Item 9A. Controls and Procedures
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that occurred during the quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, a company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. It includes those policies and procedures that:
• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that, as of December 31, 2020, our internal control over financial reporting was effective.
Ernst & Young LLP, our independent registered public accounting firm that audited the consolidated financial statements included in this Annual Report on Form 10-K, has issued an audit report on our internal control over financial reporting. See Report of Independent Registered Public Accounting Firm below.
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Inspire Medical Systems, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Inspire Medical Systems, Inc.’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Inspire Medical Systems, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance sheets of Inspire Medical Systems, Inc. as of December 31, 2020 and 2019, the related statements of operations and comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated February 23, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
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that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/Ernst & Young LLP
Minneapolis, Minnesota
February 23, 2021
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Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item is incorporated by reference to our definitive proxy statement for our 2021 annual meeting of stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2020.
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference to our definitive proxy statement for our 2021 annual meeting of stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table provides information as of December 31, 2020, regarding our common stock that may be issued under the Inspire Medical Systems, Inc. 2007 Incentive Award Plan, as amended (the "2007 Plan”), the Inspire Medical Systems, Inc. 2017 Incentive Award Plan, as amended (the “2017 Plan”), the Inspire Medical Systems, Inc. 2018 Incentive Award Plan (the “2018 Plan”) and the Inspire Medical Systems, Inc. 2018 Employee Stock Purchase Plan (the “2018 ESPP”).
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights Number of Securities Available for Future Issuance Under Equity Compensation Plans (excludes securities reflected in column (a))
Plan category: (a) (b) (c)
Equity compensation plans approved by stockholders
2007 Plan (1) 633,913 $ 1.44 —
2017 Plan (1) 162,312 $ 9.22 —
2018 Plan (2) 2,061,339 $ 90.45 647,614
2018 ESPP (3) — $ — 581,195
Equity compensation plans not approved by stockholders — $ — —
Total 2,857,564 $ 66.09 1,228,809
(1) The 2007 Plan terminated in accordance with its terms on November 28, 2017; however, outstanding stock options may continue to be exercised in accordance with their terms. In connection with our IPO, we adopted the 2018 Plan and do not make grants or awards under the 2017 Plan.
(2) Pursuant to the terms of the 2018 Plan, the number of shares of common stock available for issuance under the 2018 Plan automatically increases on each January 1, until and including January 1, 2028, by an amount equal to the lesser of (a) 739,631 shares, (b) 4% of the number of shares of common stock outstanding
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(on an as-converted basis) on the last day of the immediately preceding fiscal year, and (c) such smaller number of shares as is determined by our board of directors.
(3) Pursuant to the terms of the 2018 ESPP Plan, the number of shares reserved under the 2018 ESPP Plan will automatically be supplemented each January 1, until and including January 1, 2028, by an amount of shares equal to the lesser of a) 184,908 shares, b) 1 % of the shares outstanding on the final day of the immediately preceding calendar year, and c) such smaller number of shares as the board of directors may determine.
Other
The remaining information required by this Item is incorporated by reference to our definitive proxy statement for our 2021 annual meeting of stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2020.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated by reference to our definitive proxy statement for our 2021 annual meeting of stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2020.
Item 14. Principal Accounting Fees and Services.
The information required by this Item is incorporated by reference to our definitive proxy statement for our 2021 annual meeting of stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2020.
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PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) List of documents filed as part of this Annual Report on Form 10-K:
(1) Financial Statements
The financial statements included in Part II, Item 8 of this document are filed as part of this Annual Report on Form 10-K.
(2) Financial Statement Schedules
All schedules are omitted because they are not applicable or the amounts are immaterial or the required information is presented in the consolidated financial statements and notes thereto in Part II, Item 8 above.
(3) Exhibits
The following documents are filed as exhibits to this Annual Report on Form 10-K.
Exhibit
Number Description Form File No. Exhibit Filing
Date Filed/
Furnished
Herewith
3.1 Seventh Amended and Restated Certificate of Incorporation of Inspire Medical Systems, Inc .
8-K 001-38468 3.1 5/7/2018
3.2 Amended and Restated Bylaws of Inspire Medical Systems, Inc.
8-K 001-38468 3.2 5/7/2018
4.1 Form of Certificate of Common Stock
S-1 333-224176 4.1 4/23/2018
4.2 Fifth Amended and Restated Investor Rights Agreement, dated October 25, 2016, among Inspire Medical Systems, Inc. and the Investors party thereto
S-1 333-224176 4.2 4/6/2018
4.3 Amendment No. 1 to Fifth Amended and Restated Investor Rights Agreement, dated April 20, 2018, among Inspire Medical Systems, Inc. and the Investors party thereto
S-1 333-224176 4.3 4/23/2018
4.6 Description of Capital Stock
10-K 001-38468 4.6 2/25/2020
10.1 Assignment and License Agreement, dated as of November 28, 2007, by and between Inspire Medical Systems, Inc. and Medtronic, Inc.
S-1 333-224176 10.1 4/6/2018
10.2 First Amendment to Assignment and License Agreement, dated as of February 4, 2010, by and between Inspire Medical Systems, Inc. and Medtronic, Inc.
S-1 333-224176 10.2 4/6/2018
10.3 Loan and Security Agreement, dated as of August 7, 2015, by and between Inspire Medical Systems, Inc. and Oxford Finance LLC
S-1 333-224176 10.3 4/6/2018
10.4 First Amendment to Loan and Security Agreement, dated as of February 24, 2017, by and between Inspire Medical Systems, Inc. and Oxford Finance LLC
S-1 333-224176 10.4 4/6/2018
10.5 Second Amendment to the Loan and Security Agreement, dated as of March 27, 2019, by and between Inspire Medical Systems, Inc. and Oxford Finance LLC.
8-K 001-38468 10.1 3/29/2019
10.6† 2007 Stock Incentive Plan, as amended
S-1 333-224176 10.6 4/6/2018
10.7† Form of Incentive Stock Option Agreement pursuant to 2007 Stock Incentive Plan
S-1 333-224176 10.7 4/6/2018
10.8† 2017 Stock Incentive Plan, as amended
S-1 333-224176 10.8 4/6/2018
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Exhibit
Number Description Form File No. Exhibit Filing
Date Filed/
Furnished
Herewith
10.9† Form of Incentive Stock Option Agreement pursuant to 2017 Stock Incentive Plan
S-1 333-224176 10.9 4/6/2018
10.10† Form of Non-Statutory Stock Option Agreement pursuant to 2017 Stock Incentive Plan
S-1 333-224176 10.10 4/6/2018
10.11† Inspire Medical Systems, Inc. 2018 Incentive Award Plan
S-1 333-224176 10.11 4/23/2018
10.12† Form of Stock Option Award Agreement under Inspire Medical Systems, Inc. 2018 Incentive Award Plan
S-1 333-224176 10.12 4/23/2018
10.13† Form of Restricted Stock Unit Award Agreement under Inspire Medical Systems, Inc. 2018 Incentive Award Plan
*
10.14† Inspire Medical Systems, Inc. 2018 Employee Stock Purchase Plan
S-1 333-224176 10.13 4/23/2018
10.15† Amended and Restated Employment Agreement, by and between Inspire Medical Systems, Inc. and Timothy Herbert
S-1 333-224176 10.15 4/23/2018
10.16† Amended and Restated Employment Agreement, by and between Inspire Medical Systems, Inc. and Randy Ban
S-1 333-224176 10.17 4/23/2018
10.17† Amended and Restated Employment Agreement, by and between Inspire Medical Systems, Inc. and Richard Buchholz
S-1 333-224176 10.19 4/23/2018
10.18† Amended and Restated Employment Agreement, by and between Inspire Medical Systems, Inc. and Steven Jandrich
S-1 333-224176 10.21 4/23/2018
10.19† Employment Agreement between the Company and Philip Ebeling
8-K 001-38468 10.1 6/8/2020
10.20† Employment Agreement between the Company and Bryan Phillips
*
10.21† Form of Indemnification Agreement between Inspire Medical Systems, Inc. and its directors and officers
S-1 333-224176 10.23 4/6/2018
10.22† Inspire Medical Systems, Inc. Non-Employee Director Compensation Policy
10-Q 001-38468 10.1 8/6/2019
21.1 Subsidiaries of Inspire Medical Systems, Inc.
*
23.1 Consent of Ernst & Young LLP
*
31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*
31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*
32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
**
32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
**
101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. *
101.SCH Inline XBRL Taxonomy Extension Schema Document *
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document *
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Exhibit
Number Description Form File No. Exhibit Filing
Date Filed/
Furnished
Herewith
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
*
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
*
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
*
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) *
* Filed herewith.
** Furnished herewith.
† Denotes a management contract or compensation plan or arrangement.
Certain agreements filed as exhibits to this Annual Report on Form 10-K contain representations and warranties that the parties thereto made to each other. These representations and warranties have been made solely for the benefit of the other parties to such agreements and may have been qualified by certain information that has been disclosed to the other parties to such agreements and that may not be reflected in such agreements. In addition, these representations and warranties may be intended as a way of allocating risks among parties if the statements contained therein prove to be incorrect, rather than as actual statements of fact. Accordingly, there can be no reliance on any such representations and warranties as characterizations of the actual state of facts. Moreover, information concerning the subject matter of any such representations and warranties may have changed since the date of such agreements.
Item 16. Form 10-K Summary.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Inspire Medical Systems, Inc.
Date: February 23, 2021 By: /s/ TIMOTHY P. HERBERT
Timothy P. Herbert
President and Chief Executive Officer
(principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 23, 2021.
Signature Title
/s/ TIMOTHY P. HERBERT Chief Executive Officer (principal executive officer), President and Director
Timothy P. Herbert
/s/ RICHARD BUCHHOLZ Chief Financial Officer (principal financial and accounting officer)
Richard Buchholz
/s/ MARILYN CARLSON NELSON Chair of the Board of Directors
Marilyn Carlson Nelson
/s/ SHELLEY BROADER Director
Shelly Broader
/s/ GARY L. ELLIS Director
Gary L. Ellis
/s/ JERRY GRIFFIN, M.D. Director
Jerry Griffin, M.D.
/s/ DANA G. MEAD, JR. Director
Dana G. Mead, Jr.
/s/ GEORGIA MELENIKIOTOU Director
Georgia Melenikiotou
/s/ SHAWN T MCCORMICK Director
Shawn T McCormick
/s/ CASEY TANSEY Director
Casey Tansey
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