| Summary of Significant Accounting Policies | Note 1: Summary of Significant Accounting Policies Nature of Business. Cogentix Medical, Inc. (the “Company”), headquartered in Minnetonka, Minnesota, with operations in New York, Massachusetts, The Netherlands and the United Kingdom, is a global medical device company. We design, develop, manufacture and market innovative proprietary technologies serving the urology, urogynecology/gyn, ENT (ear, nose and throat) and gastrointestinal 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 EndoSheath® Systems 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. In the U.S. and worldwide, 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 the VOX® for vocal cord augmentation. The Company is the result of the March 31, 2015 (the “merger date”) merger of two medical device companies, Uroplasty, Inc. (“UPI”) and Vision-Sciences, Inc. ("VSCI"). On the merger date, the two companies completed an all-stock merger (the "merger"), pursuant to which UPI merged with and into a newly created, wholly-owned subsidiary of VSCI (“Merger Sub”). Merger Sub was the surviving company with the merger, and changed its name to Uroplasty, LLC. After the merger, VSCI and its consolidated subsidiaries, including Uroplasty LLC, and its subsidiaries, operate under the name Cogentix Medical, Inc. Upon closing of the merger, the former UPI stockholders owned approximately 62.5 percent and the VSCI shareholders retained approximately 37.5 percent 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 merger date are the historical financial statements of UPI, whereas the financial statements of the Company after the merger date reflect the results of the operations of UPI and VSCI on a combined basis. See additional disclosure provided in note 2, including pro forma financial information for the Company on a combined basis. 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. Liquidity and Capital Resources We have incurred substantial operating losses since our inception. We anticipate that we will continue to incur negative cash flows from operations during fiscal 2016, driven by continued investment in a direct sales force for the U.S. market, spending for marketing and for research and development, integration of UPI and VSCI, and general business operations. As of March 31, 2015, we had cash and cash equivalents totaling approximately $9.3 million. We expect that our cash at March 31, 2015, should be sufficient to fund our operations through at least March 31, 2016. However, we plan to obtain additional debt and/or equity financing during fiscal 2016. There can be no assurance that any contemplated 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. Principles of Consolidation. The consolidated financial statements include the accounts of Cogentix Medical, Inc. and its wholly owned subsidiaries. We have eliminated all intercompany accounts and transactions in consolidation. Revenue Recognition. We recognize revenue in accordance with the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 605 (Topic 605, Revenue Recognition . 1. persuasive evidence that an arrangement exists; 2. delivery has occurred or services were rendered; 3. the fee is fixed and determinable; 4. collectability is reasonably assured; and 5. the fair value of undelivered elements, if any, exists. We recognize revenue when title passes to the customer, generally upon shipment of our products F.O.B. shipping point. Revenue for service repairs of equipment is recognized after service has been completed, and service contract revenue is recognized ratably over the term of the contract. We include shipping and handling charges billed to customers in net sales, and include related costs incurred by us in cost of goods sold. Typically our agreements contain no customer acceptance provisions or clauses. We sell our products to end users and to distributors. Payment terms range from prepayment to 120 days. The distributor payment terms are not contingent on the distributor selling the product to end users. Customers do not have the right to return products except for warranty claims. We offer customary product warranties. We present our sales in our statement of operations net of taxes, such as sales, use, value-added and certain excise taxes, collected from the customers and remitted to governmental authorities. Use of Estimates. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Our significant accounting policies and estimates include revenue recognition, accounts receivable, valuation of inventory, foreign currency translation/transactions, purchase price allocations 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. Advertising Expenses. Advertising costs are expensed as incurred. We expensed approximately $437,000, $595,000 and $519,000 in fiscal 2015, 2014 and 2013, respectively. Research and Development Expenses. Costs of research, new product development, and product redesign are charged to expense as incurred. Share-Based Compensation. We account for share-based compensation costs under ASC 718, “Compensation – Stock Compensation”. ASC 718 covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. We recognize the compensation cost relating to share-based payment transactions, including grants of employee stock options and restricted shares, in our financial statements. We measure that cost based on the fair value of the equity or liability instruments issued. Long-Term Incentive Plan and Awards. We have a long-term incentive plan (“LTIP”). Awards under the LTIP are accounted for as liability awards as the awards are based on the performance of our common stock and are expected to be settled in cash. The fair value of the awards is calculated on a quarterly basis using a Monte Carlo valuation model and is recognized over the derived service period. Vesting of the awards is based on meeting the stock price criteria, the probability of which is considered in determining the estimated fair value. Defined Benefit Pension Plans. We have a liability attributed to defined benefit pension plans we offered to certain former and current employees of our subsidiaries in the UK and the Netherlands. The liability is dependent upon numerous factors, assumptions and estimates, and the continued benefit costs we incur may be significantly affected by changes in key actuarial assumptions such as the discount rate, mortality, compensation rates, or retirement dates used to determine the projected benefit obligation. Additionally, changes made to the provisions of the plans may impact current and future benefit costs. In accordance with the provisions of ASC 715, “Compensation – Retirement Benefits”, changes in benefit obligations associated with these factors may not be immediately recognized as costs in the statement of operations, but are recognized in future years over the expected average future service of the active employees or the average remaining life expectancies of inactive employees. Disclosures About Fair Value of Financial Instruments. 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. At March 31, 2015, the only asset or liability carried at fair value measured on a recurring basis was the long-term incentive plan accrual with a fair value of $730,000, considered a level 3 measurement. The long-term incentive plan began on October 2, 2014 and is described in note 5. The estimated fair value of the accrual is At March 31, 2014, the only asset or liability carried at fair value measured on a recurring basis were short-term investments with a fair value of $5,603,000, considered a level 2 investment. Our debt securities consisted of U.S government and agency bonds, notes and treasury bills with risk ratings of AAA/Aaa and maturity dates within two years from date of purchase. The estimated fair value of these securities was based on valuations provided by external investment managers. 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, 2015 and 2014 we had no remeasurements of such assets to fair value. The carrying amounts reported in the 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. Cash, Cash Equivalents and Marketable Securities. 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 either held-to-maturity or available-for-sale. We classify marketable securities as held-to-maturity when we believe we have the ability and intent to hold such securities to their scheduled maturity dates. All other marketable securities are classified as available-for-sale. We have not designated any of our marketable securities as trading securities. We carry held-to-maturity marketable securities at their amortized cost and available-for-sale marketable securities at their fair value and report any unrealized appreciation or depreciation in the fair value of available-for-sale marketable securities in accumulated other comprehensive income (loss). We monitor our investment portfolio for any decline in fair value that is other-than-temporary and record any such impairment as an impairment loss. We recorded no impairment losses for other-than-temporary declines in the fair value of marketable securities in fiscal 2015, 2014, and 2013. Cash and cash equivalents include highly liquid money market funds and debt securities with original maturities of three months or less of $9.3 million and present negligible risk of changes in value due to changes in interest rates, and their cost approximates their fair market value 000 a Accounts Receivable We grant credit to our customers in the normal course of business and, generally, do not require collateral or any other security to support amounts due. If necessary, we have an outside party assist us with performing credit and reference checks and establishing credit limits for the customer. Concentration of credit risk with respect to accounts receivable relates to certain domestic and international customers to whom we make substantial sales. To reduce risk, we routinely assess the financial strength of our customers and, when appropriate, we obtain advance payments for our international sales. As a consequence, we believe that our accounts receivable credit risk exposure is limited. Historically we have not experienced any significant credit losses related to any individual customer or group of customers in any particular industry or geographic area. Accounts outstanding longer than the contractual payment terms, are considered past due. We carry our accounts receivable at the original invoice amount less an estimated allowance for doubtful receivables based on a periodic review of all outstanding amounts. We determine the allowance for doubtful accounts based on the customer’s financial health, and both historical and expected credit loss experience. We write off our accounts receivable when we deem them uncollectible. We record recoveries of accounts receivable previously written off when received. We are not always able to timely anticipate changes in the financial condition of our customers and if circumstances related to these customers deteriorate, our estimates of the recoverability of accounts receivable could be materially affected and we may be required to record additional allowances. Alternatively, if more allowances are provided than are ultimately required, we may reverse a portion of such provisions in future periods based on the actual collection experience. Historically, the accounts receivable balances we have written off have generally been within our expectations. The allowance for doubtful accounts was $33,000 and $45,000 at March 31, 2015 and 2014, respectively. Inventories. We state inventories at the lower of cost or market using the first-in, first-out method. 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 at March 31: 2015 2014 Raw materials $ 3,156,000 $ 136,000 Work-in-process 527,000 25,000 Finished goods 1,143,000 356,000 $ 4,826,000 $ 517,000 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 adjusted amount of $240,000 related to VSCI inventory will be recorded in cost of goods sold over approximately the first four months of fiscal 2016. Property, Plant and Equipment. We carry property, plant and equipment, including leasehold improvements, at cost, less accumulated depreciation or fair value if acquired in a business combination, which consists of the following at March 31: 2015 2014 Land $ 133,000 $ 169,000 Building 606,000 768,000 Leasehold improvements 807,000 383,000 Internal use software 749,000 568,000 Equipment 6,888,000 1,573,000 9,183,000 3,461,000 Less accumulated depreciation and amortization (7,370,000 ) (2,463,000 ) $ 1,813,000 $ 998,000 We provide for depreciation using the straight-line method over useful lives of three to seven years for equipment and 40 years for the building. Certain products used as sales demonstration and service loaner equipment are transferred from inventory to machinery and equipment and are depreciated over 3 years. We charge maintenance and repairs to expense as incurred. We capitalize improvements and amortize them over the shorter of their estimated useful service lives or the remaining lease term. We recognized depreciation expense of approximately $249,000, We capitalized internal use software and web site development costs of approximately $185,000 , Impairment of Long-Lived Assets Long-lived assets at March 31, 2015 consisted of property, plant and equipment and intangible assets. We review our long-lived assets for impairment whenever events or business circumstances indicate that we may not recover the carrying amount of an asset. We measure recoverability of assets held and used from a comparison of the carrying amount of an asset to future undiscounted net cash flows we expect to generate by the asset. If we consider such assets impaired, we measure the impairment recognized by the amount by which the carrying amount of the assets exceeds the fair value of the assets. We completed our impairment analysis and concluded there were no Product Warranty We warrant our products to be free from defects in material and workmanship under normal use and service for a period of twelve months after the date of sale. Under the terms of these warranties, we repair or replace products we deem defective due to material or workmanship. The following table summarizes changes in our warranty reserve: March 31, 2015 2014 2013 Warranty reserve at April 1 $ 9,000 $ 12,406 $ 37,600 Warranties accrued during the fiscal year 1,000 1,594 1,289 Warranties settled during the fiscal year - (5,000 ) (26,483 ) Warranty reserve for VSCI 136,000 - - Warranty reserve at March 31 $ 146,000 $ 9,000 $ 12,406 Other Liabilities. Other liabilities consist of the following at March 31: 2015 2014 Investment banking $ 1,750,000 $ - Interest payable – convertible debt 524,000 - Sales tax and VAT payable 261,000 149,000 Accrued legal and accounting fees 189,000 101,000 Deferred rent 148,000 - Other 102,000 232,000 $ 2,974,000 $ 482,000 Foreign Currency Translation. We translate all assets and liabilities using period-end exchange rates. We translate statements of operations items using average exchange rates for the period. We record the resulting translation adjustment within accumulated other comprehensive loss, a separate component of shareholders’ equity. We recognize foreign currency transaction gains and losses in our consolidated statements of operations, including unrealized gains and losses on short-term intercompany obligations using period-end exchange rates. We recognize exchange gains and losses primarily as a result of fluctuations in currency rates between the U.S. dollar (the functional reporting currency) and the Euro and British pound (currencies of our subsidiaries), as well as their effect on the dollar denominated intercompany obligations between us and our foreign subsidiaries. All intercompany balances are revolving in nature and we do not deem any portion of them to be long-term. We recognized foreign currency exchange gains and losses of approximately $(4,000) , Income Taxes. We ASC 740, “ Accounting for Income Taxes Under our accounting policies we recognize interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense. Basic and Diluted Net Loss per 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 in fiscal 2015, 2014 and 2013, t he 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 exercise prices Years ended: March 31, 2015 24,000 $1.06 - $1.17 March 31, 2014 538,000 $1.06 - $1.61 March 31, 2013 396,000 $1.06 - $2.84 New Accounting Pronouncements. In May 2014, the FASB has 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.” We do not believe the adoption of this update will have a material impact on our financial statements. |
