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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 April 2, 2005
 
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  
   
 
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes       No   X  
 
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 - 2,611,768 shares as of 5/3/05
 
 
INDEX
 
SPAN-AMERICA MEDICAL SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
  
     
Item 1. Financial Statements (Unaudited)
  
     
Balance Sheets - April 2, 2005 and October 2, 2004
3
     
Statements of Income - Three and six months ended April 2, 2005 and April 3, 2004
4
 
    
Statements of Cash Flows - Six months ended April 2, 2005 and April 3, 2004
5
     
Notes to Financial Statements - April 2, 2005
6
     
Item 2. Management's Discussion and Analysis of Interim Financial Condition and Results of Operations
11
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk
16
     
Item 4. Controls and Procedures
17
     
PART II. OTHER INFORMATION
17
     
Item 1.
Legal Proceedings
  
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
  
Item 3.
Defaults upon Senior Securities
  
Item 4.
Submission of Matters to a Vote of Security Holders
  
Item 5.
Other Information
  
Item 6.
Exhibits
  
     
SIGNATURES
  
18
     
OFFICER CERTIFICATIONS
19
 
2

Span-America Medical Systems, Inc.
         
Balance Sheets
          
   
April 2,
 
October 2,
 
 
 
2005
 
2004
 
 
 
(Unaudited)
 
( Note)
  
Assets
          
Current assets:
          
Cash and cash equivalents
  
$
1,125,668
  
$
1,707,598
  
Securities available for sale
    
4,662,204
   
4,673,528
 
Accounts receivable, net of allowances of $559,100 at
              
April 2, 2005 and $323,000 at October 2, 2004 (Note 2)
    
6,133,272
   
6,432,086
 
Inventories (Note 3)
    
2,908,321
   
2,717,573
 
Prepaid expenses and deferred income taxes
    
578,393
   
912,404
 
Total current assets
    
15,407,858
   
16,443,189
 
               
Property and equipment, net (Note 4)
    
6,512,359
   
6,184,786
 
Cost in excess of fair value of net assets acquired,
              
net of accumulated amortization of $1,027,765 (April 2, 2005
              
and October 2, 2004)
    
1,924,131
   
1,924,131
 
Other assets (Note 5)
    
2,612,547
   
2,362,819
 
   
$
26,456,895
  
$
26,914,925
  
               
Liabilities and Shareholders' Equity
              
Current liabilities:
              
Accounts payable
  
$
2,599,815
  
$
2,570,352
  
Accrued and sundry liabilities
    
1,775,663
   
2,249,898
 
Total current liabilities
    
4,375,478
   
4,820,250
 
               
Deferred income taxes
    
776,000
   
776,000
 
Deferred compensation
    
883,323
   
899,283
 
               
Contingencies (Note 9)
              
               
Shareholders' equity
              
Common stock, no par value, 20,000,000 shares
              
authorized; issued and outstanding shares 2,611,768
              
at April 2, 2005 and 2,592,218 at October 2, 2004
    
707,015
   
557,856
 
Additional paid-in capital
    
19,297
   
19,297
 
Retained earnings
    
19,695,782
   
19,842,239
 
Total shareholders' equity
    
20,422,094
   
20,419,392
 
   
$
26,456,895
  
$
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
 
Six Months Ended
 
 
 
April 2,
 
April 3,
 
April 2,
 
April 3,
 
 
 
2005
 
2004
 
2005
 
2004
  
                   
Net sales
  
$
12,954,944
  
$
12,868,835
  
$
23,732,344
  
$
24,377,348
  
Cost of goods sold
    
9,108,907
   
9,491,233
   
16,627,615
   
18,097,975
 
Gross profit
    
3,846,037
   
3,377,602
   
7,104,729
   
6,279,373
 
                           
Selling and marketing expenses
    
1,957,575
   
1,879,143
   
3,738,280
   
3,488,719
 
Research and development expenses
    
323,703
   
161,403
   
564,336
   
332,373
 
General and administrative expenses
    
803,107
   
738,380
   
1,428,219
   
1,369,252
 
     
3,084,385
   
2,778,926
   
5,730,835
   
5,190,344
 
                           
Operating income
    
761,652
   
598,676
   
1,373,894
   
1,089,029
 
                           
Non-operating income:
                          
Investment income
    
20,298
   
12,122
   
42,840
   
29,137
 
Royalty income
    
138,332
   
156,477
   
270,167
   
297,817
 
Other
    
697
   
771
   
1,597
   
1,614
 
 
    
159,327
   
169,370
   
314,604
   
328,568
 
                           
Income before income taxes
    
920,979
   
768,046
   
1,688,498
   
1,417,597
 
Provision for income taxes
    
321,000
   
270,000
   
590,000
   
498,000
 
Net income
  
$
599,979
  
$
498,046
  
$
1,098,498
  
$
919,597
  
                           
Net income per share of common stock (Note 7):
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