NEUTRAL POSTURE ERGONOMICS INC, 10KSB, 2000-09-21

NEUTRAL POSTURE ERGONOMICS INC
10KSB, 2000-09-21
OFFICE FURNITURE (NO WOOD)

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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED JUNE 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.
(Name of small business issuer in its charter)

TEXAS 74-2563656
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)

3904 N. TEXAS AVENUE
BRYAN, TEXAS 77803 (979) 778-0502
(Address of principal executive offices) (Issuer's telephone number)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
---------------------------- -----------------------
COMMON STOCK, $.01 PAR VALUE NASDAQ SMALL CAP MARKET

CHECK WHETHER THE ISSUER (1) 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 [ ]

CHECK IF THERE IS NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM
405 OF REGULATION S-B CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE
CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB
OR ANY AMENDMENT TO THIS FORM 10-KSB. [ ]

THE REGISTRANT'S REVENUES FOR ITS MOST RECENT FISCAL YEAR WERE
$17,216,663.

ON SEPTEMBER 1, 2000, THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD
BY NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY $1,839,863. (FOR PURPOSES
OF DETERMINATION OF THE ABOVE STATED AMOUNT, ONLY DIRECTORS, EXECUTIVE OFFICERS
AND 10% OR GREATER SHAREHOLDERS HAVE BEEN DEEMED AFFILIATES).

ON SEPTEMBER 1, 2000, THERE WERE 3,308,800 OUTSTANDING SHARES OF COMMON
STOCK, PAR VALUE $0.01 PER SHARE.

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
YES [ ] NO [X]

DOCUMENTS INCORPORATED BY REFERENCE:

PART III - PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE ISSUED
IN CONJUNCTION WITH THE REGISTRANT'S 2000 ANNUAL MEETING OF SHAREHOLDERS OF THE
COMPANY TO BE HELD ON NOVEMBER 10, 2000.
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NEUTRAL POSTURE ERGONOMICS, INC.

2000 ANNUAL REPORT ON FORM 10-KSB

TABLE OF CONTENTS

PAGE
----
PART 1

Item 1. Description of Business ............................... 1
Item 2. Description of Properties ............................. 1
Item 3. Legal Proceedings ..................................... 8
Item 4. Submission of Matters to a Vote of Security Holders ... 9

PART II

Item 5. Market for Common Equity and Related Stockholder
Matters ............................................. 10
Item 6. Management's Discussion and Analysis or Plan of
Operation ........................................... 12
Item 7. Financial Statements .................................. 14
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ................. 14

PART III

Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act ........................................ 15
Item 10. Executive Compensation ................................ 16
Item 11. Security Ownership of Certain Beneficial Owners and
Management .......................................... 16
Item 12. Certain Relationships and Related Transactions ........ 16
Item 13. Exhibits and Reports on Form 8-K ...................... 16
<PAGE>
PART I

IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT ON FORM 10-KSB MAY
INCLUDE CERTAIN STATEMENTS THAT MAY BE DEEMED TO BE "FORWARD-LOOKING" WITHIN THE
MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED. 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, CUSTOMER ACCEPTANCE OF EXISTING AND NEW PRODUCTS,
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.

ITEMS 1 AND 2. BUSINESS AND PROPERTIES

GENERAL

Neutral Posture Ergonomics, Inc. ("Neutral Posture" or the "Company") was
incorporated in 1990 under the laws of the State of Texas and has manufactured,
marketed and distributed the Neutral Posture(R) ergonomic chair line since
inception. Most of the current models are 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 the Company. Based on anthropometrics, the scientific
study of the measurements of size, weight and proportions of the human body, the
Company manufactures, under the Neutral Posture(R) trade name, 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)
trade name 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.

In March 1998, the Company expanded its product line with the acquisition
of certain assets of the furniture business of Harvard Industries, Inc.
("Harvard"). The acquisition included a series of chair lines, which has been in
existence for approximately ten years with an established distribution base.
The chair lines range from high back executive chairs with minimal adjustability
to a series of ergonomic chairs with up to seven adjustments. The Harvard chair
line enables the Company to offer lower-priced chair lines to complement its
existing Neutral Posture(R) chair line. In fiscal 2000, the Company
re-introduced the Harvard chair line with significant product updates and
revisions.

The Company continued to expand its product offerings in fiscal 2000 with
the addition of the N-hancements product line, an ergonomic accessory line
consisting of height and angle adjustable workstation products such as keyboard
trays, monitor lifts and CPU holders. The Company continues 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 principal executive offices are located at 3904 North Texas
Avenue, Bryan, Texas 77803, and its telephone number is (979) 778-0502. As of
September 1, 2000, the Company had 91 full-time employees.

PRODUCTS

NEUTRAL POSTURE(R) CHAIRS. The concept for the Neutral Posture(R) chair
line 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.
The neutral position can be

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simulated by relaxing all muscles while floating face down in water and
represents the human body's "neutral posture" position. Most of the models in
the Neutral Posture(R) chair line have up to 12 independent adjustments,
allowing an individual to assume this "neutral" posture. The Neutral Posture(R)
chair line requires minimal assembly by the customer and is delivered with an
owner's manual that provides each customer with a visual explanation of how to
adjust the chair for maximum comfort.

The Neutral Posture(R) chair line has certain chairs with contoured seats
that 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, provides
adjustable lumbar support. This feature allows the backrest to conform more
closely to the unique curvature of each person's back.

Over the past few years, the Company further expanded its product lines
with the development of the two products marketed under the Neutral Posture(R)
chair line, including the "big and tall" chair and the "prop stool". In
addition, the Company offers ancillary products to the Neutral Posture(R) chair
line such as the "Fring(TM) Footrest" and "Cloud 9 fabric".

HARVARD CHAIRS. In March 1998, the Company purchased certain assets of the
furniture division from Harvard. The assets acquired included a series of chair
lines designed for the mid-priced chair market. In addition, the Company
acquired the right to use the "Harvard" logo for a period of three years.

The Harvard chair lines range from high back executive chairs with minimal
adjustability to a series of ergonomic chairs with up to seven independent
adjustments, depending on the models selected, as compared to the Neutral
Posture(R) chair line with up to 12 independent adjustments. Most models of
chairs require minimal assembly and are all warranted against defects in
materials and workmanship through a limited lifetime warranty. During fiscal
2000, the Company re-introduced the Harvard line with significant product
updates and revisions. These revisions ranged from changing components to adding
additional chair models while discontinuing less profitable models.

N-HANCEMENTS. In April 2000, the Company introduced N-hancements, its
ergonomic accessory line. The accessory line offers a wide variety of ergonomic
accessories such as height and angle adjustable workstation products that
include keyboard trays, monitor lifts, CPU holders, corner makers, footrest and
other retrofittable upgrades.

RESEARCH AND DEVELOPMENT

During fiscal years 2000 and 1999, the Company spent approximately
$552,000 and $420,000, respectively, on research and development. The Company
intends to continue to incur research and development expenses by creating
innovative new products, broadening existing product lines and enhancing the
manufacturing process.

MARKETING AND SALES

Prior to the Harvard acquisition, the Company marketed its products and
services throughout the United States through approximately 50 independent sales
representatives and channeled its sales through a network of approximately 320
dealers. The acquisition of the Harvard chair line from Harvard in March 1998
increased the Company's dealer network to approximately 1,000 dealers, not all
of which sell the Neutral Posture(R) chair line or the Company's other products.

During the last two quarters of fiscal 2000, the Company added four (4)
regional sales directors to monitor sales in their regions throughout the United
States and added territory market managers in certain regions in place of
independent sales representatives to enhance its existing sales efforts. The
regional sales directors and the territory market managers are employees who
sell only the Company's products throughout the United States and Puerto Rico in
designated market areas. These employees receive a base salary plus a commission
structure based on goals achieved in specific regions or on dollar volume sold.
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 also the profitability of those sales. These independent sales
representatives employ personalized sales techniques in an effort to maintain
close contact with the Company's current customers and develop new customers.
The

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Company's independent sales representatives receive extensive training,
including annual seminars focused on the Company's products and ergonomics.

The Company's dealers generally coordinate their sales efforts with the
Company's independent sales representatives and territory market managers and
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 3% of the Company's fiscal year 2000 sales.

The Company's Neutral Posture Ergonomics Engineering Team ("NEET") works
with customers, dealers and sales representatives in all areas of ergonomic
engineering consulting. NEET provides technical support and professional
qualified ergonomic assistance to the Company's clients seeking to maximize the
success of interior design projects, office ergonomic and safety programs and
chair and workstation evaluations.

Relax the Back Franchising Company ("Relax the Back") has 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 pursuant
to a Trademark License Agreement (the "License Agreement"). Although the License
Agreement has an indefinite term, it may be terminated by either Relax the Back
or the Company for any reason upon 90 days' prior written notice. Relax the Back
has exclusive rights to some components of chairs manufactured by the Company
for Relax the Back. The Company believes approximately 75% of 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, 2000, the Company
believes that virtually all of the Relax the Back stores carried the Company's
chairs under the Relax the Back trademark.

The Company also markets its chair lines in catalogs published by Corporate
Express and National Business Furniture. The Company believes that catalogs
provide a convenient and cost-effective way for businesses and individuals to
purchase furniture and ergonomic products. Subsequent to fiscal year-end 2000,
the Company signed a contract with Office Furniture USA ("OF/USA") to be
included in the OF/USA catalog and to have its products on display in over 140
stores across the United States.

MANUFACTURING AND DISTRIBUTION

The Company normally operates one shift, five days per week, at its
assembly facility located in Bryan, Texas. 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.

The Company received its ISO 9001 certification in November 1999. ISO 9001
certification is an internationally developed set of manufacturing facility
quality criteria established by the International Organization for
Standardization ("ISO"). SGS International Certification Services, Inc. conducts
an on-site inspection to assess the Company's facility for compliance with ISO
standards, procedures and instructions. The Company must pass yearly maintenance
and surveillance audits to maintain ISO 9001 status. The Company believes that
its efforts to maintain ISO 9001 certification will promote quality in the
Company's current operations.

RAW MATERIAL AND SUPPLIERS

The Company uses a variety of materials in its manufacturing, including
plastic, foam, steel, leather and upholstery coverings. Management currently
maintains no long-term supply contracts and believes that the supply sources for
these materials are adequate. Certain components of Neutral Posture(R) 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 Company's largest supplier, Leggett & Platt,
Inc., is currently the only source of the adjustment mechanism, a key component
of the Neutral Posture(R) chair. The adjustment mechanism is proprietary to the
Company. In addition, Shepherd Products, Inc. ("Shepherd") manufactures a
majority of the Company's seats and backs for the Neutral Posture(R) chair line.
While the Company has not had any adverse experience with these suppliers, the
Company does not have a binding supply contract with either Leggett & Platt,
Inc. or Shepherd.

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PROPERTIES

The Company's corporate offices, manufacturing and assembly operations are
conducted in its approximately 46,000 square-foot facility owned by the Company
in Bryan, Texas. The Company also leases an approximately 1,400 square-foot
showroom in the Chicago Merchandise Mart. The Company's management considers
each of these facilities to be in good condition and believes that both
facilities are adequately covered by insurance.

CUSTOMERS

The Company has a diversified customer base. The Company's largest
customer group including various facilities of the General Services
Administration ("GSA"), accounts for 19.9% of the Company's sales for fiscal
year 2000. GSA is the Federal Government Purchasing Contract. The Company's
contract with GSA is subject to renegotiation or termination at the convenience
of the GSA and expires on June 20, 2001. In addition to the GSA, the Company's
largest customers include Relax the Back, United Parcel Service ("UPS"), Sykes
Enterprises and Wrightline whose individual sales for fiscal year 2000
represented 13.0%, 7.5%, 3.6% and 2.5%, respectively, of the Company's total
revenues. The Company does not have a binding contract with any of these
customers.

PATENTS AND TRADEMARKS

The Company owns a United States patent ("Patent"), on which virtually all
of the models in the Company's Neutral Posture(R) chair line are based, and
several trademarks. The Company's patent covering virtually all of the models of
the Neutral Posture(R) chair line expires in October 2003. For a discussion of
legal proceedings involving the Company's Patent, see "Item 3 - Legal
Proceedings." Neutral Posture(R), computERGO(R), ERGO 2000(R), Establishing the
Standard of Acceptability(TM), Fring(TM) and iGoErgo(TM) are trademarks of the
Company. The Company also owns a patent covering computERGO(R), has several
pending patent applications, and possesses a wide array of unpatented
proprietary know-how and common law trademarks. In addition, the Company was
granted a license to use the "Harvard" logo for a period of three years, which
expires in March 2001. 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 its competitive position.

COMPETITION

The Company faces significant competition in the contract furniture market.
The Company's ergonomic products compete on the basis of design, health
benefits, comfort, quality, durability, service and price. Existing and future
competitors for the Company's ergonomic products within the office furniture
industry, including Herman Miller, Inc., Steelcase Inc., Knoll Inc. and Haworth,
Inc., offer or will offer additional ergonomic products. The Company also has
competition from numerous other ergonomic furniture companies such as: (i) HAG
Inc., Grahl Industries, Inc. and Bodybilt, Inc. ("Bodybilt"), a wholly-owned
subsidiary of Ergobilt, Inc. ("Ergobilt") for its Neutral Posture(R)chair line;
(ii) United Chair, HON Industries Inc. and Superior Furniture for its Harvard
chair lines; and (iii) Workrite, Inc., ISE, Inc. and IDEA Industries Inc. for
its N-hancements accessory line. The majority of these competitors have much
greater financial and other resources and offer a broader product line than the
Company.

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, and 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 a material
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.

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FACTORS THAT MAY AFFECT FUTURE RESULTS

The Company operates in a changing environment that involves numerous
risks, some of which are beyond the Company's control. The following highlights
some of these risks.

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 Herman Miller Inc., Steelcase, Inc., Knoll Inc. and Haworth,
Inc. These competitors have a substantial volume of furniture and products
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 small
ergonomic furniture companies such as (i) HAG, Inc., Grahl Industries, Inc. and
Bodybilt for its Neutral Posture(R) chair line; (ii) United Chair, HON
Industries, Inc. and Superior Furniture for its Harvard chair lines; and (iii)
Workrite, Inc., ISE Inc. and IDEA Industries, Inc. for its N-hancements
accessory line. 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 Rebecca E. Boenigk, Chairman of the Board and Chief
Executive Officer and Mr. Thomas G. Peterson, President and Chief Operating
Officer. Mrs. Boenigk has an employment agreement with the Company which
contains non-compete and non-solicitation clauses and expires July 1, 2001,
subject to automatic one-year extensions unless either party gives 90 days'
notice of its intention not to renew. Mr. Peterson also has an employment
agreement with the Company, which contains non-compete and non-solicitation
clauses and expires March 1, 2003, subject to automatic one-year extensions
unless either party gives 90 days' notice of its intention not to renew. The
Company maintains key person life insurance on Mrs. Boenigk and Mr. Peterson.
The loss of the services of Mrs. Boenigk or Mr. Peterson 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.

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(R) trade name, a series of office chairs
marketed under the Harvard trade name and its N-hancements accessory line. 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.

RELIANCE ON INTELLECTUAL PROPERTY. The Company owns two United States
patents and several trademarks in order to protect certain of its ergonomic
products and other intellectual property. The Company's Patent covering
virtually all of the Neutral Posture(R) chair line 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 second patent relates to
computERGO(R), a product that has been discontinued.

The Company does, however, have several patents pending and the Company
possesses a wide array of unpatented proprietary know-how and common 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 a 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

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nature of its intellectual property with respect to its current or any future
products, it could have a material adverse effect on the Company.

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 there under will provide significant
proprietary protection of competitive advantages to the Company. There can be no
assurance that, if challenged, the Company's patents 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 prior to its expiration in
October 2003 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 that
could 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 to protect, and intends in the future to enforce,
its intellectual property rights. As of June 30, 2000, the Company was involved
in arbitration proceedings against Bodybilt claiming, among other things, patent
infringement. See "Legal Proceedings."

PENNY STOCK REGULATION. In the event the Company's Common Stock ("Common
Stock") is de-listed from trading on any Nasdaq market and the trading price of
the Common Stock is less than $5.00 per share, trading in the Common Stock would
also be subject to the requirements of Rule 15g-9 promulgated under the
Securities Exchange Act of 1934, as amended. The Company may be de-listed from
trading on Nasdaq if certain maintenance standards concerning the public float
of the Common Stock, the market value of the public float of the Common Stock,
the number of shareholders of Common Stock or the number of market makers in the
Common Stock are not met. Under Rule 15g-9, broker/dealers who recommend such
low-priced securities to persons other than established customers and accredited
investors must satisfy special sales practice requirements, including a
requirement that they make an individualized written suitability determination
for the purchaser and receive the purchaser's written consent prior to the
transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of
1990 also requires additional disclosure in connection with any trades involving
a stock defined as a "penny stock" (generally, according to regulations adopted
by the Securities and Exchange Commission, and any non-Nasdaq equity security
that has a market price of less than $5.00 per share, subject to certain
exceptions), including the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith. Such requirements could severely limit the market liquidity of the
Common Stock and the ability of purchasers to sell their securities in the
secondary market. There can be no assurance that the Company will not be
de-listed from Nasdaq or that the price of the Common Stock per share will trade
above $5.00 (trading prices of which have recently been significantly lower than
$5.00 per share).

DEPENDENCE ON SUPPLIERS AND SUBCONTRACTORS. The Company's largest
supplier, Leggett & Platt, Inc., is currently the only source of an adjustment
mechanism that is a key component of Neutral Posture(R) 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 for this adjustment mechanism, 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. Shepherd manufactures the majority of the Company's seats
and backs. Any disruption in the ability of Shepherd to manufacture such seats
and backs could 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. If the Company grows
significantly, 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.

6
<PAGE>
DEPENDENCE ON SIGNIFICANT CUSTOMERS. The Company's largest customers, GSA,
Relax the Back, UPS, Sykes Enterprises and Wrightline accounted for
approximately 19.9%, 13.0%, 7.5%, 3.6%, and 2.5%, respectively, of its total
revenues in fiscal year 2000. The Company's contract with the GSA is subject to
renegotiation or termination at the convenience of the GSA and expires on
January 20, 2001. The Company has no binding contracts with Relax the Back, UPS,
Sykes Enterprises, or Wrightline. The loss of any of these customers, or a
reduction in any of the customers' purchases, could have a material adverse
effect on the Company.

The Company sells its products to stores owned by Relax the Back
Corporation ("RTB") and to its franchised stores. Recent developments at RTB
have led the Company to believe the collectibility of such accounts receivable
balance is unlikely as it relates to RTB's corporate stores, which comprise
approximately 40% of RTB sales. In response to this knowledge, the Company
increased its estimate of the allowance for bad debts by approximately $235,000
related to RTB's corporate stores' accounts receivable balance at June 30, 2000.
During the first quarter of fiscal 2001, the Company shipped an additional
$100,000 worth of product to RTB corporate stores and, therefore, the Company
anticipates increasing its allowance an additional $100,000 during the first
quarter of fiscal 2001.

POSSIBLE ACQUISITIONS AND ALLIANCES. The Company's business strategy
includes possible acquisitions and strategic marketing alliances to broaden its
product lines. 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 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. In
June 1998, the Company extended a limited lifetime warranty for all new chairs
manufactured after such date and further extended the warranty on certain
components to 10 years in June 1999. The Company has not experienced any
material loss from warranty claims to date and maintained a reserve at June 30,
2000, of $181,904 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. The Company's directors, executive officers and their
relatives control approximately 62.8% of the Company's outstanding voting
securities and are 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

7
<PAGE>
shareholder approval. These matters may include mergers, consolidations, 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 make 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 first and
second 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.

ITEM 3. LEGAL PROCEEDINGS

Other than routine litigation matters, the Company is currently involved
in two lawsuits and 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 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., 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.

8
<PAGE>
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 at which time Bodybilt/Ergobilt is 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 15th, 2000, the case was moved to the United States District
Court for the Southern District of Texas, Houston Division.

Although uncertainties associated with arbitration and other litigation
risks make it impossible for the Company to predict the outcome of the
arbitration and lawsuits with certainty, the Company does not believe that the
outcome of the arbitration and the lawsuits will have a material adverse impact
on its financial position, results of operations and cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

9
<PAGE>
PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock has traded on the Nasdaq National Market System
since the Company's initial public offering on October 20, 1998. Effective
August 20, 1999, the Company voluntarily moved from the Nasdaq National Market
System to the Nasdaq Small Cap System and is traded under the symbol "NTRL." On
September 1, 2000, the Company had approximately 110 shareholders of record of
the Company's Common Stock.

The following table sets forth the high and low sale prices for the
Company's Common Stock for the quarters indicated.

PRICE RANGE OF COMMON STOCK

HIGH LOW
-------- --------
YEAR ENDED JUNE 30, 1999
------------------------
First Quarter ....................... $ 4.00 $ 2.50
Second Quarter ...................... $ 4.63 $ 2.50
Third Quarter ....................... $ 5.38 $ 2.75
Fourth Quarter ...................... $ 3.00 $ 1.88

YEAR ENDED JUNE 30, 2000
------------------------
First Quarter ....................... $ 2.44 $ 1.38
Second Quarter ...................... $ 2.22 $ 1.25
Third Quarter ....................... $ 2.63 $ 1.19
Fourth Quarter ...................... $ 1.66 $ 1.00

Such over-the-counter market quotations reflect inter-dealer prices,
without retail markup, markdown or commissions, and may not necessarily
represent actual transactions.

Since the Company's initial public offering, the Company has not declared
or paid any cash dividends on the Common Stock. The Company presently intends to
retain all earnings, if any, 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 certain of the Company's debt documents restrict the Company's ability to pay
dividends to its shareholders and acquire capital stock.

USE OF OFFERING 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(R). As noted below, the Company has as of June
30, 2000, utilized approximately $144,000 of the net offering proceeds for these
purposes. As a result of the Company's decision to discontinue computERGO(R),
the Company now plans to use, of the remaining estimated $1,100,000 net proceeds
of the offering previously allocated to computERGO(R): (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.

10
<PAGE>
As of June 30, 2000, the Company has utilized net offering proceeds for
the following:

(1) approximately $144,000 in the development of computERGO(R);

(2) approximately $388,000 towards the development, manufacturing and
marketing of the N-hancements accessory line;

(3) approximately $1,365,000 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 $151,000 in the Company's effort to become ISO 9001
certified;

(5) approximately $670,000 in enhancing the Company's marketing efforts
primarily resulting from salaries and travel-related expenditures for
additional sales personnel hired and two professional ergonomists;

(6) approximately $395,000 related to the hiring of engineering personnel,
including the 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.

In addition, the Company had approximately $50,000 included in temporary
investments as of June 30, 2000 comprised of short-term, interest bearing,
investment grade securities. The remaining $50,000 has been designated to be
spent on molds related to new product development. Each of the foregoing amounts
represents the reasonable estimate of the Company for the amounts of the net
proceeds applied. 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.

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<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion should be read in conjunction with the financial
statements of the Company and notes thereto.

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 that 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, customer acceptance of existing and new products,
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.

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. Late in fiscal 2000, the
Company added territory market managers to its sales force that are employees
who focus exclusively on selling Neutral Posture products in designated market
areas. These employees receive a base salary plus a commission from units sold.
These independent sales representatives and territory market managers 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 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.

In April 2000, the Company introduced the N-hancements accessory line. As
such, the integration of the N-hancements accessory line had only a minor impact
on the results of operations in fiscal year 2000.

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:

YEAR ENDED
JUNE 30,
------------------
2000 1999
------ ------
Net sales ............................................... 100.0% 100.0%
Cost of sales ........................................... 63.4 62.8
------ ------
Gross profit ............................................ 36.6 37.2
Selling, general and administrative
expenses .............................................. 37.6 30.0
------ ------
Operating income (loss) ................................. (1.0)% 7.2%
====== ======

FISCAL YEAR ENDED JUNE 30, 2000 COMPARED TO FISCAL YEAR ENDED JUNE 30,
1999.

NET SALES. Net sales for the fiscal year ended June 30, 2000 were $17.2
million increasing slightly from net sales of $17.1 million for the fiscal year
ended June 30, 1999. Sales for the Neutral Posture(R) chair line increased
approximately $290,000 or 2% for fiscal year 2000 as compared to fiscal year
ended 1999. The slight increase in sales resulted from an increase in the
average selling price of approximately 6% offset by a slight decrease of
approximately 4% in the number of units sold. Sales for the Harvard chair line
decreased approximately $160,000, or 4% for fiscal year 2000 as compared to
fiscal year ended 1999. Unit sales on the Harvard chair line increased
approximately 9% while average prices decreased approximately 12% based on the
product mix of chairs sold.

GROSS PROFIT. Gross profit for the fiscal year ended June 30, 2000 was $6.3
million, declining slightly from $6.4 million for the fiscal year ended June 30,
1999. The gross profit margin decreased to 36.6% for fiscal year 2000 from 37.2%
for fiscal year 1999. Obsolete inventory charges, along with increased freight
costs, account for the majority of the decrease in gross profit margin
percentage. The Company has seen increased freight cost from all its freight
carriers. In addition, during the fourth quarter of fiscal year 2000, the
Company recorded a charge to earnings for obsolete inventory primarily due to
changes

12
<PAGE>
made to revitalize the Harvard chair line in the amount of approximately
$140,000. These changes ranged from changing components to adding additional
chair models while discontinuing less profitable models.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $6.5 million for fiscal year 2000, increasing
approximately $1.4 million or 26%, from $5.1 million for fiscal year 1999. As a
percentage of sales, the Company's selling, general and administrative expenses
increased to 38% for fiscal year 2000 from 30% for fiscal year 1999. The
increase was primarily due to legal fees of approximately $1.0 million related
to the Ergobilt/Bodybilt arbitration and an increase in its charge for bad debts
related to one of its largest customers. (See Liquidity and Capital Resources
below). Subsequent to year-end, the Company received approximately $90,000 in
reimbursement of these legal fees from its insurance carrier and is continuing
to work with its carrier for possible further reimbursement.

OPERATING INCOME/(LOSS). As a result of the foregoing, operating loss for the
fiscal year ended June 30, 2000 was $181,000, as compared to operating income of
$1.2 million for the same period in 1999.

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 $106,734 for fiscal year
2000 and decreased as compared to cash provided by operating activities of
approximately $1,030,025 for fiscal year 1999. The decrease in cash flow for
fiscal year 2000 was primarily the result of a net loss along with approximately
$300,000 in decreases to working capital. This decrease included decreases in
accounts payable and accrued liabilities and increases in accounts receivable
and inventory levels.

Cash used for investing activities totaled approximately $440,000 for
fiscal year 2000 and was primarily comprised of updating and enhancing the
Company's computer system and funds spent on machinery, equipment and molds used
in the manufacturing process. Cash used for investing activities totaled
approximately $866,000 for fiscal year 1999. During fiscal year 2001, the
Company expects to continue to make capital expenditures in connection with
manufacturing equipment, computer hardware and software improvements and to seek
potential acquisitions or joint ventures with third parties to provide ergonomic
products and services.

Financing activities provided funds totaling approximately $155,000 for
fiscal year 2000 and used funds of approximately $220,000 for fiscal year 1999.
In fiscal year 2000, the Company sold 100,000 shares of treasury stock to an
officer of the Company for $212,500. This increase was partially offset with the
repayment of notes on Company vehicles. The use of funds in fiscal year 1999
resulted primarily from the purchase of 137,000 shares of treasury stock in the
amount of approximately $291,000 from an officer of the Company that resigned in
May 1999.

The Company manages its inventory to maintain a level that meets its
short-term manufacturing needs. Inventory turned 8.6 times in fiscal year 2000
and 8.5 times in fiscal year 1999. Inventory turns have leveled off as the
Company maintains inventory levels to meet customer demands. With this turnover,
the Company had approximately 43 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 insurance and property tax
expenses.

The Company has a $2.5 million revolving credit facility (the "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. As of September 1,
2000, no amount was outstanding under the Revolving Credit Facility.

At June 30, 2000, the Company had two loans outstanding in the amounts of
approximately $125,000 and $412,000 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. Interest on the first note accrues at a rate of
8.25% and the note matures in May 2011. Interest on the second note accrues at a
fixed rate of 8.25% and matures in May 2003. The notes are collateralized by the
land, building and certain equipment.

13
<PAGE>
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.

Subsequent to fiscal year-end, 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.

The Company sells its products to stores owned by RTB and to its
franchised stores. RTB stores, both corporate and franchised constitute
collectively one of the Company's largest customers. Recent developments at RTB
have led the Company to believe the collectibility of its accounts receivable
balance is unlikely as it relates to RTB's corporate stores, which comprise
approximately 40% of RTB sales. In response to this knowledge, the Company
increased its estimate of the allowance for bad debts by approximately $235,000
related to RTB's corporate stores' accounts receivable balance at June 30, 2000.
During the first quarter of fiscal 2001, the Company shipped an additional
$100,000 worth of product to RTB corporate stores and, therefore, the Company
anticipates increasing its allowance an additional $100,000 during the first
quarter of fiscal 2001.

The Company believes that cash flow from operations and its unused
capacity under the Revolving Credit Facility should be sufficient to fund its
anticipated operating needs and capital requirements through fiscal year 2001.
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.

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 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.

RECENT ACCOUNTING STANDARDS. In 1998, the Financial Accounting Standards
Board ("FASB") issued SFAS 133, Accounting for Derivative Instruments and
Hedging Activities, which broadens the definition of derivative instruments and
establishes accounting and reporting standards for derivatives and hedging
activities. SFAS 133 is effective for the Company in fiscal 2001, and management
does not believe the statement will have a material impact on the Company's
financial statements.

In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,
which summarizes certain of the SEC's views in applying generally accepted
accounting principles to revenue recognition in financial statements. Although
new accounting concepts are not introduced in SAB 101, it probably will be the
basis for more intensive scrutiny by the SEC of companies' revenue recognition
policies and procedures. SAB 101 will be effective for the Company no later than
the fourth quarter of fiscal 2001. Any reporting changes resulting from either
of these standards on the Company are not expected to be material.

ITEM 7. FINANCIAL STATEMENTS

The information required by this item is set forth in a separate section
of this Report on Form 10-KSB and is incorporated herein by reference. See the
accompanying "Index of Financial Statements" at Page F-1.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

14
<PAGE>
PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS AND COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The information set forth under the caption "Election of Director" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy
Statement, which is to be filed with the Commission within 120 days of June 30,
2000 pursuant to Regulation 14A under the Exchange Act is incorporated herein by
reference.

EXECUTIVE OFFICERS OF THE REGISTRANT.

The names of the executive officers of the Company are as follows:

NAME AGE POSITION
---- --- --------
Rebecca E. Boenigk 36 Chairman of the Board, Chief Executive
Officer and Director

Thomas G. Peterson 35 President, Chief Operating Officer and
Director

Jaye E. Congleton 56 Executive Vice President, Secretary and
Director

Mark E. Benden 33 Vice President - Engineering

David W. Ebner 39 Vice President - Operations

Gregory A. Katt 42 Vice President, Chief Financial Officer
and Treasurer

REBECCA E. BOENIGK co-founded the Company in 1990 with Jaye E. Congleton
and has served as Chairman of the Board since 1990 and Chief Executive Officer
since 1996 and served as President from 1990 to 1996. She currently serves in
the class of directors whose term expires 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,
Mrs. Congleton, Ernst and Young's Entrepreneur of the Year award in
manufacturing in the Houston region. Mrs. Boenigk is the daughter of Mrs.
Congleton, a director and officer of the Company, and Dr. Jerome Congleton, a
consultant to the Company.

THOMAS G. PETERSON joined the Company in January 2000 as President and
Chief Operating Officer. In March 2000, he was appointed to serve as a director
of the Company and currently serves in the class of directors whose term expires
at the 2001 annual meeting of shareholders. For the five years prior to joining
the Company, Mr. Peterson served as Vice President, Business Development for The
International Source for Ergonomics, Inc. ("ISE, Inc."), a Canadian distributor
of ergonomic accessory line products marketed primarily in the United States and
Canada.

JAYE E. CONGLETON co-founded the Company in 1990 with Rebecca E. Boenigk
and has served as a director, Executive Vice President and Secretary of the
Company since April 1998 and also served as a director, Executive Vice President
and Secretary from 1990 to August 1997. Mrs. Congleton currently serves in the
class of directors whose term expires at the 2002 annual meeting of
shareholders. In 1997, Mrs. Congleton was awarded, along with her daughter,
Rebecca E. Boenigk, Ernst and Young's Entrepreneur of the Year award in
manufacturing in the Houston, Texas region. Mrs. Congleton is the mother of Mrs.
Boenigk, the Chairman of the Board and CEO of the Company and the spouse of Dr.
Jerome Congleton, a consultant to the Company.

MARK E. BENDEN served as Director of Engineering from January 1998 to
September 1998 and as Vice President - Engineering since September 1998. Prior
to these positions, from 1992 to 1998, he was a regional ergonomic and safety
engineer for Johnson and Johnson, Inc., a publicly traded manufacturer and
retailer of a broad range of products in the health care field.

15
<PAGE>
DAVID W. EBNER has served as Vice President - 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 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.

ITEM 10. EXECUTIVE COMPENSATION

The information set forth under the caption "Executive Compensation" in
the Company's Proxy Statement, which is to be filed with the Commission within
120 days of June 30, 2000 pursuant to Regulation 14A under the Exchange Act, is
incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth under the caption "Security Ownership of
Beneficial Owners and Management" in the Company's Proxy Statement, which is to
be filed with the Commission within 120 days of June 30, 2000 pursuant to
Regulation 14A under the Exchange Act, is incorporated herein by reference.

ITEM 12. CERTAIN TRANSACTIONS

The information set forth under the caption "Certain Transactions" in the
Company's Proxy Statement, which is to be filed with the Commission within 120
days of June 30, 2000 pursuant to Regulation 14A under the Exchange Act, is
incorporated herein by reference.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

1. Financial Statements

See the accompanying "Index to Financial Statements" at
Page F-1.

2. Exhibits

See the accompanying "Index to Exhibits" at Page X-1.

(b) Reports on Form 8-K

None.

16
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 21st day of
September, 2000.

NEUTRAL POSTURE ERGONOMICS, INC.

By: /s/ REBECCA E. BOENIGK
Rebecca E. Boenigk
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on the 21st day of September, 2000.

SIGNATURE TITLE

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

/s/ THOMAS G. PETERSON President, Chief Operating Officer and
Thomas G. Peterson Director

/s/ JAYE E. CONGLETON Executive Vice President-Product
Jaye E. Congleton Development, Secretary and Director

/s/ GREGORY A. KATT Vice President, Chief Financial Officer
Gregory A. Katt and Treasurer (Principal Financial and
Accounting Officer)

/s/ SUSAN PHILLIPS BARI Director
Susan Phillips Bari

/s/ MARYLA FITCH Director
Maryla Fitch

/s/ CYNTHIA PLADZIEWICZ Director
Cynthia Pladziewicz

/s/ JOHN R. SAMUEL Director
John R. Samuel

17
<PAGE>
NEUTRAL POSTURE ERGONOMICS, INC.

INDEX TO FINANCIAL STATEMENTS

PAGE
----
INDEPENDENT AUDITORS' REPORT .......................................... F-2

FINANCIAL STATEMENTS AND NOTES:

Balance Sheet as of June 30, 2000 ................................ F-3

Statements of Operations for the Years Ended June 30, 2000 and
1999 ........................................................... F-4

Statements of Shareholders' Equity for the Years Ended June 30,
2000 and 1999 .................................................. F-5

Statements of Cash Flows for the Years Ended June 30, 2000 and
1999 ........................................................... F-6

Notes to Financial Statements .................................... F-7
<PAGE>
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, 2000, and the related statements of operations,
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 auditing standards generally
accepted in the United States of America. 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, 2000, and the
results of its operations and its cash flows for each of the two years in the
period then ended in conformity with accounting principles generally accepted in
the United States of America.

/s/ DELOITTE & TOUCHE LLP

Dallas, Texas
September 12, 2000

F-2
<PAGE>
NEUTRAL POSTURE ERGONOMICS, INC.

BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
JUNE 30, 2000
------------
<S> <C>
Current Assets:
Cash and cash equivalents .............................................................................. $ 3,138,536
Accounts receivable less allowance for doubtful accounts of $361,509 .................................. 2,703,978
Notes receivable - shareholders ........................................................................ 14,725
Inventories ............................................................................................ 1,288,782
Deferred income tax benefits ........................................................................... 275,000
Prepaid expenses and other ............................................................................. 165,286
Income tax receivable .................................................................................. 133,144
------------
Total current assets .............................................................................. 7,719,451
Property and Equipment - net .................................................................................. 2,267,244
Intangibles - net ............................................................................................. 167,167
Deposits and Other ............................................................................................ 222,592
------------
Total ............................................................................................. $ 10,376,454
============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
Current portion of long-term debt ...................................................................... $ 35,550
Accounts payable ....................................................................................... 1,503,853
Accrued liabilities .................................................................................... 435,149
------------
Total current liabilities ......................................................................... 1,974,552
Long-Term Debt - Less current portion ......................................................................... 501,188
Deferred Income Tax Liability ................................................................................. 69,000
Commitments and Contingencies (Note 9)
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
Common stock warrants .................................................................................. 75,000
Additional paid-in capital ............................................................................. 5,671,138
Retained earnings ...................................................................................... 2,148,613
Accounts and notes receivable - shareholders ........................................................... (17,500)
Treasury stock - at cost, 37,000 shares ................................................................ (78,625)
------------
Total shareholders' equity ........................................................................ 7,831,714
------------
Total ............................................................................................. $ 10,376,454
============
</TABLE>
See notes to financial statements.

F-3
<PAGE>
NEUTRAL POSTURE ERGONOMICS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Net Sales .......................................................................... $ 17,216,663 $ 17,090,420
Cost of Sales ...................................................................... 10,923,327 10,737,423
--------------- ---------------
Gross Profit ....................................................................... 6,293,336 6,352,997
Operating Expenses:
Selling ..................................................................... 1,949,126 1,633,772
General and administrative .................................................. 4,524,929 3,499,232
--------------- ---------------
Total .................................................................. 6,474,055 5,133,004
--------------- ---------------
Operating Income (Loss) ............................................................ (180,719) 1,219,993
Other Income (Expense):
Interest expense ............................................................ (48,483) (49,366)
Interest income ............................................................. 172,632 147,960
Other ....................................................................... 10,573 9,448
--------------- ---------------
Total .................................................................. 134,722 108,042
--------------- ---------------
Income (Loss) Before Income Taxes .................................................. (45,997) 1,328,035
Income Tax Expense (Benefit) ....................................................... (16,824) 489,794
--------------- ---------------
Net Income (Loss) .................................................................. $ (29,173) $ 838,241
=============== ===============
Earnings (Loss) Per Share:
Basic ....................................................................... $ (0.01) $ 0.26
=============== ===============
Diluted ..................................................................... $ (0.01) $ 0.25
=============== ===============
Weighted Average Common Shares Outstanding:
Basic ....................................................................... 3,207,319 3,253,431
=============== ===============
Diluted ..................................................................... 3,207,319 3,343,747
=============== ===============
</TABLE>

See notes to financial statements.

F-4
<PAGE>
NEUTRAL POSTURE ERGONOMICS, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
ACCOUNTS
COMMON COMMON ADDITIONAL AND NOTES TOTAL
SHARES COMMON STOCK PAID-IN RETAINED RECEIVABLE - DEFERRED TREASURY SHAREHOLDERS'
ISSUED STOCK WARRANTS CAPITAL EARNINGS SHAREHOLDERS COMPENSATION STOCK EQUITY
--------- ------- -------- ----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 1, 1998 ..... 3,200,000 $32,000 $ 75,000 $ 5,524,986 $ 1,339,545 $ (52,500) $ (30,000) $ -- $ 6,889,031

Amortization of
deferred compensation ... -- -- -- -- -- -- 30,000 -- 30,000

Issuance of common stock .. 108,800 1,088 -- 47,812 -- -- -- -- 48,900

Tax benefit derived
from exercise of stock
options ................. -- -- -- 98,340 -- -- -- -- 98,340

Payment of shareholder note -- -- -- -- -- 35,000 -- -- 35,000

Purchase of Treasury stock -- -- -- -- -- -- -- (291,125) (291,125)

Net income ................ -- -- -- -- 838,241 -- -- -- 838,241

--------- ------- -------- ----------- ----------- ----------- ----------- --------- -----------
BALANCE AT JUNE 30, 1999 .... 3,308,800 $33,088 $ 75,000 $ 5,671,138 $ 2,177,786 $ (17,500) $ -- $(291,125) $ 7,648,387
--------- ------- -------- ----------- ----------- ----------- ----------- --------- -----------

Sale of Treasury stock .... -- -- -- -- -- -- -- 212,500 212,500

Net loss .................. -- -- -- -- (29,173) -- -- -- (29,173)

--------- ------- -------- ----------- ----------- ----------- ----------- --------- -----------
BALANCE AT JUNE 30, 2000 .... 3,308,800 $33,088 $ 75,000 $ 5,671,138 $ 2,148,613 $ (17,500) $ -- $ (78,625) $ 7,831,714
========= ======= ======== =========== =========== =========== =========== ========= ===========
</TABLE>
See notes to financial statements.

F-5
<PAGE>
NEUTRAL POSTURE ERGONOMICS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Operating Activities:
Net income (loss) ................................................................... $ (29,173) $ 838,241
Noncash items in net income (loss):
Depreciation and amortization .................................................... 606,695 469,229
Deferred income tax benefit ...................................................... (173,000) (51,000)
Changes in operating working capital:
Accounts receivable .............................................................. (36,517) (676,356)
Notes receivable ................................................................. 19,008 157,311
Inventories ...................................................................... (93,623) (133,946)
Prepaid expenses and other ....................................................... 59,815 (161,882)
Income taxes payable/receivable .................................................. (35,086) (169,012)
Accounts payable ................................................................. (72,288) 619,800
Accrued liabilities .............................................................. (109,159) 203,014
Deposits and other ............................................................... (29,938) (65,374)
--------------- ---------------
Net cash provided by operating activities .................................... 106,734 1,030,025
--------------- ---------------

Investing Activities:
Additions to property and equipment ................................................. (439,506) (811,020)
Acquisition - Harvard furniture line ................................................ -- (55,101)
--------------- ---------------
Net cash used for investing activities ....................................... (439,506) (866,121)
--------------- ---------------
Financing Activities:
Issuance of debt .................................................................... -- 25,239
Payments on debt .................................................................... (57,449) (35,939)
Repayment of shareholder note ....................................................... -- 35,000
Proceeds from sale of treasury stock ................................................ 212,500 --
Purchase treasury stock ............................................................. -- (291,125)
Proceeds from issuance of common stock .............................................. -- 48,900
--------------- ---------------
Net cash provided by (used for) financing activities ......................... 155,051 (217,925)
--------------- ---------------

Decrease in Cash and Cash Equivalents .................................................... (177,721) (54,021)

Cash and Cash Equivalents:
Beginning of period ................................................................. 3,316,257 3,370,278
--------------- ---------------
End of period ....................................................................... $ 3,138,536 $ 3,316,257
=============== ===============

Supplemental Information:
Interest paid ....................................................................... $ 48,483 $ 49,366
=============== ===============

Income taxes paid ................................................................... $ 191,261 $ 725,541
=============== ===============
</TABLE>
See notes to financial statements.

F-6
<PAGE>
NEUTRAL POSTURE ERGONOMICS, INC.

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS - Neutral Posture Ergonomics, Inc. (the "Company") designs and
manufactures ergonomic chairs and accessories 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 had 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.

ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA
require 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 of three
months or less at acquisition.

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.
Depreciation is provided using the straight-line method over estimated useful
lives ranging from two to seven years, or the related lease term if shorter.
Management periodically reviews for impairment of fixed assets whenever events
or changes in circumstances have indicated that the carrying amount of its fixed
assets might not be recoverable.

INTANGIBLES are stated at cost less accumulated amortization. Amortization
is provided using the straight-line method over estimated useful lives ranging
from three to six years. Management periodically reviews for impairment of
intangibles whenever events or changes in circumstances have indicated that the
carrying amount of its intangibles might not be recoverable.

RESEARCH AND DEVELOPMENT COSTS are expensed as incurred and were
approximately $552,244 and $420,190 in fiscal 2000 and 1999, respectively.

INCOME TAXES are recorded under Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes" which requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Deferred income taxes are provided for under the asset and
liability method for temporary differences in the recognition of income and
expense for tax and financial reporting purposes. Current and deferred income
taxes have been provided for as appropriate (Note 7).

NET INCOME (LOSS) PER COMMON SHARE is based on the weighted average number
of shares outstanding for basic earnings (loss) per share ("EPS"). Diluted EPS
also includes the dilutive effect, if any, of common stock options and warrants
outstanding.

RECENT ACCOUNTING STANDARDS include FASB's 1998 issuance of SFAS 133,
Accounting for Derivative Instruments and Hedging Activities, which broadens the
definition of derivative and hedging activities. SFAS 133 IS effective for the
Company in fiscal 2001 and management does not believe the statement will have a
material impact on the Company's financial statements.

F-7
<PAGE>
NEUTRAL POSTURE ERGONOMICS, INC.

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,
which summarizes certain of the SEC's views on applying generally accepted
accounting principles to revenue recognition in financial statements. Although
new accounting concepts are not introduced in SAB 101, it probably will be the
basis for more intensive scrutiny by the SEC of companies' revenue recognition
policies and procedures. SAB 101 will be effective for the Company no later than
the fourth quarter of fiscal 2001. Any reporting changes resulting from either
of these standards on the Company are not expected to be material.

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"). SFAS No. 123, "Accounting for Stock-Based Compensation,"
requires 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 (loss) and EPS (Note 6).

2. ACCOUNTS RECEIVABLE ALLOWANCE

Recent developments at Relax the Back Corporation ("RTB"), one of the
Company's largest customers (Note 8), have led the Company to believe the
collectibility of the accounts receivable balance is unlikely as it relates to
RTB's corporate stores. RTB also has franchised stores that make up
approximately 60% of RTB sales, which are currently not affected. In response to
this knowledge, the Company has 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.

During the first quarter of fiscal 2001, the Company sold an additional
$100,000 worth of product to the RTB corporate stores and the Company
anticipates increasing its allowance by an additional $100,000 during the first
quarter of fiscal 2001.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:
JUNE 30,
2000
---------------
Land ................................................. $ 90,250
Building ............................................. 534,750
Building improvements ................................ 405,548
Machinery and equipment .............................. 1,562,478
Furniture and fixtures ............................... 281,877
Computers and Equipment .............................. 493,930
Automobiles and trucks ............................... 79,499
---------------
Subtotal ........................................ 3,448,332
Less accumulated depreciation ........................ 1,249,156
---------------
Total ........................................... 2,199,176
Deposits on machinery, equipment and other ........... 68,068
---------------
Property and equipment - net .................... $ 2,267,244
===============

F-8
<PAGE>
NEUTRAL POSTURE ERGONOMICS, INC.

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

4. DEBT AND CREDIT FACILITIES

Long-term debt consists of the following:
JUNE 30,
2000
---------------
Revolving line of credit, up to $2,000,000; interest
at prime plus .5% (9.50% at June 30, 2000)
payable monthly; principal matured August 21,
2000 ............................................ $ --
Note payable to bank in monthly installments of
$5,300, including interest at 8.25%, maturing
in May 2003 ...................................... 411,892
Term loan payable in monthly installments of $1,456,
including interest at 8.25%, maturing in
May 2011 ......................................... 124,846
---------------
Total long-term debt ................................. 536,738
Less current portion ................................ 35,550
---------------
Long-term debt - less current portion ................ $ 501,188
===============

Borrowings under the revolving line of credit are subject to borrowing
base requirements and are collateralized by accounts receivable, chattel paper,
contract rights, equipment and fixtures, general intangibles 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. 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. The
current credit facility terminated on August 21, 2000. At June 30, 2000, no
amount was borrowed under this facility.

Upon expiration of the revolving line of credit and term line of credit
mentioned above, on August 21, 2000, the Company signed a new $2.5 million
revolving credit facility. Borrowings under the 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. The new facility expires September 30, 2001. 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.

In May 1996, the Company purchased an office, warehouse and manufacturing
facility for $626,431. The Company issued a $500,000 note payable and a term
note of $150,000 for capital improvements on the building with outstanding
balances at June 30, 2000, of $411,892 and $124,846, respectively. The notes are
collateralized by the building and certain equipment.

Annual maturities of long-term debt - less current portion at June 30, 2000, are
as follows:

Year ending June 30:
2002 ............................... $ 38,596
2003 ............................... 362,073
2004 ............................... 9,537
2005 ............................... 10,354
2006 ............................... 11,241
Thereafter ......................... 69,387
----------
Total ......................... $ 501,188
==========

The carrying value of the Company's long-term debt approximates fair
value. The bank debt is based on current prime or LIBOR rates and the remaining
debt is at the current rates available for debt with similar terms and
maturities.

F-9
<PAGE>
NEUTRAL POSTURE ERGONOMICS, INC.

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

5. CAPITAL STOCK

At June 30, 2000, the Company has authorized 14,000,000 shares of common
stock, $0.01 par value, of which 3,308,800 shares were issued and 3,271,800
shares were outstanding. The Company has also authorized 1,000,000 shares of
preferred stock, par value $0.01 per share. The Board of Directors has authority
to divide such preferred stock into one or more series and has authority to fix
and determine the relative rights and preferences of each such series. No
preferred stock was issued at June 30, 2000.

At June 30, 2000, the Company has outstanding warrants to purchase 133,400
shares of common stock at an exercise price of $7.20 and are exercisable over a
period of four years commencing October 21, 1998 and expiring October 24, 2002.
These warrants, included in shareholders' equity, had a total estimated fair
value of $75,000 ($0.56 per warrant) on the date of grant using the
Black-Scholes option - pricing model with the following assumptions: risk-free
interest rate of 5.7%, no dividend yield, expected life of five years and no
volatility.

In May 1999, the Company acquired 137,000 shares of common stock to be
held in treasury for $291,125. The stock was acquired from Mr. Campbell, former
President, in conjunction with his resignation from the Company. In addition,
four officers of the Company purchased an additional 63,000 shares of common
stock from Mr. Campbell. In February 2000, the Company sold 100,000 shares of
the common stock held in Treasury for $212,500 to Tom Peterson, the current
President and Chief Operating Officer of the Company.

6. STOCK OPTION PLANS

In April 1996, the Company adopted a Nonqualified Stock Option Plan (the
"1996 Plan") to remain in effect for ten years or expiration of the latest stock
option period, whichever is later. The 1996 Plan authorized the board of
directors to grant up to 700,000 option shares. In August 1997, the board of
directors and the shareholders approved the Company's Amended and Restated 1996
Nonqualified Stock Option Plan (the "Amended 1996 Plan") which reduced the
number of shares to be granted under the 1996 Plan to 500,000. The 1996 Plan and
the Amended 1996 Plan contain provisions upon dissolution, liquidation or merger
of the Company to allow for immediate exercise of all issued and outstanding
options.

Upon adoption of the 1996 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
vested in equal amounts over a period of three years. An additional 100,000
options were exercised on April 30, 1997 and on October 12, 1998. In May 1999,
in conjunction with the resignation of Mr. Campbell as discussed in Note 5
above, the Company repurchased the remaining 100,000 options from Mr. Campbell
for $190,000. In March 2000, the Company granted 100,000 options to certain
officers of the Company at a $2.50 exercise price per share which vest ratably
over a four year period and have a maximum term of ten years. As such, the
Company had no remaining options available to be granted under the Amended 1996
Plan as of June 30, 2000.

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 income tax effects, and received from the
optionees notes receivable. As of June 30, 2000, the notes receivable totaled
$32,225, consisting of $17,500 for the exercise of options (included in
shareholders' equity) and $14,725 to cover income taxes of the optionees
(included in total assets). This recourse note bears interest at 7.5%, payable
annually, and matures in December 2000. In May, 1999, Mr. Campbell repaid in
full notes owed to the Company in the amount of $138,450 plus accrued interest
of $23,214 in conjunction with his resignation.

In August 1997, the board of directors and the shareholders of the Company
also approved the Company's 1997 Omnibus Securities Plan (the "1997 Plan") for
the employees, directors and consultants of the Company. The number of shares of
Common Stock reserved for issuance under the 1997 Plan is 200,000 shares. The
1997 Plan allows for the issuance of nonqualified stock options, incentive stock
options within the meaning of Section 422 of the Internal Revenue Code, stock
appreciation rights and restricted stock.

F-10
<PAGE>
NEUTRAL POSTURE ERGONOMICS, INC.

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

The following table summarizes the shares subject to options under the
1997 Plan:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
NUMBER OF SHARES PER SHARE
----------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Options outstanding, beginning of year ........................... 70,855 83,565 $ 5.242 $ 4.974
Granted .......................................................... 100,000 4,000 2.500 2.969
Terminated/Bought out ............................................ (15,950) (16,710) 5.323 3.342
------------ ------------
Options outstanding, end of year ................................. 154,905 70,855 3.467 5.242
============ ============
Options exercisable, end of year ................................. 34,655 4.936
============
Reserved for future options
at June 30, 2000 ............................................ 45,095
============
</TABLE>

The following table summarizes additional information about stock options
outstanding and exercisable under the Amended 1996 Plan and the 1997 Plan (the
"Plans") at June 30, 2000:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- -----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE
------------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$1.938 - $2.000 ........................ 6,905 .398 $ 1.991 6,155 $ 1.997
$2.500 - $2.500 ........................ 200,000 3.333 $ 2.500 -- $ 2.500
$3.500 - $6.125 ........................ 48,000 2.152 $ 5.695 28,500 $ 5.570
------------ ------------
$1.938 - $6.125 ........................ 254,905 3.032 $ 3.088 34,655 $ 4.936
============ ============
</TABLE>

The exercise price, term and other conditions applicable to each option
granted under the Plans are determined at the time of the grant of each option
and may vary with each option granted. Options granted generally vest ratably
over a four-year period and have a maximum term of ten years.

The Company applies the provisions of APB No. 25 and related
Interpretations in accounting for its stock option plans. Under the 1996 Plan,
deferred compensation of $237,500 was recorded for the 500,000 options granted
in 1996, 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 the deferred compensation
amount was fully amortized as of December 1998. Under the 1997 Plan, deferred
compensation of $69,609 was recorded for 16,875 options granted in 1998, based
on the $4.125 per share excess of the market value of the stock of $6.125 per
share over the exercise price of $2 per share, and is amortized over the vesting
period of one year. For fiscal year 1999, amortization of $30,000 is included in
selling, general and administrative expenses.

Had compensation cost for the Company's stock option plans 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 (loss) and
EPS would have been as follows:

2000 1999
---------- -----------
Pro forma net income
(loss) $ (50,000) $ 791,000
========== ===========
Pro forma EPS:
Basic $ (.02) $ .24
========== ===========
Diluted $ (.02) $ .24
========== ===========

F-11
<PAGE>
NEUTRAL POSTURE ERGONOMICS, INC.

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

In the pro forma calculations, the weighted average fair value of options
granted in fiscal 2000 and 1999 was estimated at $2.500 and $1.668 per share,
respectively, on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions: risk-free interest rate of
6.59% and 5.20%, no dividend yield, expected lives of five years and volatility
of 60%.

7. INCOME TAXES

SFAS No. 109 requires the use of the liability method pursuant to which
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. The tax effects of significant items comprising the Company's net
deferred tax assets and liabilities as of June 30, 2000, are as follows:

Current asset:
Accrued expenses not currently deductible .................... $ 87,000
Valuation allowances for receivables and inventories not
currently deductible ....................................... 150,000
Inventory costs capitalized for tax purposes ................. 38,000
---------
Total current asset ............................................ 275,000
Noncurrent asset (liability):
Research and development costs expensed for tax purposes ..... $(265,000)
Depreciation for tax purposes ................................ 196,000
---------
Total noncurrent liability ..................................... (69,000)
---------
Net deferred tax asset ......................................... $ 206,000
=========

The Company's deferred tax assets as of June 30, 2000 are believed to be
realizable. No valuation allowance has been set up at this time.

The Company's income tax expense (benefit) consists of the following:

2000 1999
------------ -----------
Historical current (federal and state)
tax expense $ 156,176 $ 540,794
Deferred tax benefit (173,000) (51,000)
------------ -----------
$ (16,824) $ 489,794
============ ===========

Reconciliations of income tax expense (benefit) and the expected tax
computed by applying the U.S. federal income tax rate of 34% to pretax
accounting income (loss) follow:

2000 1999
-------- --------
Computed tax at statutory rate .................... (15,639) 451,532
Income-based state taxes, net of federal
income tax benefit .............................. 10,198 30,801
Nondeductible expenses ............................ 8,368 6,297
R&D credit......................................... (35,629) (39,243)
Other ............................................. 15,878 40,407
-------- --------
Income tax expense (benefit) ................... $(16,824) $489,794
======== ========

F-12
<PAGE>
NEUTRAL POSTURE ERGONOMICS, INC.

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

8. 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:

2000 1999
---------------------- ----------------------
ACCOUNTS ACCOUNTS
SALES RECEIVABLE SALES RECEIVABLE
------- ------------ --------- -----------
General Services
Administration 20% 23% 23% 25%
Relax the Back 12% 17% 14% 14%
United Parcel Service 8% 10% 7% 5%

The Company currently buys all of its mechanisms, an important component
of its products, from one supplier. Although there are a limited number of
manufacturers of the particular mechanism, management believes that other
suppliers could provide similar mechanisms on comparable terms. A change in
suppliers, however, could cause a delay in manufacturing and a possible loss of
sales which would affect operating results adversely.

9. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES - The Company leases one showroom facility under an
agreement classified as an operating lease. This agreement requires the Company
to pay all executory costs (such as utilities and maintenance) incurred by the
landlord. 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, 2000, are as follows:

YEAR ENDING
JUNE 30:
2001 $ 60,795
2002 54,391
2003 12,900
2004 12,900
2005 11,825
--------
Total minimum lease payments $152,811
========

Rent expense for fiscal 2000 and 1999, totaled $98,516 and $110,449,
respectively, which includes the Company's share of executory costs associated
with its office leases.

ROYALTIES - In March 1997, the Company acquired the patent (Note 1) from
the related party 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.

RELATED PARTY TRANSACTIONS - The Company paid Dr. Congleton, spouse of a
major shareholder, approximately $32,000 to provide ergonomic consulting to or
for the Company for the fiscal year ended June 30, 2000.

F-13
<PAGE>
NEUTRAL POSTURE ERGONOMICS, INC.

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

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 future outcome of these proceedings,
either individually or in the aggregate, to have a material adverse impact on
its financial position, results of operations and cash flows.

10. SUBSEQUENT EVENTS

Subsequent to fiscal year-end, the Company signed an agreement with Office
Furniture USA to be included in their catalog and to have products on display in
over 140 stores across the U.S. The agreement allows the stores to buy products
at standard discounts and payment terms; however, allows for 365-day 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 the
stores initial purchases of floor samples.

The Company is a party to certain legal proceedings of which one accounted
for approximately $1.0 million in legal fees for fiscal year ended June 30,
2000. The Company has filed a claim with its insurance company to receive a
reimbursement of legal fees. Subsequent to year-end, the Company received
approximately $90,000 in reimbursement from the insurance company of these legal
fees and is continuing to work with its insurance company for possible further
reimbursement.

*****

F-14
<PAGE>

INDEX TO EXHIBITS

EXHIBIT NO. EXHIBIT
----------- -------
3.1* - Amended and Restated Articles of Incorporation of the Company (Form
SB-1, October 20, 1997, Registration No. 333-33675, Exhibit 2.1)
3.2* - Amended and Restated Bylaws of the Company (Form SB-1, October 20,
1997, Registration No. 333-33675, Exhibit 2.2)
4.1* - Specimen Common Stock Certificate (Form SB-1, October 20, 1997,
Registration No. 333-33675, Exhibit 3.1)
10.1*(1) - Employment Agreement, dated as of July 1, 1997, between the Company
and Rebecca E. Boenigk (Form SB-1, October 20, 1997, Registration
No. 333-33675, Exhibit 6.1)
10.2*(1) - Employment Agreement, dated as of July 1, 1997, between the Company
and David W. Campbell (Form SB-1, October 20, 1997, Registration No.
333-33675, Exhibit 6.2)
10.3*(1) - Employment Agreement, dated as of July 1, 1997, between the Company
and David W. Ebner (Form SB-1, October 20, 1997, Registration No.
333-33675, Exhibit 6.3)
10.4*(1) - Employment Agreement, dated as of July 1, 1997, between the Company
and Gregory A. Katt (Form SB-1, October 20, 1997, Registration No.
333-33675, Exhibit 6.4)
10.5*(1) - Consulting Agreement, dated as of July 1, 1997, between the Company
and Dr. Jerome Congleton (Form SB-1, October 20, 1997, Registration
No. 333-33675, Exhibit 6.5)
10.6* - Letter Agreement, dated as of December 20, 1996, between the Company
and Shepherd Products, Inc. (Form SB-1, October 20, 1997,
Registration No. 333-33675, Exhibit 6.6)
10.7* - Amendment to Letter Agreement, dates as of June 17, 1997, between
the Company and Shepherd Products, Inc. (Form SB-1, October 20,
1997, Registration No. 333-33675, Exhibit 6.7)
10.8* - Agreement, dates as of February 21, 1995, between the Company and
the General Services Administration (Form SB-1, October 20, 1997,
Registration No. 333-33675, Exhibit 6.8)
10.9* - Trademark License, dated as of January 12, 1997, between the Company
and Relax the Back Franchising Company (Form SB-1, October 20, 1997,
Registration No. 333-33675, Exhibit 6.9)
10.10* - Promissory Note, dated as of June 30, 1996, issued by David W.
Campbell in favor of the Company (Form SB-1, October 20, 1997,
Registration No. 333-33675, Exhibit 6.10)
10.11* - Promissory Note, dated as of December 30, 1996, issued by David
W. Campbell in favor of the Company (Form SB-1, October 20, 1997,
Registration No. 333-33675, Exhibit 6.11)
10.12* - Promissory Note, dated as of June 30, 1996, issued by David W.
Ebner in favor of the Company. (Form SB-1, October 20, 1997,
Registration No. 333-33675, Exhibit 6.12)
10.13* - Loan Agreement, dated as of December 30, 1996, between the Company
and Comerica Bank-Texas (Form SB-1, October 20, 1997, Registration
No. 333-33675, Exhibit 6.13)
10.14* - Amendment to Secured Loan Agreement, dated as of August 12,1997,
between the Company and Comerica Bank-Texas (Form SB-1, October 20,
1997, Registration No. 333-33675, Exhibit 6.14)
10.15*(1) - Split Dollar Insurance Agreement, dated as of April 28, 1997,
between the Company and Rebecca E. Boenigk (Form SB-1, October
20, 1997, Registration No. 333-33675, Exhibit 6.15)
10.16*(1) - Life Insurance Agreement, dated as of February 20, 1997, between
the Company and David W. Campbell (Form SB-1, October 20, 1997,
Registration No. 333-33675, Exhibit 6.16)
10.17*(1) - Split Dollar Insurance Agreement, dated as of June 26, 1995,
between the Company and Jaye E. Congleton (Form SB-1, October 20,
1997, Registration No. 333-33675, Exhibit 6.17)
10.18*(1) - Split Dollar Insurance Agreement, dated as of January 21, 1997,
between the Company and David W. Ebner (Form SB-1, October 20,
1997, Registration No. 333-33675, Exhibit 6.18)
10.19*(1) - Key Man Insurance Agreement, dated as of April 28, 1997, between
the Company and Rebecca Boenigk (Form SB-1, October 20, 1997,
Registration No. 333-33675, 6.19)
10.20*(1) - Key Man Insurance Agreement, dated as of February 20, 1997,
between the Company and David W. Campbell (Form SB-1, October 20,
1997, Registration No. 333-33675, Exhibit 6.20)
10.21*(1) - Key Man Insurance Agreement, dated as of March 3, 1997, between
the Company and Dr. Jerome J. Congleton (Form SB-1, October 20,
1997, Registration No. 333-33675, Exhibit 6.21)

X-1
<PAGE>
EXHIBIT NO. EXHIBIT
----------- -------
10.22*(1) - Neutral Posture Ergonomics, Inc. Amended and Restated 1996
Nonqualified Stock Option Plan, dated as of October 9, 1997 (Form
SB-1, October 20, 1997, Registration No. 333-33675, Exhibit 6.22)
10.23*(1) - Neutral Posture Ergonomics, Inc. 1997 Omnibus Securities Plan,
dated as of September 22, 1997 (Form SB-1, October 20, 1997,
Registration No. 333-33675, Exhibit 6.23)
10.24* - Form of Warrant Agreement, dated as of October 24, 1997 between
the Company and the Underwriter (Form SB-1, October 20, 1997,
Registration No. 333-33675, Exhibit 6.24)
10.25* - Agreement, dated as of March 5, 1997, between the Company and
Jerome J. Congleton (Form SB-1, October 20, 1997, Registration
No. 333-33675, Exhibit 6.25)
10.26* - Royalty Agreement, dated as of July 1, 1997, between the Company
and Jerome J. Congleton (Form SB-1, October 20, 1997,
Registration No. 333-33675, Exhibit 6.26)
10.27* - Assignment, dated as of August 27, 1997, executed by the Company
(Form SB-1, October 20, 1997, Registration No. 333-33675, Exhibit
6.27)
10.28* - Assignment, dated as of September 15, 1997, between the Company
and Texas A&M University System (Form SB-1, October 20, 1997,
Registration No. 333-33675, Exhibit 6.28)
10.29* - Assignment, dated as of August 27, 1997, executed by Jerome J.
Congleton (Form SB-1, October 20, 1997, Registration No.
333-33675, Exhibit 6.29)
10.30* - Loan Agreement, dated as of April 30, 1996 between the Company and
Commerce National Bank (Form SB-1, October 20, 1997, Registration
No. 333-33675, Exhibit 6.30)
10.31* - Loan Agreement, dated as of April 30, 1996, between the Company
and Commerce National Bank (Form SB-1, October 20, 1997,
Registration No. 333-33675, Exhibit 6.31)
10.32* - First Amendment to Loan Agreement, dated as of October 10, 1997,
between the Company and Compass Bank (Form SB-1, October 20, 1997,
Registration No. 333-33675, Exhibit 6.32)
10.33* - Second Amendment to Loan Agreement, dated as of October 14, 1997,
between the Company and Comerica Bank-Texas (Form SB-1, October 20,
1997, Registration No. 333-33675, Exhibit 6.33)
10.34* - Third Amendment to Loan Agreement, dated as of October 14, 1997
between the Company and Comerica Bank-Texas (Form 10-KSB, June 30,
1998, Exhibit 10.34)
10.35* - Bill of Sale and Release Agreement, dated as of May 17, 1999,
between the Company and David W. Campbell.
10.36(1) - Employment Agreement, dated as of March 1, 2000, between
the Company and Jaye E. Congleton
10.37(1) - Employment Agreement, dated as of March 1, 2000, between the Company
and Mark E. Benden
10.38(1) - Employment Agreement, dated as of March 1, 2000, between the Company
and Thomas G. Peterson
10.39 - Commercial Loan Agreement, dated as of August 21, 2000, between the
Company and Compass Bank
23.1 - Consent of Deloitte & Touche LLP
27.1 - Financial Data Schedule
--------
* Incorporated herein by reference
(1) This exhibit is a management contract or compensatory plan or
agreement.

X-2