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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
___________________________________

FORM 10-Q
____________________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.

For the Quarterly Period Ended January 1, 2005

OR

TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From _________ to ________.

Commission File Number 0-11392

SPAN-AMERICA MEDICAL SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)

South Carolina
  
57-0525804
(State or other jurisdiction of
  
(I.R.S. Employer
incorporation or organization)
  
Identification Number)

70 Commerce Center
Greenville, South Carolina 29615
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (864) 288-8877

Not Applicable
Former name, former address and former fiscal year, if changed since last report.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods 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  

APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the latest practical date.
Common Stock, No Par Value - 2,593,768 shares as of 1/31/05

  
     
 


INDEX

SPAN-AMERICA MEDICAL SYSTEMS, INC.


PART I.
  
FINANCIAL INFORMATION
    
         
Item 1.
  
Financial Statements (Unaudited)
    
         
   
Balance Sheets - January 1, 2005 and October 2, 2004
 
3
         
   
Statements of Income - Three months ended January 1, 2005 and January 3, 2004
  
4
 
        
   
Statements of Cash Flows - Three months ended January 1, 2005 and January 3, 2004
  
5
         
   
Notes to Financial Statements - January 1, 2005
  
6
         
Item 2.
  
Management's Discussion and Analysis of Interim Financial Condition and Results of Operations
  
10
         
Item 3.
  
Market Risk
  
15
         
Item 4.
  
Controls and Procedures
  
15
         
PART II.
 
OTHER INFORMATION
  
16
         
Item 1.
  
Legal Proceedings
    
Item 2.
  
Changes in Securities
    
Item 3.
  
Defaults upon Senior Securities
    
Item 4.
  
Submission of Matters to a Vote of Security Holders
    
Item 5.
  
Other Information
    
Item 6.
  
Exhibits and Reports on Form 8-K
    
         
SIGNATURES
  
18
         
OFFICER CERTIFICATIONS
  
19


 
  2  
 

Span-America Medical Systems, Inc.
Balance Sheets
    January 1,
2005
(Unaudited)		   October 2,
2004
( Note)		  
Assets
          
Current assets:
          
Cash and cash equivalents
  
$
2,449,406
  
$
1,707,598
  
Securities available for sale
    
4,367,216
   
4,673,528
 
Accounts receivable, net of allowances of $499,000
              
(Jan. 1, 2005) and $323,000 (Oct. 2, 2004)
    
5,906,004
   
6,432,086
 
Inventories (Note 2)
    
3,104,987
   
2,717,573
 
Prepaid expenses and deferred income taxes
    
590,343
   
912,404
 
Total current assets
    
16,417,956
   
16,443,189
 
               
Property and equipment, net (Note 3)
    
6,174,825
   
6,184,786
 
Cost in excess of fair value of net assets acquired,
              
net of accumulated amortization of $1,027,765 (Jan. 1, 2005
              
and Oct. 2, 2004)
    
1,924,131
   
1,924,131
 
Other assets (Note 4)
    
2,572,315
   
2,362,819
 
   
$
27,089,227
  
$
26,914,925
  
               
Liabilities and Shareholders' Equity
              
Current liabilities:
              
Accounts payable
  
$
2,280,182
  
$
2,570,352
  
Accrued and sundry liabilities
    
2,314,344
   
2,249,898
 
Dividends declared
    
1,037,507
   
-
 
Total current liabilities
    
5,632,033
   
4,820,250
 
               
Deferred income taxes
    
776,000
   
776,000
 
Deferred compensation
    
891,610
   
899,283
 
               
Contingencies (Note 8)
              
               
Shareholders' equity
              
Common stock, no par value, 20,000,000 shares
              
authorized; issued and outstanding shares 2,593,768
              
at Jan. 1, 2005 and 2,592,218 at Oct. 2, 2004
    
570,733
   
557,856
 
Additional paid in capital
    
19,297
   
19,297
 
Retained earnings
    
19,199,554
   
19,842,239
 
Total shareholders' equity
    
19,789,584
   
20,419,392
 
   
$
27,089,227
  
$
26,914,925
  
 
See accompanying notes.
 
Note: The Balance Sheet at October 2, 2004 has been derived from the audited financial statements at that date.

 
  3  
 
 

Span-America Medical Systems, Inc.
Statements of Income
(Unaudited)
     
Three Months Ended
  
     
 
January 1,
2005
    
 
January 3,
2004
  
               
Net sales
  
$
10,777,400
  
$
11,508,513
  
Cost of goods sold
    
7,518,708
   
8,606,742
 
Gross profit
    
3,258,692
   
2,901,771
 
               
Selling and marketing expenses
    
1,780,705
   
1,609,576
 
Research and development expenses
    
240,633
   
170,970
 
General and administrative expenses
    
625,112
   
630,871
 
     
2,646,450
   
2,411,417
 
               
Operating income
    
612,242
   
490,354
 
               
Non-operating income:
              
Investment income
    
22,542
   
17,015
 
Royalty income
    
131,834
   
141,339
 
Other
    
901
   
843
 
 
    
155,277
   
159,197
 
               
Income before income taxes
    
767,519
   
649,551
 
Provision for income taxes
    
269,000
   
228,000
 
Net income
  
$
498,519
  
$
421,551
  
               
Net income per share of common stock (Note 6):
              
Basic
  
$
0.19
  
$
0.16
  
Diluted
  
$
0.18
  
$
0.16
  
               
Dividends per common share
  
$
0.440
  
$
0.035
  
               
Weighted average shares outstanding:
              
Basic
    
2,592,591
   
2,561,556
 
Diluted
    
2,734,992
   
2,704,784
 
 
See accompanying notes.

 
  4  
 
 
Span-America Medical Systems, Inc.
Statements of Cash Flows
(Unaudited)
    Three Months Ended  
    January 1,
2005		   January 3,
2004		  
Operating activities:
          
Net income
  
$
498,519
  
$
421,551
  
Adjustments to reconcile net income to net
              
cash provided by operating activities:
              
Depreciation and amortization
    
202,169
   
161,689
 
Provision for losses on accounts receivable
    
(3,575
)
  
(12,400
)
Increase in cash value of life insurance
    
(68,049
)
  
(86,400
)
Deferred compensation
   
(7,673
)
  
(7,105
)
Changes in operating assets and liabilities:
              
Accounts receivable
    
525,968
   
656,616
 
Inventory
    
(387,414
)
  
52,675
 
Prepaid expenses and other assets
    
254,580
   
24,618
 
Accounts payable and accrued expenses
    
(213,747
)
  
(66,579
)
Net cash provided by operating activities
    
800,778
   
1,144,665
 
               
Investing activities:
              
Purchases of marketable securities
    
(1,000,000
)
  
(800,000
)
Proceeds from sale of marketable securities