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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended October 3, 1998
OR
[ ] 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 0-11392
SPAN-AMERICA MEDICAL SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
South Carolina 57-0525804
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
70 Commerce Center
Greenville, South Carolina 29615
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(Address of principal executive offices)
Registrant's telephone number, including area code: (864) 288-8877
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
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Common Stock, no par value
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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 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant computed by reference to the last price at which the stock was
sold on December 17, 1998 was $13,442,330.
The number of shares of the registrant's common stock, no par value,
outstanding as of December 17, 1998 was 2,617,929.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Annual Report to Shareholders are incorporated by
reference into Parts I and II, and portions of the Company's Definitive Proxy
Statement for the annual shareholder's meeting to be held January 28, 1999 are
incorporated by reference into Part III.
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PART I
Item 1. Business
BACKGROUND
Span-America Medical Systems, Inc. (the "Company" or "Span-America") was
incorporated under the laws of the state of South Carolina on September 21,
1970. The Company manufactures and distributes a variety of polyurethane foam
products for the medical, consumer and industrial markets.
Span-America commenced operations in 1975 as a manufacturer of
polyurethane foam patient positioners. During the next several years, the
Company expanded its product lines to produce lapidus (flat foam) and convoluted
foam mattress overlays for the wound care market. Wound care products aid in the
treatment or prevention of decubitus ulcers, commonly known as bed sores or
pressure ulcers. In the late 1970's the Company also began producing foam
products for industrial applications, primarily to utilize excess manufacturing
capacity. In 1985, the Company introduced its patented Geo-Matt mattress overlay
in the health care market, which became the Company's leading product. At the
same time, the Company began selling its mattress overlay products to the
consumer market segment.
The Company entered the replacement mattress segment of the pressure ulcer
care market in fiscal 1992 through the acquisition of Healthflex, Inc. The
Company is currently marketing the PressureGuard line of replacement mattresses
directly to hospitals, long-term care facilities, and home health care dealers.
The Company's long-term strategy is to become a leading health care
manufacturer specializing in wound management products used in the prevention
and treatment of pressure ulcers. A majority of the Company's medical products
are currently directed toward wound care applications, and the Company is
actively seeking to develop or acquire new products which are in this market
segment. The Company also seeks to further develop and manufacture consumer and
industrial applications of its medical products.
The Company's products are distributed primarily in the United States and
to a lesser degree in several foreign countries. Total export sales during
fiscal 1998 were approximately $549,000 or 2% of total net sales.
INDUSTRY SEGMENT DATA
On February 27, 1998 the Company sold substantially all of the assets of
its contract packaging business unit. The Company's results for all periods
presented have been restated to reflect the sale of the contract packaging
business as a discontinued operation.
The industry segment data included in Note 17 to the Company's audited
financial statements for the year ended October 3, 1998, presented on pages 20 -
21 of the 1998 Annual Report is incorporated herein by reference.
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MEDICAL PRODUCTS
Span-America's principal medical products consist of support surfaces
(polyurethane foam mattress overlays, non-powered therapeutic replacement
mattresses, and powered therapeutic replacement mattresses), patient
positioners, and seating products. These products are marketed to all health
care settings, including acute care hospitals, long term care facilities, and
home health care providers. The company also sells these products on a limited
basis in Canada. Sales of medical products represented 57% of sales in 1998, 55%
in 1997, and 57% in 1996 respectively.
MATTRESS OVERLAYS. Span-America produces a variety of foam mattress
overlays, including convoluted and lapidus foam pads and its patented
Geo-Matt(R) overlay. Mattress overlays comprised approximately 28% of the
Company's total net sales in fiscal 1998. These products are designed to provide
patients with greater comfort and assist in treating patients suffering from
burns or pressure ulcers. Span-America's overlay products are mattress pads as
compared to complete mattresses and are marketed as less expensive alternatives
to generally higher priced air and water mattresses. The mattress overlays are
designed for single patient use.
The Geo-Matt mattress overlay, which was introduced in 1985, represents
the Company's single largest product in terms of revenues. Geo-Matt was designed
in conjunction with clinical studies performed by the Institute for
Rehabilitation and Research at the Baylor College of Medicine. The product's
patented design includes over 800 individual cells which are cut to exacting
tolerances on computer controlled equipment to create a sophisticated and
clinically effective mattress surface.
The Company's mattress overlays disperse body heat, increase air
circulation beneath the patient, and reduce moisture build-up in order to
prevent the development or promote the healing of pressure ulcers. Their
convoluted or geometrically contoured construction also significantly reduces
shearing faces while evenly distributing the patient's body weight, thereby
minimizing the pressure that causes ulcers.
REPLACEMENT MATTRESSES. Span-America's non-powered therapeutic
replacement mattresses (as distinguished from overlays) are of two types.
Geo-Mattress(R) products are single-density or multi-layered foam mattresses
topped with the same segmented Geo-Matt surface used in the Company's overlays.
These mattresses are sold as an alternative to standard innerspring and all-foam
mattresses found facility-wide in acute and long term care settings. A version
is also made specifically for use in home health care.
The Company's more complex non-powered replacement mattresses consist of
products from the PressureGuard(R) Series. The PressureGuard design was acquired
through the acquisition of Healthflex in February 1992. The original design
combines a polyurethane foam shell and static air cylinders to form a
replacement mattress that incorporates the comfort and pressure relieving
features of both mattress overlays and more sophisticated dynamic mattresses.
This original design, which the company later used as the basis for powered
versions (see below) was further refined via a complete technical upgrade of all
PressureGuard components in
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November 1997. In conjunction with this upgrade, some models were renamed to
better reflect their function.
In addition to the non-powered, static PressureGuard Renew(R)
(formerly PressureGuard II), the company also offers the PressureGuard CFT(R).
This model incorporates patented design principles of constant force technology.
First introduced as the CustomCare mattress in June of 1995, the PressureGuard
CFT is unique in that it is a dynamic support surface that rivals very expensive
powered surfaces, yet requires no power source of any kind.
The company's powered therapeutic replacement mattresses consist of the
remaining models in the PressureGuard Series. In November 1993, the Company
received FDA 510K marketing approval for its PressureGuard IV mattress system.
Building on the comfort and support of the original PressureGuard design,
PressureGuard IV was designed as a sophisticated, powered system for providing
pressure reduction and patient comfort, with the added ability to turn the
patient. The system was designed to automatically sense the patient's weight and
position, and to continually adjust the pressures appropriately while slowly and
quietly repositioning the patient at angles up to 30 degrees in cycles of up to
two hours. The newly upgraded version, renamed the PressureGuard Turn Select(R),
incorporates all of these capabilities, as well as several additional features.
Of particular note is a pendant-operated, microprocessor-controlled motion
system built into the mattress, instead of hanging on the bed frame as a
separate unit.
Another powered system in the PressureGuard line is the PressureGuard
APM(R), a simpler but very effective alternating pressure mattress. Originally
introduced as the DynaGuard(R), in November 1994, the APM is targeted primarily
at the home care market. The latest addition to the PressureGuard line, launched
in November 1997, is the PressureGuard Site Select(R). The Site Select includes
many of the features of the Turn Select, including the built in
microprocessor-controlled motion system. However, instead of turning the
patient, the Site Select is designed to give the caregiver the ability to
selectively adjust the pressure at particular body sites based on patient need.
Like the Turn Select, it is completely programmable through a hand-held pendant.
All of the powered products in the PressureGuard Series are sold primarily
through home health care equipment dealers for daily rental in acute, long term,
and home care settings. During fiscal 1998, replacement mattresses and related
products made up approximately 14% of total net sales.
PATIENT POSITIONERS. Span-America's specialty line of patient positioners
is sold primarily under the trademark Span-Aids(R). Span-Aids accounted for
approximately 14% of the Company's net sales in fiscal 1998. This is the
original product line of the Company and consists of over 300 different foam
items which aid in relieving the basic patient positioning problems of
elevation, immobilization, muscle contracture, foot drop and foot or leg
rotation. Span-Aids patient positioners hold the patient's body in
orthopedically correct positions, provide greater patient comfort and tend to
promote healing for long-term comatose patients or those with a flaccid or
immobilized condition. The positioners also aid in the prevention of pressure
ulcers by promoting more effective dispersion of pressure, heat and moisture.
Span-Aids are intended for single-patient use throughout the patient's entire
treatment program. Among the Span-Aids
3
products presently marketed are abduction pillows, body aligners, head supports,
limb elevators and various foot and wrist positioners.
Span-America's patient positioners are sold primarily to hospitals and
long-term care facilities by several national medical products distributors.
Span-Aids are believed by the Company to be one of the most effective patient
positioning devices available in the health care market, as compared to pillows,
rolled towels and other similar materials traditionally used by nursing
personnel to position immobilized patients. Span-Aids are constructed of
open-cell polyurethane foam which allows air to circulate next to the patient's
skin, thereby reducing extensive heat and moisture build-up.
Most Span-Aids body positioners are pressure packaged to reduce the amount
of storage space required by hospitals and other facilities which utilize them.
This patented packaging method reduces the package size by as much as 75% while
protecting the positioners from dust and contamination during transportation and
storage.
SEATING PRODUCTS. The final category of medical products made by
Span-America consists of seating cushions and related products that address the
needs of the patient when in the seated position. The Company's offerings can be
subdivided into three main types. Seating products made specifically as an aid
to wound healing include the ISCH-DISH(R) and SACRAL DISH(R) pressure relief
cushions. Seating products made for patient positioning and general pressure
management include the ISCH-DISH Thin and the Geo-Matt Contour cushion,
introduced in June 1997, which combines positioning aid with the Company's
proprietary Geo-Matt anti-shearing surface. Seating products designed to address
pressure management without additional positioning benefits include the Gel-T(R)
cushion and the Geo-Matt and Geo-Matt PRT(R) wheelchair cushions. The Gel-T is a
gel/foam combination cushion popular with elderly patients. The Geo-Matt and
Geo-Matt PRT cushions incorporate the Geo-Matt surface.
DISTRIBUTOR RELATIONSHIP. During fiscal 1998, approximately 26% of the
Company's medical foam products were sold to Allegiance Healthcare Corporation
which distributes these products to hospitals nationwide. Span-America has
maintained a distribution relationship with Allegiance (formerly Baxter) for 19
years. In September 1996, Baxter spun off its healthcare distribution and cost
management business to create Allegiance. The Company's distribution agreement
has been transferred to Allegiance, and management expects the change to have no
negative impact on the Company's sales to Allegiance.
CONSUMER PRODUCTS
Span-America's consumer products consist primarily of convoluted mattress
overlays and specially designed pillows for the consumer bedding market. Through
fiscal 1998, the Company's principal consumer mattress overlays were produced
under private labels for Target and J.C. Penney. Products sold to these
customers were distributed through Pillowtex Corporation, a national
manufacturer and marketer of bedding products. In October 1998, the Company
discontinued these two foam overlay product lines because of reduced profit
margins caused by competitive pricing pressures. Sales of the discontinued
product lines represented approximately $4.2 million of the Company's total
sales in fiscal 1998. Management expects to
4
offset the majority of these lost sales with increases in sales of other product
lines. The Company will continue to manufacture and market consumer foam
mattress overlays and consumer foam mattress components to other customers.
In 1990, Span-America introduced its TerryFoam(R) comfort products, which
are designed to be used on all types of outdoor furniture. Formerly produced by
contract manufacturers according to the Company's specifications, these products
are now manufactured by the Company. They are being sold and distributed
directly by Span-America to retailers nationwide.
Consumer products represented approximately 29% of the Company's total net
sales in fiscal 1998 as compared to 33% in 1997 and 30% in 1996.
INDUSTRIAL PRODUCTS
Span-America's industrial products consist primarily of foam packaging and
cushioning materials. The Company also produces foam products which are used for
flotation, sound insulation and gasketing purposes. The majority of these
products are made to order according to customer specifications instead of being
made to stock. To date, most of the Company's industrial sales have been in the
specialty packaging segment of the industrial foam market. The Company currently
has one full-time sales representative and several manufacturers representatives
selling its foam fabrication capabilities to the industrial market. Its
customers represent a wide variety of markets, including the photographic film,
durable goods, electronics and sports equipment industries. The industrial foam
segment of the business made up approximately 14% of the Company's net sales in
fiscal 1998, 12% in 1997 and 13% in 1996.
COMPETITION
MEDICAL. In the medical market segment, the Company faces significant
competition for sales of its foam mattress overlays. The competition for
convoluted mattress overlays is primarily based on price and delivery. For other
foam mattress overlay products (such as the Geo-Matt overlay), the competition
is based mainly on product performance and quality. However, to a lesser extent,
the competition for Geo-Matt type overlays is also based on price and delivery.
Competition with respect to the Company's Span-Aid products is primarily based
on price. However, a secondary source of competition for patient positioners
results from alternative methods such as the use of pillows and other devices to
position patients.
The Company believes that it is among the top five suppliers of foam
mattress overlays and patient positioners to the health care market. The
Company's primary competitors in the overlay and positioner markets are Sunrise
Medical and Graphic Controls.
The competition in the therapeutic replacement mattress market is based on
product performance, price and durability. Potential customers typically select
a product based on these criteria after conducting a formal clinical evaluation
of sample mattresses for periods of one to six months. A secondary source of
competition results from alternative products such as mattress overlays which
are significantly less expensive than replacement mattresses.
5
The market for therapeutic replacement mattresses has developed
principally during the last eight years and is currently dominated by BG
Industries and Hill-Rom. BG Industries utilizes Allegiance to distribute its
mattresses primarily to hospitals. Hill-Rom uses their own sales representatives
to sell directly to hospitals, distributors, and long-term care facilities
nationwide.
Most of the Company's competitors in the health care segment are larger
and have greater resources than Span-America.
CONSUMER. In the consumer market segment, Span-America has encountered
significant competition for its mattress pad and pillow products. The
competition is principally based on price, which is largely determined by foam
density and thickness. However, competition also exists due to variations in
product design and packaging. There are presently a number of companies with the
manufacturing capability to produce similar bedding products. The Company's
primary competitors in this market are Foamex and ER Carpenter, both of which
are larger than Span-America.
INDUSTRIAL. The Company also has a number of competitors in the industrial
foam market, including UFP Technology, Hibco and Foam Design. Some of these
competitors are larger and have greater resources than Span-America. The
competition for industrial foam products is largely based on price. In some
instances, however, design and delivery capabilities are as important as the
price of the product.
MAJOR CUSTOMERS
The Company has a business relationship with Allegiance Healthcare
Corporation ("Allegiance"), formerly Baxter Healthcare Corporation, to
distribute certain of its medical foam products. In fiscal 1998 sales to
Allegiance amounted to approximately 15% of the Company's total net sales and
approximately 26% of the Company's sales to the medical foam segment.
Span-America also had a relationship with Pillowtex Corporation to distribute
certain of its consumer foam products. Sales to Pillowtex during fiscal 1998
made up approximately 15% of the Company's net sales and approximately 52% of
sales in the consumer foam segment.
See "Distributor Relationship" on page 4, and "Competition" on pages 5 and
6 for more information on major customers.
SEASONAL TRENDS
Some seasonality can be identified in certain of the Company's medical and
consumer foam products. However, the fluctuations have minimal effect on the
Company's operations because of offsetting trends among these product lines.
Span-America has not experienced any seasonal fluctuations in its industrial
segment.
The most seasonal of the Company's products is the TerryFoam line of
chaise and chair pads. Demand for shipments of these products generally is
highest in January through April of each year as retail stores begin stocking
their summer merchandise. The impact of this
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seasonality on the Company will depend largely on the volume of sales achieved
for this product line. During previous fiscal years, the seasonality of
TerryFoam products has had only a minor impact on the Company's operations.
PATENTS AND TRADEMARKS
The Company holds 39 federally registered trademarks, including
SPAN-AMERICA, SPAN-AIDS, GEO-MATT, SPAN-CARE, PRESSUREGUARD, and ISCH DISH.
Other federal registration applications are presently pending. The Company
believes that these trademarks are readily identifiable in their respective
markets and add value to the Company's product lines.
The Company also holds 57 United States patents and 5 foreign patents
relating to various components of its patient positioners, mattress overlays,
and replacement mattresses. Additional patent applications have been filed.
Management believes that these patents are important to the Company. However,
while the Company has a number of products covered by patents, there are
competitive alternatives available which are not covered by these patents.
Therefore, the Company does not rely solely on its patents to maintain its
competitive position in the marketplace.
Span-America's principal patents include the patents on its PressureGuard
and CustomCare replacement mattress, its Geo-Matt overlay and its Span-Aids
patient positioners. The Company's Geo-Matt and PressureGuard patents have
remaining lives of 9 and 11 years, respectively. The Company's Span-Aids patents
have remaining lives ranging from 1 to 11 years.
RAW MATERIALS AND BACKLOG
Polyurethane foam and nylon/vinyl mattress covers and tubes account for
approximately 80% of Span-America's raw materials. In addition, the Company uses
corrugated shipping cartons, polyethylene plastic packaging material and
hook-and-loop fasteners. The Company believes that its basic raw materials are
in adequate supply and are available from many suppliers at competitive prices.
As of October 3, 1998, Span-America had unshipped orders of approximately
$1.2 million, which represents a 100% increase compared to a backlog of $600,000
at fiscal year end 1997. All orders in the current backlog will be filled in the
1999 fiscal year.
EMPLOYEES
On October 3, 1998, the Company had 201 full-time employees, including 6
officers. Of these employees, 24 were executive or management personnel, 17 were
administrative and clerical personnel, 18 were sales personnel and 136 were
manufacturing employees. The Company is not a party to any collective bargaining
agreement, and has never experienced an interruption or curtailment of
operations due to labor controversy. Management believes that its relations with
its employees are good.
7
SUPERVISION AND REGULATION
The Federal Food, Drug and Cosmetic Act, and regulations issued or
proposed thereunder, provide for regulation by the Food and Drug Administration
(the "FDA") of the marketing, manufacture, labeling, packaging and distribution
of medical devices, including the Company's products. These regulations require,
among other things, that medical device manufacturers register with the FDA,
list devices manufactured by them, and file various types of reports. In
addition, the Company's manufacturing facilities are subject to periodic
inspections by regulatory authorities and must comply with "good manufacturing
practices" as required by the FDA and state regulatory authorities. The Company
believes that it is in substantial compliance with applicable regulations and
does not anticipate having to make any material expenditures as a result of FDA
or other regulatory requirements.
ENVIRONMENTAL MATTERS
The Company's manufacturing operations are subject to various government
regulations pertaining to the discharge of materials into the environment.
Span-America believes that it is in compliance with applicable regulations. The
Company does not anticipate that continued compliance will have a material
effect on the Company's capital expenditures, earnings or competitive position.
Item 2. Properties
The Company's principal office and manufacturing facility is owned by the
Company and located in Greenville, South Carolina. This facility contains
approximately 125,000 square feet and is located on a 13-acre site.
The Company produces foam mattress overlays for the medical and consumer
markets in a 40,000 square foot facility in Norwalk, California. The lease rate
is $16,000 per month and increases annually over the term of the lease to
$17,000 per month until the lease expires in December 2000.
The South Carolina and California facilities are considered suitable and
adequate for their intended purposes.
Item 3. Legal Proceedings
The company is a defendant in a legal action involving a claim relating to
a terminated employee. The ultimate outcome or range of potential loss of this
litigation is not presently predictable.
In addition to the case mentioned above, from to time the Company is 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 with parties believed to be financially capable, there are no
proceedings threatened or pending against the Company that, if determined
8
adversely, would have a material adverse effect on the business or financial
position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's 1998 fiscal year.
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters
The stock price information contained under "Quarterly Financial Data"
within the table and the information set forth below the table on page 7 of the
Company's 1998 Annual Report is incorporated herein by reference. In addition,
the information under "Stock Information" on page 24 of the Company's 1998
Annual Report is incorporated herein by reference.
Item 6. Selected Financial Data
The information contained in the "Selected Financial Information" on page
6 of the Company's 1998 Annual Report is incorporated herein by reference.
Item 7. Management's Discussion and Financial Analysis
Management's Discussion and Financial Analysis on pages 8 through 10 of
the Company's 1998 Annual Report are incorporated herein by reference.
Item 7a. Qualitative and Quantitative Disclosures About Market Risk
The information contained in the section titled "Market Risk" on page 10
of the Company's 1998 Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The financial statements of the Company included on pages 11 through 22 of
the Company's 1998 Annual Report are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
9
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Information required under Items 10, 11, 12 and 13 of Part III is
incorporated herein by reference to portions of the definitive Proxy Statement
filed or to be filed with the Securities and Exchange Commission on or prior to
120 days following the end of the Company's 1998 fiscal year under the headings
"Election of Directors," "Business Experience of Nominees and Directors,"
"Executive Officers," "Compensation of Directors and Executive Officers,"
"Certain Transactions," and "Security Ownership of Certain Beneficial Owners and
Management."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate section
of this report beginning on page F-1.
(3) Listing of Exhibits
3.1 Amendment to the Company's by-laws dated April 25, 1995:
Incorporated by reference to Exhibit 3(ii) to the Company's
quarterly report on Form 10-Q for the quarter ended July 1, 1995.
4.1 Specimen of Common Stock certificate: Incorporated by reference to
Exhibit 1 to the Form S-8, Commission File No. 33-32896.
4.2 The Registrant hereby agrees to furnish to the Securities and
Exchange Commission upon request a copy of any instrument with
respect to long-term debt not being registered in a principal amount
less than 10% of the total assets of the Registrant on a
consolidated basis.
10.1 Patent Assignment and Royalty Agreement between Donald C. Spann and
the Company, with letter amendment thereto: Incorporated by
reference to Exhibit 10(c) to the Form S-18.
10.2.1 1987 Stock Option Plan: Incorporated by reference to Exhibit 10 to
the Company's Annual Report on Form 10-K for the fiscal year ended
October 2, 1987, Commission File No. 0-11392.
10
10.2.2 Amendment No. 1 to the 1987 Stock Option Plan.
10.3 Employee Stock Ownership Plan - Summary Plan Description:
Incorporated by reference to Exhibit 10.6 to the 1990 10-K.
10.4.1 1991 Stock Option Plan: Incorporated by reference to Exhibit 10.6 to
the 1991 10-K.
10.4.2 Amendment No. 1 to the 1991 Stock Option Plan.
10.5 Retirement Agreement dated February 6, 1991 between the Company and
Donald C. Spann: Incorporated by reference to Exhibit 10.7 to the
1991 10-K.
10.6 Contract between the Company and Healthflex, Inc. dated February 28,
1992: Incorporated by reference to Exhibit 2.1 to the February 28,
1992 Form 8-K.
10.7 Contract between the Company and BriGam, Inc. dated October 16, 1992
terminating a royalty agreement: Incorporated by reference to
Exhibit 10.10 to the Company's annual report on Form 10-K for the
fiscal year ended October 3, 1992, Commission File No. 0-11392.
10.8 Voluntary Resignation Agreement dated July 30, 1993 between the
Company and Donald C. Spann: Incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 3, 1993.
10.9 Employment Agreement dated February 28, 1992 between the Company and
John W. Wilkinson: Incorporated by reference to Exhibit 28A to the
Current Report on Form 8-K (the "February 28, 1992 Form 8-K") filed
by the Company with the Commission on February 28, 1992.
10.10 Consulting Agreement dated August 1, 1994 between the Company and
John W. Wilkinson: Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended July
2, 1994.
10.11 Agreement for Sale and Purchase of Assets By and Among Span-America
Medical Systems, Inc., Embracing Concepts, Inc. and Edmund K. Maier
dated February 6, 1996: Incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
March 30, 1996.
10.12 Resignation Agreement dated September 1, 1996 between the Company
and Charles B. Mitchell: Incorporated by reference to exhibit 10.12
to the 1996 10-K.
10.13 License and Distribution Agreement dated October 22, 1996 between
the Company and Pillowtex Corporation: Incorporated by reference to
Exhibit 10.13 to the 1996 10-K.
11
10.14.1 1997 Stock Option Plan: Incorporated by reference to Exhibit 10.14
to the 1997 10-K.
10.14.2 Amendment No. 1 to the 1997 Stock Option Plan.
10.15 1997 Long Term Incentive Stock Option Plan: Incorporated by
reference to Exhibit 10.15 to the 1997 10-K.
13.1 1998 Annual Report to Shareholders.
23.0 Consent of Ernst and Young LLP.
27.0 Financial Data Schedule (For SEC Use Only)
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth
quarter of the fiscal year ended October 3, 1998.
(c) Exhibits
The exhibits required by this section of Item 14 are attached hereto
or incorporated by reference.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this report beginning on page F-1.
12
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.
SPAN-AMERICA MEDICAL SYSTEMS, INC.
By: /s/ J. Ernest Lathem December 17, 1998
- --------------------------
J. Ernest Lathem, M.D.
Chairman of the Board
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 on the date indicated.
/s/ James D. Ferguson President, Chief Executive Officer
--------------------------- (Principal Executive Officer)
James D. Ferguson
/s/ Richard C. Coggins Chief Financial Officer and Director
--------------------------- (Principal Financial Officer)
Richard C. Coggins
/s/ Gwendolyn L. Randolph Controller
---------------------------
Gwendolyn L. Randolph
/s/ Roy W. Black Director
---------------------------
Roy W. Black
/s/ Thomas F. Grady, Jr. Director
---------------------------
Thomas F. Grady, Jr.
/s/ Thomas D. Henrion Director
---------------------------
Thomas D. Henrion
/s/ Douglas E. Kennemore Director
---------------------------
Douglas E. Kennemore, M.D.
/s/ Brien Laing Director
---------------------------
Brien Laing
/s/ J. Ernest Lathem Director
---------------------------
J. Ernest Lathem, M.D.
/s/ James M. Shoemaker, Jr. Director
---------------------------
James M. Shoemaker, Jr.
December 17, 1998
13
Annual Report on Form 10-K
Items 14 (a) (1) and (2), (c) and (d)
List of Financial Statements and Financial Statement Schedules
Certain Exhibits
Financial Statement Schedules
Year Ended October 3, 1998
Span-America Medical Systems, Inc.
Greenville, South Carolina
F-1
Span-America Medical Systems, Inc.
Form 10-K - Item 14(a)(1) and (2)
List of Financial Statements and Financial Statement Schedules
The following financial statements of Span-America Medical Systems, Inc.
included in the annual report of the registrant to its shareholders for the year
ended October 3, 1998 are incorporated by reference in Item 8:
Balance Sheets - October 3, 1998 and September 27, 1997.
Statements of Income - Years ended October 3, 1998, September 27, 1997,
and September 28, 1996.
Statements of Shareholders' Equity - Years ended October 3, 1998,
September 27, 1997, and September 28, 1996.
Statements of Cash Flows - Years ended October 3, 1998, September 27,
1997, and September 28, 1996.
Notes to Financial Statements - October 3, 1998.
The following financial statement schedule of Span-America Medical Systems, Inc.
is included in Item 14(d):
Schedule VIII - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
F-2
Schedule VIII - Valuation and Qualifying Accounts
Span-America Medical Systems, Inc.
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COL. A COL. B COL. C COL. D. COL. E
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ADDITIONS
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Description Balance at (1) (2)
Beginning of Period Charged to Costs Charged to Other Deductions-Describe Balance at End
and Expenses Accounts - Describe of Period
====================================================================================================================================
Year Ended October 3, 1998
Deducted from asset accounts:
Reserve for uncollectible accounts $368,000 $106,000(a) $262,000
Reserve for discounts 242,000 75,000(c) 167,000
-------- -------- --------
Totals $610,000 $181,000 $429,000
======== ======== ========
Year Ended September 27, 1997
Deducted from asset accounts:
Reserve for uncollectible accounts $205,000 $227,000 $ 64,000(a) $368,000
Reserve for discounts 174,000 68,000(b) 242,000
-------- -------- -------- -------- --------
Totals $379,000 $227,000 $ 68,000 $ 64,000 $610,000
======== ======== ======== ======== ========
Year Ended September 28, 1996
Deducted from asset accounts:
Reserve for uncollectible accounts $182,000 $ 96,000 $ 73,000(a) $205,000
Reserve for discounts 150,000 24,000(b) 174,000
-------- -------- -------- -------- --------
Totals $332,000 $ 96,000 $ 24,000 $ 73,000 $379,000
======== ======== ======== ======== ========
(a) Uncollectible accounts written off.
(b) Net increase in sales discounts charged to income as a reduction of sales.
(c) Net decrease in sales discounts charged to income as a reduction of sales.