U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 000-23207
NEUTRAL POSTURE ERGONOMICS, INC.
(Exact name of small business issuer as specified in its charter)
TEXAS 74-2563656
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3904 N. TEXAS AVENUE
BRYAN, TEXAS 77803 (979) 778-0502
(Address of principal (Issuer's telephone number)
executive offices)
CHECK WHETHER THE ISSUER (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PAST 12
MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH
REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90
DAYS.
YES [X] NO [ ]
ON NOVEMBER 1, 2000, THERE WERE 3,271,800 SHARES OF COMMON STOCK
OUTSTANDING, PAR VALUE $0.01 PER SHARE.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
YES [ ] NO [X]
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NEUTRAL POSTURE ERGONOMICS, INC.
Quarterly Report on Form 10-QSB
for the Quarter Ended September 30, 2000
(Unaudited)
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NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets as of September 30, 2000 and June 30, 2000 .......................... 1
Condensed Statements of Income for the Three Months Ended September 30, 2000 and 1999 ........ 2
Condensed Statements of Cash Flows for the Three Months Ended September 30, 2000 and 1999 .. 3
Notes to Condensed Financial Statements ...................................................... 4
Item 2. Management's Discussion and Analysis or Plan of Operation ............................. 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ...................................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders..................................... 10
Item 5. Other Information ...................................................................... 10
Item 6. Exhibits and Reports on Form 8-K ....................................................... 11
SIGNATURES ......................................................................................... 12
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NEUTRAL POSTURE ERGONOMICS, INC.
CONDENSED BALANCE SHEETS
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ASSETS
SEPTEMBER 30, JUNE 30,
2000 2000
------------- ------------
(Unaudited)
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Current Assets:
Cash and cash equivalents ........................................ $ 2,969,002 $ 3,138,536
Accounts receivable - net ........................................ 2,844,846 2,703,978
Notes receivable - shareholders .................................. 14,725 14,725
Inventories ...................................................... 1,324,703 1,288,782
Deferred income tax benefits ..................................... 275,000 275,000
Prepaid expenses and other ....................................... 189,552 165,286
Income tax receivable ............................................ 65,401 133,144
------------- ------------
Total current assets ........................................ 7,683,229 7,719,451
Property and Equipment - net ............................................. 2,266,457 2,267,244
Intangibles - net ........................................................ 152,261 167,167
Deposits and Other ....................................................... 225,582 222,592
------------- ------------
Total ....................................................... $ 10,327,529 $ 10,376,454
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt ................................ $ 35,550 $ 35,550
Accounts payable ................................................. 1,405,198 1,503,853
Accrued liabilities .............................................. 400,443 435,149
------------- ------------
Total current liabilities ................................... 1,841,191 1,974,552
Long-Term Debt - Less current portion .................................... 492,660 501,188
Deferred Income Tax Liability ............................................ 69,000 69,000
Commitments and Contingencies
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;
3,308,800 shares issued; 3,271,800 shares outstanding ....... 33,088 33,088
Common stock warrants ............................................ 75,000 75,000
Additional paid-in capital ....................................... 5,671,138 5,671,138
Retained earnings ................................................ 2,241,577 2,148,613
Accounts and notes receivable - shareholders ..................... (17,500) (17,500)
Treasury stock - at cost, 37,000 shares .......................... (78,625) (78,625)
------------- ------------
Total shareholders' equity .................................. 7,924,678 7,831,714
------------- ------------
Total ....................................................... $ 10,327,529 $ 10,376,454
============= ============
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See notes to condensed financial statements.
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NEUTRAL POSTURE ERGONOMICS, INC.
CONDENSED STATEMENTS OF INCOME
(Unaudited)
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
-----------------------------
2000 1999
------------ ------------
Net Sales .................................... $ 4,627,753 $ 4,384,020
Cost of Sales ................................ 2,873,375 2,704,026
------------ ------------
Gross Profit ................................. 1,754,378 1,679,994
Operating Expenses:
Selling ................................ 815,945 589,508
General and administrative ............. 807,734 665,341
------------ ------------
Total ............................ 1,623,679 1,254,849
------------ ------------
Operating Income ............................. 130,699 425,145
Other Income (Expense):
Interest expense ....................... (11,099) (14,016)
Interest income ........................ 41,143 37,996
Other .................................. -- (467)
------------ ------------
Total ............................ 30,044 23,513
------------ ------------
Income Before Income Taxes ................... 160,743 448,658
Income Tax Expense ........................... 67,779 162,302
------------ ------------
Net Income ................................... $ 92,964 $ 286,356
============ ============
Earnings Per Share:
Basic .................................. $ 0.03 $ 0.09
============ ============
Diluted ................................ $ 0.03 $ 0.09
============ ============
Weighted Average Common Shares
Outstanding:
Basic .................................. 3,271,800 3,308,800
============ ============
Diluted ................................ 3,271,800 3,313,339
============ ============
See notes to condensed financial statements.
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NEUTRAL POSTURE ERGONOMICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
----------------------------
2000 1999
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Operating Activities:
Net income .................................................... $ 92,964 $ 286,356
Noncash items in net income:
Depreciation and amortization .............................. 148,121 132,041
Changes in operating working capital:
Accounts receivable ........................................ (140,868) (199,643)
Notes receivable ........................................... -- 9,754
Inventories ................................................ (35,921) 79,218
Prepaid expenses and other ................................. (24,266) (72,209)
Income taxes receivable/payable ............................ 67,743 162,302
Accounts payable ........................................... (98,655) (306,370)
Accrued liabilities ........................................ (34,706) (44,624)
Deposits and other ......................................... (4,501) --
------------ ------------
Net cash provided by (used for) operating activities ... (30,089) 46,825
Investing Activities:
Additions to property and equipment ........................... (130,917) (63,680)
------------ ------------
Net cash used for investing activities ................. (130,917) (63,680)
------------ ------------
Financing Activities:
Payments of debt .............................................. (8,528) (33,057)
------------ ------------
Net cash used for financing activities ................. (8,528) (33,057)
------------ ------------
Decrease in Cash and Cash Equivalents .............................. (169,534) (49,912)
Cash and Cash Equivalents:
Beginning of period ........................................... 3,138,536 3,316,257
------------ ------------
End of period ................................................. $ 2,969,002 $ 3,266,345
============ ============
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See notes to condensed financial statements.
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NEUTRAL POSTURE ERGONOMICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. INTERIM FINANCIAL STATEMENTS
The condensed interim financial statements included herein have been
prepared by Neutral Posture Ergonomics, Inc. (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "Commission"). The financial statements reflect adjustments of a normal
recurring nature that are, in the opinion of management, necessary to present
fairly such information. Although the Company believes that the disclosures are
adequate to make the interim information presented not misleading, certain
information and footnote disclosures, including significant accounting policies,
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. These interim financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Annual Report on Form 10-KSB filed by the Company with the Commission for the
fiscal year ended June 30, 2000. Quarterly operating results may vary
significantly and are not necessarily indicative of the results for the full
year or any future period. Certain amounts in prior year financial statements
have been reclassified to conform with current classifications.
2. INVENTORIES
Inventories consist primarily of raw materials and are stated at the lower
of cost (on the first-in, first-out method) or market.
3. ACCOUNTS RECEIVABLE ALLOWANCE
Recent developments at Relax the Back Corporation ("RTB"), one of
the Company's largest customers, have led the Company to believe the
collectibility of the accounts receivable balance is unlikely as it relates to
RTB's corporate stores, which generate approximately 40% of RTB sales. RTB also
has franchised stores that generate the remaining 60% of RTB sales, which are
currently not affected. In response to this knowledge, the Company increased its
estimate of the allowance for doubtful accounts by $235,913 related to RTB's
corporate stores' accounts receivable balance at June 30, 2000 in its fiscal
year June 30, 2000 financial statements. The Company shipped an additional
$100,000 worth of product to the RTB corporate stores during the first quarter
of fiscal 2001 prior to learning of these recent developments, and, as such, the
Company increased its allowance by this same amount. On November 9, 2000, the
Company was informed that RTB had filed for protection under Chapter 11 of the
federal Bankruptcy Code.
4. SUBSEQUENT EVENTS
MANAGEMENT INTENT TO REPURCHASE SHARES - On October 27, 2000, the Company
announced that a management-led group, including Rebecca Boenigk, Jaye Congleton
and other members of the executive management team of the Company, had proposed
to acquire all of the outstanding shares of Neutral Posture Ergonomics, Inc.
common stock not already owned by the management group for a cash price of $1.72
per share of common stock. The proposed acquisition would be accomplished
through a merger of the Company into a new corporation that would be owned by
the management-led group. The management-led group currently owns approximately
62% of the Company's outstanding shares of common stock.
The Board of Directors of the Company has established a special committee
consisting of three independent directors to consider the proposal. The
management-led group's proposal is subject to the approval of the special
committee of the Board of Directors and the shareholders of the Company, the
negotiation and execution of a definitive Merger Agreement and the satisfaction
of the conditions to be set forth in the Merger Agreement. The management-led
group has reserved its right to amend or withdraw its proposal at any time in
its sole discretion.
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N-HANCEMENTS - In early October 2000, one of the Company's major suppliers
of keyboard arm mechanisms notified the Company, and reportedly all other
ergonomic distributor customers, that they will no longer sell certain arm
mechanisms and related components but instead will be selling directly to
dealers and end users. The Company has secured a fixed number of these
mechanisms in the Company's inventory; however, there could be a delay in
ordering and receiving replacement mechanisms from other sources as the demand
on alternative vendors will increase significantly.
LITIGATION - On November 8, 2000 the Company was served with a lawsuit
filed on October 19, 2000, in the County Court of Dallas County in Dallas, Texas
against Neutral Posture Ergonomics, Inc., Rebecca Boenigk, Jaye Congleton, David
Campbell and Huberman Financial, Inc. In general, the lawsuit alleges violation
of the Texas Securities Act, fraud in stock transactions under Texas law, common
law fraud and deceit, and negligent misrepresentations. The suit is a securities
class action lawsuit filed on behalf of all persons who purchased, held or sold
the stock of the Company between October 20, 1997 and October 20, 2000. The
Company intends to contest vigorously the claims made against it in the suit.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following should be read in conjunction with the financial statements,
notes to the financial statements, and "Management's Discussion and Analysis or
Plan of Operation" contained in the Company's Annual Report on Form 10-KSB for
the year ended June 30, 2000 filed with the Commission.
GENERAL. The Company generates revenue through sales of its products to
corporate customers, distributors and retailers through a sales force made up of
company-employed territory marketing managers and independent sales
representatives, who generally are paid a commission for each unit sold. The
sales force usually channels sales through dealers located throughout the United
States and Puerto Rico who acquire the products from the Company at a discount
from suggested retail price and then resell the products to the ultimate
customers. These dealers typically provide end-users a range of "value-added"
services that may include installation, delivery, site planning and warranty
repairs.
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.
THREE MONTHS
ENDED SEPTEMBER 30,
------------------------
2000 1999
---------- ----------
Net sales .................... 100.0% 100.0%
Cost of sales ................ 62.1 61.7
---------- ----------
Gross profit ................. 37.9 38.3
Selling, general and
administrative expenses ...... 35.1 28.6
---------- ----------
Operating income ............. 2.8% 9.7%
========== ==========
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
NET SALES. Net sales for the three month period ended September 30, 2000
increased approximately $244,000 or 5.6% to $4.6 million as compared to $4.4
million for the three month period ended September 30, 1999. Sales for the
Neutral Posture(R) chair line increased approximately $115,000 or 3.4% for the
three month period ended September 30, 2000 while Harvard chair line sales
remained relatively flat compared to similar 1999 period amounts. Sales of
N-hancements, the Company's new accessory line, were approximately $123,000 for
the period ended September 30, 2000.
GROSS PROFIT. Gross profit for the three month period ended September 30,
2000 of approximately $1.8 million increased slightly from gross profit of $1.7
million for the same period in 1999. The gross profit as a percent of net sales
for the three month period ended September 30, 2000 decreased slightly to 37.9%
as compared to the prior year of 38.3%. The decrease in the gross profit margin
percentage was primarily due to increased freight costs as the Company commenced
a freight-included program at certain standard discount levels that became
effective at the beginning of fiscal year 2001. Slight increases in labor and
research and development costs also contributed to the decrease. The decrease in
gross profit margin was partially offset by improved material costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") costs were $1.6 million for the three month period ended
September 30, 2000, increasing approximately $369,000 or 29%, from $1.3 million
for the three month period ended September 30, 1999. The increase over the
comparable period last year is primarily the result of hiring two additional
regional sales directors late in fiscal 2000 and six territory marketing
managers. The Company also recorded an additional write-off for bad debt of
approximately $100,000 related to the Relax the Back corporate-owned stores.
These increases in SG&A expenses were partially offset by a reimbursement of
legal fees from the Company's insurance carrier in the amount of approximately
$90,000. Subsequent to the three month period ended September 30, 2000, the
Company received an additional reimbursement of legal fees from its insurance
carrier in the amount of
6
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$100,000. The Company continues to seek possible further reimbursement of legal
fees incurred related to the ongoing Ergobilt/Bodybilt arbitration from its
insurance carrier.
OPERATING INCOME. Based on the foregoing, operating income for the three
month period ended September 30, 2000 was $130,699, decreasing $294,446 from the
three month period ended September 30, 1999, primarily due to increased selling,
general and administrative expenses as discussed above.
OTHER INCOME (EXPENSE). Other income (expense) increased by $6,531 for the
three month period ended September 30, 2000 as compared to the same 1999 period
primarily due to higher interest income resulting from higher interest rates.
EARNINGS PER SHARE (EPS). The EPS amounts of $0.03 (basic and diluted) for
the three month period ended September 30, 2000 and $0.09 (basic and diluted)
for the three month period ended September 30, 1999 are based on the weighted
average shares outstanding for basic EPS. Diluted EPS also includes the dilutive
effect of common stock options outstanding.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of capital are net cash provided by
operating activities and its unused capacity under the Revolving Credit Facility
(defined below). The Company's primary capital requirements are to fund
component parts inventory, receivables, fixed assets, legal fees, research and
development activities and product improvements.
Cash used for operating activities totaled $30,089 for the three month
period ended September 30, 2000, as compared to cash provided by operating
activities of $46,825 for the three month period ended September 30, 1999. The
use of cash for the period ended September 30, 2000 was a result of lower net
income, an increase in accounts receivable and inventory and a decrease in
accounts payable.
Cash used for investing activities totaled $130,917 and $63,680 for the
three month periods ended September 30, 2000 and 1999, respectively. The cash
used for investing activities in the three month period ended September 30, 2000
was comprised primarily of capital expenditures for two Company vehicles, a
booth for trade shows and computers and machinery used in the production
process. The cash used for investing activities in the prior period was
comprised primarily of capital expenditures for computers, machinery, equipment
and molds used in the production process.
Financing activities used funds totaling $8,528 for the three month period
ended September 30, 2000, due to the reduction of long term debt. For the three
month period ended September 30, 1999, financing activities used funds totaling
$33,057 for the reduction of long-term debt and payoff of a Company vehicle
note.
The Company currently maintains a $2.5 million revolving credit facility
("Revolving Credit Facility") with Compass Bank that expires September 30, 2001.
Borrowings under this facility are subject to borrowing base requirements and
are secured by substantially all of the assets of the Company. At the option of
the Company, borrowings bear interest at the prime rate plus .25% or the LIBOR
rate plus 1.75%. Interest is payable at maturity of the borrowing in the case of
Eurodollar loans and monthly in the case of prime rate loans. At September 30,
2000, no amount was outstanding under the Revolving Credit Facility.
At September 30, 2000, the Company had two loans outstanding in the
amounts of approximately $123,000 and $405,000 pursuant to certain loan
agreements incurred in connection with the Company's acquisition in 1996 of the
land and building currently used by the Company. The Revolving Credit Facility
and the outstanding loan agreements 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.
7
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On August 25, 2000, the Company signed an agreement with Office Furniture
USA to be included in their catalog and to have its products on display in over
140 stores across the United States. The agreement allows the stores to buy
products at standard discounts and payment terms; however, allows for 365-day
payment terms on floor models purchased for each store. As such, the Company
expects to carry outstanding receivables of approximately $500,000 for one year
related to initial purchases of floor samples. As of September 30, 2000,
approximately $4,000 has been purchased as samples subject to the 365-day terms.
The Company sells its products both to stores owned and franchised by RTB
(See Note 3). RTB stores, both corporate and franchised, constitute collectively
one of the Company's largest customers. Recent developments at RTB led the
Company to believe the collectibility of such accounts receivable balance is
unlikely as it relates to RTB's corporate stores, which generate approximately
40% of RTB sales. In response to this knowledge, the Company increased its
estimate of the allowance for doubtful accounts by $235,913 related to RTB's
corporate stores' accounts receivable balance at June 30, 2000 in its fiscal
year June 30, 2000 financial statements. The Company shipped an additional
$100,000 worth of product to RTB corporate stores during the first quarter of
fiscal 2001 prior to learning of these recent developments, and, as such, the
Company increased its allowance by this same amount. On November 9, 2000, the
Company was informed that RTB had filed for protection under Chapter 11 of the
federal Bankruptcy Code.
The Company believes that cash flow from operations, together with its
unused capacity under the Revolving Credit Facility should be sufficient to fund
its anticipated operating needs and capital expenditures through fiscal year
2001. However, because the Company's future operating results will depend on a
number of factors there can be no assurance that the Company's capital resources
will be sufficient to fund the Company's operations beyond such date. See
"Cautionary Statement" below.
Historically, the Company's business has been subject to seasonality.
Typically, the Company's revenue is greater during the first and second quarters
of the Company's fiscal year. These seasonal fluctuations in sales are due to
customer ordering patterns that emphasize purchases during 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.
CAUTIONARY STATEMENT. With the exception of historical information, the
matters discussed under "Liquidity and Capital Resources" contain
forward-looking statements. There are certain important factors which could
cause actual results to differ materially from those anticipated by the
forward-looking statements. Certain of the important factors which could cause
actual results to differ materially from those in the forward-looking statements
include, among other things, changes from anticipated levels of sales, the
ability to integrate acquired product lines and related businesses, future
national or regional economic and competitive conditions, changes in
relationships with customers and suppliers, customer acceptance of existing and
new products, collectibility of accounts receivable from customers, pricing
pressures due to excess capacity, raw material cost increases, change of tax
rates, change of interest rates, declining conditions in the industry, validity
of patents, results of arbitration and litigation, availability of key component
parts, 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
other factors that generally affect business. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company undertakes no obligation to
publicly revise these forward-looking statements to reflect events or
circumstances that arise after the date hereof. Readers should carefully review
the risk factors described in other documents the Company files from time to
time with the Securities and Exchange Commission.
8
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than routine litigation matters, the Company is currently involved
in three lawsuits and 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 models in the Neutral Posture(R) chair line
and related business and intellectual property issues.
ERGOBILT/BODYBILT ARBITRATION - On September 23, 1997, the Company was
served with a suit filed by Bodybilt, Inc. ("Bodybilt") on September 18, 1997 in
the 361st District Court of Brazos County, Texas against Dr. Jerome Congleton.
Although the sole defendant in the suit was Dr. Congleton, both the American
Arbitration Association and the Company were listed as "Injunctive Respondents."
In general, the suit claims that: (i) Dr. Congleton exceeded the scope of his
rights when he assigned the Patent to the Company; (ii) Dr. Congleton's assigns
are prohibited from contending that Bodybilt's chairs infringe the Patent; and
(iii) Dr. Congleton materially breached the 1991 Settlement Agreement. The suit
sought: (v) an injunction against both the American Arbitration Association and
the Company from proceeding with the arbitration initiated May 21, 1997; (w)
unspecified monetary damages against Dr. Congleton; (x) a declaratory judgment
as to Bodybilt's claims; (y) rescission of the 1991 assignment of the Patent to
Dr. Congleton; and (z) other relief against Dr. Congleton. The Company
intervened in this lawsuit. On September 3, 1998, the Court rescinded the
original assignment of the Patent from Dr. Congleton to the Company, however,
the Court invited Dr. Congleton to re-execute the assignment of the Patent to
the Company subject to any restrictions arising out of the 1991 Settlement
Agreement. The assignment was re-executed by Dr. Congleton on September 3, 1998,
subject to any restrictions arising out of the 1991 Settlement Agreement. Also
on September 3, 1998, the Court granted a Plea in Abatement filed by the Company
and Dr. Congleton, conditioned upon Dr. Congleton's consent to participate and
his participation in binding arbitration, and the Court stayed further
proceedings in this lawsuit until further order of the Court.
On October 16, 1997, Ergobilt, Inc. ("Ergobilt"), the parent company of
Bodybilt, sued the Company in the United States District Court for the Northern
District of Texas, Dallas Division. In general, the lawsuit alleges that the
Company, in violation of the Lanham Trademark Act, (i) published false and
misleading information that its chairs are covered by the Patent, that it knows
of no other chairs on the market that are similar to its chairs and that
Bodybilt's chairs infringe the Patent and (ii) furnished false and misleading
information concerning Ergobilt (including the Company's claim that
substantially all of the chairs sold by Ergobilt's subsidiary, Bodybilt, are
designed in such a manner that they infringe the Patent). The suit seeks
unspecified monetary damages and injunctive relief from the Company. The Company
has obtained an opinion of counsel that virtually all of its chairs are covered
by the Patent. On October 17, 1997, the Company filed a motion to dismiss the
lawsuit or compel arbitration, and on November 26, 1997, the Company filed its
counter-claim against Ergobilt and a motion to join Bodybilt as a third party
defendant. On August 10, 1998, the Court dismissed without prejudice Ergobilt's
claims against the Company, and entered an order compelling the Company and
Bodybilt to submit their disputes to arbitration. In this lawsuit, the Company's
counter-claim against Ergobilt for patent infringement and dilution of the
Company's trademark remain pending; however, the parties have agreed to
arbitrate these claims, and these claims are pending in the arbitration
proceeding described in the following paragraph.
On August 31, 1998, the Company initiated a new arbitration proceeding
against Bodybilt claiming patent infringement, breach of contract, tortious
interference, slander, trade libel, unfair competition and dilution of the
Company's trademark. 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, and pursuant to the Federal Court order
compelling arbitration described above. Dr. Congleton has joined in the
arbitration. On October 14, 1998, Bodybilt filed a counter-claim in the
arbitration proceeding against the Company claiming deceptive advertising under
the Lanham Act, unfair competition, breach of contract, tortious interference,
slander and trade libel.
The first portion of the arbitration hearing was completed in April 2000
when the Company put on its case. The arbitration is currently scheduled to
resume in mid-November 2000 at which time Bodybilt/Ergobilt is
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scheduled to put on their case. The parties will then have approximately 45 days
to file post-hearing briefs. The arbitrator could issue a ruling at any time
thereafter and subsequent enforcement proceedings may occur. Bodybilt/Ergobilt
is seeking a return of the Patent, attorney's fees and other unspecified
damages. The Company is seeking significant damages including legal fees.
Regardless of the outcome of the arbitration, the Company will continue to
pay all defense costs of Dr. Congleton associated with the arbitration.
HAKALA LITIGATION - On February 14, 2000, Rebecca Boenigk, Chairman and
Chief Executive Officer of the Company and the Company filed suit against Scott
D. Hakala in the 95th Judicial District Court of Dallas County, Texas, alleging
the defendant committed libel and published written communications on the
internet that contained false, misleading, defamatory and disparaging statements
about the plaintiffs. The suit seeks unspecified monetary damages.
AQUILINO LITIGATION - On July 13, 2000, the Company and Jerome Congleton
filed suit against Nicholas J. Aquilino and the law firm of Aquilino & Welsh in
the 361st Judicial District Court of Brazos County, Texas, alleging the
defendants breached their fiduciary duty to plaintiffs. The plaintiffs allege
that the defendants were negligent in exercising the usual and customary
standard of care in the performance and rendering of professional services to
the Company and Jerome Congleton in connection with legal matters involving the
Patent. The Company and Jerome Congleton are seeking damages in excess of $1.5
million. On August 15, 2000, the case was moved to the United States District
Court for the Southern District of Texas, Houston Division.
CLASS ACTION LITIGATION - On November 8, 2000 the Company was served with
a lawsuit filed on October 19, 2000, in the County Court of Dallas County in
Dallas, Texas against Neutral Posture Ergonomics, Inc., Rebecca Boenigk, Jaye
Congleton, David Campbell and Huberman Financial, Inc. In general, the lawsuit
alleges violation of the Texas Securities Act, fraud in stock transactions under
Texas law, common law fraud and deceit, and negligent misrepresentations. The
suit is a securities class action lawsuit filed on behalf of all persons who
purchased, held or sold the stock of the Company between October 20, 1997 and
October 20, 2000. The Company intends to contest vigorously the claims made
against it in the suit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on November 10, 2000, the
shareholders approved the election of Rebecca E. Boenigk and Susan Phillips Bari
as Class III Directors of the Company until the 2003 Annual Meeting of
Shareholders or until their successors shall be elected and qualified. Rebecca
E. Boenigk received 3,259,850 votes for, zero votes against, zero votes withheld
and 23,359 Abstentions and Broker Non-Votes. Susan Phillips Bari received
3,260,650 votes for, zero votes against, zero votes withheld, and 22,559
Abstentions and Broker Non-Votes.
The term of office of each of the following directors continued after the
meeting: Jaye Congleton, Maryla Fitch, Thomas Peterson, Cynthia Pladziewicz, and
John Samuel.
The shareholders also approved an increase in the number of shares
available to be issued under the Neutral Posture Ergonomics, Inc. 1997 Omnibus
Securities Plan with 2,252,624 affirmative votes, 61,754 negative votes and 900
abstentions by the holders of the Company's common stock.
In addition, the shareholders approved the proposal to ratify the
appointment of Deloitte & Touche LLP as the Company's independent public
accountant for the fiscal year ending June 30, 2001. The proposal received
3,270,814 affirmative votes, 12,345 negative votes, and 50 abstentions by the
holders of the Company's common stock.
ITEM 5. OTHER INFORMATION
On October 27, 2000, the Company announced that a management-led group,
including Rebecca Boenigk, Jaye Congleton and other members of the executive
management team of the Company, had proposed
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to acquire all of the outstanding shares of Neutral Posture Ergonomics, Inc.
common stock not already owned by the management group for a cash price of $1.72
per share of common stock. The proposed acquisition would be accomplished
through a merger of the Company into a new corporation that would be owned by
the management-led group. The management-led group currently owns approximately
62% of the Company's outstanding shares of common stock.
The Board of Directors of the Company has established a special committee
consisting of three independent directors to consider the proposal. The
management-led group's proposal is subject to the approval of the special
committee of the Board of Directors and the shareholders of the Company, the
negotiation and execution of a definitive Merger Agreement and the satisfaction
of the conditions to be set forth in the Merger Agreement. The management-led
group has reserved its right to amend or withdraw its proposal at any time in
its sole discretion.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report is filed.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NEUTRAL POSTURE ERGONOMICS, INC.
Date: November 13, 2000 By: /s/ REBECCA E. BOENIGK
Rebecca E. Boenigk
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 2000 By: /s/ GREGORY A. KATT
Gregory A. Katt
Vice President, Chief Financial
Officer and Treasurer
(Principal Financial and
Accounting Officer)
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