UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

☒	Quarterly Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, ~~2016~~2017

☐

☐	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. 000-20970

COGENTIX MEDICAL, INC.

(Exact name of registrant as specified in its Charter)

Delaware		13-3430173
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5420 Feltl Road

Minnetonka, Minnesota, 55343

(Address of principal executive offices)

(952) 426-6140

(Registrant’s telephone number, including area code)

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 ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ☐	Accelerated Filer ☐	Non-Accelerated Filer ☐	Smaller Reporting Company ☒	Emerging Growth Company ☐
		(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extend transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

YES ☐ NO ☒

As of November ~~8, 2016~~6, 2017 the registrant had ~~60,349,579~~60,905,666 shares of common stock outstanding.

Table of Contents

INDEX

COGENTIX MEDICAL, INC. AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets (unaudited)	5

	Condensed Consolidated Statements of Operations (unaudited)	7

	Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)	8

	Condensed Consolidated Statement of Shareholders’ Equity (unaudited)	9

	Condensed Consolidated Statements of Cash Flows (unaudited)	10

	Notes to the Condensed Consolidated Financial Statements (unaudited)	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2120

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2725

Item 4.	Controls and Procedures	2726

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	2726

Item 1A.	Risk Factors	2826

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2826

Item 3.	Defaults upon Senior Securities	2826

Item 4.	Mine Safety Disclosures	2826

Item 5.	Other Information	2926

Item 6.	Exhibits	2927

	SIGNATURES	28

	Certification by the PEO pursuant to Section 302	29

	Certification by the PFO pursuant to Section 302	30

	Certification by the PEO pursuant to Section ~~302~~

	~~Certification by the PFO pursuant to Section 302~~

	~~Certification by the PEO pursuant to Section~~ 906	31

	Certification by the PFO pursuant to Section 906	32

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As used in this report, the terms ~~“Cogentix,”~~“Cogentix”, “Cogentix ~~Medical,” “Company,” “we,” “us,”~~Medical”, the “Company”, “we”, “us”, “our” and similar references refer to Cogentix Medical, Inc. ~~(formerly known as Vision-Sciences, Inc.)~~ and our consolidated subsidiaries, and the term “common stock” refers to our common stock, par value $0.01 per share. References to “VSCI,” “Vision-Sciences” or “Vision” generally refer to Vision-Sciences, Inc. and its consolidated subsidiaries prior to the consummation of the merger of Uroplasty, Inc. with and into Vision’s wholly-owned merger subsidiary (“Merger Sub”) on March 31, 2015 (the “Merger”), and sometimes also are used as references to our current, ongoing operations related to the historical VSCI that continue following the Merger. References to “UPI” or “Uroplasty” generally refer to Uroplasty, Inc., and its consolidated subsidiaries prior to the consummation of the Merger, and sometimes also are used as reference to our current, ongoing operations related to the historical Uroplasty that continue following the Merger.

All share and per share amounts have been adjusted to reflect the one-for-five reverse split of Vision’s outstanding common stock effective on March 31, 2015 immediately prior to the effective time of the Merger. All numbers and prices related to common shares and options of Uroplasty that predated the Merger have been adjusted to reflect the exchange ratio of 3.6331 shares of our common stock for each share of Uroplasty common stock, as well as the above mentioned one-for-five reverse stock split, a combined impact of 0.72662 shares of our common stock for each Uroplasty share of common stock.

This report contains the following trademarks, trade names and service marks of ours: PrimeSight^TM, ~~Vision-Sciences~~^®Vision-Sciences®, ~~EndoSheath~~^®EndoSheath®, ~~Slide-On~~^®Slide-On®, ~~EndoWipe~~^® ~~and~~EndoWipe®, The Vision ~~System~~^®~~for our endoscopy products,~~ ~~Urgent~~ System®,Urgent®PC,^® ~~for our neuromodulation product, Macroplastique~~^®~~for our urological tissue bulking product, VOX~~^® ~~for our otolaryngology tissue bulking products, PTQ~~^® ~~for our colorectal tissue bulking~~ Macroplastique®, VOX®, PTQ® and Uroplasty® ~~for Uroplasty, LLC, one of our subsidiaries~~. This report also contains trademarks, trade names and service marks that are owned by other persons or entities.

We changed our fiscal year from a fiscal year ending on March 31 of each year to a fiscal year ending on December 31 of each year effective as of December 31, 2015. This action created a transition period of April 1, 2015 through December 31, 2015 (the “Transition Period”). Unless otherwise indicated herein, comparisons of fiscal year results or fiscal quarter results in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” portion of this Report, and elsewhere herein, compare results for the three-month unaudited period from July 1, 2016 through September 30, 2016 to the three-month unaudited period from July 1, 2015 through September 30, 2015, and the nine month unaudited period from January 1, 2016 through September 30, 2016 to the nine month unaudited period from January 1, 2015 through September 30, 2015. As a result of the Merger, our financial statements prior to March 31, 2015 are the historical financial statements of Uroplasty, and our financial statements on or after March 31, 2015 reflect the results of the operations of Uroplasty and Vision-Sciences on a combined basis.

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements contained in this report that refer to our estimated or anticipated future results, including estimated synergies, or other non-historical facts are forward-looking statements that reflect our current perspective of existing trends and information as of the date of this report. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “plan,” “could,” “should,” “estimate,” “expect,” “forecast,” “outlook,” “guidance,” “intend,” “may,” “might,” “will,” “possible,” “potential,” “predict,” “project,” or other similar words, phrases or expressions. These forward-looking statements are based on current expectations about future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control and could cause our actual results to differ materially from those matters expressed or implied by our forward-looking statements. Forward-looking statements (including oral representations) are only predictions or statements of current plans and can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. ~~By way of example~~

When relying on forward-looking statements to make decisions with respect to the Company, our investors and ~~without implied limitation, such risks,~~others should carefully consider the foregoing factors and other uncertainties and ~~factors that affect~~potential events and read our ~~business included:~~filings with the SEC, including our annual report on Form 10K for the year ended December 31, 2016, for a discussion on these and other risks and uncertainties. These filings are available at www.sec.gov. We do not undertake any obligation to update or revise any forward-looking statement, except as may be required by law. We qualify all forward-looking statements by these cautionary statements.

we may obtain additional financing, which may not be available on favorable terms at the time it is needed and which could reduce our operational and strategic flexibility;

we may attempt to acquire new products or technologies, and if we are unable to successfully complete these acquisitions or to integrate acquired businesses, products, technologies or employees, we may fail to realize expected benefit or harm our existing business;

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the use and acceptance of our products depends heavily upon the availability of third-party reimbursement for the procedures in which its products are used;

we cannot predict how quickly or how broadly the market will accept our products;

that we are subject to changing federal and state regulations that could increase the cost of doing business or impose requirements with which we cannot comply;

changes in regulatory policy, particularly at the FDA, might adversely affect our operations;

if we are not able to attract, retain and motivate our sales force and expand our distribution channels, our sales and revenues will suffer;

the size and resources of our competitors may render it difficult for us to successfully compete in the marketplace;

we are primarily dependent on sales from a limited number of product lines and our business would suffer if sales of any of these product lines decline;

we could be subject to fines and penalties, or required to temporarily or permanently cease offering products, if we fail to comply with the extensive regulations applicable to the sale and manufacture of medical products;

our distributors may not obtain regulatory approvals in a timely basis, or at all;

we may not have the resources to successfully market our products, which would adversely affect our business and results of operations;

if we cannot attract and retain our key personnel and management team, we may not be able to manage and operate successfully, and we may not be able to meet our strategic objectives;

if third parties claim that we infringe upon their intellectual property rights, we may incur liabilities and costs and may have to redesign or discontinue selling the affected product;

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if we are unable to adequately protect our intellectual property rights, we may not be able to compete effectively;

product liability claims could adversely affect our business and results of operations;

security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer;

the loss or interruption of materials from any of our key suppliers could delay the manufacture of our products, which would limit our ability to generate sales and revenues;

if we are not able to maintain sufficient quality controls, regulatory approvals of our products by the European Union, Canada, the FDA or other relevant authorities could be delayed or denied and our sales and revenues will suffer;

if we are not able to acquire or license other products, our business and future growth prospects could suffer;

our business strategy relies on assumptions about the market for our products, which, if incorrect, would adversely affect our business prospects and profitability;

we derive a significant portion of our sales and revenues from outside of the U.S. and we are subject to the risks of international operations;

failure to comply with the U.S. Foreign Corrupt Practices Act could subject us to, among other things, penalties and legal expenses that could harm our reputation and have a material adverse effect on our business, financial condition and operating results;

our stock is thinly traded and you may find it difficult to sell your investment in our stock at quoted prices;

our stock price may fluctuate and be volatile;

future sales of our common stock in the public market could lower our share price;

we are exempt from certain corporate governance requirements due to our status as a "controlled company" within the meaning of the Nasdaq rules, including certain rules related to board independence;

our corporate documents contain provisions that could discourage, delay or prevent a change in control of the company; and

we do not intend to declare dividends on our stock in the foreseeable future.

When relying on forward-looking statements to make decisions with respect to the Company, our investors and others should carefully consider the foregoing factors and other uncertainties and potential events and read our filings with the SEC, available at ~~www.sec.gov~~ for a discussion of these and other risks and uncertainties. We do not undertake any obligation to update or revise any forward-looking statement, except as may be required by law. We qualify all forward-looking statements by these cautionary statements.

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~~PART I.~~

~~FINANCIAL INFORMATION~~

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

COGENTIX MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2016		December 31, 2015		September 30, 2017		December 31, 2016

Assets
Current assets:
Cash and cash equivalents	$	4,238,225	$	1,976,594	$	15,375,756	$	9,369,624
Short-term investments						10,656,566		13,573,057
Accounts receivable, net		6,769,476		8,191,391		7,178,811		6,770,838
Inventories		6,222,457		4,584,844		7,375,504		7,235,043
Deferred financing costs		1,350,900		-
Other		562,783		834,076		987,982		571,527
Total current assets		19,143,841		15,586,905		41,574,619		37,520,089

Property, plant, and equipment, net		2,201,942		2,554,822		2,466,344		2,115,316
Goodwill		18,749,888		18,749,888		19,150,849		18,749,888
Other intangible assets, net		10,073,436		11,846,009		7,969,736		9,482,578
Long-term investments						719,417		5,344,004
Equity method investment						2,000,000		-
Deferred tax assets and other		300,286		269,121		160,716		163,427
Total assets	$	50,469,393	$	49,006,745	$	74,041,681	$	73,375,302

See accompanying notes to the Condensed Consolidated Financial Statements.

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COGENTIX MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2016			December 31, 2015			September 30, 2017			December 31, 2016

Liabilities and Shareholders’ Equity

Current liabilities:
Accounts payable	$	3,084,807		$	2,209,473		$	2,051,979		$	2,689,035
Income taxes payable		35,749			20,866			249,690			113,191
Note payable								198,174			-
Accrued liabilities:
Compensation		5,075,767			3,281,809			3,889,783			4,670,640
Deferred revenue		504,274			307,936			759,786			597,524
Accrued legal fees		488,824			57,515			56,241			34,667
Accrued foreign and domestic sales tax/VAT		262,399			242,832			476,355			327,992
Accrued employee expenses		116,479			39,753			92,134			88,557
Accrued vendor payables								826,614			190,000
Other		486,447			301,461			358,434			197,056
Total current liabilities		10,054,746			6,461,645			8,959,190			8,908,662

Convertible debt – related party, net		24,173,141			23,336,854
Interest payable		1,019,120			757,615
Accrued pension liability		663,034			663,071			244,940			308,918
Deferred rent		647,876			671,088			600,092			639,019
Note payable – long term								289,387			-
Other		119,865			157,453			329,549			278,780

Total liabilities		36,677,782			32,047,726			10,423,158			10,135,379

Shareholders’ equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued or outstanding at September 30, 2016 and December 31, 2015, respectively		-			-
Common stock $0.01 par value; 100,000,000 shares authorized, 26,538,000 and 26,057,327 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively		265,382			260,574
Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued or outstanding at September 30, 2017 and December 31, 2016, respectively								-			-
Common stock $0.01 par value; 100,000,000 shares authorized, 60,907,834 and 60,436,548 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively								609,080			604,367
Additional paid-in capital		76,863,499			76,485,650			145,660,671			144,430,382
Accumulated deficit		(62,435,568	)		(58,910,707	)		(82,068,028	)		(81,005,654	)
Accumulated other comprehensive loss		(901,702	)		(876,498	)		(583,200	)		(789,172	)

Total shareholders’ equity		13,791,611			16,959,019			63,618,523			63,239,923

Total liabilities and shareholders’ equity	$	50,469,393		$	49,006,745		$	74,041,681		$	73,375,302

See accompanying notes to the Condensed Consolidated Financial Statements.

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COGENTIX MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015			2017			2016			2017			2016


Net sales	$	13,407,611		$	11,834,187		$	38,618,826		$	30,004,210		$	13,765,065		$	13,407,611		$	40,779,414		$	38,618,826
Cost of goods sold		4,369,574			3,953,940			12,257,933			8,408,218			4,370,408			4,369,574			13,522,655			12,257,933

Gross profit		9,038,037			7,880,247			26,360,893			21,595,992			9,394,657			9,038,037			27,256,759			26,360,893

Operating expenses
General and administrative		1,558,090			1,935,286			5,087,871			5,230,930			2,055,763			1,558,090			6,250,246			5,087,871
Research and development		1,218,669			1,035,253			3,255,603			2,707,016			1,234,468			1,218,669			3,556,977			3,255,603
Selling and marketing		5,203,477			5,845,798			16,272,678			17,442,292			5,697,552			5,203,477			16,699,590			16,272,678
Amortization of intangibles		590,858			634,191			1,772,574			1,275,644
Proxy settlement costs		(53,887	)		-			2,257,654			-
Merger related costs		-			437,252			-			2,484,025
One-time costs														-			(53,887	)		-			2,257,654
Amortization of intangible assets														601,604			590,858			1,780,803			1,772,574
		8,517,207			9,887,780			28,646,380			29,139,907			9,589,387			8,517,207			28,287,616			28,646,380

Operating income (loss)		520,830			(2,007,533	)		(2,285,487	)		(7,543,915	)		(194,730	)		520,830			(1,030,857	)		(2,285,487	)

Other income (expense)
Interest income		124			964			529			4,404
Interest expense		(380,803	)		(353,387	)		(1,147,470	)		(697,181	)
Interest income (expense)														56,745			(380,679	)		164,678			(1,146,941	)
Other income														1,001			-			7,365			-
Foreign currency exchange gain (loss)		(14,905	)		1,847			(40,311	)		3,881			3,020			(14,905	)		49,213			(40,311	)
		(395,584	)		(350,576	)		(1,187,252	)		(688,896	)		60,766			(395,584	)		221,256			(1,187,252	)

Income (loss) before income taxes		125,246			(2,358,109	)		(3,472,739	)		(8,232,811	)		(133,964	)		125,246			(809,601	)		(3,472,739	)

Income tax expense		18,932			10,532			52,122			37,830			26,125			18,932			141,276			52,122

Net income (loss)	$	106,314		$	(2,368,641	)	$	(3,524,861	)	$	(8,270,641	)	$	(160,089	)	$	106,314		$	(950,877	)	$	(3,524,861	)

Basic and diluted net income (loss) per common share	$	0.00		$	(0.09	)	$	(0.14	)	$	(0.37	)
Basic net income (loss) per common share													$	0.00		$	0.00		$	(0.02	)	$	(0.14	)
Diluted net income (loss) per common share													$	0.00		$	0.00		$	(0.02	)	$	(0.14	)

Weighted average common shares outstanding:
Basic		25,633,172			25,410,646			25,509,584			22,389,920			60,126,357			25,633,172			59,888,906			25,509,584
Diluted		25,748,844			25,410,646			25,509,584			22,389,920			60,126,357			25,748,844			59,888,906			25,509,584

See accompanying notes to the Condensed Consolidated Financial Statements.

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COGENTIX MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015			2017			2016			2017			2016

Net income (loss)	$	106,314		$	(2,368,641	)	$	(3,524,861	)	$	(8,270,641	)	$	(160,089	)	$	106,314		$	(950,877	)	$	(3,524,861	)

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments		(4,458	)		(859	)		(29,080	)		(123,161	)		68,184			(4,458	)		198,956			(29,080	)

Unrealized gain on available-for-sale investments														9,163			-			17,023			-
Pension adjustments		(41	)		254			3,876			(331,736	)		(4,398	)		(41	)		(10,007	)		3,876

Total other comprehensive income (loss), net of tax		(4,499	)		(605	)		(25,204	)		(454,897	)		72,949			(4,499	)		205,972			(25,204	)

Comprehensive income (loss)	$	101,815		$	(2,369,246	)	$	(3,550,065	)	$	(8,725,538	)	$	(87,140	)	$	101,815		$	(744,905	)	$	(3,550,065	)

See accompanying notes to the Condensed Consolidated Financial Statements.

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COGENTIX MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

Nine Months Ended September 30, ~~2016~~2017

(Unaudited)

Common Stock
Additional
Paid-in
Accumulated
Accumulated
Other
Comprehensive

Total
Shareholders'

Shares Amount Capital Deficit Income (Loss) Equity

Balance at December 31, 2015 26,057,327 $ 260,574 $ 76,485,650 $ (58,910,707 ) $ (876,498 ) $ 16,959,019

Share-based compensation 535,871 5,360 434,640 - - 440,000

Payment of income tax from vested restricted stock (55,198 ) (552 ) (56,791 ) (57,343 )

Comprehensive loss - - - (3,524,861 ) (25,204 ) (3,550,065 )

Balance at September 30, 2016 26,538,000 $ 265,382 $ 76,863,499 $ (62,435,568 ) $ (901,702 ) $ 13,791,611

	Common Stock						Additional Paid-in			Accumulated			Accumulated Other Comprehensive			Total Shareholders'
	Shares			Amount			Capital			Deficit			Income (Loss)			Equity

Balance at December 31, 2016		60,436,548		$	604,367		$	144,430,382		$	(81,005,654	)	$	(789,172	)	$	63,239,923

Share-based compensation and vesting of restricted stock		474,336			4,743			1,126,739			-			-			1,131,482

Proceeds from exercise of stock options, net of shares exchanged		(3,050	)		(30	)		(7,947	)		-			-			(7,977	)

Adoption of ASU 2016-09		-			-			111,497			(111,497	)		-			-

Comprehensive loss		-			-			-			(950,877	)		205,972			(744,905	)

Balance at September 30, 2017		60,907,834		$	609,080		$	145,660,671		$	(82,068,028	)	$	(583,200	)	$	63,618,523

See accompanying notes to the Condensed Consolidated Financial Statements.

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COGENTIX MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2017			2016
Cash flows from operating activities:
Net loss	$	(3,524,861	)	$	(8,270,641	)	$	(950,877	)	$	(3,524,861	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		2,364,673			1,776,856			2,336,095			2,364,673
Loss on disposal of equipment		5,640			43,311
Share-based compensation expense		440,000			951,290			1,131,482			440,000
Amortization of premium on available-for-sale securities								95,727			-
Deferred rent								(23,840	)		6,836
Amortization of discount on related party debt		836,288			535,073			-			836,288
Long term incentive plan		(64,404	)		(85,085	)
Tax benefit		(284	)		(93,913	)
Deferred rent		6,836			616,781
Proceeds from restricted stock exchanged for taxes		(57,343	)		(20,132	)		(17,690	)		(57,343	)
Other								8,003			(59,048	)
Changes in operating assets and liabilities:
Accounts receivable, net		1,399,070			(504,545	)		270,965			1,399,070
Inventories		(1,637,619	)		(67,759	)		57,344			(1,637,619	)
Other current assets		265,395			(30,369	)		(154,906	)		265,395
Accounts payable		394,573			(710,725	)		(898,771	)		394,573
Interest payable		261,505			152,422			-			261,505
Accrued compensation		1,796,568			(59,175	)		(1,035,278	)		1,796,568
Accrued liabilities, other		213,387			(733,486	)		657,950			213,387
Accrued pension liability		(45,463	)		143,459			(99,389	)		(45,463	)
Deferred revenue		220,789			47,707			250,174			220,789
Net cash provided by (used in) operating activities		2,874,750			(6,308,931	)
Net cash provided by operating activities								1,626,989			2,874,750

Cash flows from investing activities:
Cash acquired from merger with Vision-Sciences		-			2,019,610
Proceeds from maturity of available-for-sale securities								9,900,000			-
Purchases of available-for-sale securities								(2,438,322	)		-
Purchase of equity method investment								(2,000,000	)		-
Purchases of property, plant and equipment		(232,331	)		(1,430,311	)		(680,416	)		(232,331	)
Net cash (used in) provided by investing activities		(232,331	)		589,299
Acquisition of business, net of cash acquired								(196,560	)		-
Net cash provided by (used in) investing activities								4,584,702			(232,331	)

Cash flows from financing activities:
Borrowings from line of credit								3,033,385			2,646,500
Repayments of line of credit								(3,033,385	)		(2,646,500	)
Payments of note payable								(7,354	)		-
Payments of secured borrowings								(180,755	)		-
Financing costs		(375,839	)		-			-			(375,839	)
Proceeds from exercise of stock options								9,713			-
Net cash used in financing activities		(375,839	)		-			(178,396	)		(375,839	)

Effect of exchange rates on cash and cash equivalents		(4,949	)		(55,463	)		(27,163	)		(4,949	)

Net increase (decrease) in cash and cash equivalents		2,261,631			(5,775,095	)
Net increase in cash and cash equivalents								6,006,132			2,261,631

Cash and cash equivalents at beginning of period		1,976,594			8,703,790			9,369,624			1,976,594

Cash and cash equivalents at end of period	$	4,238,225		$	2,928,695		$	15,375,756		$	4,238,225

Supplemental disclosure of cash flow information:
Cash paid during the period for income tax	$	35,424		$	72,816		$	152,941		$	35,424
Cash paid during the period for interest	$	47,754		$	7,975		$	13,741		$	47,754
Non-cash financing activities:
Note payable issued in conjunction with acquisition of business							$	617.740			-
Deferred financing costs in AP/Accruals	$	975,061		$	-			-		$	975,061

See accompanying notes to the Condensed Consolidated Financial Statements.

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COGENTIX MEDICAL, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Note 1.~~

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

Cogentix Medical, Inc., (the “Company”) is a global medical device company headquartered in Minnetonka, Minnesota, with additional operations in New York, Massachusetts, The Netherlands and the United ~~Kingdom, is a global medical device company.~~Kingdom. We design, develop, manufacture and market a robust line of high performance fiberoptic and video endoscopy products under the PrimeSight^TMbrand that are used across multiple surgical specialties in diagnostic and treatment ~~procedures. The FDA-cleared and CE marked PrimeSight Endoscopy Systems and EndoSheath Protective Barrier combine state-of-the-art endoscopic technology~~procedures, with ~~a sterile, disposable microbial barrier, providing practitioners and healthcare facilities with a solution to meet~~our focus being on the ~~growing need for safe, efficient and cost-effective flexible endoscopy.~~urology market. We also offer the Urgent^® PC Neuromodulation System, a device that delivers percutaneous tibial nerve stimulation (“PTNS”), for the office-based treatment of overactive bladder (“OAB”). ~~The Urgent® PC Neuromodulation System has FDA clearance~~OAB is a chronic condition that affects approximately 40 million adults in the ~~United States~~U.S. The symptoms include urinary urgency, frequency and ~~has regulatory approvals for the treatment of OAB and fecal incontinence (FI) in various international markets. The Company~~urge incontinence. We also ~~offers Macroplastique®, a~~offer Macroplastique^® Implants, an injectable urethral bulking agent for the treatment of adult female stress urinary ~~incontinence.~~incontinence that is primarily due to intrinsic sphincter deficiency. Outside the U.S., ~~the Company markets~~we market additional bulking agents: ~~PTQ®~~ PTQ^®for the treatment ofif fecal incontinence and ~~VOX®~~ VOX^®for vocal cord ~~augmentation and vesicourethral reflux.~~

The Company is the result of the Merger effective as of March 31, 2015, of two medical device companies, Uroplasty, Inc. (“UPI”) and Vision-Sciences, Inc. (“VSCI”). On the effective date of the Merger, the two companies completed an all-stock merger, pursuant to which UPI merged with and into Merger Sub, a wholly owned subsidiary of VSCI. VSCI continued to be the sole member of the surviving company. After the Merger, VSCI changed its name to Cogentix Medical, Inc.

Upon closing of the Merger, the former UPI stockholders owned approximately 62.5% and the VSCI shareholders retained approximately 37.5% of the Company. Accordingly, while VSCI was the legal acquirer and issued its shares in the Merger, UPI is the acquiring company in the Merger for accounting purposes and the Merger has been accounted for as a reverse acquisition under the acquisition method of accounting for business combinations. As a result, the financial statements of the Company prior to the effective date of the Merger are the historical financial statements of UPI, whereas the financial statements of the Company after the effective date of the Merger reflect the results of the operations of UPI and VSCI on a combined basis. See additional disclosure provided in Note 2.augmentation.

All share amounts and price per share amounts for all periods presented relate to VSCI shares with UPI shares and price per share converted to VSCI amounts based on the conversion ratio in the acquisition agreement and the one for five reverse stock split that occurred on March 31, 2015.

We have prepared our Condensed Consolidated Financial Statements included in this quarterly report on Form 10-Q, without audit, pursuant to the rules and regulations of the Securities and Exchange ~~Commission.~~Commission (the “SEC”). Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, have been condensed or omitted, pursuant to such rules and regulations, although we believe that our disclosures are adequate to make the information not misleading. The consolidated results of operations for any interim period are not necessarily indicative of results for a full fiscal year. These Condensed Consolidated Financial Statements, presented herein, should be read in conjunction with the audited consolidated financial statements and related notes included in our annual report on Form ~~10-KT~~10-K for the ~~nine-months~~year ended December 31, ~~2015.~~2016.

The Condensed Consolidated Financial Statements presented herein as of September 30, ~~2016~~2017 and for the three and nine month periods ended September 30, ~~2016~~2017 and ~~2015,~~2016, reflect, in the opinion of management, all material adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the consolidated financial condition, results of operations and cash flows for the interim periods.

We have identified certain accounting policies that we consider particularly important for the portrayal of our results of operations and financial condition and which may require the application of a higher level of judgment by our management, and as a result are subject to an inherent level of uncertainty. These are characterized as “critical accounting policies” and address revenue recognition, accounts receivable, valuation of inventory, foreign currency translation/transactions, ~~purchase price allocation on acquisition,~~ the determination of recoverability of long-lived and intangible assets, ~~long-term incentive plans,~~ share-based compensation, defined benefit pension plans and income taxes, each of which is described in our annual report on Form ~~10-KT~~10-K for the ~~nine-months~~year ended December 31, ~~2015.~~2016. Based upon our review, we have determined that these policies remain our most critical accounting policies for the nine months ended September 30, 2017. We have adopted two additional policies during 2017. The first policy is for the adoption of Accounting Standards Update (“ASU”) 2016-09, “Improvements to Employee Share-Based Payment Accounting.” Under the new ASU we no longer account for forfeitures of restricted stock awards and stock options throughout the vesting period and instead account for them in the period in which they occur. We also recognize certain tax benefits or tax shortfalls upon a restricted-stock award vesting or stock option exercise relative to the deferred tax asset position established in the provision for income taxes line of the consolidated statements of operations instead of within the consolidated statement of shareholders’ equity. The second policy is for the adoption of Accounting Standards Codification (“ASC”) 323, “Investments – Equity Method and Joint Ventures.” This ASC establishes accounting guidelines for an equity investment in which the Company has the ability to exercise significant influence, but does not have a controlling interest. In this situation, the equity method should be applied to an investment. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock of an entity between 20% and 50%, and other factors, such as representation on the Board of Directors, are considered in determining whether the equity method of accounting is appropriate. We adopted this policy for our equity investment in Vensica Medical, as described in Note 12 to the financial statements.

Note 2. New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This new standard is effective for annual periods beginning after December 15, 2016, and interim periods within that reporting period. We adopted this standard as of January 1, 2017. The adoption did not have a material impact on our consolidated financial statements. Under the new ASU we ~~have made~~ no ~~changes~~longer account for forfeitures of restricted stock awards and stock options throughout the vesting period and instead account for them in the period in which they occur. We also recognize certain tax benefits or tax shortfalls upon a restricted-stock award vesting or stock option exercise relative to ~~these policies during 2016.~~the deferred tax asset position established in the provision for income taxes line of the consolidated statements of operations instead of within the consolidated statement of shareholders’ equity.

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~~Liquidity~~In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and ~~Capital Resources~~Cash Payments.” This ASU is in response to diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows and provides guidance on eight specific cash flow classification issues. It will be effective for reporting periods beginning after December 15, 2017, and interim periods within that reporting period. Early adoption is permitted, including adoption in an interim period. The Company adopted this standard as of January 1, 2017. The adoption did not have a material impact on our consolidated financial statements.

WeRecently Issued Accounting Pronouncements Not Yet Adopted

In May 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-09, “Compensation – Stock Compensation: Scope of Modification Accounting.” This ASU is intended to provide guidance about which changes to the terms or conditions on a share-based payment award require an entity to apply modification accounting. This new standard is effective for annual periods beginning after December 15, 2017, and interim periods within that reporting period. The Company does not expect these amendments to have ~~incurred substantial operating losses since~~a material effect on its consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities” related to the amortization period for certain purchased callable debt securities held at a premium. The amendments shorten the amortization period for the premium to the earliest call date. The amendment is effective for interim and annual periods beginning after December 15, 2018. The Company does not expect these amendments to have a material effect on its consolidated financial statements.

In January 2017, the FASB, issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” which simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test. Goodwill impairment will now be the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the carrying value of the goodwill. The standard is effective for us beginning January 1, 2020. Early adoption is permitted for any impairment tests performed after January 1, 2017. The new guidance is not expected to have a material impact on our ~~inception. As~~results of ~~September 30,~~operations and financial position.

In February 2016, ~~we had cash~~the FASB issued ASU 2016-2, “Leases”, under which lessees will recognize most leases on-balance sheet. This will generally increase reported assets and ~~cash equivalents totaling approximately $4.2 million. This report covers~~liabilities. For public entities, this ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2018. ASU 2016-2 mandates a modified retrospective transition method for all entities. While the ~~quarter ended September 30, 2016,~~Company is still evaluating the timing and impact of the adoption of this guidance on its consolidated financial statements, it anticipates that the adoption could result in an increase in the assets and liabilities recorded on its consolidated balance sheet.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, as amended by ASU 2015-14, “Deferral of Effective Date”, which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 sets forth a new revenue recognition model that requires identifying the contract, identifying the performance obligations, determining the transaction price, allocating the transaction price to performance obligations and recognizing the revenue upon satisfaction of performance obligations. For public entities, this ASU is effective for annual reporting periods beginning after December 15, 2017 including interim reporting periods within that reporting period. The provisions can be adopted either retrospectively to each prior reporting period presented or as a ~~result,~~cumulative-effect adjustment as of the date of adoption. We plan to adopt this ~~amount excludes $25.0 million in proceeds from our issuance~~ASU effective January 1, 2018 using the cumulative-effect adjustment method. The Company has completed the assessment of ~~16,219,033 shares~~this ASU on each of our ~~common stock to Accelmed~~revenue streams and, based on ~~November 3, 2016. See Note 13 for additional details. On September 18, 2015,~~our review of contracts, we ~~entered into a $7.0 million line of credit with Venture Bank to provide non-dilutive resources to execute management’s growth strategies for~~believe the ~~PrimeSight~~^TM ~~and Urgent~~^® PC product lines and for general corporate purposes. Note 6 contains further information regarding the line of credit. If operations do not generate sufficient cash in the future and if we were to seek additional financing, there can be no assurance that any such additional financingimpact on our consolidated financial statements will be ~~available on terms acceptable~~immaterial. For each of our products, revenue will still be recognized when title passes to ~~us, if at all. If required, we believe we would be able to reduce our expenses to a sufficient level to~~the customer, generally upon shipment. Revenue for service repairs of equipment will continue to ~~operate as a going concern.~~be recognized after service has been completed, and service contract revenue will be recognized ratably over the term of the contract. We are still evaluating the impact of the new revenue recognition standard on our disclosures due to the new qualitative and quantitative requirements under the standard.

~~Note 2.~~

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Note 3. Business Combination ~~- Merger Between Uroplasty, Inc. and Vision-Sciences, Inc.~~

The ~~Merger~~Company, through its wholly owned subsidiary, Uroplasty LTD, acquired 100% of the issued share capital in Genesis Medical Holdings LTD (“Genesis”) and its subsidiaries effective July 25, 2017 (the “Genesis Acquisition”).

The Genesis Acquisition has been accounted for ~~as an acquisition of VSCI by UPI,~~ in accordance with Accounting Standards Codification (ASC) Topic 805, "Business ~~Combinations,"~~Combinations". The terms of the Genesis Acquisition include an upfront payment equal to the estimated fair market value of the tangible net assets, approximately $280,000. The terms also include a purchase price for the ongoing business of approximately $556,000, payable at the rate of 5% of Genesis revenue on a monthly basis. In addition, if Genesis achieves revenue of approximately $4.7 million for the twelve months ended March 31, 2019, the Company will pay an additional amount of approximately $134,000. We have determined the likelihood of paying the $134,000 as probable. The note payable and the contingent consideration have been discounted to a net present value equal to approximately $618,000. All conversions between British Pounds and U.S. Dollars were computed using the ~~acquisition method~~July 25, 2017 exchange rate of accounting with UPI as the accounting acquirer. Since the Company (formerly known as Vision-Sciences), as the parent company of UPI after the Merger, is the legal acquirer, the Merger has been accounted for as a reverse acquisition. Under these accounting standards, UPI’s total purchase price of $16.5 million is calculated as if UPI had issued its shares to VSCI stockholders and converted options and warrants to purchase VSCI shares to options and warrants to purchase UPI’s common stock.$1.34 per £1.

Under the acquisition method of accounting, the total purchase price was allocated to the net tangible and intangible assets of ~~VSCI acquired in the Merger,~~Genesis based on their fair values at the effective date of the ~~Merger.~~Acquisition. The ~~allocation was finalized without any change to the~~ preliminary allocation ~~and~~ is approximately as follows:

Cash and cash equivalents $ 2,020,000
Accounts receivable 4,249,000
Inventories 4,462,000
Other current assets 369,000
Property, plant and equipment 817,000
Goodwill 18,750,000
Other intangibles 13,660,000
Other non-current assets 97,000
Total assets acquired $ 44,424,000

Accounts payable and other liabilities $ 5,209,000
Deferred revenue 176,000
Convertible debt – related party 22,530,000
Other non-current liabilities 40,000
Total liabilities assumed 27,955,000

Total purchase price $ 16,469,000

Cash and cash equivalents	$	83,891
Accounts receivable		860,734
Inventory		186,193
Tangible fixed assets		172,241
Customer relationships		268,000
Goodwill		398,190
Total assets acquired	$	1,969,249

Accounts payable	$	1,032,589
Deferred tax liability		50,920
Total liabilities assumed	$	1,083,509

Total Purchase Price	$	885,740

Cash paid to Genesis, net of cash acquired of $84,000, totaled approximately $197,000. The remaining purchase price was financed via a note payableand contingent consideration as described above.

Legal costs directly related to the acquisition of approximately $40,000 and approximately $50,000 have been charged directly to operations and are included in general and administrative expense in our Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017.

The goodwill of $398,190 resulting from the acquisition is the excess if the purchase price over the fair value of the net assets acquired. The goodwill primarily reflects the value of enhancing our market opportunity and growth potential in the U.K. None of the goodwill recognized is deductible for income tax purposes as it was a stock acquisition and as such, no deferred taxes have been recorded to goodwill.

The allocation of the purchase price to the net assets acquired and liabilities assumed resulted in the recognition of the following identifiable intangible ~~assets:~~asset:

Amount Weighted Average Life-Years
Developed technology $ 6,200,000 7
Customer relationships 7,270,000 5
Trade names 190,000 10
$ 13,660,000

		Amount				Weighted Average Life-Years
Customer relationships		$	268,000				3

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~~The supplemental unaudited pro forma net sales and net loss of the combined entity had the acquisition been completed on January 1, 2015:~~

Nine months
ended
September 30,
2015
(unaudited)

Supplemental pro forma combined results of operations:
Net sales $ 35,669,538
Net loss $ (12,164,228 )
Net loss per share – basic and diluted $ (0.47 )

~~Adjustments to the supplemental pro forma combined results of operations are as follows:~~

Nine months ended
September 30,
2015
(unaudited)

Increase in amortization of intangibles $ 594,000
Interest amortization on related party debt 282,000
Increase in net loss $ 876,000

These unaudited pro forma condensed consolidated financial results have been prepared for illustrative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on January 1, 2015, or of future results of the consolidated entities. The unaudited pro forma condensed consolidated financial information does not reflect any operating efficiencies and cost savings that may be realized from the integration of the acquisition.

~~Note 3.~~

Note 4. Goodwill and Other Intangible Assets

Goodwill

As described in Note 2, on March 31, 2015, for accounting purposes, UPI was deemed to have acquired VSCI for a purchase price of $16.5 million, and as a result, the Company recognized $18.8 million in goodwill. There was no change in the goodwill balance as of September 30, ~~2016.~~2017 as compared to December 31, 2016 other than the addition of approximately $400,000 related to the Genesis Acquisition as described in Note 3.

Other Intangible Assets

Other intangible assets consisted of approximately the following at September 30, ~~2016~~2017 and December 31, ~~2015:~~2016:

	September 30, 2016				December 31, 2015				September 30, 2017						December 31, 2016
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Remaining Useful Life		Gross Carrying Amount		Accumulated Amortization		Remaining Useful Life
Developed technology	$	6,200,000	$	2,230,000	$	6,200,000	$	664,000	$	6,200,000	$	2,214,000		4.50	$	6,200,000	$	1,550,000		5.25
Patents		5,653,000		5,608,000		5,653,000		5,586,000		5,653,000		5,631,000		7.50		5,653,000		5,616,000		8.25
Trademarks and trade names		190,000		73,000		190,000		67,000		190,000		82,000		7.50		190,000		74,000		8.25
Customer relationships		7,270,000		1,329,000		7,270,000		1,150,000		7,538,000		3,684,000		2.52		7,270,000		2,590,000		3.25
	$	19,313,000	$	9,240,000	$	19,313,000	$	7,467,000	$	19,581,000	$	11,611,000			$	19,313,000	$	9,830,000
Accumulated amortization		9,240,000				7,467,000				11,611,000						9,830,000

Net book value of amortizable intangible assets	$	10,073,000			$	11,846,000			$	7,970,000				3.47	$	9,483,000				4.23

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For the nine months ended September ~~2016~~30, 2017 and ~~2015,~~2016, amortization of intangible assets charged to operations was approximately $1,781,000 and $1,773,000, ~~and $1,276,000,~~ respectively. ~~The weighted average remaining~~

Estimated amortization ~~period~~expense for all intangible assets as of September 30, ~~2016 was~~2017 is approximately ~~4.48 years.~~as follows:

~~Note 4~~.

~~New Accounting Pronouncements~~

October 1, 2017 through December 31, 2017	$	609,000
2018		2,437,000
2019		2,430,000
2020		1,307,000
2021		894,000
Thereafter		293,000
Total	$	7,970,000

~~In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~. This ASU is in response to diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows and provides guidance on eight specific cash flow classification issues. It will be effective for reporting periods beginning after December 15, 2017, and interim periods within that reporting period. Early adoption is permitted, including adoption in an interim period. We do not believe the adoption of this update will have a material impact on our consolidated financial statements.

~~In March 2016, FASB issued ASU 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting~~. This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This new standard is effective for annual periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption is permitted in any interim or annual period, with adjustments reflected as of the beginning of the fiscal year of adoption. We are evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

~~In February 2016, FASB issued ASU 2016-2,~~ ~~Leases~~, under which lessees will recognize most leases on-balance sheet. This will generally increase reported assets and liabilities. For public entities, this ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2018. ASU 2016-2 mandates a modified retrospective transition method for all entities. The Company will begin the process of determining the impact this ASU will have on the Company’s consolidated financial statements.

~~In November 2015, the FASB issued ASU 2015-17,~~ ~~Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,~~ which amends the guidance requiring companies to separate deferred income tax liabilities and assets into current and non-current amounts in a classified statement of financial position. This accounting guidance simplifies the presentation of deferred income taxes, such that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. This accounting guidance is effective for the Company beginning in the first quarter of 2017. We do not believe the adoption of this update will have a material impact on our consolidated financial statements.

~~In September 2015, the~~ ~~FASB issued ASU No. 2015-16,~~ ~~Business Combinations (Topic 805)~~. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. Under the new guidance, the acquirer should record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. On the face of the income statement or in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods need to be reflected as if the adjustment to the provisional amounts had been recognized as of the acquisition date. ~~The amendments in ASU No. 2016-16 are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.~~ ~~We do not believe the adoption of this update will have a material impact on our financial statements.~~

~~In July 2015,~~ the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory (Topic 330).” Under the current guidance (i.e., ASC 330-10-352 before the ASU), an entity subsequently measures inventory at the lower of cost or market, with market defined as replacement cost, net realizable value (NRV), or NRV less a normal profit margin. An entity uses current replacement cost provided that it is not above NRV (i.e., the ceiling) or below NRV less an “approximately normal profit margin” (i.e., the floor). The new guidance requires entities to measure most inventory “at the lower of cost and net realizable value,” thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market (market in this context is defined as one of three different measures). The ASU will not apply to inventories that are measured by using either the last-in, first-out method or the retail inventory method. ~~The amendments in ASU No. 2015-11 are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.~~ ~~The adoption of this update will not have a material impact on our financial statements.~~

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606). The guidance in this update supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition.”~~ In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, assets within the scope of Topic 360, ~~Property, Plant, and Equipment, and intangible assets within the scope of Topic 350,~~ ~~Intangibles—Goodwill and Other~~) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this update. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU No. 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted for annual reporting periods beginning after December 31, 2016. ~~We are still evaluating whether or not this update is applicable to our business.~~

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~~Note 5.~~

Note 5. Fair Value Measurements

Estimates of fair value for financial assets and liabilities are based on the framework established in the accounting guidance for fair value measurements. The framework defines fair value, provides guidance for measuring fair value and requires certain disclosures. The framework prioritizes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three broad levels of inputs may be used to measure fair value under the fair value hierarchy:

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3: Significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management's estimates of market participant assumptions.

If the inputs used to measure the financial assets and liabilities fall within more than one of the different levels described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Page 14

Table of Contents

The following table shows our cash and available-for-sale securities’ adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category recorded as cash and cash equivalents or short- or long-term investments as of September 30, ~~2016~~2017:

	September 30, 2017
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments

Cash	$	4,005,930	$	-	$	-		$	4,005,930	$	4,005,930	$	-	$	-

Level 1:
Money market funds		11,369,826		-		-			11,369,826		11,369,826		-		-
Subtotal		11,369,826		-		-			11,369,826		11,369,826		-		-

Level 2:
Certificates of deposit		2,160,000		-		(826	)		2,159,175		-		1,439,758		719,417
Commercial paper		1,194,342		114		-			1,194,456		-		1,194,456		-
Corporate notes/bonds		6,025,967		-		(1,715	)		6,024,252		-		6,024,252		-
U.S. government agencies		2,000,000		-		(1,900	)		1,998,100		-		1,998,100		-
Subtotal		11,380,309		-		(4,441	)		11,375,983		-		10,656,566		719,417

Total	$	26,756,065	$	114	$	(4,441	)	$	26,751,739	$	15,375,756	$	10,656,566	$	719,417

We consider all cash on-hand and highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. We classify marketable securities having original maturities of more than three months when purchased and remaining maturities of one year or less as short-term investments and marketable securities with remaining maturities of more than one year as long-term investments. We further classify marketable securities as available-for-sale. We have not designated any of our marketable securities as trading securities or as held to maturity. We may sell any of our marketable securities prior to their stated maturities for strategic reason including, but not limited to, anticipation of credit deterioration and duration management. The long-term securities have a contractual term that ranges from November 2018 to December 2018.

We consider the declines in market value of our marketable securities investment portfolio to be temporary in nature. We typically invest in highly-rated securities, and our investment policy generally limits the amount of credit exposure to any one issuer.

Cash and cash equivalents of approximately $15.4 million and $9.4 million at September 30, 2017 and December 31, ~~2015,~~2016, respectively, include highly liquid money market funds and debt securities with original maturities of three months or less totaling approximately $11.4 million and $5.6 million at September 30, 2017 and December 31, 2016 respectively. Money market funds present negligible risk of changes in value due to changes in interest rates, and their cost approximates their fair market value. We maintain cash in bank accounts, which, at times, may exceed federally insured limits. We have not experienced any losses in such accounts. Cash and cash equivalents held in foreign bank accounts totaled approximately $864,000 and approximately $507,000 at September 30, 2017 and December 31, 2016, respectively.

In connection with the only asset or liability measured at fair value on a recurring basis was the long-term incentive plan accrual with a fair value of $10,000 and $130,000, respectively, considered a level 3 measurement. The long-term incentive plan began on October 2, 2014 and is describedGenesis Acquisition discussed in Note 9.3, we are required to make a payment of approximately $134,000 if certain revenue targets are achieved by Genesis for the twelve months ended March 31, 2019. The ~~estimated~~ fair value of the ~~accrual~~contingent liability recognized upon acquisition, and classified as other non-current liability, was approximately $123,000, and was estimated by discounting to present value the probability-weighted contingent payments expected to be made. Assumptions used in this calculation included the discount rate and various probability factors. This liability is ~~calculated on~~considered to be a ~~quarterly basis using a Monte Carlo valuation model. Vesting~~Level 3 financial liability that is re-measured each reporting period.

We have estimated the fair value of the contingent consideration based on the probability of ~~meeting~~achieving the ~~stock price criteria,~~specified revenue thresholds at 100%. A significant increase (decrease) in our estimates of achieving the ~~probability~~relevant targets could materially increase (decrease) the fair value of ~~which is considered in determining~~ the ~~estimated fair value.~~contingent consideration liability.

Remeasurements to fair value on a nonrecurring basis relate primarily to our property, plant and equipment and intangible assets and occur when the derived fair value is below their carrying value on our Consolidated Balance Sheet. AsNote 6. Line of ~~September 30, 2016 and December 31, 2015 we had no remeasurements of such assets to fair value.~~Credit

The carrying amounts reported in the Condensed Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, inventories, other current assets, accounts payable, accrued liabilities and convertible debt-related party approximate fair market value.

~~Note 6.~~

~~Line of Credit~~

~~On September 18, 2015, we entered into~~We have a loan agreement with Venture Bank, a Minnesota banking corporation, providing us with a ~~committed $7~~$7.0 million secured revolving credit facility ~~(“Facility”~~(the “Facility”), subject to eligible accounts receivable and ~~inventory.~~inventory, and secured by substantially all our assets. The Facility was amended in March 2017. Under the amended Facility, the Facility will expire on ~~March~~September 18, ~~2017 and any loans outstanding on such date will mature and become payable. The Facility is secured by substantially all~~2018.

Page 15

Table of ~~our assets.~~Contents

Under the Facility, we may borrow the lesser of: (a) the sum of (i) eighty percent (80%) of the value of eligible accounts receivable; and (ii) forty percent (40%) of the value of eligible inventory capped at ~~the lesser of (1) $2 million or (2) fifty percent (50%) of the principal balance outstanding;~~$2.5 million; or (b) $7 million. As of September 30, ~~2016,~~2017, based on eligible receivables and inventory, our total available borrowing base was ~~$6,028,000.~~approximately $6,250,000. We did not have any borrowings under the ~~Facility~~facility as of September 30, ~~2016 and December 31, 2015.~~2017.

Loans under the Facility bear interest at a rate per annum equal to the Wall Street Journal Prime Rate plus ~~2.25%~~1.25%, provided that in no case will the interest charged be less than ~~5.5%~~5.25%. In the event that there is an event of default under the Facility, the interest rate will be increased by 6.0% for the entire period that an event of default exists. In addition, wethe Borrowers will pay a non-usage fee of ~~0.25%~~0.15% based on the average unused and available portion of the Facility on a monthly basis.

~~Page 15~~Genesis has a Factoring Agreement with Lloyds Bank in the United Kingdom. Pursuant to the terms of the Factoring Agreement, Genesis may offer for sale, and Lloyd’s Bank may purchase, certain accounts receivable of Genesis. The Factoring Agreement was last amended on March 6, 2017. The maximum amount that can be factored at any given period is approximately $470,000. As of September 30, 2017, the factoring balance was approximately $64,000.

~~Table of Contents~~

~~Note 7.~~

Note 7. Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or market (net realizable value). We value at lower of cost or market the slow moving and obsolete inventories based upon current and expected future product sales and the expected impact of product transitions or modifications. Inventories consist of approximately the following:

	September 30, 2016		December 31, 2015		September 30, 2017		December 31, 2016

Raw materials	$	3,998,000	$	2,385,000	$	4,437,000	$	4,483,000
Work-in-process		779,000		793,000		180,000		462,000
Finished goods		1,445,000		1,407,000		2,758,000		2,290,000

	$	6,222,000	$	4,585,000
Total inventory					$	7,375,000	$	7,235,000

Inventories acquired in a business combination are recorded at their estimated fair value less profit for sales efforts and expensed in cost of sales as that inventory is sold. As of March 31, 2015, the purchase accounting adjustment of $240,000 related to VSCI inventory was recorded in cost of goods sold over approximately the first four months of the transition period ended December 31, 2015.

~~Note 8.~~

~~Net Income / Loss~~Note 8. Net Income (Loss) per Common Share

We calculate basic net income (loss) per common share amounts by dividing net income (loss) by the weighted-average common shares outstanding. For calculating diluted net income (loss) per common share amounts, we add additional shares to the weighted-average common shares outstanding for the assumed exercise of stock options and vesting of restricted shares, if dilutive. ~~Because we had a net loss during~~The following table sets forth the nine months ended September 30, 2016 and 2015, and the three months and nine months ended September 30, 2015, the following options and warrants and outstanding and unvested restricted stock to purchase sharescomputation of our ~~common stock were excluded from~~basic and diluted net ~~loss~~income (loss) per ~~common share because of their anti-dilutive effect, and therefore, basic net loss per common share equals dilutive net loss per common~~ share:

~~Number of options,~~

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016
Net income (loss)	$	(160,089	)	$	106,314	$	(950,877	)	$	(3,524,861	)
��
Weighted average shares outstanding - basic		60,126,357			25,633,172		59,888,906			25,509,584
Dilutive impact of common stock equivalents outstanding		-			115,672		-			-
Weighted Averages shares used to compute diluted net income (loss) per share		60,126,357			25,748,844		59,888,906			25,509,584

Net income (loss) per share – basic	$	0.00		$	0.00	$	(0.02	)	$	(0.14	)
Net income (loss) per share – diluted	$	0.00		$	0.00	$	(0.02	)	$	(0.14	)

~~warrants and unvested~~

~~restricted stock~~

~~Range of stock~~

~~option and warrant~~

~~exercise prices~~

~~Three months ended September 30, 2015~~

~~3,762,000~~

~~1.64 to $24.40~~

~~Nine months ended September 30, 2016~~

~~2,975,000~~

~~0.88 to $24.40~~

~~Nine months ended September 30, 2015~~

~~3,762,000~~

~~1.64 to $24.40~~

The following ~~options and warrants~~common stock equivalents are excluded from our EPS ~~calculation~~calculations because they are antidilutive:

~~Number of options,~~

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Restricted stock		774,647		305,432		774,647		899,333
Common stock options		2,618,768		1,549,905		2,618,769		1,699,905
Common stock warrants		-		376,123		-		376,123
		3,393,415		2,231,460		3,393,415		2,975,361

~~warrants and unvested~~

~~restricted stock~~

~~Range of stock~~

~~option and warrant~~

~~exercise prices~~

~~Three months ended September 30, 2016~~

~~2,231,000~~

~~1.03 to $24.40~~

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Table of Contents

~~Note 9.~~

Note 9. Shareholders’ Equity

Share-based compensation. On September 30, ~~2016,~~2017, the Company had one active plan, the Cogentix Medical 2015 Omnibus Incentive Plan, for share-based compensation grants (“the 2015 Plan”). Under the 2015 Plan, if we have a change in control (as defined in the 2015 Plan) and the Company is not the surviving entity, all outstanding grants, including those subject to vesting or other performance targets, fully vest immediately if they are not assumed or replaced with equivalent grants. If the Company is the surviving entity, there is no accelerated vesting of equity grants solely upon a change in control. In 2016, the Company experienced a change in control for which it was the surviving entity. Outstanding grants will vest if a participant’s employment or other service with the Company is terminated, without cause or by the participant for good reason, within two years of the November 3, 2016 change in control. Under the 2015 Plan, we reserved 2,500,000 shares of our common stock for share-based grants and ~~1,475,870~~64,223 shares remain available for grant on September 30, ~~2016.~~2017.

We ~~recognize share-based compensation expense in our Condensed Consolidated Statement of Operations based on the fair value~~grant options at the ~~time~~discretion of ~~grant of the share-based payment over the requisite service period. We incurred approximately $440,000 and $951,000~~ ~~in share-based compensation expense for the nine months ended September 30, 2016 and 2015, respectively.~~

~~Page 16~~

~~Table of Contents~~

On September 30, 2016, we had approximately $371,000 of unrecognized share-based compensation expense, net of estimated forfeitures, related to stock options that we expect to recognize over a weighted-average period of approximately 2.25 years.

our directors. We grant option awards with an exercise price equal to the closing market price of our stock at the date of the grant. ~~Options~~We have options outstanding to purchase 2,618,768 shares of common stock granted under ~~this plan~~the 2015 Plan or predecessor companies’ plans. Options generally expire over a period ranging from seven to ten years from date of grant and vest at varying rates ranging up to three years. The options granted under the 2015 Plan generally provide for the exercise of options during a limited period following termination of employment, death or disability.

We determined the fair value of our option awards using the Black-Scholes option pricing model. We used the following weighted-average assumptions to value the options granted during the nine months ended September 30:

	2016			2015			2017

Expected life in years		3.90			3.84			3.00
Risk-free interest rate		0.98	%		1.11	%		1.45	%
Expected volatility		64.32	%		63.94	%		66.89	%
Expected dividend yield		0	%		0	%		0	%
Weighted-average grant date fair value	$	0.49		$	0.79		$	0.74

The expected life for options granted represents the period of time we expect options to be outstanding based on historical data of option holder exercise and termination behavior for similar grants. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate over the expected life at the time of grant. Expected volatility is based upon historical volatility of our stock. We estimate the forfeiture rate for stock awards to be approximately 15% for executive employees and directors and approximately 20% for non-executive employees for calendar year 2016 awards based on our historical experience.

The following table summarizes the activity related to our stock options during the nine months ended September 30, ~~2016:~~2017:

	Number of shares			Weighted average exercise price		Weighted average remaining life in years		Aggregate intrinsic value		Number of shares			Weighted average exercise price		Weighted average remaining life in years		Aggregate intrinsic value

Outstanding at December 31, 2015		2,573,640		$	4.44		4.64	$	-
Outstanding at December 31, 2016											1,680,990		$	3.54		6.55	$	752,290
Options granted		692,400			1.05						1,042,809			1.65
Options exercised		-			-						(7,211	)		1.35
Options surrendered		(1,566,135	)		3.90						(97,820	)		4.53

Outstanding at September 30, 2016		1,699,905		$	3.54		6.79	$	578,213
Outstanding at September 30, 2017											2,618,768		$	2.76		6.27	$	2,151,629

Exercisable at September 30, 2016		818,333		$	6.03		3.95	$	16,062
Exercisable at September 30, 2017											1,095,392		$	4.56		3.44	$	492,887

The total fair value of stock options that vested during the nine months ended September 30, ~~2016~~2017 and ~~2015~~2016 was approximately ~~$268,000~~$223,000 and ~~$600,000,~~$268,000, respectively.

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~~Our 2015 Plan also permits~~We grant restricted shares at the ~~compensation committee~~discretion of our ~~board of~~ directors with vesting terms ranging from six months to ~~grant other stock-based benefits, including restricted shares.~~three years. The following table summarizes the activity related to our restricted shares during the nine months ended September 30, ~~2016:~~2017:

Number of
Shares

Weighted
average
grant date
fair value

Weighted
average
remaining
life in years

Aggregate
intrinsic
value

Balance at December 31, 2015
686,910
$ 2.41
1.59
$ 886,114
Shares granted 837,858 1.06
Shares vested (323,613 ) 2.19
Shares forfeited (301,822 ) 2.48

Balance at September 30, 2016 899,333 $ 1.21 1.54 $ 1,636,786

	Number of restricted shares			Weighted average grant date fair value		Weighted average remaining life in years		Aggregate intrinsic value
Balance at December 31, 2016		992,548		$	1.30		1.35	$	1,995,021
Shares granted		542,541			1.67
Shares vested		(692,237	)		1.39				1,772,127
Shares surrendered		(68,205	)		1.56

Balance at September 30, 2017		774,647		$	1.46		1.72	$	1,983,096

~~Page 17~~

~~Table of Contents~~

The aggregate intrinsic value shown above for the restricted shares represents the total pre-tax value based on the closing price of our common stock at the end of each period.

We recognize share-based compensation expense in our Condensed Consolidated Statements of Operations based on the fair value at the time of grant of the share-based payment over the requisite service period. We incurred approximately $1,131,000 and $440,000 in share-based compensation expense for the nine months ended September 30, 2017 and 2016, respectively.

On September 30, ~~2016,~~2017, we had ~~$907,000~~approximately $883,000 of unrecognized share-based compensation expense ~~net~~related to stock options that we expect to recognize over a weighted-average period of ~~estimated forfeitures,~~approximately 2.37 years.

On September 30, 2017, we had approximately $684,000 of unrecognized share-based compensation expense related to restricted shares that we expect to recognize over a weighted-average period of approximately ~~1.54~~1.72 years.

~~Stock Warrants-Related Party.~~ On September 30, 2016, the Company has warrants outstanding that were issued to Mr. Lewis C. Pell, a member of the Company’s board of directors, to purchase an aggregate of 376,123 shares of our common stock at a weighted average exercise price of $9.31 per share. The duration in which the warrants may be exercised commences on the earlier of (i) March 31, 2018 or (ii) three days prior to the record date established for the declaration of any dividend or distribution of any rights in respect to our common stock in cash or other property other than our common stock, and terminates on the later of (x) the maturity date of the convertible promissory notes held by Mr. Pell and described further in Note 10 or (y) the date the convertible promissory notes are paid in full or converted into shares. In addition, the warrants may be exercised immediately prior to a change in control.

~~Long-Term Incentive Plan and Awards.~~ On October 1, 2014, the compensation committee of our board of directors and our board of directors approved and adopted a Performance Award Agreement under the Uroplasty, Inc. 2006 Amended Stock and Incentive Plan, as amended, and on October 2, 2014, grants of Performance Awards (the “Awards”) were made to members of our senior management team.

Performance goals for the Awards are based on the achievement of specified stock price targets during the period beginning on the date of grant and ending on the fourth anniversary of the date of grant or, if earlier, the closing date of a change of control (as defined in the Plan) of the Company (the “Performance Period”). The stock price targets under the Awards are: $7.57 price per share of common stock, $10.32 price per share of common stock and $13.76 price per share of common stock.

A stock price target is considered achieved on the date (a) the average closing price of a share of our common stock equals or exceeds a stock price target for at least 45 consecutive trading days or (b) of the consummation of a change of control of the Company, provided the closing price of a share of our common stock on the last trading day immediately preceding the closing date of the change of control equals or exceeds a stock price target not previously achieved during the Performance Period.

The Awards are accounted for as liability awards under the share-based compensation accounting guidance, as the awards are based on the performance of our common stock and are expected to be settled in cash. Expense for the awards is recognized over the derived service period of approximately 2.4 years. We recorded a liability of approximately $10,000 at September 30, 2016 and related reversal of expense was approximately $57,000 for the nine months ended ending September 30, 2016 for the Awards.

~~Note 10.~~

~~Convertible Debt – Related Party~~

~~The following table is a summary as of September 30, 2016 of our convertible debt issued to a related party:~~

Gross
Principal
Amount

Unamortized
Debt
Discount

Net
Amount

Note Payable A $ 20,000,000 $ (3,048,813 ) $ 16,951,187

Note Payable B 3,500,000 (470,720 ) 3,029,280

Note Payable C 4,990,000 (797,326 ) 4,192,674
$ 28,490,000 $ (4,316,859 ) $ 24,173,141

~~Page 18~~

~~Table of Contents~~

~~The convertible debt is held by Mr. Lewis C. Pell, a member of the Company’s board of directors, and consists of three convertible promissory notes.~~

• Note Payable A accrues annual interest at the rate of 0.84%. The outstanding principal amount of Note Payable A is convertible into shares of our common stock at a conversion price of $6.00 per share.

• Note Payable B accrues annual interest at the rate of 1.66%. The outstanding principal amount of Note Payable B is convertible into shares of our common stock at a conversion price of $4.45 per share.

• Note Payable C accrues annual interest at the rate of 1.91%. The outstanding principal amount of Note Payable C is convertible into shares of our common stock at a conversion price of $5.55 per share.

~~At September 30, 2016, we had an aggregate amount of $1,019,120 in accrued interest under the convertible notes payable, which is shown as interest payable on our condensed consolidated balance sheet.~~

The convertible promissory notes mature on March 31, 2020 or earlier upon a change of control (as defined therein). The convertible promissory notes generally cannot be converted by Mr. Pell prior to March 31, 2018. The convertible promissory notes may be converted earlier prior to a change in control or in connection with our prepayment of the convertible promissory notes. The convertible promissory notes may be prepaid, at our option and upon 15 days’ notice to Mr. Pell, without other premium or penalty, with a combination of cash and common stock. Interest on the convertible promissory notes is payable on the maturity date or upon repayment or conversion of all or any portion of the principal under the note.

Under purchase accounting for the Merger, the convertible promissory notes were recorded at fair value on the effective date of the Merger, resulting in a discount from their face value of $5,960,000 as of March 31, 2015. The discount is being amortized over the remaining term based on the effective interest rate method with an imputed interest rate of 4.72%.

~~Note 11.~~

Note 10. Savings and Retirement Plans

We sponsor various retirement plans for eligible employees in the United States, the United Kingdom, and The Netherlands. Our retirement savings plan in the United States conforms to Section 401(k) of the Internal Revenue Code and participation is available to substantially all employees. We may also make discretionary contributions ratably to all eligible employees. We made discretionary contributions to the U.S. plan of ~~$308,000~~$432,000 and ~~$259,000~~$308,000 for the nine months ended September 30, ~~2016,~~2017, and ~~2015,~~2016, respectively.

Our international subsidiaries have defined benefit retirement plans for eligible employees. These plans provide benefits based on the employee’s years of service and compensation during the years immediately preceding retirement, termination, disability, or death, as defined in the plans.

The cost for our defined benefit retirement plans in The Netherlands and the United Kingdom includes the following components for the three- and nine-month periods ended September 30:

	Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015			2017			2016			2017			2016

Gross service cost	$	28,000		$	36,000		$	83,000		$	102,000		$	26,000		$	28,000		$	75,000		$	83,000
Interest cost		29,000			24,000			87,000			77,000			25,000			29,000			71,000			87,000
Expected return on assets		(24,000	)		(19,000	)		(72,000	)		(59,000	)		(23,000	)		(24,000	)		(65,000	)		(72,000	)
Amortization		(2,000	)		7,000			(5,000	)		14,000			(1,000	)		(2,000	)		(1,000	)		(5,000	)
Net periodic retirement cost	$	31,000		$	48,000		$	93,000		$	134,000		$	27,000		$	31,000		$	80,000		$	93,000

Page 18

Table of Contents

~~Note 12.~~

Note 11. Business Segment Information

ASC 280, “Segment Reporting,” establishes disclosure standards for segments of a company based on management’s approach to defining operating segments. Reportable segments are defined primarily by the nature of products and services, the nature of the production processes, and the type of customers for our products and services.

~~Page 19~~For financial reporting purposes, we report one operating segment as our Chief Operating Decision Maker utilizes financial statement information provided to him on a consolidated basis.

~~Table of Contents~~

~~We operate in two markets, the medical market and the industrial market.~~ Within the medical market, we have a number of product lines, endoscopy-based products, including our PrimeSight flexible fiber and video endoscopes used in the practices of urology, pulmonology, trans-nasal esophagoscopy and ENT (ear, nose and throat) and a proprietary sterile disposable microbial barrier, known as EndoSheath Protective Barrier, the Urgent^® PC Neuromodulation System (“Urgent PC System”) a minimally-invasive, neuromodulation system that delivers percutaneous tibial nerve stimulation for office-based treatment of overactive bladder and associated symptoms; and Macroplastique® Implants (“Macroplastique”), an injectable, urethral bulking agent for the treatment of adult female stress urinary incontinence.

None of the industrial market sales, net losses or assets are more than 10% of our total sales, losses or assets. Therefore, we aggregate our operating segments into one reportable segment in accordance with the objectives and principles of the applicable guidance.

~~For the three and nine months ended September 30, no country other than the United States represented more than 10% of our consolidated revenue.~~ Information regarding geographic area net sales to customers ~~by geographic area~~ for the three and nine months ended September 30, is approximately as follows:

	United States		United Kingdom		All Other Foreign Countries (1)		Consolidated		United States		All Other Foreign Countries (1)		Consolidated

Three months ended September 30, 2017									$	10,415,000	$	3,350,000	$	13,765,000

Three months ended September 30, 2016	$	10,701,000	$	851,000	$	1,856,000	$	13,408,000	$	10,701,000	$	2,707,000	$	13,408,000

Three months ended September 30, 2015	$	8,828,000	$	596,000	$	2,410,000	$	11,834,000
Nine months ended September 30, 2017									$	29,990,000	$	10,789,000	$	40,779,000

Nine months ended September 30, 2016	$	28,877,000	$	3,036,000	$	6,706,000	$	38,619,000	$	28,877,000	$	9,742,000	$	38,619,000

Nine months ended September 30, 2015	$	21,520,000	$	2,954,000	$	5,530,000	$	30,004,000

(1)

No other country accounts for 10% orof more of the consolidated net sales.

Information regarding geographic area ~~in which we maintain~~ long-lived assets is approximately as follows:

United
States

United
Kingdom

The
Netherlands
Consolidated

September 30, 2016 $ 1,738,000 $ 2,000 $ 462,000 $ 2,202,000

December 31, 2015 $ 2,089,000 $ 3,000 $ 463,000 $ 2,555,000

	United States		United Kingdom/ The Netherlands		Consolidated

September 30, 2017	$	1,805,000	$	661,000	$	2,466,000

December 31, 2016	$	1,676,000	$	439,000	$	2,115,000

Accounting policies of the operations in the various geographic areas are the same as those described in Note 1. Net sales attributed to each geographic area are net of intercompany sales. No single customer represents 10% or more of our consolidated net sales. Long-lived assets consist of property, plant and equipment.

Note 12. Equity Investment

ASC 323, “Investments – Equity Method and Joint Ventures,” establishes accounting guidelines for an equity investment in which the Company has the ability to exercise significant influence, but does not have a controlling interest. In this situation, the equity method should be applied to an investment. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock of an entity between 20% and 50%, and other factors, such as representation on the Board of Directors, are considered in determining whether the equity method of accounting is appropriate.

On September 28, 2017, we made an equity investment in Vensica Medical (“Vensica”), a privately-held Israeli-based company developing VensiCare, an ultrasound based, needle-free drug delivery system. Our $2 million investment gave us a 20% ownership in the company and allows us to have one seat on the Vensica Medical Board of Directors along with two call options to acquire the entire company for an additional $8 million. The investment is accounted for using the equity method of accounting because the Company has significant influence, but not control, of the entity. Due to the timing of this investment, we did not earn any income (loss) in Vensica Medical for the three and nine-month period ended September 30, 2017.

~~Note 13.~~

Note 13. Subsequent Event

On September 7, 2016, we entered into a securities purchase agreement (the “Purchase Agreement”) with Accelmed Growth Partners, L.P. (“Accelmed”). Under the terms of the Purchase Agreement, Accelmed purchased 16,219,033 shares of our common stock at $1.55 per share, for an aggregate price of $25 million. As a condition to Accelmed closing the equity investment, the Company converted into common shares all the outstanding debt and accrued interest (see Note 10) owed to Lewis C. Pell. On September 7, 2016, the Company and Mr. Pell entered into a definitive agreement (the “Note Exchange Agreement”) under which the debt owed by Cogentix to Mr. Pell was converted into Cogentix common stock at a price per share of $1.67 prior to closing the Purchase Agreement. The Note Exchange Agreement also provides that, simultaneously with the conversion of such debt, all outstanding warrants (see Note 9) to purchase Cogentix common stock held by Mr. Pell were cancelled.

On November 3, 2016, the shareholders of the Company approved the transactions described above and these transactions closed on November 3, 2016. As such, we converted all of the outstanding principal amount, approximately $28.5 million, and accrued interest, approximately $1.0 million, on our promissory notes held by Mr. Pell into 17,688,423 shares of our common stock. We also issued 16,219,033 shares of our common stock to Accelmed in exchange for $25 million.None.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking Statements

We recommend that you read this quarterly report on Form 10-Q in conjunction with our annual report on Form ~~10-KT~~10-K for the ~~nine-months~~year ended December 31, ~~2015.~~2016.

You should read the following discussion of our financial condition and results of operation together with the unaudited, condensed, consolidated financial statements and the notes thereto included elsewhere in this report and other financial information included in this report. The following discussions may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, as we discussed in our special note regarding “Forward-Looking Statements” beginning on page 3 of this report and under “Part I - Item 1A. Risk Factors” in our annual report on Form ~~10-KT~~10-K for the ~~nine-months~~year ended December 31, ~~2015.~~2016. These risks could cause our actual results to differ materially from any further performance suggested below.

We do not undertake, nor assume any obligation, to update any forward-looking statement that we may make from time to time.

Overview

Cogentix Medical is a global medical device ~~company.~~company headquartered in Minnetonka, Minnesota, with additional operations in New York, Massachusetts, The Netherlands and the United Kingdom. We design, develop, manufacture and market ~~innovative proprietary technologies serving~~a robust line of high performance fiberoptic and video endoscopy products under the PrimeSight^TM brand that are used across multiple surgical specialties in diagnostic and treatment procedures, with our focus being on the urology ~~and airway management markets. The Urgent~~^®market. We also offer the Urgent® PC Neuromodulation System, ~~is an FDA-cleared~~a device that delivers percutaneous tibial nerve stimulation (“PTNS”), for the office-based treatment of overactive bladder ~~(OAB)~~(“OAB”). OAB is a chronic condition that affects approximately 40 million adults in the U.S. The ~~FDA-cleared PrimeSight~~^TM ~~Endoscopy Systems utilizing the EndoSheath Protective Barrier combine state-of-the-art endoscopic technology with a sterile, disposable microbial barrier, providing practitioners~~symptoms include urinary urgency, frequency and ~~healthcare facilities with a solution to meet the growing need for safe, efficient and cost-effective flexible endoscopy.~~urge incontinence. We also offer ~~Macroplastique~~^® aMacroplastique® Implants, an injectable urethral bulking agent for the treatment of adult female stress urinary ~~incontinence.~~ incontinence that is primarily due to intrinsic sphincter deficiency. Outside the U.S., ~~the company markets~~we market additional bulking agents: PTQ^®for the treatment ofif fecal incontinence and ~~the~~ VOX^®for vocal cord augmentation.

On December 21, 2014, Vision-Sciences entered into a merger agreement with Uroplasty, a publicly traded corporation. The merger agreement provided for the merger of Uroplasty with and into a newly created, wholly-owned merger subsidiary of Vision-Sciences (the “Merger”). Following the approval of the Merger by Vision-Sciences’ and Uroplasty’s stockholders on March 30, 2015 and pursuant to the terms of the merger agreement, on March 31, 2015, Uroplasty merged with and into the Merger Sub, with Merger Sub continuing as the surviving entity and a wholly-owned subsidiary of Vision-Sciences under the name “Uroplasty, LLC.” Vision-Sciences changed its name to “Cogentix Medical, Inc.”

The Merger was accounted for as a reverse acquisition due to a number of factors including the relative voting interests in the combined company of the former Vision-Sciences and Uroplasty stockholders following the Merger. As a result, Uroplasty and its consolidated subsidiaries represent the accounting acquirer in the Merger, and Vision and its consolidated subsidiary represent the legal acquirer in the Merger. Accordingly, while Vision was the legal acquirer in the Merger, Uroplasty is treated as the acquiring company in the Merger for accounting purposes.

As a result of the Merger, our financial statements prior to March 31, 2015 are the historical financial statements of Uroplasty, and our financial statements on and after March 31, 2015 reflect the results of the operations of Uroplasty and Vision-Sciences on a combined basis. We refer you to Note 2 to the “Notes to Consolidated Financial Statements” in Part II, Item 8 of our annual report on Form 10-KT for the nine-months ended December 31, 2015 for an additional description of the Merger, the accounting treatment of the Merger, and the pro forma financial information for Cogentix on a combined basis.

On September 7, 2016, we entered into a securities purchase agreement (the “Purchase Agreement”) with Accelmed Growth Partners, L.P. (“Accelmed”). Under the terms of the Purchase Agreement, Accelmed agreed to purchase 16,219,033 shares of our common stock at $1.55 per share, for an aggregate price of $25.0 million. As a condition to Accelmed closing the equity investment, we agreed to convert into shares of our common stock all of the outstanding debt and accrued interest owed to Lewis C. Pell, one of our directors. On September 7, 2016, we entered into a definitive agreement with Mr. Pell (the “Note Exchange Agreement”) under which the debt we owed to Mr. Pell would be converted into our common stock at a price per share of $1.67 prior to closing the Purchase Agreement. The Note Exchange Agreement also provided that, simultaneously with the conversion of such debt, all outstanding warrants to purchase our common stock that are held by Mr. Pell would be cancelled.

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After the end of the third quarter, on November 3, 2016, our shareholders approved the transactions described above, and these transactions closed on November 3, 2016. We converted the outstanding principal amount, approximately $28.5 million, and accrued interest, approximately $1.0 million, on our promissory notes held by Mr. Pell into 17,688,423 shares of our common stock. We also issued 16,219,033 shares of our common stock to Accelmed in exchange for $25.0 million.

As a result of the transactions described above, Mr. Pell and Accelmed own or control a majority of the outstanding common stock of the Company as of November 3, 2016. In connection with the Purchase Agreement, Accelmed and Mr. Pell entered into a voting agreement (the “Voting Agreement”). Pursuant to the terms of the Voting Agreement, Mr. Pell and Accelmed have agreed to vote their shares of the company’s common stock for the other party’s nominees to the board of directors. Under the Voting Agreement, each of Mr. Pell and Accelmed are entitled to nominate two directors, with the remaining seats to be filled by nominees that are mutually agreed upon by Mr. Pell and Accelmed in accordance with the terms of the Voting Agreement. The Voting Agreement is intended, in part, to qualify the Company as a “Controlled Company” under Nasdaq Rule 5615(c)(2), ~~which permits the Company to utilize the controlled company exemption to the independent director requirements of Nasdaq Listing Rule 5605~~. Additionally, under the terms of the Purchase Agreement, the Company has agreed that one of the directors nominated to the board by Accelmed shall serve as Chairman of the Board until Accelmed or its affiliates no longer own 50% of the shares purchased pursuant to the Purchase Agreement or unless otherwise agreed by Accelmed. ~~The Company also amended its bylaws to reduce the required quorum for all stockholder meetings to one-third of all issued and outstanding shares of voting stock of the Company.~~

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, or GAAP, which require us to make estimates and assumptions in certain circumstances that affect amounts reported. In preparing these consolidated financial statements, we have made our best estimates and judgments of certain amounts, giving due consideration to materiality.

We have identified in our annual report on Form ~~10-KT~~10-K for the ~~nine-months~~year ended December 31, ~~2015,~~2016, our “critical accounting policies,” which are certain accounting policies that we consider important to the portrayal of our results of operations and financial condition and which may require the application of a higher level of judgment by our management, and as a result are subject to an inherent level of uncertainty. Management made no significant changes to our critical accounting policies during the nine months ended September 30, ~~2016.~~2017 other than for the adoption of ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” Under the new ASU we no longer account for forfeitures of restricted stock awards and stock options throughout the vesting period, and instead, we account for them in the period in which they occur. We also recognize certain tax benefits or tax shortfalls upon a restricted-stock award vesting or stock option exercise relative to the deferred tax asset position established in the provision for income taxes line of the consolidated statements of operations instead of within the consolidated statement of shareholders’ equity.

Results of Operations

The reported operations for the three months ended September 30, 2016 and 2015 and the nine months ended September 30, 2016, are the results of Cogentix, while the nine months ended September 30, 2015 include the results of UPI for the period from January 1, 2015 through March 31, 2015 and the results of Cogentix beginning April 1, 2015, the day after the Merger was closed. As such, results for the nine month current period will be materially different than the reported numbers of the same period of the prior year.

Three months ended September 30, ~~2016~~2017 compared to three months ended September 30, ~~2015~~2016

Net ~~Sales~~Sales:~~: During~~ Consolidated net sales of $13,765,000 in the current period ~~consolidated~~represented a $357,000 increase, or 2.7%, over net sales of $13,408,000 in the prior period. The increase is primarily due to a $422,000 net increase in revenue from the Urology product lines, which is comprised of the PrimeSight, Urgent PC and other urology products, and is offset by a $65,000 net decrease in revenue from the non-core Airway Management and Industrial product lines.

Consolidated net sales for PrimeSight urology products of $4,293,000 in the current period represented a ~~$1,574,000,~~$114,000 decrease, or ~~a 13% increase,~~2.6%, over net sales of ~~$11,834,000~~$4,407,000 in the prior period. Our PrimeSight endoscopes are capital purchases for our customers, and such capital sales can vary from quarter to quarter. In the third quarter of 2016, the Company had its largest sale to date of capital equipment to one customer and there was no comparable sale in the third quarter of 2017. Year to date through September 30, 2017, PrimeSight urology revenue has increased by 26% over the same period of 2016.

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Consolidated net sales of our Urgent PC System of $5,360,000 in the current period represented a $150,000 increase, or 2.9%, when compared to net sales of $5,210,000 in the prior period. The ~~revenue for the products from~~increase is due to increased utilization within existing accounts.

Consolidated net sales of our ~~PrimeSight endoscopy products increased $1,731,000, or 38%,~~Macroplastique product of $1,715,000 in the current period represented a $44,000 increase, or 2.6%, over net sales of $1,671,000 in the prior period. ~~This~~Macroplastique serves a small market, and the focus of our sales force has been on growing sales of our PrimeSight urology and Urgent PC products.

Consolidated net sales of other urology products of $550,000 in the current period represented a $342,000 increase, or 164.4%, over net sales of $208,000 in the prior period. The increase is due primarily to non-PrimeSight revenue from the Genesis Acquisition described in Note 3 to the financial statements.

Consolidated net sales of our non-urology products (Airway Management and Industrial Boroscopes) of $1,847,000 in the current period represented a $65,000 decrease, or 3.4%, over net sales of $1,912,000 in the prior period. The decrease is primarily due to our increased focus on Urology products. Additionally, we are exploring strategic alternatives for our non-Urology Airway Management and Industrial product lines.

Consolidated net sales to customers in the U.S. of $10,415,000 in the current period represented a decrease of $425,000, or 3.9%, over net sales of $10,840,000 in the prior period. Consolidated net sales to customers outside the U.S. of $3,350,000 in the current period represented an increase of $782,000, or 30.5%, over net sales of $2,568,000 in the prior period.

Gross Profit: Gross profit was $9,395,000, or 68.3% of net sales in the current period, compared to $9,038,000, or 67.4% of net sales in the prior period. The increase in gross profit percentage is attributed primarily to product mix. Revenue from our higher margin Urgent PC and Macroplastique products were a higher proportion of total sales in the current quarter than the prior quarter.

Operating Expenses: Operating expenses in the current period totaled approximately $9,589,000, compared to approximately $8,517,000 in the prior period, an increase of approximately $1,072,000. The increase was primarily attributable to share based compensation expense, business development costs, operating costs from the Genesis Acquisition described in Note 3 to the financial statements and the expansion of the U.S. sales force. Operating expenses included:

General and Administrative Expenses (G&A): G&A expenses of $2,056,000 in the current period increased $498,000 from $1,558,000 in the prior period. The increase is attributed primarily to a $192,000 increase of share based compensation expense and approximately $208,000 of business development costs as well as inclusion of approximately $100,000 for the operating costs of Genesis.

Research and Development Expenses (R&D): R&D expenses of $1,234,000 in the current period decreased $16,000 from $1,219,000 in the prior period.

Selling and Marketing Expenses (S&M): S&M expenses of $5,698,000 in the current period increased $494,000, from $5,203,000 in the prior period. The increase is attributed primarily to the expansion of the U.S sales force as well as the addition of five sales personnel from the Genesis Acquisition.

One-time Costs: In the first half of 2016, the Company incurred one-time costs related to the proxy contest between the Company and Mr. Lewis Pell (a current director) and related litigation. In the third quarter of 2016, the Company received a $54,000 refund of professional fees. There were no similar costs or refunds in the current period.

Amortization of Intangible Assets: Amortization of intangible assets was $602,000 in the current period compared to $591,000 in the prior period.

Other Income (Expense): Other income (expense) includes interest income, interest expense, foreign currency exchange and other non-operating costs when incurred. Net other income was $61,000 in the current period compared to net other expense of $396,000 in the prior period. Other income in the current quarter is primarily interest income from our investments. Interest expense in the prior year is primarily due to interest on related party debt that was converted into equity in the fourth quarter of 2016.

Income Tax Expense: We recorded income tax expense of approximately $26,000 in the current period and $19,000 in the prior period. Income tax expense is attributed to our European subsidiaries and to the payment of minimum taxes in the U.S.

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Net Income (Loss): Net loss was approximately $160,000 ($0.00 per share) in the current period compared to net income of approximately $106,000 ($0.00 per share) in the prior period.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

Net Sales: Consolidated net sales of $40,779,000 in the current period represented a $2,160,000 increase, or 5.6%, over net sales of $38,619,000 in the prior period. The increase is primarily due to a $2,850,000 net increase in revenue from the Urology product lines, which is comprised of the PrimeSight, Urgent PC and other urology products, and is offset by a $572,000 net decrease in revenue from the Airway Management and Industrial product lines.

Consolidated net sales for PrimeSight urology products of $13,735,000 in the current period represented a $2,850,000 increase, or 26.2%, over net sales of $10,885,000 in the prior period. The increase is primarily due to our sales force becoming more proficient in selling this technology as well the fact that our PrimeSight technology platform meets the needs of our medical customers for always ~~sterile,~~ready, always ~~ready~~sterile flexible endoscopy solutions. Our urology PrimeSight products have been clinically proven to reduce the risk of cross contamination associated with the reuse or reprocessing of difficult to clean conventional endoscopes and they also reduce the typical 45-minute reprocessing time to less than 10 minutes, allowing for greater patient throughput, increased physician productivity and ultimately economic benefit for our customers.

~~Net~~Consolidated net sales ~~to customers~~of our Urgent PC System of $15,602,000 in ~~the U.S. of $10,839,000 during~~ the current period represented ~~an increase of $1,874,000,~~a $118,000 decrease, or ~~21%~~0.8%, ~~over~~when compared to net sales of ~~$8,965,000~~$15,720,000 in the prior period. ~~Our PrimeSight business had $4,700,000 in revenue in the~~ U.S., up $1,600,000 or 50% from the year ago quarter. The urology portion of our PrimeSight business had growth of $1,400,000 or 87%. Urgent PC revenue in the U.S. was $4,600,000, representing growth of $300,000 or 6% over the prior period. Urgent PC unit growth ~~of 14%~~ was ~~partially~~ offset by ~~lower~~a 4% decline in average selling ~~prices. While a new competitor~~price. U.S. unit growth was due primarily to ~~Urgent PC entered the market~~sales execution and increased penetration in ~~early 2016, our~~existing accounts. Our sales team has effectively demonstrated the clinical efficacy and value proposition of Urgent PC to our physician customers resulting in the increased sales. The sales team continues to place a strong emphasis on servicing existing accounts and increasing utilization within existing accounts. The decrease in average selling price is primarily due to the continued sales efforts of a large competitor who entered the PTNS space in the first quarter of 2016. Average selling prices have been substantially consistent over the past four quarters.

Consolidated net sales of our Macroplastique product of $5,237,000 in the current period represented a $273,000 decrease, or 5.0%, over net sales of $5,510,000 in the prior period. Macroplastique serves a small market, and the focus of our sales force has been on growing sales of our PrimeSight urology and our Urgent PC products.

Consolidated net sales of other urology products of $1,071,000 in the current period represented a $273,000 increase, or 34.2%, over net sales of $789,000 in the prior period. The increase is due primarily to non-PrimeSight revenue from the Genesis Acquisition.

Consolidated net sales of our non-urology products of $5,134,000 in the current period represented a $572,000 decrease, or 10.0%, over net sales of $5,706,000 in the prior period. The decrease is primarily due to our increased focus on Urology products. Additionally, we are exploring strategic alternatives for our non-Urology Airway Management and Industrial product lines.

Consolidated net sales to customers in the U.S. of $29,990,000 in the current period represented an increase of $611,000, or 2.1%, over net sales of $29,379,000 in the prior period. Consolidated net sales to customers outside the U.S. of $10,789,000 in the current period represented an increase of $1,549,000, or 16.8%, over net sales of $9,240,000 in the prior period.

Gross Profit: Gross profit was $27,257,000, or 66.8% of net sales in the current period, compared to $26,361,000, or 68.3% of net sales in the prior period. The change in gross profit percentage is attributed primarily to product mix, as revenue from our PrimeSight products were a higher proportion of total sales in the currentperiod as compared to the same period of the prior year, and our PrimeSight products have a lower profit percentage than our Urgent PC and Macroplastique products.

Operating Expenses: Operating expenses in the current period totaled approximately $28,288,000 compared to approximately $28,646,000 in the prior period, a decrease of $359,000. Operating expenses included:

General and Administrative Expenses (G&A): G&A expenses of $6,250,000 in the current period increased $1,162,000 from $5,088,000 in the prior period. The increase is attributed primarily to an increase of $655,000 in share based compensation expense and approximately $398,000 of business development costs.

Research and Development Expenses (R&D): R&D expenses of $3,557,000 in the current period increased $301,000 from $3,256,000 in the prior period. The increase is attributed to ongoing enhancements to our PrimeSight product line.

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Net sales to international customers of $2,600,000 for the third quarter decreased $300,000, or 11%, from the year ago quarter. Two items were responsible for this decrease. First, we experienced an unexpected delay in the renewal of our CE Mark for certain of our products during the third quarter, and due to this delay, we had approximately $350,000 in customer orders that we could not ship in the third quarter. On short notice, we were forced to find a new notified body in order to renew the CE certificates when our existing notified body could not fulfill its obligations to us. In addition to the CE Mark delay, the impact of changes in foreign currency exchange rates negatively impacted international revenue by $100,000 or 1%. Absent these two items, international revenue would have increased $150,000 or 5% for the third quarter of 2016. Subsequent to the end of the third quarter, we have obtained renewal of the CE Mark for Macroplastique and Urgent PC and we expect our fourth quarter international revenues to be positively impacted by the shipment of the customer orders on hold at the end of the third quarter.

~~Gross Profit~~: Gross profit was $9,038,000, or 67.4% of net sales in the current period, compared to $7,880,000, or 66.6% of net sales in the prior period. The increase in gross profit percentage is attributed primarily to the expiration of an unprofitable Stryker Corporation distribution arrangement for ureteroscopes that was not renewed at the end of calendar 2015.

~~General and Administrative Expenses (G&A):~~ G&A expenses of $1,558,000 in the current period decreased $377,000 from $1,935,000 in the prior period. The decrease is attributed primarily to lower legal, share based compensation, and consulting costs.

~~Research and Development Expenses (R&D):~~ R&D expenses of $1,219,000 in the current period increased $184,000 from $1,035,000 in the prior period. The increase is attributed to increased spend on R&D projects and regulatory expenses, partially offset by lower personnel and legal costs.

Selling and Marketing Expenses (S&M): S&M expenses of ~~$5,203,000~~$16,700,000 in the current period ~~decreased $643,000,~~increased $427,000, from ~~$5,846,000~~$16,273,000 in the prior period. The ~~decrease~~increase is attributed primarily to ~~a decrease in sales personnel costs due to lower headcount as a result~~the expansion of the ~~Merger~~U.S sales force and ~~the repeal of the~~is partially offset by a $372,000 for an IRS tax refund related to medical device ~~tax.~~taxes paid in 2013 -2015.

~~Amortization of Intangibles~~One-time Costs:~~: Amortization of intangibles was $591,000 in the current period compared to $634,000~~ One-time costs in the prior ~~period. The decrease is due~~period related to ~~certain identifiable intangible assets recorded as part of~~ the ~~Merger being fully amortized.~~

~~Proxy Settlement Costs~~: On May 23, 2016, the Company and all of the then-current members of the board of directors of the Company, including Director Mr. Lewis Pell who had been independently soliciting proxies to support his proposals for the Company’s 2016 Annual Meeting of Stockholders originally scheduled for May 20, 2016 and adjourned for May 24, 2016, entered into an agreement to settle the pending proxy contest settlement between the Company and Mr. Lewis Pell and related litigation in connection with the 2016 Annual ~~Meeting (the “Settlement”). We negotiated a credit~~Meeting. These fees included $758,000 of professional fees (primarily legal) and $1,500,000 of severance costs for ~~certain legal fees associated with~~ the ~~Settlement and recorded a reduction to these costs of $54,000. There were no similar costs in the same period of the prior year.~~

~~Merger Related Costs: Merger related costs totaled $437,000 in the three months ended September 30, 2015.~~Company’s former CEO. There were no similar costs in the current period. ~~Merger related costs include severance and retention, consulting and professional fees.~~

Amortization of Intangible Assets: Amortization of intangible assets was $1,781,000 in the current period compared to $1,773,000 in the prior period.

Other Income (Expense): Other income (expense) includes interest income, interest expense, foreign currency exchange and other non-operating costs when incurred. Net other ~~expense~~income was ~~$396,000~~$221,000 in the current period compared to net other expense of ~~$351,000~~$1,187,000 in the prior period. ~~Interest expense totaled $381,000~~Other income in the current period ~~compared to $353,000~~is primarily interest income from our investments. Interest expense in the prior ~~period. This interest expense~~year is primarily due to ~~accrued~~ interest on related party debt ~~and the amortization of the debt discount associated with this debt as a result of the Merger.~~

~~The related party debt has a weighted average stated interest rate of 1.13% resulting in $83,000 of interest expense for the current period, compared to $76,000~~that was converted into equity in the ~~prior period. For the current period, the non-cash amortization~~fourth quarter of ~~the debt discount totaled $282,000, compared to $269,000 in the prior period.~~2016.

Income Tax Expense: We recorded income tax expense of approximately ~~$19,000~~$141,000 in the current period and ~~$11,000~~$52,000 in the prior period. Income tax expense is attributed to our European subsidiaries and to the payment of minimum taxes in the U.S.

~~Nine months ended September 30, 2016 compared to nine months ended September 30, 2015~~

Net ~~Sales~~Income (Loss): During the current period, consolidated net sales of $38,619,000 represented an $8,615,000 or a 29% increase over net sales of $30,004,000 in the prior period. The revenue for our PrimeSight endoscopy products increased $7,762,000, or 88% in the current period. The primary reason for this increase is the Merger, which occurred on March 31, 2015. In addition, thereNet loss was ~~increased customer demand and customer recognition of the benefits of the products in reducing the risk of cross-contamination and in increasing physician productivity. Revenue from Urgent~~^® PC increased $1,170,000, or 8%. While a new competitor to Urgent PC entered the market in early 2016, our sales team has effectively demonstrated the clinical efficacy and value proposition of Urgent PC to our physician customers resulting in the increased sales. The sales team continues to place a strong emphasis on servicing existing accounts and increasing utilization within existing accounts.

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Net sales to customers in the U.S. of $29,371,000 during the current period represented an increase of $6,771,000, or 30%, over net sales of $22,600,000 in the prior period. Net sales to customers outside the U.S. increased $1,844,000, or 25%, to $9,248,000, compared to $7,404,000 in the prior period.

~~Gross Profit~~: Gross profit was $26,361,000, or 68.3% of net sales in the current period, and $21,596,000, or 72.0% of net sales in the prior period. The decrease in gross profit percentage is attributed primarily to the addition of the PrimeSight endoscopy products as part of the Merger, which have lower margins than the Uroplasty products.

~~General and Administrative Expenses (G&A):~~ G&A expenses of $5,088,000 in the current period decreased $143,000 from $5,231,000 in the prior period. The decrease is attributed primarily to lower shared based compensation legal, postage, and insurance costs, offset partially by increased accounting and consulting costs.

~~Research and Development Expenses (R&D):~~ R&D expenses of $3,256,000 in the current period increased $549,000 from $2,707,000 in the prior period. The increase is attributed primarily to increased spend on R&D projects, regulatory expenses, and personnel costs, offset partially by lower clinical studies costs.

~~Selling and Marketing Expenses (S&M):~~ ~~S&M expenses of $16,273,000 in the current period, decreased $1,169,000, from $17,442,000 in the prior period~~. ~~The decrease is attributed primarily to a decrease in sales personnel costs due to lower headcount and reduced marketing project spend, and the repeal of the medical device tax.~~

~~Amortization of Intangibles: Amortization of intangibles was $1,773,000~~approximately $951,000 ($0.02 per share) in the current period compared to ~~$1,276,000~~a net loss of approximately $3,525,000 ($0.14 per share) in the prior period. The increase is due to the establishment of $13,660,000 of identifiable intangible assets on March 31, 2015, as a part of the allocation of purchase accounting in the Merger. These identifiable intangible assets are being amortized over a weighted average life of approximately 6 years.

~~Proxy Settlement Costs~~: For the nine months ended September 30, 2016, the Company incurred $2,258,000 of costs related to the Settlement, including $758,000 of professional fees (primarily legal) and $1,500,000 of severance costs for the Company’s former CEO. There were no similar costs in the same period of the prior year.

~~Merger Related Costs~~: Merger related costs totaled $2,484,000 in the nine months ended September 30, 2015. There were no similar costs in the current period. Merger related costs include severance and retention, consulting and professional fees.

~~Other Income (Expense):~~ Other income (expense) includes interest income, interest expense, foreign currency exchange and other non-operating costs when incurred. Net other expense was $1,187,000 in the current period compared to net other expense of $689,000 in the prior period. Other expense increased primarily as the result of the acquisition of related party debt and the amortization of the debt discount along with accrued interest associated with this debt as a result of the Merger.

The related party debt has a weighted average stated interest rate of the 1.13% resulting in $262,000 of interest expense for the current period. Further, as part of the purchase price accounting related to the Merger, the related party debt was discounted to fair value. For the current period, the non-cash amortization of the debt discount totaled $836,000.

~~Income Tax Expense~~: We recorded income tax expense of approximately $52,000 in the current period and $38,000 in the prior period. Income tax expense is attributed to our European subsidiaries and to the payment of minimum taxes in the U.S.

Non-GAAP Financial Measures: The following tables reconcile our operating ~~income/loss~~income (loss) calculated in accordance with GAAP to non-GAAP financial measures that exclude non-cash charges for share-based compensation expense, ~~long-term incentive plan,~~ depreciation and ~~amortization, as well as proxy settlement costs incurred in 2016 and Merger-related costs in 2015.~~amortization. The non-GAAP financial measures used by management and disclosed by us are ~~not~~neither a substitute for, ornor superior to, financial measures and consolidated financial results calculated in accordance with GAAP, and you should carefully evaluate our reconciliations to non-GAAP. We may calculate our non-GAAP financial measures differently from similarly titled measures used by other companies. Therefore, our non-GAAP financial measures may not be comparable to those used by other companies. We have described the reconciliations of each of our non-GAAP financial measures described above to the most directly comparable GAAP financial measures.

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~~Table of Contents~~

We use this non-GAAP financial information, and in particular non-GAAP cash operating ~~income/loss,~~income (loss), for internal managerial purposes because we believe such measures are one important indicator of the strength and the operating performance of our business. Analysts and investors frequently ask us for this information. We believe that they use this information to evaluate the overall operating performance of companies in our industry, including as a means of comparing period-to-period results and as a means of evaluating our results with those of other companies.

Our non-GAAP cash operating income, excluding non-cash expenses, ~~proxy settlement~~during the three months ended September 30, 2017 was approximately $1,025,000 and ~~Merger related~~our non-GAAP cash operating income, excluding one-time costs, ~~during~~for the three months ended September 30, 2016 was $1,444,000 and our non-GAAP cash operating loss for the three months ended September 30, 2015 was $(382,000). Our non-GAAP cash operating income, excluding non-cash expenses and Merger related costs during the nine months ended September 30, 2016 was $2,713,000 and our non-GAAP cash operating loss for the nine months ended September 30, 2015 was $(2,417,000).approximately $1,444,000.

				Expense Adjustments																		Expense Adjustments
Three-Months Ended	GAAP			Share- based Expense			Long-term Incentive Plan			Depreciation			Amortization			Non-GAAP			GAAP			Share- based Expense			Long- term Incentive Plan			Depreciation			Amortization			Non-GAAP
September 30, 2017
Gross profit																			$	9,394,657		$	5,257		$	-		$	54,271		$	-		$	9,454,185
% of net sales																				68.3	%														68.7	%
Operating expenses
General and administrative																				2,055,763			(365,780	)		-			(51,026	)		-			1,638,957
Research and development																				1,234,468			(11,577	)		-			(3,571	)		-			1,219,320
Selling and marketing																				5,697,552			(45,548	)		-			(81,405	)		-			5,570,599
Amortization																				601,604			-			-			-			(601,604	)		-
Total operating expenses																			$	9,589,387		$	(422,905	)	$	-		$	(136,002	)	$	(601,604	)	$	8,428,876

Operating income (loss)																			$	(194,730	)	$	428,162		$	-		$	190,273		$	601,604		$	1,025,309

September 30, 2016
Gross profit	$	9,038,000		$	5,000		$	-		$	42,000		$	-		$	9,085,000		$	9,038,037		$	5,375		$	-		$	41,938		$	-		$	9,085,350
% of net sales		67.4	%														67.8	%		67.4	%														69.9	%
Operating expenses
General and administrative		1,558,000			(174,000	)		18,000			(56,000	)		-			1,346,000			1,558,090			(174,385	)		17,534			(55,408	)		-			1,345,831
Research and development		1,219,000			(8,000	)		-			(2,000	)		-			1,209,000			1,218,669			(7,526	)		-			(1,779	)		-			1,209,364
Selling and marketing		5,203,000			(28,000	)		-			(89,000	)		-			5,086,000			5,203,477			(27,714	)		-			(89,427	)		-			5,086,336
Amortization		591,000			-			-			-			(591,000	)		-			590,858			-			-			-			(590,858	)		-
Proxy settlement costs		(54,000	)		-			-			-			-			(54,000	)
		8,517,000			(210,000	)		18,000			(147,000	)		(591,000	)		7,587,000
One-time costs																				(53,887	)		-			-			-			-			(53,887	)
Total operating expenses																			$	8,517,207		$	(209,625	)	$	17,534		$	(146,614	)	$	(590,858	)	$	7,587,644

Operating income (loss)		521,000			215,000			(18,000	)		189,000			591,000			1,498,000		$	520,830		$	215,000		$	(17,534	)	$	188,552		$	590,858		$	1,497,706
Proxy settlement costs		(54,000	)		-			-			-			-			(54,000	)
Cash operating income (loss) excluding proxy settlement costs																$	1,444,000

September 30, 2015
Gross profit	$	7,880,000		$	8,000		$	-		$	59,000		$	-		$	7,947,000
% of net sales		66.6	%														67.2	%
Operating expenses
General and administrative		1,935,000			(313,000	)		77,000			(54,000	)		-			1,645,000
Research and development		1,035,000			(19,000	)		-			-			-			1,015,000
Selling and marketing		5,846,000			(73,000	)		-			(104,000	)		-			5,669,000
Amortization		634,000			-			-			-			(634,000	)		-
Merger related costs		437,000			-			-			-			-			437,000
		9,887,000			(405,000	)		77,000			(158,000	)		(634,000	)		8,766,000

Operating income (loss)		(2,007,000	)		413,000			(77,000	)		217,000			634,000			(820,000	)
Merger related costs		437,000			-			-			-			-			437,000
Cash operating income (loss) excluding Merger related costs																$	(383,000	)
One-time costs																				(53,887	)														(53,887	)
Cash operating income excluding one-time costs																																		$	1,443,819

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Expense Adjustments
Nine-Months Ended GAAP
Share-
based
Expense

Long-term
Incentive
Plan
Depreciation Amortization Non-GAAP
September 30, 2016
Gross profit $ 26,361,000 $ 28,000 $ - $ 135,000 $ - $ 26,524,000
% of net sales 68.3 % 68.7 %
Operating expenses
General and administrative 5,088,000 (315,000 ) 64,000 (155,000 ) - 4,682,000
Research and development 3,255,000 (16,000 ) - (3,000 ) - 3,236,000
Selling and marketing 16,273,000 (81,000 ) - (299,000 ) - 15,893,000
Amortization 1,773,000 - - - (1,773,000 ) -
Proxy settlement costs 2,258,000 - - - - 2,258,000
28,647,000 (412,000 ) 64,000 (457,000 ) (1,773,000 ) 26,069,000

Operating income (loss) (2,286,000 ) 440,000 (64,000 ) 592,000 1,773,000 455,000
Proxy settlement costs 2,258,000 - - - - 2,258,000
Cash operating income (loss) excluding proxy settlement costs $ 2,713,000

September 30, 2015
Gross profit $ 21,596,000 $ 29,000 $ - $ 115,000 $ - $ 21,740,000
% of net sales 72.0 % 72.5 %
Operating expenses
General and administrative 5,231,000 (662,000 ) 85,000 (154,000 ) - 4,500,000
Research and development 2,707,000 (47,000 ) - (8,000 ) - 2,652,000
Selling and marketing 17,442,000 (213,000 ) - (224,000 ) - 17,005,000
Amortization 1,276,000 - - - (1,276,000 ) -
Merger related costs 2,484,000 - - - - 2,484,000
29,140,000 (922,000 ) 85,000 (386,000 ) (1,276,000 ) 26,641,000

Operating income (loss) (7,544,000 ) 951,000 (85,000 ) 501,000 1,276,000 (4,901,000 )
Merger related costs 2,484,000 - - - - 2,484,000
Cash operating income (loss) excluding Merger related costs $ (2,417,000 )

Our non-GAAP cash operating income, excluding non-cash expenses, during the nine months ended September 30, 2017 was approximately $2,437,000 and our non-GAAP cash operating income, excluding one-time costs for the nine months ended September 30, 2016 was approximately $2,712,000.

				Expense Adjustments
Nine-Months Ended	GAAP			Share- based Expense			Long- term Incentive Plan			Depreciation			Amortization			Non-GAAP
September 30, 2017
Gross profit	$	27,256,759		$	17,072		$	-		$	140,406		$	-		$	27,414,237
% of net sales		66.8	%														67.2	%
Operating expenses
General and administrative		6,250,246			(971,688	)		-			(150,210	)		-			5,128,348
Research and development		3,556,977			(30,975	)		-			(8,905	)		-			3,517,097
Selling and marketing		16,699,590			(111,747	)		-			(255,770	)		-			16,332,073
Amortization		1,780,803			-			-			-			(1,780,803	)		-
Total operating expenses	$	28,287,616		$	(1,114,410	)		-			(414,885	)	$	(1,780,803	)	$	24,977,518

Operating income (loss)	$	(1,030,857	)	$	1,131,482		$	-		$	555,291		$	1,780,803		$	2,436,719

September 30, 2016
Gross profit	$	26,360,893		$	27,629		$	-		$	135,321		$	-		$	26,523,743
% of net sales		68.3	%														68.7	%
Operating expenses
General and administrative		5,087,871			(314,838	)		64,404			(155,208	)		-			4,682,229
Research and development		3,255,603			(16,191	)		-			(2,960	)		-			3,236,452
Selling and marketing		16,272,678			(81,342	)		-			(298,711	)		-			15,892,625
Amortization		1,772,574			-			-			-			(1,772,573	)		-
One-time costs		2,257,654			-			-			-			-			2,257,654
Total operating expenses	$	28,646,380		$	(412,371	)	$	64,404		$	(456,879	)	$	(1,772,573	)	$	26,068,961

Operating income (loss)	$	(2,285,487	)	$	440,000		$	(64,404	)	$	592,100		$	1,772,573		$	454,782
One-time costs		2,257,654															2,257,654
Cash operating income excluding one-time costs																$	2,712,436

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Liquidity and Capital Resources

Cash Flows.

OnAt September 30, ~~2016,~~2017, our cash, ~~and~~ cash equivalents ~~balances~~and investments totaled ~~$4,238,000 and we~~ ~~had~~$26,752,000. Our net working capital ~~(current assets less current liabilities)~~as of September 30, 2017, totaled approximately ~~$9,089,000~~.$32,615,000.

For the nine months ended September 30, ~~2016,~~2017, cash provided by operating activities was ~~$2,875,000,~~$1,608,000, compared to cash ~~used in~~provided by operating activities of ~~$6,309,000~~$2,875,000 during the nine months ended September 30, ~~2015.~~2016. For the nine months ended September 30, 2017, we incurred a net loss of $951,000. Significant non-cash expenses incurred in this period include depreciation and amortization expense of $2,336,000 and share based compensation of $1,131,000. Working capital changes that provided cash include higher accrued liabilities and lower accounts receivable, while cash was used as a result of lower accrued compensation and lower accounts payable. For the nine months ended September 30, 2016, we incurred a net loss of $3,525,000. ~~Proxy settlement costs of approximately $1,841,000 have been expensed but not yet paid as of September 30, 2016. The remaining severance of $1,431,000 included~~Significant non-cash expenses incurred in ~~the proxy settlement costs is to be paid over the next 21 months and certain legal fees have not yet been paid. Further, non-cash~~this period include depreciation and amortization expense ~~totaled~~of $2,365,000 and ~~non-cash debt discount amortization totaled $836,000. In addition,~~share based compensation of $440,000. Working capital changes that provided cash include higher accrued compensation, lower accounts receivables, ~~decreased by $1,399,000. For~~and higher accounts payable, while cash was used as a result of inventories increasing.

During the nine months ended September 30, ~~2015, we used~~2017, cash ~~primarily~~provided by investing activities included $9,900,000 of proceeds from the maturity of available-for-sale securities, partially offset by $2,438,000 in purchases of available-for-sale securities, $2,000,000 for the investment in Vensica Medical, as described in Note 12 to ~~fund~~ the ~~operating loss, net~~financial statements, $680,000 for the purchase of ~~non-cash charges~~property, plant, and equipment, and $178,000 for ~~depreciation, amortization of intangibles, long-term incentive plan and share-based compensation of~~ ~~$2,643,000 and $2,484,000 of merger related costs.~~

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~~Table of Contents~~

the Genesis Acquisition, as described in Note 3 to the financial statements. During the nine months ended September 30, 2016, we used ~~cash from investing activities~~$232,000 of ~~$232,000~~net cash for the purchase of property, plant, and equipment. During the nine months ended September 30, 2015, we generated $589,000 of net cash from investing activities, primarily from cash acquired from the Merger, partially offset by purchases of property, plant and equipment.

~~During the nine months ended September 30, 2016 we used cash from financing activities of $376,000 for the fees associated with our equity financing (see Note 13).~~

Sources of Liquidity.

~~We obtained an 18-month line of credit through Venture Bank for $7.0 million in September 2015.~~ In addition ~~after~~to our cash and investments, we have a secured revolving credit facility (“Facility”), subject to eligible accounts receivable and inventory. Under the ~~end~~Facility, we may borrow the lesser of: (a) the sum of (i) eighty percent (80%) of the ~~third quarter,~~value of eligible accounts receivable; and (ii) forty percent (40%) of the value of eligible inventory, capped at $2.5 million; or (b) $7 million. As of September 30, 2017, based on eligible receivables and inventory, our total available borrowing base was approximately $6,250,000. We did not have any borrowings under the Facility as of September 30, 2017.

On April 19, 2017, we ~~received $25.0~~filed a universal shelf registration statement with the SEC that enables us to raise capital through the offering from time to time of an aggregate amount of up to $100 million of securities, including common stock, preferred stock, warrants to purchase common stock or preferred stock, units consisting of a combination of securities, and subscription rights to purchase the foregoing securities. We may offer and sell securities covered by the registration statement through one or more methods of distribution, subject to market conditions and our capital needs. However, the aggregate market value of securities sold during a 12-month period can be no more than one-third of the aggregate market value of voting and nonvoting common equity held by our non-affiliates. The terms of any offering under the shelf registration statement will be established at the time of the offering and described in ~~exchange for~~a prospectus supplement filed with the ~~issuance of 16,219,033 shares to Accelmed pursuant~~SEC prior to the ~~Purchase Agreement described under~~completion of the ~~Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations. This report covers the quarter ended September 30, 2016, and as a result, the proceeds from this~~offering.

We may obtain additional debt and/or equity ~~investment are excluded from the financial results disclosed.~~financing during 2017.

Our ability to achieve significant revenue growth ~~and/or maintain profitability~~ will depend, in large part, on our ability to achieve widespread market acceptance of our products and successfully expand our ~~business.~~business in the U.S. We cannot guarantee that we will successfully achieve such revenue growth. If we fail to meet our projections of profitability and cash flow, or determine to use cash for matters we are not currently projecting, we may need to seek additional financing to meet our cash needs. We cannot assure you that such financing, if needed, will be available to us on acceptable terms, if at all.

The Company does not have any commitments for capital expenditures.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company and are not required to provide the information required by this Item.

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Table of Contents

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.

Under the supervision and with the participation of our management, including our President and Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer) (“CEO and CFO”), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our CEO and CFO of our company concluded that, as of the end of the period covered by this report, our disclosure controls and procedures ~~are~~were effective in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to our management, including our CEO and CFO, in a manner that allows timely decisions regarding required disclosure.

Changes In Internal Controls Over Financial Reporting.

~~As part of~~Based on the evaluation conducted by our ~~ongoing activities after~~management, with the Merger, we are continuing to integrate our financial reporting functions and our controls and procedures. We have also been augmenting our company-wide controls to reflect the risks inherent in a business combinationparticipation of the ~~magnitude~~principal executive officer, principal financial officer and ~~complexity of~~principal accounting officer, pursuant to Rules 13a-15(d) and 15d-15(d) promulgated under the ~~Merger. During the most recently completed quarter,~~Exchange Act, our management (including such officers) have concluded that there were no changes into our internal ~~controls~~control over financial reporting (as defined in ~~Rule~~Rules 13a-15(f) ofor 15d-15(f) under the Exchange Act) that occurred since June 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~PART II.~~

~~OTHER INFORMATION~~

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

As previously disclosed, on May 23, 2016, the Company and all of the then-current members of the board of directors, including Mr. Lewis Pell, who had been independently soliciting proxies to support his proposals for the Company’s 2016 Annual Meeting of Stockholders (the “Annual Meeting”), entered into an agreement (the “Settlement Agreement”) to settle the pending proxy contest between the Company and Mr. Pell and related litigation in connection with the Annual Meeting (the “Settlement”). Under the terms of the Settlement Agreement, Mr. Darin Hammers, the then-current Chief Operating Officer of the Company, was appointed to serve as the interim Chief Executive Officer and President for a maximum of 90 days, after which time, on the condition of his adequate performance in the sole judgment of a majority of the Board, the Company would appoint him as Chief Executive Officer and President of the Company and a director on the board to fill the vacancy created by the resignation of the former Chief Executive Officer.

~~Page 27~~

~~Table of Contents~~

Effective July 11, 2016, Mr. Hammers was appointed as the Chief Executive Officer of the Company and also as a director to serve as a member of Class III of the board, resulting in the board being comprised of three independent directors and three non-independent directors.None.

On July 21, 2016, the Company received a letter (the “Letter”) from Nasdaq notifying it that it no longer complies with Nasdaq’s independent director requirements as set forth in Nasdaq Listing Rule 5605. Nasdaq Listing Rule 5605 requires, among other things, that a majority of the board of directors of a listed company must be comprised of “independent directors” as defined therein. In the Letter, Nasdaq indicated that the Company has 45 calendar days to submit a plan to regain compliance, and that Nasdaq can grant an extension of up to 180 calendar days from the date of the Letter to procure evidence of compliance if such plan is accepted by Nasdaq.

On September 2, 2016, the Company submitted a plan to Nasdaq as to how it plans to regain compliance with Nasdaq’s continued listing requirements, and requested an extension of time to regain compliance and on September 8, 2016, the Company received a response letter from a Director of Nasdaq Listing Qualifications, granting the Company an extension until January 17, 2017 to regain compliance with Nasdaq Listing Rule 5605. The Voting Agreement between Mr. Lewis Pell and Accelmed, which is described under the Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations, is intended, in part, to qualify the Company as a “Controlled Company” under Nasdaq Rule 5615(c)(2), ~~which permits the Company to utilize the controlled company exemption to the independent director requirements of Nasdaq Listing Rule 5605~~.

ITEM 1A.

RISK FACTORS

We are a smaller reporting company and are not required to provide the information required by this Item.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Upon exercise of stock options or vesting of restricted stock, employees can request the company to withhold shares to pay the resulting income tax withholdings of the employee. These transactions constitute stock repurchases and are the only stock repurchases engaged in by the Company. Information regarding the Company’s stock repurchase during the nine months ended September 30, 2016 is as follows:None.

Period
Total Number
of Shares
Purchased

Average
Price Paid
per Share

Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs

Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or Programs

January 1, 2016 – March 31, 2016 - - - -
April 1, 2016 – April 30, 2016 54,468 1.05 - -
May1, 2016 – May 31, 2016 - -
June 1, 2016 – June 30, 2016 730 1.02 - -
July 1, 2016 – September 30, 2016 - - - -

Total 55,198 $ 1.04 - -

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURE

Not applicable.

~~Page 28~~

~~Table of Contents~~

ITEM 5.

OTHER INFORMATION

~~None.~~NONE.

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ITEM 6.

EXHIBITS

~~Exhibits~~

Exhibit No.	Exhibit	Method of Filing

3.1	Amended and Restated ~~By-laws~~Certificate of Incorporation of Cogentix Medical, Inc.	~~Incorporated by reference to Exhibit 3.2 to Quarterly Report on Form 10-Q as filed with the SEC on May 16, 2016 (file No. 000-20970).~~Filed herewith

~~3.1(a)~~3.2	~~Amendment to the~~ Amended and Restated ~~By-laws~~By-Laws of Cogentix Medical, Inc.	~~Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K as filed with the SEC on September 12, 2016 (file No. 000-20970).~~Filed herewith

~~10.1~~10.1*	~~Settlement~~Fifth Amendment dated May 9, 2017, to the Supply Agreement, dated ~~May 23, 2016,~~December 6, 2007, by and ~~among~~between Cogentix Medical, Inc.~~, Robert C. Kill, Lewis C. Pell, Howard I. Zauberman, Kevin H. Roche, Kenneth H. Paulus, James P. Stauner,~~ and ~~Cheryl Pegus.~~Covidien Sales LLC	Incorporated by reference to Exhibit ~~10.1~~10.8 to ~~Current~~Quarterly Report on Form ~~8-K as~~10-Q for the quarter ended March 31, 2017 filed with the SEC on May ~~27, 2016 (file~~12, 2017 (File No. ~~000-20870).~~000-20970)

~~10.2~~	~~Separation and Release Agreement, dated May 23, 2016, by and among Cogentix Medical, Inc., Robert C. Kill and the other signatories thereto.~~	~~Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K as filed with the SEC on May 27, 2016 (file No. 000-20870).~~

~~10.3~~	~~Second Amendment to Employment Agreement, dated May 24, 2016, by and among Cogentix Medical, Inc. and Darin Hammers.~~	~~Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K as filed with the SEC on May 27, 2016 (file No. 000-20870).~~

~~10.4~~	~~Employment Agreement, dated June 6, 2016, by and among Cogentix Medical, Inc. and Brett Reynolds.~~	~~Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K as filed with the SEC on June 15, 2016 (file No. 000-20870).~~

~~10.5~~	~~Employment Agreement, dated July 11, 2016, by and among Cogentix Medical, Inc. and Darin Hammers.~~	~~Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K as filed with the SEC on July 12, 2016 (file No. 000-20870).~~

~~10.6~~	~~Securities Purchase Agreement, dated September 7, 2016, by and between Cogentix Medical, Inc. and Accelmed Growth Partners, L.P.~~	~~Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K as filed with the SEC on September 7, 2016 (file No. 000-20870).~~

~~10.7~~	~~Note Exchange Agreement, dated September 7, 2016, by and between Cogentix Medical, Inc. and Lewis C. Pell.~~	~~Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K as filed with the SEC on September 7, 2016 (file No. 000-20870).~~

~~10.8~~	~~Voting Agreement, dated September 7, 2016, by and between Accelmed Growth Partners, L.P. and Lewis C. Pell.~~	~~Incorporated by reference to Exhibit 99.2 to Current Report on Form 8-K as filed with the SEC on September 7, 2016 (file No. 000-20870).~~

31.1	Certification by the PEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith

31.2	Certification by the PFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith

32.1	Certification by the PEO pursuant to Section 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

32.2	Certification by the PFO pursuant to Section 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

101	Financial Statements for the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2017, formatted in Extensible Business Reporting Language: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statement of Operations; (iii) Condensed Consolidated Statement of Comprehensive Income (Loss); (iv) Condensed Consolidated Statement of Shareholders’ Equity; (v) Condensed Consolidated Statement of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements	Filed herewith

*	Portions of this exhibit have been exhibit have been omitted pursuant to a request for confidential treatment

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Table of Contents

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

			COGENTIX MEDICAL, INC.

	Date: November ~~14, 2016~~13, 2017		By: /s/ DARIN HAMMERS Darin Hammers President and Chief Executive Officer (Principal Executive Officer)
	Date: November ~~14, 2016~~13, 2017		By: /s/ BRETT REYNOLDS Brett Reynolds Senior Vice President, Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer)

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Cash and cash equivalents	$	2,020,000
Accounts receivable		4,249,000
Inventories		4,462,000
Other current assets		369,000
Property, plant and equipment		817,000
Goodwill		18,750,000
Other intangibles		13,660,000
Other non-current assets		97,000
Total assets acquired	$	44,424,000

Accounts payable and other liabilities	$	5,209,000
Deferred revenue		176,000
Convertible debt – related party		22,530,000
Other non-current liabilities		40,000
Total liabilities assumed		27,955,000

Total purchase price	$	16,469,000

	Nine months ended September 30, 2015 (unaudited)

Supplemental pro forma combined results of operations:
Net sales	$	35,669,538
Net loss	$	(12,164,228	)
Net loss per share – basic and diluted	$	(0.47	)

	Nine months ended September 30, 2015 (unaudited)

Increase in amortization of intangibles	$	594,000
Interest amortization on related party debt		282,000
Increase in net loss	$	876,000

	Gross Principal Amount		Unamortized Debt Discount			Net Amount

Note Payable A	$	20,000,000	$	(3,048,813	)	$	16,951,187

Note Payable B		3,500,000		(470,720	)		3,029,280

Note Payable C		4,990,000		(797,326	)		4,192,674
	$	28,490,000	$	(4,316,859	)	$	24,173,141

	United States		United Kingdom		The Netherlands		Consolidated

September 30, 2016	$	1,738,000	$	2,000	$	462,000	$	2,202,000

December 31, 2015	$	2,089,000	$	3,000	$	463,000	$	2,555,000

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2016 – March 31, 2016		-		-		-		-
April 1, 2016 – April 30, 2016		54,468		1.05		-		-
May1, 2016 – May 31, 2016		-		-
June 1, 2016 – June 30, 2016		730		1.02		-		-
July 1, 2016 – September 30, 2016		-		-		-		-

Total		55,198	$	1.04		-		-