COGENTIX MEDICAL INC /DE/

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern”. Under U.S. GAAP, continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity's liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity's liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting in accordance with Subtopic 205-30 of this ASU, “Presentation of Financial Statements—Liquidation Basis of Accounting”. Even when an entity's liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity's ability to continue as a going concern. In those situations, financial statements should continue to be prepared under the going concern basis of accounting, but the amendments in this ASU should be followed to determine whether to disclose information about the relevant conditions and events.  The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.  The Company has evaluated the going concern considerations in this ASU. However, management does not believe that the Company has met conditions which would subject the Company’s financial statements to additional disclosure.

Dr. Uri Geiger, age 50, has served as a director of our company and Chairman of the Board since November 2016. Dr. Geiger is Managing Partner of Accelmed Growth Partners, L.P., a private equity investment firm he co-founded in 2009 focused on medical device companies, which as of the record date of the 2017 Annual Meeting, owned approximately 27% of the Company’s outstanding common stock. Prior to founding Accelmed, Dr. Geiger served as the CEO of Exalenz Bioscience Ltd., a medical technology company, from May 2006 until December 2008. Prior to that, Dr. Geiger co-founded and was the CEO of GalayOr Networks, a developer of optical components from 2001 until 2003. Dr. Geiger was also the founding partner of Dragon Variation Fund in 2000, one of Israel’s first hedge funds, which was sold to Migdal in 2007. Dr. Geiger worked on Wall Street during the 1990s, where he gained a broad understanding of and significant experience in capital markets. Dr. Geiger was formerly an adjunct professor at Tel Aviv University’s Recanati School of Business where he lectured on private equity and venture capital and authored the books “Startup Companies and Venture Capital” and “From Concept to Wall Street”. Dr. Geiger previously served on the board of directors of EndoChoice Holdings Inc. from January 2014 until March 2016. Dr. Geiger’s years of leadership experience in both financial and business settings of the healthcare industry make him well-suited to serve as a member of the Board.

Nachum (Homi) Shamir, age 64, has served as a director of our company since November 2016. Mr. Shamir currently serves as the President, Chief Executive Officer and Director of Luminex Corporation, a publicly traded biotechnology company based in Austin, Texas, a position he has held since October 2014. Prior to joining Luminex, Mr. Shamir was the President, Chief Executive Officer and Director of Given Imaging Ltd., a developer, manufacturer and marketer of diagnostic products for the visualization and detection of disorders of the gastrointestinal tract which was acquired by Covidien PLC in early 2014. Mr. Shamir held this position from April 2006 to June 2014. Prior to joining Given Imaging, Mr. Shamir was Corporate Vice President of Eastman Kodak Company and President of Eastman Kodak´s Transaction and Industrial Solutions Group. Additionally, he served over ten years at Scitex Corporation, a manufacturer of products, systems and equipment for the graphics design, printing and publishing markets, in positions of increasing responsibility, including President and CEO from 2003 to 2004. Mr. Shamir currently serves on the board of directors of Luminex Corporation and has been serving in such position since October 2014. Mr. Shamir previously served on the board of directors of Given Imaging from April 2006 to June 2014. Mr. Shamir also served on the board of directors of Invendo Medical GmbH from June 2014 to October 2017, when the company was sold.  Mr. Shamir’s knowledge and executive leadership in the health care industry make him well-suited to serve as a member of the Board of Directors of our company.

Effective July 11, 2016, Darin Hammers was appointed as the Chief Executive Officer and President of the Company. Mr. Hammers had been serving as the interim Chief Executive Officer and President of the Company since May 24, 2016. Under the terms of his Employment Agreement dated July 11, 2016, Mr. Hammers was granted (a) an option to purchase 300,000 shares of the Company’s common stock and (b) 100,000 shares of restricted stock. The option has an exercise price equal to the last sale price of the common stock as quoted on the Nasdaq on July 11, 2016, with a term of seven years, and becomes exercisable with respect to a cumulative 100,000 shares on the first, second and third anniversaries of the start date; provided Mr. Hammers remains an employee of the Company. The restricted stock will vest with respect to a cumulative one-third of the restricted shares on the first, second and third anniversaries of the start date. Mr. Hammers will be paid his base salary for 12 months and an amount equal to his last established target bonus following termination of his employment by the Company without Cause (as defined in the Employment Agreement) or by Mr. Hammers with Good Reason (as defined in the Employment Agreement).  He is also entitled to a continuation of health benefits for twelve months.

On December 22, 2017, the U.S. Tax Cuts and Jobs Act ("TCJA") was signed into law. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. The Tax Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective for tax years starting after December 31, 2017, implementing a hybrid territorial tax system, repealing AMT and making pre-2018 credits refundable, and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. As a result, we recorded tax expense of $3.31M in the fourth quarter as a result of revaluation of the deferred tax assets due to the corporate tax rate change from 35% to 21% starting in 2018. The tax expense was directly offset by a change in the valuation allowance except for $70,000 that was not offset. The Company has $68,000 of AMT credit carryforwards that are expected to be fully utilized due to the credit now being refundable under the TCJA.   The Company calculated a deemed repatriation income amount due to the change to a territorial tax system under the TCJA.  This income can be fully offset with NOLs.  The corresponding deferred tax liability associated with it was reversed. The amounts incorporate assumptions made based upon the Company's current interpretation of the Tax Act and may change as the Company receives additional clarification and implementation guidance.