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 JULY 3, 1999.
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
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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 - 2,495,400 shares as of July 31, 1999.
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<PAGE>
INDEX
SPAN-AMERICA MEDICAL SYSTEMS, INC.
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
- ------- ---------------------
<S> <C>
Item 1. Financial Statements (Unaudited) <C>
Balance Sheets - July 3, 1999 and October 3, 1998............................................................ 3
Statements of Income - three and nine months ended July 3, 1999 and June 27, 1998............................ 4
Statements of Cash Flows - nine months ended July 3, 1999 and June 27, 1998.................................. 5
Notes to Financial Statements - July 3, 1999................................................................. 6
Item 2. Management's Discussion and Analysis of Interim
Financial Condition and Results of Operations................................................................ 9
PART II. OTHER INFORMATION........................................................................................... 13
- ---------------------------
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............................................................................................................ 14
- ----------
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
---------------------
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
SPAN-AMERICA MEDICAL SYSTEMS, INC.
BALANCE SHEETS
July 3, Oct. 3
1999 1998
(Unaudited) (Note)
----------- ------
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents $1,087,714 $ 1,121,437
Securities available for sale 2,460,495 2,602,056
Accounts receivable, net of allowances of $358,000 at July 3,
1999 and $429,000 at October 3, 1998 3,174,976 4,809,352
Due from sale of discontinued operation 566,270
Inventories - Note D 2,264,881 2,117,994
Prepaid expenses and other 282,264 312,929
Income tax refund due 400,000
----------- -----------
Total current assets 9,836,600 11,363,768
Property and equipment, net - Note E 3,554,820 3,821,735
Costs in excess of fair value of net assets acquired,
net of accumulated amortization of $696,063 at July 3,
1999 and $585,496 at October 3, 1998 2,255,833 2,366,400
Other assets - Note F 1,911,639 1,860,417
----------- -----------
$17,558,892 $19,412,320
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,242,282 $ 1,549,232
Accrued and sundry liabilities 928,904 1,065,999
---------- ---------
Total current liabilities 2,171,186 2,615,231
Deferred income taxes and compensation 1,253,402 1,100,681
Shareholders' Equity
Common Stock, no par value, 20,000,000 shares authorized; issued and outstanding
shares 2,495,400 at July 3, 1999 and
2,820,029 shares at October 3, 1998 - 1,426,079
Additional paid-in capital - 67,463
Retained earnings 14,134,304 14,202,866
----------- -----------
Total shareholders' equity 14,134,304 15,696,408
----------- -----------
$17,558,892 $19,412,320
=========== ===========
Note: The Balance Sheet at October 3, 1998 has been derived from the audited financial statements at that date.
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
SPAN-AMERICA MEDICAL SYSTEMS, INC.
STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine months Ended
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
-------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales $5,619,535 $7,396,976 $17,296,204 $21,130,329
Cost of goods sold 4,087,701 5,122,393 12,564,314 14,488,679
--------- -------- ---------- --------
Gross profit 1,531,834 2,274,583 4,731,890 6,641,650
Selling and marketing expenses 1,089,627 1,143,982 3,291,432 3,311,914
General and administrative expenses 596,120 551,671 1,646,726 1,744,847
---------- ---------- ---------- ----------
Operating income (loss) (153,913) 578,930 (206,268) 1,584,889
Other income:
Investment income and other 75,803 104,884 249,714 317,041
----------- ---------- --------- ----------
Income (loss) before income taxes
and discontinued operations (78,110) 683,814 43,446 1,901,930
Provision for income taxes (27,000) 253,000 16,000 704,000
----------- ---------- --------- ----------
Income (loss) from continuing operations (51,110) 430,814 27,446 1,197,930
Discontinued operations - Note B
Income from discontinued operations
net of income taxes: 153,530
Gain on disposal of business net
of income taxes 365,270 - 365,270 -
---------- ---------- ---------- -----------
365,270 - 365,270 153,530
NET INCOME $ 314,160 $ 430,814 $ 392,716 $ 1,351,460
============ =========== ============ =============
Earnings per share of common
stock - Note C
Income (loss) from continuing operations:
Basic $(.02) $.15 $.01 $.40
Diluted $(.02) $.15 $.01 $.39
Income from discontinued operations
net of income taxes:
Basic $.15 $.00 $.14 $.05
Diluted $.15 $.00 $.14 $.05
Net income:
Basic $.13 $.15 $.15 $.45
Diluted $.13 $.15 $.15 $.44
Dividends per common share $.025 $.025 $.075 $.075
Weighted averages shares outstanding
Basic 2,504,760 2,823,337 2,609,514 2,973,745
Diluted 2,507,486 2,946,837 2,636,488 3,089,339
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
SPAN-AMERICA MEDICAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months Ended
-----------------
July 3, June 27,
1999 1998
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 392,716 $1,351,460
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 578,850 706,008
Gain on disposal of business (365,270)
Provision for losses on accounts receivable 86,223 29,000
Change in cash value of life insurance (143,193) (88,128)
Deferred compensation (9,279) (5,148)
Changes in operating assets and liabilities:
Accounts receivable 1,569,714 477,417
Inventory (146,887) (104,333)
Prepaid expenses and other current assets 117,567 135,461
Income tax refund due 400,000
Accounts payable and accrued expenses (483,045) (1,521,148)
----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,997,396 980,589
INVESTING ACTIVITIES
Sale of Contract Packaging 1,842,300
Purchases of marketable securities (1,010,000) (3,577,696)
Proceeds from the sale of marketable securities 1,130,000 3,385,382
Purchases of property, plant and equipment (121,824) (531,417)
Payments for other assets (34,475) (21,791)
----------- -----------
NET CASH (USED FOR)/PROVIDED BY
INVESTING ACTIVITIES (36,299) 1,096,778
FINANCING ACTIVITIES
Dividends paid (201,136) (226,753)
Common Stock issued upon exercise of options 138,250 120,500
Purchase and retirement of Common Stock (1,931,934) (2,797,416)
------------ -------------
NET CASH (USED FOR) FINANCING ACTIVITIES (1,994,820) (2,903,669)
------------ ------------
(DECREASE) IN CASH AND CASH EQUIVALENTS (33,723) (826,302)
Cash and cash equivalents at beginning of period 1,121,437 1,605,474
---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,087,714 $ 779,172
============ ==========
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
SPAN-AMERICA MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
July 3, 1999
NOTE A - BASIS OF PRESENTATION
---------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine month periods ended July 3,
1999 are not necessarily indicative of the results that may be expected for the
year ended October 2, 1999. For further information, refer to the Company's
annual report on Form 10-K for the year ended October 3, 1998.
NOTE B - SALE OF CONTRACT PACKAGING BUSINESS UNIT
----------------------------------------
On February 27, 1998, the Company sold substantially all of the assets of its
contract packaging business unit. The purchase price for the contract packaging
assets was $2.3 million, with $1.84 million paid in cash at closing and the
remainder financed by Span-America over five years. No gain or loss was recorded
as a result of the sale due to the uncertainty of collectibility of the amount
financed. The Company's results for the nine months ended June 27, 1998 have
been restated to reflect the contract packaging business as a discontinued
operation.
The Company's earnings for the third quarter of fiscal 1999 include a one-time
gain of $365,270, net of income taxes, or $0.15 per diluted share related to
this sale. The purchasers of the business unit chose an early payment option on
an outstanding warrant and note due to the Company. Because the Company assigned
no value to the amount of the note and warrants at closing, the early payment
resulted in a one-time gain. The gain, net of taxes, is shown as income from
discontinued operations.
Operating results of the discontinued contract packaging operations are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
--------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales - - - $3,170,055
Income before income taxes - - - 244,530
Gain on sale of business unit $566,270 - $566,270 -
Provision for income taxes 201,000 - 201,000 91,000
--------------------------------------------------------
Income from discontinued operations $365,270 - $365,270 $ 153,530
=========================================================
</TABLE>
NOTE C - EARNINGS PER COMMON SHARE
-------------------------
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, EARNINGS PER SHARE. Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the previously
6
<PAGE>
NOTE C - EARNINGS PER COMMON SHARE, continued
--------------------------
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where necessary, restated to conform to the
Statement 128 requirements.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
--------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings per share:
Income (loss) from continuing operations $(51,110) $430,814 $27,446 $1,197,930
Income from discontinued operations,
net of income taxes 365,270 0 365,270 153,530
--------- -------- ------- --------
NET INCOME $314,160 $430,814 $392,716 $1,351,460
========= ======== ======== ==========
Denominator:
Denominator for basic earnings per share
weighted average shares 2,504,760 2,823,337 2,609,514 2,973,745
Effect of dilutive securities:
Employee and Board stock options 2,726 123,500 26,974 115,594
--------- ---------- --------- ---------
Denominator for diluted earnings per share
adjusted weighted average shares
and assumed conversions 2,507,486 2,946,837 2,636,488 3,089,339
========= ========= ========= =========
Income (loss) from continuing operations:
Basic $(.02) $.15 $.01 $.40
Diluted $(.02) $.15 $.01 $.39
Income from discontinued operations net of income taxes:
Basic $.15 $.00 $.14 $.05
Diluted $.15 $.00 $.14 $.05
Net income (loss):
Basic $.13 $.15 $.15 $.45
Diluted $.13 $.15 $.15 $.44
NOTE D - INVENTORIES
-----------
The components of inventories are as follows:
July 3, Oct. 3,
1999 1998
------- -------
Raw Materials $1,603,672 $1,568,262
Finished Goods 661,209 549,732
----------- ----------
$2,264,881 $2,117,994
========== ==========
</TABLE>
7
<PAGE>
NOTE E - PROPERTY AND EQUIPMENT
----------------------
Property and equipment, at cost, is summarized by major classification as
follows:
July 3, Oct. 3,
1999 1998
---- ----
Land $ 317,343 $ 317,343
Land Improvements 240,016 240,016
Buildings 3,697,676 3,642,151
Machinery & Equipment 5,309,145 5,242,846
Furniture & Fixtures 517,552 517,552
Automobiles 9,520 9,520
Leasehold Improvements 66,006 66,006
------------- --------------
10,157,258 10,035,434
Less Accumulated Depreciation 6,602,438 6,213,699
----------- ---------
$ 3,554,820 $ 3,821,735
=========== ===========
NOTE F - OTHER ASSETS
------------
Other assets consist of the following:
July 3, Oct. 3,
1999 1998
---- ----
Patents, net of accumulated
amortization of $766,299 at
July 3, 1999 and $686,755 at
October 3, 1998 $ 497,625 $ 542,695
Cash value of life insurance
policies 1,366,684 1,223,491
Other 47,330 94,231
----------- -------------
$1,911,639 $1,860,417
========== ==========
NOTE G - CONTINGENCIES
-------------
From time to time the company is a defendant in legal actions involving claims
arising in the normal course of business. The company believes that, as a result
of legal defenses, insurance arrangements and indemnification provisions with
the parties believed to be financially capable, none of these actions should
have a material effect on its operations or its financial condition.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
On February 27, 1998 the Company sold substantially all of the assets of its
contract packaging business unit. The Company's results for fiscal 1998 have
been restated to reflect the sale of the contract packaging business as a
discontinued operation. The Company's earnings for the third quarter of fiscal
1999 include a one-time gain from this sale of $365,270, net of income taxes, or
$0.15 per diluted share. The purchasers of the business unit chose an early
payment option on an outstanding warrant and note due to the Company. Because
the Company assigned no value to the amount of the note or warrant at closing,
the early payment resulted in a one-time gain. The gain, net of taxes, is shown
as income from discontinued operations.
During the first quarter of 1999 the Company closed its consumer foam plant and
consolidated those operations into the Company's primary manufacturing plant in
Greenville, SC. As a result of this change the company will now report on two
segments of business: medical and custom products. The custom products segment
includes those products formerly reported in the consumer and industrial product
segments.
Net sales from continuing operations for the third quarter of fiscal 1999
declined 24% to $5.6 million compared with $7.4 million in the same quarter of
fiscal 1998. For the year to date in fiscal 1999, net sales from continuing
operations decreased 18% to $17.3 million from $21.1 million in the same period
last year. The decreases in sales for both the quarter and year to date were
primarily due to lower sales in the custom products segment, resulting from two
discontinued lines of consumer foam mattress pads last year.
Net income for the third quarter of 1999, which includes the gain on
discontinued operations discussed above, decreased to $314,200 or $0.13 per
diluted share, compared with $430,800 or $0.15 per diluted share, in the third
quarter of fiscal 1998. From continuing operations, the Company recorded a loss
in the third quarter of $51,100 or $0.02 per diluted share compared with income
from continuing operations of $430,800, or $0.15 per diluted share in the third
quarter of 1998. The earnings decline in the third quarter resulted primarily
from lower sales volume.
Net income from continuing operations for the first nine months of fiscal 1999
was $27,400, or $0.01 per diluted share, compared with $1.2 million or $0.39 per
diluted share in the same period of fiscal 1998. The year-to-date decrease in
earnings was mainly due to the lower sales volume during the period. Including
income from discontinued operations, net income for the first nine months of
fiscal 1999 was $392,700 or $0.15 per diluted share, compared with $1.35
million, or $0.44 per diluted share, in the first nine months of fiscal 1998.
The Company's medical sales were down $680,000 (16%) to $3.5 million in the
third quarter of fiscal 1999 compared with the same quarter last year. Sales of
patient positioners and seating products were up slightly for the quarter
compared with the third quarter last year. However, these increases were offset
by declines in overlay and mattress sales. Management believes that
9
<PAGE>
the lower mattress sales in the third quarter were related to the implementation
of the Perspective Payment System in the long-term care industry. For the year
to date in fiscal 1999, medical sales declined by 5% to $11.2 million from $11.9
million in the same period last year due to lower unit volume of overlays.
Mattress sales increased 8% for the year-to-date period, but the increase was
offset by lower overlay sales. Management expects that sales of medical products
in 1999 will be lower than those of fiscal 1998.
Sales of custom products declined by $1.1 million (34%) during the third quarter
to $2.1 million from $3.2 million in the same period last year. Fiscal 1999
year-to-date sales of custom products decreased 35% to $6.1 million from $9.3
million last year. The sales declines for the third quarter and year to date
were caused by two discontinued consumer product lines and lower sales of
TerryFoam products. The weakness in consumer product sales was somewhat offset
by higher unit sales of industrial products, which grew 12% to $3.4 million for
the first nine months of fiscal 1999 compared with the same period in 1998. The
growth in industrial sales was the result of new customers and continued healthy
demand from existing customers. Management expects sales of custom products in
fiscal 1999 to be less than those of fiscal year 1998 levels because of the
discontinued consumer product lines discussed above.
The Company's gross profit declined by approximately 33% to $1.5 million for the
third quarter of fiscal 1999 from $2.3 million in the third quarter of fiscal
1998. Year-to-date gross profit declined 29% to $4.7 million in the first nine
months of fiscal 1999 from $6.6 million for the same period last year. The gross
margin percentage for the third quarter and year to date during fiscal 1999
declined to 27% compared with 31% for the same periods last year. The decreases
in gross profit level and gross margin percentage resulted from lower sales
volume and slightly higher manufacturing costs during the first two quarters of
fiscal 1999. Management expects the Company's gross margin percentage for fiscal
1999 to be lower than that of fiscal 1998.
Sales and marketing expenses declined 5% to $1.1 million for the third quarter
of fiscal 1999 compared with the same quarter last year. The decline was due to
lower selling expenses in the custom products segment partially offset by higher
selling expenses in the medical segment. For the year to date in fiscal 1999,
these expenses remained level at $3.3 million compared with the same period last
year. Total sales and marketing expenses for fiscal 1999 are expected to be
similar to those of fiscal 1998.
General and administrative expenses increased 8% for the third quarter of fiscal
1999 to $596,000 compared with $552,000 in the third fiscal quarter of last
year. The increase during the quarter was due to higher professional fees and
bad debt expense. For the fiscal year to date in 1999 general and administrative
expenses were down 6% to $1.6 million compared with $1.7 million in the first
nine months of fiscal 1998. The decline in general and administrative expenses
for the nine months ended July 3, 1999 resulted from lower general insurance
costs and an increase in the cash value of life insurance. General and
administrative expenses for the 1999 fiscal year are expected to be slightly
lower than those of fiscal 1998.
During the first nine months of fiscal 1999, the Company paid dividends of
$201,100, or 64% of net income for the year-to-date period. This amount
represented three quarterly dividends of $0.025 per share.
10
<PAGE>
The statements contained in "Results of Operations" which are not historical
facts are forward-looking statements that involve risks and uncertainties.
Management wishes to caution the reader that these forward-looking statements
such as the Company's expectations for future sales and expense levels compared
with previous periods are forecasts. Actual events or results may differ
materially as a result of risks facing the Company. Such risks include but are
not limited to: (a) the loss of a major distributor of the Company's products,
(b) the inability to achieve anticipated sales volumes, (c) changes in
relationships with large customers, (d) the impact of competitive products and
pricing, (e) government reimbursement changes in the medical market, (f) FDA
regulation of medical device manufacturing, (g) raw material and labor cost
increases, and (h) other risks referenced in the Company's Annual Report on Form
10-K.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
In connection with the Company's sale of its contract packaging business unit,
all assets relating to that business unit have been reclassified as assets or
liabilities relating to discontinued operations. All assets and liabilities
discussed in this section relate to continuing operations.
The Company generated cash from continuing operations of approximately $2.0
million during the first nine months of fiscal 1999. The Company's working
capital decreased by $1.1 million or 12% during the nine months ended July 3,
1999. The reduction was due to a lower level of accounts receivable and the
Company's repurchase of stock as discussed below. The Company's current ratio
increased to 4.5 at July 3, 1999 from 4.3 at fiscal year end 1998.
Accounts receivable, net of allowances, decreased 34% to $3.2 million at the end
of the third quarter of 1999 compared with $ 4.8 million at the end of fiscal
1998 due to the discontinued consumer product lines mentioned above, and the
collection of related accounts receivable. All of the Company's accounts
receivable are unsecured.
The Company recorded an account receivable of $566,270 from the purchaser of the
contract packaging business unit at the end of the third quarter of fiscal 1999
in connection with the one-time gain discussed above from the sale of that
business unit. These funds were received in July 1999.
Inventory increased 7% or 147,000 to $2.3 million at the end of the third
quarter of fiscal 1999 compared with the previous year-end. Management expects
little change in inventory levels during the remainder of fiscal 1999.
Net property and equipment decreased by $267,000, or 7%, during the first nine
months of fiscal 1999 primarily as a result of normal depreciation expense.
Management expects minimal capital expenditures during the remainder of fiscal
1999.
In various transactions during the first nine months of fiscal 1999, the Company
repurchased 364,629 shares, of its common stock for approximately $1.9 million
($4.125 to $6.06 per share) in private transactions from unaffiliated sellers.
The repurchased shares were retired.
11
<PAGE>
Accrued and sundry liabilities decreased by $137,100 (13%) to $ 928,900 compared
with $1.1 million at fiscal year end 1998 primarily due to a decrease in accrued
property taxes and income taxes payable.
Management believes that funds on hand, funds generated from operations, and
funds available under the Company's $2.5 million unused line of credit are
adequate to finance operations and expected capital requirements during the next
twelve months.
IMPACT OF INFLATION
- -------------------
Inflation was not a significant factor for the Company during the first three
quarters of fiscal 1999. Higher inflation rates could impact the Company
primarily through higher raw material and labor costs. The Company's profit
margin could be adversely affected to the extent that the Company is unable to
pass along to its customers any increased costs.
YEAR 2000
- ---------
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculations causing
disruptions of operations, including, among other things a temporary inability
to process transactions, send invoices or engage in similar normal business
activities. In addition, disruptions to the economy generally resulting from
Year 2000 could adversely affect the company.
The Company has fully completed its assessment, remediation, testing and
implementation of all significant information technology systems that could be
affected by the year 2000. The Company has also conducted a review of its
product lines and has determined that most of the products it has sold and will
continue to sell do not require modification to be Year 2000 compliant.
The Company has not incurred substantive Year 2000 costs and does not anticipate
any substantive Year 2000 costs in the future.
The Company has been in contact with suppliers and major customers to confirm
that they are or will be Year 2000 compliant. The Company does not directly
interface with any significant third party vendors. To date, the company is not
aware of any external agent with a Year 2000 issue that would materially impact
the company's results of operations, liquidity or capital resources. However,
the company has no means of ensuring that external agents will be Year 2000
ready. The inability of external agents to complete their Year 2000 resolution
process in a timely fashion could materially impact the company. The effect of
non-compliance by external agents is not determinable.
Management of the Company believes it has resolved its material Year 2000
issues. In the event that unexpected Year 2000 issues arise, the company has
contingency plans for certain critical
12
<PAGE>
applications. These contingency plans involve, among other actions, manual
workarounds, increasing inventories and adjusting staffing strategies.
PART II. OTHER INFORMATION
-----------------
ITEM 1. Legal Proceedings
The Company is from time to time a party to various legal actions
arising in the normal course of business. However, management believes
that as a result of legal defenses and insurance arrangements, there
are no proceedings threatened or pending against the Company that, if
determined adversely, would have a material adverse effect on the
business or the Company's operations or financial position.
ITEM 2. Changes in Securities - None
ITEM 3. Defaults Upon Senior Securities - None
ITEM 4. Submission of Matters to a Vote of Security Holders - None
ITEM 5. Other Information - None
ITEM 6. Exhibits & Reports on Form 8-K
(a) Exhibit 27 Financial Data Schedule
(For SEC Use Only)
(b) None
13
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
SPAN-AMERICA MEDICAL SYSTEMS, INC.
/s/ Richard C. Coggins
-------------------------
Richard C. Coggins
Vice President - Finance
/s/ James D. Ferguson
-------------------------
James D. Ferguson
President and Chief Executive Officer
DATE: August 12, 1999
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-END> JUL-03-1999
<CASH> 1,088
<SECURITIES> 2,460
<RECEIVABLES> 4,099
<ALLOWANCES> 358
<INVENTORY> 2,265
<CURRENT-ASSETS> 9,837
<PP&E> 10,157
<DEPRECIATION> 6,602
<TOTAL-ASSETS> 17,559
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0
0
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<EPS-BASIC> .15
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</TABLE>
