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SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly period Ended September 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission File No. 0-9407
 COMPEX TECHNOLOGIES, INC.
  Minnesota
(State or other jurisdiction of
incorporation or organization)
    
    41-0985318
(I.R.S. Employer Identification No.)
 1811 Old Highway 8
New Brighton, Minnesota 55112
 (651) 631-0590
  o þ
  þ o
  o þ
  Common Stock, $.10 par value
    
    12,625,693 Shares




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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
  
    
    We maintain a reserve against the revenue we record for sales
allowances on the contracted or negotiated sales and rental
prices. Many third party reimbursement entities maintain
schedules of the amount of sales and rental rates for our medical
products that they will reimburse. Because it is difficult to
collect from patients the excess of our contract price over these
scheduled rates, and because our acceptance of the payment from
the reimbursement entity in some cases constitutes acceptance of
that rate for our sales or rental price, we normally do not pursue
collection of the excess. The rate schedules from the various
reimbursement entities vary and we do not know in advance the
rates of reimbursement for all of our products from all of the
reimbursement entities that may cover the patients that use our
products. When we record revenue upon billing of a patient or
healthcare provider, we offset the sales and rental prices, before
recording it as revenue, with an allowance based on our historical
experience of a blended average rate schedule of the reimbursement
entities, weighting our current experience with known rates from
larger entities. Nevertheless, to the extent there is a shift in
the reimbursement entities that pay for sales or rentals of our
products, or to the extent the reimbursement rate schedules of
third party reimbursement entities change, our allowance may be
inaccurate and we may be required to record additional allowances,
resulting in a reduction in our revenue, with a corresponding
reduction in net income.
    
    Like many medical device companies that rely on third party
reimbursement entities for payment, we have a large balance of
uncollected accounts receivable. We also have a reserve for the
portion of those receivables that we estimate will not be
collected based on our historical experience. If we cannot
collect an amount of receivables that is consistent with
historical collection rates, we might be required to increase our
reserve and charge off the portion of receivables we cannot
collect. This additional provision for uncollectible accounts
could significantly impact our operating results.
    
    In the United States, our products are subject to reimbursement by
private and public healthcare reimbursement entities that
generally impose strict rules on applications for reimbursement.
Changes in eligibility or requirements for reimbursement, or
failure to comply with reimbursement requirements, could cause a
reduction in our income from operations.
    
    Healthcare reform, the expansion of managed care organizations and
buying groups, and continued legislative pressure to control
healthcare costs have all contributed to downward pressure on
reimbursement rates and the prices of our medical products. Under
the Medicare Modernization Act, Medicare is prohibited from
increasing reimbursement rates for durable medical equipment, such
as our medical products, through 2008. Further, this Act requires
that Medicare commence a competitive bidding process for
off-the-shelf products, such as our TENS devices, in 2007.
Although this process will not initially be nationwide and is not
binding on private reimbursement entities, we expect that Medicare
and most reimbursement entities will be inclined to adjust their
rate schedules based on the bidding results. Further, increasing
healthcare costs has caused the formation of buying groups that
enter into preferred supplier arrangements with one or more
manufacturers of medical products in return for price discounts.
If we are not able to obtain preferred supplier commitments from
major buying groups or retain those commitments that we currently
have, our sales and profitability could be adversely affected.
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
    
    The products we sell in our United States medical products
business may only be sold on physician prescription and, for most
of those products where there is a government sponsored payor,
only if we receive detailed documentation from the physician
indicating the medical necessity of the product together with
forms which we must submit to the paying agency. In most cases,
the reimbursement agency, including Medicare, requires strict
adherence to the requirements of the form and the failure to
properly obtain and maintain the documentation can result in
significant fines, penalties, and civil litigation. For example,
we were subject to a Medicare whistleblower suit that we settled
in 2000 for approximately $1.6 million. Although we believe we
have implemented a compliance program designed to detect errors in
complying with these regulations, if our program fails, our
operations and results could be adversely affected.
    
    The clinical effectiveness of our electrotherapy products has
periodically been challenged and the effectiveness of
electrotherapy products such as those offered by Compex for
fitness and health applications has sometimes been questioned.
Publicity about the effectiveness of electrotherapy for pain
relief or other clinical applications and continued questions
about the effectiveness of electrotherapy for conditioning could
negatively impact revenue and income from operations.
    
    We maintain significant amounts of finished goods inventory on
consignment at clinics for distribution to patients. We may not
be able to completely control losses of this inventory and, if
inventory losses are not consistent with historical experience, we
might be required to write off a portion of the carrying value of
inventory.
    
    The manufacture of medical and consumer products, and the labeling
of those products for sale in the United States, requires
compliance with quality assurance and labeling regulations of the
Food and Drug Administration (FDA). Although we believe our
manufacturing facilities and operations comply with these
regulations, a failure to comply could result in our inability to
manufacture, refurbish, and sell products until compliance is
achieved.
    
    The marketing of our consumer products is subject to regulations
and oversight by both the FDA and the Federal Trade Commission
(FTC) relating to misleading advertising. The FTC has commenced
several enforcement actions against advertisers of abdominal belts
during the past few years based on unsubstantiated claims.
Although we have attempted to limit the claims made in our
advertisements to matters that can be substantiated, if the FTC
were to disagree with our conclusions, it could enjoin our
marketing of these products for a period of time and impose fines
and penalties. Any such actions would have a significant adverse
impact on our operations.
    
    We operate in both the medical device and consumer products
markets, both of which are subject to a significant amount of
regulation that affects the way we can advertise our products,
sell our products, bill customers for our products and collect
payment for our products.
    
    We have not sold substantial volumes of consumer products in the
United States, but intend to devote significant resources to
market consumer products for health and fitness applications. The
consumer market for electrical stimulation products is new and
developing, and our success in this market will depend on a number
of factors, including:
 
    
    our ability to obtain clearance from the FDA and other regulatory authorities to
market the products for all relevant consumer applications;
    
    our ability to maintain distribution rights with, and to obtain adequate quantities
of product from, the manufacturers of consumer products for which we serve as
distributors;
    
    our ability to establish consumer demand with a limited marketing budget;
    
    our ability to secure shelf space in the United States with significant retailers; and,
    
    the effectiveness of our products for their intended applications.
 
    
    We market and sell several products manufactured by a number of different companies, including abdominal belts and
other garment-based consumer products, iontophoresis products, traction devices, bone growth stimulation products,
other orthopedic durable medical equipment (DME) products, and electrodes. We generally have less control over the
quality and reliability of these
 3




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third party products. If these products do not comply with their specifications or
otherwise fail to properly function, we may receive an increased amount of returns for which
we are primarily responsible, may be required to recall products, may suffer a decrease in
product reputation and goodwill in the marketplace, and may be unable to sell products
currently on hand. Any of these events could negatively impact our operations, particularly
if the sale of these third party products becomes a substantial part of our business.
    
    The terms of our third party distribution contracts, including our contracts for Slendertone
products, may be altered if we do not meet the contract requirements. Although we believe we are
currently in compliance with those contracts, we cannot be certain that we will be able to continue to
sell product at the rates these contracts require. To concentrate our resources on our core products in
Europe, we have elected to discontinue distribution of Slendertone product in those markets. In the
United States, our contract for the sale of Slendertone product in the United States currently calls for
minimum purchases which we have budgeted for in the coming year. Although we believe that we will be
able to renegotiate this contract if we do not meet these minimums, we cannot be certain that we will be
able to do so on similar terms or at all.
    
    Approximately 22% of our revenue for the three months ended September 30, 2005, was generated by
Compex SA, a subsidiary headquartered in Switzerland that does business primarily in Europe. There are
risks in doing business in international markets which could adversely affect our business, including:
 
    
    regulatory requirements;
    
    export restrictions and controls, tariffs and other trade barriers;
    
    difficulties in staffing and managing international operations;
    
    fluctuations in currency exchange rates;
    
    reduced protection for intellectual property rights;
    
    changes in political and economic conditions;
    
    seasonal reductions in business activity; and
    
    potentially adverse tax assessments.
 
    
    Although our products were among the first products sold for muscle toning and conditioning in
Europe, the consumer markets for these products in some of the geographies have matured, and we have
increasingly become subject to competition from lower cost products. Although we believe that we have
maintained our reputation as the manufacturer of the highest quality products in these markets, the
introduction and sale of lower cost products has caused some erosion of our sales volumes in these
geographies and pressure on the price we charge for our products.
    
    The revenue we have reported during the past three years, and to a lesser extent the income we
have reported, has benefited from the decreasing value of the dollar in Europe, where Compex SA operates.
Because we bill for and account for sales in Europe in local currency, during periods in which U.S.
currency is devalued, sales of the same number of products at the same prices in Europe will result in
our recording increasing sales revenue after conversion to U.S. currency. Conversely, if U.S. currency
increases in value relative to the Euro and other European currencies in the future, we would report less
revenue and potentially less income even at times when our operations in Europe continued to perform at
historical levels. A large or rapid increase in the value of the dollar relative to the Euro could have
a significant adverse impact on our reported revenue.
    
    We have entered into a contract to perform private label, original equipment manufacturing (OEM)
for a certain customer. The contract contains some minimum purchase requirements for the customer. If
this customer does not meet any more than the minimum purchase requirements, it may result in lower than
projected revenues and earnings in fiscal year 2006.
 4




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PART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSIncluded herein is the following unaudited condensed financial information:Consolidated Balance Sheets as of September 30, 2005 and June 30, 2005Consolidated Statements of Operations for the three months ended
September 30, 2005 and 2004Consolidated Statements of Cash Flows for the three months ended September
30, 2005 and 2004Notes to Consolidated Financial Statements
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COMPEX TECHNOLOGIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    September 30,2005
    
    
    2005(unaudited)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    3,044,158
    
    
    $
    3,201,715Receivables, less reserves of $19,250,165 and $18,988,214
at June 30, 2005 and September 30, 2005, respectively
    
    
    37,268,582
    
    
    
    38,760,097Inventories
    
    
    15,353,472
    
    
    
    14,782,380Deferred tax assets
    
    
    6,108,627
    
    
    
    6,105,622Prepaid expenses
    
    
    3,217,406
    
    
    
    3,081,203Total current assets
    
    
    64,992,245
    
    
    
    65,931,017Property, plant, and equipment, net
    
    
    5,902,780
    
    
    
    6,687,361Goodwill
    
    
    16,630,871
    
    
    
    16,617,285Other intangible assets, net
    
    
    1,636,682
    
    
    
    1,552,415Deferred tax assets
    
    
    13,396
    
    
    
    Other assets
    
    
    142,617
    
    
    
    144,114Total assets
    
    $
    89,318,591
    
    
    $
    90,932,192LIABILITIES & STOCKHOLDERS EQUITYCURRENT
LIABILITIESNotes payable
    
    $
    7,500,000
    
    
    $
    9,000,000Current maturities of long-term debt
    
    
    1,614,596
    
    
    
    2,907,149Accounts payable
    
    
    7,421,609
    
    
    
    5,756,080Accrued liabilities -Payroll
    
    
    2,719,545
    
    
    
    2,078,874Commissions
    
    
    1,073,365
    
    
    
    1,223,796Income taxes
    
    
    1,368,679
    
    
    
    1,440,266Other
    
    
    4,735,831
    
    
    
    4,991,772Total current liabilities
    
    
    26,433,625
    
    
    
    27,397,937LONG-TERM LIABILITIESLong-term debt
    
    
    4,127,019
    
    
    
    2,889,318Deferred tax liabilities
    
    
    438,734
    
    
    
    476,108Total liabilities
    
    
    30,999,378
    
    
    
    30,763,363STOCKHOLDERS EQUITYCommon stock, $.10 par value: 30,000,000 shares authorized;
issued and outstanding 12,526,880 and 12,625,693 shares
at June 30, 2005 and September 30, 2005, respectively
    
    
    1,252,688
    
    
    
    1,262,569Preferred stock, no par value: 5,000,000 shares authorized;
none issued and outstanding
    
    
    
    
    
    
    Additional paid in capital
    
    
    33,440,966
    
    
    
    34,084,472Unearned compensation on restricted stock
    
    
    (47,329
    )

    
    
    Accumulated other non-owner changes in equity
    
    
    1,142,604
    
    
    
    939,755Retained earnings
    
    
    22,530,284
    
    
    
    23,882,033Total stockholders equity
    
    
    58,319,213
    
    
    
    60,168,829Total liabilities and stockholders equity
    
    $
    89,318,591
    
    
    $
    90,932,192
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COMPEX TECHNOLOGIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months EndedSeptember 30(unaudited)2004
    
    
    2005Net sales and rental revenue
    
    $
    21,653,738
    
    
    $
    27,643,988Cost of sales and rentals
    
    
    6,914,618
    
    
    
    9,137,806Gross profit
    
    
    14,739,120
    
    
    
    18,506,182Operating expenses:Selling and marketing
    
    
    9,843,630
    
    
    
    11,349,730General and administrative
    
    
    3,744,533
    
    
    
    4,019,880Research and development
    
    
    722,535
    
    
    
    539,784Total operating expenses
    
    
    14,310,698
    
    
    
    15,909,394Income from operations
    
    
    428,422
    
    
    
    2,596,788Other income (expense):Interest expense
    
    
    (79,585
    )
    
    
    (230,860
    )Other
    
    
    30,886
    
    
    
    3,821Income before income taxes
    
    
    379,723
    
    
    
    2,369,749Income tax provision
    
    
    151,000
    
    
    
    1,018,000Net income
    
    $
    228,723
    
    
    $
    1,351,749Net income per common and common equivalent shareBasic
    
    $
    0.02
    
    
    $
    0.11Diluted
    
    $
    0.02
    
    
    $
    0.11Weighted average number of shares outstandingBasic
    
    
    12,454,107
    
    
    
    12,592,325Diluted
    
    
    13,020,849
    
    
    
    12,592,325
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COMPEX TECHNOLOGIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months EndedSeptember 30(unaudited)2004
    
    
    2005OPERATING ACTIVITIES:Net income
    
    $
    228,723
    
    
    $
    1,351,749Adjustments to reconcile net income to net cash
used in operating activitiesDepreciation
    
    
    248,920
    
    
    
    370,252Amortization
    
    
    88,530
    
    
    
    83,572Stock-based compensation
    
    
    18,848
    
    
    
    362,532Change in deferred taxes
    
    
    (9,675
    )
    
    
    54,387Changes in current assets and liabilities  net of
amounts acquired in acquisitionReceivables
    
    
    (1,026,253
    )
    
    
    (1,516,940
    )Inventories
    
    
    206,834
    
    
    
    555,685Prepaid expenses
    
    
    956,768
    
    
    
    130,949Accounts payable
    
    
    (1,265,160
    )
    
    
    (1,651,178
    )Accrued liabilities
    
    
    (126,956
    )
    
    
    (148,401
    )Net cash used in operating activities
    
    
    (679,421
    )
    
    
    (407,393
    )INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (239,132
    )
    
    
    (1,159,078
    )Changes in other assets, net
    
    
    (13,600
    )
    
    
    (1,919
    )Net cash used in investing activities
    
    
    (252,732
    )
    
    
    (1,160,997
    )FINANCING ACTIVITIES:(Principal payments on) proceeds from long-term
obligations
    
    
    (51,738
    )
    
    
    62,452Proceeds from line of credit, net
    
    
    1,300,000
    
    
    
    1,500,000Proceeds from exercise of stock options
    
    
    
    
    
    
    237,390Proceeds from employee stock purchase plan
    
    
    214,976
    
    
    
    100,794Net cash provided by financing activities
    
    
    1,463,238
    
    
    
    1,900,636Effect of exchange rates on cash and cash equivalents
    
    
    23,903
    
    
    
    (174,689
    )Net increase in cash and cash equivalents
    
    
    554,988
    
    
    
    157,557Cash and cash equivalents at beginning of period
    
    
    3,198,832
    
    
    
    3,044,158Cash and cash equivalents at end of period
    
    $
    3,753,820
    
    
    $
    3,201,715Supplemental cash flow informationInterest paid
    
    $
    79,585
    
    
    $
    228,273Income taxes paid
    
    $
    407,000
    
    
    $
    953,000
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COMPEX
TECHNOLOGIES, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       Three Months EndedSeptember 302004Net Income
    
    As reported
    
    $
    228,723Stock-based compensation
on restricted stock
    
    
    81,077Pro forma option
expense, net of tax
    
    
    (197,876
    )Pro forma
    
    $
    111,924Basic earnings per share

    As reported
    
    $
    0.02Pro forma
    
    

    0.01Diluted earnings per share

    As reported
    
    $
    0.02Pro forma
    
    
    0.01
  9




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Stock Options
  Weighted Average
    
    
    Number ofExercise Price
    
    
    SharesBalance outstanding at June 30, 2005
    
    $
    4.49
    
    
    
    2,128,748Granted
    
    
    9.78
    
    
    
    35,000Exercised
    
    
    3.37
    
    
    
    (70,500
    )Canceled
    
    
    3.66
    
    
    
    (27,500
    )Balance outstanding at September 30, 2005
    
    $
    5.20
    
    
    
    2,065,748Exercisable at September 30, 2005
    
    $
    4.28
    
    
    
    1,261,086Available for grant at September 30, 2005
    
    
    
    
    
    
    176,884
 Stock Options Outstanding
    
    
    Stock Options ExercisableWeighted
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    AverageRange of Exercise
    
    
    
    
    
    Remaining
    
    
    Exercise Price
    
    
    
    
    
    
    Exercise PricePrice
    
    Shares
    
    
    Contractual Life
    
    
    Per Share
    
    
    Shares
    
    
    Per Share$2.25 to $  2.94
    
    
    115,000
    
    
    2.1 Years
    
    $
    2.56
    
    
    
    115,000
    
    
    $
    2.56$3.30 to $  3.85
    
    
    1,095,250
    
    
    4.9 Years
    
    
    3.62
    
    
    
    741,750
    
    
    
    3.61$3.87 to $  5.92
    
    
    514,500
    
    
    5.9 Years
    
    
    4.50
    
    
    
    257,375
    
    
    
    4.56$6.13 to $10.75
    
    
    340,998
    
    
    5.5 Years
    
    
    8.21
    
    
    
    146,961
    
    
    
    8.492,065,748
    
    
    
    
    
    
    
    
    
    
    
    1,261,086
  Stock Purchase Plan
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Restricted Stock Grants
    June 30, 2005
    
    
    September 30, 2005InventoriesRaw materials
    
    
    1,280,370
    
    
    $
    1,602,838Work in process
    
    
    417,090
    
    
    
    483,052Finished goods
    
    
    13,656,012
    
    
    
    12,696,490Inventories, net
    
    $
    15,353,472
    
    
    $
    14,782,380
  June 30, 2005
    
    
    September 30, 2005Property, plant and equipment -Land
    
    $
    150,000
    
    
    $
    150,000Buildings
    
    
    1,683,614
    
    
    
    1,683,614Clinical and rental equipment
    
    
    1,744,193
    
    
    
    1,812,953Production equipment
    
    
    3,547,785
    
    
    
    4,390,465Office furniture and equipment
    
    
    9,931,107
    
    
    
    10,157,057$
    17,056,699
    
    
    $
    18,194,089Less accumulated depreciation
    
    
    (11,153,919
    )
    
    
    (11,506,728
    )Property, plant and equipment, net
    
    $
    5,902,780
    
    
    $
    6,687,361
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For the Three Months EndedSeptember 302004
    
    
    2005NumeratorNet Income
    
    $
    228,723
    
    
    $
    1,351,749DenominatorDenominator for basic net
income per share  weighted
average shares outstanding
    
    
    12,454,107
    
    
    
    12,592,325Effect of dilutive stock options
    
    
    566,742
    
    
    
    Denominator for diluted net
income per share  weighted
average shares outstanding
    
    
    13,020,849
    
    
    
    12,592,325Basic net income per share
    
    $
    0.02
    
    
    $
    0.11Diluted net income per share
    
    
    0.02
    
    
    
    0.11
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For the Three Months Ended September 30, 2005U.S. Medical
    
    
    U.S. Consumer
    
    
    International
    
    
    TotalRevenue
    
    $
    18,038,357
    
    
    $
    3,512,364
    
    
    $
    6,093,267
    
    
    $
    27,643,988Cost of sales and rentals
    
    
    4,986,931
    
    
    
    1,655,766
    
    
    
    2,495,109
    
    
    
    9,137,806Gross profit
    
    
    13,051,426
    
    
    
    1,856,598
    
    
    
    3,598,158
    
    
    
    18,506,182Margin
    
    
    72.4
    %
    
    
    52.9
    %
    
    
    59.1
    %
    
    
    66.9
    %Selling and marketing expenses
    
    
    7,516,710
    
    
    
    2,025,503
    
    
    
    1,807,517
    
    
    
    11,349,730Segment profit
    
    
    5,534,716
    
    
    
    (168,905
    )
    
    
    1,790,641
    
    
    
    7,156,452
 For the Three Months Ended September 30, 2004U.S. Medical
    
    
    U.S. Consumer
    
    
    International
    
    
    TotalRevenue
    
    $
    13,199,111
    
    
    $
    925,018
    
    
    $
    7,529,609
    
    
    $
    21,653,738Cost of sales and rentals
    
    
    3,317,800
    
    
    
    429,542
    
    
    
    3,167,276
    
    
    
    6,914,618Gross profit
    
    
    9,881,311
    
    
    
    495,476
    
    
    
    4,362,333
    
    
    
    14,739,120Margin
    
    
    74.9
    %
    
    
    53.6
    %
    
    
    57.9
    %
    
    
    68.1
    %Selling and marketing expenses
    
    
    5,745,158
    
    
    
    2,015,265
    
    
    
    2,083,207
    
    
    
    9,843,630Segment profit
    
    
    4,136,153
    
    
    
    (1,519,789
    )
    
    
    2,279,126
    
    
    
    4,895,490
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##### Table of Contents



For the Three Months EndedSeptember 302004
    
    
    2005Total profit from segments
    
    $
    4,895,490
    
    
    $
    7,156,452Unallocated corporate expenses:General and administrative
    
    
    3,744,533
    
    
    
    4,019,880Research and development
    
    
    722,535
    
    
    
    539,784Income from operations
    
    $
    428,422
    
    
    $
    2,596,788
  For the Three Months EndedSeptember 302004
    
    
    2005Rehabilitation products
    
    $
    3,641,261
    
    
    $
    5,740,938Pain management
    
    
    4,663,905
    
    
    
    6,906,027Consumer products
    
    
    6,803,900
    
    
    
    8,301,997Accessories and supplies
    
    
    6,544,672
    
    
    
    6,695,026$
    21,653,738
    
    
    $
    27,643,988
   U.S. Medical
    
    
    U.S. Consumer
    
    
    International
    
    
    TotalSegment assets at September 30, 2005
    
    $
    40,468,502
    
    
    $
    3,322,426
    
    
    $
    11,503,121
    
    
    $
    55,294,049Segment assets at June 30, 2005
    
    $
    37,857,601
    
    
    $
    2,113,933
    
    
    $
    14,350,201
    
    
    $
    54,321,735
  June 30,
    
    
    September 30,2005
    
    
    2005Assets from segments
    
    $
    54,321,735
    
    
    $
    55,294,049Unallocated corporate assets:
    
    
    34,996,856
    
    
    
    35,638,143Total assets
    
    $
    89,318,591
    
    
    $
    90,932,192
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##### Table of Contents



ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
 Overview
  Critical Accounting Policies
  Revenue Recognition and Provisions for Credit Allowances and Returns
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##### Table of Contents



Reserve for Uncollectible Accounts Receivable.
 Carrying Value of Inventory.
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##### Table of Contents



Carrying Value of Intangible Assets.
 
    
    significant under-performance relative to expected historical or projected future operating results;
    
    significant changes in the manner of use of the acquired assets or our overall business strategy;
    
    significant negative industry or economic trends; and
    
    significant decline in our stock price for a sustained period and our market
capitalization relative to net book value.
  Income Taxes.
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##### Table of Contents



Results of Operations
   Three Months EndedSeptember 302004
    
    
    2005Net sales and rental revenue
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales and rentals
    
    
    31.9
    
    
    
    33.1Gross profit
    
    
    68.1
    
    
    
    66.9Operating expensesSelling and marketing
    
    
    45.5
    
    
    
    41.1General and administrative
    
    
    17.3
    
    
    
    14.5Research and development
    
    
    3.3
    
    
    
    2.0Total operating expenses
    
    
    66.1
    
    
    
    57.6Income from operations
    
    
    2.0
    
    
    
    9.3Other expense, net
    
    
    0.2
    
    
    
    0.8Income tax provision
    
    
    0.7
    
    
    
    3.7Net income
    
    
    1.1
    %
    
    
    4.8
    %
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##### Table of Contents



20




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##### Table of Contents



Liquidity and Capital Resources
       21




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
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##### Table of Contents



PART II  OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
   ITEM
2. CHANGES IN SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY 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
 31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule 15d-14(a)(17
CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification of Chief Financial Officer pursuant to Rule
15d-14(a)(17 CFR 240, 15d-14(a)) and Section 302 of the Sarbanes-Oxley Act
of 200232
    
    
    Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Furnished but not filed)
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##### Table of Contents



SIGNATURES
  COMPEX TECHNOLOGIES, INC.November 9, 2005

Date
    
    /s/ Dan W. Gladney

Dan W. GladneyPresident and Chief Executive OfficerNovember 9, 2005

Date
    
    /s/ Scott P. Youngstrom

Scott P. YoungstromVice President of Finance(Principal Financial and Accounting Officer)
 24