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 March 31, 2016

☐ 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)

Minnesota, U.S.A.	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. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ☐ Accelerated Filer ☐ Non-Accelerated Filer ☐ Smaller Reporting Company ☒

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 May 4, 2016 the registrant had 25,952,785 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	5
	Condensed Consolidated Statements of Operations	7
	Condensed Consolidated Statements of Comprehensive Loss	8
	Condensed Consolidated Statement of Shareholders’ Equity	9
	Condensed Consolidated Statements of Cash Flows	10
	Notes to the Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24
Item 4.	Controls and Procedures	24
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	25
	SIGNATURES	27
	Certification by the PEO and the PFO pursuant to Section 302
	Certification by the PEO and the PFO pursuant to Section 906

Page 2

As used in this report, the terms “Cogentix,” “Cogentix Medical,” “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: PrimeSightTM, Vision-Sciences^®, EndoSheath^®, Slide-On^®, EndoWipe^®, The Vision System^®, and Urgent^® for our neuromodulation product, Macroplastique^® for our urological tissue bulking product, VOX^® for our otolaryngology tissue bulking products, PTQ^® for our colorectal tissue bulking and Uroplasty® for Uroplasty, LLC, one of our subsidiaries.  This report also contains trademarks, trade names andservice marks that are owned by other persons or entities.

On December 10, 2015, 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 period from January 1, 2016 through March 31, 2016 to the three-month unaudited period from January 1, 2015 through March 31, 2015, and accordingly are not comparing results for a comparable period of time.  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 and without implied limitation, such risks, uncertainties and factors that affect our business included:

· 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;

· 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;

Page 3

· 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;

· 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;

· 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.govfor 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.

Page 4

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

COGENTIX MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2016 (Unaudited)		December 31, 2015
Assets
Current assets:
Cash and cash equivalents	$	2,156,530	$	1,976,594
Accounts receivable, net		6,863,488		8,191,391
Inventories		5,034,201		4,584,844
Other		854,269		834,076
Total current assets		14,908,488		15,586,905
Property, plant, and equipment, net		2,488,202		2,554,822
Goodwill		18,749,888		18,749,888
Other intangible assets, net		11,255,151		11,846,009
Deferred tax assets and other		282,252		269,121
Total assets	$	47,683,981	$	49,006,745

See accompanying notes to the Condensed Consolidated Financial Statements.

Page 5

COGENTIX MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2016 (Unaudited)			December 31, 2015
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	2,224,481		$	2,209,473
Income taxes payable		21,750			20,866
Accrued liabilities:
Compensation		2,108,830			3,281,809
Deferred revenue		359,107			307,936
Other		833,818			641,561
Total current liabilities		5,547,986			6,461,645
Convertible debt – related party, net		23,612,351			23,336,854
Interest payable		853,062			757,615
Accrued pension liability		720,780			663,071
Deferred rent		665,324			671,088
Other		190,393			157,453
Total liabilities		31,589,896			32,047,726
Shareholders’ equity:
Preferred stock, $0.01 par value 5,000,000 Shares authorized; none issued or outstanding		-			-
Common stock $.01 par value; 100,000,000 shares authorized, 25,953,317 and 26,057,327 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively		259,535			260,574
Additional paid-in capital		76,571,081			76,485,650
Accumulated deficit		(59,877,115	)		(58,910,707	)
Accumulated other comprehensive  loss		(859,416	)		(876,498	)
Total shareholders’ equity		16,094,085			16,959,019
Total liabilities and shareholders’ equity	$	47,683,981		$	49,006,745

See accompanying notes to the Condensed Consolidated Financial Statements.

Page 6

COGENTIX MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended March 31
	2016			2015
Net sales	$	12,206,564		$	7,019,811
Cost of goods sold		3,801,194			801,768
Gross profit		8,405,370			6,218,043
Operating expenses
General and administrative		1,796,020			1,402,372
Research and development		936,878			609,304
Selling and marketing		5,635,762			4,943,196
Amortization		590,858			7,262
Merger related costs		-			1,580,084
		8,959,518			8,542,218
Operating loss		(554,148	)		(2,324,175	)
Other income (expense)
Interest income (expense)		(390,069	)		1,619
Foreign currency exchange loss		(7,562	)		(964	)
		(397,631	)		655
Loss before income taxes		(951,779	)		(2,323,520	)
Income tax expense		14,629			9,720
Net loss	$	(966,408	)	$	(2,333,240	)
Basic and diluted net loss per common share	$	(0.04	)	$	(0.15	)
Weighted average common shares outstanding:
Basic and diluted		25,381,900			15,744,654

See accompanying notes to the Condensed Consolidated Financial Statements.

Page 7

COGENTIX MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

	Three Months Ended March 31
	2016			2015
Net loss	$	(966,408	)	$	(2,333,240	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		25,656			(135,688	)
Unrealized loss on available-for-sale investments		-			(32	)
Pension adjustments		(8,574	)		25,382
Total other comprehensive income (loss), net of tax		17,082			(110,338	)
Comprehensive loss	$	(949,326	)	$	(2,443,578	)

See accompanying notes to the Condensed Consolidated Financial Statements.

Page 8

COGENTIX MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

Three Months Ended March 31, 2016

(Unaudited)

	Common Stock						Additional Paid-in Capital		Accumulated Deficit			Accumulated  Other  Comprehensive  Income (Loss)			Total Shareholders' Equity
	Shares			Amount
Balance at December 31, 2015		26,057,327		$	260,574		$	76,485,650	$	(58,910,707	)	$	(876,498	)	$	16,959,019
Share-based compensation		(104,010	)		(1,039	)		85,431		-			-			84,392
Comprehensive income (loss)		-			-			-		(966,408	)		17,082			(949,326	)
Balance at March 31, 2016		25,953,317		$	259,535		$	76,571,081	$	(59,877,115	)	$	(859,416	)	$	16,094,085

See accompanying notes to the Condensed Consolidated Financial Statements.

Page 9

COGENTIX MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited)

	Three Months Ended March 31
	2016			2015
Cash flows from operating activities:
Net loss	$	(966,408	)	$	(2,333,240	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		806,614			72,947
Loss on disposal of equipment		-			38,451
Share-based compensation expense		84,392			311,241
Amortization of discount on related party debt		275,498			-
Long term incentive plan expense (benefit)		(21,748	)		20,685
Tax benefit		(1,060	)		(88,532	)
Deferred rent		12,694			406
Changes in operating assets and liabilities:
Accounts receivable		1,340,860			(557,847	)
Inventories		(447,745	)		66,984
Other current assets		(17,646	)		65,958
Accounts payable		13,501			(63,450	)
Interest payable		95,447			-
Accrued compensation		(1,175,529	)		423,633
Accrued liabilities, other		175,873			741,329
Accrued pension liability		23,611			134,269
Deferred revenue		106,044			-
Net cash provided by (used in) operating activities		304,398			(1,167,166	)
Cash flows from investing activities:
Purchases of property, plant and equipment		(137,761	)		(214,228	)
Net cash (used in) investing activities		(137,761	)		(214,228	)
Cash flows from financing activities:
Borrowings from line of credit		2,646,500			-
Repayments of  line of credit		(2,646,500	)		-
Net cash provided by financing activities		-			-
Effect of exchange rate changes on cash and cash equivalents		13,299			(80,102	)
Net (decrease) increase in cash and cash equivalents		179,936			(1,461,496	)
Cash and cash equivalents at beginning of period		1,976,594			8,703,790
Cash and cash equivalents at end of period	$	2,156,530		$	7,242,294
Cash paid during the period for income taxes	$	14,558		$	4,570
Cash paid during the period for interest	$	19,360		$	159

See accompanying notes to the Condensed Consolidated Financial Statements.

Page 10

COGENTIX MEDICAL, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

Cogentix Medical, Inc., headquartered in Minnetonka, Minnesota, with additional operations in New York, Massachusetts, The Netherlands and the United Kingdom, is a global medical device company. We design, develop, manufacture and market 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.  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 in the United States and has regulatory approvals for the treatment of OAB and fecal incontinence (FI) in various international markets. The FDA-cleared and CE marked PrimeSight Endoscopy Systems and EndoSheath Protective Barrier combine state-of-the-art endoscopic technology with a sterile, disposable microbial barrier, providing practitioners and healthcare facilities with a solution to meet the growing need for safe, efficient and cost-effective flexible endoscopy. The Company also offers Macroplastique®, a urethral bulking agent for the treatment of stress urinary incontinence. Outside the U.S., the Company markets additional bulking agents: PTQ® for the treatment of fecal incontinence and 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.  Merger Sub was the surviving company from the Merger, and changed its name to Uroplasty, LLC.  VSCI continued to be the sole member of the surviving company.  After the merger, VSCI and its consolidated subsidiaries, including the surviving company, operate under the name 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.

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.  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 for the nine-months ended December 31, 2015.

The Condensed Consolidated Financial Statements presented herein as of March 31, 2016 and for the three month period ended March 31, 2015, 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.

Page 11

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 for the nine-months ended December 31, 2015.  Based upon our review, we have determined that these policies remain our most critical accounting policies for the three months ended March 31, 2016 and we have made no changes to these policies during 2016.

Liquidity and Capital Resources

We have incurred substantial operating losses since our inception.  During the quarter ended December 31, 2015, the Company generated its first ever cash operating profit and we accomplished this again for the quarter ended March 31, 2016.  This performance is the result of increased sales and reduced expenses.  Management will continue to press for improvements in operating performance during calendar 2016 although there can be no assurance these efforts will continue to generate cash operating profits.  As of March 31, 2016, we had cash and cash equivalents totaling approximately $2.2 million. On September 18, 2015, 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 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 financing will be available on terms acceptable to us, if at all. If required, we believe we would be able to reduce our expenses to a sufficient level to continue to operate as a going concern.

Note 2. Business Combination - Merger Between Uroplasty, Inc. and Vision-Sciences, Inc.

The Merger has been accounted for as an acquisition of VSCI by UPI, in accordance with Accounting Standards Codification (ASC) Topic 805, "Business Combinations," using the acquisition method 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.

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, based on their fair values at the effective date of the Merger. The allocation was finalized without any change to the preliminary allocation and is 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

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

	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

Page 12

The supplemental unaudited pro forma net sales and net loss of the combined entity had the acquisition been completed on April 1, 2013:

	Three months ended March 31, 2015
Supplemental pro forma combined results of operations:
Net sales	$	12,685,139
Net loss	$	(6,226,829	)
Net loss per share – basic and diluted	$	(0.25	)

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

	Three months ended March 31, 2015
Increase in amortization of intangibles	$	275,000
Interest amortization on related party debt		510,000
Increase in net loss	$	785,000

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 the April 1, 2013, 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. 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 March 31, 2016.

Other Intangible Assets

Other intangible assets consisted of the following at March 31, 2016 and December 31 2015:

	March 31, 2016				December 31, 2015
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Developed technology	$	6,200,000	$	886,000	$	6,200,000	$	664,000
Patents		5,653,000		5,594,000		5,653,000		5,586,000
Trademarks and trade names		190,000		69,000		190,000		67,000
Customer relationships		7,270,000		1,510,000		7,270,000		1,150,000
	$	19,313,000	$	8,059,000	$	19,313,000	$	7,467,000
Accumulated amortization		8,059,000				7,467,000
Net book value of amortizable intangible assets	$	11,254,000			$	11,846,000

Page 13

For the three months ended March 31, 2016 and 2015, amortization of intangible assets charged to operations was approximately $591,000 and $7,000, respectively.  The weighted average remaining amortization period for intangible assets as of March 31, 2016 was approximately 4.98 years.

Note 4. Newly Adopted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 2015, the Company adopted ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30) – Simplifying the Presentation of Debt Issuance Costs.  The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability.  The Company adopted this standard in conjunction with obtaining its new loan facility. There was no impact of the retrospective adoption to prior periods.

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. 2015-12, “Plan Accounting: Defined Benefit Pension Plans (Topic 815).”    Under the new guidance, plans are no longer required to measure fully benefit-responsive investment contracts (FBRICs) at fair value, disaggregate investments by nature, risks and characteristics, disclose individual investments that represent five percent or more of net assets available for benefits, or disclose net appreciation or depreciation for investments by general price. The amendments in ASU No. 2015-12 are effective for fiscal years beginning after December 15, 2015 and earlier adoption is permitted.  We are still evaluating whether or not this update is applicable to our business.

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 (LIFO) method or the retail inventory method (RIM).  The amendments in ASU No. 2015-11 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.

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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.

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.

On March 31, 2016 and December 31, 2015, 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 $70,500 and $130,000, respectively, considered a level 3 measurement. The long-term incentive plan began on October 2, 2014 and is described in Note 9. The estimated fair value of the accrual is calculated on a quarterly basis using a Monte Carlo valuation model.  Vesting is based on the probability of meeting the stock price criteria, the probability of which is considered in determining the estimated fair value.

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.  As of March 31, 2016 and December 31, 2015 we had no remeasurements of such assets to fair value.

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 a loan agreement with Venture Bank, a Minnesota banking corporation, providing us with a committed $7 million secured revolving credit facility (“Facility”), subject to eligible accounts receivable and inventory.  The Facility will expire on March 18, 2017 and any loans outstanding on such date will mature and become payable.  The Facility is secured by substantially all of our assets.

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 Notes principal balance outstanding; or (b) $7 million.  As of March 31, 2016, based on eligible receivables and inventory, our total available borrowing base was $5,187,000.  We did not have any borrowings under the facility as of March 31, 2016.

Loans under the Facility bear interest at a rate per annum equal to the Wall Street Journal Prime Rate plus 2.25%, provided that in no case will the interest charged be less than 5.5%.  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, the Borrowers will pay a non-usage fee of 0.25% based on the average unused and available portion of the Facility on a monthly basis.

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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.  Historically, the inventory write-offs have generally been within our expectations. Inventories consist of the following:

	March 31, 2016		December 31, 2015
Raw materials	$	3,996,000	$	2,385,000
Work-in-process		23,000		793,000
Finished goods		1,015,000		1,407,000
	$	5,034,000	$	4,585,000

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 Loss per Common Share

We calculate basic net loss per common share amounts by dividing net loss by the weighted-average common shares outstanding, excluding outstanding shares contingently subject to forfeiture.  For calculating diluted net 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 three months ended March 31, 2016 and 2015 the following options and warrants and outstanding and unvested restricted stock to purchase shares of our common stock were excluded from diluted net 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, warrants and unvested restricted stock		Range of stock option and warrant exercise prices
March 31, 2016		2,662,000	$	1.20 to $24.40
March 31, 2015		2,409,000	$	2.70 to $24.40

Note 9. Shareholders’ Equity

Share-based compensation.  On March 31, 2016, 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, all outstanding grants, including those subject to vesting or other performance targets, fully vest immediately.  Under the 2015 Plan, we reserved 2,500,000 shares of our common stock for share-based grants and 1,406,523 shares remain available for grant on March 31, 2016.

We recognize share-based compensation expense in our Condensed Consolidated Statement 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 $84,000 and $315,000 in share-based compensation expense for the three months ended March 31, 2016 and 2015, respectively.

On March 31, 2016, we had approximately $490,000 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 1.33 years.  We also had $872,000 of unrecognized share-based compensation expense, net of estimated forfeitures, related to restricted shares that we expect to recognize over a weighted-average period of approximately 1.45 years.

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We grant option awards with an exercise price equal to the closing market price of our stock at the date of the grant.  Options granted under this plan generally expire over a period ranging from five to seven years from date of grant and vest at varying rates ranging up to three years.

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 three months ended March 31:

	2016			2015 (1)
Expected life in years		3.00			n/a
Risk-free interest rate		1.3	%		n/a
Expected volatility		60.00	%		n/a
Expected dividend yield		0	%		n/a
Weighted-average grant date fair value	$	0.49			n/a

(1) There were no grants during the three months ended March 31, 2016.

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 three months ended March 31, 2016:

	Number of shares			Weighted  average  exercise price		Weighted  average  remaining  life in years		Aggregate  intrinsic  value
Outstanding at December 31, 2015		2,573,640		$	4.46		5.24	$	-
Options granted		14,400			1.20
Options exercised		-			-
Options surrendered		(151,936	)		2.59
Outstanding at March 31, 2016		2,436,104		$	4.56		4.69	$	-
Exercisable at March 31, 2016		1,728,706		$	5.54		3.44	$	-

The total fair value of stock options that vested during the three months ended March 31, 2016 and 2015 was approximately $94,000 and $95,000, respectively.

Our 2015 Plan also permits the compensation committee of our board of directors to grant other stock-based benefits, including restricted shares. The following table summarizes the activity related to our restricted shares during the three months ended March 31, 2016:

	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		21,398			1.18
Shares vested		(14,958	)		1.17
Shares forfeited		(125,243	)		2.88
Balance at March 31, 2016		568,107		$	2.29		1.45	$	617,834

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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.

Stock Warrants-Related Party.  On March 31, 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 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 $53,000 at March 31, 2016 and related expense was approximately $(22,000) for the three months ended ending March 31, 2016 for the Awards.

Note 10. Convertible Debt – Related Party

The following table is a summary of our convertible debt – related party on March 31, 2016:

	Gross Principal Amount		Unamortized Debt Discount			Net Amount
Note Payable A	$	20,000,000	$	(3,444,876	)	$	16,555,124
Note Payable B		3,500,000		(531,869	)		2,968,131
Note Payable C		4,990,000		(900,904	)		4,089,096
	$	28,490,000	$	(4,877,649	)	$	23,612,351

The Convertible Debt-Related Party 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.

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At March 31, 2016, we had an aggregate amount of $853,062 in accrued interest under the convertible notes payable, which is included in accrued expenses on our consolidated balance sheet.

The convertible promissory notes mature on March 31, 2020 or earlier upon a change of control (as defined).  The convertible promissory notes generally cannot be converted 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. 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 $123,000 and $85,000 for the three months ended March 31, 2016, and 2015, 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 months ended March 31:

	Three Months Ended March 31
	2016			2015
Gross service cost	$	27,000		$	29,000
Interest cost		29,000			29,000
Expected return on assets		(24,000	)		(20,000	)
Amortization		(1,000	)		-
Net periodic retirement cost	$	31,000		$	38,000

Note 12. 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.

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.

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For the three months ended March 31, 2016, no country other than the United States represented more than 10% of our consolidated revenue.  Information regarding net sales to customers by geographic area for the three months ended March 31 is as follows:

	United States		United Kingdom		All Other Foreign Countries (1)		Consolidated
Three months ended March 31, 2016	$	8,643,000	$	988,000	$	2,576,000	$	12,207,000
Three months ended March 31, 2015	$	5,458,000	$	557,000	$	1,004,000	$	7,019,000

(1) No other country accounts for 10% or more of the consolidated net sales.

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

	United States			United Kingdom			The Netherlands			Consolidated
March 31, 2016		$	2,008,000		$	3,000		$	477,000		$	2,488,000
December 31, 2015		$	2,089,000		$	3,000		$	463,000		$	2,555,000

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.

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 for the nine-months ended December 31, 2015.

You should read the following discussion of our financial condition and results of operation together with the unaudited 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 for the nine-months ended December 31, 2015.  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.  We design, develop, manufacture and market innovative proprietary technologies serving the urology and airway management markets.  The Urgent^® PC Neuromodulation System is an FDA-cleared device that delivers percutaneous tibial nerve stimulation (PTNS) for the office-based treatment of overactive bladder (OAB).  The FDA-cleared PrimeSight Endoscopy Systems utilizing the EndoSheath Protective Barrier combine state-of-the-art endoscopic technology with a sterile, disposable microbial barrier, providing practitioners and healthcare facilities with a solution to meet the growing need for safe, efficient and cost-effective flexible endoscopy.  We also offer Macroplastique^® a urethral bulking agent for the treatment of stress urinary incontinence.  Outside the U.S., the company markets additional bulking agents: PTQ^® for the treatment of fecal incontinence and the VOX^® for vocal cord augmentation.

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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.  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 this report for additional description of this merger, the accounting treatment of the merger, and the pro forma financial information for Cogentix on a combined basis.

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 for the nine-months ended December 31, 2015, 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 three months ended March 31, 2016.

Results of Operations

Three months ended March 31, 2016 compared to three months ended March 31, 2015

The reported operations for the current period are the results of Cogentix, while the reported operations for the prior period only include the results of Uroplasty.  Therefore, starting in the first quarter of calendar 2016 ended March 31, 2016, our reported numbers have been and are materially different than the reported numbers of the same period of the prior year.

Net Sales:  During the current period, consolidated net sales of $12,207,000 represented a $5,187,000, or a 74% increase, over net sales of $7,020,000 for the prior period. The increase in consolidated net sales for the current period was due to the Merger.  The revenue for the products from Vision-Sciences totaled $4,960,000 in the current period.  The remainder of the increase is primarily due to the increase in revenue from Urgent^® PC.

Net sales to customers in the U.S. of $8,918,000 during the current period represented an increase of $3,452,000, or 63%, over net sales of $5,466,000 in the prior period. This increase is due to $3,171,000 of revenue in the current period from the Vision-Sciences products and $221,000 increase in domestic Urgent^® PC revenue.

Net sales in the U.S. of our Urgent^® PC System increased 5.5% to $4,274,000 in the current period, from $4,053,000 in the prior period.  Net sales increased was a result of the continued focus on new account conversions and a slight increase in utilization.

Net sales in the U.S. of our Macroplastique product increased 2.0%, or $28,000, to $1,398,000 in in the current period.  Macroplastique serves a small market, and the focus of our sales force has been on growing our Urgent^® PC and endoscopy technology business.

Net sales to customers outside the U.S. increased $1,731,000 to $3,289,000, compared to $1,558,000 in the prior period. This increase is due to $1,789,000 of revenue in the current period from Vision-Sciences products.

Urgent^® PC System sales to customers outside of the U.S. of $833,000 in the current period increased 12.5% from $740,000 in the prior period.

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Macroplastique sales to customers outside of the U.S. decreased 25.7% to $456,000 in the current period, compared to $614,000 in the prior period.  The sales decrease is attributed to a declining international market as well as uneven ordering patterns for two of our largest international distributors.

Consolidated net sales of our endoscopy technology was $4,960,000.  These sales are not included in our prior period reported net sales as this product line was acquired on March 31, 2015 from our merger with Vision-Sciences.  Net sales in the U.S. for endoscopy technology were $3,171,000 and net sales outside the U.S for endoscopy technology were $1,789,000.

Gross Profit:  Gross profit was $8,405,000, or 68.9% of net sales in the current period, and $6,218,000, or 88.6% of net sales in the prior period.  The decrease in gross profit percentage is attributed primarily to the addition of the Vision-Sciences products which have lower margins than the Uroplasty products.

General and Administrative Expenses (G&A):  G&A expenses of $1,796,000 in the current period increased $394,000 from $1,402,000 in the prior period.  The current period included additional rent for our NY and MA facilities due to the merger and to an increase in accounting fees, offset by cost synergies related to the merger including lower headcount, lower legal costs and lower public company costs.

Research and Development Expenses (R&D):  R&D expenses of $937,000 in the current period increased $328,000 from $609,000 in the prior period.  The increase is attributed primarily to the Merger, offset partially by lower personnel costs and lower expenditure on R&D projects.

Selling and Marketing Expenses (S&M):  S&M expenses of $5,636,000 in the current period, increased $693,000, from $4,943,000 in the prior period.  The increase is attributed primarily to an increase in sales personnel costs from the Merger, offset by cost synergies related to the Merger including lower headcount and lower marketing spend.

Amortization of Intangibles: Amortization of intangibles was $591,000 in the current period compared to $7,000 in the prior period.  The increase is due to the establishment of $13,660,000 of identifiable intangible assets as a part of the allocation of purchase accounting.  These identifiable intangible assets are being amortized over a weighted average life of approximately 6 years.

Merger Related Costs: Merger related costs totaled $1,580,000 in the prior period.  There were no similar costs in the current period.  Merger related costs include severance and retention, consulting and professional fees related to the Merger.

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 $398,000 in the current period compared to net other income of $1,000 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 with Vision-Sciences.

The related party debt has a weighted average stated interest rate of the 1.13% resulting in $95,000 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 $275,000.

Income Tax Expense:  We recorded income tax expense of approximately $15,000 in the current period and $10,000 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 table reconciles our operating 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 and depreciation and amortization, as well as Merger-related costs.  The non-GAAP financial measures used by management and disclosed by us are not a substitute for, or 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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We use these non-GAAP financial measures, and in particular, non-GAAP operating 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 these measures 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 operating income, excluding non-cash expenses and merger related costs, during the three months ended March 31, 2016 was $315,000 and our non-GAAP operating loss for the three months ended March 31, 2015 was $(1,919,000), respectively.

				Expense Adjustments
Three-Months Ended	GAAP			Share- based Expense			Long-term Incentive Plan			Depreciation			Amortization			Non-GAAP
March 31, 2016
Gross profit	$	8,405,000		$	5,000		$	-		$	50,000		$	-		$	8,460,000
% of net sales		68.9	%														69.3	%
Operating expenses
General and administrative		1,795,000			(28,000	)		22,000			(54,000	)		-			1,735,000
Research and development		937,000			7,000			-			(1,000	)		-			943,000
Selling and marketing		5,636,000			(58,000	)		-			(111,000	)		-			5,467,000
Amortization		591,000			-			-			-			(591,000	)		-
		8,959,000			(79,000	)		22,000			(166,000	)		(591,000	)		8,145,000
Operating loss	$	(554,000	)	$	84,000		$	(22,000	)	$	216,000		$	(591,000	)	$	315,000
March 31, 2015
Gross profit	$	6,218,000		$	11,000		$	-		$	3,000		$	-		$	6,232,000
% of net sales		88.6	%														88.6	%
Operating expenses
General and administrative		1,402,000			(222,000	)		(21,000	)		(44,000	)		-			1,115,000
Research and development		610,000			(11,000	)		-			-			-			599,000
Selling and marketing		4,943,000			(67,000	)		-			(19,000	)		-			4,857,000
Amortization		7,000			-			-			-			(7,000	)		-
		6,962,000			(300,000	)		(21,000	)		(63,000	)		(7,000	)		6,571,000
Operating loss		(744,000	)		311,000			21,000			66,000			7,000			(661,000	)
Merger related costs		1,580,000			-			-			-			-			1,580,000
Operating loss excluding merger related costs	$	(2,324,000	)	$	311,000		$	(21,000	)	$	66,000		$	7,000		$	(1,919,000	)

Liquidity and Capital Resources

Cash Flows.

On March 31, 2016, our cash and cash equivalents balances totaled $2,157,000 and we had working capital of approximately $9,361,000.

For the three months ended March 31, 2016, cash provided by operating activities was $304,000, compared to cash used in operating activities of $1,167,000during the three months ended March 31, 2015.  For the three months ended March 31, 2016, we obtained cash primarily from the collections of receivables and the reduction of R&D spending.  For the three months ended March 31, 2015, we used cash primarily to fund the operating loss, net of non-cash charges for depreciation, amortization of intangibles, long-term incentive plan and share-based compensation of $405,000.

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During the three months ended March 31, 2016 and 2015, we used cash from investing activities of $138,000 and $214,000, respectively, for the purchase of property, plant and equipment.

Sources of Liquidity.

We obtained an 18-month line of credit through Venture Bank in September 2015.  We may obtain additional debt and/or equity financing during calendar year 2016.  We have historically not generated cash from operations because we have yet to achieve profitability, and to achieve profitability, we must generate substantially more revenue than we have generated this year or in prior years.

Our ability to achieve significant revenue growth will depend, in large part, on our ability to achieve widespread market acceptance of our products and successfully expand our 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.

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.

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, who is our Principal Executive Officer and Principal Financial Officer, 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 Chief Executive Officer, as the Principal Executive Officer and Principal Financial Officer of our company concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are 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 Chief Executive Officer, in a manner that allows timely decisions regarding required disclosure.

Changes In Internal Controls Over Financial Reporting.

As part of our ongoing activities after 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 combination of the magnitude and complexity of the Merger.  There have been no changes in internal controls since December 31, 2015.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On April 25, 2016, Lewis C. Pell, a shareholder and member of the Cogentix Board of Directors, filed a complaint in the Court of Chancery of the State of Delaware against Robert C. Kill, Kenneth H. Paulus, Kevin H. Roche, James P. Stauner, and Cogentix Medical, Inc. The complaint alleges that a Board Resolution, voted and approved of on March 29, 2016, decreasing the size of the Board to five members at the annual meeting of the shareholders is invalid and that the Board members named in the lawsuit breached fiduciary duties in approving it. The complaint seeks an order declaring the Resolution violates Delaware law and is void, enjoining any further efforts to reduce the size of the Board below seven directors until after the Annual Meeting, and, to enjoin and reschedule or postpone the Annual Meeting to allow for a proxy contest.

ITEM 1A. RISK FACTORS

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

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibits

Exhibit No.	Exhibit	Method of Filing
*2.1	Agreement and Plan of Merger dated as of December 21, 2014 by and among Vision-Sciences, Inc., Visor Merger Sub LLC, and Uroplasty, Inc.	Incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K as filed with the SEC on December 22, 2014 (File No. 000-20970)
3.1	(a) Amended and Restated Certificate of Incorporation.	Incorporated by reference to Exhibit 3.1 to Annual Report on Form 10-K for the fiscal year ended March 31, 2001 (File No. 000-20970)
	(b) Certificate of Amendment to Certificate of Incorporation.	Incorporated by reference to Exhibit 3.1 to Annual Report on Form 10-K for the fiscal year ended March 31, 2001 (File No. 000-20970)
	(c) Certificate of Amendment to Certificate of Incorporation.	Incorporated by reference to Exhibit 99.2 to Current Report on Form 8-K as filed with the SEC on December 15, 2010 (File No. 000-20970)
	(d) Certificate of Amendment to Certificate of Incorporation.	Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K as filed with the SEC on August 1, 2014 (File No. 000-20970)
	(e) Certificate of Amendment to Amended and Restated Certificate of Incorporation.	Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K as filed with the SEC on March 31, 2015 (File No. 000-20970)
	(f) Certificate of Amendment to Amended and Restated Certificate of Incorporation.	Incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K as filed with the SEC on March 31, 2015 (File No. 000-20970)
3.2	Amended and Restated Bylaws, as Amended.	Filed herewith.
10.1	Loan Agreement, made as of September 18, 2015, by and among Cogentix Medical, Inc., Machida Incorporated, Uroplasty, LLC and Venture Bank	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K as filed with the SEC on September 21, 2015 (file No. 000-20870)
31.1	Certification by the PEO and PFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1	Certification by the PEO and PFO pursuant to Section 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

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101.INS	XBRL Instance	Furnished herewith
101.SCH	XBRL Taxonomy Extension Schema	Furnished herewith
101.CAL	XBRL Taxonomy Extension Calculation	Furnished herewith
101.DEF	XBRL Taxonomy Extension Definition	Furnished herewith
101.LAB	XBRL Taxonomy Extension Labels	Furnished herewith
101.PRE	XBRL Taxonomy Extension Presentation	Furnished herewith

* Certain schedules to the Agreement and Plan of Merger have been omitted pursuant to Item 601(b)(2) of Regulation S-K.  We will furnish copies of any such omitted schedules to the SEC upon request.

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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: May 16, 2016	By: /s/ ROBERT KILL
	By: /s/ ROBERT KILL
	Robert Kill
	President, Chief Executive Officer, Chairman of the
	Board and Corporate Secretary
	(Principal Executive Officer, Principal Financial Officer
	and Principal Accounting Officer)

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