owned less than 15% of the voting power of the
Company's outstanding voting securities on the date of the Plan, or the
acquisition of beneficial ownership of an additional 5% of the voting power of
the Company's outstanding voting securities by any person or group who
beneficially owned at least 15% of the voting power of the Company's outstanding
voting securities on the date of the Plan, provided, however, that
notwithstanding the foregoing, an acquisition shall not constitute a change of
control if the acquiror is (x) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company and acting in such capacity, (y) a
subsidiary of the Company or a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of voting securities of the Company or (z) any other person whose
acquisition of shares of voting securities is approved in advance by a majority
of the Continuing Directors; or (vi) in a

29
<PAGE> 31

Title 11 bankruptcy proceeding, the appointment of a trustee or the conversion
of a case involving the Company to a case under Chapter 7.

Stock Options. The following table shows for each of the named executive
officers the number of shares covered by both exercisable and non-exercisable
stock options as of June 30, 1997, and the values for "in-the-money" options,
based on the positive spread between the exercise price of any such existing
stock options and the year-end value of the Common Stock.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES VALUE JUNE 30, 1997 JUNE 30, 1997
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David Campbell......... 100,000 $227,500 0 200,000 $0 $1,205,000(2)
</TABLE>

- ---------------

(1) Aggregate market value (based on value of $2.50 per share) of the shares
covered by the options, less aggregate exercise price payable by the named
executive officer.

(2) Will become exercisable upon consummation of the offering.

Compensation Committee Interlocks and Insider Participation in Compensation
Decisions. During fiscal year 1997, the Company had no separate compensation or
stock option committee or other board committee performing equivalent functions,
and these functions were performed by Mrs. Boenigk. The Company expects to form
a Compensation Committee within 15 days of the date of the prospectus.

30
<PAGE> 32

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this prospectus, and
as adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each person who is known by management to be the beneficial owner of more
than 5% of the outstanding Common Stock, (ii) the Selling Shareholders, (iii)
each of the Company's directors and executive officers, and (iv) all directors
and executive officers of the Company as a group. See "Management" and "Certain
Transactions" for a description of the Selling Shareholder's position, office or
other material relationship with the Company within the past three years. Unless
otherwise indicated, each person listed in the table has or will have sole
voting and investment power over the Common Stock that the person beneficially
owns, subject to community property laws where applicable and subject to the
footnotes to this table.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING AFTER OFFERING
-------------------- --------------------
PERCENT SHARES PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF CLASS BEING SOLD NUMBER OF CLASS
------------------------------------ --------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Rebecca E. Boenigk(1)(2)................... 960,000 38.4% 72,690 887,310 27.6%
David W. Campbell(1)(3).................... 400,000 16.0% 100,000 300,000 8.8%
Dr. Jerome J. Congleton(1)(4).............. 885,760 35.4% 67,070 818,690 25.5%
Ronald L. Jones(5)(6)...................... -- -- -- -- --
James W. Thompson(6)(7).................... -- -- -- -- --
Cynthia Pladziewicz(6)(8).................. -- -- -- -- --
Gregory A. Katt(1)......................... -- -- -- -- --
David W. Ebner(1).......................... 100,000 4.0% 40,000 60,000 1.9%
Jaye E. Congleton(1)(9).................... 885,760 35.4% 67,070 818,690 25.5%
Catherine J. Coker(1)(10).................. 114,240 4.6% 114,240 -- --
Eric N. Coker(1)(11)....................... 114,240 4.6% 114,240 -- --
C. Michele Zincke(1)....................... 40,000 1.6% 40,000 -- --
All directors and executive officers as a
group (a total of 9 persons)(6)(12)...... 2,345,760 93.8% 279,760 2,066,000 60.8%(12)
</TABLE>

- ---------------

(1) The business address for the named person is 3904 N. Texas Avenue, Bryan,
Texas 77803.

(2) Does not include the shares owned by Rebecca E. Boenigk's mother, Jaye E.
Congleton, as to which Mrs. Boenigk disclaims beneficial ownership.

(3) Includes options to purchase 200,000 shares of Common Stock that will become
exercisable upon consummation of the offering pursuant to the Amended and
Restated 1996 Nonqualified Stock Option Plan.

(4) Includes the shares owned by Dr. Jerome Congleton's wife, Jaye E. Congleton,
as to which Dr. Congleton disclaims beneficial ownership. Does not include
the shares owned by Dr. Congleton's daughter, Rebecca E. Boenigk, as to
which Dr. Congleton disclaims beneficial ownership.

(5) The business address for the named person is 1228 Euclid Avenue, 10th Floor,
Halle Building, Cleveland, Ohio 44115.

(6) Does not include options to be granted upon consummation of the offering to
Dr. Pladziewicz and Messrs. Jones and Thompson under the 1997 Omnibus
Securities Plan representing the right to acquire 5,000 shares of Common
Stock each.

(7) The business address for the named person is 1333 Northwest Freeway,
Houston, Texas 77040.

(8) The business address for the named person is 6300 West Parker Road, Plano,
Texas 75093.

(9) Does not include the shares owned by Jaye E. Congleton's daughter, Rebecca
E. Boenigk, as to which Mrs. Congleton disclaims beneficial ownership.

31
<PAGE> 33

(10) Includes the shares owned by Catherine J. Coker's husband, Eric N. Coker,
as to which Mrs. Coker disclaims beneficial ownership. Does not include the
shares owned by Mrs. Coker's mother, Jaye E. Congleton, as to which Mrs.
Coker disclaims beneficial ownership.

(11) Includes the shares owned by Eric N. Coker's wife, Catherine J. Coker, as
to which Mr. Coker disclaims beneficial ownership.

(12) If the Underwriter's over-allotment option is exercised in full, the
percentage of shares to be beneficially owned by the directors and
executive officers as a group after the offering will be 53.3%.

CERTAIN TRANSACTIONS

Company Loans. In June 1996 and April 1997, the Company made loans pursuant
to notes in the amounts of $32,225 and $106,225, respectively, to Mr. Campbell,
President and director of the Company, in connection with the exercise of a
portion of his stock options. The notes bear interest at a rate of 7.5% per
annum and mature on December 31, 2000 and December 31, 2001, respectively.

In June 1996, the Company made a loan pursuant to a note in the amount of
$32,225 to Mr. Ebner, Vice President of Operations of the Company, in connection
with the exercise his stock options. The note bears interest at a rate of 7.5%
per annum and matures on December 31, 2000.

Royalties. In March 1997, Dr. Congleton assigned the rights, title and
interest in the Patent to the Company in exchange for $30,000 and 25% of net
royalties collected by the Company from third parties for products manufactured,
used or sold under license or sublicense of the Patent. Dr. Congleton also has a
written agreement with the Company that grants him a perpetual 3% royalty
(exclusive of Texas A&M University's royalty to Dr. Congleton) on the net sales
of every ComputErgo(TM) sold by the Company.

Guarantees. The Revolving Credit Facility is guaranteed by Mrs. Boenigk and
Mrs. Congleton. No amounts were outstanding under the Revolving Credit Facility
loan at June 30, 1997. Upon consummation of the offering, Mrs. Boenigk's and
Mrs. Congleton's personal guarantees will be released by the lender.

Distributions. For the period between April 1, 1996 through June 30, 1997,
the Company had declared distributions of $323,000 and had paid $223,000 of this
amount to its shareholders in connection with their estimated federal income tax
obligations attributable to the Company's earnings, of which Mrs. Boenigk, Mrs.
Congleton, Mrs. Coker, Mrs. Zincke and Messrs. Campbell, Ebner and Coker
received $140,945, $130,046, $8,386, $5,873, $14,682, $14,682 and $8,386,
respectively. Prior to the consummation of the offering, the Company intends to
declare a cash dividend to its existing shareholders. This cash dividend will be
in an amount sufficient to cover the present shareholders' estimated federal and
state income tax obligations attributable to the Company's Subchapter S earnings
for the period from July 1, 1997 through the Termination Date. The dividend will
be paid to these shareholders after consummation of the offering. The Company
has no intention of declaring or paying any other dividend or making any other
distribution to its shareholders after the Termination Date.

Other Relationships. Cynthia Pladziewicz, a director of the Company, served
of counsel to Thompson & Knight, P.C. during fiscal year 1997. The Company
intends to retain Thompson & Knight, P.C. to perform certain blue sky research
and filings in connection with the offering.

Future Transactions. Although the Company has no present intention to do
so, it may in the future enter into other transactions incident to its business
with its directors, officers, shareholders and other affiliates. The Company's
policy is that any transaction in the future with an affiliated entity,
executive officer, shareholder or director will be subject to review and
approval by a majority of the Company's directors who have no interest in the
transaction and such transaction will be on no less favorable terms than the
Company could obtain from unaffiliated parties.

32
<PAGE> 34

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of (i) 14,000,000
shares of Common Stock, par value $.01 per share and (ii) 1,000,000 shares of
preferred stock, par value $.01 per share. On June 30, 1997, there were seven
holders of record of Common Stock with 2,300,000 shares outstanding, and no
shares of preferred stock were outstanding.

Common Stock. Holders of shares of Common Stock are entitled to share
ratably in such dividends as may be declared by the Board of Directors and paid
by the Company out of funds legally available therefor, subject to prior rights
of any outstanding shares of any preferred stock. See "Dividend Policy." In the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company, holders of shares of Common Stock are entitled to share ratably in
assets remaining after payment of all liabilities and liquidation preferences,
if any, of any preferred stock.

Except as otherwise required by law or the Amended and Restated Articles of
Incorporation, the holders of Common Stock are entitled to one vote per share on
all matters voted on by shareholders, including the election of directors.
Holders of shares of Common Stock have no preemptive, cumulative voting,
subscription, redemption, or conversion rights. The rights, preferences, and
privileges of holders of Common Stock are subject to the rights, preferences,
and privileges granted to the holders of any series of preferred stock which the
Company may issue in the future.

Preferred Stock. The Board of Directors may, without further action by the
Company's shareholders, from time to time, direct the issuance of fully
authorized shares of preferred stock in one or more series and may, at the time
of issuance, determine the powers, rights, preferences, and limitations of each
series. Satisfaction of any dividend preferences on outstanding shares of
preferred stock would reduce the amount of funds available for the payment of
dividends on Common Stock. Also, holders of preferred stock would be entitled to
receive a preference payment in the event of any liquidation, dissolution, or
winding up of the Company before any payment is made to the holders of Common
Stock. Under certain circumstances, the issuance of such preferred stock may
render more difficult or tend to discourage a merger, tender offer, or proxy
contest, the assumption of control by a holder of a large block of the Company's
securities, or the removal of incumbent management.

Special Provisions of the Amended and Restated Articles of Incorporation
and Amended and Restated Bylaws. The Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws of the Company include certain
provisions that could have anti-takeover effects. The provisions are intended to
enhance the likelihood of continuity and stability in the composition of, and in
the policies formulated by, the Board of Directors. These provisions also are
intended to help ensure that the Board of Directors, if confronted by a surprise
proposal from a third party that has acquired a block of Common Stock of the
Company, will have sufficient time to review the proposal, to develop
appropriate alternatives to the proposal, and to act in what the Board of
Directors believes to be the best interests of the Company and its shareholders.
These provisions of the Amended and Restated Articles of Incorporation may not
be amended or repealed by the shareholders of the Company except upon the vote
of the holders of at least two-thirds of the outstanding shares of each class of
the Company's capital stock then entitled to vote thereon. The following is a
summary of the provisions contained in the Company's Amended and Restated
Articles of Incorporation and Amended and Restated Bylaws and is qualified in
its entirety by reference to such documents in the respective forms filed as
exhibits to the Registration Statement of which this prospectus forms a part.

Amendment of Bylaw Provisions. The Amended and Restated Articles of
Incorporation provides that Bylaw provisions may be adopted, altered, amended,
or repealed only by the affirmative vote of (i) at least two-thirds of the
members of the Board of Directors who are elected by the holders of Common Stock
or (ii) the holders of at least two-thirds of the outstanding shares of each
class of the Company's capital stock then entitled to vote thereon.

Classified Board of Directors. The Amended and Restated Articles of
Incorporation provides for a Board of Directors divided into three classes of
directors serving staggered three-year terms. The classification of directors
has the effect of making it more difficult for shareholders to change the
composition of the Board of

33
<PAGE> 35

Directors in a short period of time. At least two annual meetings of
shareholders, instead of one, will generally be required to effect a change in a
majority of the Board of Directors.

Number of Directors; Filling Vacancies; Removal. The Amended and Restated
Articles of Incorporation provides that the number of directors is currently
six, which number may be increased or decreased pursuant to the Amended and
Restated Bylaws of the Company but in no event will be less than the minimum
number required by law. The Company's Amended and Restated Bylaws provide that
the Board of Directors, acting by majority vote of the directors then in office,
may fill any newly created directorship or vacancies on the Board of Directors.

The Company's Amended and Restated Articles of Incorporation provides that
a director may be removed with or without cause. "Cause" is defined in the
Amended and Restated Articles of Incorporation to mean that a director (i) has
been convicted of a felony by a court of competent jurisdiction and such
conviction is no longer subject to direct appeal, (ii) has missed three
consecutive meetings of the Board of Directors, or (iii) has been adjudged by a
court of competent jurisdiction to be liable for gross negligence or misconduct
in the performance of his duties to the Company in a matter of substantial
importance to the Company, and such adjudication has become final and
non-appealable. These provisions will preclude a shareholder from simultaneously
removing incumbent directors without cause and gaining control of the Board of
Directors by filling the vacancies created by such removal with its own
nominees.

Special Meetings. The Amended and Restated Bylaws and Amended and Restated
Articles of Incorporation provide that special meetings of shareholders may be
called by a majority of the Board of Directors, the Chairman of the Board of
Directors, or by any holder or holders of at least 25% of any class of the
Company's outstanding capital stock then entitled to vote at the meeting.

Advance Notice Requirements for Shareholder Proposals and Director
Nominees. The Amended and Restated Bylaws establish an advance notice procedure
with regard to business proposed to be submitted by a shareholder at any annual
or special meeting of shareholders of the Company, including the nomination of
candidates for election as directors. The procedure provides that a written
notice of proposed shareholder business at any annual meeting must be received
by the Secretary of the Company not more than 180 days nor less than 120 days
before the first anniversary of the prior year's annual meeting or, in the event
of a special meeting, not more than 10 days after the notice of the special
meeting.

Notice to the Company from a shareholder who proposes to nominate a person
at a meeting for election as a director must contain all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act, including such persons's written consent
to being named in a proxy statement as a nominee and to serving as a director if
elected.

The chairman of a meeting of shareholders may determine that a person is
not nominated in accordance with the nominating procedure, in which case such
person's nomination will be disregarded. If the chairman of a meeting of
shareholders determines that other business has not been properly brought before
such meeting in accordance with the Bylaw procedures, such business will not be
conducted at the meeting. Nothing in the nomination procedure or the business
will preclude discussion by any shareholder of any nomination or business
properly made or brought before the annual or any other meeting in accordance
with the foregoing procedures.

Limitations on Directors' Liability. The Company's Amended and Restated
Articles of Incorporation provides that the liability of the directors of the
Company to the Company or its shareholders for monetary damages for acts or
omissions occurring in their capacity as directors shall be limited to the
fullest extent permitted by the laws of the State of Texas and any other
applicable law, as such laws now exist and to such greater extent as they may
provide in the future. This elimination of liability for monetary damages
permitted by Texas law does not alter the standard of conduct with which
directors must comply nor does it affect the availability of equitable relief to
the Company and its shareholders.

Transfer Agent and Registrar. The transfer agent and registrar for the
Common Stock is Harris Trust and Savings Bank.

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<PAGE> 36

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding
3,200,000 shares of Common Stock excluding (i) 200,000 shares of Common Stock
reserved for issuance under the Company's 1997 Omnibus Securities Plan, of which
the Company intends to issue as soon as practicable following consummation of
the offering options to acquire 55,000 shares of Common Stock, (ii) 200,000
shares of Common Stock reserved for issuance pursuant to options outstanding
under the Company's Amended and Restated 1996 Nonqualified Stock Option Plan and
(iii) 133,400 shares of Common Stock subject to the Underwriter's Warrants. Of
these shares of Common Stock, all of the 1,334,000 shares sold in this offering
may be publicly offered and sold without restriction, unless they are purchased
by affiliates of the Company. Shares of Common Stock outstanding prior to
completion of this offering will be "restricted securities" under the Securities
Act (the "Restricted Shares"). The Restricted Shares may be sold only if they
are registered under the Securities Act or pursuant to an applicable exemption
from the registration requirements of the Securities Act, including Rule 144 or
Rule 701 thereunder. Each of the Selling Shareholders of the Company has agreed
that he or she will not, directly or indirectly, offer, sell, pledge, contract
to sell, transfer the economic risk of ownership in, make any short sale, or
otherwise dispose of shares of Common Stock or securities convertible into or
exercisable or exchangeable for or any rights to purchase or acquire Common
Stock, without the consent of the Underwriter prior to January 1, 1999. See
"Underwriting."

In general, under Rule 144 as currently in effect, affiliates of the
Company or a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least one year but less than two
years is entitled to sell within any three-month period a number of shares that
does not exceed the greater of 1% of the then outstanding shares of the Common
Stock or the average weekly trading volume in the Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. No sales are permitted under Rule
144 until the Company has been subject to reporting with the Securities and
Exchange Commission (the "Commission") for at least 90 days. Any person (or
persons whose shares are aggregated) who is not deemed to have been an
"affiliate" of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned Restricted Shares for at least two years, would be
entitled to sell such shares under Rule 144 without regard to the volume or
manner of sale limitations referred to above.

Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors before the date the Company becomes
subject to the reporting requirements of the Exchange Act pursuant to written
compensatory benefit plans or written contracts relating to the compensation of
such persons. Securities issued in reliance on Rule 701 are restricted
securities and, beginning 90 days after the date of this Prospectus, may be sold
by persons other than affiliates subject only to the manner of sale provisions
of Rule 144 and by affiliates under Rule 144 without compliance with its
two-year minimum holding period requirements. Such securities will be subject,
however, to any lock-up agreements related to such securities.

The Company intends to file a registration statement on Form S-8 covering
sales of shares issued upon exercise of any securities issued under the
Company's 1997 Omnibus Securities Plan. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Underwriting."

No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, will have on the market
price of the Common Stock. The sale of substantial amounts of Common Stock, or
the perception that such sales could occur, could adversely affect the
prevailing market price for the Common Stock.

35
<PAGE> 37

UNDERWRITING

The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement, to purchase from the Company and the Selling
Shareholders an aggregate of 1,334,000 shares of Common Stock. The nature of the
obligations of the Underwriter is such that if any of such shares are purchased,
all must be purchased.

The Underwriter initially proposes to offer the shares of Common Stock
offered hereby to the public at the price to public set forth on the cover page
of this prospectus. The Underwriter may allow a concession to selected dealers
who are members of the National Association of Securities Dealers, Inc. ("NASD")
not in excess of $ per share, and the Underwriter may allow, and such
dealers may reallow, to members of the NASD a concession not in excess of
$ per share. After the public offering, the price to public, the
concession and the reallowance may be changed by the Underwriter.

Certain of the Selling Shareholders have granted an option to the
Underwriter, exercisable within 45 days after the date of this prospectus, to
purchase up to an additional 160,000 shares of Common Stock at the initial price
to the public, less the underwriting discount, set forth on the cover page of
this prospectus. The Underwriter may exercise the option only for the purpose of
covering over-allotments.

The Company has agreed to grant to the Underwriter warrants to purchase up
to 133,400 shares of Common Stock. The Underwriter's Warrants will not be
registered. The Underwriter's Warrants will be exercisable for a period of four
years, commencing one year after the date of this prospectus, at an initial per
share exercise price equal to 120% of the price to the public set forth on the
cover page of this prospectus. Neither the Underwriter's Warrants nor the shares
of Common Stock issuable upon exercise thereof may be transferred, assigned or
hypothecated until one year from the date of this prospectus, except that they
may be assigned, in whole or in part, to any successor, officer, director,
member or partner of the Underwriter. If the holder or holders of the
Underwriter's Warrants notify the Company of their intention to exercise all or
a portion of the Underwriter's Warrants and such exercise would cause Mrs.
Boenigk and Mrs. Congleton to collectively own less than 50% of the Company's
outstanding Common Stock, the Company may, before the exercise of the
Underwriter's Warrants, redeem the Underwriter's Warrants that were being
exercised by paying to the holder or holders the difference between the exercise
price of the Underwriter's Warrant and the last reported sales price for the
Common Stock on the date that notice of intention to exercise is given to the
Company. The Company must notify the holder or holders of its intention to
redeem the Underwriter's Warrants being tendered for exercise within 24 hours of
its receipt of notice and consummate the cash redemption within five days of
receipt of notice.

The holders of the Underwriter's Warrants will have no voting, dividend or
other rights as shareholders of the Company unless and until the exercise of the
Underwriter's Warrants. The number of securities deliverable upon any exercise
of the Underwriter's Warrants or its underlying securities and the exercise
price of the Underwriter's Warrants are subject to adjustment to protect against
any dilution upon the occurrence of certain events, including issuance of stock
dividends, stock splits, subdivision or combination of outstanding stock and
reclassification of stock.

During and after the offering, the Underwriter may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions in connection with the offering. The Underwriter
may also impose a penalty bid, whereby selling concessions allowed to broker-
dealers in respect of the Common Stock sold in the offering for their account
may be reclaimed by the Underwriter if such Common Stock is repurchased by the
Underwriter in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock,
which may be higher than the price that might otherwise prevail in the open
market, and, if commenced, may be discontinued at any time.

The Company and its current shareholders have agreed that until January 1,
1999, they will not, directly or indirectly, offer, sell, contract to sell,
grant any option to sell, or otherwise dispose of shares of Common Stock or
other securities which are substantially similar to the Common Stock or
securities convertible into or

36
<PAGE> 38

exercisable or exchangeable for or any rights to purchase or acquire Common
Stock or securities which are substantially similar to the Common Stock without
the prior written consent of the Underwriter.

Prior to this offering, there has been no market for the Common Stock and
there can be no assurance that a regular trading market will develop upon the
completion of this offering. The initial public offering price was determined by
negotiations between the Company and the Underwriter. The primary factors
considered in determining such offering price included the history of and
prospects for the industry in which the Company competes, market valuation of
comparable companies, market conditions for public offerings, the history of and
prospects for the Company's business, the Company's past and present operations
and earnings and the trend of such earnings, the prospects for future earnings
of the Company, the Company's current financial position, an assessment of the
Company's management, the general condition of the securities markets, the
demand for similar securities of comparable companies and other relevant
factors.

The Company and the Selling Shareholders have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act or to contribute to payments which the Underwriter may be
required to make in respect thereof.

The Underwriter has advised the Company that it does not expect any sales
by the Underwriter to accounts over which it exercises discretionary authority.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Haynes and Boone, LLP, Dallas, Texas.
Certain legal matters in connection with this offering will be passed upon for
the Underwriter by Thompson & Knight, P.C., Dallas, Texas.

EXPERTS

The financial statements of the Company as of June 30, 1997 and for each of
the two years then ended, included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein and have been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
SB-1 (the "Registration Statement") under the Securities Act, with respect to
the shares of Common Stock offered hereby. This prospectus constitutes a part of
the Registration Statement and does not contain all of the information set forth
in the Registration Statement, certain parts of which are omitted from this
prospectus as permitted by the rules and regulations of the Commission.
Statements contained in this prospectus as to the contents of any contract,
agreement or other document referred to herein are not necessarily complete and,
where such agreement or other document is an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions of
such exhibit, to which reference is hereby made for a full statement of the
provisions thereof. For further information with respect to the Company and the
Common Stock, reference is hereby made to the Registration Statement and to the
exhibits thereto.

The Registration Statement and the exhibits may be inspected, without
charge, and copies may be obtained, at prescribed rates, at the public reference
facilities of the Commission maintained at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, DC 20549, or on the internet at http://www.sec.gov.
Copies of the Registration Statement and the exhibits may also be inspected,
without charge, at the Commission's regional offices at 7 World Trade Center,
Suite 1300, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. In addition, copies of the Registration Statement and
the exhibits may be obtained by mail, at prescribed rates, from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, DC
20549.

37
<PAGE> 39

As a result of this offering, the Company will become subject to the
information and periodic reporting requirements of the Exchange Act, and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the Commission. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the public
reference facilities and regional offices referred to above. The Company intends
to furnish its shareholders with annual reports containing audited financial
statements certified by independent public accountants and with quarterly
reports containing unaudited financial statements for the first three quarters
of each fiscal year.

38
<PAGE> 40

NEUTRAL POSTURE ERGONOMICS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT................................ F-2
FINANCIAL STATEMENTS AND NOTES:
Balance Sheet as of June 30, 1997......................... F-3
Statements of Income for the Years Ended June 30, 1996 and
1997................................................... F-4
Statements of Shareholders' Equity for the Years Ended
June 30, 1996 and 1997................................. F-5
Statements of Cash Flows for the Years Ended June 30, 1996
and 1997............................................... F-6
Notes to Financial Statements............................. F-7
</TABLE>

F-1
<PAGE> 41

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
Neutral Posture Ergonomics, Inc.:

We have audited the accompanying balance sheet of Neutral Posture
Ergonomics, Inc. as of June 30, 1997, and the related statements of income,
shareholders' equity and cash flows for each of the two years in the period then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 1997, and the
results of its operations and its cash flows for each of the two years in the
period then ended in conformity with generally accepted accounting principles.

/s/ DELOITTE & TOUCHE LLP

Dallas, Texas

August 11, 1997

F-2
<PAGE> 42

NEUTRAL POSTURE ERGONOMICS, INC.

BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
JUNE 30,
1997
----------------
<S> <C>
Current Assets:
Cash and cash equivalents................................. $ 294,014
Accounts receivable -- less allowance for doubtful
accounts of $68,000 (Notes 3 and 6).................... 1,124,227
Inventories (Note 3)...................................... 507,577
Prepaid expenses and other................................ 156,947
----------
Total current assets.............................. 2,082,765
Property and Equipment -- Net (Notes 2 and 3)............... 1,434,939
Notes Receivable -- shareholders (Note 5)................... 118,175
Deposits and Other.......................................... 62,162
----------
Total............................................. $3,698,041
==========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
Current portion of long-term debt (Note 3)................ $ 26,077
Accounts payable.......................................... 755,264
Accrued liabilities....................................... 563,135
Income taxes payable (Note 4)............................. 47,706
Distributions payable to shareholders..................... 100,000
----------
Total current liabilities......................... 1,492,182
Long-Term Debt -- Less current portion (Note 3)............. 606,591
Commitments and Contingencies (Note 7)
Shareholders' Equity (Note 5):
Common stock: $.01 par value; 14,000,000 shares
authorized, 2,300,000 shares issued and outstanding.... 23,000
Additional paid-in capital................................ 382,000
Retained earnings (Note 8)................................ 1,373,238
Accounts and notes receivable -- shareholders............. (95,845)
Deferred compensation -- stock options granted............ (83,125)
----------
Total shareholders' equity........................ 1,599,268
----------
Total............................................. $3,698,041
==========
</TABLE>

See notes to financial statements.

F-3
<PAGE> 43

NEUTRAL POSTURE ERGONOMICS, INC.

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Net Sales (Note 6).......................................... $11,063,868 $12,089,262
Cost of Sales............................................... 7,682,754 7,594,322
----------- -----------
Gross Profit................................................ 3,381,114 4,494,940
Operating Expenses:
Selling................................................... 967,223 1,232,346
General and administrative................................ 2,013,330 2,181,314
----------- -----------
Total............................................. 2,980,553 3,413,660
----------- -----------
Operating Income............................................ 400,561 1,081,280
Other Income (Expense):
Interest expense.......................................... (83,418) (138,869)
Interest income........................................... 733 13,764
Other..................................................... 24,957 46,893
----------- -----------
Total............................................. (57,728) (78,212)
----------- -----------
Income Before Income Taxes.................................. 342,833 1,003,068
Pro Forma Income Taxes (Notes 1 and 4)...................... 127,593 292,693
----------- -----------
Pro Forma Net Income........................................ $ 215,240 $ 710,375
=========== ===========
Pro Forma Net Income Per Common Share....................... $ .28
===========
Pro Forma Weighted Average Common and Common Equivalent
Shares Outstanding (Note 1)............................... 2,500,000
===========
</TABLE>

See notes to financial statements.

F-4
<PAGE> 44

NEUTRAL POSTURE ERGONOMICS, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
ACCOUNTS AND
COMMON ADDITIONAL NOTES TOTAL
SHARES COMMON PAID-IN RETAINED RECEIVABLE -- DEFERRED SHAREHOLDERS'
ISSUED STOCK CAPITAL EARNINGS SHAREHOLDERS COMPENSATION EQUITY
--------- ------- ---------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 1, 1995........ 2,000,000 $20,000 $ 80,000 $ 443,146 $(43,345) $ -- $ 499,801
Stock options granted to
employees (Note 5)......... -- -- 237,500 -- -- (237,500) --
Exercise of stock options
(Note 5)................... 200,000 2,000 43,000 -- (35,000) -- 10,000
Amortization of deferred
compensation............... -- -- -- -- -- 106,875 106,875
Pro forma net income......... -- -- -- 215,240 -- -- 215,240
Pro forma income tax
adjustment (Note 4)........ -- -- -- 1,000 -- -- 1,000
--------- ------- -------- ---------- -------- --------- ----------
BALANCE AT JUNE 30, 1996....... 2,200,000 22,000 360,500 659,386 (78,345) (130,625) 832,916
Exercise of stock options
(Note 5)................... 100,000 1,000 21,500 -- (17,500) -- 5,000
Amortization of deferred
compensation............... -- -- -- -- -- 47,500 47,500
Shareholder distributions
declared................... -- -- -- (323,000) -- -- (323,000)
Pro forma net income......... -- -- -- 710,375 -- -- 710,375
Pro forma income tax
adjustment (Note 4)........ -- -- -- 326,477 -- -- 326,477
--------- ------- -------- ---------- -------- --------- ----------
BALANCE AT JUNE 30, 1997....... 2,300,000 $23,000 $382,000 $1,373,238 $(95,845) $ (83,125) $1,599,268
========= ======= ======== ========== ======== ========= ==========
</TABLE>

See notes to financial statements.

F-5
<PAGE> 45

NEUTRAL POSTURE ERGONOMICS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------
1996 1997
--------- ----------
<S> <C> <C>
Operating Activities:
Pro forma net income...................................... $ 215,240 $ 710,375
Noncash items in net income:
Depreciation -- property and equipment................. 109,560 158,308
Amortization of deferred compensation.................. 106,875 47,500
Amortization of patent and licensing agreement......... -- 5,072
(Gain) loss on disposal of property and equipment...... 11,090 (1,610)
Deferred income tax benefit............................ (8,036) --
Changes in operating working capital:
Accounts receivable.................................... (202,444) (7,522)
Inventories............................................ 54,819 (64,863)
Prepaid expenses and other............................. (45,111) (92,301)
Accounts payable....................................... (504,030) 362,025
Accrued liabilities.................................... 227,998 268,601
Income taxes payable................................... (6,663) 40,658
Notes receivable -- shareholders....................... (29,450) (88,725)
Deposits and other..................................... (37,405) 26,871
--------- ----------
Pro forma net cash from (used for) operating
activities...................................... (107,557) 1,364,389
Pro forma income tax expense.............................. 1,000 326,477
--------- ----------
Historical net cash from (used for) operating
activities...................................... (106,557) 1,690,866
--------- ----------
Investing Activities:
Additions to property and equipment....................... (754,181) (431,717)
Proceeds from sale of property and equipment.............. -- 17,590
Acquisition of patent and licensing agreement............. -- (50,000)
--------- ----------
Net cash used for investing activities............ (754,181) (464,127)
Financing Activities:
Issuance of debt.......................................... 889,621 --
Payments on debt.......................................... -- (754,348)
Distributions to shareholders............................. -- (223,000)
Contributions on exercise of stock options................ 10,000 5,000
--------- ----------
Net cash from (used for) financing activities..... 899,621 (972,348)
--------- ----------
Increase in Cash and Cash Equivalents....................... 38,883 254,391
Cash and Cash Equivalents:
Beginning of year......................................... 740 39,623
--------- ----------
End of year............................................... $ 39,623 $ 294,014
========= ==========
Supplemental Information:
Interest paid............................................. $ 76,525 $ 145,472
========= ==========
Income taxes paid......................................... $ 151,972 $ 4,000
========= ==========
Noncash investing and financing:
Property and equipment additions for long-term debt.... $ -- $ 8,833
========= ==========
Note receivable for stock issued on exercise of
options............................................... $ 35,000 $ 17,500
========= ==========
</TABLE>

See notes to financial statements.

F-6
<PAGE> 46

NEUTRAL POSTURE ERGONOMICS, INC.

NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996 AND 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business -- Neutral Posture Ergonomics, Inc. (the "Company") designs and
manufactures ergonomic chairs, and sells to wholesale and retail customers
nationwide. The Company's manufacturing facility is located in Bryan, Texas, and
its primary product showroom is located at the Merchandise Mart in Chicago,
Illinois. The Company has been operating under an exclusive license, along with
one other licensee, until February 1997, when the Company became the sole
licensee, for use of a specified patent in applications to industrial,
laboratory and office chair use; this license may not be assigned or
transferred. In March 1997, the Company acquired the patent (Note 7).

Financial Statement Preparation requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses for the periods. Differences from
those estimates are recognized in the period they become known.

Revenues are recognized as sales when products are shipped and title
passes. As revenues are recognized, estimated warranty expenses are provided.

Cash Equivalents are highly liquid investments with maturities at date of
acquisition of three months or less.

Inventories, consisting primarily of raw materials, are stated at the lower
of cost (on the first-in, first-out method) or market.

Property and Equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided using the straight-line
method over estimated useful lives ranging from three to seven years, or the
related lease term if shorter.

Financial Instruments consist of cash, accounts and notes receivable,
payables and debt, the carrying values of which are a reasonable estimate of
their fair values due to their short maturities or current interest rates.

Research and Development Costs are expensed as incurred and were $352,000
and $224,000 in fiscal 1996 and 1997, respectively.

Federal Income Taxes are not recorded by the Company for fiscal 1997 and a
portion of fiscal 1996 because, effective April 1, 1996, the Company has elected
taxation status as an S corporation under the Internal Revenue Code, with
profits and losses reportable by the shareholders in their individual income tax
returns. Deferred income taxes were provided prior to April 1, 1996, under the
asset and liability method for temporary differences in the recognition of
income and expense for tax and financial reporting purposes.

Pro Forma Income Taxes represent the applicable pro forma adjustments for
federal and state income taxes as if the Company had not been treated as an S
Corporation in fiscal 1997 and a portion of fiscal 1996. Upon completion of the
public offering, the Company will terminate its status as an S Corporation and
will be subject to such income taxes.

Pro Forma Net Income Per Common Share is based on the weighted average
number of common shares and common equivalent shares from dilutive stock options
outstanding during the period. Share and per-share amounts have been adjusted
retroactively for the 19-for-1 stock dividend (accounted for as a stock split)
which was effected in August 1997.

Stock-Based Compensation arising from stock option grants is accounted for
by the intrinsic value method under Accounting Principles Board Opinion No. 25
("APB No. 25"). Statement of Financial Accounting Standards No. 123 ("SFAS No.
123"), "Accounting for Stock-Based Compensation," requires

F-7
<PAGE> 47

NEUTRAL POSTURE ERGONOMICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

expanded disclosures of stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be measured based on the
fair value of the equity instrument awarded. As permitted by SFAS No. 123, the
Company continues to apply APB No. 25 to its stock-based compensation awards to
employees and discloses the required pro forma effect on net income and earnings
per share (Note 5).

2. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
1997
----------
<S> <C>
Land........................................................ $ 90,250
Building.................................................... 534,750
Building improvements....................................... 119,099
Machinery and equipment..................................... 415,368
Furniture and fixtures...................................... 305,240
Automobiles and trucks...................................... 111,362
----------
1,576,069
Less accumulated depreciation............................... 366,467
----------
Total....................................................... 1,209,602
Deposits on machinery and equipment......................... 225,337
----------
Property and equipment -- net............................... $1,434,939
==========
</TABLE>

3. DEBT AND CREDIT FACILITIES

Long-term debt consists of the following:

<TABLE>
<CAPTION>
JUNE 30, 1997
-------------
<S> <C>
Revolving line of credit, up to $2,000,000; interest at
prime plus .5% (9% at June 30, 1997) payable monthly;
principal due January 21, 1999............................ $ --
Note payable to bank in monthly installments of $5,300,
including interest at 9.75% for the first 12 months and
variable thereafter, maturing in May 2001................. 481,732
Term loan payable in monthly installments of $1,456,
including interest at 8.25%, maturing in May 2011......... 143,824
Capital lease obligation, payable in variable monthly
installments through October 1999, net of $891 discount
based on interest at 10%, collateralized by the leased
equipment................................................. 7,112
--------
Total long-term debt........................................ 632,668
Less current portion........................................ 26,077
--------
Long-term debt -- less current portion...................... $606,591
========
</TABLE>

F-8
<PAGE> 48

NEUTRAL POSTURE ERGONOMICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Annual maturities of long-term debt -- less current portion at June 30,
1997, are as follows:

<TABLE>
<S> <C>
Year ending June 30:
1999................................................. $ 28,650
2000................................................. 29,093
2001................................................. 431,453
2002................................................. 8,087
2003................................................. 8,780
Thereafter........................................... 100,528
--------
Total........................................... $606,591
========
</TABLE>

Borrowings under the revolving line of credit are subject to borrowing base
requirements and are collateralized by accounts receivable and inventories. The
line of credit is subject to a quarterly commitment fee of .25% per annum on the
difference between the commitment amount and the aggregate principal balance.
The current credit facility is guaranteed by the two majority shareholders and
terminates on January 21, 1999.

Under the same facility, the Company has available a term line of credit up
to $500,000 with interest payable monthly at prime plus .5%, with a maturity not
in excess of five years, to finance the acquisition of additional machinery,
equipment and molds to be used in the Company's operations. At June 30, 1997, no
such loan was outstanding.

In May 1996, the Company purchased an office, warehouse and manufacturing
facility for $626,431. The Company issued a $500,000 variable interest rate note
and a term note of $150,000 for capital improvements on the building. The notes
are collateralized by the building, certain equipment and the assignment of
certain insurance proceeds.

The revolving line of credit and the notes require maintenance of specified
levels of tangible net worth and other financial covenants and restrict
additional borrowings, the purchase and disposal of assets, the payment of
dividends, the purchase of treasury stock and other specified changes in the
Company's business.

4. INCOME TAXES

Since April 1, 1996, the Company has elected taxation status as an S
corporation under the Internal Revenue Code, with profits and losses reportable
by the shareholders in their individual income tax returns. Accordingly, there
is no provision for federal income taxes in fiscal 1997 and a portion of fiscal
1996. The remaining net deferred tax asset of $2,004 at April 1, 1996, is
written off to tax expense in fiscal 1996. Upon completion of the public
offering, the Company will terminate its status as an S Corporation.

Pro forma income tax adjustments represent the additional provision
necessary for federal and state income taxes to be at the statutory rate in
effect (at an effective rate of 37% before tax credits) as if the Company had
not been treated as an S Corporation in fiscal 1997 and a portion of fiscal
1996.

Pro forma income tax expense consists of the following:

<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Historical current (federal and state) tax expense $134,629 $ 44,658
Deferred tax benefit (8,036) --
Pro forma federal income tax adjustment 1,000 326,477
Historical current federal tax refunds from research and
development tax credits related to prior years -- (78,442)
-------- --------
$127,593 $292,693
======== ========
</TABLE>

F-9
<PAGE> 49

NEUTRAL POSTURE ERGONOMICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Significant items comprising the Company's deferred tax asset and liability
in fiscal 1996, include differences primarily arising from allowances and
accrued liabilities not currently deductible for tax purposes and for certain
equipment additions that were currently deductible for tax purposes.

5. STOCK OPTION PLAN

In April 1996, the Company adopted a Nonqualified Stock Option Plan (the
"Plan") to remain in effect for ten years or expiration of the latest option
period, whichever is later. The Plan authorizes the board of directors to grant
up to 700,000 option shares. The Plan contains provisions upon dissolution,
liquidation or merger of the Company to allow for immediate exercise of all
issued and outstanding options. Upon adoption of the Plan in April 1996, the
Company granted 500,000 options at $0.225 exercise price per share of which
200,000 options vested when granted and were exercised in June 1996, and the
remaining 300,000 options vest in equal amounts over a period of three years. At
April 30, 1997, an additional 100,000 options were exercised; at June 30, 1997,
200,000 options are outstanding and not exercisable, and 200,000 options are
reserved for future option issuances.

Under the terms of the option grants, at the election of the optionees, the
Company loaned to the optionees amounts to cover a portion of the exercise price
of the options and the related tax effects, and received from the optionees
notes receivable of $64,450 and $106,225 in fiscal 1996 and 1997, respectively.
These recourse notes bear interest at 7.5%, payable annually, and mature in 2000
and 2001.

The Company applies the provisions of APB No. 25 and related
Interpretations in accounting for its stock option plan. Deferred compensation
of $237,500 was recorded for the 500,000 options granted, based on the $0.475
per share excess of the estimated fair value of the stock of $0.70 per share
over the exercise price, and is amortized over the vesting period of one to
three years. Amortization of deferred compensation of $106,875 and $47,500 for
fiscal 1996 and 1997, respectively, is included in selling, general and
administrative expenses. Had compensation cost for the Company's stock option
plan been determined based on the fair value of the options at the grant date
consistent with the method prescribed by SFAS No. 123, the Company's pro forma
net income would have been reduced by $14,000 and $6,000 for fiscal 1996 and
1997, respectively.

The fair value of options granted in fiscal 1996 was estimated at $0.535
per share on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: risk-free interest rate of 6.32%, no dividend yield,
expected lives of five years and no expected volatility (because the Company's
stock was not publicly traded).

6. CONCENTRATION OF RISKS

The Company's revenues are derived principally from uncollateralized sales
of chairs to customers.

Revenues and accounts receivable from significant customers represent the
following percentages of the Company's net sales and accounts receivable:

<TABLE>
<CAPTION>
1996 1997
------------------- -------------------
ACCOUNTS ACCOUNTS
SALES RECEIVABLE SALES RECEIVABLE
----- ---------- ----- ----------
<S> <C> <C> <C> <C>
General Services Administration................. 14% 12% 16% 15%
United Parcel Services.......................... 23% 15% 10% 5%
</TABLE>

Because of the availability of other customers, management does not believe
that the loss of any single customer would adversely affect the Company's
operations.

F-10
<PAGE> 50

NEUTRAL POSTURE ERGONOMICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. COMMITMENTS AND CONTINGENCIES

Operating Leases -- The Company leases two showroom facilities under
agreements classified as operating leases. These agreements require the Company
to pay all executory costs (such as utilities and maintenance) incurred by the
landlord. In July 1996, the Company terminated its lease of warehouse and office
facilities due to the acquisition of new facilities in Bryan, Texas, in May 1996
(Note 3). The Company also has entered into operating leases for some of its
office equipment.

Future minimum payments under all noncancelable operating lease
obligations, including an estimated pro rata share of operating expenses, as of
June 30, 1997, are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30:
-----------
<S> <C> <C>
1998............................................................... $ 55,881
1999............................................................... 54,818
2000............................................................... 56,419
2001............................................................... 52,635
2002............................................................... 38,691
--------
Total minimum lease payments....................................... $258,444
========
</TABLE>

Rent expense for fiscal 1996 and 1997, totaled $63,211 and $26,007,
respectively, which includes the Company's share of executory costs associated
with its office leases.

Tooling and Licenses -- In January 1997, the Company entered into an
agreement with a third party to design and develop the molds to be utilized in
the production process for approximately $400,000. The Company has paid
approximately $150,000 through June 30, 1997, and expects to pay the remaining
$250,000 upon completion of the molds in October 1997.

Royalties -- In March 1997, the Company acquired the patent (Note 1) from
Jerome C. Congleton for $30,000 and future royalties and now holds all rights to
the patent. Royalties are based on 25% of net royalties collected by the Company
from third parties for products manufactured, used or sold under license or
sublicense of the patent.

Legal Proceedings -- The Company is a party to certain legal proceedings
related to patents and other matters arising in the ordinary course of business.
Although the Company cannot predict the outcome of such proceedings with
certainty, the Company does not expect the outcome of these proceedings, either
individually or in the aggregate, to have a material adverse impact on its
financial position.

******

F-11
<PAGE> 51

[Picture of a chair]

[Pictures of the assembly line]

[Picture of ComputErgo(TM)]

[Pictures of an airport, airplane and a hand on a laptop computer.]
<PAGE> 52

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

No dealer, salesperson, or other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or the Underwriter. This
prospectus does not constitute an offer to sell or the solicitation of an offer
to buy any of the securities to which it relates in any state to any person to
whom it is unlawful to make such offer or solicitation in such state. Neither
the delivery of this prospectus nor any sale hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date.

---------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Termination of Subchapter S Corporation
Status............................... 11
Use of Proceeds........................ 11
Dividend Policy........................ 12
Dilution............................... 13
Capitalization......................... 14
Selected Financial Data................ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 16
Business............................... 19
Management............................. 26
Principal and Selling Shareholders..... 31
Certain Transactions................... 32
Description of Capital Stock........... 33
Shares Eligible for Future Sale........ 35
Underwriting........................... 36
Legal Matters.......................... 37
Experts................................ 37
Additional Information................. 37
Index to Financial Statements.......... F-1
</TABLE>

Until , 1997 (25 days after the date of this prospectus), all
dealers effecting transactions in the common stock, whether or not participating
in this distribution, may be required to deliver a prospectus. This delivery
requirement is in addition to the obligation of dealers to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.

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

1,334,000 SHARES

[LOGO]

NEUTRAL POSTURE
ERGONOMICS, INC.

COMMON STOCK
------------

PROSPECTUS

------------
HUBERMAN FINANCIAL, INC.

, 1997

======================================================
<PAGE> 53

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Amended and Restated Articles of Incorporation of the Company provides
that the Company shall indemnify its directors and officers to the fullest
extent permitted by the Texas Business Corporation Act (the "TBCA"). Pursuant to
the provisions of Article 2.02-1 of the TBCA, the Company has the power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action, suit, or proceeding by reason
of the fact that he is or was a director, officer, employee, or agent of the
Company, against any and all expenses, judgments, fines, and amounts paid in
settlement actually incurred in connection with such action, suit, or
proceeding. The power to indemnify applies only if such person acted in good
faith and in a manner he reasonably believed to be in the best interest, or not
opposed to the best interest, of the Company and with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.

The statute further provides that the indemnification authorized thereby
shall not be deemed exclusive of any other rights to which any such officer or
director may be entitled under any bylaws, agreements, resolution of
shareholders or directors, or otherwise.

The Company's Amended and Restated Articles of Incorporation also provides
that the liability of the directors of the Company to the Company or its
shareholders for monetary damages for acts or omissions occurring in their
capacity as directors shall be limited to the fullest extent permitted by the
laws of the State of Texas and any other applicable law, as such laws now exist
and to such greater extent as they may provide in the future.

The Company has directors' and officers' liability insurance which provides
coverage for the directors and officers and the Company for securities-related
exposures arising out of an offering document and open market securities
transactions. In addition, coverage has been provided for the directors and
officers for certain non-securities related acts.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.

ITEM 2. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 2,942.72
NASD Filing Fee............................................. 1,471.10
Nasdaq National Market Listing Fee.......................... 22,000.00
Printing Expenses........................................... 30,000.00
Accounting Fees and Expenses................................ 130,000.00
Legal Fees and Expenses..................................... 130,000.00
Fees of Transfer Agent and Registrar........................ 5,000.00
Miscellaneous Expenses...................................... 78,586.18
-----------
Total............................................. $400,000.00
===========
</TABLE>

All of the above expenses except the Securities and Exchange Commission
registration fee, the NASD filing fee and NASDAQ National Market listing fee are
estimated. All of the above expenses will be paid by the Company.

II-1
<PAGE> 54

ITEM 3. UNDERTAKINGS.

The small business issuer hereby undertakes:

(1) That the small business issuer will provide to the Underwriter at
the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriter
to permit prompt delivery to each purchaser.

(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions,
or otherwise, the small business issuer has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred
or paid by a director, officer or controlling person of the small business
issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the small business issuer will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.

(3) That the small business issuer will:

(a) For determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the small business issuer under Rule
424(b)(1), or (4) or 497(h) under the Securities Act as part of this
registration statement as of the time the Commission declared it
effective.

(b) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as a
new registration statement for the securities offered in the
registration statement, and the offering of the securities at that time
as the initial bona fide offering of those securities.

ITEM 4. UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR.

The Company issued 100,000 shares of Common Stock to David W. Campbell in
exchange for $45,000 upon exercise of options granted under the Amended and
Restated 1996 Nonqualified Stock Option Plan. Such issuance was offered in
reliance upon Rule 701 of the Securities Act which exempts issuances under
compensatory benefit plans.

ITEM 5. INDEX TO EXHIBITS.

II-2
<PAGE> 55

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
6.5*** -- Consulting Agreement, dated as of July 1, 1997, between
the Company and Dr. Jerome Congleton
6.6*** -- Letter Agreement, dated as of December 20, 1996, between
the Company and Shepherd Products, Inc.
6.7* -- Agreement, dated as of February 21, 1995, between the
Company and the General Services Administration
6.8*** -- Contract Agreement, dated as of January 12, 1997, between
the Company and Relax the Back Franchising Company
6.9*** -- Trademark License, dated as of January 12, 1997, between
the Company and Relax the Back Franchising Company
6.10* -- Promissory Note, dated as of April 30, 1997, issued by
David W. Campbell in favor of the Company
6.11* -- Promissory Note, dated as of June 30, 1996, issued by
David W. Campbell in favor of the Company
6.12* -- Promissory Note, dated as of June 30, 1996, issued by
David W. Ebner in favor of the Company
6.13* -- Loan Agreement, dated as of December 30, 1996, between
the Company and Comerica-Bank Texas
6.14*** -- Split Dollar Insurance Agreement, dated as of April 28,
1997, between the Company and Rebecca E. Boenigk
6.15*** -- Life Insurance Agreement, dated as of February 20, 1997,
between the Company and David W. Campbell
6.16*** -- Split Dollar Insurance Agreement, dated as of June 26,
1995, between the Company and Jaye E. Congleton
6.17*** -- Split Dollar Insurance Agreement, dated as of January 21,
1997, between the Company and David W. Ebner
6.18*** -- Key Man Insurance Agreement, dated as of April 28, 1997,
between the Company and Rebecca Boenigk
6.19*** -- Key Man Insurance Agreement, dated as of February 20,
1997, between the Company and David W. Campbell
6.20*** -- Key Man Insurance Agreement, dated as of March 3, 1997,
between the Company and Dr. Jerome J. Congleton
6.21*** -- Neutral Posture Ergonomics, Inc. Amended and Restated
1996 Nonqualified Stock
6.22*** -- Option Plan, dated as of August 11, 1997 Neutral Posture
Ergonomics, Inc. 1997 Omnibus Securities Plan, dated as
of July 1, 1997
6.23*** -- Underwriter's Warrants
6.24* -- Agreement, dated as of March 5, 1997, between the Company
and Jerome J. Congleton
6.25*** -- Royalty Agreement, dated as of July 1, 1997, between the
Company and Jerome J. Congleton
10.1** -- Consent of Deloitte & Touche LLP
10.2*** -- Consent of Haynes and Boone, LLP (included in Exhibit
5.1)
11.1*** -- Opinion of Haynes and Boone, LLP
12.1* -- Power of Attorney
</TABLE>

- ---------------

* Previously filed.

** Filed herewith.

*** To be filed by amendment.

**** Filed herewith and confidential treatment requested for certain portions
pursuant to the Commission's Rule 406.

II-3
<PAGE> 56

SIGNATURES AND POWER OF ATTORNEY

In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-1 and authorized this
Pre-Effective Amendment No. 1 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on the 5th day of September, 1997.

NEUTRAL POSTURE ERGONOMICS, INC.

By: /s/ REBECCA E. BOENIGK
----------------------------------
Rebecca E. Boenigk
Chairman of the Board
and Chief Executive Officer

In accordance with to the requirements of the Securities Act of 1933, as
amended, this Pre-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form SB-1 was signed by the following persons in the capacities
stated below on the 5th day of September, 1997:

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>

/s/ REBECCA E. BOENIGK Chairman of the Board, Chief Executive Officer
- ----------------------------------------------------- and Director (Principal Executive Officer)
Rebecca E. Boenigk

* President and Director
- -----------------------------------------------------
David W. Campbell

* Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary/Treasurer (Principal Financial and
Gregory A. Katt Accounting Officer)

* Director
- -----------------------------------------------------
Jerome J. Congleton
</TABLE>

* Director
- -----------------------------------------------------
Ronald L. Jones

* Director
- -----------------------------------------------------
James W. Thompson

* Director
- -----------------------------------------------------
Cynthia Pladziewicz

*By: /s/ REBECCA E. BOENIGK

----------------------------------

Rebecca E. Boenigk, pursuant to
powers of

attorney previously filed with the
Securities

and Exchange Commission

II-4
<PAGE> 57

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
1.1*** -- Form of Underwriting Agreement
2.1* -- Amended and Restated Articles of Incorporation of the
Company
2.2*** -- Bylaws of the Company
3.1*** -- Specimen Common Stock Certificate
6.1*** -- Employment Agreement, dated as of July 1, 1997, between
the Company and Rebecca E. Boenigk
6.2*** -- Employment Agreement, dated as of July 1, 1997, between
the Company and David W. Campbell
6.3*** -- Employment Agreement, dated as of July 1, 1997, between
the Company and David W. Ebner
6.4*** -- Employment Agreement, dated as of July 1, 1997, between
the Company and Gregory A. Katt
6.5*** -- Consulting Agreement, dated as of July 1, 1997, between
the Company and Dr. Jerome Congleton
6.6*** -- Letter Agreement, dated as of December 20, 1996, between
the Company and Shepherd Products, Inc.
6.7* -- Agreement, dated as of February 21, 1995, between the
Company and the General Services Administration
6.8*** -- Contract Agreement, dated as of January 12, 1997, between
the Company and Relax the Back Franchising Company
6.9*** -- Trademark License, dated as of January 12, 1997, between
the Company and Relax the Back Franchising Company
6.10* -- Promissory Note, dated as of April 30, 1997, issued by
David W. Campbell in favor of the Company
6.11* -- Promissory Note, dated as of June 30, 1996, issued by
David W. Campbell in favor of the Company
6.12* -- Promissory Note, dated as of June 30, 1996, issued by
David W. Ebner in favor of the Company
6.13* -- Loan Agreement, dated as of December 30, 1996, between
the Company and Comerica-Bank Texas
6.14*** -- Split Dollar Insurance Agreement, dated as of April 28,
1997, between the Company and Rebecca E. Boenigk
6.15*** -- Life Insurance Agreement, dated as of February 20, 1997,
between the Company and David W. Campbell
6.16*** -- Split Dollar Insurance Agreement, dated as of June 26,
1995, between the Company and Jaye E. Congleton
6.17*** -- Split Dollar Insurance Agreement, dated as of January 21,
1997, between the Company and David W. Ebner
6.18*** -- Key Man Insurance Agreement, dated as of April 28, 1997,
between the Company and Rebecca Boenigk
6.19*** -- Key Man Insurance Agreement, dated as of February 20,
1997, between the Company and David W. Campbell
</TABLE>

<PAGE> 58

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
6.20*** -- Key Man Insurance Agreement, dated as of March 3, 1997,
between the Company and Dr. Jerome J. Congleton
6.21*** -- Neutral Posture Ergonomics, Inc. Amended and Restated
1996 Nonqualified Stock
6.22*** -- Option Plan, dated as of August 11, 1997 Neutral Posture
Ergonomics, Inc. 1997 Omnibus Securities Plan, dated as
of July 1, 1997
6.23*** -- Underwriter's Warrants
6.24* -- Agreement, dated as of March 5, 1997, between the Company
and Jerome J. Congleton
6.25*** -- Royalty Agreement, dated as of July 1, 1997, between the
Company and Jerome J. Congleton
10.1** -- Consent of Deloitte & Touche LLP
10.2*** -- Consent of Haynes and Boone, LLP (included in Exhibit
5.1)
11.1*** -- Opinion of Haynes and Boone, LLP
12.1* -- Power of Attorney
</TABLE>

- ---------------

* Previously filed.

** Filed herewith.

*** To be filed by amendment.

**** Filed herewith and confidential treatment requested for certain portions
pursuant to the Commission's Rule 406.

<PAGE> 1
EXHIBIT 10.1

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of Neutral Posture
Ergonomics, Inc. on Pre-effective Amendment No. 1 to Form SB-1 of our report
dated August 11, 1997, appearing in the Prospectus, which is part of this
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.

/s/ Deloitte & Touche LLP

Dallas, Texas
September 2, 1997