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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 MARCH 31, 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
executive offices) number)
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 MAY 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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<PAGE>
NEUTRAL POSTURE ERGONOMICS, INC.
Quarterly Report on Form 10-QSB
for the Quarter Ended March 31, 2000
(Unaudited)
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets as of March 31, 2000 and June 30, 1999 ... 1
Condensed Statements of Income for the Three and Nine Months
Ended March 31, 2000 and 1999 ................................... 2
Condensed Statements of Cash Flows for the Nine Months Ended
March 31, 2000 and 1999 ......................................... 3
Notes to Condensed Financial Statements ........................... 4
Item 2. Management's Discussion and Analysis or Plan of Operation .. 5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .......................................... 8
Item 2. Changes in Securities and Use of Proceeds .................. 9
Item 5. Other Information .......................................... 10
Item 6. Exhibits and Reports on Form 8-K ........................... 10
SIGNATURES .............................................................. 11
<PAGE>
NEUTRAL POSTURE ERGONOMICS, INC.
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............................................................ $ 3,837,983 $ 3,316,257
Accounts receivable - net ............................................................ 2,185,912 2,667,461
Inventories .......................................................................... 1,489,985 1,195,158
Deferred income tax benefits ......................................................... 164,000 164,000
Prepaid expenses and other ........................................................... 203,977 336,083
Income tax receivable ................................................................ -- 98,058
--------------- ---------------
Total current assets ............................................................ 7,881,857 7,777,017
Property and Equipment - net ................................................................ 2,283,531 2,277,482
Notes Receivable - shareholders ............................................................. 14,725 14,725
Intangibles - net ........................................................................... 195,985 226,791
Deposits and Other .......................................................................... 199,038 198,007
--------------- ---------------
Total ........................................................................... $ 10,575,136 $ 10,494,022
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt .................................................... $ 32,790 $ 43,632
Accounts payable ..................................................................... 1,255,400 1,576,141
Accrued liabilities .................................................................. 364,276 544,308
Income taxes payable ................................................................. 26,487 --
--------------- ---------------
Total current liabilities ....................................................... 1,678,953 2,164,081
Long-Term Debt - Less current portion ....................................................... 511,954 550,554
Deferred Income Tax Liability ............................................................... 131,000 131,000
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 and 3,171,800 shares
outstanding, respectively ....................................................... 33,088 33,088
Common stock warrants ................................................................ 75,000 75,000
Additional paid-in capital ........................................................... 5,671,138 5,671,138
Retained earnings .................................................................... 2,570,128 2,177,786
Accounts and notes receivable - shareholders ......................................... (17,500) (17,500)
Treasury stock - at cost, 37,000 and 137,000 shares, respectively .................... (78,625) (291,125)
--------------- ---------------
Total stockholders' equity ...................................................... 8,253,229 7,648,387
--------------- ---------------
Total ........................................................................... $ 10,575,136 $ 10,494,022
=============== ===============
</TABLE>
See notes to condensed financial statements.
1
<PAGE>
NEUTRAL POSTURE ERGONOMICS, INC.
CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
--------------- --------------- --------------- ---------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Sales .............................................. $ 4,066,983 $ 3,515,777 $ 13,022,494 $ 12,939,612
Cost of Sales .......................................... 2,646,365 2,287,874 8,170,058 8,141,079
--------------- --------------- --------------- ---------------
Gross Profit ........................................... 1,420,618 1,227,903 4,852,436 4,798,533
Operating Expenses:
Selling .......................................... 440,603 317,168 1,387,052 1,177,248
General and administrative ....................... 1,086,666 776,429 2,928,015 2,409,606
--------------- --------------- --------------- ---------------
Total ...................................... 1,527,269 1,093,597 4,315,067 3,586,854
--------------- --------------- --------------- ---------------
Operating Income (Loss) ................................ (106,651) 134,306 537,369 1,211,679
Other Income (Expense):
Interest expense ................................. (11,322) (11,854) (36,853) (37,554)
Interest income .................................. 37,017 23,171 116,731 113,591
Other ............................................ 109 5,743 (359) 9,378
--------------- --------------- --------------- ---------------
Total ...................................... 25,804 17,060 79,519 85,415
--------------- --------------- --------------- ---------------
Income (Loss) Before Income Taxes ...................... (80,847) 151,366 616,888 1,297,094
Income Tax Expense ..................................... (29,914) 56,556 224,546 486,205
--------------- --------------- --------------- ---------------
Net Income (Loss) ...................................... $ (50,933) $ 94,810 $ 392,342 $ 810,889
=============== =============== =============== ===============
Earnings Per Share:
Basic ............................................ $ (0.02) $ 0.03 $ 0.12 $ 0.25
=============== =============== =============== ===============
Diluted .......................................... $ (0.02) $ 0.03 $ 0.12 $ 0.24
=============== =============== =============== ===============
Weighted Average Common Shares
Outstanding:
Basic ............................................ 3,220,152 3,308,800 3,185,982 3,271,209
=============== =============== =============== ===============
Diluted .......................................... 3,220,152 3,387,226 3,185,982 3,374,005
=============== =============== =============== ===============
</TABLE>
See notes to condensed financial statements.
2
<PAGE>
NEUTRAL POSTURE ERGONOMICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED MARCH 31,
--------------- ---------------
2000 1999
--------------- ---------------
<S> <C> <C>
Operating Activities:
Net income .............................................................................. $ 392,342 $ 810,889
Noncash items in net income:
Depreciation and amortization ........................................................ 373,197 234,006
Changes in operating working capital:
Accounts receivable .................................................................. 481,549 (366,025)
Notes receivable - shareholders ...................................................... 19,008 --
Inventories .......................................................................... (294,827) (107,012)
Prepaid expenses and other ........................................................... 113,098 (17,077)
Income taxes receivable/payable ...................................................... 124,546 (208,598)
Accounts payable ..................................................................... (320,741) (276,677)
Accrued liabilities .................................................................. (180,032) 113,974
Deposits and other ................................................................... (18,856) 35,169
--------------- ---------------
Net cash provided by operating activities ........................................ 689,284 218,649
Investing Activities:
Additions to property and equipment ..................................................... (330,615) (584,160)
Acquisition of furniture line assets .................................................... -- (55,100)
--------------- ---------------
Net cash used for investing activities ........................................... (330,615) (639,260)
--------------- ---------------
Financing Activities:
Issuance of debt ........................................................................ -- 33,724
Payments of debt ........................................................................ (49,443) (32,367)
Proceeds from issuance of common stock .................................................. -- 48,900
Sale of Treasury Stock .................................................................. 212,500 --
--------------- ---------------
Net cash provided by financing activities ........................................ 163,057 50,257
--------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents ............................................. 521,726 (370,354)
Cash and Cash Equivalents:
Beginning of period ..................................................................... 3,316,257 3,370,278
--------------- ---------------
End of period ........................................................................... $ 3,837,983 $ 2,999,924
=============== ===============
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
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 which 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, 1999. Quarterly operating results may vary
significantly and are not necessarily indicative of the results for the full
year or any future period.
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. INITIAL PUBLIC OFFERING
On October 20, 1997, the Company completed an initial public offering of
common stock and the private placement of common stock warrants. Proceeds of the
offering, less underwriter's commissions and fees and other offering expenses,
were approximately $4.4 million for the 900,000 shares of common stock issued by
the Company. In addition to the common stock issued, warrants to purchase
133,400 shares of common stock at an exercise price of $7.20 per share were
granted to the underwriter. These warrants are exercisable over a period of four
years commencing one year from consummation of the offering and expire October
24, 2002.
4
<PAGE>
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, 1999 filed with the Commission.
GENERAL. The Company generates revenue through sales of its products to
corporate customers, distributors and retailers through independent sales
representatives, who generally are paid a commission for each unit sold. These
independent sales representatives usually channel 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 NINE MONTHS ENDED
ENDED MARCH 31, MARCH 31,
--------------- ---------------
2000 1999 2000 1999
----- ----- ----- -----
Net sales .............................. 100.0% 100.0% 100.0% 100.0%
Cost of sales .......................... 65.1 65.1 62.7 62.9
----- ----- ----- -----
Gross profit ........................... 34.9 34.9 37.3 37.1
Selling, general and
administrative expenses .............. 37.5 31.1 33.2 27.7
----- ----- ----- -----
Operating income (loss) ................ (2.6%) 3.8% 4.1% 9.4%
===== ===== ===== =====
THREE AND NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE AND NINE MONTHS
ENDED MARCH 31, 1999
NET SALES. Net sales for the three and nine month periods ended March
31, 2000 totaled approximately $4.1 million and $13.0 million, respectively, an
increase of approximately 16% and 1% as compared to the three and nine month
periods ended March 31, 1999. For the nine month period ended March 31, 2000,
sales volume for the Neutral Posture(R) chair line was down approximately 3.6%
when compared to the similar 1999 period. This volume decrease was more than
offset by higher average prices realized during the current period when compared
to the same period last year. Although volumes on the Harvard chair line
increased when compared to prior periods, the decrease in sales resulted from a
decrease in the average selling price related to the product mix of chairs sold.
GROSS PROFIT. Gross profit for the three and nine month periods ended
March 31, 2000 was approximately $1.4 and $4.9 million, respectively, increasing
approximately $193,000, or 16%, and $54,000, or 1%, respectively, from gross
profit for the same periods in 1999. The gross profit as a percent of net sales
for the three month period ended March 31, 2000 remained consistent with the
prior year at 34.9%. For the nine month periods, gross profit as a percent of
net sales remained relatively flat, increasing slightly to 37.3% for 2000 from
37.1% for 1999. The slight increase in gross profit margin for the nine month
period was primarily the result of lower material costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative costs for the three and nine month periods ended March 31, 2000
increased approximately 40% to $1.5 million, and 20% to $4.3 million,
respectively, from the same periods in 1999. The increases over last year are
primarily due to increased legal fees related to the arbitration proceedings,
higher consulting fees relating to strategic planning and the establishment and
implementation of the new ergonomic accessory line, and higher commission
expenses as a percentage of sales related to sales promotions for the nine
months ending March 31, 2000 of 7.2% as compared to 6.2% for the same period in
1999.
5
<PAGE>
OPERATING INCOME. Based on the items discussed above, the Company incurred
an operating loss for the three month period ended March 31, 2000 of $106,651 as
compared to operating income of $134,306 for the similar 1999 period. For the
nine month period ended March 31, 2000, the Company generated operating income
of $537,369 as compared to operating income of $1.2 million for the similar 1999
period. As a percentage of net sales, operating income for the three and nine
month periods ended March 31, 2000 decreased to (2.6%) and 4.1%, respectively,
from 3.8% and 9.4% respectively, for the same 1999 periods.
OTHER INCOME (EXPENSE). Other income (expense) increased by $8,744 for the
three month period ended March 31, 2000 as compared to the same 1998 period but
decreased by $5,896 for the nine month period ended March 31, 2000 as compared
to the same 1998 period primarily due to the reclassification of a tax refund in
March 1999.
EARNINGS PER SHARE (EPS). The EPS amounts of ($0.02) and $0.03 (basic and
diluted), respectively, for the three month periods ended March 31, 2000 and
1999, and $0.12 (basic and diluted) for the nine month period ended March 31,
2000 and $0.25 (basic) and $0.24 (diluted) for the nine month period ended
December 31, 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, research and development
activities and product improvements.
Cash provided by operating activities totaled $689,284 for the nine month
period ended March 31, 2000, as compared to cash provided for operating
activities of $218,649 for the nine month period ended March 31, 1999. The cash
provided from the current nine month period represents net income plus non-cash
charges. Cash provided from the collection of receivables was offset by the
working capital uses for inventory and the reduction of current liabilities.
Cash used for investing activities totaled $330,615 and $639,260 for the
nine month periods ended March 31, 2000 and 1999, respectively. The cash used
for investing activities in both periods was primarily comprised of capital
expenditures for computers and machinery, equipment and molds used in the
production process.
Financing activities provided funds totaling $163,057 for the nine month
period ended March 31, 2000, primarily from the sale of treasury stock to an
officer of the Company offset by the reduction of long term debt. For the nine
month period ended March 31, 1999, financing activities provided funds totaling
$50,257 from the exercising of stock options by an officer of the Company and
the grant and issuance of shares to employees partially offset by reductions of
long-term debt.
The Company currently maintains a $2.0 million revolving credit facility
("Revolving Credit Facility"). This facility is utilized to fund operating
activities, including working capital needs such as providing funds for
increases in inventory levels. In addition to the Revolving Credit Facility, the
Company maintains a term facility ("Term Facility") in the amount of $500,000
and is restricted to financing equipment or mold purchases with borrowings under
the Term Facility. At March 31, 2000, no amount was outstanding under either
facility.
At March 31, 2000, the Company had two loans outstanding in the amounts of
approximately $126,000 and $419,000 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, Term Facility and
the outstanding loan agreements require maintenance of specified levels of
tangible net worth and other financial
6
<PAGE>
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.
The Company believes that cash flow from operations, together with its
unused capacity under the Revolving Credit Facility and Term Facility should be
sufficient to fund its anticipated operating needs and capital expenditures
through fiscal year 2000. 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 emphasized 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,
fluctuations in sales prices as implemented by the Company's dealers, the impact
of ongoing litigation and arbitration, the development of additional product
lines, the collectability of accounts receivable, the ability to integrate
acquired product lines and related businesses, future national or regional
economic and competitive conditions, changes in relationships with customers,
customer acceptance of existing and new products, raw material cost increases,
change of tax rates, change of interest rates, validity of patents, 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. The Company
operates in a changing environment that involves numerous risks, some of which
are beyond the Company's control. Such risks are highlighted in the Company's
Form 10-KSB.
7
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than routine litigation matters, the Company is currently involved
in one lawsuit 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.
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 arbitration
8
<PAGE>
hearing commenced during the second week of April and is ongoing. Regardless of
the outcome of the arbitration, the Company will continue to pay all defense
costs of Dr. Congleton associated with the arbitration.
REBECCA CONGLETON BOENIGK AND NEUTRAL POSTURE ERGONOMICS, INC. VS. SCOTT
D. HAKALA - On February 14, 2000, Rebecca Boenigk, Chairman and CEO 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.
Although uncertainties associated with arbitration and other litigation
risks make it impossible for the Company to predict the outcome of the
arbitration and the lawsuit with certainty, the Company does not believe that
the outcome of the arbitration or the lawsuit will have a material adverse
impact on its financial position, results of operations and cash flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company filed a Registration Statement on Form SB-1 (File No.
333-33675), which was declared effective by the Securities and Exchange
Commission on October 16, 1997. The offering commenced on October 20, 1997 with
net proceeds of approximately $4.4 million.
In the Registration Statement, the Company stated that it planned to use
an estimated $1,250,000 of the net proceeds of the offering to develop,
manufacture and market computERGO(TM) . As noted below, the Company has as of
March 31, 2000, utilized approximately $144,000 of the net offering proceeds for
these purposes. As a result of the Company's decision to discontinue
computERGO(TM), the Company now plans to use, of the remaining estimatod
$1,100,000 net proceeds of the offering previously allocated to computERGO(TM):
(i) approximately $660,000 towards the development, manufacturing and marketing
of the N*hancements accessory line, (ii) approximately $100,000 to increase the
original amount allocated to new product development, (iii) approximately
$140,000 to increase the original amount allocated to enhancing the marketing
efforts and (iv) approximately $200,000 to provide additional funds for the
Company's working capital requirements. These uses and amounts, however, are
estimated based on the current plans of the Company.
As of March 31, 2000, the Company has utilized net offering proceeds for
the following:
(1) approximately $144,000 in the development of computERGO(TM);
(2) approximately $297,000 towards the development, manufacturing and
marketing of the N*hancements accessory line;
(3) approximately $1,314,000 in the acquisition and development of
additional ergonomic products; of which $860,000 was used to acquire
certain assets of the furniture business of Harvard;
(4) approximately $135,000 in the Company's effort to become ISO 9001
certified;
(5) approximately $606,000 in enhancing the Company's marketing efforts
primarily resulting from salaries and travel-related expenditures for
the additional sales personnel hired (Danny Skeen as Vice President -
Sales and professional ergonomists);
(6) approximately $350,000 related to the hiring of engineering personnel,
including a Vice President - Engineering;
(7) approximately $1,040,000 of working capital to fund inventory
purchases and finance receivables; and
(8) $200,000 to repay outstanding indebtedness on its revolving credit
facility.
9
<PAGE>
In addition, the Company had approximately $314,000 included in temporary
investments as of March 31, 2000 comprised of short-term, interest bearing,
investment grade securities. Each of the foregoing amounts represents the
reasonable estimate of the Company for the amounts of the net proceeds applied.
Except as stated below, none of the foregoing payments were direct or indirect
payments to (i) directors of the Company or their respective associates, (ii)
persons owning 10% or more of any class of equity securities, or (iii)
affiliates of the Company.
Included in the applied net offering proceeds was compensation expense of
approximately $400,000 for the Vice President - Engineering and the Vice
President - Sales.
The terms of the Revolving Credit Facility, Term Facility and the loan
agreements, as defined above, restrict the Company's ability to pay dividends to
its shareholders and acquire capital stock.
ITEM 5. OTHER INFORMATION
APPOINTMENT OF THREE NEW BOARD MEMBERS. On March 28, 2000, Mr. Tom
Peterson, President and Chief Operating Officer of the Company, Mr. John Samuel,
Vice President of Interactive Marketing for American Airlines and Ms. Susan
Phillips Bari, President of the Women's Business Enterprise National Council
("WBENC") were appointed to the Board of Directors.
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.
10
<PAGE>
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: May 15, 2000 By: /s/REBECCA E. BOENIGK
---------------------
Rebecca E. Boenigk
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2000 By: /s/GREGORY A. KATT
------------------
Gregory A. Katt
Vice President, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting Officer)
11
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