What changed in this filing

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Item 1A. Risk Factors

2022-05-05 compared with 2021-11-04 · 179 added, 226 removed, 999 unchanged (29% of the section changed)

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our dependence on a limited number of customers for a significant portion of our sales revenue;

our reliance on a single source or a limited group of manufacturers or suppliers;

the lack of availability of certain components needed to manufacture and assemble our devices and our reliance on a single source or a limited group of manufacturers or suppliers;

the lack of long-term supply contracts with many of our third-party suppliers;

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Risks related to the regulatory environment:

extensive federal and state regulation related to our business by numerous government agencies, including the U.S.

Food and Drug Administration, or FDA;

extensive federal, state, and international regulations related to our business by numerous government agencies, including the U.S.

Food and Drug Administration, or FDA, and the European Medical Device Regulation;

the potential need to seek additional clearances or approvals for our products;

potential FDA or state regulatory enforcement action.

potential FDA, state, or international regulatory enforcement action.

Risks related to our intellectual property:

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For many years, Lincare , Inc.

(a subsidiary of the Linde Group), Apria Healthcare, Inc., AdaptHealth Corp., and Rotech Healthcare, Inc.

(a subsidiary of the Linde Group), Owens & Minor (formerly Apria Healthcare, Inc.), AdaptHealth Corp., Rotech Healthcare, Inc., and Viemed Healthcare, Inc.

have been among the market leaders in providing respiratory therapy products, while the remaining market is serviced by local providers.

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greater financial and human resources for product development, sales and marketing, and patent litigation.

As a result, our competitors may be able to respond more quickly and effectively than we can due to new or changing opportunities, technologies, standard regulatory and reimbursement development and customer requirements or changing or uncertain business conditions or macroeconomic trends.

As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standard regulatory and reimbursement development and customer requirements or changing or uncertain business conditions or macroeconomic trends, including supply chain challenges.

In light of these advantages that our competitors maintain, even if our technology and direct-to-consumer distribution strategy is more effective than the technology and distribution strategy of our competitors, including those who have adopted or may in the future adopt direct-to-consumer sales models, current or potential customers might accept competitor products and services in lieu of purchasing our products.

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We receive a significant amount of our sales revenue from a limited number of customers, including distributors, HME providers, our private label partner, resellers, and charitable organizations.

For the three months ended September 30, 2021 and September 30, 2020, sales revenue to our top 10 customers accounted for approximately 26.9% and 32.0%, respectively, of our total revenue.

No single customer represented more than 10% of our total revenue for the three months ended September 30, 2021 and one single customer represented more than 10% of our total revenue for the three months ended September 30, 2020.

For the nine months ended September 30, 2021 and September 30, 2020, sales revenue to our top 10 customers accounted for approximately 29.2% and 29.8%, respectively, of our total revenue.

One single customer represented more than 10% of our total revenue for the nine months ended September 30, 2021 and one single customer for the nine months ended September 30, 2020.

For the three months ended March 31, 2022 and March 31, 2021, sales revenue to our top 10 customers accounted for approximately 29.4% and 33.4%, respectively, of our total revenue.

The Medicare service reimbursement programs represented more than 10% of our total revenue for the three months ended March 31, 2022.

No single sales revenue customer represented more than 10% of our total revenue for the three months ended March 31, 2022 and one single customer represented more than 10% of our total revenue for the three months ended March 31, 2021.

We expect that sales to relatively few customers will continue to account for a significant percentage of our total revenue in future periods.

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However, we can provide no assurance that any of these customers or any of our other customers will continue to purchase our products at current levels, pricing, or at all, and our revenue could fluctuate significantly due to changes in customer order levels, economic conditions, the adoption of competitive products, or the loss of, reduction of business with, or less favorable terms with any of our largest customers.

For example, we have previously experienced a decline in sales to one large national homecare provider who purchased through our private label partner.

We have also experienced a decline in sales from other home medical equipment providers and these providers have communicated to us that they continue to be subject to capital constraints.

Moreover, in the second quarter of 2020 and continuing through the first quarter of 2021, we experienced a decline in total sales to business-to-business customers worldwide, which we believe was primarily due to the COVID-19 pandemic and related PHE.

For example, we have previously experienced a decline in sales to one large national homecare provider who purchased through our private label partner and other home medical equipment providers.

If we were to lose one of our key customers or have a key customer significantly reduce its volume of business with us, such as we previously experienced with the large national homecare provider, our revenue may be materially reduced and there would be an adverse effect on our business, financial condition and results of operations.

We obtain some of the components, subassemblies and completed products included in our products from a single source or a limited group of manufacturers or suppliers, and the partial or complete loss of one or more of these manufacturers or suppliers could cause significant production delays, an inability to meet customer demand, substantial loss in revenue, and an adverse effect on our financial condition and results of operations.

We obtain some of the components, subassemblies and completed products included in our products from a single source or a limited group of manufacturers or suppliers, and in some cases components required to manufacture and assemble our products are available in only limited supplies from limited manufacturers or suppliers, and the partial or complete loss of one or more of these manufacturers or suppliers or the further limitation on availability could cause significant production delays or stoppages, an inability to meet customer demand, substantial loss in revenue, and an adverse effect on our financial condition and results of operations.

We utilize single-source suppliers for some of the components and subassemblies we use in our Inogen One systems, our Inogen At Home systems, and our Tidal Assist ® Ventilator ( TAV ® ) .

For example, we have elected to source certain key components from single sources of supply, including our batteries, motors, valves, TAV-compatible stationary concentrators, columns, and some molded plastic components.

Our dependence on single-source suppliers of components may expose us to several risks, including, among other things:

Many of our products also utilize components that are available from a limited number of suppliers.

Our dependence on single-source or limited-source suppliers of components may expose us to several risks, including, among other things:

our suppliers or their component sub-suppliers may be unable to meet demands due to global supply chain disruptions;

we may experience delays in delivery by our suppliers due to customs clearing delays, shipping delays, scarcity of raw materials or changes in demand from us or their other customers;

our suppliers may be unable to meet demands due to the effect of exposure to infectious diseases, epidemics or other public health emergencies, including the COVID-19 pandemic and related PHE;

we may experience delays in delivery by our suppliers due to customs clearing delays, shipping delays, scarcity of raw materials and components or changes in demand from us or their other customers;

our suppliers may be unable to meet demands due to the effect of exposure to infectious diseases, epidemics or other public health emergencies, including the COVID-19 pandemic and related PHE or due to acts of terrorism, hostilities, military conflict or war, including the war in Ukraine;

we may not be able to find new or alternative components, even at elevated prices, or reconfigure our system and manufacturing processes in a timely manner if the necessary components become unavailable, which could lead to a production slowdown or temporary stoppage;

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We have experienced supply problems with one or more of our suppliers and may again experience problems in the future.

For example, we have seen supply chain disruptions in 2021, primarily associated with semiconductor chips used in our batteries and printed circuit boards, which are components of our portable oxygen concentrators.

This semiconductor chip shortage is being experienced across many industries, placing additional pressure on existing supplies.

While we have taken steps to mitigate the impact of this supply shortage, it has and will likely have an increased negative impact our ability to manufacture products as these chips are used across all of our portable oxygen concentrators in its batteries and printed circuit boards.

We are continuing to work with our OEM partners and exploring other open-market avenues to purchase necessary semiconductor chips, but with these components facing extremely high demand, we expect continued challenges in terms of supply constraint and pricing inflation moving forward.

As a result, we saw these inflated costs begin to negatively impact our cost of goods sold in the third quarter of 2021, and we expect this to have an increased impact on our material costs in the fourth quarter of 2021 and into 2022 until supply and demand get closer to equilibrium.

Even though we paid significant costs in the third quarter of 2021 associated with these chips, most of these costs increased our prepaid expense and inventory given that these components were not yet sold in finished products during the period.

We believe based on our assessment and industry feedback that these supply shortages may likely continue through the second quarter of 2022.

For example, we have seen supply chain disruptions in 2021 and the first quarter of 2022 and expect to continue to see these disruptions through the remainder of 2022 and into the first quarter of 2023, primarily associated with semiconductor chips used in our batteries and printed circuit boards, which are components of our portable oxygen concentrators.

However, we recognize that there could be supply shortages for other components used in our products.

These shortages are being experienced across many industries, placing additional pressure on existing supplies.

While we have taken steps to attempt to mitigate the impact of supply shortages, it has had and will likely continue to have an increased negative impact on our ability to manufacture products (including with respect to the production halt discussed below).

We are continuing to focus our mitigation efforts on product redesign, seeking increased commitments on shipment dates from our regular suppliers, canvassing the open market for supplies, and using the price increases we implemented on September 1, 2021 and March 1, 2022 to help offset some of the increased costs, but in spite of these efforts we have been supply constrained and with these components facing extremely high demand, we expect continued challenges in terms of supply constraint and pricing inflation moving forward.

Additionally, we believe that the war in Ukraine will result in added supply constraint pressures through at least the remainder of 2022.

The inflated costs related to the supply shortage negatively impacted our cost of goods sold in the third and fourth quarter of 2021 and the first quarter of 2022, and we expect this to have an increased impact on our material costs in the remainder of 2022.

Even though we paid significant costs in the second half of 2021 and first quarter of 2022 associated with these chips, most of these costs increased our prepaid expense and inventory given that these components were either not yet delivered or not yet sold in finished products during the period.

We believe based on our assessment and industry feedback that these supply shortages may continue through the remainder of 2022.

In addition to the semiconductor chip limitations, we are continuing to see supply chain constraints for other components used in our products.

While thus far we have been able to manage through these challenges with increased inventory levels and heightened supplier management and communications, we cannot be certain we will be able to continue to do so through the remainder of the shortages and it is possible we may be required to further slowdown or temporarily halt production.

We believe this is an increased risk to the business for the rest of 2021 and into the first half of 2022.

In addition, we have seen supply chain challenges tied to the COVID-19 pandemic and related PHE in printed circuit boards, corrugated boxes, aluminum machined parts, plastic molded parts, and batteries.

While we have been able to coordinate with our suppliers to minimize disruption to our business, we may not be able to do so in the future and may be required to further slowdown or temporarily halt production .

W e may also face similar situations in the future and we may not be able to quickly establish additional or replacement suppliers, particularly for our single source components or subassemblies, and may experience similar delays in manufacturing.

Any interruption or delay in the supply of components or subassemblies, or our inability to obtain components or subassemblies from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive products.

Recently, the FDA released guidance that requires manufacturers of certain medical devices, including ventilation-related products under product code CAW, among others, to notify FDA of a permanent discontinuance or interruption in manufacturing of an applicable device under Section 506J of the Federal Food, Drug, and Cosmetic Act during the COVID-19 PHE.

As a result of the semiconductor chip shortages, we temporarily suspended manufacturing operations at our Texas and California locations from January 3, 2022 to February 7, 2022 and Foxconn, our Czech Republic-based OEM, suspended manufacturing due to the same supply constraints from January 3, 2022 to February 9, 2022 .

While we were able to resume manufacturing operations at all locations, we are still seeing challenges in terms of availability of supply and we believe the supply shortage continues to represent an increased risk to the business in the remainder of 2022, and we may suspend manufacturing again in the future due to these shortages.

As a result, in the interim we expect to be supply constrained and unable to meet all customer demand for our products.

This may mean that some of our customers may seek other sources of products if we cannot meet their demand.

The FDA has released guidance that requires manufacturers of certain medical devices, including ventilation-related products under product code CAW, among others, to notify FDA of a permanent discontinuance or interruption in manufacturing of an applicable device under Section 506J of the Federal Food, Drug, and Cosmetic Act during the COVID-19 PHE.

To the extent we experience an interruption in our manufacturing during the COVID-19 PHE that falls within the scope of this guidance, we would be required to notify FDA.

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This, in turn, could constitute a material modification or require a redesign of our products and, potentially, require additional FDA clearance or approval before we could use any materially modified or redesigned product with new components or subassemblies, thereby causing further costs and delays that could adversely affect our business, financial condition and results of operations.

If we are unable to continue to enhance our existing products and develop or acquire and market our products that respond to customer needs and preferences and achieve market acceptance, we may experience a decrease in demand for our products and our business could suffer.

The ongoing conflict between Russia and Ukraine, and implications of supply chain challenges, may adversely affect our business and results of operations.

It is not possible to predict the implications of this conflict, which could also include but are not limited to further sanctions, uncertainty about economic and political stability, increases in inflation rate and energy prices, increased threat of cyberattacks, supply shortages, and adverse effects on currency exchange rates and financial markets.

We are continuing to monitor the situation in Ukraine and globally as well as assess its potential impact on our business.

A significant escalation or further expansion of the conflict's current scope or related disruptions to the supply chain could have a material adverse effect on our business, financial condition, and results of operations.

If we are unable to continue to enhance our existing products, develop or acquire and market our products that respond to customer needs and preferences and achieve market acceptance, we may experience a decrease in demand for our products and our business could suffer.

We may not be able to compete as effectively with our competitors and ultimately satisfy the needs and preferences of our customers unless we can continue to enhance existing products, acquire companies with new or different products, sell our existing products, and develop new innovative products ourselves.

Product development requires significant financial, technological and other resources.

While we expended $3.8 million and $3.5 million for the three months ended September 30, 2021 and September 30, 2020, respectively, and $11.9 million and $10.4 million for the nine months ended September 30, 2021 and September 30, 2020, respectively, in research and development efforts, we cannot assure that this level of investment will be sufficient to maintain a competitive advantage in product innovation, which could cause our business to suffer.

In addition, we plan to sell the TAV products acquired from the New Aera acquisition, through our domestic direct-to-consumer sales channel and our business-to-business sales channels worldwide, pending reimbursement and regulatory clearances in each market.

We also plan to incorporate the TAV technology directly into our oxygen concentrators.

While we expended $5.4 million and $4.0 million for the three months ended March 31, 2022 and March 31, 2021, respectively, in research and development efforts, we cannot assure that this level of investment will be sufficient to maintain a competitive advantage in product innovation, which could cause our business to suffer.

We also plan to incorporate the TAV technology acquired from the New Aera acquisition directly into our oxygen concentrators, with minimal expected sales of the TAV product in its current configuration.

Product improvements and new product introductions also require significant planning, design, development, patent protection, and testing at the technological, product, and manufacturing process levels and we may not be able to timely develop product improvements or new products or obtain necessary patent protection and regulatory clearances or approvals for such product improvements or new products in a timely manner, or at all.

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Business disruptions could include disruptions or restrictions on our ability to travel, as well as temporary closures of our facilities or the facilities of our contractors, suppliers, and other partners.

For example, total business-to-business demand declined in the second quarter of 2020 continuing through the first quarter of 2021 due to physician offices limiting patient interactions for COPD patient referrals, HME providers minimizing patient interactions in response to the COVID-19 pandemic and related PHE which includes replacing existing oxygen patient setups with POCs and temporary reduced operating capacity of certain respiratory assessment centers and continued tender delays in certain European markets due to the COVID-19 pandemic and related PHE.

While it is not possible at this time to estimate the overall impact that the COVID-19 pandemic and related PHE could have on our business, the continued spread of COVID-19, both across the United States and through much of the world, and the measures taken by the governments and local authorities of affected regions has adversely effected our operating results and could cause or contribute to, among other things:

For example, total business-to-business demand declined in the second quarter of 2020 continuing through the first quarter of 2021 due to physician offices limiting patient interactions for COPD patient referrals, HME providers minimizing patient interactions in response to the COVID-19 pandemic and related PHE which includes replacing existing oxygen patient setups with POCs and temporary reduced operating capacity of certain respiratory assessment centers and continued delays in certain European markets due to the COVID-19 pandemic and related PHE.

While it is not possible at this time to estimate the overall impact that the COVID-19 pandemic and related PHE could have on our business, the continued spread of COVID-19, both across the United States and through much of the world, and the measures taken by the governments and local authorities of affected regions has adversely affected our operating results and could cause or contribute to, among other things:

significant volatility or reductions in demand for our products;

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In addition, new variants of COVID-19 could prove to be deadlier or more transmittable, or the developed vaccines may be ineffective versus these new variants, which could negatively impact our business and financial results.

In addition, w e have strived to follow recommended actions of government and health authorities to protect the health and safety of our employees and community, while working to ensure the sustainability of our business operations as this unprecedented situation continues to evolve.

In addition, we have strived to follow recommended actions of government and health authorities to protect the health and safety of our employees and community, while working to ensure the sustainability of our business operations as this unprecedented situation continues to evolve.

Employees whose tasks can be done offsite have been allowed to work from home and most of our total personnel continue to work from home.

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We continue to evaluate the impact COVID-19 may have on our ability to effectively conduct our business operations as planned to mitigate risk to our employees and customers while taking into account regulatory, institutional, and government guidance and policies, but there can be no assurance that we will be able to avoid part or all of any impact from the spread of COVID-19 or its consequences.

On September 9, 2021, President Biden announced the “Executive Order on Ensuring Adequate COVID Safety Protocols for Federal Contractors” requiring all contractors that do business with the federal government to ensure that their employees are fully vaccinated.

The Department of Labor’s Occupational Safety and Health Administration is currently drafting an emergency regulation to carry out this mandate.

It is not currently possible to predict with any certainty the exact impact the new regulation will have on us;

however, we estimate that approximately 40% of our employees are currently not vaccinated.

We believe we will be required to mandate the COVID-19 vaccination of our U.S.

This mandate, when issued, could result in employee attrition, difficulty securing future labor needs, or increased costs in the form of penalties and may have an adverse effect on our results of operations .

The COVID-19 pandemic and related PHE continues to rapidly evolve.

The COVID-19 pandemic and related PHE has already adversely effected our financial results and the extent to which COVID-19 ultimately impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the effectiveness of actions taken in the United States and other countries to contain and treat the disease and to address its impact, including on financial markets or otherwise, and how quickly and to what extent normal economic and operating conditions can resume if and when the COVID-19 pandemic and related PHE subsides.

The COVID-19 pandemic and related PHE has already adversely affected our financial results and the extent to which COVID-19 ultimately impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the effectiveness of actions taken in the United States and other countries to contain and treat the disease and to address its impact, including on financial markets or otherwise, and how quickly and to what extent normal economic and operating conditions can resume if and when the COVID-19 pandemic and related PHE subsides.

While the extent of the impact of the COVID-19 pandemic and related PHE on our business and financial results is uncertain, we have already been negatively impacted and a continued and prolonged public health crisis could have a further material negative impact on our business, financial condition and results of operations.

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We are experiencing limited availability of certain semiconductor chip components for our Inogen One portable oxygen concentrators in both its batteries and printed circuit boards, and we do not have long-term supply contracts that would guarantee our supply during these periods of higher demand and lower availability of these sub-components.

This has led to orders not being filled in a timely manner and is expected to lead to increased costs for components and limited supply availability.

Therefore, we were unable to fully meet customer demand for our products and expect these supply constraints to continue into the first half of 2022.

This has led to orders not being filled in a timely manner and a temporary production halt in the first quarter of 2022 and is expected to lead to increased costs for components and limited supply availability through the remainder of 2022 and into the first quarter of 2023.

Therefore, we expect to be unable to fully meet customer demand for our products during the first quarter of 2022 and we expect these supply constraints to continue through the remainder of 2022 and into the first quarter of 2023.

For additional discussion of potential risks related to our inability to source components of our products, please see the risk factor entitled “ We obtain some of the components, subassemblies and completed products included in our products from a single source or a limited group of manufacturers or suppliers, and in some cases those components are available in only limited supplies from limited manufacturers or suppliers, and the partial or complete loss of one or more of these manufacturers or suppliers could cause significant production delays or stoppages, an inability to meet customer demand, substantial loss in revenue, and an adverse effect on our financial condition and results of operations.

We may also be affected by other supply limitations during the COVID-19 pandemic and related PHE that could affect our ability to fulfill orders.

If we inaccurately forecast demand or fail to place orders timely enough relative to fluctuating lead time requirements for components or subassemblies, our ability to manufacture and commercialize our products could be delayed and our competitive position and reputation could be harmed.

In addition, if we fail to effectively manage our relationships with these suppliers or if our suppliers, in the near term or the long term, are not able to supply sufficient quantities of components or subassemblies needed for our products due to the COVID-19 pandemic and related PHE, we may be required to change suppliers or, if we are unable to find alternative suppliers in a timely manner, we may be required to further slowdown or temporarily halt production which would be time consuming and disruptive and could adversely impact our business, financial condition and results of operations.

In addition, if we fail to effectively manage our relationships with these suppliers or if our suppliers, in the near term or the long term, are not able to supply sufficient quantities of components or subassemblies needed for our products due to the COVID-19 pandemic and related PHE, we may be required to change suppliers or, if we are unable to find alternative suppliers in a timely manner, we may be required to further slowdown or temporarily halt production which would adversely impact our business, financial condition and results of operations.

A significant majority of our rental patients who use our product have health coverage under the Medicare program, and recently enacted and future changes in the reimbursement rates or payment methodologies under Medicare, Medicaid and other government programs have affected and could continue to materially and adversely affect our business and operating results.

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Medicare Part B, or Supplementary Medical Insurance Benefits, provides coverage to eligible beneficiaries that include items of durable medical equipment for use in the home, such as oxygen equipment and other respiratory devices.

We believe that up to 48% of long-term oxygen therapy patients in the United States have primary coverage under traditional fee-for-service Medicare Part B.

There are increasing pressures on Medicare to control healthcare costs and to reduce or limit reimbursement rates for home medical products.

Legislation, including the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the Deficit Reduction Act of 2005, the Medicare Improvements for Patients and Providers Act of 2008, and the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, contain provisions that directly impact reimbursement for the durable medical equipment products provided by us:

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 significantly reduced reimbursement for inhalation drug therapies beginning in 2005, reduced payment amounts for certain durable medical equipment, including oxygen, beginning in 2005, froze payment amounts for other covered HME items through 2008, established a competitive bidding program for home medical equipment and implemented quality standards and accreditation requirements for durable medical equipment suppliers.

bidding program for home medical equipment and implemented quality standards and accreditation requirements for durable medical equipment suppliers.

The Deficit Reduction Act of 2005 limited the total number of continuous rental months for which Medicare will pay for oxygen equipment to 36 months, after which time there is generally no additional reimbursement to the supplier (other than for periodic, in-home maintenance and servicing).

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We anticipate that the Deficit Reduction Act of 2005 oxygen payment rules will continue to negatively affect our net revenue on an ongoing basis, as each month additional customers reach the capped rental period in month thirty-seven, resulting in potentially two or more years without rental income from these customers while we continue to incur customer service and maintenance costs.

Our capped patients as a percentage of total patients on service was approximately 8.

3 % as of September 3 0 , 202 1 and 1 3.8 % as of September 3 0 , 20 20 .

Our capped patients as a percentage of total patients on service was approximately 8.1% as of March 31, 2022 and 9.8% as of March 31, 2021.

The percentage of capped patients may fluctuate over time as new patients come on service, patients come off of service before and during the capped rental period, and existing patients enter the capped rental period.

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While the duration of the current emergency is impossible to predict, the Zika virus PHE lasted approximately 360 days, and the H1N1 flu PHE lasted approximately 450 days.

The CARES Act and the Consolidated Appropriations Act of 2021 also included a temporary pause of the 2% Medicare sequestration reduction that went into effect in 2013.

The CARES Act implemented the relief effective May 1, 2020 through December 31, 2020.

The Consolidated Appropriations Act of 2021 was signed into law on December 27, 2020 and extended the suspension period to March 31, 2021.

House of Representatives bill H.R.

1868 was signed into law on April 14, 2021 and extended the suspension period to December 31, 2021, but would increase the fiscal year 2030 sequestration cuts.

In addition, the CARES Act established a provider relief fund of $100 billion, of which $30 billion was distributed on April 10, 2020, for Medicare providers and suppliers to prevent, prepare for, and respond to the COVID-19 PHE, and as a Medicare supplier we also received funds of $6.2 million in the second quarter of 2020.

In May 2020, Congress eliminated the 2% Medicare sequestration payment reduction that applies to all Medicare providers and suppliers, due to the COVID-19 PHE, and Congress extended it until March 31, 2022.

The sequestration payment reduction resumed with a 1% reduction to rates from April 1, 2022 until June 30, 2022, with the full 2% Medicare sequestration resuming on July 1, 2022 and continuing through September 30, 2030.

In addition, the CARES Act established a provider relief fund of $100 billion for Medicare providers and suppliers to prevent, prepare for, and respond to the COVID-19 PHE, and as a Medicare supplier we also received funds of $6.2 million in the second quarter of 2020.

The Paycheck Protection Program and Heath Care Enhancement Act was also signed into law on April 24, 2020 and provides additional funding of $484 billion to programs enacted under the CARES Act.

Of the $484 billion, $75 billion is additional funding for healthcare providers to reimburse healthcare related expenses and lost revenues attributable to COVID-19 PHE, which is in addition to the $100 billion approved in the CARES Act.

On April 6, 2020, an Interim Final Rule (IFR) was published in the Federal Register for policy and regulatory revisions in response to the COVID-19 PHE.

On April 6, 2020, CMS issued an Interim Final Rule (IFR) in the Federal Register for policy and regulatory revisions in response to the COVID-19 PHE.

This IFR included that for the duration of the COVID-19 PHE, the face-to-face requirements and clinical indications of coverage for home oxygen, among other respiratory products, will be waived.

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These changes were retroactive to early March 2020.

However, in July 2020, CMS released a COVID-19 Provider Burden Relief FAQs document that stated that effective August 3, 2020, CMS would resume full operations for the prior authorization program for certain DMEPOS and resume medical review of claims.

CMS also issued a proposed rule on November 4, 2020 (CMS-1738-P) to establish payment amounts going forward for DMEPOS products and services covered under Medicare.

We believe that Medicare rates will not change for the length of the COVID-19 PHE, except for any net change for inflation and budget neutrality adjustments, as outlined above.

CMS is proposing three different fee schedule adjustment methodologies for non-CBAs after the termination of the COVID-19 PHE:

In August 2020, CMS resumed medical review of claims and the prior authorization program for certain DMEPOS.

CMS also issued a final rule in December 2021 (CMS-1738-P) to establish payment amounts that will be effective after the COVID-19 PHE for DMEPOS products and services covered under Medicare.

We believe that Medicare rates will not change for the length of the COVID-19 PHE, except for any net change for inflation and sequestration, as outlined above.

CMS established three different fee schedule adjustment methodologies for non-CBAs after the termination of the COVID-19 PHE:

(1) for non-contiguous non-CBAs;

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and (3) for non-rural non-CBAs within the contiguous United States.

Proposed adjustment methodologies (1) and (2) contemplate utilizing the 50/50 blended rates as a permanent construct, but proposed adjustment methodology (3) contemplates setting the fee schedule amounts to 100% of the Medicare rates.

This could reduce Medicare rates after the PHE is over in the current areas that are considered non-rural but not covered by a former CBA, as those areas are currently receiving a 75/25 blended reimbursement rate.

In January 2021, CMS announced the pivotal bid amounts for the competitive bidding round 2021 for informational purposes only as part of its effort to increase transparency into the DMEPOS Competitive Bidding Program.

Payment methodologies (1) and (2) contemplate utilizing the 50/50 blended rates as a permanent construct, but payment methodology (3) contemplates setting the fee schedule amounts to 100% of the Medicare rates that are based upon (former) competitive bid rates.

This will reduce Medicare rates after the PHE is over in the current areas that are considered non-rural but not covered by a former CBA, as those areas are currently receiving a 75/25 blended reimbursement rate.

In January 2021, CMS announced, for informational purposes only, the payment amounts that would have been effective for the competitive bidding round 2021 as part of its effort to increase transparency into the DMEPOS Competitive Bidding Program.

As a reminder, the bids for oxygen were based on the HCPCS code E1390, which is for stationary oxygen, and there were 130 regions bid.

The simple average of the 2018 single payment amounts for these regions for this code was $73.98.

The simple average of the pivotal bid amounts for these regions for this code was $122.61, or an average increase of 65.7%.

If CMS would have implemented these rate changes, the simple average payment amounts in these regions for POCs (codes E1390 and E1392) would have been $157.60, which is significantly higher than the simple average payment amounts of $110.07 and $121.07 per month being paid as of January 1, 2021 and April 1, 2021 for these regions.

In April 2021, CMS announced a delay of the 2018 IFR final rule (CMS-1687-RCN) and the 2020 DMEPOS proposed rule (CMS-1738-P discussed above).

CMS is required to publish a final rule no later than three years after the publication of a proposed or interim final rule, except under exceptional circumstances.

The 2018 IFR that resumed the 50/50 blended rates in rural areas between June and December 2018 was published on May 11, 2018.

In accordance with the requirement, CMS is required to publish the final rule to the 2018 IFR by May 11, 2021, but CMS announced that there will be a delay in the final rule publication, and they extended the 2018 IFR until May 11, 2022.

In addition, in the 2020 DMEPOS proposed rule, CMS stated that they solicited comments on the 2018 IFR, but have not yet responded to the comments received, and will do so in the final rule, expected to be published by May 11, 2022.

The simple average of the 2018 payment amounts for these regions for this code was $73.98.

The simple average of the payment amounts for these regions for this code was $122.61, or an average increase of 65.7%.

If CMS were to have implemented these rate changes, the simple average payment amounts in these regions for POCs (codes E1390 and E1392) would have been $157.60, which is significantly higher than the simple average payment amounts of $110.07 and $121.07 per month being paid as of January 1, 2021 and April 1, 2021 for these regions.

In September 2021, CMS published a Decision Memo which revised the Home Use of Oxygen national coverage determination and removed the national coverage determination for Home Oxygen Use to Treat Cluster Headaches.

This allows the Medicare Administrative Contractors to make coverage determinations regarding the use of home oxygen and oxygen equipment for cluster headaches.

This will allow the Medicare Administrative Contractors to make coverage determinations regarding the use of home oxygen and oxygen equipment for cluster headaches.

CMS also expanded patient access to oxygen and oxygen equipment in the home by allowing oxygen use for acute or short-term needs instead of limiting coverage to chronic hypoxemia, removed the requirements for alternative treatment measures before dispensing of oxygen therapy, and removed the limited list of conditions for which oxygen may be covered to respiratory-related diseases, to allow the physician flexibility to make that determination.

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We believe these changes will expand coverage for patients who would benefit from oxygen therapy, reduce administrative burdens, and give more decision-making authority on proper patient care to the physicians.

However, we do not yet have visibility on how the Medicare Administrative Contractors will change their coverage determinations.

These legislative provisions as currently in effect have had and may continue to have a material and/or adverse effect on our business, financial condition and results of operations.

CMS has announced that the implementation date for the revised national coverage determination will be June 14, 2022.

However, we do not yet have visibility on the details of how the Medicare Administrative Contractors will change their coverage determinations.

These legislative provisions have had and may continue to have a material and/or adverse effect on our business, financial condition and results of operations.

The HHS Office of Inspector General (OIG) has recommended that states review Medicaid reimbursement for durable medical equipment (DME) and supplies.

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Continued state budgetary pressures could lead to further reductions in funding for the reimbursement for our products which, in turn, would adversely affect our business, financial condition and results of operations .

On January 17, 2017, HHS published a final rule effective March 20, 2017 to address the appeals backlog that includes allowing certain decisions to be made by the Medicare Appeals Council to set precedent for lower levels of appeal, expansion of the pool of available adjudicators, and increasing decision-making consistency among the levels of appeal.

In addition, it included provisions to improve the efficiency by streamlining the appeals process, allowing attorneys to handle some procedural matters at the administrative law judge level, and proposed funding increases and legislative actions outlined in the federal budget for 2017.

HHS estimates this could eliminate the backlog in appeals by 2021.

However, if this plan is not effective, the appeals backlog could increase, which could increase our collection times and decrease our cash flow, increase billing administrative costs, and/or increase the provision for rental revenue adjustments, which would adversely affect our business, financial condition and results of operations.

The competitive bidding process or other reimbursement policy changes under Medicare or other third-party payors could negatively affect our business and financial condition.

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We rely significantly on reimbursement from Medicare and private payors, including Medicare Advantage plans, Medicaid and patients for our rental revenue.

For the three months ended September 30, 2021 and September 30, 2020, approximately 81.6% and 82.8%, respectively, and approximately 82.6% and 80.6% for the nine months ended September 30, 2021 and September 30, 2020, respectively, of our rental revenue was derived from Medicare’s traditional fee-for-service reimbursement programs.

For the three months ended March 31, 2022 and March 31, 2021, approximately 79.0% and 83.9%, respectively, of our rental revenue was derived from Medicare’s traditional fee-for-service reimbursement programs.

list price for our stationary oxygen rentals Healthcare Common Procedure Coding System (HCPCS E1390) is $260 per month and the U.S.

list price for our oxygen generating portable equipment (OGPE) rentals (HCPCS E1392) is $70 per month.

The average Medicare reimbursement rates in former competitive bidding areas (CBAs) in the prior four years are outlined in the table below for E1390 and E1392, which are the two primary codes that we bill to Medicare and other payors for our oxygen product rentals.

These rates are typically updated annually each January as they are subject to Consumer Price Index (CPI) and budget neutrality adjustments but can also be subject to adjustments during the year due to legislative rulings.

The average Medicare reimbursement rates in former competitive bidding areas (CBAs) in the prior five years are outlined in the table below for E1390 and E1392, which are the two primary codes that we bill to Medicare and other payors for our oxygen product rentals.

These rates are typically updated annually each January as they are subject to Consumer Price Index (CPI) and sequestration adjustments, but can also be subject to adjustments during the year due to legislative rulings.

Competitive bidding contracts were scheduled to go into effect on January 1, 2021;

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Average Medicare reimbursement rates in former CBAs

As of January 1, 2022

As of April 1, 2021

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As of January 1, 2018

CMS also issued a proposed rule on November 4, 2020 (CMS-1738-P) to establish payment amounts going forward for DMEPOS products and services covered under Medicare.

We believe that Medicare rates will not change for the length of the PHE, except for budget neutrality adjustments that typically occur annually each January but have not yet been announced.

CMS is proposing three different fee schedule adjustment methodologies for non-CBAs after the termination of the COVID-19 PHE:

CMS also issued a final rule in December 2021 (CMS-1738-P) to establish payment methodologies that will be effective after the COVID-19 PHE for DMEPOS products and services covered under Medicare.

We believe that Medicare rates will not change for the length of the PHE, except for inflation and sequestration adjustments that typically occur annually each January but have not yet been announced.

CMS established three different fee schedule adjustment methodologies for non-CBAs after the termination of the COVID-19 PHE:

(1) for non-contiguous non-CBAs;

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and (3) for non-rural non-CBAs within the contiguous United States.

Proposed adjustment methodologies (1) and (2) contemplate utilizing 50/50 blended rates as a permanent construct, but proposed adjustment methodology (3) contemplates setting the fee schedule amounts to 100% of the Medicare rates.

There was a 60-day comment period on this proposed rule, and we expected this rule to be finalized in the first half of 2021.

This was delayed due to the fact that on April 26, 2021, CMS published a notice stating that the Biden Administration published a “Regulatory Freeze Pending Review” memorandum advising all agencies, unless otherwise excepted by the Director of Office of Management and Budget, not to issue any rule until an appointee by the new Administration reviews and approves the rule.

Pending this review and approval, CMS is continuing the rules already in effect until May 11, 2022.

In January 2021, CMS announced the pivotal bid amounts for the competitive bidding round 2021.

The final payment methodology sets the fee schedule amounts to 100% of the Medicare rates in all non-rural areas.

In January 2021, CMS announced what would have been the payment amounts for the competitive bidding round 2021.

As a reminder, the bids for oxygen were based on the HCPCS code E1390, which is for stationary oxygen, and there were 130 regions bid.

The simple average of the 2018 single payment amounts for these regions for this code was $73.98.

The simple average of the pivotal bid amounts for these regions for this code was $122.61, or an average increase of 65.7%.

If CMS would have implemented these rate changes, the average payment amounts in these regions for POCS (codes E1390 and E1392) would have been $157.60, which is significantly higher than the $110.07 per month being paid as of January 1, 2021.

In addition to regional pricing, CMS imposed different pricing on “frontier states” and rural areas.

CMS defines frontier states as states where more than 50% of the counties in the state have a population density of 6 people or less per square mile and rural states are defined as states where more than 50% of the population lives in rural areas per census data.

Current frontier states include MT, ND, SD and WY;

rural states include ME, MS, VT and WV;

and non-contiguous United States areas include AK, HI, Guam and Puerto Rico.

Effective June 1, 2018, for frontier and rural states, frontier and rural zip codes in non-frontier/rural states and non-contiguous United States areas, the single payment amount will be the 50/50 blended reimbursement rates based on an average of the pre-competitive reimbursement bidding rates and the current average reimbursement rates to account for higher servicing costs in these areas.

The simple average of the payment amounts for these regions for this code was $122.61, or an average increase of 65.7%.

If CMS were to have implemented these rate changes, the average payment amounts in these regions for POCS (codes E1390 and E1392) would have been $157.60, which is significantly higher than the $110.07 per month being paid as of January 1, 2021.

Medicare payment rates are based upon whether the beneficiary resides in a (former) CBA, or in a rural or non-rural non-CBA, or in non-contiguous states.

Non-CBA payment rates are based on regional pricing, that are derived from former competitive bidding payment rates.

In rural areas and non-contiguous states, payment rates are based on a higher 50-50 blended rate, to account for higher servicing costs in those areas.

We estimate that approximately 18% of our patients are eligible to receive the higher reimbursement rates based on the geographic locations of our current patient population.

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Average Medicare reimbursement rates in rural areas

As of January 1, 2022

As of April 1, 2021

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See the table below for average Medicare rates in these non-former CBAs, non-rural areas, using a simple average of rates in each state.

Effective March 1, 2021, CMS announced that the rates as of January 1, 2021 were incorrectly calculated, and retroactively adjusted the rates, which are reflected in the table below.

The Medicare rates announced previously were a simple average of $103.18 for HCPCS code E1390 and $39.62 for HCPCS code E1392, which were increased to $104.07 and $40.06, respectively.

Effective April 1, 2021, rates will be adjusted to remove a percentage reduction that was put in place to meet the budget neutrality requirement previously mandated by section 1834(a)(9)(D)(ii) of the Social Security Act.

These rates are typically updated annually each January as they are subject to the Consumer Price Index (CPI) and sequestration adjustments, but are also subject to adjustments during the year due to legislative rulings.

Effective April 1, 2021, rates were adjusted to remove a percentage reduction that was put in place to meet the budget neutrality requirement previously mandated by section 1834(a)(9)(D)(ii) of the Social Security Act.

Note that the 2021 rates listed below include CARES Act increased rates due to the COVID-19 PHE, which may not be in place for all of 2022.

Once the Administration ends the COVID-19 PHE, the rates in these non-former CBAs, non-rural areas are expected to adjust down to the former CBA rates listed in the table above.

Average Medicare reimbursement rates in non-former CBAs, non-rural areas

As of January 1, 2022

As of April 1, 2021

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As of January 1, 2018

In April 2021, CMS announced a delay of the 2018 IFR final rule (CMS-1687-RCN) and the 2020 DMEPOS proposed rule (CMS-1738-P discussed above).

CMS is required to publish a final rule no later than three years after the publication of a proposed or interim final rule, except under exceptional circumstances.

The 2018 IFR that resumed the 50/50 blended rates in rural areas between June and December 2018 was published on May 11, 2018.

CMS is required to propose future rounds of competitive bidding, which could reduce reimbursement rates, negatively impact the premium for POCs over other oxygen modalities, or limit beneficiary access to our technologies.

CMS is required to conduct future rounds of competitive bidding, which could reduce reimbursement rates, negatively impact the premium for POCs over other oxygen modalities, or limit beneficiary access to our technologies.

Cumulatively in previous rounds of competitive bidding, we were offered contracts for a substantial majority of the CBAs and product categories for which we submitted bids.

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In all five rounds of competitive bidding in which we have participated, we have gained access to certain CBAs and been excluded from other CBAs.

In September 2021, CMS announced a final rule to the Home Use of Oxygen national coverage determination and a final rule to remove the national coverage determination for Home Oxygen Use to Treat Cluster Headaches.

This allows the Medicare Administrative Contractors to make coverage determinations regarding the use of home oxygen and oxygen equipment for cluster headaches.

CMS also expanded patient access to oxygen and oxygen equipment in the home by allowing oxygen use for acute or short-term needs instead of limiting coverage to chronic hypoxemia, removed the requirements for alternative treatment measures before dispensing of oxygen therapy, and removed the limited list of conditions for which oxygen may be covered to respiratory-related diseases, and allowed the physician flexibility to make that determination.

In addition, CMS defined exercise more broadly to include functional performance of the patient and to give more flexibility on pulse oximetry readings to reduce racial disparities in care.

Lastly, CMS reduced provider burden by removing the oxygen certificate of medical necessity requirement.

We believe these changes will both expand coverage for patients who would benefit from oxygen therapy, reduce administrative burdens, and give more decision-making authority on proper patient care to the physicians.

However, we do not yet have visibility on how the Medicare Administrative Contractors will change their coverage determinations.

Medicare revenue, including patient co-insurance and deductible obligations, represented 10.6% and 8.4% of our total revenue in the three months ended September 30, 2021 and September 30, 2020, respectively, and 9.7% and 6.5% in the nine months ended September 30, 2021 and September 30, 2020, respectively.

Medicare revenue, including patient co-insurance and deductible obligations, represented 12.8% of our total revenue in the three months ended March 31, 2022 and 9.5% in the three months ended March 31, 2021.

Medicare reimbursement for oxygen rental equipment is limited to a maximum of 36 months within a 60-month service period, and the equipment remains the property of the home oxygen supplier.

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The supplier may not arbitrarily issue new equipment.

We have analyzed the potential impact to revenue associated with patients in the capped rental period and have deferred $0 associated with the capped rental period as of September 3 0 , 202 1 and September 3 0 , 20 20 .

Our capped patients as a percentage of total patients on service was approximately 8.

3 % and 13.8 % as of September 30, 2021 and September 30, 2020, respectively.

We have analyzed the potential impact to revenue associated with patients in the capped rental period and have deferred $0 associated with the capped rental period as of March 31, 2022 and March 31, 202 1 .

Our capped patients as a percentage of total patients on service was approximately 8.1 % as of March 31, 202 2 and 9.8 % as of March 31, 202 1 .

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On August 2, 2011, the Budget Control Act of 2011 created, among other things, measures for spending reductions by Congress.

A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs.

This includes aggregate reductions of Medicare reimbursements to providers up to 2% per fiscal year, which went into effect on April 1, 2013, and will remain in effect through 2030 unless additional Congressional action is taken.

For example, a provision in the CARES Act and the December stimulus bill temporarily paused the 2% Medicare sequestration reduction for claims dated from May 1, 2020 through December 31, 2020 and the CARES Act also extends the end date of the Medicare sequestration reduction by one year, through 2030, in order to offset the 2020 suspension.

Although the Consolidated Appropriations Act of 2021, signed into law on December 27, 2020, extended the suspension period of the sequestration to March 31, 2021, and the U.S.

House of Representatives bill H.R.

1868 was signed into law on April 14, 2021 and extended the suspension period to December 31, 2021, w e expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressures.

In addition to the legislative changes discussed above, the Patient Protection and Affordable Care Act of 2010 requires healthcare providers to voluntarily report and return an identified overpayment within 60 days after identifying the overpayment.

For example, a provision in the CARES Act and subsequent federal laws had paused the 2% Medicare sequestration reduction for claims dated from May 1, 2020 through March 31, 2022.

On April 1, 2022, and expected through June 30, 2022, there has been a 1% sequestration reduction, and the full 2% sequestration reduction is expected to resume on July 1, 2022 and continue through September 30, 2030.

W e expect that additional state and federal healthcare policy measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressures.

In addition to the legislative changes discussed above, the Patient Protection and Affordable Care Act requires healthcare providers to voluntarily report and return an identified overpayment within 60 days after identifying the overpayment.

Failure to repay the overpayment within 60 days will result in the claim being considered a “false claim” and the healthcare provider will be subject to False Claims Act liability.

State legislative bodies also have the right to enact legislation that would impact requirements of home medical equipment providers, including oxygen therapy providers.

Some states have already enacted legislation that would require in-state facilities.

Some states have already enacted legislation that require in-state facilities.

We are monitoring all state requirements to maintain compliance with state-specific legislation and access to service patients in these states.

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We accept assignment of insurance benefits from customers and, in a majority of cases, invoice and collect payments directly from Medicare, private payors and Medicaid, as well as direct from patients under co-insurance provisions.

For the three months ended September 30, 2021 and September 30, 2020, approximately 13.0% and 10.1%, respectively, and for the nine months ended September 30, 2021 and September 30, 2020, approximately 11.8% and 8.1%, respectively, of our total revenue was derived from Medicare, private payors, Medicaid, and individual patients who directly receive reimbursement from third-party payors and this percentage could increase as a percent of total revenue if we increase net patient additions faster than our sales revenue growth.

For the three months ended March 31, 2022 and March 31, 2021, approximately 16.2% and 11.3%, respectively, of our total revenue was derived from Medicare, private payors, Medicaid, and individual patients who directly receive reimbursement from third-party payors and this percentage could increase as a percent of total revenue if we increase net patient additions faster than our sales revenue growth.

Our financial condition and results of operations may be affected by the healthcare industry’s reimbursement process, which is complex and can involve lengthy delays between the time that a product is delivered to the consumer and the time that the reimbursement amounts are settled.

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We are also subject to extensive pre-payment and post-payment audits by governmental and private payors that could result in material delays, refunds of monies received or denials of claims submitted for payment under such third-party payor programs and contracts.

We cannot ensure that we will be able to continue to effectively manage the process, it would adversely affect our business, financial condition and results of operations.

We cannot ensure that we will be able to continue to effectively manage the process which would adversely affect our business, financial condition and results of operations.

If our manufacturing facilities become unavailable or inoperable, we could be unable to continue manufacturing our products and, as a result, our business, financial condition and results of operations could be adversely affected until we are able to secure a new facility.

We assemble our products at our facilities in Richardson, Texas and Goleta, California and through our contract manufacturer in the Czech Republic.

We assemble our products at our facilities in Plano, Texas and Goleta, California and through our contract manufacturer in the Czech Republic.

No other manufacturing facilities are currently available to us, particularly facilities of the size and scope of our Texas facility.

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We utilize a third-party contract manufacturer located in the Czech Republic for production of a portion of our Inogen One G3 and Inogen One G5 concentrators and for repair services for these products.

In 2018, 2019, 2020 and the nine months ended September 30, 2021, our contract manufacturer produced the vast majority of the concentrators required to support our European demand and we expect this to continue in 2021 and 2022.

Since 2018, our contract manufacturer has produced the vast majority of the concentrators required to support our European demand and we expect this to continue in 2022 and 2023.

There are a number of risks associated with our dependence on a contract manufacturer, including:

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We must also upgrade our internal business processes and capabilities to create the scalability that a growing business demands.

Going forward, we plan to hire additional inside sales representatives at a more controlled pace across all three facilities to expand sales capacity, but our inside sales representative headcount was down significantly at year-end 2019 compared to year-end 2018 and, due to the impact of the COVID-19 pandemic and related PHE, it was also down at year-end 2020 compared to year-end 2019.

Headcount was up slightly as of September 30, 2021 compared to December 31, 2020.

In 2021, we expect hiring will continue to be challenging due to the continued impacts of the COVID-19 pandemic and related PHE, so we do not expect to increase our inside sales force and instead expect to offset attrition with replacement hiring.

While we believe we are making the necessary changes to improve sales management infrastructure to support sales representative training and onboarding, it will take more time to evaluate whether these changes are effective in the long term, particularly given the impact of the COVID-19 pandemic and related PHE, and to the extent they are not effective it may negatively affect our financial condition and results of operations.

In addition, we plan to hire additional sales representatives in our prescriber sales organization, of which a portion is planned through Ashfield, our contract sales organization, to enhance our go-to-market capabilities in the U.S.

While Ashfield plans to add approximately 20 dedicated sales representatives to our prescriber sales organization in early 2022, in addition to our own direct hires, the employment market is very challenging and there is no guarantee that they, or we, will be able to meet the desired timing.

Going forward, we plan to hire additional inside sales representatives at a more controlled pace across all three facilities to expand sales capacity .

In 2022, we expect hiring will continue to be challenging and do not expect to increase our inside sales force and instead expect to offset attrition with replacement hiring.

While we believe we are making the necessary changes to improve sales management infrastructure to support sales representative training and onboarding, it will take more time to evaluate whether these changes are effective in the long term , and to the extent they are not effective , it may negatively affect our financial condition and results of operations.

In addition, we plan to hire additional sales representatives in our prescriber sales organization, primarily through Ashfield, our contract sales organization, to enhance our go-to-market capabilities in the U.S.

The employment market is very challenging and there is no guarantee that they, or we, will be able to hire all of the required employees to our prescriber sales organization in the future or retain existing staff.

Additionally, Ashfield will provide access to its best-in-class data-driven sales management disciplines, proprietary prescriber insights, and analytics to support our growth strategy and drive performance in the clinician sales channel.

While we believe that our investments in the prescriber sales organization will enhance our growth in direct-to-consumer sales and rental revenue, it will take time for these sales representatives to be fully trained and ramped up to full productivity, and it will take time for the sales tools to be implemented across our existing prescriber sales representatives.

To the extent that the sales representatives hired either through us or Ashfield, are not effective, or the number of sales representatives does not reach the number anticipated, it may negatively affect our future growth and results of operations.

In addition, our sales expansion and productivity improvements for 2021 may continue to be negatively impacted due to the COVID-19 pandemic and related PHE.

In connection with the COVID-19 pandemic and related PHE, we expect minimal sales representative headcount additions for the rest of 2021, and we expect the COVID-19 pandemic and related PHE may continue to reduce the number of oxygen therapy patients who purchase our products directly through our direct-to-consumer sales channel, and the number of sales generated from physician offices or make it more difficult to get paperwork and testing from physician offices.

The reduction in nonessential travel may also continue to harm our business, particularly for our prescriber sales representatives and business-to-business partners who rely on physician office and hospital visits to drive business, and patients who rely on physicians to prescribe them oxygen therapy after in-office testing.

To the extent that the sales tools being implemented, or the sales representatives hired either through us or Ashfield are not effective or our relationship with Ashfield was to terminate, or the number of sales representatives does not reach the number anticipated, it may negatively affect our future growth and results of operations.

We also have experienced increased demand for our products in various markets associated with rising rates of COVID-19, since physicians may prescribe supplemental oxygen as a treatment for COVID-19.

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We may expand through acquisitions of, or investments in, other companies, each of which may divert our management’s attention, result in additional dilution to our stockholders, increase expenses, disrupt our operations, and harm our results of operations.

Our business strategy may, from time-to-time, include acquiring or investing in complementary services, technologies or businesses, such as our acquisition of MedSupport in 2017 and our acquisition of New Aera in 2019.

Our business strategy may, from time-to-time, include acquiring or investing in complementary services, technologies or businesses, such as our acquisition of New Aera in 2019.

We do not have an extensive history of acquiring other companies and cannot assure you that we will successfully identify suitable acquisition candidates, integrate or manage disparate technologies, lines of business, personnel and corporate cultures, realize our business strategy or the expected return on our investment, or manage a geographically dispersed company.

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We made certain assumptions relating to the New Aera acquisition, which assumptions may have been inaccurate, including the failure to realize the expected benefits of the acquisition, failure to realize expected revenue, higher than expected operating costs, and general economic and business conditions that adversely affect the combined company following the acquisition.

After integration of New Aera, and partially as a result of the negative litigation outcome in our case against the Department of Health and Human Services, more fully described in Part II, Item 1 “ Litigation ” above, we believe that our assumptions regarding New Aera will not be fully realized.

We believe that there are still many risks associated with the TAV product, including whether we will be able to successfully incorporate TAV into our existing products, what sort of competition there may be for the TAV product, and the other risks identified in this Quarterly Report on Form 10-Q.

These unrealized synergies may be beneficial to short-term operating results, but we believe may be harmful to our long-term term operating results.

We may experience manufacturing problems or delays that could limit our growth or adversely affect our operating results .

Our products are manufactured using complex parts and processes, sophisticated equipment and strict adherence to design specifications and quality standards.

Any unforeseen manufacturing problems, such as disruption related to the COVID-19 pandemic and related PHE, contamination of our facility, equipment malfunction or miscalibration, supply chain shortages, regulatory findings, or failure to strictly follow procedures or meet design specifications, could result in delays or shortfalls in production of our products.

Identifying and resolving the cause of any such manufacturing issues could require substantial time and resources.

If we are unable to keep up with demand for our products by successfully manufacturing and shipping our products in a timely and quality manner, our operating results could be impaired, market acceptance for our products could be adversely affected and our customers might instead purchase our competitors’ products.

For example, in December 2019 through February 2020, we experienced unforeseen manufacturing challenges with respect to a column sub-assembly manufacturing supplier on the Inogen One G5, which led to a significant backlog of orders and some cancellation of orders.

The ongoing servicing costs associated with these issues, or other manufacturing issues we may experience in the future may increase our cost of goods sold, adversely affect our operating results and harm our reputation.

Additionally, regulators may disagree with our handling of any such incidents and take action.

Also, although we believe we are addressing these issues, we may experience additional unexpected product defects or errors that could have adverse effects.

In addition to these manufacturing issues, we also have experienced issues with our supply chain, as discussed in detail in the risk factor entitled “ We obtain some of the components, subassemblies and completed products included in our products from a single source or a limited group of manufacturers or suppliers, and the partial or complete loss of one or more of these manufacturers or suppliers could cause significant production delays, an inability to meet customer demand, substantial loss in revenue, and an adverse effect on our financial condition and results of operations.

In addition, the introduction of new products may require the development of new manufacturing processes and procedures.

While all of our products are assembled using essentially the same basic processes, significant changes in technology, programming, and other variations may be required to meet product specifications.

Developing new processes can be very time consuming and affect quality, as such any unexpected difficulty in doing so could delay the introduction of a new product and our ability to produce sufficient quantities of existing products.

After integration of New Aera, and partially as a result of the negative litigation outcome in our case against the Department of Health and Human Services, we believe that our assumptions regarding New Aera will not be fully realized.

We believe that there are still many risks associated with the TAV product, including whether we will be able to successfully incorporate TAV into our existing products, what sort of competition there may be for the TAV product, if and when implemented, and the other risks identified in this Quarterly Report on Form 10-Q.

We are exposed to the credit and non-payment risk of our HME providers, distributors, private label partners and resellers, especially during times of economic uncertainty and tight credit markets, which could result in material losses.

We sell our products to certain HME providers, distributors, private label partner and resellers on unsecured credit, with terms that vary depending upon the customer’s credit history, solvency, cash flow, credit limits and sales history, as well as prevailing terms with similarly situated customers and whether sufficient credit insurance can be obtained.

In particular, two customers each represented more than 10% of our net accounts receivable balance with accounts receivable balances of $6.7 million and $5.5 million, respectively, as of September 30, 2021, and two customers each with an accounts receivable balance of $8.4 million and $7.0 million, respectively, as of December 31, 2020.

In particular, three single customers each represented more than 10% of our net accounts receivable balance with accounts receivable balances of $5.8 million, $4.3 million and $3.7 million, respectively, as of March 31, 2022, and one single customer with an accounts receivable balance of $5.9 million as of December 31, 2021.

Challenging economic conditions, including those associated with the COVID-19 pandemic and related PHE, may impair the ability of our customers to pay for products they have purchased, and as a result, our reserve for doubtful accounts could increase and, even if increased, may turn out to be insufficient.

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In addition, any disruption or delay in the shipping of our products, whether domestically or internationally, may have an adverse effect on our financial condition and results of operations.

During the nine months ended September 30, 2021,and September 30, 2020, approximately 21.1% and 20.7%, respectively, of our total revenue was generated from customers located outside of the United States.

During the three months ended March 31, 2022 and March 31, 2021, approximately 34.8% and 18.1%, respectively, of our total revenue was generated from customers located outside of the United States.

We believe that a significant percentage of our future revenue will continue to come from international sources as we expand our international operations and develop opportunities in other countries.

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If one or more of these risks occurs, it could require us to dedicate significant resources to remedy, and if we are unsuccessful in finding a solution, our financial condition and results of operations will suffer.

In addition, on June 23, 2016, the United Kingdom (U.K.) held a referendum in which voters approved an exit from the European Union, commonly referred to as “Brexit.” This decision created an uncertain political and economic environment in the U.K.

and other European Union countries, and the formal process for leaving the European Union has taken years to complete.

formally left the European Union on January 31, 2020 and began a transition period which expired on December 31, 2020.

In December 2020, the U.K.

and the European Union agreed on a trade and cooperation agreement, under which the U.K.

and the European Union will now form two separate markets governed by two distinct regulatory and legal regimes.

The trade and cooperation agreement covers the general objectives and framework of the relationship between the U.K.

and the European Union, including as it relates to trade, transport and visas.

Notably, under the trade and cooperation agreement, U.K.

service suppliers no longer benefit from automatic access to the entire European Union single market, U.K.

goods no longer benefit from the free movement of goods and there is no longer the free movement of people between the U.K.

and the European Union.

Depending on the application of the terms of the trade and cooperation agreement, we could face new regulatory costs and challenges.

Adverse consequences concerning Brexit or the future of the European Union could include deterioration in global economic conditions, instability in global financial markets, political uncertainty, volatility in currency exchange rates or adverse changes in the cross-border agreements currently in place, any of which could have an adverse impact on our financial results in the future.

A significant amount of our international product sales are currently denominated in U.S.

A portion of our international product sales are currently denominated in U.S.

dollars and fluctuations in the value of the U.S.

dollar relative to foreign currencies could decrease demand for our products and adversely impact our financial results.

dollar relative to foreign currencies could decrease demand for our products and adversely impact our financial performance.

For example, if the value of the U.S.

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We have experienced and will continue to experience fluctuations in our net income or loss as a result of transaction gains or losses related to revaluing certain current asset and current liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded.

For example, for the nine months ended September 30, 2021 and September 30, 2020, we experienced net foreign currency losses of $0.5 million and net foreign currency gains of $0.3 million, respectively.

For example, for the three months ended March 31, 2022 and March 31, 2021, we experienced net foreign currency losses of $0.4 million and $0.3 million, respectively.

Fluctuations in currency exchange rates could have an adverse impact on our financial results in the future.

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Quantitative and Qualitative Disclosures about Market Risk in our Annual Report on Form 10-K for the year ended December 31, 2021.

Additional information on our hedging arrangements is also contained in Note 3 – Fair value measurements and Item 3 – Quantitative and Qualitative Disclosures About Market Risk in the condensed notes in our consolidated financial statements in this Quarterly Report on Form 10-Q.

Additional information on our hedging arrangements is also contained in Note 3 – Fair value measurements and Item 3 – Quantitative and Qualitative Disclosures About Market Risk in the notes in our consolidated financial statements in the Annual Report on Form 10-K.

We rely on shipping providers to deliver products to our customers globally.

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Such disruptions or delays may have an adverse effect on our financial condition and results of operations.

The war in Ukraine has adversely affected some shipping pathways and we anticipate that this conflict will result in further disruptions to our supply chain and shipping channels

Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws, including the U.S.

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In particular, labor and related costs account for a significant portion of our operating costs and we compete with other healthcare providers to attract and retain qualified or skilled personnel and with various industries for administrative and service employees.

This competitive environment could result in increased labor costs, which we have seen in 2021 as the labor market has tightened and there is increased competition for certain roles.

This competitive environment could result in increased labor costs, which we experienced in 2021 as the labor market has tightened and there is increased competition for certain roles.

As a result, increases in our operating costs including personnel-related costs could adversely affect our financial condition and results of operations.

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Our success depends upon the skills, experience and efforts of our senior executives and other key technical personnel, including certain members of our engineering, accounting and compliance staff as well as our sales and marketing personnel.

Our President and Chief Executive Officer, Nabil Shabshab, joined us in February 2021, our Executive Vice President, Chief Commercial Officer, George Parr, joined us in April 2021, our Executive Vice President, Chief Technology Officer, Stanislav Glezer, joined us in June 2021, and our Executive Vice President, General Counsel, Jason Somer, joined us in July 2021.

Our President and Chief Executive Officer, Nabil Shabshab, joined us in February 2021, our Executive Vice President, Chief Commercial Officer, George Parr, joined us in April 2021, our Executive Vice President, Chief Technology Officer, Stanislav Glezer, joined us in June 2021, our Executive Vice President, General Counsel, Jason Somer, joined us in July 2021, and our Executive Vice President, Chief Financial Officer, Kristin Caltrider, joined us in March 2022.

If experienced employees leave, we could experience inefficiencies or a lack of business continuity due to loss of historical knowledge and a lack of familiarity of the new employees with business processes, operating requirements, policies and procedures.

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Competition for our highly skilled employees is intense and we cannot prevent the resignation of any employee.

We have experienced increased turnover at all levels since the start of the COVID-19 pandemic and general labor shortages in various areas of our business, all of which could have a material adverse impact on our business.

We may need to increase employee wages and benefits in order to attract and retain the personnel necessary to achieve our goals, and our business, operations, and financial results may suffer if we are unable to do so.

We do not maintain “key man” life insurance on any of our senior executives.

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and fluctuations in foreign currency exchange rates.

In particular, due to the COVID-19 pandemic and related PHE, we have seen and expect to continue to see a disruption in our normal seasonal trends, as, due to the mandates and behaviors emanating from the COVID-19 pandemic and related PHE, including shelter-in-place orders, reduced travel, and lower consumer confidence, we did not see the typical seasonal increases in direct-to-consumer sales in 2020 that we have seen in prior years.

As more HME providers adopt POCs in their businesses, we expect that this could change our historical seasonality in the domestic business-to-business channel as well, which was previously influenced mainly by consumer buying patterns.

The foregoing factors are difficult to forecast, and these, as well as other factors, could materially and adversely affect our quarterly and annual results of operations.

We have experienced significant revenue growth in the past, but we may not achieve similar growth rates, profit margins and/or net income (loss) in future periods.

You should not rely on our operating results for any prior quarterly or annual period as an indication of our future operating performance.

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It is not clear if or when these potential changes in accounting principles may become effective, whether we have the proper systems and controls in place to accommodate such changes and the impact that any such changes may have on our financial condition and results of operations.

Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.

Utilization of our net operating losses and tax credit carryforwards may be subject to annual limitations arising from ownership change limitations imposed by the Internal Revenue Code and similar state provisions.

Such annual limitations could result in the expiration of our net operating losses and tax credit carryforwards before their utilization.

Our ability to recognize the benefits of deferred tax assets is dependent on future cash flows and taxable income.

We recognize the expected future tax benefit from deferred tax assets when the tax benefit is considered to be more likely than not of being realized;

otherwise, a valuation allowance is applied against deferred tax assets.

Assessing the recoverability of deferred tax assets requires management to make significant estimates related to expectations of future taxable income.

Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction.

To the extent that future cash flows and taxable income differ significantly from estimates, our ability to realize the deferred tax assets could be impacted.

In the future, our estimates could change requiring a valuation allowance or impairment of our deferred tax assets.

Additionally, future changes in tax laws could limit our ability to obtain the future tax benefits represented by our deferred tax assets.

See Note 7 – Income taxes in the condensed notes of our consolidated financial statements in this Quarterly Report on Form 10-Q for additional information and factors that could impact the Company’s ability to realize the deferred tax assets.

The adoption and interpretation of new tax legislation, tax rulings, or exposure to additional tax liabilities, could materially affect our financial condition, results of operations, and cash flows.

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House of Representatives bill H.R.

1868 was signed into law on April 14, 2021 and extended the suspension period to December 31, 2021, but would increase the fiscal year 2030 sequestration cuts.

1868 was signed into law on April 14, 2021 and extended the suspension period to December 31, 2021, but increased the fiscal year 2030 sequestration cuts.

In December 2021 through the Protecting Medicare and American Farmers from Sequester Cuts Act, the 2% Medicare sequestration benefit that was set to expire December 31, 2021 was extended until March 31, 2022.

The sequestration then resumed with a 1% reduction to rates from April 1, 2022 until June 30, 2022, with the full 2% Medicare sequestration resuming starting July 1, 2022 and continuing through September 30, 2030.

Once the sequestration reduction is reinstated, this could adversely affect our financial condition and results of operations.

The implementation of prior authorization rules for DMEPOS under Medicare could negatively affect our business and financial condition.

CMS has issued a final rule to require Medicare prior authorization (PA) for certain DMEPOS that the agency characterizes as “frequently subject to unnecessary utilization.” The final rule was published on December 30, 2015 and specified an initial master list of 135 items that could potentially be subject to PA.

Initially stationary oxygen rentals (code E1390) was included on the master list, but it was later removed.

On April 22, 2019, stationary oxygen rentals (E1390) was again added to the list of potential codes that could be subject to PA.

CMS has issued a final rule to require Medicare prior authorization (PA) for certain DMEPOS that the agency characterizes as “frequently subject to unnecessary utilization” and that have an average purchase fee of $1,000 or greater, or an average rental fee schedule of $100 or greater.

The final rule was published on December 30, 2015 and specified an initial master list of 135 items that could potentially be subject to PA.

Initially stationary oxygen (code E1390) was included on the master list, but was later removed.

On April 22, 2019, stationary oxygen (E1390) was again added to the list of potential codes that could be subject to PA.

On November 8, 2019, CMS revised the criteria for inclusion on the master list and added 212 DMEPOS items, including portable oxygen concentrators (E1392), to the master list.

The master list is updated annually and published in the Federal Register.

The presence of an item on the master list does not automatically mean that a PA is required.

CMS will select a subset of these master list items for its “Required Prior Authorization List.” There will be a notice period of at least 60 days prior to implementation.

CMS selects a subset of these master list items for its “Required Prior Authorization List.” There will be a notice period of at least 60 days prior to implementation.

The ruling does not create any new clinical documentation requirements, instead the same information necessary to support Medicare payment will be required prior to the item being furnished to the beneficiary.

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CMS will issue additional sub-regulatory guidance on these timelines in the future.

On April 6, 2020, an IFR was published in the Federal Register for policy and regulatory revisions in response to the COVID-19 PHE, and there was a comment period until June 30 , 2020 .

Pursuant to a temporary regulatory waiver implemented by the administration, CMS has paused the national prior authorization program for certain DMEPOS.

However, in July 2020, CMS released a COVID-19 Provider Burden Relief FAQs that stated that CMS would resume full operations for the national prior authorization program for certain DMEPOS effective August 3, 2020.

If our products are subject to prior authorization, it could reduce the number of patients qualified to come on service using their Medicare benefits, it could delay the start of those patients while we wait for the prior authorization to be received, and/or it could decrease sales productivity.

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In particular, our operations are subject to state laws governing, among other things, distribution of medical equipment and certain types of home health activities, and we are required to obtain and maintain licenses in many states to act as a durable medical equipment supplier.

Certain of our employees are subject to state laws and regulations governing the professional practices of respiratory therapy.

Certain of our employees are subject to state laws and regulations governing the professional practice of respiratory therapy.

As a healthcare provider participating in governmental healthcare programs, we are subject to laws directed at preventing fraud and abuse, which subject our marketing, billing, documentation and other practices to strict government scrutiny.

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Government agencies or their contractors also periodically open investigations and audits and obtain information from healthcare providers.

Violations of federal and state regulations can result in severe criminal, civil and administrative fines, penalties and sanctions, including debarment, suspension or exclusion from Medicare, Medicaid and other government reimbursement programs, any of which would have a material adverse effect on our business.

Violations of federal and state laws or regulations can result in severe criminal, civil and administrative fines, penalties and sanctions, including debarment, suspension or exclusion from Medicare, Medicaid and other government reimbursement programs, any of which would have a material adverse effect on our business.

Changes in healthcare laws and regulations and new interpretations of existing laws and regulations may affect permissible activities, the relative costs associated with doing business, and reimbursement amounts paid by federal, state and other third-party payors.

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We have modified some of our 510(k) cleared products and have determined that in certain instances new 510(k) clearances or pre-market approval are not required.

If the FDA disagrees with our determination and requires us to submit new 510(k) notifications or pre-market approval for modifications to our previously cleared products for which we have concluded that new clearances or approvals are unnecessary, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties.

We plan to make similar determinations regarding modifications to our 510(k) products, which may include the redesign of the Inogen One G5 system motherboard pending validation testing.

If the FDA disagrees with our determinations and requires us to submit new 510(k) notifications or pre-market approval for modifications to our previously cleared products for which we have concluded that new clearances or approvals are unnecessary, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory penalties or fines.

The FDA issued a new Final Guidance titled Enforcement Policy for Ventilators and Accessories and Other Respiratory Devices During the Coronavirus Disease 2019 (COVID-19) Public Health Emergency (PHE) in March 2020.

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If we fail to obtain and maintain regulatory approval in foreign jurisdictions, our market opportunities will be limited.

Approximately 23.5% and 19.6% of our total revenue was from sales outside of the United States for the three months ended September 30, 2021 and September 30, 2020, respectively, and 21.1% and 20.7% for the nine months ended September 30, 2021 and September 30, 2020, respectively.

We sell our products in 59 international countries or overseas regions outside of the United States through our wholly owned subsidiary, distributors or directly to large “house” accounts.

Approximately 34.8% and 18.1% of our total revenue was from sales outside of the United States for the three months ended March 31, 2022 and March 31, 2021, respectively.

We have sold our products in a total of 59 international countries and overseas regions outside of the United States through our wholly owned subsidiary, distributors and directly to large “house” accounts.

In order to market our products in the European Union or other foreign jurisdictions, we must obtain and maintain separate regulatory approvals and comply with numerous and varying regulatory requirements.

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For example, the European Union requires that manufacturers of medical devices obtain the right to bear the “CE” conformity marking which designates compliance with existing directives and standards regulating the design, manufacture and distribution of medical devices in member countries of the European Union.

In 2017, the European Union adopted the E uropean Medical Device Regulation (Council Regulations 2017/745) which imposes stricter requirements for the marketing and sale of medical devices, including new clinical evaluation, quality system, and post-market surveillance requirements.

The regulation ha d a three-year implementation period, with full application of the regulation occu r r ing in May 2021 and replac ing the pre- existing directives on medical devices in the European Union.

Since May 2021, medical devices marketed in the European Union will require certification according to these new requirements, except that devices with valid CE certificates, issued pursuant to the Medical Device Directive before May 2021, including our oxygen therapy products with CE Marks issued under the Medical Device Directive, may be placed on the market until May 2024.

In 2017, the European Union adopted the European Medical Device Regulation (Council Regulations 2017/745) which imposes stricter requirements for the marketing and sale of medical devices, including new clinical evaluation, quality system, and post-market surveillance requirements.

The regulation had a three-year implementation period, with full application of the regulation occurring in May 2021 and replacing the pre-existing directives on medical devices in the European Union.

Since May 2021, medical devices marketed in the European Union require certification according to these new requirements, except those devices with valid CE Marks, issued pursuant to the Medical Device Directive before May 2021, including our oxygen therapy products with CE Marks issued under the Medical Device Directive (MDD), may be placed on the market until May 2024.

Only medical devices that comply with certain conformity requirements of the Medical Device Directive are currently allowed to be marketed within the European Union and our products will be required to comply with the European Medical Device Regulation (MDR).

New products that fail ed to be certified with the MDR by May 2021 may not be marketed or sold in the European Union.

Similarly, existing products with CE Marks issued under the Medical Device Directive may not be placed on the market in the European Union after May 2024.

New products that failed to be certified with the MDR by May 2021 may not be marketed or sold in the European Union.

Similarly, existing products with CE Marks issued under the MDD may not be placed on the market in the European Union after May 2024.

The extension of the existing certificates under the MDD or obtaining a new certificate under the MDR is required for continued marketing in the European Union after May 18, 2022.

Inogen products are commercialized in the European Union and United Kingdom under MDD certificates, expiring on May 18, 2022.

The extension of the existing certificates under the MDD or obtaining a new certificate under the European MDR is required for continued marketing in the European Union after May 18, 2022.

Our EU MDR Generic Device Group submission has been filed for our POCs and is under review.

In addition, United Kingdom Conformity Assessed has been filed and accepted.

The Swiss Medic Submissions has been filed and awaiting final steps.

Derogation requests have also been filed in Germany, France, Spain, Italy, Belgium and Netherlands.

Additional requests are in the process of preparation.

Due to the expected reduced availability of products in Europe in the second quarter and second half of 2022 due to the delay in MDR approval, we will place intentional focus on fulfilling European orders in our international business-to-business sales channel until May 18, 2022 when the MDR certificate expires

The foreign regulatory approval process, including with respect to MDR, includes many of the risks associated with obtaining FDA clearance and we may not obtain foreign regulatory approvals on a timely basis, if at all.

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New health information standards, whether implemented pursuant to HIPAA, the HITECH Act, congressional action or otherwise, could have a significant effect on the manner in which we handle healthcare related data and communicate with payors, and the cost of complying with these standards could be significant.

The 2013 final HITECH omnibus rule modified the breach reporting standard in a manner that made more data security incidents qualify as reportable breaches.

Any liability from a failure to comply with the requirements of HIPAA or the HITECH Act could adversely affect our results of operations and financial condition.

The costs of complying with privacy and security related legal and regulatory requirements are burdensome and could have a material adverse effect on our results of operations.

Regulations requiring the use of “standard transactions” for healthcare services issued under HIPAA may negatively affect our profitability and cash flows.

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Sanctions under this federal law may include civil monetary penalties, exclusion from federal and state healthcare programs, criminal fines and imprisonment.

In addition, the recently enacted Patient Protection and Affordable Care Act, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes.

In addition, the Patient Protection and Affordable Care Act, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes.

A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it.

In addition, the Patient Protection and Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the false claims statutes.

In addition, the Patient Protection and Affordable Care Act provides that the government may assert that a claim that items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the false claims statutes.

Because of the breadth of these laws and the narrowness of the safe harbors and exceptions, it is possible that some of our business activities could be subject to challenge under one or more of such laws.

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Penalties under these state laws can be comparable to those under their federal equivalents.

The Patient Protection and Affordable Care Act also created the federal Physician Payments Sunshine Act, which requires applicable manufacturers of drugs, devices, biologicals, and medical supplies covered under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to CMS, information related to payments or other transfers of value made to physicians, as defined, and teaching hospitals, as well as ownership and investment interests in such manufacturer held by physicians and their immediate family members.

Additionally, the Substance Use-Disorder Prevention that Promoted Opioid Recovery and Treatment for Patients and Communities Act enacted in 2018, extends the reporting and transparency requirements for physicians under the Physician Payments Sunshine Act to physician assistants, nurse practitioners and other mid-level practitioners, with reporting requirements going into effect in 2022 for payments made in 2021.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, also created the federal Physician Payments Sunshine Act, which requires applicable manufacturers of drugs, devices, biologicals, and medical supplies covered under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to CMS, information related to payments or other transfers of value made to physicians, as defined, and teaching hospitals, as well as ownership and investment interests in such manufacturer held by physicians and their immediate family members.

Additionally, the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act enacted in 2018, extends the reporting and transparency requirements for physicians under the Physician Payments Sunshine Act to physician assistants, nurse practitioners and other mid-level practitioners, with reporting requirements going into effect in 2022 for payments made in 2021.

Failure to submit the required information under the federal Physician Payment Sunshine Act may result in civil monetary penalties of up to an aggregate of $0.19 million per year (and up to an aggregate of $1.265 million per year for “knowing failures”), subject to an annual adjustment for inflation.

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Certain states mandate implementation of compliance programs and/or the tracking and annual reporting of gifts, compensation and other remuneration to physicians and other applicable recipients.

The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance and/or reporting requirements in multiple jurisdictions increase the possibility that a healthcare company many violate one or more of the requirements.

The Federal Civil Monetary Penalties Law grants authority to the HHS Office of Inspector General (OIG) to seek civil monetary penalties (CMPs) against an individual or entity based on a wide variety of conduct including violations of the Anti-Kickback Statute, Stark Law, and False Claims Act.

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HHS makes annual inflation-related increases to the civil monetary penalties in its regulations pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.

The HHS Annual Civil Monetary Penalties Inflation Adjustment Final Rule issued on January 17, 2020, sets forth adjusted civil monetary penalty amounts that apply to penalties assessed on or after January 17, 2020, if the violation occurred on or after November 2, 2015.

The HHS Annual Civil Monetary Penalties Inflation Adjustment Final Rule issued on March 1 7 , 202 2 sets forth adjusted civil monetary penalty amounts that apply to penalties assessed on or after March 1 7 , 202 2 , if the violation occurred on or after November 2, 2015.

We are also exposed to the risks of fraud, misconduct, or other illegal activity by our employees and third parties who act for us or on our behalf, such as our independent contractors, consultants, commercial partners, and vendors.

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Foreign governments tend to impose strict price controls, which may adversely affect our future profitability.

We sell our products in 59 international countries or overseas regions outside the United States through our wholly owned subsidiary, distributors or directly to large “house” accounts.

We have sold our products in a total of 59 international countries and overseas regions outside the United States through our wholly owned subsidiary, distributors or directly to large “house” accounts.

In some foreign countries, particularly in the European Union, the pricing of medical devices is subject to governmental control.

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If our patent claims are rendered invalid or unenforceable, or narrowed in scope, the patent coverage afforded our products could be impaired, which could make our products less competitive.

As of September 30, 2021, we have thirty pending U.S.

and international patent applications, forty-four issued U.S.

patents, and eighteen issued foreign patents relating to the design and construction of our oxygen concentrators, our intelligent delivery technology and our TAV product, including its proprietary nasal interface.

As of March 31, 2022, we have twenty-seven pending U.S.

and international patent applications, forty-seven issued U.S.

patents, and nineteen issued foreign patents relating to the design and construction of our oxygen concentrators, our intelligent delivery technology and our TAV product, including its proprietary nasal interface.

We cannot specify which of these patents individually or as a group will permit us to gain or maintain a competitive advantage.

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We own a pending application for “Inogen” with the United States Patent and Trademark Office.

We own trademark registrations for the mark “Inogen” in Argentina, Australia, Canada, Chile, China, Columbia, Ecuador, South Korea, Mexico, Europe (European Union registration), the United Kingdom, Iceland, India, Israel, Japan, Kuwait, New Zealand, Norway, Paraguay, Peru, Turkey, Singapore, and Switzerland.

We own pending applications for the mark “Inogen” in Brazil, India, Malaysia, South Africa, and Uruguay.

We own pending applications for the mark “Inogen” in Brazil, India, Malaysia, and South Africa.

We own a trademark registration for the mark “イノジェン” in Japan.

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If we are unable to implement these requirements effectively or efficiently, it could harm our operations, financial reporting, or financial results and could result in an adverse opinion on our internal controls from our independent registered public accounting firm.

In addition, the State of California has put regulations in place to prioritize board diversity.

If we are unable to implement these requirements to find the level of talent and skills in diverse candidates within the timeframes of the regulation, we may face penalties, poor investor perception of us, or harm to our reputation.

Failure to maintain effective internal controls could cause our investors to lose confidence in us and adversely affect the market price of our common stock.

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Our directors, executive officers and principal stockholders will continue to have substantial control over us and could limit your ability to influence the outcome of key transactions, including changes of control.

As of September 30, 2021, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock and their respective affiliates beneficially owned or controlled approximately 50.2% of the outstanding shares of our common stock.

As of March 31, 2022, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock and their respective affiliates beneficially owned or controlled approximately 53.3% of the outstanding shares of our common stock.

Accordingly, these executive officers, directors and stockholders who owned more than 5% of our outstanding common stock and their respective affiliates, acting as a group, have substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions.

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require that any action to be taken by our stockholders be affected at a duly called annual or special meeting and not by written consent;

specify that special meetings of our stockholders can be called only by our board of directors, the Chairman of the board of directors, or the Chief Executive Officer;

specify that special meetings of our stockholders can be called only by our board of directors, the Chairperson of the board of directors, or the Chief Executive Officer;

establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors;

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As a result, capital appreciation, if any, of our common stock is expected to be your sole source of gain for the foreseeable future.

Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

Issuer Purchases of Equity Securities

We did not repurchase any shares of our common stock during the three months ended March 31, 2022 and March 31, 2021.

Defaults U pon Senior Securities

Mine Safety Disclosures

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors