Inogen Inc (Form: 10-Q, Received: 08/07/2018 17:00:00)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission file number: 001-36309

INOGEN, INC.

(Exact name of registrant as specified in its charter)

Delaware		33-0989359
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

326 Bollay Drive Goleta, California		93117
(Address of principal executive offices)		(Zip Code)

(805) 562-0500

(Registrant’s telephone number, including area code)

None

( Former name, former address and former fiscal year, if changed since last report )

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 31, 2018, the registrant had 21,350,470 shares of common stock, par value $0.001, outstanding.

TABLE OF CONTENTS

	Part I – Financial Information	Page
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017	3
	Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months Ended June 30, 2018 and June 30, 2017	5
	Consolidated Statements of Stockholders’ Equity (unaudited) for the Six Months Ended June 30, 2018 and June 30, 2017	6
	Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2018 and June 30, 2017	7
	Condensed Notes to the Consolidated Financial Statements (unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	55
Item 4.	Controls and Procedures	56
	Part II – Other Information
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	87
Item 3.	Defaults Upon Senior Securities	87
Item 4.	Mine Safety Disclosures	87
Item 5.	Other Information	87
Item 6.	Exhibits	88
SIGNATURES		89

INOGEN, INC.

PART I – FINANCIAL INFORMATION

Item 1. F inancial Statements

Inogen, Inc.

Consolidated Balance Sheets

(amounts in thousands)

	June 30,			December 31,
	2018			2017
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	166,344		$	142,953
Marketable securities		42,068			30,991
Accounts receivable, net		37,472			31,444
Inventories, net		27,407			18,842
Deferred cost of revenue		381			361
Income tax receivable		2,655			1,313
Prepaid expenses and other current assets		6,667			2,584
Total current assets		282,994			228,488
Property and equipment
Rental equipment, net		46,638			49,349
Manufacturing equipment and tooling		7,272			6,858
Computer equipment and software		6,138			5,484
Furniture and equipment		975			746
Leasehold improvements		2,098			1,598
Land and building		125			125
Construction in process		3,069			408
Total property and equipment		66,315			64,568
Less accumulated depreciation		(44,343	)		(44,465	)
Property and equipment, net		21,972			20,103
Goodwill		2,304			2,363
Intangible assets, net		4,093			4,717
Deferred tax asset - noncurrent		20,736			18,636
Other assets		537			765
Total assets	$	332,636		$	275,072

See accompanying condensed notes to the consolidated financial statements.

Inogen, Inc.

Consolidated Balance Sheets (continued)

(amounts in thousands, except share and per share amounts)

	June 30,		December 31,
	2018		2017
	(unaudited)
Liabilities and stockholders' equity
Current liabilities
Accounts payable and accrued expenses	$	31,174	$	20,626
Accrued payroll		9,108		6,877
Warranty reserve - current		3,223		2,505
Deferred revenue - current		3,383		3,533
Income tax payable		344		345
Total current liabilities		47,232		33,886
Long-term liabilities
Warranty reserve - noncurrent		5,507		3,666
Deferred revenue - noncurrent		11,713		9,402
Deferred tax liability - noncurrent		340		348
Other noncurrent liabilities		938		729
Total liabilities		65,730		48,031
Commitments and contingencies (Note 8)
Stockholders' equity
Common stock, $0.001 par value per share; 200,000,000 authorized; 21,321,543 and 20,976,350 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively		21		21
Additional paid-in capital		231,879		218,109
Retained earnings		34,007		8,639
Accumulated other comprehensive income		999		272
Total stockholders' equity		266,906		227,041
Total liabilities and stockholders' equity	$	332,636	$	275,072

See accompanying condensed notes to the consolidated financial statements.

Inogen, Inc.

Consolidated Statements of Comprehensive Income

(unaudited)

(amounts in thousands, except share and per share amounts)

	Three months ended						Six months ended
	June 30,						June 30,
	2018			2017			2018			2017
Revenue
Sales revenue	$	91,987		$	58,038		$	165,571		$	104,004
Rental revenue		5,251			6,083			10,718			12,617
Total revenue		97,238			64,121			176,289			116,621
Cost of revenue
Cost of sales revenue		44,968			27,993			81,916			49,906
Cost of rental revenue, including depreciation of $1,966 and $2,522 for the
three months ended and $4,131 and $5,211 for the six months ended,
respectively		3,800			4,561			8,176			9,404
Total cost of revenue		48,768			32,554			90,092			59,310
Gross profit
Gross profit-sales revenue		47,019			30,045			83,655			54,098
Gross profit-rental revenue		1,451			1,522			2,542			3,213
Total gross profit		48,470			31,567			86,197			57,311
Operating expense
Research and development		1,775			1,260			3,191			2,569
Sales and marketing		22,999			11,945			41,037			22,474
General and administrative		9,675			9,865			19,248			18,200
Total operating expense		34,449			23,070			63,476			43,243
Income from operations		14,021			8,497			22,721			14,068
Other income (expense)
Interest income		673			146			1,216			247
Other income (expense)		(1,048	)		523			(604	)		730
Total other income (expense), net		(375	)		669			612			977
Income before provision (benefit) for income taxes		13,646			9,166			23,333			15,045
Provision (benefit) for income taxes		(964	)		828			(2,035	)		775
Net income		14,610			8,338			25,368			14,270
Other comprehensive income (loss), net of tax
Change in foreign currency translation adjustment		76			197			184			197
Change in net unrealized gains (losses) on foreign currency hedging		723			(300	)		474			(246	)
Less: reclassification adjustment for net (gains) losses included in net income		(103	)		49			69			(8	)
Total net change in unrealized gains (losses) on foreign currency hedging		620			(251	)		543			(254	)
Change in net unrealized gains (losses) on available-for-sale investments		19			(6	)		—			58
Total other comprehensive income (loss), net of tax		715			(60	)		727			1
Comprehensive income	$	15,325		$	8,278		$	26,095		$	14,271

Basic net income per share attributable to common stockholders (Note 5)	$	0.69		$	0.40		$	1.20		$	0.69
Diluted net income per share attributable to common stockholders (Note 5)	$	0.65		$	0.38		$	1.13		$	0.66
Weighted-average number of shares used in calculating net income per share attributable to common stockholders:
Basic common shares		21,172,170			20,622,320			21,099,566			20,556,293
Diluted common shares		22,503,749			21,848,359			22,409,011			21,731,592

See accompanying condensed notes to the consolidated financial statements.

Inogen, Inc.

Consolidated Statements of Stockholders’ Equity

(amounts in thousands, except share amounts)

									Retained			Accumulated
						Additional			earnings			other			Total
	Common stock					paid-in			(accumulated			comprehensive			stockholders'
	Shares			Amount		capital			deficit)			income (loss)			equity
Balance, December 31, 2016		20,389,860		$	20	$	194,466		$	(12,363	)	$	(35	)	$	182,088
Stock-based compensation		—			—		4,107			—			—			4,107
Employee stock purchases		11,805			—		581			—			—			581
Stock options exercised		308,132			1		6,729			—			—			6,730
Net income		—			—		—			14,270			—			14,270
Other comprehensive income		—			—		—			—			1			1
Balance, June 30, 2017 (unaudited)		20,709,797		$	21	$	205,883		$	1,907		$	(34	)	$	207,777

Balance, December 31, 2017		20,976,350		$	21	$	218,109		$	8,639		$	272		$	227,041
Stock-based compensation		—			—		6,567			—			—			6,567
Employee stock purchases		12,013			—		988			—			—			988
Restricted stock awards issued		53,052			—		—			—			—			—
Vesting of restricted stock units		6,665			—		—			—			—			—
Shares withheld related to net restricted stock settlement		(2,553	)		—		(302	)		—			—			(302	)
Stock options exercised		276,016			—		6,517			—			—			6,517
Net income		—			—		—			25,368			—			25,368
Other comprehensive income		—			—		—			—			727			727
Balance, June 30, 2018 (unaudited)		21,321,543		$	21	$	231,879		$	34,007		$	999		$	266,906

See accompanying condensed notes to the consolidated financial statements.

Inogen, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(amounts in thousands)

	Six months ended June 30,
	2018			2017
Cash flows from operating activities
Net income	$	25,368		$	14,270
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,809			6,321
Loss on rental units and other fixed assets		525			604
Gain on sale of former rental assets		(401	)		(50	)
Provision for sales returns and doubtful accounts		9,942			6,702
Provision for rental revenue adjustments		1,429			2,903
Provision for inventory obsolescence and other inventory losses		227			102
Stock-based compensation expense		6,567			4,107
Deferred income taxes		(2,100	)		662
Changes in operating assets and liabilities:
Accounts receivable		(17,480	)		(12,369	)
Inventories		(9,070	)		(2,154	)
Deferred cost of revenue		(20	)		13
Income tax receivable		(1,346	)		(1,062	)
Prepaid expenses and other current assets		(4,084	)		(157	)
Other noncurrent assets		(104	)		—
Accounts payable and accrued expenses		10,830			8,466
Accrued payroll		2,235			(1,551	)
Warranty reserve		2,559			1,171
Deferred revenue		2,161			2,228
Income tax payable		7			(61	)
Other noncurrent liabilities		209			(34	)
Net cash provided by operating activities		33,263			30,111
Cash flows from investing activities
Purchases of available-for-sale investments		(39,312	)		(22,725	)
Maturities of available-for-sale investments		28,235			14,318
Investment in property and equipment		(4,541	)		(969	)
Production and purchase of rental equipment		(2,447	)		(1,834	)
Proceeds from sale of former assets		619			91
Payment for acquisition, net of cash acquired		—			(4,442	)
Net cash used in investing activities		(17,446	)		(15,561	)

(continued on next page)

See accompanying condensed notes to the consolidated financial statements.

Inogen, Inc.

Consolidated Statements of Cash Flows (continued)

(unaudited)

(amounts in thousands)

	Six months ended June 30,
	2018			2017
Cash flows from financing activities
Proceeds from stock options exercised		6,517			6,730
Proceeds from employee stock purchases		988			581
Payment of employment taxes related to release of restricted stock		(302	)		—
Net cash provided by financing activities		7,203			7,311
Effect of exchange rates on cash		371			(1	)
Net increase in cash and cash equivalents		23,391			21,860
Cash and cash equivalents, beginning of period		142,953			92,851
Cash and cash equivalents, end of period	$	166,344		$	114,711

Supplemental disclosures of cash flow information
Cash paid during the period for income taxes, net of refunds received	$	1,631		$	1,070
Supplemental disclosure of non-cash transactions
Property and equipment in accounts payable and accrued liabilities	$	204		$	153

See accompanying condensed notes to the consolidated financial statements.

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements

(unaudited)

(amounts in thousands, except share and per share amounts)

1. Business overview

Inogen, Inc. (Company or Inogen) was incorporated in Delaware on November 27, 2001. The Company is a medical technology company that primarily develops, manufactures and markets innovative portable oxygen concentrators used to deliver supplemental long-term oxygen therapy to patients suffering from chronic respiratory conditions. Traditionally, these patients have relied on stationary oxygen concentrator systems for use in the home and oxygen tanks or cylinders for mobile use, which the Company calls the delivery model. The tanks and cylinders must be delivered regularly and have a finite amount of oxygen, which requires patients to plan activities outside of their homes around delivery schedules and a finite oxygen supply. Additionally, patients must attach long, cumbersome tubing to their stationary concentrators simply to enable mobility within their homes. The Company’s proprietary Inogen One ^® systems concentrate the air around the patient to offer a single source of supplemental oxygen anytime, anywhere with a portable device weighing approximately 2.8, 4.8 or 7.0 pounds with a single battery. The Company’s Inogen One G4 ^® and Inogen One G3 ^® have up to 2.6 and 4.7 hours of battery life, respectively, with a single battery and can be plugged into an outlet when at home, in a car, or in a public place with outlets available. The Company’s Inogen One systems reduce the patient’s reliance on stationary concentrators and scheduled deliveries of tanks with a finite supply of oxygen, thereby improving patient quality of life and fostering mobility.

Portable oxygen concentrators represented the fastest-growing segment of the Medicare oxygen therapy market between 2012 and 2016. The Company estimates based on 2016 Medicare data that the number of patients using portable oxygen concentrators represents approximately 9.1% of the total addressable oxygen market in the United States, although the Medicare data does not account for private insurance and cash-pay patients in the market. Based on 2016 industry data, the Company believes it was the leading worldwide manufacturer of portable oxygen concentrators. The Company believes it is the only manufacturer of portable oxygen concentrators that employs a direct-to-consumer rental strategy in the United States, meaning the Company markets its products to patients, processes their physician paperwork, provides clinical support as needed and bills Medicare or insurance on their behalf. To pursue a direct-to-consumer rental strategy, the Company’s manufacturing competitors would need to meet national accreditation and state-by-state licensing requirements and secure Medicare billing privileges, as well as compete with the home medical equipment providers who many of the Company’s manufacturing competitors sell to across their entire homecare business.

Since adopting the Company’s direct-to-consumer strategy in 2009, the Company has directly sold or rented more than 465,000 of its Inogen oxygen concentrators as of June 30, 2018.

The Company incorporated Inogen Europe Holding B.V., a Dutch limited liability company, on April 13, 2017. The Company owns all outstanding stock of Inogen Europe Holding B.V., which became a wholly owned subsidiary of the Company. On May 4, 2017, the Company, through its wholly owned subsidiary, Inogen Europe Holding B.V., acquired all issued and outstanding capital stock of MedSupport Systems B.V. (MedSupport).

2. Basis of presentation and summary of significant accounting policies

The accompanying consolidated financial statements are unaudited. The consolidated balance sheet at December 31, 2017 has been derived from the audited consolidated financial statements of the Company. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) for interim financial information, and in management’s opinion, includes all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position, its results of operations, stockholders’ equity and cash flows for the interim periods presented. The results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the full fiscal year or any other period.

The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 27, 2018. There have been no significant changes in the Company’s accounting policies from those disclosed in its Annual Report on Form 10-K filed with the SEC on February 27, 2018.

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

Basis of consolidation

The consolidated financial statements include the accounts of Inogen, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements and other factors that management believes to be reasonable. Significant areas requiring the use of management estimates relate to revenue recognition and determining the stand-alone selling price (SSP) of performance obligations, inventory and rental asset valuations and write-downs, accounts receivable allowances for bad debts, returns and adjustments, warranty expense, stock compensation expense, depreciation and amortization, income tax provision and uncertain tax positions, fair value of financial instruments, and fair value of acquired intangible assets and goodwill. Actual results could differ from these estimates.

Revenue

The Company generates revenue primarily from sales and rentals of its products. The Company’s products consist of its proprietary line of oxygen concentrators and related accessories. Other revenue, which is included in sales revenue on the consolidated statements of comprehensive income, consists of repair services and freight revenue for product shipments.

Sales revenue

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Revenue from product sales is generally recognized upon shipment of the product but is deferred for certain transactions when control has not yet transferred to the customer.

The Company’s product is generally sold with a right of return and the Company may provide other incentives, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Returns and incentives are estimated at the ti me sales revenue is recognized. The provisions for estimated returns are made based on known claims and estimates of additional returns based on historical data and future expectations. Sales revenue incentives within the Company’s contracts are estimated based on the most likely amounts expected on the related sales transaction and recorded as a reduction to revenue at the time of sale in accordance with the terms of the contract. Accordingly, revenue is recognized net of allowances for estimated returns and incentives.

The Company also offers a lifetime warranty for direct-to-consumer sales of its portable concentrators. For a fixed price, the Company agrees to provide a fully functional portable oxygen concentrator for the remaining life of the patient. Lifetime warranties are only offered to patients upon the initial sale of portable oxygen concentrators by the Company and are non-transferable. Lifetime warranties are considered to be a distinct performance obligation that are accounted for separately from its sale of portable oxygen concentrators with a standard warranty of three years .

The revenue is allocated to the distinct lifetime warranty performance obligation based on a relative SSP method. The Company has vendor-specific objective evidence of the selling price for its equipment. To determine the selling price of the lifetime warranty, the Company uses its best estimate of the SSP for the distinct performance obligation as the lifetime warranty is neither separately priced nor is the selling price available through third-party evidence. To calculate the selling price associated with the lifetime warranties, management considered the profit margins of the overall business, the average estimated cost of lifetime warranties and the price of extended warranties. Revenue from the distinct lifetime warranty is deferred after the delivery of the equipment for three years and recognized on a straight-line basis during the fourth and fifth year, which is the estimated usage period of the contract based on the average patient life expectancy.

Revenue from the sale of the Company’s repair services is recognized when the performance obligations are satisfied, and collection of the receivables is probable. Other revenue from sale of replacement parts and non-warranty repair services is generally recognized when product is shipped to customers.

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

Freight revenue consists of fees associated with the deployment of p roducts internationally and domestically when expedited freight options are requested or when minimum order quantities are not met. Freight revenue is generally recognized upon shipment of the product but is deferred if control has not yet transferred to t he customer. Shipping and handling costs for sold products and rental assets shipped to the Company’s customers are included on the c onsolidated s tatements of c omprehensive i ncome as part of cost of sales revenue and cost of rental revenue, respectively.

The payment terms and conditions of customer contracts vary by customer type and the products and services offered. For certain products or services and customer types, the Company requires payment before the products or services are delivered to the customer. The timing of sales revenue recognition, billing and cash collection results in billed accounts receivable and deferred revenue in the consolidated balance sheet.

Contract liabilities primarily consist of deferred revenue related to lifetime warranties on direct-to-consumer sales revenue when cash payments are received in advance of services performed under the contract. The contract with the customer states the final terms of the sale, including the description, quantity, and price of each product or service purchase. The increase in deferred revenue related to lifetime warranties for the six months ended June 30, 2018 was primarily driven by $3,300 of payments received in advance of satisfying the distinct performance obligation, partially offset by $615 of revenues recognized that were included in the deferred revenue balance as of December 31, 2017 . Lifetime warranties on direct-to-consumer sales revenue of $13,505 and $10,820 as of June 30, 2018 and December 31, 2017, respectively, are classified within deferred revenue – current and noncurrent deferred revenue in the consolidated balance sheet.

The Company elected to apply the practical expedient in accordance with Accounting Standards Codification (ASC) 606 — Revenue Recognition and did not evaluate contracts of one year or less for the existence of a significant financing component . The Company does not expect any revenue to be recognized over a multi-year period.

The Company’s sales revenue is primarily derived from the sale of its Inogen One systems, Inogen At Home systems, and related accessories to individual consumers, home medical equipment providers, distributors, the Company’s private label partner and resellers worldwide. Sales revenue is classified into two areas: business-to-business sales and direct-to-consumer sales. The following table sets forth the Company’s sales revenue disaggregated by sales channel and geographic region:

	Three months ended				Six months ended
	June 30,				June 30,
Revenue by region and category	2018		2017		2018		2017
Business-to-business domestic sales	$	32,943	$	21,154	$	60,959	$	38,615
Business-to-business international sales		20,759		14,919		37,665		26,342
Direct-to-consumer domestic sales		38,285		21,965		66,947		39,047
Total sales revenue	$	91,987	$	58,038	$	165,571	$	104,004

Rental revenue

The Company recognizes equipment rental revenue over the non-cancelable lease term, which is one month, less estimated adjustments, in accordance with ASC 840 — Leases . The Company has separate contracts with each patient that are not subject to a master lease agreement with any third-party payor. The Company evaluates the individual lease contracts at lease inception and the start of each monthly renewal period to determine if there is reasonable assurance that the bargain renewal option associated with the potential capped free rental period would be exercised. Historically, the exercise of such bargain renewal option is not reasonably assured at lease inception and most subsequent monthly lease renewal periods. If the Company determines that the reasonable assurance threshold for an individual patient is met at lease inception or at a monthly lease renewal period, such determination would impact the bargain renewal period for an individual lease. The Company would first consider the lease classification issue (sales-type lease or operating lease) and then appropriately recognize or defer rental revenue over the lease term, which may include a portion of the capped rental period.

The lease term begins on the date products are shipped to patients and are recorded at amounts estimated to be received under reimbursement arrangements with third-party payors, including Medicare, private payors, and Medicaid. Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenue and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

reimbursement amounts for certain services from certain payors may result in adj ustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application, claim denial or account review. The Company adjusts revenue for historical trends on revenue adjustments due to timely filings , deaths, hospice, and other types of analyzable adjustments on a monthly basis. Accounts receivable are reduced by an allowance for doubtful accounts which provides for those accounts from which payment is not expected to be received although product was delivered, and revenue was earned. The determination that an account is uncollectible, and the ultimate write-off of that account occurs once collection is considered to be not probable, and it is written-off and charged to the allowance at that time. Amou nts billed but not earned due to the timing of the billing cycle are deferred and recognized in rental revenue on a straight-line basis over the monthly billing period. For example, if the first day of the billing period does not fall on the first of the m onth, then a portion of the monthly billing period will fall in the subsequent month and the related revenue and cost would be deferred based on the service days in the following month.

Rental revenue is recognized as upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services, less estimated adjustments. Revenue not billed at the end of the period is reviewed for the probability of collection and accrued if collection is probable. Rental revenue is not guaranteed, and payment will cease if the patient no longer needs oxygen or returns the equipment. Rental revenue is recognized at estimated allowable amounts that reflect the full consideration the Company expects to receive in exchange for the equipment; transfers to secondary insurances or patient responsibility have no net effect on revenue. Rental revenue is earned for that entire month if the patient is on service on the first day of the 30-day period commencing on the recurring date of service for a particular claim, regardless if there is a change in condition or death after that date.

Included in rental revenue are unbilled amounts for which the revenue recognition criteria had been met as of period-end but were not yet billed to the payor. The estimate of net unbilled rental revenue recognized is based on historical trends and estimates of future collectability. In addition, the Company estimates potential future adjustments and write-offs of these unbilled amounts and includes these estimates in the allowance for adjustments and write-offs of rental revenue which is netted against gross receivables.

Recently issued accounting pronouncements not yet adopted

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) . The new guidance will require organizations that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with lease terms of more than twelve months. This will increase the reported assets and liabilities – in some cases very significantly. ASU No. 2016-02 will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption will be permitted for all entities. In January 2018, the FASB issued ASU No. 2018-01, Land Easement Practice Expedient for Transition to Topic 842 , which is an amendment to ASU No. 2016-02 that offers a practical expedient for accounting for land easements. This practice expedient allows an entity the option of not evaluating existing land easements under ASC 842. New or modified land easements will still require evaluation under ASC 842 on a prospective basis beginning on the date of adoption. While the Company continues to evaluate the effect of adopting this guidance on the consolidated financial statements and related disclosures, the Company expects its operating leases, as disclosed in Note 8 – Commitments and contingencies, will be subject to the new standard. The Company intends to recognize right-of-use assets and operating lease liabilities on the consolidated balance sheets upon adoption, which will increase the Company’s total assets and liabilities. The Company plans to adopt the standard on January 1, 2019.

In June 2016, the FASB issued ASU No. 2016-13, Accounting for Credit Losses (Topic 326) . The new standard requires the use of an “expected loss” model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale debt securities and requires estimated credit losses to be recorded as allowances instead of reductions to amortized cost of the securities. The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those years, with early adoption permitted. The Company is evaluating the new guidance but does not expect it to have a material impact on the Company’s consolidated financial statement presentation or results.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment . The new guidance eliminates step two of the goodwill impairment test. Under the new guidance, an entity should recognize an impairment charge for the amount by which a reporting unit’s carrying value exceeds its fair value. The ASU is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the effect of the new guidance but does not expect it to have a material impact on the Company’s consolidated financial statement presentation or results.

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

In August 2017, the FASB issued ASU No. 2017-1 2, Derivatives and Hedging , which changes both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results, in order to better align an entity’s risk management activities and financial reporting for hedging relationships. The amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements . ASU No. 2017-12 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual reporting periods, with early adoption permitted. The Company is still evaluating the impact that this guidance wil l have on the Company’s consolidated financial statement presentation or results and has not yet determined whether the Company will early adopt ASU No. 2017-12.

In January 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income . The new guidance permits entities the option to reclassify tax effects that are stranded in accumulated other comprehensive income as a result of the implementation of the Tax Cuts and Jobs Act to retained earnings. The Company intends to adopt the standard on January 1, 2019 and does not expect it to have a material impact on the Company’s consolidated financial statement presentation or results.

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting . The new guidance modifies the accounting for nonemployee share-based payments. The Company intends to adopt the standard on January 1, 2019 and does not currently have an impact on the Company’s consolidated financial statement presentation or results.

Recently adopted accounting pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers , which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU No. 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU No. 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. In March 2016, the FASB issued ASU No. 2016-08, Revenue with Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net) , which is an amendment to ASU No. 2014-09 that improved the operability and understandability of implementation guidance versus agent considerations by clarifying the determination of principal versus agent. The Company completed its adoption plan including assessment of the Company’s revenue streams and analysis of all outstanding contracts by application of the five-step model to those contracts and revenue streams. The Company adopted the standard on January 1, 2018, using the modified retrospective method. The Company finalized its analysis and the adoption of this standard did not have a material impact on the consolidated financial statements and internal controls over financial reporting.

In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business . The new guidance revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. The Company adopted this standard on January 1, 2018. The adoption of this ASU did not have a material effect on the Company’s consolidated financial statement presentation or results.

Business segments

The Company operates and reports in only one operating and reportable segment – development, manufacturing, marketing, sales, and rental of respiratory products. Management reports financial information on a consolidated basis to the Company’s chief operating decision maker.

3. Fair value of financial instruments

The Company’s financial instruments consist of cash and cash equivalents, marketable securities, accounts receivable, accounts payable and accrued expenses. The carrying values of its financial instruments approximate fair value based on their short-term nature.

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

Fair value accounting

Accounting Standards Codification (ASC) 820 — Fair Value Measurements and Disclosures , creates a single definition of fair value, establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement is to estimate the price at which an orderly transaction to sell an asset or to transfer the liability would take place between market participants at the measurement date under current market conditions. Assets and liabilities adjusted to fair value in the balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs, as defined by ASC 820, are as follows:

Level input		Input definition
Level 1		Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.

Level 2		Inputs, other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.

Level 3		Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The Company obtained the fair value of its available-for-sale investments, which are not in active markets, from a third-party professional pricing service using quoted market prices for identical or comparable instruments, rather than direct observations of quoted prices in active markets. The Company's professional pricing service gathers observable inputs for all of its fixed income securities from a variety of industry data providers (e.g., large custodial institutions) and other third-party sources. Once the observable inputs are gathered, all data points are considered, and the fair value is determined. The Company validates the quoted market prices provided by its primary pricing service by comparing their assessment of the fair values against the fair values provided by its investment managers. The Company's investment managers use similar techniques to its professional pricing service to derive pricing as described above. As all significant inputs were observable, derived from observable information in the marketplace or supported by observable levels at which transactions are executed in the marketplace, the Company has classified its available-for-sale investments within Level 2 of the fair value hierarchy.

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

The following table summarizes fair value measurements by level for the assets measured at fair value on a recurring basis for cash, cash equivalents and marketable securities:

	As of June 30, 2018
			Gross					Cash
	Adjusted		unrealized					and cash		Marketable
	cost		gains/(losses)			Fair value		equivalents		securities
Cash	$	45,660	$	—		$	45,660	$	45,660	$	—
Level 1:
Money market accounts		120,684		—			120,684		120,684		—

Level 2:
Certificates of deposit		1,476		(1	)		1,475		—		1,475
Corporate bonds		18,141		(27	)		18,114		—		18,114
U.S. Treasury securities		22,474		5			22,479		—		22,479
Total	$	208,435	$	(23	)	$	208,412	$	166,344	$	42,068

	As of December 31, 2017
			Gross					Cash
	Adjusted		unrealized					and cash		Marketable
	cost		losses			Fair value		equivalents		securities
Cash	$	46,237	$	—		$	46,237	$	46,237	$	—
Level 1:
Money market accounts		93,430		—			93,430		93,430		—

Level 2:
Certificates of deposit		11,010		(4	)		11,006		490		10,516
Corporate bonds		20,789		(21	)		20,768		2,796		17,972
Agency mortgage-backed securities		2,005		(1	)		2,004		—		2,004
U.S. Treasury securities		499		—			499		—		499
Total	$	173,970	$	(26	)	$	173,944	$	142,953	$	30,991

The following table summarizes the estimated fair value of the Company’s investments in marketable securities, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:

		June 30, 2018
Due within one year		$	42,068

Derivative instruments and hedging activities

The Company transacts business in foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency risk. The Company has entered into foreign currency forward contracts, generally with maturities of twelve months or less, to reduce the volatility of cash flows primarily related to forecasted revenue denominated in certain foreign currencies. These contracts allow the Company to sell Euros in exchange for U.S. dollars at specified contract rates. Forward contracts are used to hedge forecasted sales over specific months. Changes in the fair value of these forward contracts designed as cash flow hedges are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity and are recognized in the consolidated statements of comprehensive income during the period which approximates the time the corresponding sales occur. The Company may also enter into foreign exchange contracts that are not designated as hedging instruments for financial accounting purposes. These contracts are generally entered into to offset the gains and losses on certain asset and liability balances until the expected time of repayment. Accordingly, any gains or losses resulting from changes in the fair value of the non-designated contracts are reported in other expense, net in the consolidated statements of comprehensive income. The gains and losses on these contracts generally offset the gains and losses associated with the underlying foreign currency-denominated balances, which are also reported in other income (expense), net.

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

The Company records the assets or liabilities associated with d erivative instrument s and hedging activit ies at fair value based on Level 2 inputs in other current assets or other current liabilities, respectively, in the consolidated balance sheet. The Company had a related receivable of $ 739 and a payable of $ 66 as of June 3 0 , 2018 and December 31, 201 7 , respe ctively. The Company classifies the foreign currency derivative instruments within Level 2 in the fair value hierarchy as the valuation inputs are based on quoted prices and market observable data of whether it is designated and qualifies for hedge account ing.

The Company documents the hedging relationship and its risk management objective and strategy for undertaking the hedge, the hedging instrument, the hedged transaction, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method used to measure ineffectiveness. The Company assesses hedge effectiveness and ineffectiveness at a minimum quarterly but may assess it monthly. For derivative instruments that are designed and qualify as part of a cash flow hedging relationship, the effective portion of the gain or loss on the derivative is reported in other comprehensive income and reclassified into earnings in the same periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current period earnings.

The Company will discontinue hedge accounting prospectively when it determines that the derivative is no longer effective in offsetting cash flows attributable to the hedge risk. The cash flow hedge is de-designated because a forecasted transaction is not probable of occurring, or management determines to remove the designation of the cash flow hedge. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in the fair value in earnings. When it is probable that a forecasted transaction will not occur, the Company will discontinue hedge accounting and recognize immediately in earnings gains and losses that were accumulated in other comprehensive income related to the hedging relationship.

Accumulated other comprehensive income

The components of accumulated other comprehensive income were as follows:

	Foreign		Unrealized			Unrealized			Accumulated
	currency		losses on			gains (losses)			other
	translation		available-for-			on cash			comprehensive
	adjustments		sale investments			flow hedges			income
Balance as of December 31, 2017	$	363	$	(17	)	$	(74	)	$	272
Other comprehensive gain		184		—			543			727
Balance as of June 30, 2018	$	547	$	(17	)	$	469		$	999

Comprehensive income is the total net earnings and all other non-owner changes in equity. Except for net income and unrealized gains and losses on cash flow hedges and available-for-sale investments, the Company does not have any transactions or other economic events that qualify as comprehensive income.

4. Balance sheet components

Cash, cash equivalents and marketable securities

The Company considers all short-term highly liquid investments with a maturity of three months or less to be cash equivalents. Cash equivalents are recorded at cost plus accrued interest, which is considered adjusted cost, and approximates fair value. Certificates of deposit and agency mortgage-backed securities are included in cash equivalents and marketable securities based on the maturity date of the security. Short-term investments are included in marketable securities in the current period presentation.

The Company considers investments with maturities greater than three months, but less than one year, to be marketable securities. Investments are classified as available-for-sale and are reported at fair value with unrealized gains or losses, if any, reported, net of tax, in accumulated other comprehensive income (loss). All income generated and realized gains or losses from investments are recorded to other income (expense).

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

The Company reviews its investments to identify and evaluate investments that have an indication of possib le impairment. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company's int ent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. Credit losses and other-than-temporary impairments are declines in fair value that are not expected to recover and are charged to other income (expense), net . Cash, cash equivalents and marketable securities consist of the following:

	June 30,		December 31,
Cash and cash equivalents	2018		2017
Cash	$	45,660	$	46,237
Money market accounts		120,684		93,430
Certificates of deposit		—		490
Corporate bonds		—		2,796
Total cash and cash equivalents	$	166,344	$	142,953
Marketable securities
Certificates of deposit	$	1,475	$	10,516
Corporate bonds		18,114		17,972
Agency mortgage-backed securities		—		2,004
U.S. Treasury securities		22,479		499
Total marketable securities	$	42,068	$	30,991

Accounts receivable and allowance for bad debts, returns, and adjustments

Accounts receivable are customer obligations due under normal sales and rental terms. The Company performs credit evaluations of the customers’ financial condition and generally does not require collateral. The allowance for doubtful accounts is maintained at a level that, in management’s opinion, is adequate to absorb potential losses related to accounts receivable and is based upon the Company’s continuous evaluation of the collectability of outstanding balances. Management’s evaluation takes into consideration such factors as past bad debt experience, economic conditions and information about specific receivables. The Company’s evaluation also considers the age and composition of the outstanding amounts in determining their net realizable value.

The allowance for doubtful accounts is based on estimates, and ultimate losses may vary from current estimates. As adjustments to these estimates become necessary, they are reported in earnings in the periods in which they become known. This allowance is increased by bad debt provisions charged to bad debt expense, net of recoveries, in operating expense and is reduced by direct write-offs.

The Company generally does not allow returns from providers for reasons not covered under its standard warranty. Therefore, provision for sales returns applies primarily to direct-to-consumer sales. This reserve is calculated based on actual historical return rates under the Company’s 30-day return program and is applied to the related sales revenue for the last month of the quarter reported.

The Company also records an allowance for rental revenue adjustments which is recorded as a reduction of rental revenue and net rental accounts receivable balances. These adjustments result from contractual adjustments, audit adjustments, untimely claims filings, or billings not paid due to another provider performing same or similar functions for the patient in the same period, all of which prevent billed revenue from becoming realizable. The allowance is based on historical revenue adjustments as a percentage of rental revenue billed and unbilled during the related period.

When recording the allowance for doubtful accounts, the bad debt expense account (general and administrative expense account) is charged; when recording allowance for sales returns, the sales returns account (contra sales revenue account) is charged; and when recording the allowance for rental reserve adjustments, the rental revenue adjustments account (contra rental revenue account) is charged.

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

As of June 3 0 , 201 8 and December 31, 201 7 , included in accounts receivable on the consolidated balance sheets were earned but unbilled receivables of $ 1 , 251 and $ 1 ,4 70 , respectively. These balances reflect gross unbilled receivables prior to any allowances for adjustments and wri te-offs. The Company consistently applies its allowance estimation methodology from period-to-period. The Company’s best estimate is made on an accrual basis and adjusted in future periods as required. Any adjustments to the prior period estimates are inc luded in the current period. As additional information becomes known, the Company adjusts its assumptions accordingly to change its estimate of the allowance.

Gross accounts receivable balance concentrations by major category as of June 30, 2018 and December 31, 2017 were as follows:

	June 30,		December 31,
Gross accounts receivable	2018		2017
Rental ⁽¹⁾	$	5,451	$	6,236
Business-to-business & other receivables ⁽²⁾		35,943		28,474
Total gross accounts receivable	$	41,394	$	34,710

Net accounts receivable (gross accounts receivable, net of allowances) balance concentrations by major category as of June 30, 2018 and December 31, 2017 were as follows:

	June 30,		December 31,
Net accounts receivable	2018		2017
Rental ⁽¹⁾	$	3,240	$	4,212
Business-to-business & other receivables ⁽²⁾		34,232		27,232
Total net accounts receivable	$	37,472	$	31,444

(1)	Rental includes Medicare, Medicaid/other government, private insurance and patient pay.

(2)

Business-to-business receivables included one customer with a gross accounts receivable balance of $10,763 and $10,394 as of June 30, 2018 and December 31, 2017, respectively. This customer received extended payment terms through a direct financing plan offered. The Company also has a credit insurance policy in place, which allocated up to $18,000 in coverage as of June 30, 2018 and allocated up to $12,000 in coverage as of December 31, 2017 for this customer with a $400 deductible and 10% retention.

The following tables set forth the accounts receivable allowances as of June 30, 2018 and December 31, 2017:

	June 30,		December 31,
Allowances - accounts receivable	2018		2017
Doubtful accounts	$	1,356	$	1,415
Rental revenue adjustments		1,081		947
Sales returns		1,485		904
Total allowances - accounts receivable	$	3,922	$	3,266

Concentration of credit risk

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, marketable securities and accounts receivable. At times, cash account balances may be in excess of the amounts insured by the Federal Deposit Insurance Corporation (FDIC). However, management believes the risk of loss to be minimal. The Company performs periodic evaluations of the relative credit standing of these institutions and has not experienced any losses on its cash and cash equivalents to date. The Company has entered into hedging relationships with a single counterparty to offset the forecasted Euro-based revenues. The credit risk has been reduced due to a net settlement arrangement whereby the Company is allowed to net settle transactions with a single net amount payable by one party to the other.

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

Concentration of customers and vendors

The Company primarily sells its products to traditional home medical equipment providers, distributors, and resellers in the United States and in foreign countries on a credit basis. The Company also sells its products direct-to- consumers on a primarily prepayment basis. One single customer represented more than 10% of the Company’s total revenue for the six months ended June 30, 2018 and June 30, 2017. Two customers with accounts receivable balances of $10,763 and $6,484, respectively, each represented more than 10% of the Company’s net accounts receivable balance as of June 30, 2018, and two customers with accounts receivable balances of $10,394 and $6,459, respectively, each represented more than 10% of the Company’s net accounts receivable balance as of December 31, 2017.

The Company currently purchases raw materials from a limited number of vendors, which resulted in a concentration of three major vendors. The three major vendors supply the Company with raw materials used to manufacture the Company’s products. For the six months ended June 30, 2018, the Company’s three major vendors accounted for 20.2%, 13.8%, and 9.3%, respectively, of total raw material purchases. For the six months ended June 30, 2017, the Company’s three major vendors accounted for 18.6%, 14.6% and 9.8%, respectively, of total raw material purchases.

A portion of revenue is earned from sales outside the United States. Approximately 76.0% and 75.4% of the non-U.S. revenue for the three months ended June 30, 2018 and June 30, 2017, respectively, were invoiced in Euros. Approximately, 76.4% and 73.9% of the non-U.S. revenue for the six months ended June 30, 2018 and June 30, 2017, respectively, were invoiced in Euros. A breakdown of the Company’s revenue from U.S. and non-U.S. sources for the three and six months ended June 30, 2018 and June 30, 2017 is as follows:

	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
U.S. revenue	$	76,479	$	49,202	$	138,624	$	90,279
Non-U.S. revenue		20,759		14,919		37,665		26,342
Total revenue	$	97,238	$	64,121	$	176,289	$	116,621

Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using a standard cost method, including material, labor and manufacturing overhead, whereby the standard costs are updated at least quarterly to reflect approximate actual costs using the first-in, first-out (FIFO) method. The Company records adjustments at least quarterly to inventory for potentially excess, obsolete, slow-moving or impaired items. The Company recorded noncurrent inventory related to inventories that are expected to be realized or consumed after one year of $312 and $644 as of June 30, 2018 and December 31, 2017, respectively. Noncurrent inventories are primarily related to raw materials purchased in bulk to support long-term expected repairs to reduce costs and are classified in other assets. Inventories that are considered current consist of the following:

	June 30,			December 31,
	2018			2017
Raw materials and work-in-progress	$	22,866		$	16,324
Finished goods		5,145			2,917
Less: reserves		(604	)		(399	)
Inventories	$	27,407		$	18,842

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

Property and equipment

Property and equipment are stated at cost. Depreciation and amortization are calculated using the straight-line method over the assets’ estimated useful lives as follows:

Rental equipment		1.5-5 years
Manufacturing equipment and tooling		2-5 years
Computer equipment and software		2-3 years
Furniture and equipment		3-5 years
Leasehold improvements		Lesser of estimated useful life or remaining lease term

Expenditures for additions, improvements and replacements are capitalized and depreciated to a salvage value of $0. Repair and maintenance costs on rental equipment are included in cost of rental revenue on the consolidated statements of comprehensive income. Repair and maintenance expense, which includes labor, parts and freight, for rental equipment was $630 and $694 for the three months ended June 30, 2018 and June 30, 2017, respectively, and $1,190 and $1,345 for the six months ended June 30, 2018 and June 30, 2017, respectively.

Included within property and equipment is construction in process, primarily related to the design and engineering of tooling, jigs and other machinery. In addition, this item also includes computer software or development costs that have been purchased but have not completed the final configuration process for implementation into the Company’s systems. These items have not been placed in service; therefore, no depreciation or amortization was recognized for these items in the respective periods.

Depreciation and amortization expense related to rental equipment and other property and equipment are summarized below for the three and six months ended June 30, 2018 and June 30, 2017, respectively.

	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
Rental equipment	$	1,966	$	2,522	$	4,131	$	5,211
Other property and equipment		551		470		1,081		958
Total depreciation and amortization	$	2,517	$	2,992	$	5,212	$	6,169

Property and equipment and rental equipment with associated accumulated depreciation are summarized below for June 30, 2018 and December 31, 2017, respectively.

	June 30,		December 31,
Property and equipment	2018		2017
Rental equipment, net of allowances of $764 and $754, respectively	$	46,638	$	49,349
Other property and equipment		19,677		15,219
Property and equipment		66,315		64,568

Accumulated depreciation
Rental equipment		33,822		34,754
Other property and equipment		10,521		9,711
Accumulated depreciation		44,343		44,465

Property and equipment, net
Rental equipment, net of allowances of $764 and $754, respectively		12,816		14,595
Other property and equipment		9,156		5,508
Property and equipment, net	$	21,972	$	20,103

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

Long-lived assets

The Company accounts for the impairment and disposition of long-lived assets in accordance with ASC 360 — Property, Plant, and Equipment . In accordance with ASC 360, long-lived assets to be held are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable. The Company periodically reviews the carrying value of long-lived assets to determine whether or not impairment to such value has occurred. No impairments were recorded during the three months or six months ended June 30, 2018 and June 30, 2017.

Goodwill

The changes in the carrying amount of goodwill for the six months ended June 30, 2018 were as follows:

Balance as of December 31, 2017	$	2,363
Translation adjustment		(59	)
Balance as of June 30, 2018	$	2,304

Intangible assets

There were no impairments recorded related to the Company’s intangible assets during the three months or six months ended June 30, 2018 and June 30, 2017. Amortization expense for intangible assets for the three months ended June 30, 2018 and June 30, 2017 was $299 and $125, respectively, and for the six months ended June 30, 2018 and June 30, 2017 was $597 and $152, respectively.

The following tables represent the net carrying values of intangible assets as of the respective dates:

	Average
	estimated	Gross
	useful lives	carrying		Accumulated
June 30, 2018	(in years)	amount		amortization		Net amount
Licenses	10	$	185	$	146	$	39
Patents and websites	5		4,173		1,304		2,869
Customer relationships	4		1,402		409		993
Non-compete agreement	2.3		233		91		142
Commercials	2-3		303		253		50
Total		$	6,296	$	2,203	$	4,093


	Average
	estimated	Gross
	useful lives	carrying		Accumulated
December 31, 2017	(in years)	amount		amortization		Net amount
Licenses	10	$	185	$	137	$	48
Patents and websites	5		4,173		959		3,214
Customer relationships	4		1,437		240		1,197
Non-compete agreement	3		240		52		188
Commercials	2-3		303		233		70
Total		$	6,338	$	1,621	$	4,717

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

Annual estimated amortization expense for intangibles for each of the succeeding fiscal years is summarized as follows:

	June 30, 2018
Remaining 6 months of 2018	$	617
2019		1,126
2020		1,022
2021		783
2022		545
Thereafter		—
	$	4,093

Current liabilities

Accounts payable and accrued expenses as of June 30, 2018 and December 31, 2017 consisted of the following:

	June 30,		December 31,
	2018		2017
Accounts payable	$	17,823	$	9,541
Accrued inventory (in-transit and unvouchered receipts) and trade payables		9,519		7,252
Accrued purchasing card liability		2,567		2,381
Accrued franchise, sales and use taxes		491		479
Other accrued expenses		774		973
Accounts payable and accrued expenses	$	31,174	$	20,626

Accrued payroll as of June 30, 2018 and December 31, 2017 consisted of the following:

	June 30,		December 31,
	2018		2017
Accrued bonuses	$	3,592	$	3,086
Accrued wages and other payroll related items		2,685		1,746
Accrued vacation		1,767		1,338
Accrued employee stock purchase plan deductions		1,064		707
Accrued payroll	$	9,108	$	6,877

5. Earnings per share

Earnings per share (EPS) is computed in accordance with ASC 260 —Earnings per Share and is calculated using the weighted-average number of common shares outstanding during each period. Diluted EPS assumes the conversion, exercise or issuance of all potential common stock equivalents (which can include dilution of outstanding stock options, restricted stock units and restricted stock awards) unless the effect is to reduce a loss or increase the income per share. For purposes of this calculation, common stock subject to repurchase by the Company, options are considered to be common stock equivalents and are only included in the calculation of diluted earnings per share when their effect is dilutive.

Basic earnings per share is calculated using the Company’s weighted-average outstanding common shares. Diluted earnings per share is calculated using the Company’s weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method.

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

The computation of EPS is as follows:

	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
Numerator—basic and diluted:
Net income	$	14,610	$	8,338	$	25,368	$	14,270

Denominator:
Weighted-average common shares - basic common stock ⁽¹⁾		21,172,170		20,622,320		21,099,566		20,556,293
Weighted-average common shares - diluted common stock		22,503,749		21,848,359		22,409,011		21,731,592

Net income per share - basic common stock	$	0.69	$	0.40	$	1.20	$	0.69
Net income per share - diluted common stock	$	0.65	$	0.38	$	1.13	$	0.66

Denominator calculation from basic to diluted:
Weighted-average common shares - basic common stock ⁽¹⁾		21,172,170		20,622,320		21,099,566		20,556,293
Stock options and other dilutive awards		1,331,579		1,226,039		1,309,445		1,175,299
Weighted-average common shares - diluted common stock		22,503,749		21,848,359		22,409,011		21,731,592
Shares excluded from diluted weighted-average shares:
Stock options		—		64,498		—		69,498
Restricted stock units and restricted stock awards		25,194		—		83,517		5,700
Shares excluded from diluted weighted-average shares		25,194		64,498		83,517		75,198

(1)

Unvested restricted stock units and restricted stock awards are not included as shares outstanding in the calculation of basic earnings per share. Vested restricted stock units and restricted stock awards are included in basic earnings per share if all vesting and performance criteria have been met. Performance-based restricted stock units and restricted stock awards are included in the number of shares used to calculate diluted earnings per share as long as all applicable performance criteria are met, and their effect is dilutive. Restricted stock awards are eligible to receive all dividends declared on the Company’s common shares during the vesting period; however, such dividends are not paid until the restrictions lapse.

The computations of diluted net income attributable to common stockholders exclude common stock options, restricted stock units and restricted stock awards, which were anti-dilutive for the three months and six months ended June 30, 2018 and June 30, 2017, respectively.

6. Income taxes

The Company accounts for income taxes in accordance with ASC 740 —Income Taxes . Under ASC 740, income taxes are recognized for the amount of taxes payable or refundable for the current period and deferred tax liabilities and assets are recognized for the future tax consequences of transactions that have been recognized in the Company’s consolidated financial statements or tax returns. A valuation allowance is provided when it is more likely than not that some portion, or all, of the deferred tax asset will not be realized.

The Company accounts for uncertainties in income tax in accordance with ASC 740-10 —Accounting for Uncertainty in Income Taxes . ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This accounting standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company recognizes interest and penalties on taxes, if any, within its income tax provision on its consolidated statements of comprehensive income. No significant interest or penalties were recognized during the periods presented.

On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was enacted into law, which significantly changes existing U.S. tax law and includes numerous provisions that affect the Company’s business. Changes include, but are not limited to, a corporate tax rate decrease from 34% to 21% effective for tax years beginning after December 31, 2017, expensing of capital expenditures, the transition of U.S. international taxation from a worldwide tax system to a territorial system, a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings, and limitations on the deductibility of certain executive compensation and other deductions . The Company is required to recognize the effect of the tax law changes in the period of enactment, including the transition

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

tax, re-measuring the Company’s U.S. deferred tax assets and liabilities, as well a s reassessing the net realizability of the Company’s deferred tax assets and liabilities. During the fourth quarter of 2017, the Company recorded a provisional net charge of $7,578 related to the TCJA due to the remeasurement of the deferred taxes. The on e-time transition tax on the mandatory deemed repatriation of foreign earnings was determined to be immaterial .

As of June 30, 2018, the Company has not completed the accounting for the income tax effects of the TCJA. No further changes have been made to the provisional amounts reported for the transition tax or the remeasurement of the deferred taxes during the six months ended June 30 , 2018. For the foreign derived intangible income, executive compensation, and other deductions, the Company recorded an estimate in the effective tax rate for the six months ended June 30, 2018. The Company has not yet determined a policy election with respect to whether to record deferred taxes for basis differences expected to reverse as a result of the global intangible low tax income provisions in future periods or use the period cost method.

Given the significant complexity of the TCJA, the Company will continue to evaluate and analyze the impact of this legislation. New guidance from regulators, interpretation of the law, and refinement of the Company’s estimates from ongoing analysis of data and tax positions may change the provisional amounts.

The Company has operations in the U.S., multiple U.S. states and the Netherlands. The statute of limitations has expired for all tax years prior to 2013 for federal jurisdictions and the Netherlands, and 2012 to 2013 for various state tax jurisdictions. However, the net operating loss generated on the Company’s federal and state tax returns in prior years may be subject to adjustments by the federal and state tax authorities.

The Company determined the income tax provision for interim periods using an estimate of the Company’s annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the Company updates its estimated annual effective tax rate, and if the estimated annual effective tax rate changes, a cumulative adjustment is recorded in that quarter. The Company’s quarterly income tax provision and quarterly estimate of the annual effective tax rate are subject to volatility due to several factors, including our ability to accurately predict the proportion of our income (loss) before provision for income taxes in multiple jurisdictions, the tax effects of our stock-based compensation, and the effects of its acquisition and the integration of that acquisition.

7. Stockholders’ equity

The Company has a 2002 Stock Incentive Plan (2002 Plan) as amended, under which the Company granted options to purchase shares of its common stock. As of June 30, 2018, options to purchase 18,949 shares of common stock remained outstanding under the 2002 Plan. The 2002 Plan was terminated in March 2012 in connection with the adoption of the 2012 Plan, and, accordingly, no new options are available for issuance under this plan. The 2002 Plan continues to govern outstanding awards granted thereunder.

The Company has a 2012 Equity Incentive Plan (2012 Plan) under which the Company granted options to purchase shares of its common stock. As of June 30, 2018, options to purchase 279,171 shares of common stock remained outstanding under the 2012 Plan. The 2012 Plan was terminated in connection with the Company’s initial public offering in February 2014, and accordingly, no new options are available for issuance under this plan. The 2012 Plan continues to govern outstanding awards granted thereunder.

The Company has a 2014 Equity Incentive Plan (2014 Plan) that provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to the Company’s employees and any parent and subsidiary corporation’s employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, restricted stock awards, stock appreciation rights, performance units and performance shares to its employees, directors and consultants and its parent and subsidiary corporations’ employees and consultants.

As of June 30, 2018, awards with respect to 1,414,048 shares of the Company’s common stock were outstanding, and 1,914,110 shares of common stock remained available for issuance under the 2014 Plan. The shares available for issuance under the 2014 Plan will be increased by any shares returned to the 2002 Plan, 2012 Plan and the 2014 Plan as a result of expiration or termination of awards (provided that the maximum number of shares that may be added to the 2014 Plan pursuant to such previously granted awards under the 2002 Plan and 2012 Plan is 2,328,569 shares). The number of shares available for issuance under the 2014 Plan also is increased annually on the first day of each fiscal year by an amount equal to the least of:

•	895,346 shares;

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

•	4% of the outstanding shares of common stock as of the last day of the Company’s immediately preceding fiscal year; or

•	such other amount as the Company’s board of directors may determine.

For 2018, an additional 839,054 shares were added to the 2014 Plan share reserve pursuant to the provision described above.

Stock options

Options typically expire between seven and ten years from the date of grant and vest over one to four year terms. Options have been granted to employees, directors and consultants of the Company, as determined by the board of directors, at the deemed fair market value of the shares underlying the options at the date of grant.

The activity for stock options under the Company’s stock plans is as follows:

								Remaining
								weighted-
						Weighted-		average		Per share
						average		contractual		average
				Price per		exercise		terms		intrinsic
	Options			share		price		(in years)		value
Outstanding as of December 31, 2017		1,836,426		$0.60-$83.30		$	30.77		4.58	$	88.31
Granted		—			—		—
Exercised		(276,016	)	0.60-58.95			23.61
Forfeited		(625	)		24.52		24.52
Expired		—			—		—
Outstanding as of June 30, 2018		1,559,785		$0.60-$83.30		$	32.04		4.24	$	154.29
Vested and exercisable as of June 30, 2018		1,128,065		$0.60-$83.30		$	27.97		4.12	$	158.36
Vested and expected to vest as of June 30, 2018		1,531,385		$0.60-$83.30		$	31.85		4.23	$	154.48

The unrecognized compensation expense related to non-vested stock-based compensation granted under the Plans as of June 30, 2018 and June 30, 2017 was $6,419 and $13,285, respectively.

S tock incentive awards

The Company grants restricted stock units (RSUs) and restricted stock awards (RSAs) under the 2014 Plan (Stock Awards). The Stock Awards vest either based solely on the satisfaction of time-based service conditions or on the satisfaction of time-based service conditions combined with performance criteria. Stock Awards are subject to forfeiture if the holder’s services to the Company terminate before vesting.

Stock Awards granted with only time-based service vesting conditions generally vest over a four-year service period, as defined in the terms of each award. Stock Awards that vest based on the satisfaction of time-based service conditions combined with performance criteria generally vest over a three-year service and performance period, based on performance criteria established at the time of the grant of the award. The portion of the Stock Award that is earned may exceed, be equal to or be less than the targeted number of shares subject to the Stock Award depending on whether the performance criteria are met.

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

Stock Awards activity for the six months ended June 3 0 , 201 8 , is summarized below:

										Weighted-
										average
										grant
				Performance						date fair
				and						value
	Time-based			time-based			Total			per share
Unvested restricted stock units outstanding as of December 31, 2017		42,028			13,109			55,137		$	90.05
Granted		28,273			—			28,273			137.92
Vested		(2,295	)		(4,370	)		(6,665	)		86.70
Forfeited/canceled		(1,452	)		—			(1,452	)		104.81
Unvested restricted stock units outstanding as of June 30, 2018 ⁽¹⁾		66,554			8,739			75,293		$	108.04
Unvested and expected to vest restricted stock units outstanding as of June 30, 2018								69,947		$	108.69
Unvested restricted stock awards outstanding as of December 31, 2017		20,789			20,785			41,574		$	91.52
Granted		21,222			31,830			53,052			122.00
Vested		—			(6,928	)		(6,928	)		91.52
Forfeited/canceled		—			—			—			—
Unvested restricted stock awards outstanding as of June 30, 2018 ⁽¹⁾		42,011			45,687			87,698		$	108.30
Unvested and expected to vest restricted stock awards outstanding as of June 30, 2018								69,176		$	108.43

(1)	Outstanding restricted stock units and restricted stock awards are based on the maximum payout of the targeted number of shares.

As of June 30, 2018 , the unrecognized compensation cost related to unvested employee restricted stock units and restricted stock awards was $12,214, excluding estimated forfeitures. This amount is expected to be recognized over a weighted-average period of 2.8 years.

Employee stock purchase plan

The Company’s 2014 Employee Stock Purchase Plan (ESPP) provides for the grant to all eligible employees an option to purchase stock under the ESPP, within the meaning Section 423 of the Internal Revenue Code. The ESPP permits participants to purchase common stock through payroll deductions of up to 15% of their eligible compensation, which includes a participant’s base straight time gross earnings, incentive compensation, bonuses, overtime and shift premium, but exclusive of payments for equity compensation and other similar compensation. A participant may purchase a maximum of 1,500 shares during a purchase period. Amounts deducted and accumulated by the participant are used to purchase shares of the Company’s common stock at the end of each six-month period. The purchase price of the shares will be 85% of the lower of the fair market value of the Company’s common stock on the first trading day of each offering period or on the exercise date. The offering periods are currently approximately six months in length beginning on the first business day on or after March 1 and September 1 of each year and ending on the first business day on or after September 1 and March 1 approximately six months later.

As of June 30, 2018, a total of 759,967 shares of common stock were available for sale pursuant to the ESPP.

The number of shares available for sale under the ESPP is increased annually on the first day of each fiscal year by an amount equal to the least of:

•	179,069 shares;

•	1.5% of the outstanding shares of the Company’s common stock on the last day of the Company’s immediately preceding fiscal year; or

•	such other amount as may be determined by the administrator.

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

For 201 8 , an additional 179,069 shares were added to the ESPP share reserve pursuant to the provision des cribed above.

Stock-based compensation

Stock-based compensation expense recognized for the three months and six months ended June 30, 2018 and June 30, 2017 was as follows:

	Three months ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Stock-based compensation expense by type of award:
Stock option plan awards	$	1,548	$	2,055	$	3,500	$	3,799
Restricted stock units and restricted stock awards		1,416		24		2,654		48
Employee stock purchase plan		222		137		413		260
Total stock-based compensation expense	$	3,186	$	2,216	$	6,567	$	4,107

Employee stock-based compensation expense was calculated based on awards of stock options, restricted stock units and restricted stock awards ultimately expected to vest based on the Company’s historical award cancellations. The employee stock-based compensation expense recognized for the six months ended June 30, 2018 and June 30, 2017 has been reduced for estimated forfeitures of stock option plan awards at a rate of 7.3% and 7.3%, respectively. The employee stock-based compensation expense recognized for the six months ended June 30, 2018 and June 30, 2017 has been reduced for estimated forfeitures of restricted stock at a rate of 4.7% and 5.7%, respectively. ASC 718 – Compensation-Stock Compensation requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

For the three months and six months ended June 30, 2018 and June 30, 2017, stock-based compensation expense recognized under ASC 718, included in cost of revenue, research and development expense, sales and marketing expense, and general and administrative expense, was as follows:

	Three months ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Cost of revenue	$	259	$	212	$	532	$	403
Research and development		330		250		661		473
Sales and marketing		583		347		1,131		662
General and administrative		2,014		1,407		4,243		2,569
Total stock-based compensation expense	$	3,186	$	2,216	$	6,567	$	4,107

401(k) retirement savings plan

The Company maintains a 401(k) retirement savings plan for the benefit of eligible employees. Under the terms of this plan, eligible employees are able to make contributions to the plan on a tax-deferred basis. The Company began matching employees’ contributions, effective January 1, 2017. The Company contributed $417, net of forfeitures, to the 401(k) plan for the six months ended June 30, 2018 and $293, net of forfeitures, for the six months ended June 30, 2017.

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

8 . Commitments and contingencies

Leases and non-cancelable contractual obligations

The Company leases its facilities and certain equipment under operating leases that expire through September 2024. As of June 30, 2018, the minimum aggregate payments due under operating leases and specified non-cancelable contractual obligations, which consist of software license and maintenance agreements, are summarized as follows:

	Operating leases		Related party leases		Non-cancelable contractual obligations		Total
Remaining 6 months of 2018	$	999	$	16	$	289	$	1,304
2019		2,437		31		578		3,046
2020		2,195		10		578		2,783
2021		1,580		—		456		2,036
2022		1,262		—		—		1,262
Thereafter		2,130		—		—		2,130
	$	10,603	$	57	$	1,901	$	12,561

As a result of the MedSupport acquisition, the Company leases a property owned by a related party. Rent expense for the property was $8 and $16 for the three and six months ended June 30, 2018.

Rent expense of $408 and $278 for the three months ended June 30, 2018 and June 30, 2017, respectively, and $729 and $540 for the six months ended June 30, 2018 and June 30, 2017, respectively, was included in the accompanying consolidated statements of comprehensive income.

Purchase obligations

The Company had approximately $60,400 of outstanding purchase orders with its outside vendors and suppliers as of June 30, 2018.

Warranty obligations

Accruals for estimated standard warranty expenses are made at the time that the associated revenue is recognized. The provisions for estimated warranty obligations are made based on known claims and estimates of additional returns and warranty obligations based on historical data and future expectations. The following table identifies the changes in the Company’s aggregate product warranty liabilities for the six and twelve-month periods ended June 30, 2018 and December 31, 2017, respectively:

	June 30,			December 31,
	2018			2017
Product warranty liability at beginning of period	$	6,171		$	3,480
Accruals for warranties issued		4,050			5,275
Adjustments related to preexisting warranties (including changes in estimates)		300			200
Settlements made (in cash or in kind)		(1,791	)		(2,784	)
Product warranty liability at end of period	$	8,730		$	6,171

Inogen, Inc.

Condensed Notes to the Consolidated Financial Statements (continued)

(unaudited)

(amounts in thousands, except share and per share amounts)

Legislation and HIPAA

The healthcare industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Government activity has continued with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers. Violations of these laws and regulations could result in exclusion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed.

The Company believes that it is in compliance in all material respects with applicable fraud and abuse regulations and other applicable government laws and regulations. Compliance with such laws and regulations can be subject to future government review and interpretation as well as regulatory actions unknown or unasserted at this time.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) ensures health insurance portability, reduces healthcare fraud and abuse, guarantees security and privacy of health information, and enforces standards for health information. The Health Information Technology for Economic and Clinical Health Act (HITECH Act) imposes notification requirements of certain security breaches relating to protected health information. The Company believes that it complies in all material respects with the provisions of those regulations that are applicable to the Company’s business.

Legal proceedings

The Company is party to various legal proceedings arising in the normal course of business. The Company carries insurance, subject to specified deductibles under the policies, to protect against losses from certain liabilities and costs. At this time, the Company does not anticipate that any of these other proceedings will have a material adverse effect on the Company’s business. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.

9. Foreign currency exchange contracts and hedging

As of June 30, 2018 and June 30, 2017, the Company’s total non-designated and designated derivative contracts had notional amounts totaling approximately $3,072 and $12,477, respectively, and $2,529 and $8,644, respectively. These contracts were comprised of offsetting contracts with the same counterparty, each expires within one to six months, and had an unrealized gain of approximately $543, net of tax, during the six months ended June 30, 2018, and an unrealized loss of approximately $254, net of tax, during the six months ended June 30, 2017.

The nonperformance risk of the Company and the counterparty did not have a material impact on the fair value of the derivatives. During the six months ended June 30, 2018 and June 30, 2017, the ineffective portion relating to these hedges was immaterial and the hedges remained effective through their respective settlement dates. As of June 30, 2018, the Company had twenty-one designated hedges and four non-designated hedges. As of June 30, 2017, the Company had thirteen designated hedges and four non-designated hedges.

Item 2: Manage ment’s Discussion and Analysis of Financial Condition and Results of Operations

Forward - Looking Statements

The following discussion and analysis should be read together with our consolidated financial statements and the condensed notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in the section entitled “Risk Factors” and this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements include, but are not limited to, statements concerning the following:

•

information concerning our possible or assumed future cash flow, revenue, sources of revenue and results of operations, operating and other expenses;

•

our assessment of reduced reimbursement rates, the continued impact from competitive bidding, future declines in rental revenue, and future decline in rental patients on service;

•

our expectations regarding regulatory approvals and government and third-party payor coverage and reimbursement;

•

our ability to develop new products, improve our existing products and increase the value of our products;

•

our expectations regarding the timing of new products and product improvement launches;

•

market share expectations, unit sales, business strategies, financing plans, expansion of our business, competitive position, industry environment, and potential growth opportunities;

•

our expectations regarding the market size, market growth and the growth potential for our business;

•

our ability to sustain and manage growth, including our ability to develop new products and enter new markets;

•

our expectations regarding the average selling price and manufacturing costs of our products, including our expectations to continue to reduce average unit costs for our systems and the impact of the recent reduction in the retail price of our products;

•

our expectation to expand our sales and marketing channels, including through hiring additional sales representatives, and expanding our advertising campaigns;

•

our expectations with respect to our European and U.S. facilities and our expectations with respect to our contract manufacturer in Europe;

•

our ability to successfully acquire and integrate companies and assets and the anticipated benefits from our acquisition of MedSupport Systems B.V. (MedSupport);

•

our expectations regarding trade regulations and the impact of such trade regulations on our supply chain;

•

our expectations regarding excess tax benefits from stock-based compensation;

•

our expectations of future accounting pronouncements or changes in our accounting policies;

•

our assessments and estimates of our effective tax rate;

•

our internal control environment;

•

the effects of seasonal trends on our results of operations and estimated hiring plans;

•

our expectation that our existing capital resources and the cash to be generated from expected product sales and rentals will be sufficient to meet our projected operating and investing requirements for at least the next twelve months; and

•

the effects of competition.

Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” or similar expressions and the negatives of those terms.

Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in Part II, Item 1A, “Risk Factors,” elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Moreover, we operate in a

very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict a ll risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light o f these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking state ments.

Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

“Inogen,” “Inogen One,” “Inogen One G2,” “Inogen One G3,” “G4,” “Oxygenation,” “Live Life in Moments, not Minutes,” “Never Run Out of Oxygen,” “Oxygen Therapy on Your Terms,” “Oxygen.Anytime.Anywhere,” “Reclaim Your Independence,” “Intelligent Delivery Technology,” “Inogen At Home,” and the Inogen design are registered trademarks with the United States Patent and Trademark Office of Inogen, Inc. We own trademark registrations for the mark “Inogen” in Australia, Canada, South Korea, Mexico, Europe (European Union Registration), and Japan. We own a trademark registration for the mark “イノジェン” in Japan. We own trademark registrations for the mark “Inogen One” in Australia, Canada, China, South Korea, Mexico, and Europe (European Union Registration). We own a trademark registration for the mark “Satellite Conserver” in Canada. We own a trademark registration for the mark “Inogen At Home” in Europe (European Union Registration). We own trademark registrations for the mark “G4” in Europe (European Union Registration) and the United Kingdom. Other service marks, trademarks, and trade names referred to in this Quarterly Report on Form 10-Q are the property of their respective owners.

In this Quarterly Report on Form 10-Q, “we,” “us” and “our” refer to Inogen, Inc. and its subsidiaries.

The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements and the accompanying condensed notes to those statements included elsewhere in this document. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q.

Critical accounting policies and significant estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue and expenses at the date of the financial statements. Generally, we base our estimates on historical experience and on various other assumptions in accordance with U.S. GAAP that we believe to be reasonable under the circumstances. Actual results may differ from these estimates and such differences could be material to the financial position and results of operations.

There have been no material changes in our critical accounting policies and estimates in the preparation of our consolidated financial statements during the three and six months ended June 30 , 2018 compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC on February 27, 2018.

Overview

We are a medical technology company that primarily develops, manufactures and markets innovative portable oxygen concentrators used to deliver supplemental long-term oxygen therapy to patients suffering from chronic respiratory conditions. Traditionally, these patients have relied on stationary oxygen concentrator systems for use in the home and oxygen tanks or cylinders for mobile use, which we call the delivery model. The tanks and cylinders must be delivered regularly and have a finite amount of oxygen, which requires patients to plan activities outside of their homes around delivery schedules and a finite oxygen supply. Additionally, patients must attach long, cumbersome tubing to their stationary concentrators simply to enable mobility within their homes. Our proprietary Inogen One ^® systems concentrate the air around the patient to offer a single source of supplemental oxygen anytime, anywhere with a portable device weighing approximately 2.8 or 4.8 pounds with a single battery. We believe our Inogen One systems reduce the patient’s reliance on stationary concentrators and scheduled deliveries of tanks with a finite supply of oxygen, thereby improving patient quality of life and fostering mobility.

In May 2004, we received 510(k) clearance from the U.S. Food and Drug Ad ministration, or the FDA, for our Inogen One portable oxygen concentrator. From our launch of the Inogen One in 2004, through 2008, we derived our revenue almost exclusively from sales to healthcare providers and distributors. In December 2008, we acquired Comfort Life Medical Supply, LLC in order to secure access to the Medicare rental market and began accepting Medicare reimbursement for our oxygen solutions in certain states. At the time of the acquisition, Comfort Life Medical Supply, LLC had an active Medicare billing number but few other assets and limited business activities. In January 2009, following the acquisition of Comfort Life Medical Supply, LLC, we initiated our direct-to-consumer marketing strategy and began selling Inogen One systems direct ly to patients and building our Medicare rental business in the United States. In April 2009, we became a Durable, Medical Equipment, Prosthetics, Orthotics, and Supplies accredited Medicare supplier by the Accreditation Commission for Health Care . We beli eve we are the only portable oxygen concentrator manufacturer that employs a direct-to-consumer marketing strategy in the United States, meaning we advertise directly to patients, process their physician paperwork, provide clinical support as needed and bi ll Medicare or insurance on their behalf.

We derive the majority of our revenue from the sale and rental of our Inogen One systems and related accessories to patients, insurance carriers, home healthcare providers and distributors, including our private label partner. We sell multiple configurations of our Inogen One systems with various batteries, accessories, warranties, power cords and language settings. We also rent our products to Medicare beneficiaries and patients with other insurance coverage to support their oxygen needs as prescribed by a physician as part of a care plan. Our goal is to design, build and market oxygen solutions that redefine how oxygen therapy is delivered. To accomplish this goal and to grow our revenue, we intend to continue to:

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Expand our domestic sales and marketing channels . During the year ended December 31, 2017, we increased our inside sales representatives to 263 from 177 as of December 31, 2016 in support of our direct-to-consumer domestic sales. Typically, we expect new inside sales representatives to take 4 to 6 months to reach full productivity. We are also focused on building our domestic business-to-business partnerships, including relationships with distributors, key accounts, resellers, our private label partner, and traditional home medical equipment (HME) providers.

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Invest in our product offerings to develop innovative products . We expended $1.8 million and $1.3 million for the three months ended June 30, 2018 and June 30, 2017, respectively, and $3.2 million and $2.6 million for the six months ended June 30, 2018 and June 30, 2017, respectively, in research and development expenses, and we intend to continue to make such investments in the foreseeable future. We launched our fourth-generation portable oxygen concentrator, the Inogen One G4, in May 2016. The Inogen One G4 weighs 2.8 pounds, versus 4.8 pounds for our Inogen One G3, and is approximately half the size of the Inogen One G3. The sound level is 40 dBA at setting 2 and it produces up to 630 ml/minute of oxygen output. We estimate that it is suitable for more than 85% of supplemental long-term ambulatory oxygen therapy patients who contact us. The Inogen One G4 system is also less expensive to manufacture than our Inogen One G3 system. We also launched an upgraded battery option for the Inogen One G3 system to increase battery life by approximately 10% in the fourth quarter of 2016. We are also developing our next-generation portable oxygen concentrator (POC), the Inogen One G5 and developing connectivity capabilities for our products.

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Increase international business-to-business adoption. Although our main growth opportunity remains POC adoption in the United States given the relatively low penetration rate, we are keenly aware of the large international market opportunity. In order to take advantage of these international opportunities, we have started to build out an infrastructure over the last few years, which includes sales in 46 international countries and a contract manufacturing partner to support European sales volumes. Further, we are also in the process of developing regulatory and sales pathways to capture opportunities in new and emerging markets. Over time, as the U.S. and European markets mature, our growth will depend on our ability to drive POC adoption in emerging markets, where limited oxygen therapy treatment exists today. In the second quarter of 2018, we received reimbursement approval of the Inogen One G4 product in France.

We have been developing and refining the manufacturing of our Inogen One systems since 2004. While nearly all of our manufacturing and assembly processes were originally outsourced, assembly of the compressors, sieve beds, concentrators and certain manifolds were brought in-house in order to improve quality control and reduce cost. In support of our European sales, we established a physical presence in Europe by acquiring our former distributor, MedSupport Systems B.V. (MedSupport) on May 4, 2017 and began production of our Inogen One G3 concentrators in the fourth quarter of 2017 using a contract manufacturer, Foxconn, located in the Czech Republic to improve our ability to service our European customers. Our contract manufacturer produces the vast majority of the Inogen One G3 concentrators required to support our European demand. We expect to maintain our assembly operations for our Inogen One concentrators and Inogen At Home concentrators at our facilities in Richardson, Texas and Goleta, California. This has allowed us to continue to expand our manufacturing capacity and redirect our U.S. manufacturing activities to focus on growth in the U.S. and on our latest product, the Inogen One G4.

W e also use lean manufacturing practices to maximize manufacturin g efficiency. We rely on third-party manufacturers to supply several components of our Inogen One and Inogen At Home systems. We typically enter into supply agreements for these components that specify quantity and quality requirements and delivery terms. In certain cases, these agreements can be terminated by either party upon relatively short notice. We have elected to source certain key components from single sources of supply, including our batteries, motors, valves, and some molded plastic components. W e believe that maintaining a single source of supply allows us to control production costs and inventory levels and to manage component quality. However, any reduction or halt in supply from one of these single-source suppliers could limit our ability to manufacture our products or devices until a replacement supplier is found and qualified.

Historically, we have generated a majority of our revenue from sales and rentals to customers in the United States. For the three months ended June 30, 2018 and June 30, 2017, approximately 21.3% and 23.3%, respectively, and 21.4% and 22.6% for the six months ended June 30, 2018 and June 30, 2017, respectively, of our total revenue was from sales to customers outside the United States, primarily in Europe. Approximately 76.0% and 75.4% of the non-U.S. revenue for the three months ended June 30, 2018 and June 30, 2017, respectively, and 76.4% and 73.9% for the six months ended June 30, 2018 and June 30, 2017, respectively, was invoiced in Euros with the remainder invoiced in United States dollars. As of June 30, 2018, we sold our products in 46 countries outside the United States through our wholly owned subsidiary, distributors or directly to large “house” accounts, which include gas companies, HME oxygen providers, and resellers. In those instances, we sell to and bill the distributor or “house” accounts directly, leaving responsibility for the patient billing, support and clinical setup to the local provider.

Our total revenue was $97.2 million and $64.1 million for the three months ended June 30, 2018 and June 30, 2017, respectively, and $176.3 million and $116.6 million for the six months ended June 30, 2018 and June 30, 2017, respectively. The increase was primarily due to growth in sales revenue associated with the increases in direct-to-consumer and business-to-business sales of our Inogen One systems, partially offset by a decline in rental revenue primarily associated with a decline in patients on service. We generated net income of $14.6 million and $8.3 million for the three months ended June 30, 2018 and June 30, 2017, respectively, and $25.4 million and $14.3 million for the six months ended June 30, 2018 and June 30, 2017, respectively. We generated Adjusted EBITDA of $19.0 million and $14.4 million for the three months ended June 30, 2018 and June 30, 2017, respectively, and $34.5 million and $25.2 million for the six months ended June 30, 2018 and June 30, 2017, respectively (see “Non-GAAP financial measures” for reconciliations between U.S. GAAP and non-GAAP results). As of June 30, 2018, our retained earnings were $34.0 million.

Sales revenue

Our future financial performance will be driven in part by the growth in sales of our Inogen One systems, and, to a lesser extent, sales of batteries, other accessories, and sales of our Inogen At Home stationary oxygen concentrators. We plan to grow our system sales in the coming years through multiple strategies including: expanding our direct-to-consumer sales efforts through hiring additional sales representatives, investing in consumer awareness through increased marketing efforts, expanding our sales infrastructure and efforts outside of the United States, expanding our business-to-business sales through key partnerships, and enhancing our product offerings through additional product launches. As our product offerings grow, we solicit feedback from our customers and focus our research and development efforts on continuing to improve patient preference and reduce the total cost of the product in order to further drive sales of our products. For example, in the second quarter of 2018, we completed a direct-to-consumer pricing elasticity trial which indicated that by lowering our price we can expand access to our products and increase sales volumes while also improving our total gross margin profile. Accordingly, as of June 1, 2018, we reduced the starting retail minimum advertised price for our Inogen One G3 and Inogen One G4 systems.

Our direct-to-consumer sales process involves numerous interactions with the individual patient, the physician and the physician’s staff, and includes an in-depth analysis and review of our product, the patient’s diagnosis and prescribed oxygen therapy, including procuring an oxygen prescription. The patient may consider whether to finance the product through an Inogen-approved third-party or purchase the equipment. Product is not deployed until both the prescription and payment are received. Once product is deployed, the patient has 30 calendar days to return the product, subject to the payment of a minimal processing and handling fee. Approximately 7-14% of consumers who purchase a system return the system during this 30-day return period.

Our business-to-business efforts are focused on selling to distributors, HME oxygen providers, our private label partner and resellers, who are based inside and outside of the United States. This process involves interactions with various key customer stakeholders including sales, purchasing, product testing, and clinical personnel. Businesses that have patient demand that can be met with our oxygen concentrator systems place purchase orders to secure product deployment. This may be influenced based on outside factors, including the result of tender offerings, changes in insurance plan coverage, and overall changes in the net oxygen therapy patient population. Products are shipped freight on board (FOB) Inogen dock domestically, and based on financial history and profile, businesses may either prepay or receive extended payment terms. Products are shipped both FOB Inogen dock and Delivery Duty Paid (DDP) for certain international shipments depending on the shipper used. DDP shipments are Inogen’s property until title has transferred which is upon duty being paid and delivered to the customer. As a result of these factors, product purchases can be subject to changes in demand by customers.

We sold approximately 54 , 700 systems in the three months ended June 3 0 , 201 8 compared to 32,400 systems for the same period in 201 7 . We sold ap proximately 100 , 100 systems in the six months ended June 30, 2018 compared to 58,000 systems for the same period in 2017. Management focuses on system sales as an indicator of current business success.

Rental revenue

Our direct-to-consumer rental process involves numerous interactions with the individual patient, the physician and the physician’s staff. The process includes an in-depth analysis and review of our product, the patient’s diagnosis and prescribed oxygen therapy, and their medical history to confirm the appropriateness of our product for the patient’s oxygen therapy and compliance with Medicare and private payor billing requirements, which often necessitates additional physician evaluation and/or testing as well as a Certificate of Medical Necessity. Once the product is deployed, the patient receives direction on product use and may receive a clinical titration from our licensed staff to confirm the product meets the patient’s medical oxygen needs prior to billing. As a result, the time from initial contact with a patient to billing can vary significantly and be up to one month or longer.

We expect rental revenue to be down approximately 10% in 2018 as compared to 2017, primarily due to our continued focus on sales versus rentals. We plan to add new rental patients on service in future periods through multiple strategies, including expanding our direct-to-consumer marketing efforts through hiring additional sales representatives, investing in patient and physician awareness, and securing additional insurance contracts. However, patients may come off our services due to death, a change in their condition, a change in location, a change in healthcare provider or other factors. In each case, we maintain asset ownership and can redeploy assets as appropriate following such events. Given the length and uncertainty of our patient acquisition cycle and potential returns we have experienced in the past, and likely will experience in the future, fluctuations in our net new patient setups will occur on a period-to-period basis and we may experience negative net patient additions in future periods. At this time, we do not plan to offer our Inogen One G4 system to rental patients but will continue to use the Inogen One G3 system as the primary ambulatory solution deployed in our rental fleet.

A portion of rentals include a capped rental period during which no additional reimbursement is allowed unless additional criteria are met. In this scenario, the ratio of billable patients to total patients on service is critical to maintaining rental revenue growth as patients on service increases. Medicare has noted a certain percentage of beneficiaries, approximately 25%, based on their review of Medicare claims, reach the 36 ^th month of eligible reimbursement and enter the capped rental period. Our capped patients as a percentage of total patients on service was approximately 17.7% as of June 30, 2018 compared to approximately 17.9% as of June 30, 2017. 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.

As of June 30, 2018, we had approximately 28,500 oxygen rental patients, a decrease from approximately 32,300 oxygen rental patients as of June 30, 2017. Management focuses on patients on service as a leading indicator of likely future rental revenue; however, actual rental revenue recognized is subject to a variety of other factors, including reimbursement levels by payor, patient location, the number of capped patients, write-offs for uncollectable balances, and adjustments for patients in transition.

Reimbursement

We rely heavily on reimbursement from the Centers for Medicare and Medicaid Services (CMS), and secondarily, from private payors, Medicaid and patients for our rental revenue.

For the three months and six months ended June 30, 2018, approximately 76.5% and 75.8% of our rental revenue was derived from Medicare’s service reimbursement programs. The U.S. list price for our stationary oxygen rentals (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. Effective January 1, 2016, the current standard Medicare allowable varies by state instead of the one national standard allowable as in previous years. Effective January 1, 2016, the Medicare allowable for stationary oxygen rentals (E1390) ranges from $135.14 to $145.61 per month and the OGPE rentals (E1392) ranges from $46.69 to $49.52 per month. Effective January 1, 2017, the Medicare allowable for stationary oxygen rentals (E1390) ranges from $66.53 to $77.16 per month and the OGPE rentals (E1392) ranges from $36.14 to $41.91 per month. These are the two primary codes that we bill to Medicare and other payors for our oxygen product rentals.

As of January 1, 2011, Medicare phased in the competitive bidding program. The competitive bidding program impacts the amount Medicare reimburses suppliers of durable medical equipment rentals, including portable oxygen concentrators. The program is defined geographically, with suppliers submitting bids to provide medical equipment for specific product categories within a specified geographic region called competitive bidding areas, or CBAs. Once bids have been placed, an individual company’s bids within a product category are aggregated and weighted by each product’s market share in the category. The weighted-average price is then indexed against all bidding suppliers. Medicare determines a “clearing price” out of these weighted-average prices, at which a

sufficient number of suppliers have indicated they will support patients in the category. This threshold is typically designed to generate theoretical supply that is tw ice the expected demand. Bids for each modality among the suppliers that made the cut are then arrayed to determine what Medicare will reimburse for each product category and geographic area. The program has strict anti-collusion guidelines to ensure biddi ng is truly competitive. A competitive bidding contract lasts up to three years once implemented, after which the contract can be subject to a new round of bidding. Discounts off the standard Medicare allowable occur in CBAs where contracts have been award ed as well as in cases where private payors pay less than this allowable. Competitive bidding rates are based on the zip code where the patient resides. Rental revenue includes payments for product, disposables, and customer service/support.

In the CBAs covered under round two re-compete of the competitive bidding program, which began July 1, 2016, the Medicare allowable for stationary oxygen rentals (E1390) ranges from $70.00 to $89.86 per month (average of $76.84 per month) and the OGPE rentals (E1392) ranges from $33.97 to $42.00 per month (average of $37.90 per month). In the CBAs covered under round one 2017 of the competitive bidding program, which began January 1, 2017, the Medicare allowable for stationary oxygen rentals (E1390) ranges from $70.04 to $90.01 per month (average of $77.97 per month) and the OGPE rentals (E1392) ranges from $35.11 to $37.15 per month (average of $36.06 per month).

As of January 1, 2016, all areas previously not subject to competitive bidding program (non-competitive bidding areas or “non-CBAs”) have experienced reductions in the Medicare fee schedule for durable medical equipment, prosthetics, orthotics and supplies (DMEPOS). The fee schedules in the non-CBAs were adjusted based on regional averages of the single payment amounts that apply to the competitive bidding program (Adjusted Fee Schedule). The regional prices are limited by a national ceiling (110% of the average of the regional prices) and a national floor (90% of the average regional prices). From January 1, 2016 to June 30, 2016, the reimbursement rates for these non-CBAs (with dates of service from January 1, 2016 to June 30, 2016) were 50% of the un-adjusted fee schedule amount plus 50% of the Adjusted Fee schedule amount. As of July 1, 2016, Medicare reimbursed DMEPOS at 100% of the Adjusted Fee Schedule amount. However, in December 2016, the 21 ^st Century Cures Act (“Cures Act”) was passed, which included a provision to roll-back the second cut to the non-CBA areas that was effective July 1, 2016 through December 31, 2016. Pricing in these areas was increased to the rates experienced in the period from January 1, 2016 through June 30, 2016. This led to a benefit in rental revenue of $2.0 million in the fourth quarter of 2016 and $0.2 million in the first quarter of 2017. Effective January 1, 2017, rates are set at 100% of the Adjusted Fee Schedule amount, based on the regional competitive bidding rates. The Cures Act also called for a study of the impact of the competitive bidding pricing on rural areas and accelerated the implementation of the Omnibus bill passed in December 2015 to require state Medicaid agencies to match Medicare fee schedule reimbursement rates (including single payment amounts in applicable areas), effective as of January 1, 2018, including for oxygen.

The competitive bidding regions are defined as follows:

Region Name		States Covered
Far West		CA, NV, OR, WA
Great Lakes		IL, IN, MI, OH, WI
Mideast		DC, DE, MD, NJ, NY, PA
New England		CT, MA, NH, RI
Plains		IA, KS, MN, MO, NE
Rocky Mountain		CO, ID, UT
Southeast		AL, AR, FL, GA, KY, LA, NC, SC, TN, VA
Southwest		AZ, NM, OK, TX

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. For frontier and rural states, and frontier and rural zip codes in non-frontier/rural states, the single payment amount will be the national ceiling (110% of the average of the regional prices) to account for higher servicing costs in these areas. For non-contiguous United States areas, single payment amounts will be the higher of the national ceiling, or the average of competitive bidding pricing from these areas, if the areas had been bid through competitive bidding. We estimate that less than 10% of our patients would be eligible to receive the 110% of the regional prices for rural and frontier areas based on the geographic locations of our current patient population.

CMS has also re-bid for competitive bidding round two re-compete, which is associated with approximately 50% of the Medicare market, with contracts which began on July 1, 2016 and will continue through December 31, 2018. CMS updated the product categories and the competitive bidding areas in the round two re-compete contracts. Respiratory equipment now includes oxygen, oxygen equipment, continuous positive airway pressure devices, respiratory assist devices and related supplies and accessories. Nebulizers are now their own separate product category instead of being included in the respiratory equipment category.

Round two re-compete is in the same geographic areas that were included in the original round two. Howev er, as a result of the Office of Management and Budget’s updates to the original 91 round two metropolitan statistical areas, there are now 90 metropolitan statistical areas for round two re-compete and 117 competitive bidding areas (CBAs). Any CBA that wa s previously located in multi-state metropolitan statistical areas was redefined so that no CBA is included in more than one state. The round two re-compete competitive bidding areas have nearly the same zip codes as the round two competitive bidding areas ; the associated changes in the zip codes since competitive bidding was implemented are reflective in this round two re-compete.

CMS has also re-bid for the round one 2017 contracts effective January 1, 2017 through December 31, 2018. In round one 2017, there are 9 metropolitan statistical areas and 13 CBAs to ensure there are no multi-state CBAs. We estimate approximately 9% of the Medicare market was impacted by the round one 2017 contracts.

The following table sets forth the current Medicare standard allowable reimbursement rates and the average of reimbursement rates applicable in Metropolitan Statistical Areas covered by rounds one and two of competitive bidding.

			Round one		Round two		Round one
	Round two		re-compete		re-compete		2017
	average		average		average		average
	7/1/13-		1/1/14-		7/1/16-		1/1/17-
	6/30/16		12/31/16		12/31/18		12/31/18
E1390 (stationary oxygen rentals)	$	93.07	$	95.74	$	76.84	$	77.97
E1392 (portable oxygen rentals)		42.72		38.08		37.90		36.06
Total	$	135.79	$	133.82	$	114.74	$	114.03

In addition to reducing the Medicare reimbursement rates in the Metropolitan Statistical Areas (MSAs), the competitive bidding program has effectively reduced the number of oxygen suppliers that can participate in the Medicare program. Based on industry data analyzing the number of unique supplier companies by state from July 2013 to April 2017, there has been a 41% decrease in the numbers of DMEPOS suppliers who have an active NPI number. We believe that approximately 59% of the Medicare market was covered by round one and round two of competitive bidding.

Cumulatively in round one, round two, round one re-compete, round two re-compete and round one 2017, we were offered contracts for a substantial majority of the CBAs and product categories for which we submitted bids. However, there is no guarantee that we will garner additional market share as a result of these contracts. The contracts include products that may require us to subcontract certain services or products to third parties, which must be approved by CMS. As of July 2018, we currently operate in all 50 states in the U.S. We did not sell or rent to patients in Hawaii due to the licensure requirements from inception to June 2018.

Moreover, we cannot guarantee that we will be offered contracts in subsequent rounds of competitive bidding. 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.

Following round one of competitive bidding, we were excluded from providing services to Medicare beneficiaries in the Kansas City-MO-KS, Miami-Fort Lauderdale-Pompano Beach-FL, and Orlando-Kissimmee-FL CBAs. We had access to six CBAs of the nine regions subject to competitive bidding round one for the respiratory product category.

After round one re-compete of competitive bidding, we were excluded from providing services to Medicare beneficiaries in the following CBAs: Cleveland-Elyria-Mentor-OH, Cincinnati-Middleton-OH-KY-IN, Miami-Fort Lauderdale-Pompano Beach-FL, Orlando-Kissimmee-Sanford-FL, Pittsburg-PA, and Riverside-San Bernardino-Ontario-CA. We gained access to the Kansas City-MO -KS CBA. We had access to three CBAs of the nine regions subject to competitive bidding round one re-compete for the respiratory product category.

After round one 2017 of competitive bidding, we have been excluded from the Chester-Lancaster and York Counties-SC CBA, which we previously won under round one re-compete. We also have been excluded from the Miami-Fort Lauderdale-West Palm Beach-FL and Orlando-Kissimmee-Sanford-FL CBAs. We have access to 10 of the 13 CBAs in which we bid for the respiratory product category: Charlotte-Concord-Gastonia-NC, Cincinnati-OH, Cleveland-Elyria-OH, Covington-Florence-Newport-KY, Dallas-Fort Worth-Arlington-TX, Dearborn-Franklin-Ohio, and Union Counties-IN, Kansas City-MO, Kansas City-Overland Park-Ottawa-KS, Pittsburgh-PA, and Riverside-San Bernardino-Ontario-CA. We have access to ten CBAs of the thirteen regions subject to competitive bidding round one 2017 for the respiratory product category.

After round two of competitive bidding, we were excluded from 12 CBAs: Akron-OH, Cape Coral-Fort Myers-FL, Deltona-Daytona Beach-Ormond Beach-FL, Honolulu-HI, Jacksonville-FL, Lakeland-Winter Haven-FL, Memphis-TN-MS-AR, North Port-Bradenton-Sarasota-FL, Ocala-FL, Palm Bay-Melbourne-Tit usville-FL, Tampa-St. Petersburg-Clearwater-FL, and Toledo-OH. We had access to 88 CBAs of the 100 regions subject to competitive bidding round two for the respiratory product category.

After round two re-compete of competitive bidding, we were excluded from the following CBAs that we had previously won under round two: Allentown-Bethlehem-Easton-PA, Asheville-NC, Augusta-Richmond County-GA, Camden-NJ, Catoosa-Dade-Walker Counties-GA, Elizabeth-Lakewood-New Brunswick-NJ, Flint-MI, Greensboro-High Point-NC, Greenville-Anderson-Mauldin-SC, Jersey City-Newark-NJ, Las Vegas-Henderson-Paradise-NV, Little Rock-North Little Rock-Conway-AR, Louisville-Jefferson County-KY, Mercer County-PA, Poughkeepsie-Newburgh-Middletown-NY, Raleigh-NC, Scranton-Wilkes-Barre-Hazelton-PA, Stockton-Lodi-CA, Syracuse-NY, Wilmington-DE, and Youngstown-Warren-Boardman-OH. We were also excluded from the following CBAs in both round two and round two re-compete: Akron-OH and Toledo-OH. We gained access to certain Medicare markets in Cape-Coral-Fort Myers-FL, Deltona-Daytona Beach-Ormond Beach-FL, Jacksonville-FL, Lakeland-Winter Haven-FL, North Port-Sarasota-Bradenton-FL, Ocala-FL, Palm Bay-Melbourne-Titusville-FL, and Tampa-St. Petersburg-Clearwater-FL. We have access to 93 CBAs of the 117 regions subject to competitive bidding round two re-compete for the respiratory product category.

Effective January 1, 2017, we believe we have access to over 85% of the Medicare oxygen therapy market based on our analysis of the 103 CBAs that we have won out of the 130 total CBAs. These 130 CBAs represent approximately 59% of the market with the remaining approximately 41% of the market not subject to competitive bidding. The loss of access to the CBAs where we were not awarded contracts is not expected to lead to a material adverse impact on our rental business. Medicare revenue, including patient co-insurance and deductible obligations, represented 4.1% of our total revenue in the three months ended June 30, 2018 and 4.6% of our total revenue in the six months ended June 30, 2018. The decline in total revenue resulting from the loss of competitive bidding contracts in the areas that we were excluded from was partially offset by the “grandfathering” of existing Medicare patients (discussed below), rentals to patients with third-party insurance coverage, or Medicare patients paying out-of-pocket to purchase our products. Our revenue from Medicare in the 27 CBAs where we were not offered contracts as of January 1, 2017 was approximately $0.1 million and $0.2 million in the three months ended June 30, 2018 and June 30, 2017, respectively, and $0.3 million and $0.5 million in the six months ended June 30, 2018 and June 30, 2017, respectively.

Under the competitive bidding program, DME suppliers that are not awarded a competitive bid contract in a CBA and product category which the DME supplier had previously been awarded a competitive bid contract may “grandfather” existing patients on service beginning on the effective date of the competitive bidding round. This means DME suppliers may retain all existing patients and continue to receive reimbursement for them, so long as the new reimbursement rate is accepted by the DME supplier and the beneficiary chooses to continue to receive equipment from the supplier. For example, a supplier that received a round two contract but not a round two re-compete contract may elect to “grandfather’ the patients that it serviced through the round two contract period. Suppliers must either keep or release all patients under this “grandfathering” arrangement in each CBA; a supplier may not select specific individuals to retain or release. Suppliers can continue to sell equipment in CBAs where they were not awarded contracts to patients paying out-of-pocket or with third-party insurance coverage.

We have elected to “grandfather” and retain all patients in CBAs in which we were not awarded contracts. In addition, we continue to accept patients in CBAs where we did not receive contracts through private insurance. We also pursue retail sales of our equipment to patients in those areas.

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. The supplier that billed Medicare for the 36th month of service continues to be responsible for the patient’s oxygen therapy needs for months 37 through 60, and there is generally no additional reimbursement for oxygen generating portable equipment for these later months. CMS does not separately reimburse suppliers for oxygen tubing, cannulas and supplies that may be required for the patient. The supplier is required to keep the equipment provided in working order and in some cases, CMS will reimburse for repair costs. At the end of the five-year useful life of the equipment, the patient may request replacement equipment and, if he or she can be re-qualified for the Medicare benefit, a new maximum 36-month payment cycle out of the next 60 months of service would begin. 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 for the three months and six months ended June 30, 2018 and June 30, 2017, respectively.

Our obligations to service Medicare patients over the contract rental period include supplying working equipment that meets each patient’s oxygen needs pursuant to his/her doctor’s prescription and certificate of medical necessity form and supplying all disposables required for the patient to operate the equipment, including cannulas, filters, replacement batteries, carts and carry bags, as needed. If the equipment malfunctions, we must repair or replace the equipment. We determine what equipment the patient receives, as long as that equipment meets the physician’s prescription, and we can deploy used assets in working order as long as the prescription requirements are met. We must also procure a recertification of the certificate of medical necessity from the patient’s

doctor to confirm the patient’s need for oxygen therapy one year after the patient first receives oxygen therapy and one year after each new 36-month reimbursement period begins. The patient can choose to receive oxygen supplies and services from another supplier at any time, but the supplier may only transition the patient to another supplier in certain circumstances.

In addition to the adoption of the competitive bidding program, from 2010 through 2015, Medicare reimbursement rates for oxygen rental services in non-CBAs were eligible to receive mandatory annual updates based upon the Consumer Price Index for all Urban Consumers, or CPI-U. For 2014, the CPI-U was +1.8%, but the multi-factor productivity adjustment (Adjustment) was -0.8%, so the net result was a 1.0% increase in fee schedule payments in 2014 for items and services provided in areas not subject to competitive bidding. However, by law, the stationary oxygen equipment codes payment amounts must be adjusted on an annual basis, as necessary, to ensure budget neutrality of the new payment class for oxygen generating portable equipment (OGPE). Thus, the increase in allowable payment amounts for stationary oxygen equipment codes increased 0.5% from 2013 to 2014. For 2015, the CPI-U was +2.1%, but the Adjustment was -0.6%, so the net result was a 1.5% increase in fee schedule payments in 2015 for stationary oxygen equipment for items and services not included in an area subject to competitive bidding. Beginning in 2016, the standard allowable for all areas was set based on regional averages of the competitive bidding prices as described previously and no fees were based on non-competitive bidding. Accordingly, we do not anticipate future adjustments to the reimbursable fees based upon changes in CPI-U. However, as of January 1, 2017 and January 1, 2018 the Medicare reimbursement rates in the non-CBAs were adjusted to ensure budget neutrality based on the increased usage of the OGPE class that led to lower rates in these areas. Effective January 1, 2018, Medicare rates for stationary oxygen (code E1390) declined by 1.2% in non-CBA areas.

On November 4, 2016, CMS published a final rule in the Federal Register imposing additional regulations on the competitive bidding process. The final rule requires bidders choosing to participate in the competitive bidding program to obtain a $0.05 million surety bond for each CBA in which they bid. If a bidder does not accept a contract offer when its composite bid is at or below the median composite bid rate for suppliers used in the calculation of the single payment amount, the bid surety bond for the applicable CBA will be forfeited to CMS. In instances where the bidder does not meet the forfeiture conditions specified in the final rule, the bid surety bond liability will be returned to the bidder within 90 days of the public announcement of the contract suppliers for the CBA. Currently, there are 130 CBAs, which would mean a bidding supplier could incur a surety bond obligation with forfeiture conditions of up to $6.5 million. The final rule also changes the bid limits for individual items for future rounds of competitive bidding to reflect the 2015 unadjusted fee schedule to avoid a downward trend in bid pricing, to ensure the long-term viability of the competitive bidding program, and to allow suppliers to take into account both decreases and increases in costs in determining their bids. The rule also finalizes an appeals process for all breach of contract actions that CMS may take under the competitive bidding program. Lastly, the final rule sets forth a provision for lead item bidding for certain product categories in future bidding rounds to prevent the creation of price inversions, which occurred in round two of competitive bidding. Lead item bidding means that all HCPCS codes for similar items will be grouped together and priced relative to the bid for the “lead item,” as calculated by CMS.

On November 2, 2017, a bi-partisan bill was introduced in the House of Representatives that would provide relief from competitive bidding in non-bid areas. This bill has 154 co-sponsors as of June 30, 2018. If passed, the bill would extend a retroactive delay of a second round of reimbursement cuts for Medicare beneficiaries from January 1, 2017 to January 1, 2019 based on the reimbursement rates effective on January 1, 2016. The legislation also proposes to remedy a double-dip cut to oxygen payments caused by the misapplication of a 2006 budget neutrality offset balancing increased utilization for oxygen generating portable equipment with lower reimbursement for stationary equipment.

On February 12, 2018, the current presidential administration sent Congress a 2019 budget proposal that included language on competitive bidding. Specifically, the proposal would eliminate the requirement under the competitive bidding program that CMS pay a single payment amount based on the median bid price, proposing instead that CMS pay winning suppliers at their own bid amounts. Additionally, this proposal would expand competitive bidding to all areas of the country, including rural areas, which will be based on competition in those areas rather than on competition in urban areas. This specific proposal is estimated to save the government $6.5 billion over 10 years. In addition to changes to competitive bidding, the 2019 budget proposal would enable CMS not to impose the face-to-face requirement on all providers for durable medical equipment. Furthermore, the proposal seeks to address excessive billing of durable medical equipment that requires refills or serial claims. Specifically, Medicare would gain authority to test whether using a benefits manager for serial durable medical equipment claims would result in lower improper payments and reductions in inappropriate utilization. The benefits manager would be responsible for ensuring beneficiaries were receiving the correct quantity of supplies or service for the appropriate time period. Lastly, the proposal would expand prior authorization to additional items and services that are both high-cost and at high-risk for improper payments. These provisions were not included in the latest omnibus budget, so it is unclear if any of these proposals will be implemented. We believe additional cuts to reimbursement would continue to drive conversion to non-delivery technologies, including POCs.

On May 9, 2018, CMS released an Interim Final Rule to resume the 50/50 blended rate schedul e for the period of June 1, 2018 through December 31, 2018 in rural and non-contiguous areas not subject to the competitive bidding program. We estimate that this will increase rental revenue b y approximately $0.5 million in 2018.

On July 11, 2018, CMS released a new proposal to change the payment rules for Durable Medical Equipment Prosthetics, Orthotics, and Supplies (DMEPOS), including our portable oxygen concentrators. This includes a proposal that when the current competitive bidding contracts expire December 31, 2018, beneficiaries can obtain DMEPOS items from any enrolled Medicare supplier. In addition if this proposal is approved, the next competitive bidding round, which is expected to be delayed 18 to 24 months, will include multiple provisions to improve the program including: implementing lead item pricing, revising the definition of composite bid to mean the bid submitted by the supplier for the lead item in the product category, establishing a new method for single payment amounts based on maximum winning bids instead of median bids and establishing new separate payment classes for portable gaseous, portable liquid, and high flow portable liquid categories. In addition, CMS proposes to establish a new methodology for ensuring that all new classes for oxygen and equipment are budget neutral. Lastly, this proposal includes three different fee schedule adjustment methodologies depending on the area in which items and services are furnished: (1) one fee schedule adjustment methodology for DMEPOS items and services furnished on/after January 1, 2019 in areas currently in CBAs, in the event of a gap in competitive bidding; (2) another fee schedule adjustment methodology for items and services furnished from January 1, 2019 through December 31, 2020, in areas that are currently not CBAs, are not rural areas, and are located in the contiguous United States; and (3) another fee schedule adjustment methodology for items and services furnished from January 1, 2019 through December 31, 2020, in areas that are currently not CBAs and are either rural areas or non-contiguous areas. Comments on this proposed rule will be allowed through September 10, 2018.

As of June 30, 2018, we had 91 contracts with Medicaid and private payors. These contracts qualify us as an in-network provider for these payors. As a result, patients can rent or purchase our systems at the same patient obligation as other in-network oxygen suppliers. Based on our patient population, we believe at least 30% of all oxygen therapy patients are covered by private payors. Private payors typically provide reimbursement at a rate between 60% and 100% of Medicare allowables for in-network plans, and although private payor plans can have 36-month capped rental periods similar to Medicare, they typically do not. We anticipate that private payor reimbursement levels will generally be reset in accordance with Medicare payment amounts established through competitive bidding.

We cannot predict the full extent to which reimbursement for our products will be affected by competitive bidding, the 2019 federal budget or future federal budgets, or by initiatives to reduce costs for private payors. We believe that we are well positioned to respond to the changing reimbursement environment because our product offerings are innovative, patient-focused and cost-effective. We have historically been able to reduce our costs through scalable manufacturing, better sourcing, continuous innovation, and reliability improvements, as well as innovations that reduce our product service costs by minimizing exchanges, such as user replaceable batteries. As a result of design changes, supplier negotiations, bringing manufacturing and assembly largely in-house and our commitment to driving efficient manufacturing processes, we have reduced our overall system cost 58% from 2009 to 2017. We intend to continue to seek ways to reduce our cost of revenue through manufacturing and design improvements.

Basis of presentation

The following describes the line items set forth in our consolidated statements of comprehensive income.

Revenue

We classify our revenue in two main categories: sales revenue and rental revenue. There will be fluctuations in mix between business-to-business sales, direct-to-consumer sales and rental revenue from period-to-period. Inogen One and Inogen At Home system selling prices and gross margins may fluctuate as we introduce new products, reduce our product costs, have changes in purchase volumes, and as currency variations occur. For example, the gross margin for our Inogen One G4 system is higher than our Inogen One G3 system due to lower manufacturing costs and similar average selling prices. Thus, to the extent our sales of our Inogen One G4 systems are higher than sales of our Inogen One G3 systems, our overall gross margins should improve and, conversely, to the extent our sales of our Inogen One G3 systems are higher than sales of our Inogen One G4 systems, our overall gross margins should decline. Quarter-over-quarter results may vary due to seasonality in both the international and domestic markets. For example, we typically experience higher total sales in the second and third quarter, as a result of consumers traveling and vacationing during warmer weather in the spring and summer months, but this may vary year-over-year. As more HME providers adopt portable oxygen concentrators in their businesses, we expect our historical seasonality in the domestic business-to-business channel could change as well, which was previously influenced mainly by consumer buying patterns. Direct-to-consumer sales seasonality may also be impacted by the number of sales representatives and the amount of marketing spend in each quarter.

Sales revenue

Our sales revenue is primarily derived from the sale of our Inogen One systems, Inogen At Home systems, and related accessories to individual consumers, our private label partner, HME providers, distributors and resellers worldwide. Sales revenue is classified into two areas: business-to-business sales and direct-to-consumer sales. For the three months ended June 30, 2018 and June 30, 2017 , business-to-business sales as a percentage of total sales revenue were 58.4% and 62.2%, respectively. For the six months ended June 30, 2018 and June 30, 2017, business-to-business sales as a percentage of total sales revenue were 59.6% and 62.5%, respectively. Generally, our direct-to-consumer sales have higher gross margins than our business-to-business sales.

We also offer a lifetime warranty for direct-to-consumer sales of our portable concentrators. For a fixed price, we agree to provide a fully functional portable oxygen concentrator for the remaining life of the patient. Lifetime warranties are only offered to patients upon the initial sale of portable oxygen concentrators by the Company and are non-transferable. Lifetime warranties are considered to be a distinct performance obligation that are accounted for separately from the sale of portable oxygen concentrators with a standard warranty of three years .

The revenue is allocated to the distinct lifetime warranty performance obligation based on a relative stand-alone selling price (SSP) method. We have vendor-specific objective evidence of the selling price for our equipment. To determine the selling price of the lifetime warranty, we use our best estimate of the SSP for the distinct performance obligation as the lifetime warranty is neither separately priced nor is the selling price available through third-party evidence. To calculate the selling price associated with the lifetime warranties, management considered the profit margins of the overall business, the average estimated cost of lifetime warranties and the price of extended warranties. Revenue from the distinct lifetime warranty is deferred after the delivery of the equipment for three years and recognized on a straight-line basis during the fourth and fifth year, which is the estimated usage period of the contract based on the average patient life expectancy.

Other sales revenue consists of repair services and freight revenue for product shipments.

Rental revenue

Our rental revenue is primarily derived from the rental of our Inogen One and Inogen At Home systems to patients through reimbursement from Medicare, private payors and Medicaid, which typically also includes a patient responsibility component for patient co-insurance and deductibles. We expect our rental revenue to be down approximately 10% in 2018 as compared to 2017, primarily due to our continued focus on sales instead of rentals. Medicare reimbursement rates in 2018 were impacted by a roughly 1.2% decline in monthly stationary rates in non-competitive bidding areas due to a fee schedule adjustment. In addition, effective June 1, 2018 Medicare reimbursement rates in rural and non-contiguous areas not subject to competitive bidding increased to the previous rates effective December 31, 2017. We estimate rental revenue in 2018 will increase by approximately $0.5 million associated with this interim final rule. We also expect that our rental revenue will be impacted by the number of sales representatives, the level of and response from potential customers to direct-to-consumer marketing spend, product launches, and other uncontrollable factors such as changes in the market and competition.

We recognize equipment rental revenue over the non-cancelable lease term, which is one month, less estimated adjustments, in accordance with ASC 840 — Leases . We have a separate contract with each patient that is not subject to a master lease agreement with any payor. The lease term begins on the date products are shipped to patients and is recorded at amounts estimated to be received under reimbursement arrangements with third-party payors, including Medicare, private payors, and Medicaid. Due to the nature of the industry and the reimbursement environment in which we operate, certain estimates are required to record net revenue and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application, claim denial or account review. Amounts billed but not earned due to the timing of the billing cycle are deferred and recognized in revenue on a straight-line basis over the monthly billing period. For example, if the first day of the billing period does not fall on the first of the month, then a portion of the monthly billing period will fall in the subsequent month and the related revenue and cost would be deferred based on the service days in the following month. Included in rental revenue are unbilled amounts for which the revenue recognition criteria had been met as of period-end but were not billed. The estimate of unbilled rental revenue accrual is reported net of adjustments that are based on historical trends and estimates of future collectability.

Cost of revenue

Cost of sales revenue

Cost of sales revenue consists primarily of costs incurred in the production process, including costs of component materials, assembly labor and overhead, warranty, provisions for slow-moving and obsolete inventory, rework and delivery costs for items sold. Labor and overhead expenses consist primarily of personnel-related expenses, including wages, bonuses, benefits, and stock-based compensation for manufacturing, logistics, repair and quality assurance employees, and temporary labor. They also include manufacturing freight in, depreciation expense, facilities costs and materials. We provide a 3-year, 5-year or lifetime warranty on Inogen One systems sold and a 3-year warranty on Inogen At Home systems sold. We established a reserve for the cost of future warranty repairs based on historical warranty repair costs incurred as well as historical failure rates. Provisions for warranty obligations, which are included in cost of sales revenue, are provided for at the time of revenue recognition.

We expect the average unit costs of our Inogen One and Inogen At Home systems to continue to decline in future periods as a result of our ongoing efforts to develop lower-cost systems, negotiate with our suppliers, improve our manufacturing processes, and increase production volume and yields. We also signed an additional lease in Richardson, Texas to expand our current manufacturing facilities by approximately 23,000 square feet due to increased production volumes. While we are currently evaluating the potential impact of recently announced tariffs being considered by the United States on imported aluminum and Chinese goods on the Company’s supply chain, such changes may increase our average unit cost. We expect sales gross margin percentage to fluctuate over time based on the sales channel mix, product mix, and changes in average selling prices and cost per unit.

The current economic environment has introduced greater uncertainty with respect to potential trade regulations, including changes to United States policies related to global trade and tariffs. The Company is monitoring the recently announced Section 301 tariffs being imposed by the United States on certain imported Chinese materials and products in addition to potential retaliatory responses from other nations. While we currently expect the overall financial impact to our business from the recently announced tariffs to be immaterial, we will continue to monitor any new tariff proposals and economic policy changes. Such changes may increase our costs or require us to modify the Company’s current supply chain.

Cost of rental revenue

Cost of rental revenue consists primarily of depreciation expense; service costs for rental patients, including rework costs, material, labor, freight, and consumable disposables; and logistics costs.

We expect rental gross margin percentage to be flat or slightly increase in 2018 compared to 2017. We expect the average cost of rental revenue per patient to decline in future periods as a result of our ongoing efforts to reduce average unit costs of our systems, including reductions in depreciation, service costs, and logistics costs.

Operating expense

Research and development

Our research and development expense consists primarily of personnel-related expenses, including wages, bonuses, benefits and stock-based compensation for research and development and engineering employees, allocated facility costs, laboratory supplies, product development materials, consulting fees and related costs, and testing costs for new product launches and enhancements to existing products. We have made substantial investments in research and development since our inception. Our research and development efforts have focused primarily on the tasks required to enhance our technologies and to support development and commercialization of new and existing products. We plan to continue to invest in research and development activities to stay at the forefront of patient preference in oxygen therapy devices. We expect research and development expense to increase in absolute dollars in future periods as we continue to invest in our engineering and technology teams to support our new and enhanced product research and development efforts and manufacturing line support.

Sales and marketing

Our sales and marketing expense primarily supports our direct-to-consumer strategy and consists mainly of personnel-related expenses, including wages, bonuses, commissions, benefits, and stock-based compensation for sales, marketing, customer service and clinical service employees. It also includes expenses for media and advertising, printing, informational kits, dues and fees, including credit card fees, sales promotional and marketing activities, travel and entertainment expenses as well as allocated facilities costs. Sales and marketing expense increased throughout 2017, primarily due to an increase in the sales force and marketing expenses, and we expect a further increase in 2018 as we continue to invest in our business, including expanding our sales and sales support team, increasing media spend to drive consumer awareness, and increasing patient support costs as our patient and customer base increases.

In addition, we implemented a new customer relationship management ( CRM ) system in the second quarter of 2017 which has increased our sales and marketing costs, but we believe will help improve sales and customer service productivity. We also ope ned a new facility in Cleveland, Ohio in the third quarter of 2017. In that facility, we expect to have approximately 500 employees by year-end 2020 with at least two-thirds of those employees expected to be in sales, which is expected to increase our sale s and marketing costs. However, w e are expecting to receive certain partially offsetting business development incentives of up to $ 3.5 million based on our forecasted headcount additions and facility tenant improvement costs. We also have established a physical presence in Europe by acquiring our former distributor, MedSupport on May 4, 2017. This acquisition is expected to increase sales and marketing costs but is also expected to improve customer service and repair services in the European markets.

General and administrative

Our general and administrative expense consists primarily of personnel-related expenses, including wages, bonuses, benefits, and stock-based compensation for employees in our compliance, finance, medical billing, human resources, and information technology departments as well as facilities costs, bad debt expense, and board of directors’ expenses, including stock-based compensation. In addition, general and administrative expense includes professional services, such as legal, patent registration and defense costs, insurance, consulting and accounting services, including audit and tax services, and travel and entertainment expenses.

We expect general and administrative expense to increase in future periods as the number of administrative personnel grows and we continue to introduce new products, broaden our customer base and grow our business. We expect general and administrative expense to increase in absolute dollars as we continue to invest in corporate infrastructure to support our growth including personnel-related expenses, professional services fees and compliance costs associated with operating as a public company. Those costs include increases in our accounting, human resources, IT personnel, additional consulting, legal and accounting fees, insurance costs, board members’ compensation and the costs of maintaining compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

Other income (expense), net

Our other income (expense), net consists primarily of foreign currency gains and (losses) as well as interest income earned on cash equivalents and marketable securities.

Income taxes

We account for income taxes in accordance with ASC 740— Income Taxes . Under ASC 740, income taxes are recognized for the amount of taxes payable or refundable for the current period and deferred tax liabilities and assets are recognized for the future tax consequences of transactions that have been recognized in our consolidated financial statements or tax returns. A valuation allowance is provided when it is more likely than not that some portion, or all, of the deferred tax asset will not be realized.

We account for uncertainties in income tax in accordance with ASC 740-10— Accounting for Uncertainty in Income Taxes . ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This accounting standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The accounting for stock-based compensation will increase or decrease our effective tax rate based upon the difference between our stock-based compensation expense and the deductions taken on our U.S. tax return, which depends upon the stock price at the time of employee option exercise or award vesting. We recognize excess tax benefits on a discrete basis and we anticipate our effective tax rate will vary from quarter-to-quarter depending on our stock price in each period.

Results of operations

Comparison of three months ended June 30, 2018 and June 30, 2017

Revenue

	Three months ended
	June 30,				Change 2018 vs. 2017						% of Revenue
(amounts in thousands)	2018		2017		$			%			2018			2017
Sales revenue	$	91,987	$	58,038	$	33,949			58.5	%		94.6	%		90.5	%
Rental revenue		5,251		6,083		(832	)		-13.7	%		5.4	%		9.5	%
Total revenue	$	97,238	$	64,121	$	33,117			51.6	%		100.0	%		100.0	%

Sales revenue increased $ 33.9 mill ion for the three months ended June 3 0 , 201 8 from the three months ended June 3 0 , 201 7 , or an increase of 58 . 5 % over the comparable period. The increase was primarily attributable to a 22 , 300 -unit increase in the number of oxygen systems sold . We sold approximately 54 , 700 oxygen systems during the three months ended June 3 0 , 201 8 compared to approximately 32,400 oxygen systems sold during the three months ended June 3 0 , 201 7 , or an increase of 68.8 %. The increase in the number of systems sold resulted mainly from an increase in direct-to-consumer sales in the United States, primarily due to an increase in sales representatives as well as increased sales and marketing expenditures , and an increase in worldwide business-to-business sales, primari ly due to traditional HME purchases and continued strong private label demand .

Rental revenue decreased $0.8 million for the three months ended June 30, 2018 from the three months ended June 30, 2017, or a decrease of 13.7% from the comparable period. The decrease in rental revenue was primarily related to a decline in rental patients on service which declined 11.8% in the comparative period.

	Three months ended
(amounts in thousands)	June 30,				Change 2018 vs. 2017						% of Revenue
Revenue by region and category	2018		2017		$			%			2018			2017
Business-to-business domestic sales	$	32,943	$	21,154	$	11,789			55.7	%		33.9	%		33.0	%
Business-to-business international sales		20,759		14,919		5,840			39.1	%		21.3	%		23.3	%
Direct-to-consumer domestic sales		38,285		21,965		16,320			74.3	%		39.4	%		34.2	%
Direct-to-consumer domestic rentals		5,251		6,083		(832	)		-13.7	%		5.4	%		9.5	%
Total revenue	$	97,238	$	64,121	$	33,117			51.6	%		100.0	%		100.0	%

Domestic sales in direct-to-consumer and business-to-business channels increased 74.3% and 55.7%, respectively, for the three months ended June 30, 2018 compared to the three months ended June 30, 2017. The increase in direct-to-consumer sales was primarily due to the hiring of additional inside sales representatives, increased marketing expenditures, our expansion of marketing strategies, and our continued focus on direct-to-consumer sales with more selective new rental patient set-ups. We also benefited from increased direct-to-consumer sales associated with the direct-to-consumer pricing trial and subsequent lowering of retail pricing effective June 1, 2018. The increase in domestic business-to-business sales was primarily the result of increased demand from our private label partner and traditional HME providers, and increased consumer demand for our products due to our marketing efforts as well as the marketing efforts of our business partners.

Business-to-business international sales increased 39.1% for the three months ended June 30, 2018 compared to the three months ended June 30, 2017, primarily due to increases in sales from our partners in Europe and favorable currency exchange rates. As of June 30, 2018, we sold our products in 46 countries outside of the United States, and we plan to continue to expand our presence in other countries as the opportunities present themselves. Of our international sales revenue in the three months ended June 30, 2018, 88.3% was sold in Europe versus 87.6% in the comparative period in 2017. We also acquired our former distributor, MedSupport, in May of 2017, which also contributed to increased international revenues in the second quarter of 2018.

In future periods, sales may be impacted by seasonal factors. For example, we typically experience higher total sales in the second and third quarter, as a result of consumers traveling and vacationing during warmer weather in the spring and summer months, but this may vary year-over-year. As more HME providers adopt portable oxygen concentrators 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. Direct-to-consumer sales seasonality may also be impacted by the number of sales representatives and the amount of marketing spend in each quarter.

Cost of revenue and gross profit

	Three months ended
	June 30,						Change 2018 vs. 2017						% of Revenue
(amounts in thousands)	2018			2017			$			%			2018			2017
Cost of sales revenue	$	44,968		$	27,993		$	16,975			60.6	%		46.3	%		43.7	%
Cost of rental revenue		3,800			4,561			(761	)		-16.7	%		3.9	%		7.1	%
Total cost of revenue	$	48,768		$	32,554		$	16,214			49.8	%		50.2	%		50.8	%

Gross profit - sales revenue	$	47,019		$	30,045		$	16,974			56.5	%		48.3	%		46.8	%
Gross profit - rental revenue		1,451			1,522			(71	)		-4.7	%		1.5	%		2.4	%
Total gross profit	$	48,470		$	31,567		$	16,903			53.5	%		49.8	%		49.2	%

Gross margin percentage - sales revenue		51.1	%		51.8	%
Gross margin percentage- rental revenue		27.6	%		25.0	%
Total gross margin percentage		49.8	%		49.2	%

We manufacture our subassemblies and/or products in our Richardson, Texas and Goleta, California facilities. We also began production of our Inogen One G3 concentrators in the fourth quarter of 2017 using a contract manufacturer, Foxconn, located in the Czech Republic to improve our ability to service our European customers. Our manufacturing process includes final assembly, testing, and packaging to quality and customer specifications. Cost of sales revenue increased $17.0 million for the three months ended June 30, 2018 from the three months ended June 30, 2017, or an increase of 60.6%. The increase in cost of sales revenue was primarily attributable to an increase in the number of systems sold, partially offset by reduced bill of material costs for our products associated with design changes, better sourcing and price discounts resulting from increased volumes. We expect cost of sales revenue as a percentage of sales revenue in future periods to fluctuate based on customer mix, product mix, and changes in sales prices and cost per unit.

Cost of rental revenue decreased $0.8 million for the three months ended June 30, 2018 from the three months ended June 30, 2017, or a decrease of 16.7% from the comparable period. The decrease in cost of rental revenue was primarily attributable to a decrease in rental asset depreciation expense, primarily associated with a decrease in patients on service. Cost of rental revenue included $2.0 million of rental asset depreciation for the three months ended June 30, 2018 and $2.5 million for the three months ended June 30, 2017.

Gross margin percentage is defined as revenue less cost of revenue divided by revenue. Sales revenue gross margin percentage decreased to 51.1% for the three months ended June 30, 2018 from 51.8% for the three months ended June 30, 2017. The decrease in sales gross margin percentage was primarily related to a reduction in domestic business-to-business average selling prices as a strategy to increase volumes in this channel, partially offset by an increase in sales mix toward higher margin domestic direct-to-consumer sales and lower cost per unit. Average business-to-business selling prices declined over the same period in the prior year, primarily due to mix related to increased volume from our private label partner and secondarily associated with pricing discounts associated with increased volumes worldwide. Total worldwide business-to-business sales revenue accounted for 58.4% of total sales revenue in the second quarter of 2018 versus 62.2% in the second quarter of 2017. We expect sales gross margin to fluctuate over time based on changes in the sales channel mix, product mix, average selling prices and cost per unit.

Rental revenue gross margin percentage increased to 27.6% for the three months ended June 30, 2018 from 25.0% for the three months ended June 30, 2017, primarily due to lower cost of rental revenue due to lower depreciation costs.

Research and development expense

	Three months ended
	June 30,				Change 2018 vs. 2017					% of Revenue
(amounts in thousands)	2018		2017		$		%			2018			2017
Research and development expense	$	1,775	$	1,260	$	515		40.9	%		1.8	%		2.0	%

Research and development expense increased $ 0.5 million f or the three months ended June 3 0 , 201 8 compared to the three months ended June 3 0 , 201 7, or an increase of 40.9 % over the comparable period , primarily attributable to increases of $0.3 million in personnel-related expenses and $0.2 million in product deve lopment expenses for engineering projects .

Sales and marketing expense

	Three months ended
	June 30,				Change 2018 vs. 2017					% of Revenue
(amounts in thousands)	2018		2017		$		%			2018			2017
Sales and marketing expense	$	22,999	$	11,945	$	11,054		92.5	%		23.7	%		18.6	%

Sales and marketing expense increased $11.1 million for the three months ended June 30, 2018 from the three months ended June 30, 2017, or an increase of 92.5% over the comparable period. The increase was primarily attributable to increases of $5.9 million of sales and marketing personnel-related expenses as a result of the increased headcount (which included increases of $3.2 million in wages, benefits and payroll tax expense, $2.0 million in commissions expense, $0.6 million in bonus expense and $0.2 million in stock compensation expense), $3.5 million in media spending to supply leads for the increased number of sales force headcount hired, $0.6 million in credit card processing fees, $0.5 million in clinical personnel-related expenses and $0.4 million for dues, fees and license costs. In the three months ended June 30, 2018, we spent $6.3 million in media and advertising costs versus $2.7 million in the comparative period in 2017.

General and administrative expense

	Three months ended
	June 30,				Change 2018 vs. 2017						% of Revenue
(amounts in thousands)		2018		2017	$			%				2018		2017
General and administrative expense	$	9,675	$	9,865	$	(190	)		-1.9	%		9.9	%	15.4	%

General and administrative expense decreased $0.2 million for the three months ended June 30, 2018 from the three months ended June 30, 2017, or a decrease of 1.9% from the comparable period. The decrease was primarily attributable to decreases of $1.1 million of bad debt expense and $0.8 million in patent defense costs. These decreases were partially offset by an increase of $1.4 million of personnel-related expenses (which included increases of $0.6 million in stock compensation expense and $0.5 million in wages, benefits and payroll tax expense and $0.3 million in bonus expense).

Bad debt expense, expressed as a percentage of total revenue, was 0.3% and 2.3% in the three months ended June 30, 2018 and June 30, 2017, respectively. In the three months ended June 30, 2018, we spent less than $0.1 million in patent defense costs compared to $0.9 million in the three months ended June 30, 2017.

Other income (expense), net

	Three months ended
	June 30,					Change 2018 vs. 2017						% of Revenue
(amounts in thousands)	2018			2017		$			%			2018			2017
Interest income	$	673		$	146	$	527			361.0	%		0.7	%		0.2	%
Other income (expense)		(1,048	)		523		(1,571	)		-300.4	%		-1.1	%		0.8	%
Total other income (expense), net	$	(375	)	$	669	$	(1,044	)		-156.1	%		-0.4	%		1.0	%

Total other income (expense) , net, de creased $ 1.0 million for the three months ended June 3 0 , 201 8 from the three months ended June 3 0 , 201 7 . The de crease was primarily due to $1.6 million in other income (expense) related to foreign currency net losses arising from transactions in Euros at a lower Euro exchange rate to the U.S. dollar, primarily offset by an increase of $0. 5 million in interest income on cash equivalents and marketable s ecurities .

Income tax expense (benefit)

	Three months ended
	June 30,						Change 2018 vs. 2017						% of Revenue
(amounts in thousands)	2018			2017			$			%			2018			2017
Income tax expense (benefit)	$	(964	)	$	828		$	(1,792	)		-216.4	%		-1.0	%		1.3	%
Effective income tax rate		-7.1	%		9.0	%

Income tax expense (benefit) decreased $1.8 million for the three months ended June 30, 2018 from the three months ended June 30, 2017 from the comparative period, primarily attributable to excess benefits recognized from stock-based compensation and the impact of changes in the federal tax rate associated with the Tax Cuts and Jobs Act (TCJA), partially offset by a 48.9% increase in income before tax expense (benefit).

Our effective tax rate in the second quarter of 2018 decreased compared to 2017, primarily due to the changes in the federal tax rate associated with the TCJA. In the second quarter of 2018, excess tax benefits recognized from stock-based compensation decreased our income tax expense by $3.9 million and our effective tax rate by 28.3%, as compared to the tax rate without such benefits. For comparison, in the second quarter of 2017, excess tax benefits recognized from stock-based compensation decreased our income tax expense by $2.5 million and our effective tax rate by 27.2%, as compared to the tax rate without such benefits.

Net income

	Three months ended
	June 30,				Change 2018 vs. 2017					% of Revenue
(amounts in thousands)	2018		2017		$		%			2018			2017
Net income	$	14,610	$	8,338	$	6,272		75.2	%		15.0	%		13.0	%

Net income increased $6.3 million for the three months ended June 30, 2018 from the three months ended June 30, 2017, or an increase of 75.2 % over the comparable year. The increase in net income was primarily related to the increase in revenue of 51.6%, improved operating expense leverage, and a lower effective tax rate.

Comparison of six months ended June 30, 2018 and June 30, 2017

Revenue

	Six months ended
	June 30,				Change 2018 vs. 2017						% of Revenue
(amounts in thousands)	2018		2017		$			%			2018			2017
Sales revenue	$	165,571	$	104,004	$	61,567			59.2	%		93.9	%		89.2	%
Rental revenue		10,718		12,617		(1,899	)		-15.1	%		6.1	%		10.8	%
Total revenue	$	176,289	$	116,621	$	59,668			51.2	%		100.0	%		100.0	%

Sales revenue increased $61.6 million for the six months ended June 30, 2018 from the six months ended June 30, 2017, or an increase of 59.2% over the comparable period. The increase was primarily attributable to a 42,100-unit increase in the number of oxygen systems sold. We sold approximately 100,100 oxygen systems during the six months ended June 30, 2018 compared to approximately 58,000 oxygen systems sold during the six months ended June 30, 2017, or an increase of 72.6%. The increase in the number of systems sold resulted primarily from an increase in direct-to-consumer sales in the United States, mainly due to an increase in sales representatives, as well as increased sales and marketing expenditures, and an increase in worldwide business-to-business sales, primarily due to traditional HME purchases and continued strong private label demand.

Rental revenue decreased $ 1.9 million for the six months ended June 30, 2018 from the six months ended June 30, 2017, or a decr ease of 15.1% from the comparable period. The decrease in rental revenue was primarily related to a decline in rental patients on service which dec reased 11.8% from the comparative period . The first six months of 2017 also included $0.2 million of addition al revenue associated with the Cures Act that did not repeat in the first six months of 2018.

	Six months ended
(amounts in thousands)	June 30,				Change 2018 vs. 2017						% of Revenue
Revenue by region and category	2018		2017		$			%			2018			2017
Business-to-business domestic sales	$	60,959	$	38,615	$	22,344			57.9	%		34.5	%		33.1	%
Business-to-business international sales		37,665		26,342		11,323			43.0	%		21.4	%		22.6	%
Direct-to-consumer domestic sales		66,947		39,047		27,900			71.5	%		38.0	%		33.5	%
Direct-to-consumer domestic rentals		10,718		12,617		(1,899	)		-15.1	%		6.1	%		10.8	%
Total revenue	$	176,289	$	116,621	$	59,668			51.2	%		100.0	%		100.0	%

Domestic sales in direct-to-consumer and business-to-business channels increased 71.5% and 57.9%, respectively, for the six months ended June 30, 2018 compared to the six months ended June 30, 2017. The increase in direct-to-consumer sales was primarily due to the hiring of additional inside sales representatives, increased marketing expenditures, our expansion of marketing strategies, and our continued focus on direct-to-consumer sales with more selective new rental patient set-ups. The increase in domestic business-to-business sales was primarily the result of increased demand from our private label partner and traditional HME providers as well as increased consumer demand for our products due to our marketing efforts as well as the marketing efforts of our business partners.

Business-to-business international sales increased 43.0% for the six months ended June 30, 2018 compared to the six months ended June 30, 2017, primarily due to increases in sales from our partners in Europe and favorable currency exchange rates. As of June 30, 2018, we sold our products in 46 countries outside of the United States, and we plan to continue to expand our presence in other countries as the opportunities present themselves. Of our international sales revenue in the six months ended June 30, 2018, 88.8% was sold in Europe versus 81.4% in the comparative period in 2017, primarily because sizable unit orders in South Korea in the first six months of 2017 did not repeat in the first six months of 2018. We also acquired our former distributor, MedSupport, in the second quarter of 2017, which also contributed to increased international revenues in the first six months of 2018.

Cost of revenue and gross profit

	Six months ended
	June 30,						Change 2018 vs. 2017						% of Revenue
(amounts in thousands)	2018			2017			$			%			2018			2017
Cost of sales revenue	$	81,916		$	49,906		$	32,010			64.1	%		46.5	%		42.8	%
Cost of rental revenue		8,176			9,404			(1,228	)		-13.1	%		4.6	%		8.1	%
Total cost of revenue	$	90,092		$	59,310		$	30,782			51.9	%		51.1	%		50.9	%

Gross profit - sales revenue	$	83,655		$	54,098		$	29,557			54.6	%		47.5	%		46.4	%
Gross profit - rental revenue		2,542			3,213			(671	)		-20.9	%		1.4	%		2.7	%
Total gross profit	$	86,197		$	57,311		$	28,886			50.4	%		48.9	%		49.1	%

Gross margin percentage - sales revenue		50.5	%		52.0	%
Gross margin percentage- rental revenue		23.7	%		25.5	%
Total gross margin percentage		48.9	%		49.1	%

We manufacture our subassemblies and/or products in our Richardson, Texas and Goleta, California facilities. We als o began production of our Inogen One G3 concentrators in the fourth quarter of 2017 using a contract manufacturer, Foxconn, located in the Czech Republic to improve our ability to service our European customers. Our manufacturing process includes final ass embly, testing, and packaging to quality and customer specifications. Cost of sales revenue increased $ 32.0 million for the six months ended June 30, 2018 from the six months ended June 30, 2017, or an increase of 64.1 %. The increase in cost of sales reven ue was primarily attributable to an increase in the number of systems sold, partially offset by reduced bill of material costs for our products associated with design changes, better sourcing and price discounts resulting from increased volumes. We expect cost of sales revenue as a percentage of sales revenue in future periods to fluctuate based on customer mix, product mix, and changes in sales prices and cost per unit.

Cost of rental revenue decreased $1.2 million for the six months ended June 30, 2018 from the six months ended June 30, 2017, or a decrease of 13.1%. The decrease in cost of rental revenue was primarily attributable to a decrease in rental asset depreciation expense. Cost of rental revenue included $4.1 million of rental asset depreciation for the six months ended June 30, 2018 and $5.2 million for the six months ended June 30, 2017.

Gross margin percentage is defined as revenue less cost of revenue divided by revenue. Sales revenue gross margin percentage decreased to 50.5% for the six months ended June 30, 2018 from 52.0% for the six months ended June 30, 2017. The decrease in sales gross margin percentage was primarily related to a reduction in domestic business-to-business average selling prices as a strategy to increase volumes in this channel, partially offset by an increase in sales mix toward higher margin domestic direct-to-consumer sales and lower cost per unit. Average business-to-business selling prices declined over the same period in the prior year, primarily due to mix related to increased volume from our private label partner and secondarily associated with pricing discounts associated with increased volumes worldwide. Total worldwide business-to-business sales revenue accounted for 59.6% of total sales revenue in the first six months of 2018 versus 62.5% in the first six months of 2017. We expect sales gross margin to fluctuate over time based on changes in the sales channel mix, product mix, average selling prices and cost per unit.

Rental revenue gross margin percentage decreased to 23.7% for the six months ended June 30, 2018 from 25.5% for the six months ended June 30, 2017, primarily due to lower net revenue per rental patient resulting from the $0.2 million Cures Act benefit that did not repeat in the first six months of 2018, reimbursement reductions, lower billable rental patients on service in the first six months of 2018, and increased logistics cost, partially offset by lower depreciation and service costs.

Research and development expense

	Six months ended
	June 30,				Change 2018 vs. 2017					% of Revenue
(amounts in thousands)	2018		2017		$		%			2018			2017
Research and development expense	$	3,191	$	2,569	$	622		24.2	%		1.8	%		2.2	%

Research and development expense increased $0.6 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017, or an increase of 24.2% over the comparable period, primarily due to an increase in personnel-related expenses.

Sales and marketing expense

	Six months ended
	June 30,				Change 2018 vs. 2017					% of Revenue
(amounts in thousands)	2018		2017		$		%			2018			2017
Sales and marketing expense	$	41,037	$	22,474	$	18,563		82.6	%		23.3	%		19.3	%

Sales and marketing expense increased $18.6 million for the six months ended June 30, 2018 from the six months ended June 30, 2017, or an increase of 82.6% over the comparable period. The increase was primarily attributable to increases of $9.7 million of sales and marketing personnel-related expenses as a result of the increased headcount (which included increases of $4.9 million in wages, benefits and payroll tax expense, $3.3 million in commissions expense, $0.9 million in bonus expense, $0.5 million in stock compensation expense, and $0.2 million in recruiting and relocation expense), $6.3 million in media spending to supply leads for the increased number of sales force headcount hired, $1.0 million in credit card processing fees, $0.8 million in clinical personnel-related expenses, and $0.7 million for dues, fees and license costs. In the six months ended June 30, 2018, we spent $11.1 million in media and advertising costs versus $4.8 million in the comparative period in 2017.

General and administrative expense

	Six months ended
	June 30,				Change 2018 vs. 2017					% of Revenue
(amounts in thousands)		2018		2017	$		%				2018		2017
General and administrative expense	$	19,248	$	18,200	$	1,048		5.8	%		10.9	%	15.6	%

General and administrative expense increased $1.0 million for the six months ended June 30, 2018 from the six months ended June 30, 2017, or an increase of 5.8% over the comparable period. The increase was primarily attributable to $3.0 million of personnel-related expenses (which included increases of $1.7 million in stock compensation expense, $0.8 million in wages, benefits and payroll tax expense, and $0.5 million in bonus expense) and $0.5 million of increased amortization expense. These increases were partially offset by a decrease of $2.0 million of patent defense costs, $0.9 million of bad debt expense and $0.4 million of net proceeds from the sale of former rental assets.

Bad debt expense, expressed as a percentage of total revenue, was 0.6% and 1.7% in the six months ended June 30, 2018 and June 30, 2017, respectively. In the six months ended June 30, 2018, we spent less than $0.1 million in patent defense costs compared to $2.0 million in the six months ended June 30, 2017.

Other income, net

	Six months ended
	June 30,					Change 2018 vs. 2017						% of Revenue
(amounts in thousands)	2018			2017		$			%			2018			2017
Interest income		1,216			247		969			392.3	%		0.7	%		0.2	%
Other income (expense)		(604	)		730		(1,334	)		-182.7	%		-0.3	%		0.6	%
Total other income, net	$	612		$	977	$	(365	)		-37.4	%		0.4	%		0.8	%

Total other income, net, decreased $0.4 million for the six months ended June 30, 2018 from the six months ended June 30, 2017. The decrease was primarily due to $1.3 million in other income (expense) related to foreign currency losses arising from increased transactions in Euros at a lower Euro exchange rate to the U.S. dollar, partially offset by an increase of $1.0 million in interest income on cash equivalents and marketable securities.

Income tax expense (benefit)

	Six months ended
	June 30,						Change 2018 vs. 2017						% of Revenue
(amounts in thousands)	2018			2017			$			%			2018			2017
Income tax expense (benefit)	$	(2,035	)	$	775		$	(2,810	)		-362.6	%		-1.2	%		0.7	%
Effective income tax rate		-8.7	%		5.2	%

Income tax expense (benefit) decreased $2.8 million for the six months ended June 30, 2018 from the six months ended June 30, 2017, primarily attributable to an increase of excess benefits recognized from stock-based compensation and the impact of changes in the federal tax rate associated with the Tax Cuts and Jobs Act (TCJA), partially offset by a 55.1% increase in earnings before income tax expense (benefit).

Our effective tax rate in the first six months of 2018 decreased compared to 2017, primarily due to the changes in the federal tax rate associated with the TCJA. In the first six months of 2018, excess tax benefits recognized from stock-based compensation decreased our income tax expense by $7.1 million and our effective tax rate by 30.4%, as compared to the tax rate without such benefits. For comparison, in the first six months of 2017, excess tax benefits recognized from stock-based compensation decreased our income tax expense by $4.7 million and our effective tax rate by 31.2%, as compared to the tax rate without such benefits.

Net income

	Six months ended
	June 30,				Change 2018 vs. 2017					% of Revenue
(amounts in thousands)	2018		2017		$		%			2018			2017
Net income	$	25,368	$	14,270	$	11,098		77.8	%		14.4	%		12.2	%

Net income increased $ 1 1 . 1 million for the six months ended June 30, 2018 from the six months ended June 30, 2017, or an increase of 7 7.8 %. The increase in net income was primarily related to the increase in revenues of 51.2 %, improved operating expense leverage, and a lower effect ive tax rate.

Contractual obligations

We obtain individual components for our products from a wide variety of individual suppliers. Consistent with industry practice, we acquire components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. Where appropriate, the purchases are applied to inventory component prepayments that are outstanding with the respective supplier. As of June 30, 2018, we had purchase obligations with outside vendors and suppliers of approximately $60.4 million of which the timing varies depending on demand, current supply on hand and other factors. The obligations normally do not extend beyond twelve-month time frames. As of June 30, 2018, we had minimum aggregate payments of $12.6 million due under operating leases, related party leases and specified non-cancelable contractual obligations related to software license and maintenance agreements.

On May 1, 2018, we entered into an amendment to the lease agreement for our Cleveland facility (the “Cleveland Lease Amendment”) to expand such facility . The Cleveland Lease Amendment has a term that will expire on September 30, 2024 . Following the Cleveland Lease Amendment, we are currently leasing approximately 54,139 square feet of office space in our Cleveland facility and pursuant to the terms of the Cleveland Lease Amendment we may expand to up to 93,634 square feet. Base rent following the Cleveland Lease Amendment will increase as we take possession of additional square footage in each office increment. The aggregate future minimum lease payments under this lease, as amended, are approximately $ 6.7 million. For additional information regarding our total obligations under our operating leases, refer to Note 8 – Commitments and contingencies in the condensed notes to our consolidated financial statements included in this report .

Except as indicated above, there have been no other material changes, outside of the ordinary course of business, in our outstanding contractual obligations from those disclosed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contained in our Annual Report on Form 10-K filed with the SEC on February 27, 2018.

Off-balance sheet arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for any other contractually narrow or limited purpose. However, from time-to-time, we enter into certain types of contracts that contingently require us to indemnify parties against third-party claims including certain real estate leases, supply purchase agreements, and directors and officers. The terms of such obligations vary by contract and in most instances a maximum dollar amount is not explicitly stated therein. Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted thus no liabilities have been recorded for these obligations on our balance sheets for any of the periods presented.

Liquidity and capital resources

As of June 30, 2018, we had cash and cash equivalents of $166.3 million, which consisted of highly-liquid investments with a maturity of three months or less. In addition, we held $42.1 million in available-for-sale certificates of deposits, corporate bonds, and U.S. Treasury securities, which had maturities greater than three months that were classified as marketable securities. Since inception, we have received net proceeds of $91.7 million from the issuance of redeemable convertible preferred stock and convertible preferred stock and $52.5 million ($49.7 million net proceeds) in connection with the sale of common stock in our initial public offering. Since 2013, we have received $33.2 million from proceeds related to stock option exercises and our employee stock purchase plan. For the six months ended June 30, 2018 and June 30, 2017, we received $7.5 million and $7.3 million, respectively, in proceeds related to these stock programs.

Our principal uses of cash for liquidity and capital resources in the six months ended June 3 0 , 201 8 consisted of net purchases of available-for-sale investments of $11.1 million and our capital expenditures of $7.0 million including additional rental equipment and other prope rty, plant and equipment . The uses of cash were partially offset by $ 0.6 million of gross pro ceeds received from the sale of former rental assets.

We believe that our current cash, cash equivalents, marketable securities, and the cash to be generated from expected product sales and rentals will be sufficient to meet our projected operating and investing requirements for at least the next twelve months. However, our liquidity assumptions may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect. Our future funding requirements will depend on many factors, including market acceptance of our products; the cost of our research and development activities; payments from customers; the cost, timing, and outcome of litigation or disputes relating to intellectual property rights, our products, employee relations, cyber security incidents, or otherwise; the cost and timing of regulatory clearances or approvals; the cost and timing of establishing additional sales, marketing, and distribution capabilities; and the effect of competing technological and market developments. In the future, we may acquire businesses or technologies from third parties, and we may decide to raise additional capital through debt or equity financing to the extent we believe this is necessary to successfully complete these acquisitions. Our future capital requirements will also depend on many additional factors, including those set forth in the section of this Quarterly Report on Form 10-Q entitled “Risk Factors.”

If we require additional funds in the future, we may not be able to obtain such funds on acceptable terms, or at all. In the future, we may also attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of indebtedness, we will be subject to increased fixed payment obligations and could also be subject to restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors. There can be no assurances that we will be able to raise additional capital, which would adversely affect our ability to achieve our business objectives. In addition, if our operating performance during the next twelve months is below our expectations, our liquidity and ability to operate our business could be adversely affected.

The following tables show a summary of our cash flows and working capital for the periods and as of the dates indicated:

	Six months ended
(amounts in thousands)	June 30,						Change 2018 vs. 2017
Summary of consolidated cash flows	2018			2017			$			%
Cash provided by operating activities	$	33,263		$	30,111		$	3,152			10.5	%
Cash used in investing activities		(17,446	)		(15,561	)		(1,885	)		12.1	%
Cash provided by financing activities		7,203			7,311			(108	)		-1.5	%
Effect of exchange rates on cash		371			(1	)		372			-37200.0	%
Net increase in cash and cash equivalents	$	23,391		$	21,860		$	1,531			7.0	%

(amounts in thousands)	June 30,		December 31,
Working capital	2018		2017
Cash and cash equivalents	$	166,344	$	142,953
Marketable securities		42,068		30,991
Accounts receivable, net		37,472		31,444
Inventories, net		27,407		18,842
Deferred cost of revenue		381		361
Income tax receivable		2,655		1,313
Prepaid expenses and other current assets		6,667		2,584
Total current assets		282,994		228,488

Accounts payable and accrued expenses		31,174		20,626
Accrued payroll		9,108		6,877
Warranty reserve-current		3,223		2,505
Deferred revenue-current		3,383		3,533
Income tax payable		344		345
Total current liabilities		47,232		33,886

Net working capital	$	235,762	$	194,602

Operating activities

We derive operating cash flows from cash collected from the sales and rental of our products and services. These cash flows received are partially offset by our use of cash for operating expenses to support the growth of our business. Net income in each period has increased associated with increased revenue, improving product mix and lower cost of revenue.

Net cash provided by operating activities for the six months ended June 30, 2018 consisted primarily of our net income of $25.4 million and non-cash expense items such as provision for sales returns and doubtful accounts of $9.9 million, stock-based compensation expense of $6.6 million, depreciation of equipment and leasehold improvements and amortization of our intangibles of $5.8 million, provision for rental revenue adjustments of $1.4 million, and loss on disposal of rental equipment and other fixed assets of $0.5 million. These were partially offset by an increase in deferred tax assets of $2.1 million and gain on former rental assets of $0.4 million. The net changes in operating assets and liabilities resulted in a net use of cash of $14.1 million.

Net cash provided by operating activities for the six months ended June 30, 2017 consisted primarily of our net income of $14.3 million and non-cash expense items such as provision for sales returns and doubtful accounts of $6.7 million, depreciation and amortization of our equipment and leasehold improvements of $6.3 million, stock-based compensation expense of $4.1 million, provision for rental revenue adjustments of $2.9 million, deferred tax assets of $0.7 million and loss on disposal of rental equipment and other fixed assets of $0.6 million. The net changes in operating assets and liabilities resulted in a net decrease in cash of $5.5 million, of which $15.7 million was due to a net increase in accounts receivable, inventories, income tax receivable, and other current assets, as well as a net decrease of $1.6 million of accrued payroll. These were partially offset by net increases of $8.5 million of accounts payable and accrued expenses, $2.2 million of deferred revenue, and $1.2 million of warranty reserve.

Investing activities

Net cash used in investing activities for each of the periods presented included cash used in the production and purchase of rental assets, manufacturing tooling, and computer equipment and software to support our expanding business as well as net (purchases) maturities of available-for-sale investments.

For the six months ended June 30, 2018, we had $39.3 million of purchases that we invested in certificates of deposits, corporate bonds, agency mortgage-backed securities, and U.S. Treasury securities with maturities greater than three months that were classified as marketable securities, partially offset by $28.2 million in maturities of available-for-sale investments. In addition, we invested $7.0 million in the production and purchase of rental assets and other property, equipment, and leasehold improvements, partially offset from gross proceeds received from the sale of former rental assets of $0.6 million.

For the six months ended June 30, 2017, we had $22.7 million of purchases that we invested in certificates of deposits, corporate bonds, and agency mortgage-backed securities with maturities greater than three months that were classified as marketable securities, partially offset by $14.3 million in maturities of available-for-sale investments. In addition, we acquired MedSupport for a net cash payment of $4.4 million and invested $2.8 million in rental assets and other property, equipment, and leasehold improvements, partially offset from gross proceeds received from the sale of former rental assets of $0.1 million.

We expect to continue investing in property, equipment and leasehold improvements as we expand our operations. Our business is inherently capital intensive. For example, we expend significant manufacturing and production expense in connection with the development and production of our oxygen concentrator products and, in connection with our rental business, we incur expense in the deployment of rental products to our patients. Investments will continue to be required in order to grow our sales revenue and continue to supply and replace rental equipment to our rental patients on service.

Financing activities

Historically, we have funded our operations through our sales and rental revenue, the issuance of preferred and common stock, and the incurrence of indebtedness.

For the six months ended June 30, 2018, net cash provided by financing activities consisted of $7.5 million from the proceeds received from stock options that were exercised and purchases under our employee stock purchase program, partially offset by the payment of employment taxes related to the vesting of restricted stock awards and restricted stock units of $0.3 million.

For the six months ended June 30, 2017, net cash provided by financing activities consisted of $7.3 million from the proceeds received from stock options that were exercised and purchases under our employee stock purchase program.

Working c apital

Working capital at any specific point in time is subject to many variables including seasonality, inventory management, and the timing of cash receipts and payments.

Current assets increased $54.5 million during the six months ended June 30, 2018 from December 31, 2017, primarily due to an increase in cash, cash equivalents and marketable securities of $34.5 million driven by strong cash flows from operations as well as increases of $8.6 million in net inventories, $6.0 million in net accounts receivable, $4.1 million in prepaid expenses and other current assets, and $1.3 million in income tax receivable.

Gross accounts receivable increased $6.7 million during the six months ended June 30, 2018 from December 31, 2017, primarily due to an increase in gross business-to-business accounts receivable and other receivables balance of $7.5 million primarily as a result of higher sales in the second quarter of 2018 versus the fourth quarter of 2017 where total sales revenues were $92.0 million and $58.4 million, respectively, partially offset by a decrease in gross rental accounts receivable balance of $0.8 million. Allowances on accounts receivable increased $0.7 million during the six months ended June 30, 2018 from December 31, 2017, primarily due to an increase in the allowance for sales returns of $0.6 million from the comparative consolidated balance sheet date as a result of higher sales in the second quarter of 2018 versus the fourth quarter of 2017.

Allowances on accounts receivable vary based on credit quality, age, and accounts receivable source. Rental revenue has higher allowances on accounts receivable versus sales revenue due to the nature of the collectability of these balances.

Current liabilities increased by $13.3 million during the six months ended June 30, 2018 from December 31, 2017, primarily due to an increase in accounts payable and accrued expenses of $10.5 million, mainly caused by the timing of payments for inventory as well as increases in accrued payroll of $2.2 million and warranty reserve of $0.7 million. These were partially offset by a decrease in deferred revenue of $0.2 million.

Sources of funds

Our cash provided by operating activities in the six months ended June 30, 2018 was $33.3 million compared to $30.1 million in the six months ended June 30, 2017. As of June 30, 2018, we had cash and cash equivalents of $166.3 million.

Use of funds

Our principal uses of cash are funding our new rental asset deployments and other capital purchases, operations, and other working capital requirements. Over the past several years, our revenue has increased significantly from year-to-year and, as a result, our cash flows from customer collections have increased as have our profits. As a result, our cash provided by operating activities has increased over time and now is a significant source of capital to the business, which we expect to continue in the future.

We may need to raise additional funds to support our investing operations, and such funding may not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected. We may seek to raise additional funds through equity, equity-linked or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness would have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations. Any additional equity financing may be dilutive to our stockholders.

Non-GAAP financial measures

EBITDA, Adjusted EBITDA, and Non-GAAP net income are financial measures that are not calculated in accordance with U.S. GAAP. We define EBITDA as net income excluding interest income, interest expense, taxes and depreciation and amortization. Adjusted EBITDA also excludes stock-based compensation. Non-GAAP net income, which we previously referred to as “Adjusted Net Income,” excludes certain tax benefit adjustments. Below, we have provided a reconciliation of EBITDA, Adjusted EBITDA and Non-GAAP net income to our net income, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP. EBITDA, Adjusted EBITDA and Non-GAAP net income should not be considered alternatives to net income or any other measure of financial performance calculated and presented in accordance with U.S. GAAP. Our EBITDA, Adjusted EBITDA and non-GAAP net income may not be comparable to similarly titled measures of other organizations because other organizations may not calculate EBITDA, Adjusted EBITDA and Non-GAAP net income in the same manner as we calculate these measures.

We include EBITDA, Adjusted EBITDA and N on-GAAP net income in this Quarterly Report on Form 10- Q because they are important measures upon which our management assesses our operating performance. We use EBITDA, Adjusted EBITDA and non-GAAP net income as key performance measures because we believe they facilitate operating performance comparisons from period-to-period by excluding potential differences primarily caused by variations in capital structures, tax positions, the impact of depreciation and amortization expense on our fixed assets and the impact of stock-based compensation expense. Because EBI TDA, Adjusted EBITDA and N on-GAAP net income facilitate internal comparisons of our historical operating performance on a more consistent basis, we also use EBITDA, Adjusted EBITDA and N on-GAAP net income for business planning purposes, to incentivize and compensate our management personnel, and in evaluating acquisition opportunities. In addition, we believe EBITDA, Adjusted EBITDA and N on-GAAP net income and similar measures are widely used by investors, securities analysts, ratings agencies, and other pa rties in evaluating companies in our industry as a measure of financial performance and debt-service capabilities.

Our uses of EBITDA, Adjusted EBITDA and Non-GAAP net income have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

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EBITDA and Adjusted EBITDA do not reflect our cash expenditures for capital equipment or other contractual commitments;

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although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect capital expenditure requirements for such replacements;

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EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

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EBITDA and Adjusted EBITDA do not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness;

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Non-GAAP net income does not reflect the tax benefits adjustments recorded based on U.S. GAAP; and

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other companies, including companies in our industry, may calculate EBITDA, Adjusted EBITDA and Non-GAAP net income measures differently, which reduces their usefulness as a comparative measure.

In evaluating EBITDA, Adjusted EBITDA and Non-GAAP net income, you should be aware that in the future we will incur expenses within these categories similar to this presentation. Our presentation of EBITDA, Adjusted EBITDA and Non-GAAP net income should not be construed as an inference that our future results will be unaffected by certain expenses. When evaluating our performance, you should consider EBITDA, Adjusted EBITDA and Non-GAAP net income alongside other financial performance measures, including U.S. GAAP results.

The following table presents a reconciliation of EBITDA, Adjusted EBITDA and Non-GAAP net income to our net income, the most comparable U.S. GAAP measure, for each of the periods indicated:

(amounts in thousands)	Three months ended June 30,						Six months ended June 30,
Non-GAAP EBITDA and Adjusted EBITDA	2018			2017			2018			2017
Net income	$	14,610		$	8,338		$	25,368		$	14,270
Non-GAAP adjustments:
Interest income		(673	)		(146	)		(1,216	)		(247	)
Provision for income taxes		(964	)		828			(2,035	)		775
Depreciation and amortization		2,816			3,117			5,809			6,321
EBITDA (non-GAAP)		15,789			12,137			27,926			21,119
Stock-based compensation		3,186			2,216			6,567			4,107
Adjusted EBITDA (non-GAAP)	$	18,975		$	14,353		$	34,493		$	25,226

(amounts in thousands)	Three months ended June 30,				Six months ended June 30,
Non-GAAP net income	2018		2017		2018		2017
Net income	$	14,610	$	8,338	$	25,368	$	14,270
Non-GAAP adjustments:
2017 U.S. tax reform ⁽¹⁾		—		—		—		—
Non-GAAP net income	$	14,610	$	8,338	$	25,368	$	14,270

(1)

On December 22, 2017, the TCJA was enacted into law, which significantly changes existing U.S. tax law and includes numerous provisions that affect the Company. During the fourth quarter of 2017, the Company recorded an estimated one-time net charge due to the impact of changes in the tax rate, primarily on deferred tax assets. There were no related charges during the three months and six months ended June 30, 2018.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks, including fluctuation in interest rates, foreign currency, and exchange rates. Market risk is the potential loss arising from adverse changes in market rates and prices. We do not hold or issue financial instruments for trading purposes.

Interest rate fluctuation risk

The principal market risk we face is interest rate risk. We had cash and cash equivalents of $166.3 million as of June 30, 2018, which consisted of highly-liquid investments with a maturity of three months or less, and $42.1 million of marketable securities with maturity dates of greater than three months and less than twelve months. The primary goals of our investment policy are liquidity and capital preservation. We do not enter into investments for trading or speculative purposes. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short-term nature of our cash and cash equivalents. Declines in interest rates, however, would reduce future investment income. We considered the historical volatility of short-term interest rates and determined that it was reasonably possible that an adverse change of 100 basis points could be experienced in the near term. A hypothetical 1.00% (100 basis points) increase in interest rates would not have materially impacted the fair value of our marketable securities as of June 30, 2018 and December 31, 2017. If overall interest rates had decreased by 1.00% (100 basis points), our interest income would not have been materially affected for the three months or six months ended June 30, 2018 or June 30, 2017.

Foreign currency exchange risk

The majority of our revenue is denominated in U.S. dollars while the majority of our European sales are denominated in Euros. In addition, we acquired MedSupport with net assets denominated in Euros in the second quarter of 2017. Our results of operations, certain balance sheet balances and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. 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 in which they are recorded. The effect of a 10% adverse change in exchange rates on foreign denominated cash, receivables and payables as of June 30, 2018 would not have had a material effect on our financial position, results of operations or cash flows. As our operations in countries outside of the United States grow, our results of operations and cash flows will be subject to fluctuations due to changes in foreign currency exchange rates, which could harm our business in the future.

We began entering into foreign exchange forward contracts to protect our forecasted U.S. dollar-equivalent earnings from adverse changes in foreign currency exchange rates in December 2015. These hedging contracts reduce, but will not entirely eliminate, the impact of adverse currency exchange rate movements on revenue. We performed a sensitivity analysis assuming a hypothetical 10% adverse movement in foreign exchange rates to the hedging contracts and the underlying exposures described above. As of June 30, 2018, the analysis indicated that these hypothetical market movements would not have a material effect on our financial position, results of operations or cash flows. We estimate prior to any hedging activity that a 10% adverse change in exchange rates on our foreign denominated sales would have resulted in a $2.8 million decline in revenue for the first six months of 2018. We designate these forward contracts as cash flow hedges for accounting purposes. The fair value of the forward contract is separated into intrinsic and time values. The fair value of forward currency-exchange contracts is sensitive to changes in currency exchange rates. Changes in the time value are coded in other income (expense), net. Changes in the intrinsic value are recorded as a component of accumulated other comprehensive income and subsequently reclassified into revenue to offset the hedged exposures as they occur.

Inflation risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we might not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

I tem 4. Controls and Procedures

Evaluation of disclosure controls and procedures

The Company maintains a system of disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are designed to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported accurately and completely within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, among other processes, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Due to inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions over time, or that the degree of compliance with the policies and procedures may deteriorate. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2018. Based upon the evaluation described above, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2018, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in internal control over financial reporting

There has been no change in our internal control over financial reporting during the three months ended June 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on effectiveness of controls

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.

P art II. OTHER INFORMATION

Item 1. Legal Proceedings

In the normal course of business, we are from time to time involved in various legal proceedings or potential legal proceedings, including matters involving employment, product liability and intellectual property. We carry insurance, subject to specified deductibles under our policies, to protect against losses from certain liabilities and costs. At this time, we do not anticipate that any of these proceedings will have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

Item 1A. Risk Factors

We operate in a rapidly changing environment that involves numerous uncertainties and risks. In addition to the other information included in this Quarterly Report on Form 10-Q, the following risks and uncertainties may have a material and adverse effect on our business, financial condition, results of operations, or stock price. You should consider these risks and uncertainties carefully, together with all of the other information included or incorporated by reference in this Quarterly Report on Form 10-Q. The risks and uncertainties described below may not be the only ones we face. If any of the risks or uncertainties we face were to occur, the trading price of our securities could decline, and you may lose all or part of your investment. This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report.

Risks related to our business and strategy

We face intense international, national, regional and local competition and if we are unable to compete successfully, it could have an adverse effect on our revenue, revenue growth rate, if any, and market share.

The oxygen therapy market is a highly competitive industry. We compete with a number of manufacturers and distributors of portable oxygen concentrators, as well as providers of other oxygen therapy solutions such as home delivery of oxygen tanks or cylinders, stationary concentrators, transfilling concentrators, and liquid oxygen.

Our significant manufacturing competitors are Respironics (a subsidiary of Koninklijke Philips N.V.), Invacare Corporation, AirSep Corporation and SeQual Technologies (subsidiaries of Chart Industries, Inc.), DeVilbiss Healthcare (a subsidiary of Drive Medical), O2 Concepts, Precision Medical and Gas Control Equipment. Given the relatively straightforward regulatory path in the oxygen therapy device manufacturing market, we expect that the industry will become increasingly competitive in the future. For example, two major competitors (Respironics and Chart Industries) have both implemented direct-to-consumer sales models which may increase their competitiveness and sales to patients, however these strategies are limited to direct-to-consumer sales and do not include direct-to-consumer rentals where they would be responsible to meet national accreditation and state-by-state licensing requirements and secure Medicare billing privileges. Manufacturing companies compete for sales to providers primarily on the basis of product features, quality, service and price.

For many years, Lincare , Inc. (a subsidiary of the Linde Group), Apria Healthcare, Inc., QMES, LLC, and Rotech Healthcare, Inc. have been among the market leaders in providing oxygen therapy, while the remaining oxygen therapy market is serviced by local providers. Because many oxygen therapy providers were either excluded from contracts in the Medicare competitive bidding process or will have difficulty providing service at the prevailing Medicare reimbursement rates, we expect more industry consolidation. Oxygen therapy providers compete primarily on the basis of product features and service, rather than price, since reimbursement levels are established by Medicare and Medicaid, or by the individual determinations of private payors.

Some of our competitors are large, well-capitalized companies with greater resources than we have. As a consequence, they are able to spend more aggressively on product development, marketing, sales and other product initiatives than we can. Some of these competitors have:

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significantly greater name recognition;

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established relationships with healthcare professionals, customers and third-party payors;

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established distribution networks;

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additional lines of products, and the ability to offer rebates or bundle products to offer higher discounts, longer warranties, financing or extended terms, other incentives to gain a competitive advantage;

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greater history in conducting research and development, manufacturing, marketing and obtaining regulatory approval for oxygen device products; and

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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. 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. We anticipate that we will face increased competition in the future as existing companies and competitors develop new or improved products and distribution strategies and as new companies enter the market with new technologies and distribution strategies. We may not be able to compete effectively against these organizations. Our ability to compete successfully and to increase our market share is dependent upon our reputation for providing responsive, professional and high-quality products and services and achieving strong customer satisfaction. Increased competition in the future could adversely affect our revenue, revenue growth rate, margins and market share.

If we are unable to continue to enhance our existing products and develop and market new 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 and develop new innovative products. Product development requires significant financial, technological and other resources. While we expended $1.8 million and $1.3 million for the three months ended June 30, 2018 and June 30, 2017, respectively, and $3.2 million and $2.6 million for the six months ended June 30, 2018 and June 30, 2017, respectively, for 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. 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. Our competitors’ new products may enter the market before our new products reach market, be more effective with more features, obtain better market acceptance, or render our products obsolete. Any new products that we develop may not receive market acceptance or otherwise generate any meaningful sales or profits for us relative to our expectations based on, among other things, existing and anticipated investments in manufacturing capacity and commitments to fund advertising, marketing, promotional programs and research and development.

We depend on a limited number of customers for a significant portion of our sales revenue and the loss of, or a significant shortfall in demand from, these customers could have a material adverse effect on our financial condition and operating results.

We r eceive a significant amount of our sales revenue from a limited number of customers, including distributors, HME oxygen providers, our private label partner and resellers. For the three months ended June 30, 2018 and June 30, 2017, sales revenue to our top 10 customers accounted for approximately 40.4% and 37.7%, respectively, of our total revenue. For the three months ended June 30, 2018 and June 30, 2017, we have one customer who was over 10% of our total revenue. For the six months ended June 30, 2018 and June 30, 2017, sales revenue to our top 10 customers accounted for approximately 40.4% and 38.7%, respectively, of our total revenue. For the six months ended June 30, 2018 and June 30, 2017, we have one customer who was over 10% of our total revenue. We expect that sales to relatively few customers will continue to account for a significant percentage of our total revenue in future periods. However, we can provide no assurance that any of these customers or any of our other customers will continue to utilize our products at current levels, pricing, or at all, and our revenue could fluctuate significantly due to changes in economic conditions, the use of competitive products, or the loss of, reduction of business with, or less favorable terms with any of our largest customers. Our future success will significantly depend upon the timing and volume of business from our largest customers and the financial and operational success of these customers. If we were to lose one of our key customers or have a key customer significantly reduce its volume of business with us, our revenue may be materially reduced and there would be an adverse effect on our business, financial conditions and results of operations.

We obtain some o f the components, subassemblies and completed products included in our Inogen One systems and our Inogen At Home from a single source or a limited group of manufacturers or suppliers, and the partial or complete loss of one of these manufacturers or suppli ers could cause significant production delays, an inability to meet customer demand and a substantial loss in revenue.

We utilize single-source suppliers for some of the components and subassemblies we use in our Inogen One systems and our Inogen At Home systems. For example, we have elected to source certain key components from single sources of supply, including our batteries, motors, valves, and some molded plastic components. Our dependence on single-source suppliers of components may expose us to several risks, including, among other things:

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our suppliers may encounter financial hardships as a result of unfavorable economic and market conditions unrelated to our demand for components, which could inhibit their ability to fulfill our orders and meet our requirements;

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suppliers may fail to comply with regulatory requirements, be subject to lengthy compliance, validation or qualification periods, or make errors in manufacturing components that could negatively affect the performance or safety of our products or cause delays in supplying of our products to our customers;

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newly identified suppliers may not qualify under the stringent quality regulatory standards to which our business is subject;

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we or our suppliers may not be able to respond to unanticipated changes in customer orders, and if orders do not match forecasts, we or our suppliers may have excess or inadequate inventory of materials and components;

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we may be subject to price fluctuations due to a lack of long-term supply arrangements for key components;

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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;

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we or our suppliers may lose access to critical services and components, resulting in an interruption in the manufacture, assembly and shipment of our systems;

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our suppliers may be subject to allegations by other parties of misappropriation of proprietary information in connection with their supply of products to us, which could inhibit their ability to fulfill our orders and meet our requirements;

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fluctuations in demand for products that our suppliers manufacture for others may affect their ability or willingness to deliver components to us in a timely manner;

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our suppliers may wish to discontinue supplying components or services to us; and

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we may not be able to find new or alternative components or reconfigure our system and manufacturing processes in a timely manner if the necessary components become unavailable.

We have in the past experienced supply problems with some of our suppliers and may again experience problems in the future. For example, we have previously had issues with our suppliers sourcing certain components of our Inogen One products. If we had not been able to obtain sufficient quantities of the required component, we would have been required to delay manufacturing until additional supplies became available, or we would have been required to validate an alternative component. We may not be able to quickly establish additional or replacement suppliers, particularly for our single source components or subassemblies. 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.

In addition, we may be deemed to manufacture or contract to manufacture products that contain certain minerals that have been designated as “conflict minerals” under the Dodd-Frank Wall Street Reform and Consumer Protection Act. As a result, we may be required to perform due diligence to determine the origin of such minerals and disclose and report whether or not such minerals originated in the Democratic Republic of the Congo or adjoining countries. The implementation of these new requirements could adversely affect the sourcing, availability, and pricing of minerals used in the manufacture of our products. In addition, we may incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products. If any of these risks materialize, costs could significantly increase and our ability to meet demand for our products could be impacted. If we are unable to satisfy commercial demand for our Inogen One systems and Inogen At Home systems in a timely manner, our ability to generate revenue would be impaired, market acceptance of our products could be adversely affected, and customers may instead purchase or use alternative products. In addition, we could be forced to secure new or alternative components and subassemblies through a replacement supplier. Finding alternative sources for these components and subassemblies could be difficult in certain cases and may entail a significant amount of time and disruption. In some cases, we would need to change the components or subassemblies if we sourced them from an alternative supplier. This, in turn, could require a

redesign of our Inogen One systems and Inogen At Home systems and, potentially, require additional Food and Drug Administration (FDA) clearance or approval before we could use any red esigned product with new components or subassemblies, thereby causing further costs and delays that could adversely affect our business, financial condition and operating results.

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.

As a provider of oxygen product rentals, we depend heavily on Medicare reimbursement as a result of the higher proportion of elderly persons suffering from chronic respiratory conditions. 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 more than 60% of oxygen therapy patients in the United States have primary coverage under Medicare Part B. For the three months ended June 30, 2018 and June 30, 2017, we derived 4.1% and 7.1%, respectively, and for the six months ended June 30, 2018 and June 30, 2017, we derived 4.6% and 8.0%, respectively, of our total revenue from Medicare’s program or beneficiaries (including patient co-insurance obligations). 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, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, and the 21 ^st Century Cures Act (Cures Act) contain provisions that directly impact reimbursement for the durable medical equipment products provided by us:

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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 home medical equipment items through 2008, established a competitive bidding program for home medical equipment and implemented quality standards and accreditation requirements for durable medical equipment suppliers.

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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). The Deficit Reduction Act of 2005 also provided that title of the equipment would transfer to the beneficiary, which was later repealed by the Medicare Improvements for Patients and Providers Act of 2008. For purposes of the rental cap, the Deficit Reduction Act of 2005 provided for a new 36-month rental period that began January 1, 2006 for all oxygen equipment. After the 36th continuous month during which payment is made for the oxygen equipment, the supplier is generally required to continue to furnish the equipment during the period of medical need for the remainder of the useful lifetime of the equipment, provided there are no breaks in service due to medical necessity that exceed 60 days. The reasonable useful lifetime for our portable oxygen equipment is 60 months. After 60 months, if the patient requests, and the patient meets Medicare coverage criteria, the rental cycle starts over and a new 36-month rental period begins. There are no limits on the number of 60-month cycles over which a Medicare patient may receive benefits and an oxygen therapy provider may receive reimbursement, so long as such equipment continues to be medically necessary for the patient. 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. Our capped patients as a percentage of total patients on service was approximately 17.7% as of June 30, 2018, which is slightly higher than the capped patients as a percentage of total patients on service of approximately 17.0% as of December 31, 2017. 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. We cannot predict the potential impact to rental revenues in future periods associated with patients in the capped rental period.

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The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, includes, among other things, new face-to-face physician encounter requirements for certain durable medical equipment and home health services, and a requirement that by 2016, the competitive bidding process must be nationalized or prices in non-competitive bidding areas must be adjusted to match competitive bidding prices. As of January 1, 2017, CMS has decreased prices for durable medical equipment in non-competitive bidding areas to match competitive bidding prices.

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The Cures Act was passed in December 2016 and included a provision to roll-back the second cut to the non-CBA areas that was effective July 1, 2016 through December 31, 2016. Reimbursement in these areas was increased to the rates experienced in the period f rom January 1, 2016 through June 30, 2016. This led to a benefit in rental revenue of $2.0 million in the fourth quarter of 2016 and $0.2 million in the first quarter of 2017. Effective January 1, 2017, rates are set at 100% of the adjusted fee schedule amount, based on the regional competitive bidding rates. The Cures Act also call ed for a study of the impact of the competitive bidding pricing on rural areas.

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

The Health and Human Services (HHS) Office of Inspector General (OIG) has recommended states to review Medicaid reimbursement for durable medical equipment (DME) and supplies. The OIG cites an earlier report estimating that four states (California, Minnesota, New York, and Ohio) could have saved more than $18.1 million on selected DME items if their Medicaid prices were comparable to those under round one of the Medicare competitive bidding program. Since issuing those reports, the OIG identified $12 million in additional savings that the four states could have obtained on the selected items by using pricing similar to the Medicare round two competitive bidding and national mail-order programs. In light of varying Medicaid provider rates for DME and the potential for lower spending, the OIG recommends that CMS (1) seek legislative authority to limit state Medicaid DME reimbursement rates to Medicare program rates, and (2) encourage further reduction of Medicaid reimbursement rates through competitive bidding or manufacturer rebates (the OIG did not determine the cost of implementing a rebate or competitive bidding program in each state). This was effective beginning January 1, 2018.

On January 28, 2016, the Department of Health and Human Services (DHHS) published a final rule to implement Medicare’s face-to-face provisions for home health and DME under the Medicaid program, effective July 1, 2016. Medicaid programs are run by state agencies that must coordinate with state legislative bodies, therefore the state agencies have until July 1, 2017 or July 1, 2018 (depending on the timing of their legislative sessions) to allow state agencies to publish compliant initiatives on this rule. All states except Montana, Nevada, North Dakota, and Texas were expected to initiate this requirement effective July 1, 2017. Montana, Nevada, North Dakota, and Texas are expected to implement the requirements by July 1, 2018. The Medicaid definition of medical supplies, equipment and appliances were aligned with the Medicare definitions. In addition, the DHHS is implementing the requirement for a face-to-face visit related to the beneficiary’s primary need for medical equipment within 6 months prior to the start of certain durable medical equipment services, including oxygen. These legislative provisions, when enacted, could have an adverse impact on our business, financial conditions and operating results.

Due to budgetary shortfalls, many states are considering, or have enacted, cuts to their Medicaid programs. These cuts have included, or may include, elimination or reduction of coverage for our products, amounts eligible for payment under co-insurance arrangements, or payment rates for covered items. 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, the U.S. Department of Health and Human Services 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. DHHS 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 under Medicare could negatively affect our business and financial condition.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 requires the Secretary of Health and Human Services to establish and implement programs under which competitive acquisition areas are established throughout the United States for purposes of awarding contracts for the furnishing of competitively priced items of durable medical equipment, including oxygen equipment.

indexed against all bidding suppliers. Medicare determines a “clearing price” out of these weighted-a verage prices, at which a sufficient number of suppliers have indicated they will support patients in the category. This threshold is typically designed to generate theoretical supply that is twice the expected demand. Bids for each modality among the supp liers that made the cut are then arrayed to determine what Medicare will reimburse for each product category and geographic area. The program has strict anti-collusion guidelines to ensure bidding is truly competitive. A competitive bidding contract lasts up to three years, once implemented, after which the contract can be subject to a new round of bidding. Discounts off the standard Medicare allowable occur in CBAs where contracts have been awarded as well as in cases where private payors pay less than thi s allowable. Competitive bidding rates are based on the zip code where the patient resides. Rental revenue includes payments for product, disposables, and customer service/support.

As of January 1, 2016, all areas previously not subject to the competitive bidding program (non-competitive bidding areas or “non-CBAs”) have experienced reductions in the Medicare fee schedule for DMEPOS. The fee schedules in the non-CBAs were adjusted based on regional averages of the single payment amounts that apply to the competitive bidding program (Adjusted Fee Schedule). The regional prices are limited by a national ceiling (110% of the average of the regional prices) and a national floor (90% of the average regional prices). From January 1, 2016 to June 30, 2016, the reimbursement rates for these non-CBAs (with dates of service from January 1, 2016 to June 30, 2016) were 50% of the un-adjusted fee schedule amount plus 50% of the Adjusted Fee Schedule amount. As of July 1, 2016, Medicare reimbursed DMEPOS at 100% of the Adjusted Fee Schedule amount. However, in December 2016, the Cures Act was passed, which included a provision to roll-back the second cut to the non-CBA areas that was effective July 1, 2016 through December 31, 2016. Pricing in these areas was increased to the rates experienced in the period from January 1, 2016 through June 30, 2016. This led to a benefit in rental revenue of $2.0 million in the fourth quarter of 2016 and $0.2 million in the first quarter of 2017. Effective January 1, 2017, rates are set at 100% of the adjusted fee schedule amount, based on the regional competitive bidding rates. The Cures Act also called for a study of the impact of the competitive bidding pricing on rural areas and accelerated the implementation of the Omnibus bill passed in December 2015 that requires state Medicaid agencies to match Medicare fee schedule reimbursement rates (including single payment amounts in applicable areas), effective as of January 1, 2018, including for oxygen.

The competitive bidding regions are defined as follows:

Region Name		States Covered
Far West		CA, NV, OR, WA
Great Lakes		IL, IN, MI, OH, WI
Mideast		DC, DE, MD, NJ, NY, PA
New England		CT, MA, NH, RI
Plains		IA, KS, MN, MO, NE
Rocky Mountain		CO, ID, UT
Southeast		AL, AR, FL, GA, KY, LA, NC, SC, TN, VA
Southwest		AZ, NM, OK, TX

With regard to round two re-compete, which began on July 1, 2016, CMS updated the product categories and the competitive bidding areas. Respiratory equipment includes oxygen, oxygen equipment, continuous positive airway pressure devices, respiratory assist devices and related supplies and accessories. Nebulizers are now a separate product category from respiratory equipment. Round two re-compete is in the same geographic areas that were included in the original round two. However, as a result of the Office of Management and Budget’s updates to the original 91 round two metropolitan statistical areas, there are now 90 metropolitan statistical areas for round two re-compete and 117 CBAs. Any CBA that was previously located in multi-state metropolitan statistical areas was redefined so that no CBA is included in more than one state. The round two re-compete CBAs have nearly the same zip codes as the round two CBAs; the associated changes in the zip codes since competitive bidding was implemented are reflective in this round two re-compete.

In round one 2017, there were 9 metropolitan statistical areas and 13 CBAs to make sure each CBA does not cross state boundaries. We estimate approximately 9% of the Medicare market was impacted by these contracts which began on Jan uary 1, 2017 and continue through December 31, 2018.

To the extent that we are not successful in future competitive bidding rounds, we may lose access to patients in CBAs in which we are not awarded contracts, which would adversely affect our business, financial condition and results of operation. Moreover, any items and services provided by the Company to Medicare patients that reside in non-CBAs will be affected by the reimbursement reductions aimed at bringing national reimbursement in line with the competitive bidding program single payment amounts.

On April 16, 2015, the Medicare Access and CHIP Reauthorization Act of 2015 was signed into law which requires Medicare suppliers that bid under the DMEPOS competitive bidding program to obtain a $0.05 million to $0.1 million bid surety bond for each CBA. The provision is intended to prevent suppliers from submitting not-binding, “low-ball” bids that artificially drive down prices and jeopardize beneficiary access to equipment. If the supplier bids at or lower than the median composite bid rate and does not accept a contract offered for a CBA, the bid bond would be forfeited. The Act also codifies that competitive bidding contracts can only be awarded to suppliers that meet applicable state licensure requirements. We will incur additional expense to obtain the appropriate surety bonds in the CBAs where we win contracts in future competitive bidding rounds. As of January 1, 2017, there are 13 CBAs under contract in round one 2017 and 117 CBAs under contract in round two re-compete. CBAs are defined by Medicare and are subject to change at each new bidding period.

On November 2, 2017, a bi-partisan bill was introduced in the House of Representatives that would provide relief from competitive bidding in non-bid areas. As of June 30, 2018, there were 154 co-sponsors on this bill. If passed, the bill would extend a retroactive delay of a second round of reimbursement cuts for Medicare beneficiaries from January 1, 2017 to January 1, 2019 based on the reimbursement rates effective on January 1, 2016. The legislation also proposes to remedy a double-dip cut to oxygen payments caused by the misapplication of a 2006 budget neutrality offset balancing increased utilization for oxygen generating portable equipment with lower reimbursement for stationary equipment.

On May 9, 2018, CMS released an Interim Final Rule to resume the 50/50 blended rate schedule for the period of June 1, 2018 through December 31, 2018 in rural and non-contiguous areas not subject to the competitive bidding program. We estimate that this will increase rental revenue by approximately $0.5 million in 2018.

On July 11, 2018, CMS released a new proposal to change the payment rules for Durable Medical Equipment Prosthetics, Orthotics, and Supplies (DMEPOS), including our portable oxygen concentrators. This includes a proposal that when the current competitive bidding contracts expire December 31, 2018, beneficiaries can obtain DMEPOS items from any enrolled Medicare supplier. In addition if this proposal is approved, the next competitive bidding round, which is expected to be delayed 18 to 24 months, will include multiple provisions to improve the program including: implementing lead item pricing, revising the definition of composite bid to mean the bid submitted by the supplier for the lead item in the product category, establishing a new method for single payment amounts based on maximum winning bids instead of median bids, and establishing new separate payment classes for portable gaseous, portable liquid, and high flow portable liquid categories. In addition, CMS proposes to establish a new methodology for ensuring that all new classes for oxygen and equipment are budget neutral. Lastly, this proposal includes three different fee schedule adjustment methodologies depending on the area in which items and services are furnished: (1) one fee schedule adjustment methodology for DMEPOS items and services furnished on/after January 1, 2019 in areas currently in CBAs, in the event of a gap in competitive bidding; (2) another fee schedule adjustment methodology for items and services furnished from January 1, 2019 through December 31, 2020, in areas that are currently not CBAs, are not rural areas, and are located in the contiguous United States; and (3) another fee schedule adjustment methodology for items and services furnished from January 1, 2019 through December 31, 2020, in areas that are currently not CBAs and are either rural areas or non-contiguous areas. Comments on this proposed rule will be allowed through September 10, 2018.

Although we continue to monitor developments regarding the implementation of the competitive bidding program, we cannot predict the outcome of the competitive bidding program on our business when fully implemented, nor the Medicare payment rates that will be in effect in future years for the items subject to competitive bidding, in cluding our products. We expect that the stationary oxygen and non-delivery ambulatory oxygen payment rates will continue to fluctuate, and a large negative payment adjustment would adversely affect our business, financial conditions and results of operati ons.

The Medicare Fee-For-Service (FFS) sequestration reduction has and may continue to negatively impact our revenue and profits.

Medicare FFS claims with dates of service on or after April 1, 2013 are subject to a 2% reduction in Medicare payment, including claims for DMEPOS, including in competitive bidding areas. The claims payment adjustment is applied to all claims after determining co-insurance, any applicable deductible, and any applicable Medicare secondary payment adjustments. These reductions are included in rental revenue adjustments. This sequestration reduction will continue until further notice. As a result, this could adversely affect our financial conditions and results of operations.

Healthcare reform measures may have a material adverse effect on our business and results of operations.

In the United States, the legislative landscape, particularly as it relates to healthcare regulation and reimbursement coverage, continues to evolve. In March 2010, the Patient Protection and Affordable Care Act was passed, which has the potential to substantially change healthcare financing by both governmental and private insurers, and significantly impact the U.S. medical device industry. In addition, as discussed above, the Patient Protection and Affordable Care Act also expands round two of the competitive bidding program to a total of 117 CBAs, and in 2016 prices in non-CBAs were adjusted to match competitive bidding prices.

In addition, other legislative changes have been proposed and adopted in the United States since the Patient Protection and Affordable Care Act was enacted. 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 payments to providers up to 2% per fiscal year, which went into effect on April 1, 2013, and will remain in effect through 2024 unless additional Congressional action is taken. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 which, among other things, further reduced Medicare payments to certain providers, including physicians, hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. We 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 also 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. We are monitoring all state requirements to maintain compliance with state-specific legislation and access to service patients in these states. To the extent such legislation is enacted, it could result in increased administrative costs or otherwise exclude us from doing business in a particular state, which would adversely impact our business, financial condition and operating results.

We face uncertainties that might result from modification or repeal of any of the provisions of the Patient Protection and Affordable Care Act, including as a result of current and future executive orders and legislative actions. The impact of those changes on us and potential effect on the durable medical equipment industry as a whole is currently unknown. But, any changes to the Patient Protection and Affordable Care Act are likely to have an impact on our results of operations and may have a material adverse effect on our results of operations. We cannot predict what other healthcare programs and regulations will ultimately be implemented at the federal or state level or the effect of any future legislation or regulation in the United States may have on our business.

We depend upon reimbursement from Medicare, private payors, Medicaid and patients for a significant portion of our revenue, and if we fail to manage the complex and lengthy reimbursement process, our business and operating results could suff er.

A significant portion of our rental revenue is derived from reimbursement by third-party payors. 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 June 30, 2018 and June 30, 2017, approximately 5.4% and 9.5%, respectively, and for the six months ended June 30, 2018 and June 30, 2017, approximately 6.1% and 10.8%, respectively, of our total revenue was derived from Medicare, private payors, Medicaid, and individual patients who directly receive reimbursement from third-party payors.

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. Depending on the payor, we may be required to obtain certain payor-specific documentation from physicians and other healthcare providers before submitting claims for reimbursement. Certain payors have filing deadlines and they will not pay claims submitted after such time. 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 reimbursement process and collect payments for our products promptly. If we fail to manage the complex and lengthy reimbursement process, it would adversely affect our business, financial conditions and results of operations.

Failure to obtain private payor contracts and future reductions in reimbursement rates from private payors could have a material adverse effect on our financial condition and operating results.

A portion of our revenue is derived from private payors. Based on our patient population, we estimate at least 30% of potential customers have non-Medicare insurance coverage, and we believe these patients represent a younger and more active patient population that will be drawn to the quality-of-life benefits of our solution. Failing to maintain and obtain private payor contracts from private insurance companies and employers and secure in-network provider status could have a material adverse effect on our financial condition and operating results. In addition, private payors are under pressure to increase profitability and reduce costs. In response, certain private payors are limiting coverage or reducing reimbursement rates for the products we provide. We believe that private payor reimbursement levels will generally be reset in accordance with the Medicare payment amounts determined by competitive bidding. We cannot predict the extent to which reimbursement for our products will be affected by competitive bidding or by initiatives to reduce costs for private payors. Failure to obtain or maintain private payor contracts or the unavailability of third-party coverage or inadequacy of reimbursement for our products would adversely affect our business, financial conditions and results of operations.

We do not have long-term supply contracts with many of our third-party suppliers.

We purchase components and subassemblies from third-party suppliers, including some of our single-source suppliers, through purchase orders and do not have long-term supply contracts with many of these third-party suppliers. Many of our third-party suppliers, therefore, are not obligated to perform services or supply products to us for any specific period, in any specific quantity or at any specific price, except as may be provided in a particular purchase order. We do not maintain large volumes of inventory from most of these suppliers. 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 Inogen One systems and Inogen At Home systems 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, we may be required to change suppliers which would be time consuming and disruptive and could adversely affect our business, financial condition and operating results.

If our manufacturing facilities become unavailable or inoperable, we will be unable to continue manufacturing our Inogen One systems and Inogen At Home systems and, as a result, our business, financial condition, and operating results will be harmed until we are able to secure a new facility.

We assemble our Inogen One concentrators and Inogen At Home concentrators at our facility in Richardson, Texas and assemble compressors as well as load and assemble sieve beds (columns) at our facility in Goleta, California. In the fourth quarter of 2017, we began using a contract manufacturer in Europe to assemble our Inogen One G3 concentrators for our European customers. No other manufacturing facilities are currently available to us, particularly facilities of the size and scope of our Texas facility. Our facilities and the equipment we use to manufacture our Inogen One systems and Inogen At Home systems would be costly to replace and could require substantial lead time to procure, repair or replace. Our facilities may be harmed or rendered inoperable by natural or man-made disasters, including fire, flood, earthquakes and power outages, which may render it difficult or impossible for us to manufacture our products for some period of time. If any of our facilities become unavailable to us, we cannot provide assurances that we will be able to secure and equip a new manufacturing facility on acceptable terms, in a timely manner. The inability to manufacture

our products, combined with delays in replacing parts inventory and manufacturing supplies and equipment, may result in the loss of customers and/or harm our reputation, and we may be unable to reestablish relationships with those customers in the future. Although we have insurance coverage for certain types of disasters which may help us recover some of the costs of damage to our property and lost income from the disruption of our business, insurance coverage of certain perils may be limited or unavailable at cost effective rates and may therefore not be sufficient to cover any or all of our potential losses and may not con tinue to be available to us on acceptable terms, or at all. If our manufacturing capabilities are impaired, we may not be able to manufacture, store, and ship our products in sufficient quantity or a cost effective or timely manner, which would adversely i mpact our business, financial condition, and operating results.

We intend to rely upon a third-party contract manufacturer for certain manufacturing operations and our business and results of operations may be adversely affected by risks associated with their business, financial condition, and the geography in which they operate.

Beginning in the fourth quarter of 2017, we began utilizing a third-party contract manufacturer located in the Czech Republic for production of a portion of our Inogen One G3 concentrators. There are a number of risks associated with our dependence on a contract manufacturer, including:

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reduced control over delivery schedules and planning;

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reliance on the quality assurance procedures of a third party;

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risks associated with our contract manufacturer failing to manufacture our products according to our specifications, quality regulations, including the FDA’s Quality System regulations, or otherwise manufacturing products that we or regulatory authorities deem to be unsuitable for commercial use;

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risks associated with our contract manufacturer’s ability to successfully undergo FDA and other regulatory authority quality inspections;

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potential uncertainty regarding manufacturing yields and costs;

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availability of manufacturing capability and capacity, particularly during periods of high demand;

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risks and uncertainties associated with the location or country where our products are manufactured, including potential manufacturing disruptions caused by social, geopolitical or environmental factors;

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changes in U.S. law or policy governing foreign trade, manufacturing, development and investment in the countries where we manufacture our products, including the World Trade Organization Information Technology Agreement or other free trade agreements;

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

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limited warranties provided to us; and

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potential misappropriation of our intellectual property.

These and other risks could impair our ability to fulfill orders, harm our sales and impact our reputation with customers. If our contract manufacturer is unable or unwilling to manufacture our products or components of our products, or if our contract manufacturer discontinues operations, we may be required to identify and qualify alternative manufacturers, which could cause us to be unable to meet our supply requirements to our customers and result in the breach of our customer agreements. The process of qualifying a new contract manufacturer and commencing volume production is expensive and time-consuming, and if we are required to change or qualify a new contract manufacturer, we would likely lose sales revenue and damage our existing customer relationships.

If we are unable to manage our anticipated growth effectively, our business could be harmed.

The rapid growth of our business has placed a significant strain on our managerial and operational resources and systems. To execute our anticipated growth successfully, we must continue to attract and retain capable personnel and manage and train them effectively, particularly related to sales representatives and supporting sales personnel. We must also upgrade our internal business processes and capabilities to create the scalability that a growing business demands.

We plan to continue the expansion of our facilities located in Richardson, Texas and Cleveland, Ohio . Domestic expansion , combined with our use of a contract manufacturer in Europe to produce a portion of our Inogen One G3 concentrators, is expected to be sufficient to meet our manufacturing needs. However, our anticipated growth will place additional strain on our supply ch ain and manufacturing facilities, resulting in an increased need for us to carefully monitor parts inventory, capable staffing and quality assurance. Any failure by us to manage our growth effectively could have an adverse effect on our ability to achieve our development and commercialization goals.

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 recent acquisition of MedSupport Systems B.V. We 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. Any such acquisition or investment could materially and adversely affect our results of operations. The acquisition and integration process is complex, expensive and time-consuming, and may cause an interruption of, or loss of momentum in, product development and sales activities and operations of both companies, and we may incur substantial cost and expense, as well as divert the attention of management. We may issue equity securities which could dilute current stockholders’ ownership, incur debt, assume contingent or other liabilities and expend cash in acquisitions, which could negatively impact our financial position, stockholder equity, and stock price.

Acquisitions and other strategic investments involve significant risks and uncertainties, including:

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the potential failure to achieve the expected benefits of the combination or acquisition;

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unanticipated costs and liabilities;

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difficulties in integrating new products, businesses, operations, and technology infrastructure in an efficient and effective manner;

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difficulties in maintaining customer relations;

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the potential loss of key employees of the acquired businesses;

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the diversion of the attention of our senior management from the operation of our daily business;

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the potential adverse effect on our cash position to the extent that we use cash for the purchase price;

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the potential significant increase of our interest expense, leverage, and debt service requirements if we incur additional debt to pay for an acquisition;

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the potential issuance of securities that would dilute our stockholders’ percentage ownership;

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the potential to incur large and immediate write-offs and restructuring and other related expenses; and

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the inability to maintain uniform standards, controls, policies, and procedures.

Any acquisition or investment could expose us to unknown liabilities. Moreover, we cannot assure you that we will realize the anticipated benefits of any acquisition or investment. In addition, our inability to successfully operate and integrate newly acquired businesses appropriately, effectively, and in a timely manner could impair our ability to take advantage of future growth opportunities and other advances in technology, as well as on our revenues, gross margins, and expenses.

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

Our Inogen One systems and Inogen At Home systems are manufactured using complex processes, sophisticated equipment and strict adherence to specifications and quality standards. Any unforeseen manufacturing problems, such as contamination of our facility, equipment malfunction or miscalibration, supply chain shortages, regulatory findings, or failure to strictly follow procedures or meet 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.

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 pro duce sufficient quantities of existing products.

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 make sales 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. Challenging economic conditions may impair the ability of our customers to pay for products they have purchased, and as a result, our reserves for doubtful accounts and write-off of accounts receivable could increase and, even if increased, may turn out to be insufficient. Moreover, even in cases where we have insolvency risk insurance to protect against a customer’s bankruptcy, insolvency or liquidation, this insurance typically contains a significant deductible and co-payment obligation and does not cover all instances of non-payment. Our exposure to credit risks of our business partners may increase if our business partners and their end customers are adversely affected by global or regional economic conditions. One or more of these business partners could delay payments or default on credit extended to them, either of which could adversely impact our business, financial condition, and operating results.

We generate a substantial portion of our revenue internationally and are subject to various risks relating to such international activities, which could adversely affect our operating results. 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 six months ended June 30, 2018 and June 30, 2017, approximately 21.4% and 22.6%, 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. Engaging in international business inherently involves a number of difficulties and risks, including:

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required compliance with anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act and U.K. Bribery Act, data privacy requirements, labor laws, and anti-competition regulations;

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export or import restrictions;

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obtaining and maintaining regulatory clearances, approvals and certifications;

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laws and business practices favoring local companies;

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difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;

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unstable economic, political, and regulatory conditions;

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supply chain complexities;

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fluctuations in currency exchange rates;

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potentially adverse tax consequences, tariffs, customs charges, bureaucratic requirements, and other trade barriers; and

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difficulties protecting or procuring intellectual property rights.

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 results 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.” In February 2017, the British Parliament voted in favor of allowing the British government to begin the formal process of Brexit and discussions with the European Union began in March 2017. 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 majority of our 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 imp act our financial performance. For example, if the value of the U.S. dollar increases relative to foreign currencies, our products could become more costly to the international consumer and therefore less competitive in international markets. Our results o f operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. We have experienced and will con tinue 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 ent ities in which they are recorded. For example, for the six months ended June 3 0 , 201 8 , we experienced a net foreign currency loss of $ 0.6 million, and for the six months ended June 3 0 , 201 7 , we experienced a net foreign currency gain of $ 0.7 million. Fluct uations in currency exchange rates could have an adverse impact on our financial results in the future. While we have a hedging program for Euros that attempts to manage currency exchange rate risks to an acceptable level based on management's judgment of the appropriate trade-off between risk, opportunity, and cost, this hedging program does not completely eliminate the effects of currency exchange rate fluctuations. In addition, currency hedging may result in a reduction in revenue should the currency st rengthen during the contract period. A discussion of the hedging program is contained in Item 7A, Quantitative and Qualitative Disclosures about Market Risk in our Annual Report on Form 10-K for the period ended December 31, 2017. Additional information on our hedging arrangements is also contained in Note 3 to the consolidated financial statements in this Quarterly Report on Form 10- Q .

We rely on shipping providers to deliver products to our customers globally. Labor, tariff, or World Trade Organization-related disputes, piracy, physical damage to shipping facilities or equipment caused by severe weather or terrorist incidents, congestion at shipping facilities, inadequate equipment to load, dock, and offload our products, energy-related tie-ups, or other factors could disrupt or delay shipping or off-loading of our products domestically and internationally. Such disruptions or delays may have an adverse effect on our financial condition and results of operations.

Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, and similar laws associated with our activities outside of the United States could subject us to penalties and other adverse consequences.

We are subject to the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the United Kingdom Bribery Act of 2010 and possibly other anti-corruption, anti-bribery and anti-money laundering laws in the more than forty countries around the world where we conduct activities and sell our products. We face significant risks and liability if we fail to comply with the FCPA and other anti-corruption and anti-bribery laws that prohibit companies and their employees and third-party business partners, such as distributors or resellers, from authorizing, offering or providing, directly or indirectly, improper payments or benefits to foreign government officials, political parties or candidates, employees of public international organizations including healthcare professionals, or private-sector recipients for the corrupt purpose of obtaining or retaining business, directing business to any person, or securing any advantage.

We leverage various third parties to sell our products and conduct our business abroad. We, our distributors and channel partners, and our other third-party intermediaries and manufacturer may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities (such as in the context of obtaining government approvals, registrations, or licenses) and may be held liable for the corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities. In many foreign countries, particularly in countries with developing economies, it may be a local custom that businesses engage in practices that are prohibited by the FCPA or other applicable laws and regulations. As such, we intend to continue to implement an FCPA/anti-corruption compliance program to ensure compliance with such laws but cannot assure you that all of our employees and agents, as well as those companies to which we outsource certain of our business operations, will not take actions in violation of our policies and applicable law, for which we have to defend ourselves and may be ultimately held responsible.

Any violation of the FCPA, other applicable anti-bribery, anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracts, which could have a material and adverse effect on our reputation, business, operating results and prospects. In addition, responding to any enforcement action or related investigation may result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees.

If we fail to comply with U.S. export control and economic sanctions or fail to expand and maintain an eff ective sales force or successfully develop our international distribution network, our business, financial condition and operating results may be adversely affected.

We currently derive the majority of our revenue from rentals or sales generated from our own direct sales force. Failure to maintain or expand our direct sales force could adversely impact our financial and operating performance. Additionally, we use international distributors to augment our sales efforts, certain of which are exclusive distributors in certain foreign countries. We cannot assure you that we will be able to successfully develop our relationships with third-party distributors internationally. In addition, we are subject to United States export control and economic sanctions laws relating to the sale of our products, the violation of which could result in substantial penalties being imposed against us. In particular, we have secured annual export licenses from the U.S. Treasury Department’s Office of Foreign Assets Control to sell our products to a distributor and hospital and clinic end-users in Iran. The use of this license requires us to observe strict conditions with respect to products sold, end-user limitations and payment requirements. Although we believe we have maintained compliance with license requirements, there can be no assurance that the license will not be revoked, be renewed in the future or that we will remain in compliance. More broadly, if we fail to comply with export control laws or successfully develop our relationship with international distributors, our sales could fail to grow or could decline, and our ability to grow our business could be adversely affected. Distributors that are in the business of selling other medical products may not devote a sufficient level of resources and support required to generate awareness of our products and grow or maintain product sales. If our distributors are unwilling or unable to market and sell our products, or if they do not perform to our expectations, we could experience delayed or reduced market acceptance and sales of our products.

We may be subject to substantial warranty or product liability claims or other litigation in the ordinary course of business that may adversely affect our business, financial condition and operating results.

As manufacturers of medical devices, we may be subject to substantial warranty or product liability claims or other litigation in the ordinary course of business that may require us to make significant expenditures to defend these claims or pay damage awards. For example, our Inogen One systems contain lithium ion batteries, which, under certain circumstances, can be a fire hazard. We, as well as our key suppliers, maintain product liability insurance, but this insurance is limited in amount and subject to significant deductibles. There is no guarantee that insurance will be available or adequate to protect against all claims. Our insurance policies are subject to annual renewal and we may not be able to obtain liability or product insurance in the future on acceptable terms or at all. In addition, our insurance premiums could be subject to increases in the future, which may be material. If the coverage limits are inadequate to cover our liabilities or our insurance costs continue to increase as a result of warranty or product liability claims or other litigation, then our business, financial condition and operating results may be adversely affected.

We may also be subject to other types of claims arising from our normal business activities. These may include claims, suits, and proceedings involving labor and employment, wage and hour, commercial, alleged securities laws violations or other investor claims, patent defense and other matters. The outcome of any litigation, regardless of its merits, is inherently uncertain. Any claims and lawsuits, and the disposition of such claims and lawsuits, could be time-consuming and expensive to resolve, divert management attention and resources, and lead to attempts on the part of other parties to pursue similar claims. Any adverse determination related to litigation could require us to change our technology or our business practices, pay monetary damages or enter into royalty or licensing arrangements, which could adversely impact our business, financial condition, and operating results.

Increases in our operating costs could have a material adverse effect on our business, financial condition and operating results.

Reimbursement rates are established by fee schedules mandated by Medicare, private payors and Medicaid, and are likely to remain constant or decrease due, in part, to federal and state government budgetary constraints. As a result, with respect to Medicare and Medicaid related revenue, we are not able to offset the effects of general inflation on our operating costs through increases in prices for our products. 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. As such, we must control our operating costs, particularly labor and related costs and failing to do so could adversely affect our financial conditions and results of operations.

We depend on the services of our senior executives and other key technical personnel, the loss of whom could negatively affect our business.

Our success depends upon the skills, experience and efforts of our senior executives and other key technical personnel, including certain members of our engineering staff and our sales and marketing executives. Much of our corporate expertise is concentrated in relatively few employees, the loss of which for any reason could negatively affect our business. Competition for our highly skilled employees is intense and we cannot prevent the resignation of any employee. We do not maintain “key man” life insurance on any of our senior executives. None of our senior executive team is bound by written employment contracts to remain

with us for a specified period. In addition, we have not entered into non-compete agreements with members of our executive management team. The loss of any member of our executive management team could harm our ability to implement our business strategy and respond to the market conditions in which we operate.

We and our vendors and service providers rely on information technology networks and systems, and if we are unable to protect against service interruptions, data corruption, cybersecurity risks, data security incidents and/or network security breaches, our operations could be disrupted and our business could be negatively affected.

We rely on information technology networks and systems to process, transmit and store electronic, customer, operational, compliance, and financial information; to coordinate our business; and to communicate within our company and with customers, suppliers, partners and other third-parties. These information technology networks and systems may be susceptible to damage, disruptions or shutdowns, hardware or software failures, power outages, computer viruses, cybersecurity risks, data security incidents, telecommunication failures, user errors or catastrophic events. Like other companies, we have experienced data security incidents before. For example, on April 13, 2018, we announced that messages within an employee email account were accessed by unknown persons outside of our company without authorization. Some of the messages and attached files in that email account contained personal information belonging to our rental customers. We immediately took steps to secure customer information and hired a leading forensics firm to investigate the incident and to bolster our security. The unauthorized access of the potentially impacted email account appears to have occurred between January 2, 2018 and March 14, 2018. We notified approximately 30,000 current and former rental customers of this incident as well as the applicable regulatory authorities. We also provided resources, including credit monitoring and an insurance reimbursement policy, to assist all potentially affected individuals. We will incur remedial, legal and other costs in connection with this incident. We have insurance coverage in place for certain potential liabilities and costs relating to the incident, but this insurance is limited in amount, subject to a deductible, and may not be adequate to protect against all costs arising from this incident.

If our information technology networks and systems suffer unauthorized access, severe damage, disruption or shutdown, and our business does not effectively identify or resolve the issues in a timely manner, our operations could be disrupted, we could be subject to regulatory and consumer lawsuits and our business could be negatively affected. In addition, cybersecurity risks and data security incidents could lead to potential unauthorized access to or acquisition of confidential information (including protected health information), and data loss and corruption. There is no assurance that we will not experience service interruptions, security breaches, cyber security risks and data security incidents, or other information technology failures in the future.

The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are constantly evolving and may be difficult to anticipate or to detect for long periods of time. As a result of these types of risks and attacks, we have implemented and periodically review and update systems, processes, and procedures to protect against unauthorized access to or use of data and to prevent data loss. For example, we have recently increased the security of our systems by requiring all email users to change their passwords following our recent data security incident and sooner than they would have otherwise been required to. We also implemented multi-factor authentication for remote email access and have taken additional steps to further limit access to our systems. However, the ever-evolving threats mean we and our third-party service providers and vendors must continually evaluate and adapt our respective systems and processes and overall security environment. There is no guarantee that these measures will be adequate to safeguard against all data security breaches, system compromises or misuses of data.

The compromise of our technology systems resulting in the loss, disclosure, misappropriation of, or access to, customers’, employees’ or business partners’ information or failure to comply with regulatory or contractual obligations with respect to such information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disruption to our operations and damage to our reputation, any or all of which could adversely affect our business. The costs to remediate breaches and similar system compromises that do occur could be material.

In addition, we must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the U.S., Europe and elsewhere. For example, the European Union adopted the General Data Protection Regulation (the “GDPR”), which became effective on May 25, 2018. The GDPR imposes additional obligations on companies regarding the handling of personal data and provides certain individual privacy rights to persons whose data is stored. Compliance with existing, proposed and recently enacted laws (inc luding implementation of the privacy and process enhancements called for under GDPR) and regulations can be costly and any failure to comply with these regulatory standards could subject us to legal and reputational risks. Misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against the Company by governmental entities or others, damage to our reputation and credibility and could have a negative impact on revenues and profits. As the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those requirements could continue to result in significant costs.

Our financial results may vary significantly from quarter-to-quarter due to a number of factors, which may lead to volatility in our stock price.

Our quarterly revenue and results of operations have varied in the past and may continue to vary significantly from quarter-to-quarter. This variability may lead to volatility in our stock price as research analysts and investors respond to these quarterly fluctuations. These fluctuations are due to numerous factors, including: fluctuations in consumer demand for our products; seasonal cycles in consumer spending; our ability to design, manufacture and deliver products to our consumers in a timely and cost-effective manner; quality control problems in our manufacturing operations; our ability to timely obtain adequate quantities of the components used in our products; new product introductions and enhancements by us and our competitors; unanticipated increases in costs or expenses; unanticipated regulatory reimbursement changes that could result in positive or negative impacts to our earnings; changes or updates to generally accepted accounting principles; and fluctuations in foreign currency exchange rates. As more HME providers adopt portable oxygen concentrators 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 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. If we are unable to maintain adequate revenue growth and cost control, our operating results could suffer, and our stock price could decline. In addition, a significant amount of our operating expenses are relatively fixed due to our manufacturing, research and development and sales and general administrative efforts. Any failure to adjust spending quickly enough to compensate for a revenue shortfall could magnify the adverse impact of such revenue shortfall on our results of operations. Our results of operations may not meet the expectations of research analysts or investors, in which case the price of our common stock could decrease significantly.

Given our levels of stock-based compensation, our tax rate may vary significantly depending on our stock price.

The tax effects of the accounting for share-based compensation may significantly impact our effective tax rate from period to period. In periods in which our stock price is higher than the grant price of the stock-based compensation vesting in that period, we will recognize excess tax benefits that will decrease our effective tax rate. For example, in the six months ended June 30, 2018 excess tax benefits recognized from stock-based compensation decreased our provision for income taxes by $7.1 million and our effective tax rate by 30.4% as compared to the tax rate without such benefits. In future periods in which our stock price is lower than the grant price of the stock-based compensation vesting in that period, our effective tax rate may increase. The amount and value of stock-based compensation issued relative to our earnings in a particular period will also affect the magnitude of the impact of stock-based compensation on our effective tax rate. These tax effects are dependent on our stock price, which we do not control, and a decline in our stock price could significantly increase our effective tax rate and adversely affect our financial results.

If the market opportunities for our products are smaller than we believe they are, our revenues may be adversely affected and our business may suffer.

Our projections regarding (i) the size of the oxygen therapy market, both in the United States and internationally, (ii) the size and percentage of the oxygen therapy market that is subject to competitive bidding in the United States, (iii) the number of oxygen therapy patients, (iv) the number of patients requiring ambulatory and stationary oxygen, (v) the number of patients who rely on the delivery model, and (vi) the share of portable oxygen concentrators as a percentage of the total oxygen therapy spend are based on estimates that we believe are reliable. These estimates may prove to be incorrect, new data or studies may change the estimated incidence or prevalence of patients requiring oxygen therapy, or the type of oxygen therapy patients. The number of patients in the United States and internationally may turn out to be lower than expected, patients may not be otherwise amenable to treatment with our products, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect our results of operations and our business.

An adverse outcome of a sales and use tax audit could have a material adverse effect on our results of operations and financial condition.

The California State Board of Equalization conducted a sales and use tax audit of our operations in California in 2008. As a result of the audit, the California State Board of Equalization confirmed that our sales are not subject to California sales and use tax. We believe that our sales in four states may be subject to sales and use tax, but in other states they should be exempt from sales and use tax. There can be no assurance, however, that other states may agree with our position and we may be subject to an audit that may not be resolved in our favor. Such an audit could be expensive and time-consuming and result in substantial management distraction. If the matter were to be resolved in a manner adverse to us, it could have a material adverse effect on our results of operations and financial position.

Changes in accounting principles, or interpretations thereof, could have a significant impact on our financial position and results of operations.

We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America, referred to as U.S. GAAP. These principles are subject to interpretation by the Securities and Exchange Commission (SEC) and various bodies formed to interpret and create appropriate accounting principles. A change in these principles can have a significant effect on our reported results and may even retroactively affect previously reported transactions. Additionally, the adoption of new or revised accounting principles may require that we make significant changes to our systems, processes and controls.

For example, the U.S.-based Financial Accounting Standards Board, referred to as FASB, is currently working together with the International Accounting Standards Board, referred to as IASB, on several projects to further align accounting principles and facilitate more comparable financial reporting between companies who are required to follow U.S. GAAP under SEC regulations and those who are required to follow International Financial Reporting Standards outside of the United States. These efforts by the FASB and IASB may result in different accounting principles under U.S. GAAP that may result in materially different financial results for us in areas including, but not limited to, principles for recognizing revenue and lease accounting. Additionally, significant changes to U.S. GAAP resulting from the FASB’s and IASB’s efforts may require that we change how we process, analyze and report financial information and that we change financial reporting controls.

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 position and results of operations.

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

Our existing net operating losses (NOLs) are subject to limitations arising from ownership changes and are subject to the provisions of Section 382 of the Internal Revenue Code of 1986, as amended, and the State of California Revenue and Taxation Code. If we undergo one or more future ownership changes our ability to utilize NOLs could be further limited.

Uncertainties in the interpretation and application of the 2017 Tax Cuts and Jobs Act could materially affect our tax obligations and effective tax rate.

The 2017 Tax Cuts and Jobs Act (TCJA) was enacted on December 22, 2017, and significantly affected U.S. tax law by changing how the U.S. imposes income tax. The U.S. Department of Treasury has broad authority to issues regulations and interpretative guidance that may significantly impact how we will apply the law and impact our results of operations.

Changes in tax laws or tax rulings could materially affect our financial position, results of operations, and cash flows.

The income and non-income tax regimes we are subject to or operate under are unsettled and may be subject to significant change. Changes in tax law or tax rulings, or changes in interpretations of existing law, could materially affect our financial position, results of operations, and cash flows. For example, changes to the U.S. tax laws enacted in December 2017 had a significant impact on our deferred tax assets, income tax provision and effective tax rate for the three and twelve months ended December 31, 2017. In addition, many countries in Europe, as well as a number of other countries and organizations, have recently proposed or recommended changes to existing tax laws or have enacted new laws that could significantly increase our tax obligations in many countries where we do business or require us to change the manner in which we operate our business.

Risks related to the regulatory environment

We are subject to extensive federal and state regulation, and if we fail to comply with applicable regulations, we could suffer severe criminal or civil sanctions and be required to make significant changes to our operations that could adversely affect our business, financial condition and operating results.

The federal government and all states in which we currently operate regulate various aspects of our business. 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 each state 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.

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. To ensure compliance with Medicare, Medicaid and other regulations, government agencies or their contractors often conduct routine audits and request customer records and other documents to support our claims submitted for payment of services rendered. Government

agenci es or their contractors also periodically open investigations and obtain information from healthcare providers. Violations of federal and state regulations can result in severe criminal, civil and administrative 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. There have been and will continue to be regulatory initiatives affecting our business and we cannot predict the extent to which future legislation and regulatory changes could have a material adverse effect on our business.

We are subject to burdensome and complex billing and record-keeping requirements in order to substantiate our claims for payment under federal, state and commercial healthcare reimbursement programs, and our failure to comply with existing requirements, or changes in those requirements or interpretations thereof, could adversely affect our business, financial condition and operating results.

We are subject to burdensome and complex billing and record-keeping requirements in order to substantiate our claims for payment under federal, state and commercial healthcare reimbursement programs. Our records also are subject to routine and other reviews by third-party payors, which can result in delays in payments or refunds of paid claims. We could experience a significant increase in pre-payment reviews of our claims by the Durable Medical Equipment Medicare Administrative Contractors, which could cause substantial delays in the collection of our Medicare accounts receivable as well as related amounts due under supplemental insurance plans.

Current law provides for a significant expansion of the government’s auditing and oversight of suppliers who care for patients covered by various government healthcare programs. Examples of this expansion include audit programs being implemented by the Durable Medical Equipment Medicare Administrative Contractors, the Zone Program Integrity Contractors, the Recovery Audit Contractors, and the Comprehensive Error Rate Testing contractors, operating under the direction of CMS, and the various state Medicaid Fraud Control Units.

We have been informed by these auditors that healthcare providers and suppliers of certain durable medical equipment product categories are expected to experience further increased scrutiny from these audit programs. When a government auditor ascribes a high billing error rate to one or more of our locations, it generally results in protracted pre-payment claims review, payment delays, refunds and other payments to the government and/or our need to request more documentation from providers than has historically been required. It may also result in additional audit activity in other company locations in that state or Durable Medical Equipment Medicare Administrative Contractors jurisdiction. We cannot currently predict the adverse impact that these audits, methodologies and interpretations might have on our business, financial condition or operating results, but such impact could be material.

We are subject to significant regulation by numerous government agencies, including the U.S. Food and Drug Administration, or FDA. We cannot market or commercially distribute our products without obtaining and maintaining necessary regulatory clearances or approvals.

Our Inogen concentrators are medical devices subject to extensive regulation in the United States and in the foreign markets where we distribute our products. The FDA and other U.S. and foreign governmental agencies regulate, among other things, with respect to medical devices:

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design, development and manufacturing;

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testing, labeling, content and language of instructions for use and storage;

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clinical trials;

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product safety;

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marketing, sales and distribution;

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pre-market clearance and approval;

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record keeping;

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advertising and promotion;

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recalls and field safety corrective actions;

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post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury;

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post-market approval studies; and

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product import and export.

Before we can market or sell a medical device in the United States, we must obtain either clearance from the FDA under Section 510(k) of the Federal Food, Drug, and Cosmetic Act, or the FDCA, or approval of a pre-market approval application from the FDA, unless an exemption applies. In the 510(k) clearance process, the FDA must determine that a proposed device is “substantially equivalent” to a device legally on the market, known as a “predicate” device, with respect to intended use, technology and safety and effectiveness, in order to clear the proposed device for marketing.

Our commercial products have received 510(k) clearance by the FDA. If the FDA requires us to go through a lengthier, more rigorous examination for future products or modifications to existing products than we had expected, our product introductions or modifications could be delayed or canceled, which could cause our sales to decline. In addition, the FDA may determine that future products will require the more costly, lengthy and uncertain pre-market approval process. Although we do not currently market any devices under a pre-market approval, the FDA may demand that we obtain a pre-market approval prior to marketing certain future products. In addition, if the FDA disagrees with our determination that a product we currently market is subject to an exemption from pre-market review, the FDA may require us to submit a 510(k) or pre-market approval application in order to continue marketing the product. Further, even with respect to those future products where a pre-market approval is not required, we cannot assure you that we will be able to obtain the 510(k) clearances with respect to those products or do so in a timely fashion.

The FDA can delay, limit or deny clearance or approval of a device for many reasons, including:

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we may not be able to demonstrate to the FDA’s satisfaction that our products are safe and effective for their intended uses;

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the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required; and

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the manufacturing process or facilities we use may not meet applicable Quality System Regulations.

Medical devices may only be promoted and sold for the indications for which they are approved or cleared. In addition, even if the FDA has approved or cleared a product, it can take action affecting such product approvals or clearances if serious safety or other problems develop in the marketplace. Delays in obtaining clearances or approvals could adversely affect our ability to introduce new products or modifications to our existing products in a timely manner, which would delay or prevent commercial sales of our products. Additionally, the FDA and other regulatory authorities have broad enforcement powers. Regulatory enforcement or inquiries, or other increased scrutiny on us, could affect the perceived safety and performance of our products and dissuade our customers from using our products.

If we modify our FDA cleared devices, we may need to seek additional clearances or approvals, which, if not granted, would prevent us from selling our modified products.

Any modification we make to our Inogen One systems and Inogen At Home system that could significantly affect their safety or effectiveness, or would constitute a major change in intended use, manufacture, design, materials, labeling, or technology requires the submission and clearance of a new 510(k) pre-market notification or, possibly, pre-market approval. The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review and disagree with any manufacturer’s decision. The FDA may not agree with our decisions regarding whether new clearances or approvals are necessary. 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.

If we fail to comply with FDA or state regulatory requirements, we can be subject to enforcement action.

Even after we have obtained regulatory clearance or approval to market a product, we have ongoing responsibilities under FDA regulations. The FDA and state authorities have broad enforcement powers. Our failure to comply with applicable regulatory requirements could result in enforcement action by the FDA or state agencies, which may include any of the following sanctions:

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adverse publicity, warning letters, fines, injunctions, consent decrees and civil penalties;

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recalls, termination of distribution, or seizure of our products;

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operating restrictions or partial suspension or total shutdown of production;

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delays in the introduction of products into the market;

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refusal to grant our requests for future 510(k) clearances or approvals of new products, new intended uses, or modifications to exiting products;

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withdrawals or suspensions of current 510(k) clearances or approvals, resulting in prohibitions on sales of our products; and

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criminal prosecution.

Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material adverse effect on our reputation, business, results of operations and financial condition.

A recall of our products, either voluntarily or at the direction of the FDA or another governmental authority, or the discovery of serious safety issues with our products that leads to corrective actions, could have a significant adverse impact on us.

The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design, labeling or manufacture of a product or in the event that a product poses an unacceptable risk to health. Manufacturers may also, under their own initiative, recall a product if any material deficiency in a device is found or withdraw a product to improve device performance or for other reasons. A government-mandated or voluntary recall by us or one of our distributors could occur as a result of an unacceptable risk to health, component failures, manufacturing errors, design or labeling defects or other deficiencies and issues. Similar regulatory agencies in other countries have similar authority to recall devices because of material deficiencies or defects in design or manufacture that could endanger health. Any recall would divert management attention and financial resources, could cause the price of our stock to decline and expose us to product liability or other claims and harm our reputation with customers. A recall involving our Inogen concentrators could be particularly harmful to our business, financial and operating results.

We are required to timely report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Repeated product malfunctions may result in a voluntary or involuntary product recall. Depending on the corrective action we take to redress a product’s deficiencies or defects, the FDA may require, or we may decide, that we will need to obtain new approvals or clearances for the device before we may market or distribute the corrected device. Seeking such approvals or clearances may delay our ability to replace the recalled devices in a timely manner. Moreover, if we do not adequately address problems associated with our devices, we may face additional regulatory enforcement action, including adverse publicity, FDA warning letters, product seizure, injunctions, administrative penalties, or civil or criminal fines. We may also be required to bear other costs or take other actions that may have a negative impact on our sales as well as face significant adverse publicity or regulatory consequences, which could harm our business, including our ability to market our products in the future.

Any adverse event involving our products, whether in the United States or abroad, could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection, mandatory recall or other enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital, distract management from operating our business and may harm our reputation and financial results.

If we, our contract manufacturer, or our component manufacturers fail to comply with the FDA’s Quality System Regulation, our manufacturing operations could be interrupted, and our product sales and operating results could suffer.

We, our contract manufacturer, and our component manufacturers are required to comply with the FDA’s Quality System Regulation, or QSR, which covers the procedures and documentation of the design, calibration, testing, production, control, quality assurance, labeling, packaging, storage and shipping of our devices. The FDA audits compliance with the QSR through periodic announced and unannounced inspections of manufacturing and other facilities. We and our component manufacturers have been, and anticipate in the future being, subject to such inspections. Although we believe our manufacturing facilities and those of our

component manufacturers are in compliance with the QSR, we cannot provide assurance that any future inspecti on will not result in adverse findings. If we fail to implement timely and appropriate corrective actions that are acceptable to the FDA or if our other manufacturing facilities or those of any of our component manufacturers, contract manufacturers, or sup pliers are found to be in violation of applicable laws and regulations, or we or our manufacturers or suppliers fail to take prompt and satisfactory corrective action in response to an adverse inspection, the FDA could take enforcement action, including an y of the following sanctions:

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adverse publicity, untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;

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customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;

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operating restrictions or partial suspension or total shutdown of production;

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refusing or delaying our requests for 510(k) clearance or pre-market approval of new products or modified products;

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withdrawing 510(k) clearances or pre-market approvals that have already been granted;

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refusal to grant export approval for our products; or

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criminal prosecution.

Any of these sanctions could adversely affect our business, financial conditions and operating results.

Outside the United States, our products and operations are also often required to comply with standards set by industrial standards bodies, such as the International Organization for Standardization, or ISO. Foreign regulatory bodies may evaluate our products or the testing that our products undergo against these standards. The specific standards, types of evaluation and scope of review differ among foreign regulatory bodies. If we fail to adequately comply with any of these standards, a foreign regulatory body may take adverse actions similar to those within the power of the FDA. Any such action may harm our reputation and could have an adverse effect on our business, results of operations and financial condition.

The primary regulatory body in Europe is the European Commission, which includes most of the major countries in Europe. The European Commission has adopted numerous directives and standards regulating the design, manufacture, clinical trial, labeling and adverse event reporting for medical devices. Devices that comply with the requirements of a relevant directive will be entitled to bear the CE conformity marking, indicating that the device conforms to the essential requirements of the applicable directives and, accordingly, can be commercially distributed throughout Europe. The method of assessing conformity varies depending on the class of the product, but normally involves a combination of self-assessment by the manufacturer and a third-party assessment by a “Notified Body.” An assessment by a Notified Body of one country within the European Union is required in order for a manufacturer to commercially distribute the product throughout the European Union.

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

Approximately 21.3% and 23.3% of our revenue was from sales outside of the United States for the three months ended June 30, 2018 and June 30, 2017, respectively, and 21.4% and 22.6% for the six months ended June 30, 2018 and June 30, 2017, respectively. As of June 30, 2018, we sold our products in 46 countries outside of the United States through our wholly owned subsidiary, distributors or 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. The approval procedure varies from country to country and can involve additional product testing. The time required to obtain approval abroad may be longer than the time required to obtain FDA clearance. The foreign regulatory approval process 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. FDA clearance does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries. However, the failure to obtain clearance or approval in one jurisdiction may have a negative impact on our ability to obtain clearance or approval elsewhere. If we do not obtain or maintain necessary approvals to commercialize our products in markets outside the United States, we may be required to discontinue sales in those countries which would negatively affect our overall market penetration, revenues, results of operation and financial condition.

We may be subject to fines, penalties or injunctions if we are determined to be promoting the use of our products for unapproved or “off-label” uses, resulting in damage to our reputation and business.

Our promotional materials and training methods must comply with the FDA and other applicable laws and regulations, including the prohibition of the promotion of a medical device for a use that has not been cleared or approved by the FDA. Physicians may use our products off-label, as the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine. If the FDA determines that our promotional materials or training constitutes promotion of an off-label use that is either false or misleading, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, which could have an adverse impact on our reputation and financial results.

Failure to comply with the Federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, the Health Information Technology for Economic and Clinical Health Act, or HITECH Act, and implementing regulations could result in significant penalties.

Numerous federal and state laws and regulations, including HIPAA and the HITECH Act, govern the collection, dissemination, security, use and confidentiality of patient-identifiable health information. HIPAA and the HITECH Act require us to comply with standards for the use and disclosure of protected health information within our company and with third parties. The Privacy Standards and Security Standards under HIPAA establish a set of basic national privacy and security standards for the protection of individually identifiable health information by health plans, healthcare clearinghouses and certain healthcare providers, referred to as covered entities, and the business associates with whom such covered entities contract for services. Notably, whereas HIPAA previously directly regulated only these covered entities, the HITECH Act, which was signed into law as part of the stimulus package in February 2009, makes certain of HIPAA’s privacy and security standards also directly applicable to covered entities’ business associates. As a result, both covered entities and business associates are now subject to significant civil and criminal penalties for failure to comply with Privacy Standards and Security Standards.

HIPAA requires healthcare providers like us to develop and maintain policies and procedures with respect to protected health information that is used or disclosed, including the adoption of administrative, physical and technical safeguards to protect such information. The HITECH Act expands the notification requirement for breaches of patient-identifiable health information, restricts certain disclosures and sales of patient-identifiable health information and provides a tiered system for civil monetary penalties for HIPAA violations. The HITECH Act also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney fees and costs associated with pursuing federal civil actions. Additionally, certain states have adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA.

If we are determined to be out of compliance with existing or new laws and regulations related to patient health information, we could be subject to criminal or civil sanctions. 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 modifies the breach reporting standard in a manner that will likely make 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 operating results 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 impact our profitability and cash flows.

Pursuant to HIPAA, final regulations have been implemented to improve the efficiency and effectiveness of the healthcare system by facilitating the electronic exchange of information in certain financial and administrative transactions while protecting the privacy and security of the information exchanged.

The HIPAA transaction standards are complex, and subject to differences in interpretation by third-party payors. For instance, some third-party payors may interpret the standards to require us to provide certain types of information, including demographic information not usually provided to us by physicians. As a result of inconsistent application of transaction standards by third-party payors or our inability to obtain certain billing information not usually provided to us by physicians, we could face increased costs and complexity, a temporary disruption in accounts receivable and ongoing reductions in reimbursements and net revenue. In addition, requirements for additional standard transactions, such as claims attachments or use of a national provider identifier, could prove technically difficult, time-consuming or expensive to implement, all of which could harm our business.

If we fail to comply with state and federal fraud and abuse laws, including anti-kickback, Stark, false claims and anti-inducement laws, we could face substantial penalties and our bus iness, operations, and financial condition could be adversely affected.

The federal anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering, or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federal healthcare programs. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution, the exceptions and safe harbors are drawn narrowly, and any remuneration to or from a prescriber or purchaser of healthcare products or services may be subject to scrutiny if it does not qualify for an exception or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability. Failure to meet all requirements of a safe harbor is not determinative of a kickback issue but could subject the practice to increased scrutiny by the government.

The “Stark Law” prohibits a physician from referring Medicare or Medicaid patients to an entity providing “designated health services,” which includes durable medical equipment, if the physician or immediate family member of the physician, has an ownership or investment interest in or compensation arrangement with such entity that does not comply with the requirements of a Stark exception. Violation of the Stark Law could result in denial of payment, disgorgement of reimbursements received under a non-compliant arrangement, civil penalties, and exclusion from Medicare, Medicaid or other governmental programs. Although we believe that we have structured our provider arrangements to comply with current Stark Law requirements, these arrangements may not expressly meet the requirements for applicable exceptions from the law.

Federal false claims laws prohibit any person from knowingly presenting or causing to be presented a false claim for payment to the federal government, or knowingly making or causing to be made a false statement to get a false claim paid. The majority of states also have statutes or regulations similar to the federal anti-kickback and self-referral laws and false claims laws, which apply to items or services, reimbursed under Medicaid and other state programs, or, in several states, apply regardless of payor. These false claims statutes allow any person to bring suit in the name of the government alleging false and fraudulent claims presented to or paid by the government (or other violations of the statutes) and to share in any amounts paid by the entity to the government in fines or settlement. Such suits, known as qui tam actions, have increased significantly in the healthcare industry in recent years. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government 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. A person or entity no longer needs to have actual knowledge of this 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. 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. Such a challenge, regardless of the outcome, could have a material adverse effect on our business, business relationships, reputation, financial condition and results of operations.

The Patient Protection and Affordable Care Act also imposes annual reporting and disclosure requirements on device and drug manufacturers for “transfers of value” made or distributed to licensed physicians and teaching hospitals. Device and drug manufacturers are also required to report and disclose annually any investment interests held by physicians and their immediate family members during the preceding calendar year. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $0.15 million per year (and up to an aggregate of $1.0 million per year for “knowing failures”), for all payments, transfers of value or ownership or investment interests not reported in an annual submission.

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians. Certain states, mandate implementation of compliance programs and/or the tracking and reporting of gifts, compensation and other remuneration to physicians. 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 prohibits the offering or giving of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of items or services reimbursable by a Federal or state governmental healthcare program. We sometimes offer customers various discounts and other financial incentives in connection with the sales of our products. While it is our intent to comply with all applicable laws, the government may find that our marketing activities violate the Civil Monetary Penalties Law. If we are found to be in non-compliance, we could be subject to civil money penalties of up to $0.02 million for each wrongful act, assessment of three times the amount claimed for each item or service and exclusion from the federal or state healthcare programs.

On February 3, 2017, the Department of Justice (DOJ) published a final rule that applies an inflation adjustment to civil monetary penalty (CMP) amounts, as mandated by the Bipartisan Budget Act of 2015. The maximum CMP for False Claims Act violations is $ 0.02 million for civil penalties assessed after August 1, 2016 and whose violations occurred after November 2, 2015.

The Bipartisan Budget Act of 2018 increases the CMP and criminal fines and sentences for various fraud and abuse violations under the Medicare and Medicaid programs for violations committed after February 9, 2018. The new maximum CMP for a False Claims Act violation is $0.02 million.

The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. If our operations are found to be in violation of any of the laws described above or any other government regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restricting of our operations. Any penalties, damages, fines, curtailment or restructuring or our operations could harm our ability to operate our business and our financial results. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state fraud laws may prove costly.

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

As of June 30, 2018, we sold our products in 46 countries 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. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to supply data that compares the cost-effectiveness of our Inogen One and Inogen At Home systems to other available oxygen therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, it may not be profitable to sell our products in certain foreign countries, which would negatively affect the long-term growth of our business.

Our business activities involve the use of hazardous materials, which require compliance with environmental and occupational safety laws regulating the use of such materials. If we violate these laws, we could be subject to significant fines, liabilities or other adverse consequences.

Our research and development programs as well as our manufacturing operations involve the controlled use of hazardous materials. Accordingly, we are subject to international, federal, state and local laws governing the use, handling and disposal of these materials. Although we believe that our safety procedures for handling and disposing of these materials comply in all material respects with the standards prescribed by state and federal regulations of each country in which we conduct business, we cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of an accident or failure to comply with environmental laws, we could be held liable for resulting damages, and any such liability could exceed our insurance coverage.

New regulatory requirements under Proposition 65 could adversely affect our business.

We are subject to California’s Proposition 65, or Prop 65, which requires a specific warning on any product that contains a substance listed by the State of California as having been found to cause cancer or birth defects, unless the level of such substance in the product is below a safe harbor level. Prop 65 requires that all businesses must be in compliance by August 30, 2018 with new regulations that require modifications to product warnings and for businesses to coordinate with upstream vendors or downstream customers for the 800+ regulated chemicals in consumer products and assess whether new occupational exposure warnings need to be posited in California facilities. While we are working to be in compliance by such date, and expect to add any required warning label to our products packaged in California and manufactured after the August 30 ^th date, if we are unable to comply with regulatory requirements on a timely basis or at all, significant fines or penalties could be incurred or we could have to curtail some aspects of our sales or operations, which would adversely impact our business, financial condition, and operating results. We are also researching the certification of our products as Prop 65 Compliant in addition to providing necessary labeling if such certification is not obtained by the compliance date. There can be no assurance that such certification will be received, therefore potential warning labels will be added to the product labeling until such certification is obtained. Although we cannot predict the ultimate impact of these new requirements, they will likely result in additional costs and could reduce overall consumption of our products or leave consumers with the perception (whether or not valid) that our products do not meet their health and wellness needs , all of which could adversely impact our business, financial condition, and operating results.

Risks related to our intellectual property

If we are unable to secure and maintain patent or other intellectual property protection for the intellectual property used in our products, we will lose a significant competitive advantage, which may adversely affect our future profitability.

Our commercial success depends, in part, on obtaining, defending, and maintaining patent and other intellectual property protection for the technologies used in our products. The patent positions of medical device companies, including ours, can be highly uncertain and involve complex and evolving legal and factual questions. Furthermore, we might in the future opt to license intellectual property from other parties. If we, or the other parties from whom we would license intellectual property, fail to obtain, defend, and maintain adequate patent or other intellectual property protection for intellectual property used in our products, or if any protection is reduced or eliminated, others could use the intellectual property used in our products, resulting in harm to our competitive business position. In addition, patent and other intellectual property protection may not:

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prevent our competitors from duplicating our products;

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prevent our competitors from gaining access to our proprietary information and technology

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prevent our competitors or other parties from suing us for alleged infringement; or

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permit us to gain or maintain a competitive advantage.

Any of our patents may be challenged, invalidated, circumvented or rendered unenforceable. We cannot provide assurance that we will be successful should one or more of our patents be challenged for any reason. 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 June 30, 2018, we have seven pending patent applications and one pending international patent application, thirty-three issued patents relating to the design and construction of our oxygen concentrators and our intelligent delivery technology. We cannot specify which of these patents individually or as a group will permit us to gain or maintain a competitive advantage. Patents and patent applications may be subject to interference proceedings, and patents may be subject to reexamination, inter partes review, post-grant review, and derivation proceedings in the U.S. Patent and Trademark Office or comparable proceedings in other patent offices worldwide. Foreign patents may be subject to opposition or comparable proceedings in the corresponding foreign patent offices. Any of these proceedings could result in loss of the patent or denial of the patent application, or loss or reduction in the scope of one or more of the claims of the patent or patent application. Changes in either patent laws or in interpretations of patent laws may also diminish the value of our intellectual property or narrow the scope of our protection. Interference, reexamination, inter partes review, defense, and opposition proceedings may be costly and time consuming, and we, or the other parties from whom we might potentially license intellectual property, may be unsuccessful in defending against such proceedings. Thus, any patents that we own or might license may provide limited or no protection against competitors. In addition, our pending patent applications and those we may file in the future may have claims narrowed during prosecution or may not result in patents being issued. Even if any of our pending or future applications are issued, they may not provide us with any competitive advantage or adequate protection from allegations of infringement, whether valid or frivolous, which may result in the incurrence of material defense costs. Our patents and patent applications are directed to particular aspects of our products. Other parties may develop and obtain patent protection for more effective technologies, designs or methods for oxygen therapy. If these developments were to occur, it would likely have an adverse effect on our sales. Our ability to develop additional patentable technology is also uncertain.

Non-payment or delay in payment of patent fees or annuities, whether intentional or unintentional, may also result in the loss of patents or patent rights important to our business. Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to other parties. In addition, many countries limit the enforceability of patents against other parties, including government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of the patent. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States, particularly in the field of medical products and procedures.

Our products could infringe or appear to infringe the intellectual property rights of others, which may lead to patent and other intellectual property litigation that could itself be costly, could result in the payment of substantial damages or royalties, prevent us from using technology that is essential to our products, and/or force us to discontinue selling our products.

The medical device industry in general has been characterized by extensive litigation and administrative proceedings regarding patent infringement and intellectual property rights. Our competitors hold a significant number of patents relating to oxygen therapy devices and products. Third parties have in the past asserted and may in the future assert that we are employing their proprietary technology without authorization. For example, Separation Design Group IP Holdings, LLC (SDGIP) filed a lawsuit against us on

October 23, 2015 in the United States District Court for the Central District of California. SDGIP alleged that we willfully infringe d U.S. Patent Nos. 8,894,751 and 9,199,055, both of which are titled “Ultra Rapid Cycle Portable Oxygen Concentrator.” SDGIP also alleged misappropriation of trade secrets and breach of contra ct stemming from a meeting in September 2010. SDGIP sought to recover damages (including compensatory and treble damages), costs and expenses (including attorneys’ fees), pre-judgment and post-judgment interest, and other relief that the Court deem proper. SDGIP also sought a permanent injunction against us. Additionally, CAIRE, Inc. (CAIRE) filed a lawsuit in the United States District Court for the Northern District of Georgia against us on September 12, 2016. CAIRE alleged that we infringed U.S. Patent N o. 6,949,133, entitled “Portable Oxygen Concentrator.” While we settled our lawsuit with SDGIP in October 2017 and with CAIRE in December 2017, if we fail in defending against similar lawsuits or claims brought against us in the future , we could be subject to substantial monetary damages and injunctive relief, and we cannot predict the outcome of any lawsuit. An adverse determination or protracted defense costs of pending lawsuits could have a material effect on our business and operating results.

From time to time, we have also commenced litigation to enforce our intellectual property rights. For example, we previously pursued litigation against Inova Labs, Inc. (a subsidiary of ResMed Corp.) for infringement of two of our patents seeking damages, injunctive relief, costs, and attorneys’ fees. While we settled our lawsuit with Inova Labs in June 2016, an adverse decision in any other legal action could limit our ability to assert our intellectual property rights, limit the value of our technology or otherwise negatively impact our business, financial condition and results of operations.

Monitoring unauthorized use of our intellectual property is difficult and costly. Unauthorized use of our intellectual property may have occurred or may occur in the future. Although we have taken steps to minimize the risk of this occurring, any such failure to identify unauthorized use and otherwise adequately protect our intellectual property would adversely affect our business. Moreover, if we are required to commence litigation, whether as a plaintiff or defendant as has occurred with Inova Labs, SDGIP, and CAIRE, not only will this be time-consuming, but we will also be forced to incur significant costs and divert our attention and efforts of our employees, which could, in turn, result in lower revenue and higher expenses.

We cannot provide assurance that our products or methods do not infringe or appear to not infringe the patents or other intellectual property rights of third parties and if our business is successful, the possibility may increase that others will assert infringement claims against us whether valid or frivolous.

Determining whether a product infringes a patent involves complex legal and factual issues, defense costs and the outcome of a patent litigation action are often uncertain. We have not conducted an extensive search of patents issued or assigned to other parties, including our competitors, and no assurance can be given that patents containing claims covering or appearing to cover our products, parts of our products, technology or methods do not exist, have not been filed or could not be filed or issued. Because of the number of patents issued and patent applications filed in our technical areas, our competitors or other parties may assert that our products and the methods we employ in the use of our products are covered by U.S. or foreign patents held by them. In addition, because patent applications can take many years to issue and because publication schedules for pending applications may vary by jurisdiction and some companies opt not to publish their patent applications, there may be applications now pending of which we are unaware and which may result in issued patents that our current or future products infringe or appear to infringe. Also, because the claims of published patent applications can change between publication and patent grant, there may be published patent applications that may ultimately issue with claims that we infringe. There could also be existing patents that one or more of our products or parts may infringe and of which we are unaware. As the number of competitors in the market for oxygen products and the number of patents issued in this area grows, the possibility of patent infringement claims against us increases. In certain situations, we may determine that it is in our best interests to voluntarily challenge a party’s patents in litigation or other proceedings, including patent reexaminations, or inter partes reviews. As a result, we may become involved in unwanted protracted litigation that could be costly, result in diversion of management’s attention, require us to pay damages and/or licensing royalties and force us to discontinue selling our products.

Infringement and other intellectual property claims and proceedings brought against us, whether successful or not, could result in substantial costs and harm to our reputation. Such claims and proceedings can also distract and divert management and key personnel from other tasks important to the success of the business. We cannot be certain that we will successfully defend against allegations of infringement of patents or other intellectual property rights. In the event that we become subject to a patent infringement or other intellectual property related lawsuit and if the asserted patents or other intellectual property were upheld as valid and enforceable and we were found to infringe the asserted patents or other intellectual property, or violate the terms of a license to which we are a party, we could be required to do one or more of the following:

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cease selling or using any of our products that incorporate the asserted intellectual property, which would adversely affect our revenue;

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pay damages for past use of the asserted intellectual property, which may be substantial;

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obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable royalty terms, if at all, and which could re duce profitability; and

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redesign or rename, in the case of trademark claims, our products to avoid infringing the intellectual property rights of third parties, which may not be possible and could be costly and time-consuming if it is possible to do so.

If we are unable to prevent unauthorized use or disclosure of trade secrets, unpatented know-how and other proprietary information, our ability to compete will be harmed.

We rely on a combination of trade secrets, copyrights, trademarks, confidentiality agreements and other contractual provisions and technical security measures to protect certain aspects of our technology, especially where we do not believe that patent protection is appropriate or obtainable. We require our employees and consultants to execute confidentiality agreements in connection with their employment or consulting relationships with us. We also require our employees and consultants to disclose and assign to us all inventions conceived during the term of their employment or engagement while using our property or that relate to our business. We also require our corporate partners, outside scientific collaborators and sponsored researchers, advisors and others with access to our confidential information to sign confidentiality agreements. We also have taken precautions to initiate reasonable safeguards to protect our information technology systems. However, these measures may not be adequate to safeguard our proprietary intellectual property and conflicts may, nonetheless, arise regarding ownership of inventions. Such conflicts may lead to the loss or impairment of our intellectual property or to expensive litigation to defend our rights against competitors who may be better funded and have superior resources. Our employees, consultants, contractors, outside clinical collaborators and other advisors may unintentionally or willfully disclose our confidential information to competitors. In addition, confidentiality agreements may be unenforceable or may not provide an adequate remedy in the event of unauthorized disclosure. Enforcing a claim that a third-party illegally obtained and is using our trade secrets is expensive and time-consuming, and the outcome is unpredictable. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our products that we consider proprietary, and in such cases we could not assert any trade secret rights against such party. As a result, other parties may be able to use our proprietary technology or information, and our ability to compete in the market would be harmed.

We may be subject to damages resulting from claims that our employees, agents or we have wrongfully used or disclosed alleged trade secrets of other companies.

Some of our employees and consultants were previously employed by or contracted with other medical device companies focused on the development of oxygen therapy products, including our competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or agents have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Even if we are successful in defending against these claims, litigation could result in substantial costs, damage to our reputation and be a distraction to management.

Risks related to being a public company

We will incur increased costs as a result of operating as a public company and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a public company, especially now that we are no longer an “emerging growth company,” we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules enforced by the Public Companies Oversight Board (PCAOB) subsequently implemented by the SEC and the NASDAQ Global Select Market impose numerous requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Also, the Securities Exchange Act of 1934, as amended, or the Exchange Act,

requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. Our mana gement and other personnel will need to devote a substantial amount of time to compliance with these laws and regulations. These requirements have increased and will continue to increase our legal, accounting, external audit and financial compliance costs and have made and will continue to make some activities more time consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as exe cutive officers.

Overall, we estimate that our incremental costs resulting from operating as a public company, including compliance with these rules and regulations, may be between $1.5 million and $3.0 million per year. However, these rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies and public accounting firms are subject to PCAOB compliance audits. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

The Sarbanes-Oxley Act requires, among other things, that we assess and document the effectiveness of our internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. In particular, Section 404(a) of the Sarbanes-Oxley Act, or Section 404(a), requires us to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting. Section 404(b) of Sarbanes-Oxley Act, or Section 404(b), also requires our independent registered public accounting firm to attest to the effectiveness of our internal control over financial reporting. Now that we are no longer an “emerging growth company,” our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, and the cost of our compliance with Section 404(b) is higher. Our compliance with applicable provisions of Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements.

Furthermore, investor perceptions of our company may suffer if deficiencies are found, and this could cause a decline in the market price of our stock. Irrespective of compliance with Section 404, any failure of our internal control over financial reporting could have a material adverse effect on our stated operating results and harm our reputation. 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.

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. If our internal controls are not effective, we may not be able to accurately report our financial results or prevent fraud.

Section 404 of the Sarbanes-Oxley Act, or Section 404, requires that we maintain internal control over financial reporting that meets applicable standards. We may err in the design, operation or documentation of our controls, and all internal control systems, no matter how well designed and operated, can provide only reasonable assurance that the objectives of the control system are met. Because there are inherent limitations in all control systems, there can be no absolute assurance that all control issues have been or will be detected. If we are unable, or are perceived as unable, to produce reliable financial reports due to internal control deficiencies, investors could lose confidence in our reported financial information and operating results, which could result in a negative market reaction.

We are required to disclose changes made in our internal controls and procedures on a quarterly basis. Now that we are no longer an “emerging growth company,” our independent registered public accounting firm is also required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. Our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future. Additionally, to comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff, which may adversely affect our operating results and financial condition.

We have reported material weaknesses in our internal controls over financial reporting in the past. For example, as we disclosed in our Annual Report on Form 10-K for the period ended December 31, 2014, and our Quarterly Reports on Fo rms 10-Q for the periods ended March 31, 2015, June 30, 2015 and September 30, 2015, we identified a material weakness with respect to internal control over the review of sales order documentation supporting our direct-to-customer sales and rentals prior t o revenue recognition. We commenced measures to remediate this material weakness during the first quarter of 2015, and remediation was completed as of December 31, 2015.

Although prior material weaknesses have been remediated, we cannot assure you that our internal controls will continue to operate properly or that our financial statements will be free from error. There may be undetected material weaknesses in our internal control over financial reporting, as a result of which we may not detect financial statement errors on a timely basis. Moreover, in the future we may implement new offerings and engage in business transactions, such as acquisitions, reorganizations or implementation of new information systems that could require us to develop and implement new controls and could negatively affect our internal control over financial reporting and result in material weaknesses.

If we identify new material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, we may be late with the filing of our periodic reports, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected. As a result of such failures, we could also become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation, financial condition or divert financial and management resources from our core business.

Risks related to our common stock

We expect that our stock price will fluctuate significantly, you may have difficulty selling your shares, and you could lose all or part of your investment.

Our stock is currently traded on NASDAQ, but we can provide no assurance that we will be able to maintain an active trading market on NASDAQ or any other exchange in the future. If an active trading market does not develop, you may have difficulty selling any of our shares of common stock that you buy. In addition, the trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include:

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actual or anticipated quarterly variation in our results of operations or the results of our competitors;

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announcements of secondary offerings;

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announcements by us or our competitors of new commercial products, significant contracts, commercial relationships or capital commitments;

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issuance of new or changed securities analysts’ reports or recommendations for our stock;

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developments or disputes concerning our intellectual property or other proprietary rights;

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commencement of, or our involvement in, litigation;

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market conditions in the oxygen therapy market;

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reimbursement or legislative changes in the oxygen therapy market;

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failure to complete significant sales;

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manufacturing disruptions that could occur if we were unable to successfully expand our production in our current or an alternative facility;

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any future sales of our common stock or other securities;

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any major change to the composition of our board of directors or management;

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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

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the other factors described in this “Risk Factors” section; and

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general economic conditions and slow or negative growth of our markets.

The stock market in general and market prices for the securities of technology-based companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. In several recent situations where the market price of a stock has bee n volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and di vert the time and attention of our management and harm our operating results.

If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will rely in part on the research and reports that equity research analysts publish about us and our business. We will not have any control of the analysts or the content and opinions included in their reports. The price of our stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.

Future sales of shares could cause our stock price to decline.

Our stock price could decline as a result of sales of a large number of shares of our common stock or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

As of June 30, 2018, one holder of approximately 3.5 million shares, or approximately 16.7%, of our outstanding shares, has rights, subject to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We have also registered the offer and sale of all shares of common stock that we may issue under our equity compensation plans.

In addition, in the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition, litigation settlement, and employee arrangements or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and could cause our stock price to decline.

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 June 30, 2018, 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 54.7% 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. These stockholders may also delay or prevent a change of control of us, even if such a change of control would benefit our other stockholders. The significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts of interest may exist or arise.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.

Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:

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authorize our board of directors to issue, without further action by the stockholders, up to 10,000,000 shares of undesignated preferred stock;

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

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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;

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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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establish that our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving staggered three-year terms;

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provide that our directors may be removed only for cause;

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provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

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specify that no stockholder is permitted to cumulate votes at any election of directors; and

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require a super-majority of votes to amend certain of the above-mentioned provisions.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us.

We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.

We have paid no cash dividends on any of our classes of capital stock to date and currently intend to retain our future earnings to fund the development and growth of our business. In addition, we may become subject to covenants under future debt arrangements that place restrictions on our ability to pay dividends. As a result, capital appreciation, if any, of our common stock is expected to be your sole source of gain for the foreseeable future.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

We did not repurchase any shares of our common stock during the three or six months ended June 30, 2018 and June 30, 2017.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

I tem 6. Exhibits

Exhibit
Number		Description
10.1		Lease Agreement by and between the Company, Cleveland American, LLC and Holdings Cleveland American, LLC, dated as of May 31, 2017

10.2		First Amendment to Lease Agreement between the Company, Cleveland American, LLC and Holdings Cleveland American, LLC, dated as of January 10, 2018

10.3		Second Amendment to Lease Agreement between the Company, Cleveland American, LLC and Holdings Cleveland American, LLC, dated as of May 1, 2018

31.1		Certification Pursuant to Exchange Act Rules 13a - 14(a) and 15d - 14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer

31.2		Certification Pursuant to Exchange Act Rules 13a - 14(a) and 15d - 14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer

32.1(1)		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer

32.2(1)		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Document

(1) The Certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Inogen, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

SIGN ATURES

Pursuant to the requirements 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.

		inogen, inc.

Dated:	August 7, 2018	By:	/s/ Scott Wilkinson
			Scott Wilkinson
			Chief Executive Officer President Director (Principal Executive Officer)

Dated:

August 7, 2018

By:

/s/ Alison Bauerlein

Alison Bauerlein

Chief Financial Officer

Executive Vice President, Finance

Secretary and Treasurer

(Principal Financial and Accounting Officer)

Exhibit 10.1

LEASE AGREEMENT

by and between

CLEVELAND AMERICAN, LLC,

a Delaware limited liability company,

HOLDINGS CLEVELAND AMERICAN, LLC,

a Delaware limited liability company,

and

INOGEN, INC.,

a Delaware corporation

TABLE OF CONTENTS

Title		Page

LEASE SUMMARY		1
1.	PREMISES	1
2.	TERM	3
3.	RENT	4
4.	SECURITY DEPOSIT	5
5.	ADDITIONAL RENT	6
6.	PARKING	10
7.	PERMITTED USES	10
8.	ENVIRONMENTAL COMPLIANCE/HAZARDOUS MATERIALS	11
9.	UTILITIES	13
10.	REPAIRS BY LANDLORD	13
11.	REPAIRS BY TENANT	14
12.	TENANT’S TAXES AND ASSESSMENTS	14
13.	ALTERATION OF PREMISES	15
14.	INSURANCE	17
15.	WAIVER, EXCULPATION AND INDEMNITY	19
16.	CONSTRUCTION LIENS	20
17.	QUIET ENJOYMENT	20
18.	LANDLORD’S RIGHT OF ENTRY	21
19.	DESTRUCTION OF BUILDING	21
20.	EMINENT DOMAIN	21
21.	BANKRUPTCY	22
22.	DEFAULT	22
23.	SURRENDER OF PREMISES	23
24.	HOLDING OVER	23
25.	SURRENDER OF LEASE	24
26.	RULES AND REGULATIONS	24
27.	NOTICE	24
28.	ASSIGNMENT AND SUBLETTING	25
29.	ATTORNEYS’ FEES	25
30.	LITIGATION AND JUDGMENT COSTS	25
31.	BROKERS	26
32.	SUBORDINATION OF LEASE	26
33.	ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS	27
34.	OPTION TO EXTEND	27
35.	RIGHT OF FIRST OFFER	28
36.	INTENTIONALLY DELETED	29
37.	INTENTIONALLY DELETED	29
38.	SIGNS	29
39.	INTENTIONALLY DELETED	29
40.	FORCE MAJEURE	29
41.	GENERAL PROVISIONS	29

Exhibits

Exhibit A		Premises
Exhibit B-1		Potential Office Expansion Space
Exhibit B-2		Office Increment – Base Rent Schedule
Exhibit C-1		Warehouse Space
Exhibit C-2		Warehouse Space – Base Rent Schedule
Exhibit C-3		Warehouse Space – Work
Exhibit C-4		Potential Warehouse Expansion Space
Exhibit D-1		Landlord’s Work
Exhibit D-2		List of Landlord’s Work
Exhibit D-3		Pre-Approved Initial Tenant Improvements
Exhibit E		Form of Lease Commencement Notice
Exhibit F		Exclusions from Office Common Expenses and Industrial Common Expenses
Exhibit G		Real Estate Commission Agreement

LEASE SUMMARY

Set forth below is a summary of certain terms and conditions of the Lease Agreement among Cleveland American, LLC, a Delaware limited liability company, and Holdings Cleveland American, LLC, a Delaware limited liability company, as Landlord, and Inogen, Inc., a Delaware corporation, as Tenant, solely for the convenience of the parties. In the event there is a conflict between this Lease Summary and the terms and conditions of the Lease Agreement, the terms and conditions of the Lease Agreement shall prevail.

A .	Building means that certain multi-tenant building having the street address of 1 American Road, Cleveland, Ohio 44144. See Paragraph 1.1 .

B .	Premises means approximately 22,100 rentable square feet of office space on the second floor of the Building, as outlined on the site plan attached as Exhibit A . See Paragraph 1.2 .

C.	Term means the period from the Occupancy Date through and including the day immediately preceding the seventh (7 ^th ) anniversary of the Commencement Date. See Paragraph 2.1 .

D .	Commencement Date means the later to occur of the following: (i) the day that is ninety (90) days after the Occupancy Date; or (ii) August 1, 2017. See Paragraph 2.2 .

E.	Occupancy Date means the date that possession of the Premises is delivered to Tenant in Ready for Occupancy as defined in Exhibits D-1 and D-2. See Paragraph 2.2 and Exhibits D-1 and D-2 .

F .

Base Rent shall be calculated pursuant to the Base Rent schedule set forth in Paragraph 3.1 of the Lease Agreement and shall be paid in monthly installments beginning on the Commencement Date. All rent is due on the first day of each month and shall be paid to Landlord at c/o IRG Realty Advisors, LLC, 4020 Kinross Lakes Parkway, Suite 200, Richfield, Ohio 44286. See Paragraph 3.1 .

G .	Security Deposit initially means $24,788.83, based on one month’s Base Rent. See Paragraph 4 .

H .

Additional Rent means (i) Tenant’s Office Share of the increase in Office Project Expenses (calculated as increases over the Base Year) and (ii) Tenant’s Industrial Share of the increase in Industrial Project Expenses (calculated as increases over the Base Year), payable monthly in advance together with Base Rent. See Paragraph 5.1.A .

I .	Office Project Expenses means the sum of Office Common Expenses, Office Insurance Expenses, and Office Tax Expenses. See Paragraph 5.1.L .

K.	Tenant’s Office Share for the Premises is determined by dividing the 22,100 SF Rentable Area of the Premises by the 504,942 SF Rentable Office Area of the Building). See Paragraph 5.1.T .

L .	Industrial Project Expenses means the sum of Industrial Common Expenses, Industrial Insurance Expenses, and Industrial Tax Expenses. See Paragraph 5.1.F .

M.	Tenant’s Industrial Share for the Premises, when applicable, shall be determined by dividing the Rentable Area of the Warehouse Space (as hereinafter defined) by the 892,800 SF Rentable Industrial Area of the Building. See Paragraph 5.1.S .

Permitted Use means office purposes and uses customarily associated therewith. In the event that Tenant expands into the Warehouse Space in accordance with the terms and conditions of the Lease Agreement, then Tenant shall use and occupy the Warehouse Space for warehouse and assembly purposes and uses customarily associated therewith. See Paragraph 7 .

L .	Utilities . Tenant shall pay the cost of its Utilities. See Paragraph 9 .

M .	Option to Extend . Tenant shall have one (1) O ption to E xtend the Term for five (5) additional years. See Paragraph 3 4 .

N.	Right of First Refusal and Right of First Offer. See Paragraph 35.

O .	Taxpayer Identification Number for Tenant is 33-0989359.

LEASE AGREEMENT

THIS LEASE AGREEMENT (“ Lease ”), dated as of May 31, 2017, is made by and among CLEVELAND AMERICAN, LLC, a Delaware limited liability company, and HOLDINGS CLEVELAND AMERICAN , LLC , a Delaware limited liability company (collectively, “ Landlord ”), and INOGEN, INC. , a Delaware corporation (“ Tenant ”).

WITNESSETH

1. PREMISES

1.1. Property . Landlord owns that certain real property improved with a multi-tenant building (the “ Building ”) located at and having the street address of 1 American Road, Brooklyn, Ohio (the “ Land ”). The Building and the Land are collectively referred to herein as the “ Property .”

1.2. Premises.

A. Premises. Landlord, for and in consideration of the rents, covenants, agreements, and stipulations contained herein, to be paid, kept and performed by Tenant, leases and rents to Tenant, and Tenant hereby leases and takes from Landlord upon the terms and conditions contained herein, approximately 22,100 rentable square feet of office space located in the Building, as outlined on the site plan attached as Exhibit A .

B. Temporary Space. In the event that Landlord does not deliver possession of the Premises to Tenant with Landlord’s Work substantially complete, subject to punchlist items and other items that do not materially interfere with Tenant’s operations from the Premises, within ninety (90) days after the execution of this Lease (the “Anticipated Completion Date”), then Landlord shall make available to Tenant temporary space in an area agreed upon by Landlord and Tenant (the “Temporary Space”) until Landlord’s Work is substantially complete. The occupancy by Tenant of the Temporary Space shall be upon the terms and conditions contained in the Lease, except that Tenant shall not be required to pay Base Rent or Additional Rent but Tenant shall be required to pay Utilities (as defined below) provided to the Temporary Space. The Temporary Space shall be delivered to Tenant in its “as-is” condition without any work to be performed by Landlord. Tenant may occupy the Temporary Space until Landlord’s Work to the Premises is substantially complete, subject to punchlist items and other items that do not materially interfere with Tenant’s operations from the Premises. In addition to the foregoing, promptly after the execution of this Lease, Landlord shall provide to Tenant temporary space in such areas as agreed upon between Landlord and Tenant (the “Initial Workspace”). The occupancy by Tenant of the Initial Workspace shall be upon the terms and conditions contained in the Lease, except that Tenant shall not be required to pay Base Rent or Additional Rent but Tenant shall be required to pay for Utilities provided to the Initial Workspace. The Initial Workspace shall be delivered to Tenant in its “as-is” condition without any work to be performed by Landlord. Tenant may occupy the Initial Workspace until the Commencement Date.

1.3. Office Expansion Option .

A. Office Expansion Right . During the first sixty (60) months of the Initial Term, so long as Tenant is not in Default of this Lease, beyond all applicable notice and cure periods, on the date of the exercise of its expansion rights as outlined herein, and so long as Tenant has not been in monetary or other material Default of this Lease more than two (2) times during any consecutive twelve month period of time during the Term, Tenant shall have the option to lease additional office space in the Building in the area identified as “EXPANSION” on Exhibit B-1 (the “Potential Office Expansion Space ”), in increments of no less than 5,000 rentable square feet (each, an “ Office Incremen t”) provided, however, in no event shall Tenant be permitted to expand into any portion of Area #2 as shown on Exhibit B-1 without first expanding into all areas of Area #1 as shown on Exhibit B-1. In order to exercise any expansion option the following shall apply: (a) Tenant delivers written notice (the “ Office Expansion Notice ”) to Landlord exercising Tenant’s right to expand into such Office Increment, which Office Expansion Notice stipulates the rentable square footage of such Office Increment; (b) such Office Increment is contiguous to

the Premises or any Office Increment then leased to Tenant; ( c ) such Office Expansion Notice is delivered to Landlord within 60 months after the Co mmencement Date; (d ) such Office Increment is in a location and a configurati on approved by Landlord; and (e ) in no event shall Tenant be permitted to expand into any portion of Area #2 as shown on Exhibit B-1 without first expanding into all areas of Area #1 as shown on Exhibit B-1 . Landlord agrees that it will not lease any portion of the Potential Office Expansion Space to a third party until the date that is sixty (60 ) months after the Occupancy Date, without obtaining Tenant’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed. At Landlord’s option, Tenant and Landlord will promptly enter into an amendment to this Lease evidencing the expansion into an Office Increment. The lease of each Office Increment shall commence upon the date that Landlord delivers possession of such Office Increment to Tenant (the “ Increment Possession Date ”) and shall be upon the same terms and conditions set forth in this Lease as they relate to the Premises , including, a proportionate increase in Tenant’s Office Share effective as of the Increment Possession Date , except as otherwise set forth in this Lease.

B. Base Rent – Office Increment . Tenant’s obligation to pay Base Rent for any Office Increment shall commence on the applicable Office Increment Commencement Date (as hereinafter defined) and the per rentable square foot Base Rent for such Office Increment shall be based upon the schedule attached to this Lease as Exhibit B-2 . The “Office Increment Commencement Date” for any Office Increment shall mean the later of (i) ninety (90) days after Landlord’s receipt of the Office Expansion Notice; and (ii) ninety (90) days after the applicable Increment Possession Date. For purposes of example only, in the event the Office Increment Commencement Date is the first day of Lease Year 5 and the applicable Office Increment contains 5,000 rentable square feet, then, during the fifth (5 ^th ) Lease Year, Tenant shall pay Base Rent of $4, 554.17 per month for such Office Increment (based on $10.93 per rentable square foot of such Office Increment per annum) and during the sixth (6 ^th ) Lease Year, Tenant shall pay Base Rent of $4,666.67 per month for such Office Increment (based on $11. 20 per rentable square foot of such Office Increment per annum) and shall thereafter increase as set forth on Exhibit B-2 .

C. Term - Office Increment. The term of the lease of any Office Increment shall be coterminous with the term of the lease of the Premises. If Tenant properly exercises its right to expand into any Office Increment Tenant shall have the right to extend the Initial Term of this Lease for all space in the Building that Tenant is then occupying such that the expiration of the Term shall be five (5) years after the applicable Office Increment Commencement Date, provided, however, that (A) the applicable Office Expansion Notice stipulates that Tenant is exercising its right to extend the Initial Term for such five (5) year period; and (B) the expiration of such five (5) year period is after the expiration of the Initial Term, absent such extension. In the event that Tenant exercises its right to extend the Initial Term for said five (5) year period then Base Rent shall be as follows:

(i) Base Rent for the Premises shall continue as set forth in Paragraph 3.1 of this Lease, provided, that Base Rent for the Premises for Lease Year 8 shall be equal to the annual Base Rent for the Premises during Lease Year 7 increased by two and one-half percent (2.5%), and Base Rent for the Premises for each Lease Year thereafter shall increase by two and one-half percent (2.5%), on a cumulative basis.

(ii) Base Rent for each Office Increment leased by Tenant shall be based upon the schedule attached to this Lease as Exhibit B-2 .

(iii) Base Rent for any Warehous e Space leased by Tenant shall be based upon the schedule attached to this Lease as Exhibit C-2 .

D. Work . Tenant shall lease each Office Increment in its “as-is” condition Tenant, at Tenant’s option, shall have the right to an Office Increment Allowance, as set forth in Paragraph 13.F below, provided, however, that the Office Expansion Notice stipulates that (a) Tenant is exercising its right to such Office Increment Allowance and (b) Tenant is exercising its right to extend the Initial Term as set forth in Paragraph 1.3.C. above.

1.4. Warehouse Space .

A. Provided that Tenant is not then in Default, beyond all applicable notice and cure periods, under any of the terms hereof and has not been in monetary or other material Default more than two (2) times during the first year of the Term, Tenant shall have the option to lease all, but not a portion, of that certain 15,425 rentable square feet of space in the Building identified on Exhibit C-1 (the “ Warehouse Space ”) provided, however, that (i)

such Warehouse Space is not leased to another tenant or otherwise occupied; or (ii) Landlord is not in current, reciprocal written negotiations for t he lease of all or part of such Warehouse Space with a third party ; and (iii) by providing Landlord written notice of Tenant’s expansion right at any time during the first year of the Initial Term . Tenant and Landlord shall enter into an amendment to this Lease evidencing the expansion into the Warehouse Space. In the event that Tenant properly exe rcises its option to expand into the Warehouse Space , th e lease of the Warehouse Space shall commence upon the date that Landlord delivers possession of the Warehouse Space to Tenant and shall be coterminous with the term of the Premises . The lease of the Warehouse Space s hall be upon the same terms and conditions set forth in this Lease as they relate to the Premises, except as ot herwise set forth in this Lease. In the event that Tenant properly expands into the Warehouse Space, then the term “Premises”, as used in this Lease, shall be deemed to include th e Warehouse Space, except for Paragraphs 1.2, 1.3, 3.1, 5, 6, 10.B, 13.B , 13.C, 13.D, 13.E and 34.2.A .

B. Base Rent- Warehouse Space . Tenant’s obligation to pay Base Rent for the Warehouse Space shall commence on the Warehouse Commencement Date (as herein after defined) and the per rentable square foot Base Rent for such the Warehouse Space leased by Tenant shall be based upon the schedule attached to this Lease as Exhibit C-2 . The “Warehouse Commencement Date” shall mean the later of (i) the Commencement Date and (ii) ninety (90) days after Landlord delivers possession of the Warehouse Space to Tenant. For purposes of example only, in the event that the Warehouse Commencement Date is the first day of the seventh (7 ^th ) month of the first Lease Year, then Base Rent for the twelve (12) month period following the Warehouse Commencement Date shall be as follows:

Warehouse Commencement Date through the end of Lease Year 1: $7.20 per rentable square foot of the Warehouse Space per annum.

Months 1 – 6 of Lease Year 2: $7.38 per rentable square foot of the Warehouse Space per annum.

C. Work. Tenant shall lease the Warehouse Space in its “as-is” condition except that Landlord shall complete the improvements to the Warehouse Space as set forth on Exhibit C-3 attached hereto.

1.5. Warehouse Expansion Right of First Offer. In the event that Tenant exercises its option right to expand into the Warehouse Space, then during the Initial Term, so long as Tenant is not in material, uncured Default of this Lease on the date of exercise of the option right and has not been in material or monetary Default of this Lease more than two (2) times during any 12-month period of time during the Term, Tenant shall have the right to lease additional warehouse space in the Building in the area identified as “Potential Warehouse Expansion Space” on Exhibit C-4 (the “Potential Warehouse Expansion Space”), in increments of no less than 5,000 rentable square feet (each, a “Warehouse Increment”), provided, however, that (i) such Warehouse Increment is not leased to another tenant or otherwise occupied; (ii) Landlord is not in current, reciprocal written negotiations for the lease of all or part of such portion of such Warehouse Increment with a third party; (iii) Tenant delivers written notice (the “Warehouse Increment Notice”) to Landlord prior to the expiration of the Initial Term, exercising Tenant’s right to expand into such Warehouse Increment; (iv) such Warehouse Increment is contiguous to the Warehouse Space or any Warehouse Increment then leased to Tenant; and (v) such Warehouse Increment is in a location and a configuration reasonably approved by Landlord. Tenant and Landlord will enter into an amendment to this Lease evidencing the expansion into a Warehouse Increment. The lease of each Warehouse Increment shall be upon the same terms and conditions set forth in this Lease as it relates to the Warehouse Space, including, without limit the Term, the per rentable square foot Base Rent rate for the Warehouse Space and Additional Rent (including a proportionate adjustment in Tenant’s Industrial Share), except that Tenant’s obligation to pay Base Rent for any Warehouse Increment shall commence on the applicable Warehouse Increment Commencement Date (as hereinafter defined). The “Warehouse Increment Commencement Date” for any Warehouse Increment shall mean the later of (i) ninety (90) days after Landlord’s receipt of the Warehouse Increment Notice and (ii) ninety (90) days after the date upon which Landlord delivers occupancy of such Warehouse Increment to Tenant.

1.6. Common Areas . In addition to the Premises, Tenant shall have the use of those certain common areas to be reasonably designated by Landlord from time to time on the Property (collectively, the “ Common Areas ”). Such Common Areas shall include, without limitation, parking areas, access roads and facilities, interior corridors and other common areas of the Building, sidewalks, driveways and landscaped and open areas. The Common Areas shall be for the non‑exclusive use of Tenant and Tenant’s employees, agents, suppliers, customers

and patrons, in common with Landlord , with all other tenants of the Property and with all other persons to whom Landlord has previously granted, or may hereafter grant, rights of usage. Such non ‑exclusive use shall be expre ss ly subject to such reasonable rules and regulations which may be adopted by Landlord from time to time. Landlord reserves the right to alter, modify, enlarge, diminish, reduce or eliminate the Common Areas from time to time in its sole discretion , so long as no such action unreasonably and materially interferes with Tenant ’ s use and occupancy of the Premises and the Parking Facilities . Landlord shall have the right to modify Common Areas, and if nece ss ary, parts of the Premises, in order to implement any nece ss ary improvements, and Landlord shall endeavor to minimize any adverse effect on Tenant ’ s use of the Premises. Tenant shall ensure that its use of the Premises and the Property does not block or interfere with any other tenants ’ acce ss to or use of the Common Areas. Tenant may not use the Common Areas for storage of goods, vehicles, refuse or any other items. If Tenant uses any of the Common Areas for storage of any items , and subject to any and all regulatory or municipal codes, laws and regulations , Tenant shall pay all fines imposed upon either Landlord or Tenant by any fire, building or other regulatory body, and Tenant shall pay all costs incurred by Landlord to clear and clean the Common Areas and dispose of such items.

2. TER M

2.1. Term . The term of this Lease (the “ Initial Term ”) shall commence on the Occupancy Date and expire on the day immediately preceding the seventh (7 ^th ) anniversary of the Commencement Date, unless extended or terminated earlier by law or by any provision of this Lease (as may be extended, the “ Term ”). If the last day of the Term shall fall on a day other than the last day of a calendar month, the Term shall be extended so as to end on the last day of such calendar month. The term “ Lease Year ” as used herein means any twelve (12) consecutive month period beginning on the Commencement Date (or, if the Commencement Date falls on a day other than the first day of a calendar month, beginning on the first day of the calendar month immediately following the Commencement Date) or beginning on any anniversary of the Commencement Date.

2.2. Occupancy Date; Commencement Date. The term “Occupancy Date” as used herein shall mean the date that the Premises are Ready for Occupancy as defined in Exhibit D- 1 and D-2). The term “Commencement Date” as used herein shall mean the later to occur of the following: (i) the day that is ninety (90) days after the Occupancy Date; or (ii) August 1, 2017. When the Occupancy Date occurs, Landlord shall send to Tenant a factually correct written notice of such fact (a “ Lease Commencement Notice ”), in the form of Exhibit E . Tenant shall acknowledge the Lease Commencement Notice by executing a copy and returning it to Landlord. If Tenant fails to sign and return the Lease Commencement Notice to Landlord within ten (10) business days after Tenant’s receipt of the Lease Commencement Notice, then the Lease Commencement Notice as sent by Landlord shall be deemed to have correctly set forth the Occupancy Date and Commencement Date, provided, that Tenant shall have the right to dispute in good faith the Lease Commencement Notice by providing written notice of such dispute within such ten (10) business day period. Failure of Landlord to send the Lease Commencement Notice shall not affect the actual establishment of the Occupancy Date and Commencement Date. Tenant agrees to pay the Rent (as defined in Paragraph 5.1.O ) required under this Lease within the time limits set forth in this Lease. In the event Tenant in good faith disputes the Occupancy Date set forth in the Lease Commencement Notice, Tenant shall nevertheless pay to Landlord the amount of Rent due and owing by Tenant, based upon the Commencement Date set forth in the Lease Commencement Notice (under protest), until such time as the parties mutually agree on a different date or Tenant receives a final judgment from a court of competent jurisdiction (or when arbitration is permitted, receives a final award from an arbitrator) relieving or mitigating Tenant’s obligation to pay such Rent.

3. RENT

3.1. Rent . Rent shall be due and payable in lawful money of the United States in advance on the first day of each month, beginning on the Commencement Date. Tenant shall pay to Landlord as base rent (“ Base Rent ”) for the Premises, without notice or demand and without abatement, deduction, offset or setoff, the following rent schedule:


Lease Year	Base Rent PSF Per Annum
Lease Year 1	$11.95
Lease Year 2	$12.19


Lease Year 3	$12.43
Lease Year 4	$12.68
Lease Year 5	$12.94
Lease Year 6	$13.19
Lease Year 7	$13.46

Notwithstanding, there shall be a partial reduction in Base Rent as follows:

Months 1-6 of Lease Year 1: $5,975.00 per month

Months 7-12 of Lease Year 1: $11,950.00 per month

Months 1-6 of Lease Year 2: $18,285.00 per month

Months 7-12 of Lease Year 2: $22,449.92 per month

Lease Year 3: $22,891.92 per month

Lease Year 4: $23,352.33 per month

Lease Year 5: $23,831.17 per month

Lease Year 6: $24,291.58 per month

Lease Year 7: $24,788.83 per month

Rent for any period that is less than one (1) full calendar month shall be prorated based upon the actual number of days of the calendar month involved. Tenant shall pay to Landlord, upon execution of this Lease, the sum of $5,975.00 (representing Base Rent for the Premises for the first month of the Term), plus the Security Deposit (as defined in Paragraph 4 )). Base Rent for any Option Term (as defined in Paragraph 34.1 ) shall be established in accordance with the provisions of Paragraph 34.2 .

3.2. Place of Payment . All payments under this Lease to be made by Tenant to Landlord shall be made payable to Landlord, and mailed or personally delivered to Landlord at the following address or such other address designated by Landlord to Tenant from time to time: Cleveland American, LLC, c/o IRG Realty Advisors, LLC, 4020 Kinross Lakes Parkway, Suite 200, Richfield, Ohio, 44286.

3.3. Late Payment . Tenant hereby acknowledges that late payment by Tenant to Landlord of Rent pursuant to this Lease will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Accordingly, if any installment of Rent or other payment under this Lease is not received by Landlord on or before the fifth (5th) business day of the month in which such Rent or other payment is due, Tenant shall pay a late charge equal to five percent (5%) of such overdue amounts. Tenant shall also be responsible for a service fee equal to fifty dollars ($50.00) for any check returned for insufficient funds, together with such other costs and expenses as may be imposed by Landlord’s bank. The payment to and acceptance by Landlord of such late charge shall in no event constitute a waiver by Landlord of Tenant’s Default with respect to such overdue amounts, nor prevent Landlord from exercising any of the other rights and remedies available at law or in equity or pursuant to this Lease.

3.4. Payment on Account . No payment by Tenant or receipt by Landlord of a lesser amount than the Rent actually due hereunder shall be deemed to be other than a payment on account. No restrictive endorsement or statement on any check or any letter accompanying any check or payment (for example, a statement that such check or payment represents “payment in full”) shall be deemed an accord and satisfaction or have any effect whatsoever.

Landlord may accept such check or payment without prejudice to Landlord ’ s right to recover the balance or pursue any other remedy available at law or in equity or pursuant to this Lease .

4. SECURITY DEPOSIT

Upon execution of this Lease, Tenant shall pay to Landlord a security deposit for the faithful performance of Tenant’s obligations under this Lease in the amount of $24,788.83, based on one month’s Base Rent (the “ Security Deposit ”). Within ten (10) days after any increase in the Base Rent hereunder, Tenant shall pay to Landlord an amount necessary to increase the Security Deposit held by Landlord to an amount equal to the then-current monthly Base Rent. If Tenant fails to pay Rent or other charges due hereunder, or otherwise Defaults under this Lease, Landlord may use, apply or retain all or a portion of the Security Deposit to compensate Landlord for the amount due from Tenant (including reasonable attorneys’ fees) under this Lease. If Landlord uses or otherwise applies all or any portion of the Security Deposit, Tenant shall restore such Security Deposit within ten (10) days after written notice from Landlord. The Security Deposit shall be non‑interest bearing, and Landlord shall be entitled to retain such funds in its general accounts. The balance of the Security Deposit not applied or used by Landlord as permitted in this Paragraph 4 shall be refunded to Tenant thirty (30) days after the later of (A) the expiration or other termination of this Lease, and (B) the date on which Tenant has vacated the Premises.

5. ADDITIONAL RENT

5.1. Definitions .

A. “ Additional Rent ” shall mean (1) Tenant’s Office Share of the difference between (i) the Office Project Expenses during the Computation Year for which Additional Rent is being calculated, and (ii) the Office Project Expenses during the Base Year, with the Office Project Expenses in both cases subject to the Office Gross‑Up Provision (as defined in Paragraph 5.1.J ); and (2) Tenant’s Industrial Share of the difference between (i) the Industrial Project Expenses during the Computation Year for which Additional Rent is being calculated, and (ii) the Industrial Project Expenses during the Base Year, with the Industrial Project Expenses in both cases subject to the Industrial Gross‑Up Provision (as defined in Paragraph 5.1.D );

B. “ Base Year ” means the 2018 calendar year.

C. “ Computation Year ” means each year during the Term commencing on January 1 and ending on December 31.

D. “ Industrial Common Expenses ” means the aggregate amount of the total costs and expenses paid or incurred by Landlord in any way connected with or related to (i) the operation, repair and maintenance of the Property (exclusive of the Office Rentable Area of the Building), including, without limitation, electricity, gas, water, sewer and other utilities; trash removal; security (none currently furnished by Landlord); snow plowing, sanding, salting and shoveling snow; landscaping, mowing and weed removal; on-site manager and employees and related expenses; rubbish removal and dumpster pickup; office expenses; maintenance, repair, and restoration of the Common Areas; electrical, plumbing, sprinkler and HVAC repair and maintenance; testing, maintenance and repair of alarm system, sprinkler system, and fire pump system; repair, resurfacing and restriping of all parking areas, loading and unloading areas, trash areas, roadways, driveways, and walkways; common signage; painting of the Building and Property; fence and gate repair and maintenance; repair and replacement of all lighting facilities; and any and all other repairs and maintenance, and (ii) the furnishing of or contracting for any service generally provided to the tenants of the Property by Landlord, including, without limitation, management fees (not to exceed five percent (5%) of Rent from the Property), and professional fees. Notwithstanding the foregoing or anything to the contrary contained in this Lease, Industrial Project Expenses shall expressly exclude those items listed on Exhibit F and any cost and expense to the extent such cost and expense is included in Office Project Expenses. If less than one hundred percent (100%) of the Industrial Rentable Area of the Building is occupied during any portion of any particular Computation Year (including the Base Year), then the variable portion of Industrial Project Expenses for such Computation Year (including the Base Year) shall be deemed to be equal to the total of the variable portion of Industrial Project Expenses that would have

been incurred by Landlord if one hundred percent (100%) of the Industrial Rentable Area of the Building had been occupied for the entirety of such Computation Year (including the Base Year) , with all tenants paying full rent (as contrasted with free rent, half rent, or the like) (the “ Industrial Gross ‑Up Provision ”). If any significant service or expense category is not included or provided during the entire Base Year but is subsequently included or provided in any other Computation Year, the Base Year shall be equitably adjusted.

E. “ Industrial Insurance Expenses” means the Insurance Expenses allocated by Landlord to the Industrial Area of the Building, provided, however, Industrial Insurance Expenses shall expressly exclude any portion of the Insurance Expenses included in Office Insurance Expenses.

F. “ Industrial Project Expenses ” means the sum of Industrial Common Expenses, Industrial Insurance Expenses, and Industrial Tax Expenses.

G. “ Industrial Tax Expenses” means the Taxes allocated by Landlord to the Industrial Area of the Building, provided, however, Industrial Tax Expenses shall expressly exclude any portion of the Taxes included in Office Tax Expenses.

H. “ Industrial Rentable Area of the Building ” means 892,800 agreed-upon square feet.

I. “ Insurance Expenses ” means the aggregate amount of the cost of fire, extended coverage, boiler, sprinkler, commercial general liability, property damage, rent, earthquake, terrorism and other insurance obtained by Landlord in connection with the Property, including insurance required pursuant to Paragraph 14.1 , and the commercially reasonable deductible portion of any insured loss otherwise covered by such insurance.

J. “ Office Common Expenses ” means the aggregate amount of the total costs and expenses pursuant to GAAP, consistently applied, paid or incurred by Landlord in any way connected with or related to (i) the operation, repair and maintenance of the Property (exclusive of the Industrial Rentable Area of the Building), including, without limitation, electricity, gas, water, sewer and other utilities; trash removal; security (none currently furnished by Landlord); snow plowing, sanding, salting and shoveling snow; landscaping, mowing and weed removal; on-site manager and employees and related expenses; office expenses; maintenance, repair, and restoration of the Common Areas; electrical, plumbing, sprinkler and HVAC repair and maintenance; testing, maintenance and repair of alarm system, sprinkler system, and fire pump system; repair, resurfacing and restriping of all parking areas, loading and unloading areas, trash areas, roadways, driveways, and walkways; common signage; painting of the Building and Property; fence and gate repair and maintenance; repair and replacement of all lighting facilities; and any and all other repairs and maintenance, and (ii) the furnishing of or contracting for any service generally provided to the tenants of the Property by Landlord, including, without limitation, management fees (not to exceed five percent (5%) of the Rent from the Property), and professional fees. Notwithstanding the foregoing or anything to the contrary contained in this Lease, Office Project Expenses shall expressly exclude those items listed on Exhibit F and any cost and expense to the extent such cost and expense is included in Industrial Project Expenses. If less than one hundred percent (100%) of the Office Rentable Area of the Building is occupied during any portion of any particular Computation Year (including the Base Year), then the variable portion of Office Project Expenses for such Computation Year (including the Base Year) shall be deemed to be equal to the total of the variable portion of Office Project Expenses that would have been incurred by Landlord if one hundred percent (100%) of the Office Rentable Area of the Building had occupied for the entirety of such Computation Year (including the Base Year), with all tenants paying full rent (as contrasted with free rent, half rent, or the like) (the “ Office Gross‑Up Provision ”). If any significant service or expense category is not included or provided during the entire Base Year but is subsequently included or provided in any other Computation Year, the Base Year shall be equitably adjusted.

K. “ Office Insurance Expenses” means the Insurance Expenses allocated by Landlord to the Office Area of the Building, provided, however, Office Insurance Expenses shall expressly exclude any portion of the Insurance Expenses included in Industrial Insurance Expenses.

L. “ Office Project Expenses ” means the sum of Office Common Expenses, Office Insurance Expenses, and Office Tax Expenses.

M. “ Office Tax Expenses” means the Taxes allocated by Landlord to the Office Area of the Building, provided, however, Office Tax Expenses shall expressly exclude any portion of the Taxes included in Industrial Tax Expenses.

N. “ Office Rentable Area of the Building ” means 504,942 agreed-upon square feet.

O. “ Rent ” or “ rent ” means the total of all sums due to Landlord from Tenant hereunder, including, without limitation, Base Rent, Additional Rent, Utilities (as defined in Paragraph 9 ) (if the same are not paid for directly by Tenant), as well as all damages, costs, expenses, and sums that Landlord may suffer or incur, or that may become due, by reason of any Default of Tenant or failure by Tenant to comply with the terms and conditions of this Lease.

P. “ Rentable Area of the Premises ” means 22,100 rentable square feet.

Q. “ Rentable Area of the Warehouse Space ” means the rentable square feet contained in any portion of Warehouse Space in the Building leased by Tenant. In the event that Tenant expands into the Warehouse Space, the Rentable Area of the Warehouse Space shall be identified and stated in an amendment to this Lease.

R. “ Taxes ” means all taxes, assessments and charges levied upon or with respect to the Property or any personal property of Landlord used in the operation thereof, or Landlord’s interest in the Property or such personal property. Taxes shall include, without limitation, all general real property taxes and general and special assessments, occupancy taxes, commercial rental taxes, charges, fees or assessments for transit, housing, police, fire or other governmental services or purported benefits to the Property, service payments in lieu of taxes, and any tax, fee or excise on the act of entering into any lease for space in the Property, or on the use or occupancy of the Property or any part thereof, or on the rent payable under any lease or in connection with the business of renting space in the Property, that are now or hereafter levied or assessed against Landlord by the United States of America, the state in which the Property is located, or any political subdivision, public corporation, district or other political or public entity, whether due to increased rate and/or valuation, additional improvements, change of ownership, or any other events or circumstances, and shall also include any other tax, fee or other excise, however described, that may be levied or assessed as a substitute for or as an addition to, as a whole or in part, any other Taxes, whether or not now customary or in the contemplation of the parties on the date of this Lease. Taxes shall not include franchise, transfer, inheritance or capital stock taxes or income taxes measured by the net income of Landlord from all sources unless, due to a change in the method of taxation, any of such taxes is levied or assessed against Landlord as a substitute for or as an addition to, as a whole or in part, any other tax that would otherwise constitute a Tax. Taxes shall also include reasonable legal fees, costs and disbursements incurred in connection with proceedings to contest, determine or reduce Taxes. If any Taxes are specially assessed by reason of the occupancy or activities of one or more tenants of the Property and not the occupancy or activities of the tenants of the Property as a whole, such Taxes shall be allocated by Landlord to the tenant or tenants whose occupancy or activities brought about such assessment.

S. Tenant’s Industrial Share means the percentage computed by dividing the Rentable Area of the Warehouse Space by the Industrial Rentable Area of the Building. In the event that either the Rentable Area of the Warehouse Space or the Industrial Rentable Area of the Building is changed, Tenant’s Industrial Share will be appropriately adjusted by Landlord. For purposes of the Computation Year in which such change occurs, Tenant’s Industrial Share shall be determined on the basis of the number of days during such Computation Year at each such percentage. In addition, for purposes of computing Tenant’s Industrial Share of Industrial Project Expenses for any calendar year, in no event shall "Controllable Expenses" for any calendar year increase by more than five percent (5%) over the Controllable Expenses from the immediately preceding calendar year. "Controllable Expenses" means all Industrial Project Expenses excluding (i) Industrial Tax Expenses; (ii) Industrial Insurance Expenses; (iii) snow removal cost; and (iv) costs of utilities for the Common Areas. Initially, Tenant’s Industrial Share is 0%. Notwithstanding

the foregoing, for purposes of computing Tenant’s Industrial Share of Industrial Tax Expenses for any calendar year, in no event shall Industrial Tax Expenses for any calendar year increase by more than ten percent (10%), calculated on a cumulative and compounded basis, over the Industrial Tax Expenses from the immediately preceding calendar year .

T. Tenant’s Office Share means 4.38%, computed by dividing the Rentable Area of the Premises by the Office Rentable Area of the Building. In the event that either the Rentable Area of the Premises or the Office Rentable Area of the Building is changed, Tenant’s Office Share will be appropriately adjusted by Landlord. For purposes of the Computation Year in which such change occurs, Tenant’s Office Share shall be determined on the basis of the number of days during such Computation Year at each such percentage. In addition, for purposes of computing Tenant’s Office Share of Office Project Expenses for any calendar year, in no event shall "Controllable Expenses" for any calendar year increase by more than five percent (5%) over the Controllable Expenses from the immediately preceding calendar year. "Controllable Expenses" means all Office Project Expenses excluding (i) Office Tax Expenses; (ii) Office Insurance Expenses; (iii) snow removal cost; and (iv) costs of utilities for the Common Areas. Notwithstanding the foregoing, for purposes of computing Tenant’s Office Share of Office Tax Expenses for any calendar year, in no event shall Office Tax Expenses for any calendar year increase by more than ten percent (10%), calculated on a cumulative and compounded basis, over the Office Tax Expenses from the immediately preceding calendar year.

5.2. Payments . In addition to Base Rent, beginning on the first day of the first month after the Base Year, Tenant shall pay to Landlord, monthly, in advance, one-twelfth ( ¹ / ₁₂ ) of the Additional Rent due for each Computation Year, in an amount estimated by Landlord and billed by Landlord to Tenant (the “ Estimated Expenses ”). Landlord shall have the right to revise the Estimated Expenses from time to time and to adjust Tenant’s monthly payments accordingly. If either the Commencement Date or the expiration of the Term shall occur on a date other than the first or last day of a Computation Year, respectively, the Additional Rent for such Computation Year shall be equal to the number of days this Lease was in effect during such Computation Year divided by 365. With reasonable promptness after the end of each Computation Year (including the Base Year), Landlord shall furnish Tenant with a statement setting forth in reasonable detail Landlord’s calculation of the actual Additional Rent that should have been paid by Tenant for such Computation Year (the “ Actual Expenses ”). If the Actual Expenses for such Computation Year exceed the Estimated Expenses paid by Tenant for such Computation Year, then Tenant shall, within thirty (30) days after the receipt of the Actual Expenses statement, pay to Landlord the difference between the Actual Expenses and the Estimated Expenses paid by Tenant. If the Estimated Expenses paid by Tenant for such Computation Year exceed the Actual Expenses for such Computation Year, then such excess shall be credited against the next installments of Additional Rent due from Tenant to Landlord hereunder. Neither Landlord’s failure to deliver, nor late delivery of, the Estimated Expenses or Actual Expenses shall constitute a default by Landlord hereunder or a waiver of Landlord’s right to collect any payment provided for herein.

5.3. Exce ssive Expenses . In addition to any other sums payable hereunder, Tenant shall pay to Landlord any excessive or extraordinary operating or insurance costs as Landlord may reasonably determine to be incurred (A) due to Tenant’s excessive or extraordinary use of the Premises or other facilities of the Property, as compared to other similar tenants of the Property (including, without limitation, use beyond the normal business work week), and (B) due to Tenant’s breach or Default of its obligations under this Lease. Landlord may reasonably estimate the amount of such use and costs, and bill Tenant periodically for the same.

5.4. Disputes . If there is any dispute as to any Additional Rent due under this Paragraph 5 for any Computation Year, Tenant shall have the right, during the twenty-four (24)-month period after Tenant’s receipt of Landlord’s statement of Actual Expenses for such Computation Year (and during the thirty-six (36) month period after the end of the Base Year for the Base Year) (the “ Audit Period ”), at reasonable times and upon reasonable notice, to have a reputable operating expense audit firm, at Tenant’s sole cost, inspect Landlord’s accounting records at Landlord’s accounting office or conduct an audit, at Tenant’s sole cost. Tenant’s failure to provide Landlord with notice of any dispute as to Actual Expenses and/or Additional Rent during the Audit Period shall constitute a waiver by Tenant to dispute or audit the Additional Rent, or any component thereof, for such Computation Year. If Tenant still disputes such Actual Expenses and/or Additional Rent after such inspection, then, upon Tenant’s written request therefor, a certification as to the proper amount of Additional Rent that should have been paid by Tenant, and the

amount due to or payable by Tenant, shall be made by an independent accounting firm selected by Landlord and Tenant. If Landlord and Tenant are unable to agree upon an accounting firm, Landlord and Tenant shall each select an accounting firm and the two (2) firms so selected shall select a third firm, which shall make the certification requested hereunder. Tenant agrees to pay all costs and expenses incurred in connection with such certification, unless such certification reveals that Landlord has overcharged Tenant by more than $ 6 ,000 for any Computation Year (in which case Landlord shall pay all costs and expenses incurred in connection with such audit and certification). Such certification shall be final and conclusive as to all parties. Notwithstanding the foregoing, in no event shall Tenant be entitled to withhold payment of Rent (including Additional Rent) during the certification process, and Tenant shall remain obligated to pay all Rent (including Additional Rent) due as otherwise set forth in this Lease. In the event Tenant shall prevail in the certification process, Landlord, at its election, shall either promptly refund any excess Additional Rent payments to Tenant or shall apply such excess as a credit against future Base Rent due from Tenant.

6. PARKING

So long as Tenant complies with the terms, provisions and conditions of this Lease, Landlord shall maintain and operate (or cause to be maintained and operated) automobile parking facilities (the “ Parking Facilities ”) adjacent to or within a reasonable distance from the Building. The Parking Facilities shall initially contain at least ten (10) surface spaces per one thousand (1,000) rentable square feet of the Premises in the parking area(s) located adjacent to the Premises free of charge during the Term or any extension thereof. Landlord, at its cost, shall have the right to reasonably relocate the Parking Facilities to another location, in Landlord’s reasonable discretion, to facilitate development of the Property, provided, however, that at all times Tenant shall have the right, to the nonexclusive use of six (6) surface spaces per one thousand (1,000) rentable square feet of the Premises in the parking area(s) located adjacent to the Premises. At Tenant’s option, Tenant shall have the right to preferred parking spaces at a ratio not to exceed one (1) surface space per one thousand (1,000) rentable square feet of the Premises. Costs associated with marking or reserved signage shall be at Tenant’s cost. The location of shall be designated by Landlord, acting reasonably. All automobiles, trucks, trailers and/or other vehicles parked in the Parking Facilities by Tenant or by any Tenant Representative (as defined in Paragraph 8.2 ) shall be in operable condition, and shall be licensed and insured as required under applicable law. Except for damages or injuries, which arise from Landlord’s willful misconduct, Tenant assumes total responsibility and liability for all vehicles of Tenant or any Tenant Representative parked or stored in the Parking Facilities, and Landlord assumes no liability whatsoever for any damage to, loss of, or theft of any such vehicles or any personal property in such vehicles. Except for damages or injuries, which arise from Landlord’s gross negligence or intentional misconduct, NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, TENANT ACKNOWLEDGES AND AGREES THAT TENANT AND ALL TENANT REPRESENTATIVES SHALL USE ANY PARKING FACILITIES AT THEIR SOLE RISK AND THAT LANDLORD SHALL HAVE NO RESPONSIBILITY TO PREVENT, AND SHALL NOT BE LIABLE TO TENANT, TO ANY TENANT REPRESENTATIVE OR TO ANY OTHER PERSON FOR, DAMAGES OR INJURIES TO PERSONS OR PROPERTY PARKED OR OTHERWISE LOCATED ON OR ABOUT THE PROPERTY.

7. PERMITTED USES

Tenant shall use and occupy the Premises throughout the Term of this Lease for office purposes and uses customarily associated therewith, and for no other purpose. In particular, no use shall be made or permitted to be made of the Premises, nor acts done which will increase the existing rate of insurance upon the Building or the Property, unless Tenant pays for such increase, or cause a cancellation of any insurance policy covering the Building or the Property, nor shall Tenant sell, or permit to be kept, used, or sold, in or about the Premises, any article which may be prohibited by the standard form of fire insurance policies. Notwithstanding the foregoing, Landlord will not unreasonably withhold its consent to a proposed change in Tenant’s use of the Premises so long as such change in use: (i) will not, in Landlord’s sole opinion, impact the Property in a negative way, including, without limitation, any potential environmental concerns; (ii) will not, in Landlord’s sole opinion, cause any odors or excessive noise; (iii) will not affect zoning requirements; (iii) is substantially similar to the then permitted use; and (iv) is permitted by applicable legal requirements. Landlord makes no representation or warranty, implied or otherwise, as to the quality or condition of the Premises, as to whether Tenant’s intended use complies with applicable laws, or as to the suitability of the Premises for Tenant’s intended use. Tenant shall comply with all laws, ordinances, rules, regulations and codes of all municipal, county, state and federal authorities pertaining to Tenant’s use and

occupation of the Premises. Tenant shall not commit, or suffer to be committed, any waste upon the Premises or any public or private nuisance, or other act or thing which disturbs the quiet enjoyment of any other tenant of the Pro perty . Tenant shall not permit the storage of any items that cause objectionable odors to escape or be emitted from the Premises. In the event that Tenant properly expands into the Warehouse Space, then Tenant shall use and occupy the Warehouse Space throughout the Term of this Lease for warehouse purposes and uses customarily associated therew ith, and for no other purpose, provided, however, that all other terms and conditions of this Paragraph 7 , shall apply to the Warehouse Space.

8. ENVIRONMENTAL COMPLIANCE/HAZARDOUS MATERIALS

8.1. Definitions . “ Hazardous Materials ” means (A) any material, substance or waste that is or has the characteristic of being hazardous, toxic, ignitable, reactive, flammable, explosive, radioactive, mutagenic or corrosive, including, without limitation, petroleum or any petroleum derivative, solvents, heavy metals, acids, pesticides, paints, printing ink, PCBs, asbestos, materials commonly known to cause cancer or reproductive problems and those materials, substances and/or wastes, including wastes which are or later become regulated by any local governmental authority, the state in which the Property is located or the United States Government, including, without limitation, substances defined as “hazardous substances,” “hazardous materials,” “toxic substances” or “hazardous wastes” in the Comprehensive Environmental Response, Compensation and Liability Act, as amended (42 U.S.C. §§9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. §§5101, et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. §§6901 et seq.), any environmental law of the state where the Property is located, or any other environmental law, regulation or ordinance now existing or hereinafter enacted; (B) any other substance or matter which results in liability to any person or entity from exposure to such substance or matter under any statutory or common law theory; and (C) any substance or matter which is in excess of relevant and appropriate levels set forth in any applicable federal, state or local law or regulation pertaining to any hazardous or toxic substance, material or waste, or for which any applicable federal, state or local agency orders or otherwise requires removal, remediation or treatment. “ Hazardous Materials Laws ” means all present and future federal, state and local laws, ordinances and regulations, prudent industry practices, requirements of governmental entities and manufacturer’s instructions relating to industrial hygiene, environmental protection or the use, analysis, generation, manufacture, storage, presence, disposal or transportation of any Hazardous Materials, including, without limitation, the laws, regulations and ordinances referred to in the preceding sentence.

8.2. Use of Premises by Tenant . Tenant hereby agrees that Tenant and Tenant’s officers, employees, representatives, agents, consultants, contractors, subcontractors, successors, assigns, subtenants, concessionaires, invitees, any other occupants of the Premises, and any others acting for or on behalf of Tenant (collectively, “ Tenant Representatives ”) shall not cause or permit any Hazardous Materials to be used, generated, manufactured, refined, produced, processed, stored or disposed of, on, under or about the Premises or the Property or transported to or from the Premises or the Property without the express prior written consent of Landlord (subject, however, to the last sentence of this Paragraph 8.2 ). Tenant shall at its own expense procure, maintain in effect and comply with all conditions of any and all permits, licenses and other governmental and regulatory approvals required for the storage or use by Tenant or any Tenant Representative of Hazardous Materials on the Premises or the Property. Notwithstanding the foregoing, Tenant shall be entitled to use and store in the Premises common cleaning solutions and office supplies used by Tenant in its ordinary operations, so long as the same are used in compliance with all Hazardous Materials Laws, stored in appropriate containers in compliance with all Hazardous Materials Laws, and disposed of in compliance with all Hazardous Materials Laws.

8.3. Remediation . If at any time during the Term any contamination of the Premises or the Property by Hazardous Materials shall occur where such contamination is caused by the act or omission of Tenant or of any Tenant Representative (“ Tenant’s Contamination ”), then Tenant, at Tenant’s sole cost and expense, shall promptly and diligently remove such Hazardous Materials from the Premises, the Property or the groundwater underlying the Premises or the Property to the extent required to comply with applicable Hazardous Materials Laws in order to restore the Premises or the Property to the same or better condition which existed before the Tenant’s Contamination. Tenant shall not take any required remedial action in response to any Tenant’s Contamination in or about the Premises or the Property, or enter into any settlement agreement, consent, decree or other compromise in respect to any claims relating to any Tenant’s Contamination, without first obtaining the prior written consent of Landlord, which may be subject to conditions imposed by Landlord in Landlord’s sole discretion; provided ,

however, that Landlord ’ s prior written consent shall not be nece ss ary to the extent that the presence of Hazardous Materials on, under or about the Premises or the Property (A) poses an immediate threat to the health, safety or welfare of any individual or (B) is of such a nature that an immediate remedial response is nece ss ary and it is not po ss ible to obtain Landlord ’ s consent before taking such action. Landlord and Tenant shall jointly prepare a remediation plan in compliance with all Hazardous Materials Laws and the provisions of this Lease. In addition to all other rights and remedies of Landlord hereunder, if Tenant does not promptly and diligently take all steps to prepare and obtain all nece ss ary approvals of a remediation plan for any Tenant ’ s Contamination, and thereafter commence the required remediation of any Hazardous Materials released or discharged in connection with Tenant ’ s Contamination within thirty (30) days after all nece ss ary approvals and consents have been obtained and thereafter continue to prosecute such remediation to completion in accordance with an approved remediation plan, then Landlord, at its sole discretion, shall have the right, but not the obligation, to cause such remediation to be accomplished, and Tenant shall reimburse Landlord within fifteen (15) days after Landlord ’ s demand for reimbursement of all amounts reasonably paid by Landlord (together with interest on such amounts at 15% per annum (or, if le ss , the maximum lawful rate) from the date paid by Landlord), when such demand is accompanied by reasonable proof of payment by Landlord of the amounts demanded. Tenant shall promptly deliver to Landlord, legible copies of hazardous waste manifests reflecting the legal and proper disposal of all Hazardous Materials removed from the Premises or the Property as part of Tenant ’ s remediation of any Tenant ’ s Contamination.

8.4. Notice of Hazardous Materials Matters . Tenant shall immediately notify Landlord in writing of: (A) any enforcement, cleanup, removal or other governmental or regulatory action instituted, contemplated or threatened concerning the Premises pursuant to any Hazardous Materials Laws; (B) any claim made or threatened by any person against Tenant or the Premises relating to damage contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from any Hazardous Materials on or about the Premises; (C) any reports made to any environmental agency arising out of or in connection with any Hazardous Materials in or removed from the Premises, including any complaints, notices, warnings or asserted violations in connection therewith, all upon receipt by Tenant of actual knowledge of any of the foregoing matters; or (D) any spill, release, discharge or disposal of any Hazardous Materials in, on or under the Premises, the Property, or any portion thereof. Tenant shall also supply to Landlord as promptly as possible, and in any event within five (5) days after Tenant first receives or sends the same, with copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Premises or Tenant’s use thereof.

8.5. Indemnification by Tenant . Provided Landlord delivers to Tenant relevant reports with reference to the Premises that Landlord has in its possession, and allows Tenant, the right to contact Landlord’s preferred vendors who have inspected the Property, Building and Premises (provided that any such communication with Landlord’s preferred vendors also includes a representative of Landlord in any such communications), and provided Tenant is allowed access to conduct its own Phase I prior to the execution of this Lease, Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect, and hold Landlord, each of Landlord’s directors, managers, officers, shareholders, members, partners, employees, representatives, agents, and attorneys, any lender having a lien on or covering the Property or any part thereof, any entity or person named or required to be named as an additional insured in Paragraph 14.2 , and the respective successors and assigns of all of the foregoing persons free and harmless from and against any and all claims, actions, causes of action (including, without limitation, remedial and enforcement actions of any kind, informal or formal administrative or judicial proceedings, and orders or judgments arising therefrom), liabilities, penalties, forfeitures, damages (including, without limitation, damages for the loss or restriction or use of rentable space or any amenity of the Premises or the Property, diminution in the value of the Premises or the Property, fines, injunctive relief, losses or expenses (including, without limitation, the costs of investigation and testing and reasonable consultants’ and attorneys’ fees and costs) or death of or injury to any person or damage to any property whatsoever, to the extent arising from or caused, in whole or in part, directly or indirectly, by (A) any Tenant’s Contamination, (B) Tenant’s or any Tenant’s Representative’s failure to comply with any Hazardous Materials Laws with respect to the Premises, or (C) offsite disposal or transportation of Hazardous Materials on, from, under or about the Premises or the Property by Tenant or any Tenant’s Representative. Tenant’s obligations hereunder shall include without limitation, and whether foreseeable or unforeseeable, all costs of any required or necessary repair, cleanup or detoxification or decontamination of the Premises, and the preparation and implementation of any closure, remedial action or other required plans in connection therewith. For purposes of the indemnity provisions hereof, any acts or omissions of Tenant or by any Tenant Representative (whether or not they are negligent, intentional, willful or unlawful) shall be strictly attributable to Tenant.

8 . 6 . Indemnification by Landlord . Landlord shall indemnify, defend (by counsel reasonably acceptable to Tenant), protect, and hold Tenant, each of Tenant ’ s directors, managers, officers, shareholders, members, partners, employees, representatives, agents, and attorneys, and the respective succe ss ors and a ss igns of all of the foregoing persons free and harmle ss from and against any and all claims, actions, causes of action (including, without limitation, remedial and enforcement actions of any kind, informal or formal administrative or judicial proceedings, and orders or judgments arising therefrom), liabilities, penalties, forfeitures, damages, fines, injunctive relief, lo ss es or expenses (including, without limitation, the costs of investigation and testing and reasonable consultants ’ and attorneys ’ fees and costs) or death of or injury to any person or damage to any property whatsoever, to the extent arising from or caused, in whole or in part, directly or indirectly, by (i) any prior contamination, pre-existing condition, or contamination caused by Landlord in violation of a Hazardous Material Law and (ii) any contamination existing as of the Occupancy Date in violation of a Hazardous Material Law . Landlord ’ s obligations hereunder shall include without limitation, and whether foreseeable or unforeseeable, all costs of any required or nece ss ary repair, cleanup or detoxification or decontamination of the Premises, and the preparation and implementation of any closure, remedial action or other required plans in connection therewith. Landlord ’ s obligations under this Paragraph 8. 6 shall be specifically limited to affirmative acts of Landlord, and shall not include the acts or omi ss ions of any other tenants of the Property or other persons.

8.7. Compliance with Environmental Laws . Tenant shall at all times and in all respects comply with (and shall cause all Tenant Representatives to comply with) all Hazardous Materials Laws in connection with their use and occupancy of the Premises and the Property. All reporting obligations imposed by Hazardous Materials Laws and arising from Tenant’s (or any Tenant Representative’s) use and occupancy of the Premises and the Property are strictly the responsibility of Tenant.

8.8. Exclusivity . The allocations of responsibility between, obligations and liabilities undertaken by, and indemnifications given by Landlord and Tenant under this Paragraph 8 , shall be the exclusive provisions under this Lease applicable to the subject matter treated in this Paragraph 8 , and any other conflicting or inconsistent provisions contained in this Lease shall not apply with respect to such subject matter. Landlord and Tenant have been informed that certain judicial decisions have held that, notwithstanding the specific language of a lease, courts may impose the responsibility for complying with legal requirements and for performing improvements, maintenance and repairs on a landlord or tenant based on the court’s assessment of the parties’ intent in light of certain equitable factors. Landlord and Tenant have each been advised by their respective legal counsel about the provisions of this Lease allocating responsibility for compliance with laws and for performing improvements, maintenance and repairs between Landlord and Tenant. Landlord and Tenant expressly agree that the allocation of responsibility for compliance with laws and for performing improvements, maintenance and repairs set forth in this Lease represents Landlord’s and Tenant’s intent with respect to this issue.

8.9. Survival and Duration of Obligations . All covenants, representations, warranties, obligations and indemnities made or given under this Paragraph 8 shall survive the expiration or earlier termination of this Lease.

9. UTILITIES

Tenant shall pay all service charges and utility deposits and fees for water, electricity, sewage, janitorial, gas, telephone, pest control and any other utility services furnished to the Premises (“ Utilities ”) during the entire Term of this Lease. Tenant shall pay for all Utilities in addition to Rent. Except for damages or injuries caused by Landlord’s gross negligence or willful misconduct, Landlord shall not be liable for any reason for any loss or damage resulting from an interruption of any of the Utility services. Landlord may elect to separately meter any of the Utilities at Landlord’s expense. If any Utilities are not separately metered or billed to Tenant for the Premises but rather are billed to and paid by Landlord, Tenant shall pay to Landlord, as additional Rent, Tenant’s share of the cost of such services, as reasonably determined by Landlord. If any Utilities are not separately metered, Landlord shall have the right to determine Tenant’s consumption by submetering, survey or other methods designed to measure consumption with reasonable accuracy.

10 . REPAIRS AND SERVICES BY LANDLORD

A. Landlord shall maintain, repair, and replace as needed (i) the exterior walls and other structural components of the Building, including, without limitation, the foundation, slab, roof, roof membrane, roof systems and components, exterior walls, load-bearing interior walls, gutters, downspouts, windows and frames (including glass and all exterior doors), (ii) all Building systems, including, without limitation, the lighting, life safety, HVAC, electrical and plumbing systems leading to, but not exclusively serving, the Premises, (iii) all utilities and utility installations leading to, but not exclusively serving, the Premises, (iv) the Common Areas both inside and outside the Building (including, without limitation, the Parking Facilities), and (v) the grounds surrounding the Building (including snow plowing, sanding, salting and shoveling snow; paving; and mowing of grass, care of shrubs and general landscaping) in good order and repair; provided that any repairs, maintenance or replacements rendered necessary by the negligence or intentional acts of Tenant or of any Tenant Representative shall be repaired by Tenant at Tenant’s sole cost and expense. The costs of all of the foregoing items shall be included in the Office Common Expenses and/or the Industrial Common Expenses unless such item is expressly excluded on Exhibit F . Tenant shall promptly report in writing to Landlord any condition known to Tenant to be defective which Landlord is required to repair, and failure to so report such conditions shall make Tenant responsible to Landlord for any liability incurred by Landlord by reason of such conditions. Landlord shall be required to commence such repairs within a reasonable period of time after receipt of Tenant’s notice.

B. Landlord shall furnish HVAC to the Premises, Monday through Friday, from 7:00 a.m. to 6:00 p. m. and on Saturday from 9:00 am to 1:00 p.m., except for New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, Christmas and two other holidays reasonably designated by Landlord ("Business Hours"). The costs of providing HVAC to the Premises during Business Hours shall be included in Office Common Expenses. Tenant, at its sole cost, shall have the right to utilize HVAC outside of Business Hours, on a direct dial control "DDC" demand basis. Within ten (10) days after receipt of invoice from Landlord, Tenant shall reimburse Landlord for Landlord’s actual cost of providing HVAC to Tenant outside of Business Hours, provided, however, in no event shall Tenant pay more than $20.00 per hour for the cost of providing HVAC outside of Business Hours. Notwithstanding anything to the contrary contained in this Lease, this Paragraph 10.B shall only apply to office space leased by Tenant and shall not apply to any warehouse space leased by Tenant.

11. REPAIRS BY TENANT

Except as otherwise specifically provided in this Lease, and except for latent defects, which cannot be discovered by ordinary reasonable visual inspection, Tenant accepts the Premises in its present “As-Is” condition and specifically acknowledges that the Premises are suited for the uses intended by Tenant. Subject to the provisions of Paragraph 13 , Tenant shall make any other desired or required improvements to the Premises. Except for the specific items that are Landlord’s responsibility pursuant to Paragraph 10 , Tenant shall at its own cost and expense keep and maintain the Premises in good order and repair, promptly making all necessary repairs and replacements, including, without limitation, all fixtures within the Premises, ceilings, floors, non‑load-bearing interior walls, finish work, windows, glass and doors within the Premises, lighting fixtures, bulbs and ballasts within the Premises, utility connections and facilities within the Premises, plumbing and electrical systems within the Premises, termite and pest extermination, and damage to Common Areas caused by Tenant or by any Tenant Representative. Tenant, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices. Tenant’s obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. Tenant shall be permitted to implement its own reasonable security measures in the Premises, subject to prior approval by Landlord (which approval shall not be unreasonably withheld, conditioned or delayed). Any security implemented by Tenant shall not interfere with any security measures that might be implemented on the Property by Landlord. Notwithstanding anything to the contrary herein, Tenant acknowledges and agrees that it shall be solely responsible for providing adequate security for (A) the Premises, (B) any cars or other vehicles on the Property or in the Parking Facilities, and (C) Tenant’s use of the Property and Premises. Landlord shall have no responsibility to prevent, and shall not be liable to Tenant, to any Tenant Representative, or to any of their respective agents, employees, contractors, visitors or invitees, for losses due to theft, burglary or other criminal activity, or for damages or injuries to persons or property resulting from persons gaining access to the Premises or any part of the Property, and Tenant hereby releases Landlord and its agents and employees from all liabilities for such losses,

damages or injury, regardless of the cause thereof , unless such losses, damage, or injury results from Landlord ’ s gross negligence or intentional misconduct . Tenant shall be responsible for complying with all laws applicable to the Property as a result of Tenant ’ s specific use of the Premises. Tenant shall be responsible, at its sole cost and expense, for providing all janitorial services to the Premises.

12. TENANT ’S TAXES AND ASSESSMENTS

Tenant shall pay promptly, when due, all personal property taxes or other taxes and assessments levied and assessed by any governmental authority upon the removable property of Tenant in, upon or about the Premises.

13. ALTERATION OF PREMISES

A. After the Commencement Date, Tenant shall not repair or change the Premises at a cost in excess of $15,000.00 (“ Tenant Repairs” ) without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed, provided, however, that Tenant will make no structural changes or alterations to the Premises or changes to any Building systems without Landlord’s consent, which may be withheld in Landlord’s sole discretion. Landlord has pre-approved the Initial Tenant Improvements (as defined on Exhibit D-3 ) and none of the Initial Tenant Improvements will be considered an alteration or be subject to removal at the end of the Term . All alterations, improvements or changes shall remain a part of and be surrendered with the Premises, (A) unless Landlord directs their removal under Paragraph 23 , or (B) unless Landlord and Tenant agree otherwise prior to installation of such alterations, improvements or changes. Tenant shall procure and keep in force, at Tenant’s sole cost and expense, any permits, licenses, and other governmental and regulatory approvals required for any such alterations or improvements. All alterations and improvements shall be performed by licensed contractors, who shall satisfy the insurance requirements in Paragraph 14.4 . From the Occupancy Date through and including the date immediately preceding the Commencement Date, Landlord, at its sole cost, shall supply temporary power, a materials staging area, restroom access, freight elevator access, and an area for a dumpster in connection with the Initial Tenant Improvements. Tenant shall perform the Initial Tenant Improvements, at Tenant’s sole cost, except as otherwise set forth herein.

B. Landlord shall provide Tenant with a reimbursement allowance for certain agreed-upon costs incurred by Tenant to construct improvements and move into the Premises. Such allowance reimbursement shall occur in four phases. Landlord shall provide an allowance (the “ Phase 1 Allowance ”) in the aggregate amount not to exceed $120,000.00 plus reimbursement of the cost for floor coverings and paint for the entire Premises pursuant to the specifications in Exhibit D-2 for Approved Costs (as hereinafter defined), provided, however, in no event shall FF&E Costs (as hereinafter defined) exceed twenty percent (20%) of the Phase 1 Allowance. “ Approved Costs ” shall mean the costs and expenses directly and reasonably incurred by Tenant in performing the Initial Tenant Improvements and relocating into the Premises, including, but not limited to material, labor, architect and engineer fees, project management fees, permitting, phone and data cabling, cabling, signage and the installation of furniture fixtures and equipment (“ FF&E Costs ”). The Phase 1 Allowance shall be made by Landlord to Tenant in accordance with the following: (i) Landlord shall reimburse Tenant for paid invoices delivered to Landlord evidencing Approved Costs expended by Tenant prior to and/or after Lease execution; (ii) Tenant shall satisfy any requirements reasonably requested by Landlord for such allowance, including, without limitation, partial lien waivers; and (iii) such payment shall be made by Landlord to Tenant within thirty (30) days after the later of (x) the date that Tenant has completed all requirements set forth in subsections (i) and (ii) above and (y) Landlord’s receipt of Rent due for the first month of the first Lease Year. Any portion of the Phase 1 Allowance in excess of $66,000.00 shall be amortized over the Initial Term at an interest rate equal to eight percent (8%) per annum commencing upon the date that Landlord pays such portion of the Phase 1 Allowance to Tenant and such amortized amount shall be paid by Tenant to Landlord on a monthly basis during the Initial Term, in the same manner of payment provided in this Lease for Rent. This Paragraph 13.B shall only apply to the Initial Tenant Improvements and shall not apply to any work related to any Office Increment or Warehouse Space. Notwithstanding anything herein to the contrary, Landlord shall not be required to provide the Phase 1 Allowance in the event that Tenant is in Default of this Lease.

C. Landlord shall provide an allowance (the “ Phase 2 Allowance ”) in the aggregate amount not to exceed $120,000.00 for Approved Costs, provided, however, in no event shall FF&E Costs exceed twenty percent (20%) of the Phase 2 Allowance. The Phase 2 Allowance shall be made by Landlord to Tenant in accordance with

the following: (i) Landlord shall reimburse Tenant for paid invoices delivered to Landlord evidencing Approved Costs expended by Tenant prior to and/or after Lease execution; (ii) Tenant shall satisfy any requirements reasonably requested by Landlord for such allowance, including, without limitation, partial lien waivers; and (iii) such payment shall be made by Landlord to Tenant within thirty (30) days after the later of (x) the date that Tenant has completed all requirements set forth in subsections (i) and (ii) above and (y) Landlord’s receipt of Rent due for the seventh (7 th ) month after the Commencement Date . Any portion of the Phase 2 Allowance in excess of $66,000.00 shall be amortized over the Initial Term at an interest rate equal to eight percent (8%) per annum commencing upon the date that Landlord pays such portion of the Phase 2 Allowance to Tenant and such amortized amount shall be paid by Tenant to Landlord on a monthly basis during the Initial Term, in the same manner of payment provided in this Lease for Rent. This Paragraph 13. C shall only apply to the Initial Tenant Improvements (excluding any Initial Tenant Improvements for which the Phase 1 Allowance was paid) and shall not apply to any work related to any Office Increment or Warehou se Space. Notwithstanding anything herein to the contrary, Landlord shall not be required to provide the Phase 2 Allowance in the event that Tenant is in Default of this Lease.

D. Landlord shall provide an allowance (the “ Phase 3 Allowance ”) in the aggregate amount not to exceed $120,000.00 for Approved Costs, provided, however, in no event shall FF&E Costs exceed twenty percent (20%) of the Phase 3 Allowance. The Phase 3 Allowance shall be made by Landlord to Tenant in accordance with the following: (i) Landlord shall reimburse Tenant for paid invoices delivered to Landlord evidencing Approved Costs expended by Tenant prior to and/or after Lease execution; (ii) Tenant shall satisfy any requirements reasonably requested by Landlord for such allowance, including, without limitation, partial lien waivers; and (iii) such payment shall be made by Landlord to Tenant within thirty (30) days after the later of (x) the date that Tenant has completed all requirements set forth in subsections (i) and (ii) above and (y) Landlord’s receipt of Rent due for the thirteenth (13th) month following the Commencement Date. Any portion of the Phase 3 Allowance in excess of $66,000.00 shall be amortized over the Initial Term at an interest rate equal to eight percent (8%) per annum commencing upon the date that Landlord pays such portion of the Phase 3 Allowance to Tenant and such amortized amount shall be paid by Tenant to Landlord on a monthly basis during the Initial Term, in the same manner of payment provided in this Lease for Rent. This Paragraph 13.D shall only apply to the Initial Tenant Improvements (excluding any Initial Tenant Improvements for which the Phase 1 Allowance and Phase 2 Allowance were paid by Landlord) and shall not apply to any work related to any Office Increment or Warehouse Space. Notwithstanding anything herein to the contrary, Landlord shall not be required to provide the Phase 3 Allowance in the event that Tenant is in Default of this Lease.

E. Landlord shall provide an allowance (the “ Phase 4 Allowance ”) in the aggregate amount not to exceed $82,000.00 for Approved Costs, provided, however, in no event shall FF&E Costs exceed twenty percent (20%) of the Phase 4 Allowance. The Phase 4 Allowance shall be made by Landlord to Tenant in accordance with the following: (i) Landlord shall reimburse Tenant for paid invoices delivered to Landlord evidencing Approved Costs expended by Tenant prior to and/or after Lease execution; (ii) Tenant shall satisfy any requirements reasonably requested by Landlord for such allowance, including, without limitation, final lien waivers; and (iii) such payment shall be made by Landlord to Tenant within thirty (30) days after the later of (x) the date that Tenant has completed all requirements set forth in subsections (i) and (ii) above and (y) Landlord’s receipt of Rent due for the nineteenth (19th) month following the Commencement Date. Any portion of the Phase 4 Allowance in excess of $45,100.00 shall be amortized over the Initial Term at an interest rate equal to eight percent (8%) per annum commencing upon the date that Landlord pays such portion of the Phase 4 Allowance to Tenant and such amortized amount shall be paid by Tenant to Landlord on a monthly basis during the Initial Term, in the same manner of payment provided in this Lease for Rent. This Paragraph 13.E shall only apply to the Initial Tenant Improvements (excluding any Initial Tenant Improvements for which the Phase 1 Allowance, Phase 2 Allowance and Phase 3 Allowance were paid by Landlord) and shall not apply to any work related to any Office Increment or Warehouse Space. Notwithstanding anything herein to the contrary, Landlord shall not be required to provide the Phase 4 Allowance in the event that Tenant is in Default of this Lease.

F. In the event that Landlord fails to provide any of the Phase 1 Allowance, Phase 2 Allowance, Phase 3 Allowance or Phase 4 Allowance to Tenant within thirty (30) days after the Phase 1 Allowance, Phase 2 Allowance, Phase 3 Allowance or Phase 4 Allowance becomes due (each being an “Allowance Balance”), Tenant may offset any Allowance Balance against Base Rent, in an amount not to exceed one-half (1/2) of Base Rent due for any calendar month, until the Allowance Balance is paid in full.

G . In the event that a properly delivered Office Expansion Notice s tipulates that Tenant is exercising its right to an allowance with respect to an Office Increment, Landlord shall provide an allowance (an “ Office Increment Allowance ”) in the aggregate amount not to exceed $20.00 per rentable square foot of such Office Increment for costs and expenses directly and reasonably incurred by Tenant in performing work tha t is approved by Landlord to such Office Increment (“ Office Increment Work ”). The payment of any Office Increment Allowance to Tenant for Office Increment Work shall be made by Landlord within thirty (30) days after the last to occur of the following: (i) Landlord’s written approval , which shall not be unreasonably conditioned or delayed, of the plans and specifications for the Office Increment Work and all contractors and subcontractors to be used in performing Office Increment Work prior to commencement of Office Increment Work; (ii) Landlord’s receipt of the policies of insurance, or certificates thereof, required by this Lease; (iii) completion of the Office Increment Work to Landlord’s satisfaction; (iv) Landlord’s receipt of paid invoices for Tenant’s expenses that qualify for the Office Increment Allowance; and (v) Landlord’s receipt of final lien waivers from all contractors and all subcontractors involved in the performance of the Office Increment Work. The Office Increment Allowance shall be amortized over the remaining portion of the Initial Term at an interest rate equal to eight percent (8%) per annum commencing upon the date that Landlord pays the Office Increment Allowance to Tenant and such amortized amount shall be paid by Tenant to Landlord on a monthly basis during the remainder of the Initial Term, in the same manner of payment provided in this Lease for Rent.

14. INSURANCE

14.1. Landlord’s Insurance . Landlord shall maintain in full force and effect throughout the entire term of this Lease general comprehensive liability insurance for the Building and Common Areas and all risk property insurance, including vandalism and special form or such other or broader coverage as may from time to time be customary, on the Building, the Common Areas and the Land in such amounts determined by Landlord or Landlord’s lender. Copies of all such insurance policies, or certificates thereof endorsed to show payment of the premium, shall be available for inspection by Tenant, and such policies and certificates shall show Landlord and the beneficiary of any mortgage or deed of trust on the Premises to be additional insureds as their interests may exist (or a mortgagee loss payable endorsement). Such insurance may be provided by a blanket insurance policy covering the Premises, so long as the coverage on the Premises is at all times at least as great as required by this Paragraph 14.1 . The costs of the insurance obtained by Landlord under this Paragraph 14.1 shall be included in the Insurance Expenses; except for any insurance premiums which become due solely by reason of the use of any tenant of the Property and such exclusions shall solely be for any increased insurance cost caused by such tenant’s use.

14.2. Tenant ’s Insurance . Tenant agrees to take out and keep in force during the term hereof, without expense to Landlord, with an insurance company with a general policyholder’s rating of at least A-VII (as rated in the most current Best’s Insurance Reports), or another insurance company acceptable to Landlord, the policies of insurance as set forth below. Tenant shall be permitted to obtain the insurance required under this Paragraph 14.2 by providing a blanket policy of insurance only if such blanket policies expressly provide coverage to the Premises and Landlord as required by this Lease without regard to claims made under such policies with respect to other persons or properties, and in such form and content reasonably acceptable to Landlord. All such insurance policies shall be on an occurrence basis and not a claims-made basis, contain a standard separation-of-insureds provision, and shall name Landlord, its property manager IRG Realty Advisors, LLC (or such other property manager designated by Landlord), any on-site manager, and their respective agents, employees, and representatives as additional insureds on a primary and non‑contributory basis.

A. Causes of Loss – Special Form property insurance, in an amount of at least one hundred percent (100%) of replacement cost covering all tenant improvements, betterments and alterations permitted under this Lease, floor and wall coverings, and Tenant’s furniture, business and personal trade fixtures, equipment, systems and other personal property from time to time situated in the Premises. Such property insurance shall include a replacement cost endorsement, providing protection against any peril included within the classification fire and extended coverage, sprinkler damage, vandalism, malicious mischief, and such other additional perils as covered in a “causes of loss-special form” standard insurance policy. The proceeds of such insurance shall be used for the repair and replacement of the property so insured, except that if not so applied or if this Lease is terminated following a casualty, the proceeds applicable to the leasehold improvements shall be paid to Landlord and the proceeds applicable to Tenant’s personal property shall be paid to Tenant.

B. Commercial general liability insurance, in the name of Tenant, insuring against any liability from Tenant’s use and occupancy of the Premises and the business operated by Tenant. All such policies shall be written to apply to all bodily injury or death, property damage and personal injury losses, and shall include blanket contractual liability (including Tenant ’ s indemnity obligations under this Lease), broad form property damage liability, premise-operations and products-completed operations, shall contain an exception to any pollution exclusion which insures damage or injury arising out of heat, smoke or fumes from hostile fire, shall include a contractual liability endorsement, and shall provide primary coverage to Landlord (and any insurance policy issued to Landlord providing duplicate or similar coverage shall be deemed to be excess over Tenant ’ s policies), in such amounts as may from time to time be customary with respect to similar properties in the general geographical area of the Property , but in any event at least $3,000,000 per occurrence (or such other amounts as may be reasonably required by Landlord). The amounts of such insurance required hereunder shall be adjusted from time to time as requested by Landlord based upon Landlord ’ s determination as to the amounts of such insurance generally required at such time for comparable premises and buildings in the general geographical area of the Property . In addition, such policy of insurance shall include coverage for any potential liability arising out of or because of any construction, repair work, maintenance, restoration, replacement, alteration, or other work done on or about the Premises by or under the control or direction of Tenant or any Tenant Representative .

C. Workers compensation insurance as required by applicable state law and employer liability insurance with limits of at least $1,000,000 (or such other amounts as may be reasonably required by Landlord).

D. Business automobile liability insurance covering owned, hired and non‑owned vehicles with limits of at least $1,000,000 combined single limit (bodily injury and property damage) per occurrence.

14.3. Certificates of Insurance . All policies of insurance set forth in Paragraph 14.2 shall provide that copies of the policies or certificates thereof, showing the applicable premiums as paid, shall be delivered to Landlord and to IRG Realty Advisors, LLC, 4020 Kinross Lakes Parkway, Suite 200, Richfield, Ohio 44286 (or such other property manager designated by Landlord) prior to the Occupancy Date and thereafter at least fifteen (15) days prior to each renewal date. All such policies shall provide that they shall not be canceled nor coverage reduced by the insurer without first giving at least thirty (30) days’ prior written notice to Landlord. If Tenant fails to procure and keep in force such insurance, Landlord may procure it, and the cost thereof (together with interest on such amounts at 15% per annum (or, if less, the maximum lawful rate) from the date paid by Landlord) shall be payable immediately by Tenant to Landlord.

14 . 4 . Contractors ’ Insurance . If Tenant permits or causes any construction, repair work, maintenance, restoration, replacement, alteration, or other work to be done on or about the Premises by any independent contractor or other person, then Tenant shall cause such independent contractor or other person to take out and keep in force, throughout the period during which such independent contractor or other person performs any work on the Premises and for a period of two years after completion of such work, without expense to Landlord, the policies of insurance as set forth below. All such policies shall be provided by an insurance company with general policyholder ’ s rating of at least A-VII (as rated in the most current Best ’ s Insurance Reports), or another insurance company acceptable to Landlord . All such insurance policies shall be on an occurrence basis, and shall name Landlord, its property manager IRG Realty Advisors, LLC (or such other property manager designated by Landlord), any on-site manager, Tenant, and their respective agents and employees as additional insureds on a primary, non ‑ contributory basis. All policies of insurance set forth in this Paragraph 14.4 shall provide that copies of the policies or certificates thereof, showing the applicable premiums as paid, shall be delivered to Landlord and to IRG Realty Advisors, LLC, 4020 Kinross Lakes Parkway, Suite 200 , Richfield, Ohio 44286 (or such other property manager designated by Landlord), prior to the date on which such independent contractor or other person commences work on the Premises and thereafter at least fifteen (15) days prior to each renewal date. All such policies shall provide that they shall not be canceled nor coverage reduced by the insurer without first giving at least thirty (30) days ’ prior written notice to Landlord. If Tenant fails to cause such any independent contractors or other person performing work on the Premises to procure and keep in force such insurance, Landlord may procure it, and the cost thereof (together with interest on such amounts at 15% per annum (or, if less, the maximum lawful rate) from the date paid by Landlord) shall be payable immediately by Tenant to Landlord.

A. Commercial general liability insurance, in the name of such independent contractor or other person, insuring against any liability from the work on the Premises performed by such independent contractor or other person. All such policies shall be written to apply to all bodily injury or death, property damage and personal injury losses, and shall include blanket contractual liability (including applicable indemnity obligations), broad form property damage liability, premise-operations and products-completed operations, shall contain an exception to any pollution exclusion which insures damage or injury arising out of heat, smoke or fumes from hostile fire, shall include a contractual liability endorsement, and shall provide primary coverage to Landlord (and any insurance policy issued to Landlord providing duplicate or similar coverage shall be deemed to be excess over such insurance policies), in such amounts as may from time to time be customary with respect to similar properties in the general geographical area of the Property, but in any event at least $3,000,000 per occurrence (or such other amounts as may be reasonably required by Landlord). The amounts of such insurance required hereunder may be adjusted from time to time as requested by Landlord based upon Landlord’s determination as to the appropriate amounts of insurance given the work to be performed. In addition, such policy of insurance shall include coverage for any potential liability arising out of or because of any work done on or about the Premises by or under the control or direction of such independent contractor or other person (for example, work performed by any subcontractor).

B. Workers compensation insurance as required by applicable state law and employer liability insurance with limits of at least $1,000,000 (or such other amounts as may be reasonably required by Landlord).

C. Business automobile liability insurance covering owned, hired and non‑owned vehicles with limits of at least $1,000,000 combined single limit (bodily injury and property damage) per occurrence.

15. WAIVER, EXCULPATION AND INDEMNITY

15.1. Definitions . For purposes of this Paragraph 15 , (A) ” Tenant Parties ” means, singularly and collectively, Tenant and Tenant’s officers, directors, managers, shareholders, partners, members, trustees, agents, employees, independent contractors, consultants, licensees, concessionaires, customers, guests, invitees or visitors as well as all persons and entities claiming through any of the foregoing persons or entities, and (B) ” Landlord Parties ” shall mean singularly and collectively, Landlord and Landlord’s, mortgagees, officers, directors, shareholders, partners, members, trustees, agents, employees, independent contractors, and consultants, as well as to

all persons and entities claiming through any of the foregoing persons or entities, but expressly excluding any other tenant or occupant of the Property .

15.2. Exculpation . Tenant, on behalf of itself and of all Tenant Parties, and as a material part of the consideration to be rendered to Landlord under this Lease, hereby waives, to the fullest extent permitted by law, all claims against Landlord for loss, theft or damage to goods, wares, merchandise or other property (whether tangible or intangible) in and about the Premises, for loss or damage to Tenant’s business or other economic loss (whether direct, indirect, or consequential), and for the injury or death to any persons in, on or about the Premises, except for damage or loss directly caused by Landlord’s gross negligence or willful misconduct.

15.3. Landlord ’s Indemnity . Landlord shall indemnify, defend (by an attorney of Landlord’s choice, reasonably acceptable to Tenant), reimburse, protect and hold harmless Tenant and all Tenant Parties from and against all third party claims, liability and/or damages arising from or related to the acts or omissions of Landlord or Landlord Parties, relating to their use, possession, or occupancy of the Property or Landlord’s obligations under this Lease, or to any work done, permitted or contracted for by any of them on or about the Premises, except to the extent that such claims, liability and/or damages are caused by Tenant’s gross negligence or willful misconduct. It is specifically understood and agreed that Landlord shall not be liable or responsible for the acts or omissions of any of the other tenants of the Property or of any agents, independent contractors, consultants, licensees, concessionaires, customers, guests, invitees or visitors of persons other than Landlord.

15.4. Tenant ’s Indemnity . Except to the extent that such claims, liabilities and/or damages are caused by Landlord’s gross negligence, or willful misconduct, Tenant shall indemnify, defend (by an attorney of Tenant’s choice, reasonably acceptable to Landlord), reimburse, protect and hold harmless Landlord and all Landlord Parties from and against all third party claims, liability and/or damages arising from or related to the negligence, acts or omissions of Tenant or any Tenant Parties relating to their use, possession, or occupancy of the Property or Tenant’s obligations under this Lease, or to any work done, permitted or contracted for by any of them on or about the Premises. It is specifically understood and agreed that Tenant shall not be liable or responsible for the acts or omissions of any of the other tenants of the Property or of any persons other than Tenant and Tenant Parties. Tenant shall cause any independent contractor or other person who performs any construction, repair work, maintenance, restoration, replacement, alteration, or other work on or about the Premises by or under the control or direction of Tenant to execute and deliver to IRG Realty Advisors, LLC, 4020 Kinross Lakes Parkway, Suite 200, Richfield, Ohio 44286 (or such other property manager designated by Landlord) an agreement whereby such independent contractor or other person agrees to indemnify, defend (by an attorney of Landlord’s choice, reasonably acceptable to such independent contractor or other person), reimburse, protect and hold harmless Landlord, all Landlord Parties, and Tenant from and against the matters described in this Paragraph 15.4 .

15.5. Waiver of Subrogation . To the extent of any and all insurance maintained, or required to be maintained, by either Landlord or Tenant in any way connected with the Premises, Landlord and Tenant hereby waive on behalf of their respective insurance carriers any right of subrogation that may exist or arise as against the other party to this Lease. Landlord and Tenant shall cause the insurance companies issuing their insurance policies with respect to the Premises to waive any subrogation rights that such companies may have against Tenant and Landlord, respectively, which waivers shall be specifically stated in the respective policies.

15.6. Survival and Duration of Obligations . All representations, warranties, obligations and indemnities made or given under this Paragraph 15 shall survive the expiration or earlier termination of this Lease.

16. CONSTRUCTION LIENS

16.1. Prohibition on Construction Liens . Tenant shall not suffer or permit any construction liens, mechanics’ liens or materialmen’s liens (“ Tenant Liens ”) to be filed against Landlord’s interest in the Property nor against Tenant’s leasehold interest in the Premises. Landlord shall have the right at all reasonable times to post and keep posted on the Premises any notices which Landlord deems necessary for protection from Tenant Liens, or to take such other action as applicable law may require to protect from Tenant Liens. In connection therewith, Tenant shall cooperate with Landlord and shall sign any notice or other documents reasonably required by Landlord to comply with such applicable law. Tenant shall have the right to contest any Tenant Lien by proper proceedings; provided that (A) Tenant shall prosecute such contest diligently and in good faith, (B) such contest shall not expose Landlord to any civil or criminal penalty or liability in connection therewith, and (C) within five (5) days after

Landlord ’ s demand, Tenant shall furnish to Landlord a surety bond ( or other adequate security satisfactory to Landlord ) (a “ Lien Bond ”) in an amount equal to one hundred fifty percent (150%) of the amount of such claim or such higher amount as may be reasonably required both (i) to indemnify Landlord against liability and (ii) to hold the Property free from adverse effect in the event that such contest is not succe ss ful. The Lien Bond may be retained by Landlord until such Tenant Lien has been removed of record or until judgment has been rendered on such claim and such judgment has become final, at which time Landlord shall have the right to apply such Lien Bond in discharge of the judgment on such Tenant Lien and to any actual costs, including reasonable attorneys ’ fees , incurred by Landlord, and shall remit the balance thereof to Tenant. I f a Tenant Lien is filed and Tenant fails to contest such Tenant L ien in accordance with this Paragraph 16.1 or Tenant fails to timely post the Lien Bond, Landlord, at its election, and upon at least five (5) days ’ prior written notice to Tenant, may pay and satisfy such Tenant Lien , and in such event the sums so paid by Landlord and all other costs and expenses (including reasonable consultants’ and attorneys’ fees) incurred by Landlord in connection therewith shall be deemed to be additional Rent due and shall be payable by Tenant at once without notice or demand (together with interest on such amounts at 15% per annum (or, if le ss , the maximum lawful rate) from the date paid by Landlord). Notwithstanding the foregoing, Tenant shall have no responsibility for discharge of any mechanics ’ liens filed by a contractor, subcontractor, materialman, or laborer of Landlord.

16.2. Notice of Tenant Repairs . Tenant agrees to give Landlord written notice at least ten (10) days in advance of the commencement of any Tenant Repairs in order that Landlord may post appropriate notices of Landlord’s non‑responsibility. Promptly after any Tenant Repairs are completed, Tenant shall file, upon request by Landlord, a notice of completion in the customary form for the jurisdiction in which the Property is located.

17. QUIET ENJOYMENT

Landlord covenants and agrees that Tenant, upon making all of Tenant’s payments of Rent as and when due under this Lease, and upon performing, observing and keeping the covenants, agreements and conditions of this Lease on its part to be kept, shall peaceably and quietly hold, occupy and enjoy the Premises during the Term, subject to the terms and provisions of this Lease.

18. LANDLORD ’S RIGHT OF ENTRY

Landlord or its agents shall have the right to enter the Premises, at reasonable times upon reasonable notice to Tenant, in order to examine the Premises, to show the Premises to buyers, or during the last nine (9) months of the Term, to show the Premises to prospective tenants and to place “For Rent” or “For Sale” signs on or about the Premises. Landlord may make modifications or other changes to the Property as are necessary, in Landlord’s sole discretion, to facilitate development of the Property, so long as Landlord uses its best efforts to minimize the effect of any such entry or any material interference with Tenant’s use of the Premises. Upon receipt of reasonable advance notice from Landlord, Tenant may arrange to have a designated representative of Tenant accompany Landlord in entering the Premises. Landlord’s right of entry shall not be deemed to impose upon Landlord any obligation, responsibility, or liability for the care, supervision or repair of the Premises other than as provided in this Lease, except that Landlord shall use reasonable care to prevent loss or damage to Tenant’s property resulting from Landlord’s entry. Landlord shall have the right at any time, without effecting an actual or constructive eviction and without incurring any liability to Tenant therefor, to reasonably change the arrangement or location of entrances or passageways, doors and doorways, corridors, elevators, stairs, toilets or other public parts of the Building and/or Property and to change the name, number or designation by which the Building and/or Property are commonly known, so long as such action does not result in any unreasonable interference with Tenant’s access to or use of the Premises or with the business carried on by Tenant in the Premises. Notwithstanding the foregoing, Landlord shall have the right to enter the Premises without first giving notice to Tenant in the event of an emergency or where the nature of the emergency will not reasonably permit the giving of notice.

19. DESTRUCTION OF BUILDING

19.1. Partial Destruction . In the event of a partial destruction of the Building during the Term of this Lease from any cause, Landlord shall forthwith repair the same, so long as such repair can reasonably be made within one hundred eighty (180) days after the happening of such destruction under applicable laws and regulations. During such period, Tenant shall be entitled to a proportionate reduction of rent to the extent such repairs unreasonably interfere with the business carried on by Tenant in the Premises. If Tenant fails to remove its goods,

wares or equipment within a reasonable time and as a result the repair or restoration is delayed, or if such damage or destruction is caused primarily by the negligence or willful act of Tenant or any Tenant Representative, there shall be no reduction in rent during such delay. In the event that such repair cannot reasonably be made within one hundred eighty (180) days after the happening of such destruction under applicable laws and regulations, Landlord shall have the right to terminate this Lease by notifying Tenant in writing within sixty (60) days after the happening of such destruction, in which event this Lease shall be deemed terminated. If Landlord fails to give Tenant written notice of Landlord ’ s decision not to repair such damage within sixty (60) days after the happening of such destruction, then Landlord shall be required to commence the repair of the Building promptly and thereafter diligently complete the repairs. In addition to the above, in the event that the Building is partially destroyed and (A) the cost of repairing the Building exceeds thirty ‑ three and one ‑ third percent (33 ¹ / ₃ %) of the replacement cost thereof, or (B) the damage caused by the partial destruction of the Building cannot reasonably be repaired within a period of one hundred eighty (180) the happening of such damage, Landlord may elect to terminate this Lease, whether or not the Building is insured, by written notice to Tenant given within sixty (60) days after the happening of such destruction. If Landlord fails to give such written notice of Landlord ’ s decision not to repair the Building within such sixty (60) days, then Landlord shall be required to repair the Building within one hundred eighty (180) days after the happening of such destruction, if it can be reasonably repaired in such time, or as soon thereafter as reasonably practical if it cannot reasonably be repaired in such earlier period of time.

19.2. Total Destruction . A total destruction of the Building shall terminate this Lease. A total destruction of the Building means the cost of repairing the Building exceeds seventy-five percent (75%) of the replacement cost of the Building.

20. EMINENT DOMAIN

20.1. Definitions . For purposes of this Lease, the word “ condemned ” is co-extensive with the phrase “ right of eminent domain ,” that is, the right of the government to take property for public use, and shall include the intention to condemn expressed in writing as well as the filing of any action or proceeding for condemnation.

20.2. Exercise of Condemnation . If any action or proceeding is commenced for the condemnation of the Premises or any portion thereof, or if Landlord is advised in writing by any government (federal, state or local) agency or department or bureau thereof, or any entity or body having the right or power of condemnation, of its intention to condemn all or any portion of the Premises, or if the Premises or any part or portion thereof be condemned through such action, then and in any of such events Landlord may, without any obligation or liability to Tenant, and without affecting the validity and existence of this Lease other than as hereafter expressly provided, agree to sell and/or convey to the condemnor, without first requiring that any action or proceeding be instituted, or if such action or proceeding shall have been instituted, without requiring any trial or hearing thereof, and Landlord is expressly empowered to stipulate to judgment therein, the part and portion of the Premises sought by the condemnor, free from this Lease and the rights of Tenant hereunder. Tenant shall have no claim against Landlord nor be entitled to any part or portion of the amount that may be paid or awarded as a result of the sale or condemnation of the Premises or any part or portion thereof, except that Tenant shall be entitled to recover from the condemnor and Landlord shall have no claim therefor or thereto for Tenant’s relocation costs, loss of goodwill, for Tenant’s trade fixtures, any removable structures and improvements erected and made by Tenant to or upon the Premises which Tenant is or may be entitled to remove at the expiration of this Lease and Tenant’s leasehold estate hereunder.

20 . 3 . Effect on Lease . If the entire Premises are condemned, this Lease shall terminate as of the earlier of such taking or lo ss of po ss e ss ion. If only a part of the Premises is condemned and taken and the remaining portion thereof is , in Tenant ’ s reasonable discretion , not suitable for purposes for which Tenant has leased the Premises, either Landlord or Tenant shall have the option to terminate this Lease effective as of the earlier of such taking or lo ss of po ss e ss ion. If by such condemnation and taking only a part of the Premises is taken, and the remaining part thereof is , in Tenant ’ s reasonable discretion , suitable for the purposes for which Tenant has leased the Premises, this Lease shall continue, but the Base Rent, Tenant’s Office Share and Tenant’s Industrial Share rental shall be reduced in an amount proportionate to the percentage that the floor area of that portion of the Premises physically taken by eminent domain bears to the floor area of the entire Premises.

21. BANKRUPTCY

If a general assignment is made by Tenant for the benefit of creditors, or any action is taken by Tenant under any insolvency or bankruptcy act, or if a receiver is appointed to take possession of all or substantially all of the assets of Tenant (and Tenant fails to terminate such receivership within sixty (60) days after such appointment), or if any action is taken by a creditor of Tenant under any insolvency or bankruptcy act, and such action is not dismissed or vacated within thirty (30) days after the filing date of such action, then, at the option of Landlord, this Lease shall terminate upon the occurrence of any of the foregoing events and shall expire as fully and completely as if the day of the occurrence of any of the foregoing events was the date specified in this Lease for the expiration thereof. In such event, Tenant shall then quit and surrender the Premises to Landlord.

22. DEFAULT

If Tenant (i) abandons the Premises, or (ii) fails to pay any Rent or any other sum due hereunder at the time set forth in this Lease and continues to fail to perform the same for a period of three (3) days after receipt of written notice from Landlord pertaining thereto, or (iii) fails to perform any non‑monetary covenant to be performed by Tenant under this Lease and continues to fail to perform the same for a period of ten (10) business days after receipt of written notice from Landlord pertaining thereto (or a reasonable period of time, using due diligence, if any non‑monetary default cannot be cured within such ten (10) business day period, but not to exceed ninety (90) days, subject to delays beyond Tenant’s reasonable control, then Tenant shall be deemed to be in “Default” of this Lease, and Landlord, in addition to other rights or remedies it may have, may:

A. Continue this Lease in effect by not terminating Tenant’s right to possession of the Premises, and thereby be entitled to enforce all Landlord’s rights and remedies under this Lease, including the right to recover the Rent specified in this Lease as it becomes due under this Lease; or

B. Terminate Tenant’s right to possession of the Premises, thereby terminating this Lease, and recover from Tenant the sum of:

(i) The worth at the time of award of the unpaid Rent which had been earned at the time of termination of this Lease; plus

(ii) The worth at the time of award of the amount by which the unpaid Rent which would have been earned after termination of this Lease until the time of award exceeds the amount of rental loss that Tenant proves could have been reasonably avoided; plus

(iii) The worth at the time of award of the amount by which the unpaid Rent for the balance of the term after the time of award exceeds the amount of rental loss that Tenant proves could be reasonably avoided; plus

(iv) Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant’s failure to perform its obligations under this Lease, as determined by a court of competent jurisdiction (or when arbitration is permitted, by an arbitrator); or

C. In lieu of, or in addition to, bringing an action for any or all of the recoveries described in Paragraph 22.B , bring an action to recover and regain possession of the Premises in the manner provided by the laws of unlawful detainer then in effect in the state where the Property is located. If Landlord makes any expenditure required of Tenant hereunder, or if Tenant fails to make any payment or expenditure required of Tenant hereunder, such amounts shall be payable by Tenant to Landlord as Rent (together with interest on such amounts at 15% per annum (or, if less, the maximum lawful rate) from the date paid by Landlord), and Landlord shall have the same remedies as on the Default in payment of Rent. The payment of interest required hereunder shall be in addition to the late charge set forth in Paragraph 3.3 . Notwithstanding any other provision of this Lease, under no circumstances shall Landlord or Tenant be liable to the other for any punitive or exemplary damages arising out of the acts or omissions of Landlord or Tenant or a breach of this Lease by either party.

23. SURRENDER OF PREMISES

On or before the expiration of the Term, Tenant shall vacate the Premises in broom‑clean condition and otherwise in the same condition as existed on date possession of such space was delivered to Tenant, ordinary wear and tear and fire and casualty loss excepted, except that any improvements made within or on the Premises by Tenant shall remain, in the same condition and repair as when constructed or installed, reasonable wear and tear and fire and casualty loss excepted; provided that (A) if Tenant has made any improvements or alterations within or on the Premises without Landlord’s prior written consent (or without other prior written notice to Landlord), then Tenant shall remove any such improvements on or before the expiration of the Term if Landlord gives written notice to Tenant, at least thirty (30) days before the expiration of the Term, directing such removal, and (B) if Tenant has made any improvements or alterations within or on the Premises with Landlord’s prior written consent (or with other prior written notice to Landlord), then Tenant shall remove any such improvements on or before the expiration of the Term if Landlord has notified Tenant in writing, at the time Landlord consents to such improvements or alterations (or within thirty (30) days after Landlord receives other written notice of such improvements or alterations), that such improvements or alterations must be removed on or before the expiration of the Term. In addition, Tenant shall remove from the Premises all Tenant’s personal property and trade fixtures in order that Landlord can repossess the Premises on the day this Lease or any extension hereof expires or is sooner terminated. Any removal of Tenant’s improvements, Tenant’s property and/or Tenant’s trade fixtures shall be accomplished in a manner which will minimize any damage or injury to the Premises, and any such damage or injury shall be repaired by Tenant, at Tenant’s sole cost and expense, within thirty (30) days after Tenant vacates the Premises.

24. HOLDING OVER

If Tenant holds over and remains in possession of the Premises after the expiration of this Lease, without the written consent of Landlord, then such possession shall be as a month-to-month tenant. Unless Landlord agrees otherwise in writing, Base Rent during the hold-over period shall be equal to one hundred fifty percent (150%) of the Base Rent for the last month of the Term until Tenant vacates the Premises. The foregoing notwithstanding, the first thirty (30) days shall be at one hundred percent (100%). All other terms and conditions of this Lease shall continue in full force and effect during such hold-over tenancy, which hold-over tenancy shall be terminable by either party delivering written notice of termination to the other party, in which case such hold-over tenancy shall terminate effective as of the last day of the month following the month in which the termination notice is given.

25. SURRENDER OF LEASE

The voluntary or other surrender of this Lease by Tenant, or mutual cancellation thereof, shall not work a merger and may, at the option of Landlord, terminate all or any existing subleases or subtenancies or may operate as an assignment of any or all such subleases or subtenancies to Landlord.

26. RULES AND REGULATIONS

Tenant shall comply with all reasonable and non‑discriminatory rules and regulations now or hereinafter adopted by Landlord during the existence of this Lease, both in regard to the Property, the Building as a whole and to the Premises herein leased. In the event of any inconsistency between the provisions of this Lease and the provisions of any such rules and regulations, the provisions of this Lease shall control.

27 . NOTICE

Except as otherwise specifically provided herein, any notice, demand, consent, approval, request or document which any party is required or may desire to give or deliver to the other shall be given in writing by (A) personal delivery; (B) certified mail, return receipt requested, postage prepaid; (C) a national overnight courier service that provides written evidence of delivery; or (D) facsimile transmission and addressed as follows:

To Landlord:

Cleveland American, LLC
4780 Hinckley Industrial Parkway, Suite 100

Cleveland, OH 44109

Attention: Christopher S. Semarjian

with a copy to:

IRG Realty Advisors, LLC

4020 Kinross Lakes Parkway, Suite 200

Richfield, Ohio 44286

with a copy to:

Hurtuk & Daroff Co., LLP

Parkland Terrace

6120 Parkland Boulevard, Suite 100

Cleveland, Ohio 44124

Attention: Edward A. Hurtuk, Esq.

T o Tenant :

Inogen Inc.
326 Bollay Drive
Goleta, CA 93117
Attention: Jim Runchey

with a copy to:

Inogen Inc.
326 Bollay Drive
Goleta, CA 93117

Attention: Ali Bauerlein

Any party may change its address and/or facsimile number by giving written notice thereof in accordance with this Paragraph 27 . All notices hereunder shall be deemed given: (i) if delivered personally, when delivered; (ii) if sent by certified mail, return receipt requested, postage prepaid, on the third day after deposit in the U.S. mail; (iii) if sent by overnight courier, on the first business day after delivery to the courier; and (iv) if sent by facsimile, on the date of transmission if sent on a business day before 5:00 p.m. Eastern time, or on the next business day, if sent on a day other than a business day or if sent after 5:00 p.m. Eastern time; provided that a hard copy of any notice sent via facsimile must also be sent by either a nationally recognized overnight courier or by U.S. mail, first class, postage prepaid.

28 . A SS IGNMENT AND SUBLETTING

28.1. No Assignment . Tenant shall not directly or indirectly, voluntarily or by operation of law, sell, assign, encumber, pledge or otherwise transfer or hypothecate all or any part of the Premises or Tenant’s leasehold estate hereunder (any of the foregoing, “ Assignment ”), or permit the Premises to be occupied by anyone other than Tenant or sublet the Premises or any portion thereof (any of the foregoing, “ Sublease ”) without Landlord’s prior written consent in each instance, which consent may not be unreasonably withheld, conditioned or delayed by Landlord. In the event that Landlord consents to an Assignment or Sublease then Tenant shall be responsible for reimbursing Landlord for its actual legal fees and expenses in connection with said Assignment or Sublease (not to exceed $1,000.00). Notwithstanding the foregoing, Tenant shall have the right to assign this Lease or sublease the Premises (a “ Permitted Transfer ”) to a subsidiary, affiliate or successor corporation of Tenant (a “ Permitted Transferee ”), provided, however, (i) within ten (10) days prior to the effective date of such Permitted Transfer, Tenant delivers to Landlord a fully executed copy of documentation executed by the Permitted Transferee, evidencing that such Permitted Transferee expressly assumes Tenant’s obligations and liabilities for the applicable period; and (ii) such Permitted Transferee has an equal or greater net worth than Tenant’s net worth for the quarter immediately preceding the effective date of such Permitted Transfer.

28.2. No Relief of Obligations . Absent a written agreement to the contrary signed by Landlord, neither the consent by Landlord to any Assignment or Sublease by Tenant or a Permitted Transfer shall relieve Tenant of any obligation to be performed by Tenant under this Lease, whether arising before or after the Assignment or Sublease. The consent by Landlord to any Assignment or Sublease shall not relieve Tenant of the obligation to obtain Landlord’s express written consent to any other Assignment or Sublease. Any Assignment or Sublease that is not in compliance with this Paragraph 28 shall be void and, at the option of Landlord, shall constitute a material Default by Tenant under this Lease. The acceptance of Rent by Landlord from a proposed assignee or sublessee shall not constitute the consent by Landlord to such Assignment or Sublease. In the event of any Assignment or Sublease, including without limitation, a Permitted Transfer, if Tenant receives any payment from any assignee or sublessee in excess of the monthly Rent payable by Tenant under this Lease (after Tenant is first reimbursed for out-of-pocket, direct and reasonable sublease costs such as commissions, free rent, TI Allowances), then Tenant shall pay to Landlord, on a monthly basis, fifty percent (50%) of any such excess amount.

29. ATTORNEYS ’ FEES

In the event of any legal or equitable action arising out of this Lease, the prevailing party shall be entitled to recover all reasonable fees, costs and expenses, to include, but not limited to reasonable expert witness fees, together with reasonable attorneys’ fees incurred in connection with such action. The fees, costs and expenses so recovered shall include those incurred in prosecuting or defending any appeal. The prevailing party shall also be entitled to reasonable attorneys’ fees incurred to collect or enforce the judgment. If Tenant requests that Landlord agree to execute any agreement, certificate, or other instrument at the request of Tenant or Tenant’s lender, then Tenant shall reimburse Landlord for all costs and expenses incurred by Landlord (including, without limitation, reasonable attorneys’ fees) in connection with such request and in connection with Landlord’s review of such agreement, certificate, or other instrument.

30. LITIGATION AND JUDGMENT COSTS

30.1. Landlord . Should Landlord, without fault on Landlord’s part, be made a party to any litigation or proceeding instituted by or against Tenant, by or against any Tenant Representative, or by or against any person holding the Premises by license of Tenant, or for foreclosure of any lien for labor or material furnished to or for Tenant, to or for any Tenant Representative, or to or for any other such person, or otherwise arising out of or resulting from any act or transaction of Tenant, of any Tenant Representative, or of any such person, then Tenant covenants to pay to Landlord the amount of any judgment rendered against Landlord or the Premises (or any part thereof), and all costs and expenses, including reasonable attorneys’ fees, incurred by Landlord in connection with such litigation or proceeding.

30 . 2 . Tenant . Should Tenant, without fault on Tenant ’ s part, be made a party to any litigation or proceeding instituted by or against Landlord, or by or against any person holding the Premises by license of Landlord, or for foreclosure of any lien for labor or material furnished to or for Landlord or to or for any such person, or otherwise arising out of or resulting from any act or transaction of Landlord or of any such person, then Landlord covenants to pay to Tenant the amount of any judgment rendered against Tenant or the Premises ( or any part thereof ) , and all costs and expenses, including reasonable attorneys ’ fees , incurred by Tenant in connection with such litigation or proceeding .

31. BROKERS

Each of Landlord and Tenant represents and warrants to the other party that it has had no dealings with any real estate broker or agent in connection with the Premises and this Lease, and that it knows of no real estate broker or agent who is or might be entitled to a commission or finder’s fee in connection with this Lease, except for CBRE, Inc. Landlord shall indemnify and hold Tenant harmless from and against any such commission or finder’s fee which may be claimed by any person or broker with respect to this transaction as a result of Landlord’s breach of the foregoing representation and warranty, and Tenant shall indemnify and hold Landlord harmless from and against any such commission or finder’s fee which may be claimed by any person or broker with respect to this transaction as a result of Tenant’s breach of the foregoing representation and warranty. Landlord shall pay the brokerage commission pursuant to the terms of that certain Real Estate Commission Agreement, attached hereto as Exhibit G . Landlord shall also pay any real estate broker or agent entitled to a commission or finder’s fee in connection with this Lease if claimed through the actions of Landlord. Tenant shall pay any real estate broker or agent entitled to a commission or finder’s fee in connection with this Lease if claimed through the actions of Tenant.

32. SUBORDINATION OF LEASE

32.1. Subordination . This Lease is subject and subordinate to any mortgages which may now or hereafter be placed upon or affect the Property or the Building (and to all renewals, modifications, consolidations, replacements and extensions thereof), so long as the mortgagee in question agrees in writing not to disturb the possession of the Premises by Tenant or the rights of Tenant under this Lease unless Tenant is in material Default in the performance of Tenant’s obligations hereunder. In the event of foreclosure, Tenant agrees to look solely to such mortgagee’s interest in the Property for the payment and discharge of any obligations imposed upon the mortgagee or Landlord under this Lease. If any such mortgagee, its successors, or any other party acquiring an interest in the Property as a result of a foreclosure action (any such party, a “ Successor Landlord ”) takes title to the Property, then (A) Successor Landlord shall be bound to Tenant under all of the terms and conditions of this Lease, (B) Tenant shall recognize and attorn to Successor Landlord as Tenant’s direct landlord under this Lease, and (C) this Lease shall continue in full force and effect, in accordance with its terms, as a direct lease between Successor Landlord and Tenant.

32.2. Agreement to Sign Subordination Documents . The provisions of this Paragraph 32 shall be self‑operative, and no further instrument of subordination shall be necessary. Notwithstanding the foregoing, Tenant agrees to sign, within ten (10) business days after a request therefor from Landlord, from a mortgagee, or from a title insurance company, a Subordination, Non‑Disturbance, and Attornment Agreement (or any other similar instruments or documents) (any of the foregoing, an “ SNDA ”), (A) confirming the subordination provisions of this Paragraph 32 , and (B) containing such other provisions as may be reasonably requested by Tenant, by Landlord, by such mortgagee, and/or by such title insurance company. If Tenant fails to execute an SNDA as set forth in this Paragraph 32.2 , then (i) Tenant hereby constitutes and appoints Landlord as its attorney-in-fact, with full power of substitution, to sign, execute, certify, acknowledge, deliver and/or record (where required or appropriate), in the name, place and stead of Tenant, such SNDA for and on behalf of Tenant, and (ii) Tenant shall be liable to Landlord for all damages, costs, and expenses (including reasonable attorneys’ fees) incurred by Landlord as a result of Tenant’s failure to execute such SNDA. Notwithstanding anything contained in this Lease to the contrary, any SNDA shall not be construed as an amendment to this Lease.

33 . ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS

33.1. Estoppel Certificate . Tenant shall, at any time and from time to time, within ten (10) business days after receiving a request therefor from Landlord, execute, acknowledge and deliver to Landlord, or to such other persons who may be designated in such request, a statement in writing (an “ Estoppel Certificate ”) certifying (A) the Occupancy Date, Commencement Date and expiration date of this Lease; (B) the then‑current Base Rent and Additional Rent amounts; (C) the dates to which Rent and any other charges have been paid in advance; (D) that this Lease is unmodified and in full force and effect (or if there have been modifications, specifying such modifications and stating that this Lease is in full force and effect as so modified); (E) that Tenant has no offsets or counterclaims against Landlord (or describing in reasonable detail any claimed offsets or counterclaims); and (F) such other matters as may be reasonably requested by Landlord. It is intended that any such statement delivered pursuant to this Paragraph 33.1 may be relied upon by any prospective purchaser or encumbrancer (including an assignee or lender) of the Property or the Premises. If Tenant fails to execute an Estoppel Certificate as set forth in this Paragraph 33.1 , then (i) Tenant hereby constitutes and appoints Landlord as its attorney-in-fact, with full power of substitution, to sign, execute, certify, acknowledge, deliver and/or record (where required or appropriate), in the name, place and stead of Tenant, such Estoppel Certificate, or (ii) Tenant shall be liable to Landlord for all damages, costs, and expenses (including reasonable attorneys’ fees) incurred by Landlord as a result of Tenant’s failure to execute such Estoppel Certificate.

33.2. Financial Statements . If Landlord desires to finance, refinance, or sell the Building or the Property (or any part thereof), then, no more than twice per calendar year, Tenant shall deliver to Landlord, or to such potential lender or purchaser designated by Landlord, such financial information regarding Tenant as may reasonably be required only to establish Tenant’s creditworthiness. All financial information provided by Tenant to Landlord or any lender or potential purchaser shall be held by the recipient in strict confidence and may not be used or disclosed by the recipient except for the purpose of determining Tenant’s creditworthiness in connection with Tenant’s obligations under this Lease. Tenant may, in Tenant sole discretion, as a prerequisite to delivering any such financial statements, require the intended recipient execute a commercially reasonable non-disclosure agreement.

33.3 Estoppel Attachments, Notwithstanding the provisions of this Paragraph 33, any and all Estoppel Certificates shall have attached as an exhibit thereto, copies of this Lease, to include all attachments, lease exhibits and amendments, if any. Any and all Estoppel Certificates shall not be construed as an amendment to this Lease.

34. OPTION TO EXTEND

34.1. Extension Option . Landlord hereby grants to Tenant one option to extend the Term (the “ Option to Extend ”) for all space in the Building that Tenant has leased or any reasonably configured portion of such space to be not less than 22,100 rentable square feet in a configuration acceptable to Landlord, for five (5) additional years (“ Option Term ”), upon each and all of the terms and conditions of this Lease (including any modifications or amendments hereto), so long as Tenant is not in Default of this Lease on the date of exercise of the Option to Extend and has not been in monetary or other material Default of this Lease more than three (3) times during the Term. Tenant shall have such Option to Extend in addition to, not in lieu of, any term extension or extensions entered into by Tenant pursuant to Paragraph 1.3.C. of this Lease. Tenant shall give written notice to Landlord, indicating Tenant’s desire to exercise the Option to Extend as set forth in this Paragraph 34.1 (an “ Option Exercise Notice ”) at least nine (9) months before the then‑scheduled expiration of the Term, time being of the essence. If Tenant fails to send an Option Exercise Notice within the time period specified in the preceding sentence, then Tenant shall be deemed to have waived the Option to Extend. The Term (as defined in Paragraph 2.1 ) shall include the Option to Extend if properly exercised hereunder. The Option to Extend is personal to Tenant and any Permitted Transferee and shall not be available to and may not be exercised by, or for the benefit of, any other person or entity, without Landlord’s prior written consent (which may be granted or withheld in Landlord’s sole discretion). The Base Rent during the Option Term shall be as set forth in Paragraph 34.2 . If Tenant properly exercises its right to extend the Term for the Option Term, Landlord will install new carpet and paint the walls in the Premises and any Office Increment, provided, however, Landlord shall have no obligation to perform any improvements to the Warehouse Space.

34 . 2 . Base Rent during the Option Term .

A. Premises. Base Rent for the Premises during the first twelve (12) consecutive months of the Option Term, if properly exercised pursuant to Paragraph 34.1 of this Lease, shall be equal to the annual Base Rent for the Premises during the twelve (12) month period immediately preceding the Option Term (excluding any Allowance amortization pursuant to Paragraph 13) increased by two and one-half percent (2.5%), and Base Rent for the Premises for each twelve (12) consecutive month period thereafter shall increase by two and one-half percent (2.5%), on a cumulative basis.

B. Office Increment. In the event that Tenant exercised its right to expand into any Office Increment during the Initial Term, Base Rent for any Office Increment during the first twelve (12) consecutive months of the Option Term, if properly exercised pursuant to Paragraph 34.1 of this Lease, shall be equal to the annual Base Rent for the Office Increment(s) for the twelve (12) month period immediately preceding the Option Term (excluding any Allowance amortization pursuant to Paragraph 13) increased by two and one-half percent (2.5%), and Base Rent for the Office Increment(s)for each twelve (12) consecutive month period thereafter shall increase by two and one-half percent (2.5%), on a cumulative basis.

C. Warehouse Space. In the event that Tenant exercised its right to expand into the Warehouse Space during the first Lease Year, Base Rent for the Warehouse Space, during the first twelve (12) consecutive months of the Option Term, if properly exercised pursuant to Paragraph 34.1 of this Lease, shall be equal to the annual Base Rent for the Warehouse Space for the twelve (12) month period immediately preceding the Option Term (excluding any Allowance amortization pursuant to Paragraph 13) increased by two and one-half percent (2.5%), and Base Rent for the Warehouse Space for each twelve (12) consecutive month period thereafter shall increase by two and one-half percent (2.5%), on a cumulative basis.

35. RIGHT OF FIRST REFUSAL AND RIGHT OF FIRST OFFER

A. Right of First Refusal- Office. Provided that Tenant has expanded into the entire Potential Office Expansion Space, in the event that Landlord receives a bona fide executed written outline of mutually-acceptable terms (whether in the form of a letter of understanding, letter of intent or memorandum) (a “ Space Offer ”) from a third party (“ Third Party ”) to lease any space contiguous to the Premises and on the same floor of the Building as the Premises (“ ROFR Space ”), and the terms of such Space Offer are acceptable to Landlord, Landlord shall provide Tenant with written notice of such Space Offer (a “ Space Offer Notice ”). The Space Offer Notice shall contain a complete copy of the bona fide executed written offer with respect to the ROFR Space. Tenant shall have a right of first refusal to lease the ROFR Space set forth in the Space Offer Notice on the same terms, conditions, and rental rate described in the Space Offer Notice, so long as (A) Tenant is not in Default of this Lease on the date of its exercise of such right of first refusal and has not been in Default of this Lease more than three (3) times during the Term (as extended, if applicable), (B) on or before the ROFR Deadline (as hereinafter defined), Tenant furnishes written notice to Landlord, indicating that Tenant irrevocably and contractually agrees to lease the Space Offer Notice space on the same terms, conditions, and rental rate described in the Space Offer Notice (an “ Acceptance Notice ”). The ROFR Deadline shall mean ten (10) business days after Tenant’s receipt of the Space Offer Notice, provided, however, in the event that prior to delivering the Space Offer Notice, Landlord provides Tenant with at least ten (10) days’ email notice to _______@_____ that Landlord will be delivering a Space Offer Notice to Tenant, then the ROFR Deadline shall mean five (5) business days after Tenant’s receipt of the Space Offer Notice. Time is of the essence with regard to Tenant’s obligations under this Paragraph 35.A . Accordingly, if Landlord does not receive the Acceptance Notice within the applicable time periods set forth above, Tenant’s right to lease the Available Space shall terminate, and Landlord shall thereafter be free to lease the Space Offer Notice Space for which the Space Offer Notice was given to the Third Party or an affiliate of the Third Party on substantially the same terms of the Space Offer. If there is a material change in the Third Party Space Offer terms or if Landlord does not enter into a written lease to the Third Party for the ROFR Space within one hundred and eighty (180) days of Tenant’s receipt of the Space Offer Notice, then Landlord shall again offer the Offer Space to Tenant upon the same terms and conditions set forth in this Paragraph. Notwithstanding the foregoing provisions of this Paragraph 35.A , The right of first refusal set forth herein is personal to Tenant or Permitted Transferee and shall not be available to and may not be exercised by, or for the benefit of, any other person or entity, without Landlord’s prior written consent (which may be granted or withheld in Landlord’s sole discretion). If Tenant has not expanded

into (i) the entire Potential Office Expansion Space and/or (ii) the Potential Warehouse Expansion Space , then Tenant shall have no rights pursuant to this Paragraph 35 .A .

B. Right of First Refusal- Warehouse. Subject to and commencing upon Tenant having properly exercised its right to expand into the Warehouse Space, then during the balance of the Initial Term, Tenant shall have a right of first refusal on any then unleased space adjacent to the Warehouse Space (the “ Warehouse ROFO Space ”) pursuant to the same terms and conditions of Paragraph 35.A . Tenant shall have no Right of First Refusal- Warehouse if Tenant is upon exercise currently in Default or has been in Default for three or more times during the Initial Term. The Right of First Refusal - Warehouse set forth herein is personal to Tenant or Permitted Transferee and shall not be available to and may not be exercised by, or for the benefit of, any other person or entity, without Landlord’s prior written consent (which may be granted or withheld in Landlord’s sole discretion).

36. INTENTIONALLY DELETED

37. INTENTIONALLY DELETED

38. SIGNS

Landlord, at its sole cost, shall install: (a) Tenant identification on any existing directory at the Building; (b) a building standard sign with Tenant’s name at the main entrance of Tenant’s interior suite; and (c) way finding signage from Tenant’s primary entrance on the west side of the Building. Tenant shall have the right, at its cost and expense, to install: (x) Building top signage on the west or south façade of the Building; (y) eyebrow signage at Tenant’s primary entrance on the west side of Building; and (z) signage on the existing monument sign located on American Road at Tiedemann. All signs installed by Tenant shall: (i) be installed at Tenant’s sole cost and expense; (ii) be subject to Landlord’s prior approval, including, without limitation, the location, size and design of such signage; and (iii) comply with all applicable laws, ordinances, rules, regulations and codes. Tenant shall not place any other sign upon the Property or the Premises without Landlord’s prior written consent. The installation of any sign on the Property or the Premises by or for Tenant shall be subject to the provisions of Paragraph 23 . Tenant shall maintain, repair, and replace (as needed) any such signs installed on the Property or the Premises, at Tenant’s sole cost and expense. Unless otherwise expressly agreed herein, Landlord reserves the right to install, and reserves the right to receive all revenues from the installation of, such advertising signs on the Premises, including the roof, as do not unreasonably interfere with the conduct of Tenant’s business.

39. INTENTIONALLY DELETED

40. FORCE MAJEURE

In discharging its duties to complete the Landlord Improvements and to operate, maintain and repair the Property to the extent required by this Lease, Landlord shall be held to a standard of reasonableness and shall not be liable to Tenant for matters outside Landlord’s control (including, without limitation, acts of God, weather conditions, civil riot, war, strikes, labor unrest, or shortage of material). In no event shall Landlord be liable to Tenant for incidental damages, including, without limitation, damages for loss of business or business interruption.

41. GENERAL PROVISIONS

41.1. Waiver of Jury Trial; Governing Law; Venue . EACH PARTY TO THIS LEASE HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS LEASE OR THE TRANSACTIONS CONTEMPLATED HEREBY. THIS LEASE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED. THE PARTIES HERETO AGREE THAT VENUE SHALL BE PROPER IN ANY STATE COURT LOCATED WITHIN THE COUNTY IN WHICH THE PROPERTY IS LOCATED (OR, IF THE FEDERAL COURTS HAVE JURISDICTION, IN ANY FEDERAL COURT IN OR NEAREST TO THE COUNTY IN WHICH THE PROPERTY IS LOCATED) (THE “APPLICABLE COURTS”). BOTH LANDLORD AND TENANT (A) IRREVOCABLY SUBMIT AND ATTORN TO THE EXCLUSIVE

JURISDICTION OF THE APPLICABLE COURTS, (B) AGREE THAT THE APPLICABLE COURTS SHALL HAVE PERSONAL JURISDICTION OVER BOTH LANDLORD AND TENANT IN ANY ACTION BROUGHT BY EITHER LANDLORD OR TENANT IN CONNECTION WITH THIS LEASE AND THE TRANSACTIONS CONTEMPLATED HEREBY, AND (C) WAIVE ANY OBJECTION TO VENUE IN ANY PROCEEDING BROUGHT IN AN APPLICABLE COURT AND ANY OBJECTION THAT ANY APPLICABLE COURT PROVIDES AN INCONVENIENT FORUM.

41.2. Waiver . The waiver by Landlord of any breach of any term, covenant, or condition herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition contained herein. The acceptance of Rent hereunder (whether a full or partial payment of Rent) shall not be construed under any circumstances to be a waiver by Landlord of any breach by Tenant of any term, condition or covenant of this Lease.

41.3. Remedies Cumulative . It is understood and agreed that the remedies herein given to Landlord shall be cumulative, and the exercise of any one remedy of Landlord shall not be to the exclusion of any other remedy.

41.4. Successors and Assigns . The covenants and conditions of this Lease shall, subject to the provisions as to assignment set forth herein, apply to and bind the heirs, successors, executors, administrators and assigns of all of the parties hereto. If Landlord or Tenant is comprised of multiple parties, each of such parties hereto shall be jointly and severally liable hereunder.

41.5. No Personal Liability . No individual member, manager, manager of a member, partner, shareholder, director, officer, employee, trustee, investment advisor, consultant or agent of Landlord, or individual member of a joint venture, tenancy-in-common, firm, limited liability company, limited partnership or general partnership which constitutes Landlord, or any successor-in-interest thereof, shall be subject to personal liability with respect to any of the covenants or conditions of this Lease. Tenant shall look solely to the equity of Landlord in the Property and to no other assets of Landlord for the satisfaction of any remedies of Tenant in the event of any breach by Landlord. It is mutually agreed by Landlord and Tenant that this Paragraph 41.5 is and shall be deemed to be a material and integral part of this Lease. All obligations of Landlord shall be binding upon Landlord only during the period of Landlord’s ownership of the Property and not thereafter.

41.6. Entire Agreement . This Lease, the exhibits referred to herein, and any addendum executed concurrently herewith, are the final, complete and exclusive agreement between the parties and cover in full each and every agreement of every kind or nature, whatsoever, concerning the Premises. All preliminary negotiations and agreements of whatsoever kind or nature, are merged herein. Landlord has made no representations or promises whatsoever with respect to the Premises, except those contained herein. No other person, firm or corporation has at any time had any authority from Landlord to make any representations or promises on behalf of Landlord, and Tenant expressly agrees that, if any such representations or promises have been made by others, Tenant hereby waives all right to rely thereon. No verbal agreement or implied covenant shall be held to vary the provisions hereof, any statute, law or custom to the contrary notwithstanding. Unless otherwise provided herein, no supplement, modification, or amendment of this Lease shall be binding unless executed in writing by the parties.

41.7. Captions . The captions of Paragraphs of this Lease are for convenience only, and do not in any way limit or amplify the terms and provisions of this Lease.

41.8. Partial Invalidity . If any term, covenant, condition or provision of this Lease is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions shall remain in full force and effect and shall in no way be affected, impaired or invalidated.

41.9. Authority . Each person executing this Lease warrants that he or she has the authority to execute this Lease and has obtained or has the requisite corporate, limited liability company, or other authority to do the same.

41.10. Approvals . Any consent or approval required hereunder shall not be unreasonably withheld, conditioned or delayed by the party from whom such consent or approval is requested, unless this Lease expressly provides otherwise.

41 . 11 . Counterparts and Electronic Signatures . This Lease may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, and such counterparts shall together constitute but one and the same Lease. The parties shall be entitled to sign and transmit an electronic signature of this Lease (including by facsimile, pdf file, or other electronic transmission), and any signature so delivered shall be binding on the party whose name is contained therein. Any party providing an electronic signature agrees to promptly execute and deliver to the other parties, upon request, an original signed Lease.

41.12. Severability . If any one or more of the provisions contained in this Lease shall for any reason be held in any jurisdiction invalid, illegal or unenforceable for any reason, this Lease shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. Such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provisions of this Lease, and any such invalidity, illegality or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, both Landlord and Tenant waive any provision of law which prohibits or renders unenforceable any provision hereof.

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signatures on the following page]

IN WITNE SS WHEREOF, the parties hereto have executed this Lease Agreement as of the day and year first above written.

LANDLORD :

CLEVELAND AMERICAN, LLC,

a Delaware limited liability company,

By:		/s/ Christopher Semarjian
		Christopher Semarjian, Manager

HOLDINGS CLEVELAND AMERICAN, LLC,

a Delaware limited liability company

By:

Holdings Ohio Manager, LLC,

a Delaware limited liability company,

its Manager

		By:	/s/ John A. Mase
			John A. Mase, Chief Executive Officer

TENANT :

INOGEN, INC.,

a Delaware corporation

By:	/s/ Alison Bauerlein
	Name:	Alison Bauerlein
	Title:	Chief Financial Officer


STATE OF OHIO	)
	)	SS:
COUNTY OF CUYAHOGA	)

The foregoing instrument was acknowledged before me this 30th day of May, 2017, by Christopher Semarjian, the Manager of Cleveland American, LLC, a Delaware limited liability company, on behalf of the limited liability company.

		/s/ Sue A. Speck
		Notary Public
		My commission expires:	10/19/2019


STATE OF CALIFORNIA	)
	)	SS:
COUNTY OF Los Angeles	)

On May 31, 2017, before me, Renay Irene Cardona Marquez Notary Public personally appeared John A. Mase, who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity and that by his signature on the instrument the person or the entity upon behalf of which the person acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.


Signature	/s/ Renay Irene Cardona Marquez	(Seal)


STATE OF CALIFORNIA	)
	)	SS:
COUNTY OF SANTA BARBARA	)

BEFORE ME, a Notary Public in and for said County and State, personally appeared Alison Bauerlein, known to me to be the Chief Financial Officer of Inogen, Inc., the corporation that executed the foregoing instrument, who acknowledged that he/she did sign the foregoing instrument for and on behalf of said entity being thereunto duly authorized and that the same is his/her free act and deed as such __X__ and the free act and deed of said entity.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal at Inogen Inc., this 30th day of May, 2017.

		/s/ Cheryl R. Gring
		Notary Public
		My commission expires:	01/21/2018

Exhibit A

PREMISES

Exhibit B ‑1

POTENTIAL OFFICE EXPANSION SPACE

Exhibit B ‑2

OFFICE INCREMENT – BASE RENT SCHEDULE


Lease Year	Base Rent PSF Per Annum
Lease Year 1	$9.90
Lease Year 2	$10.15
Lease Year 3	$10.40
Lease Year 4	$10.66
Lease Year 5	$10.93
Lease Year 6	$11.20
Lease Year 7	$11.48
Lease Year 8	$11.77
Lease Year 9	$12.06
Lease Year 10	$12.36
Lease Year 11	$12.67
Lease Year 12	$12.99

Exhibit C ‑1

WAREHOUSE SPACE

Exhibit C ‑2

WAREHOUSE SPACE – BASE RENT SCHEDULE


Lease Year	Base Rent PSF Per Annum
Lease Year 1	$7.20
Lease Year 2	$7.38
Lease Year 3	$7.56
Lease Year 4	$7.75
Lease Year 5	$7. 95
Lease Year 6	$8.15
Lease Year 7	$8.35
Lease Year 8	$8.56
Lease Year 9	$8.77
Lease Year 10	$9.00
Lease Year 11	$9.22
Lease Year 12	$9.45

Exhibit C ‑3

WAREHOUSE SPACE – WORK

Landlord shall complete the following improvements to the Warehouse Space

Demo walls, per plan.

Deliver heat in good working order

New lights

Deliver existing overhead door and any man doors in good working order

Secure space with a demising wall

Exhibit C ‑ 4

Potential Warehouse Expansion Space

Exhibit D ‑1

LANDLORD’S WORK

Landlord shall construct certain improvements to the Premises, at Landlord’s sole cost and expense, as more fully described on Exhibit D‑2 attached hereto (“ Landlord’s Work ”). The Premises shall be deemed to be “Ready for Occupancy” upon the date on which Landlord’s Work is Substantially Completed (as hereinafter defined), or (B) the date on which Landlord’s Work would have been Substantially Completed, had one or more Tenant Delays (as hereinafter defined) not occurred.

The term “Substantially Completed” means that (A) the contractor has substantially completed Landlord’s Work, which shall be deemed complete even though minor details of construction, mechanical adjustments or decorations which do not materially interfere with Tenant’s use of the applicable portion of the Premises (items normally referred to as “Punch-List Items”) remain to be performed, (B) Tenant shall have access to the applicable portion of the Premises and Parking Facilities, and substantially all services provided for in this Lease, (C) the Premises shall be free of all material construction equipment and debris; and (D) a certificate of occupancy or temporary certificate of occupancy (or its equivalent, such as a “final sign-off” by the building inspector) has been obtained for the applicable portion of the Premises but only to the extent such may be obtained without completion of Tenant Improvements. Landlord and Tenant shall jointly prepare the list of Punch-List Items. Landlord shall cause the Punch-List Items to be corrected as soon as reasonably possible and practical. Tenant’s occupancy of the applicable portion of the Premises shall be deemed acceptance of the applicable portion of the Premises and Landlord’s Work, subject to the Punch-List Items.

The term “Tenant Delays” means any delays attributable to the following: (i) any failure by Tenant to comply with the date and time limits in this Lease; (ii) delays due to the acts or failures to act of Tenant, its agent or contractor, where such acts or failures to act delay the completion of Landlord’s Work; (iii) delays due to any changes requested by Tenant to the plans for Landlord’s Work; (iv) delays due to Tenant’s selection of materials or methods of construction which cannot be timely incorporated into the schedule for the Landlord’s Work; and (v) any other delays due to the acts or omissions of Tenant or any Tenant Representative, where such acts or omissions delay the completion of Landlord’s Work. The foregoing notwithstanding, there shall be no Tenant Delay unless Tenant fails to correct or comply within 24 hours after having received Notice from Landlord of such pending Tenant Delay.

Exhibit D - 2

LIST OF LANDLORD’S WORK

The following Tenant Improvements shall fully comprise the scope of work which is the List of Landlord’s Work will be completed to make the Premises ready for Occupancy. The Scope of Work is based on Erbach Waddell Architects Design Development Drawings (A.0 – A.7) dated 03.14.2017 and includes the following:

LANDLORD SCOPE OF WORK

•

All of the Building's plumbing, heating, life safety ventilating, air conditioning, existing elevator, common area lighting, or electrical systems ("Building Systems") are in good working order to the extent necessary to service the Premises.

•

Demising, ingress, and egress for access to the Premises as necessary to secure the Premises and meet applicable code and ADA requirements for access to the Premises.

•

Sub-metering of electricity for overhead lights, base plugs, and supplemental HVAC.

•

Men’s and Women’s restrooms adjacent to the Premises in good working order, compliant with ADA, and with sufficient capacity to service Tenant’s employees.

•

Parking field patched and restriped, as well as sufficient lighting in place.

•

Premises clear of all FF&E and property of prior tenant and Landlord; and Premises in broom clean condition.

•

For any Office Premises, paint all wall surfaces with Sherwin-Williams Duration or better (Tenant to select no more than 3 colors), and install carpet with a material allowance of $28.00 per square yard wherever carpet is specified.

Landlord to furnish and install new carpet tile using a $28.00/yd material allowance in all areas unless listed below.

Landlord to furnish and install new building standard VCT in Copy/Mail/Work, IT Server and IT Work/Storage rooms.

Landlord to furnish and install new 4” standard vinyl base in all areas of new flooring, straight base for carpeting, cove base for hard surface flooring.

Landlord to paint new door and sidelight frames.

DEMOLITION

•

Landlord to have Premises clear of all FF&E and property of prior tenant and Landlord; and Premises in broom clean condition prior to General Contractor mobilization.

FLOORING

•

Landlord to furnish and install new carpet tile using a $28.00/yd material allowance in all areas unless listed below.

•

Landlord to furnish and install new building standard VCT in Work Room #228, Server Room #224 and IT Work Room #223.

•

Landlord to furnish and install new 4” standard vinyl base in all areas, straight base for carpeting, cove base for hard surface flooring.

PAINT/STAIN

•

Landlord to paint all wall surfaces with Sherwin-Williams Duration or better (Tenant to select no more than 3 colors), and paint new door and sidelight frames.

CARPENTRY

•

Landlord to furnish all demising walls, ingress, and egress as necessary to secure the Premises and meet applicable code and ADA requirements.

HVAC

•

Landlord responsible for main plant equipment, metering of devices and to ensure the cooling capacity will meet load requirements per Tenant’s engineer. (Estimated at 51+ tons of cooling for the 22,000 SF) There are currently (3) RTU’s that feed the defined lease area.

Exhibit D - 3

INITIAL TENANT IMPROVEMENTS

Tenant shall be responsible for constructing and/or performing, at Tenant’s sole cost and expense, any improvements to the Premises (other than Landlord’s Work described on Exhibit D-2 ) that Tenant may desire for its use and occupancy of the Premises (subject to any applicable provisions of this Lease requiring Landlord’s consent, and subject to Tenant’s obtaining any required permits, licenses, and other governmental and regulatory approvals). Landlord hereby pre‑approves the following improvements (the “ Initial Tenant Improvements ”), to be constructed and/or performed by Tenant at Tenant’s sole cost and expense:

The following Tenant Improvement scope of work will be completed for Inogen on the 2nd floor of the Building and is based on Erbach Waddell Architects Design Development Drawings (A.0 – A.7) dated 03.14.2017and includes the following:

TENANT SCOPE OF WORK

DEMOLITION

•

Demo & remove drywall & metal stud partition walls, moveable partition walls, ceiling grid and tile and light fixtures Demolition Plan A.1 and as noted.

•

Remove existing walls, doors, frames, cabinets, etc. from prior tenant build-outs per plan and as noted.

•

Remove all existing flooring and base.

ACOUSTICAL CEILINGS

•

Existing ceiling grid is to remain unless noted to be removed and replaced.

•

Furnish and install new ceiling tiles (building standard) throughout.

•

Demo & remove existing millwork in Café #236.

DOORS/FRAMES/HARDWARE

•

Furnish and install 3’-0” x 7’-0” solid core paint grade wood doors with knock down hollow metal frames as drawn.

•

All doors to receive building standard hardware in brushed stainless. All hardware shall be ADA compliant.

•

Furnish and install 3’-0” x 7’-0” clear glass sidelights with knock down hollow metal frames as drawn. Glass frames are assumed to be separate from the door frame.

•

Locks to be provided on all private office doors (total of 12), IT Work Room #223, Storage #237, and Server room #224.

GLASS

•

Furnish and install clear glass for sidelights.

•

All glass to be clear tempered glass.

PAINT/STAIN

•

Patch walls as required for new finishes. Prep for paint and paint the space.

MILLWORK

•

Furnish and install building standard plastic laminate millwork as drawn, including Work Room #228, IT Work Room #223 and Mothers Room #238. Additional millwork to be furnished and installed in Café

#236 to replace existing millwork.

•

Millwork is all standard plastic laminate with white melamine interiors and standard pulls. Plastic laminate countertops.

CARPENTRY

•

Construct new walls as drawn on Construction Plan A.2.

•

Interior drywall partitions of 3 5/8" metal stud with 5/8" drywall each side with full cavity insulation to ceiling unless otherwise noted. Walls around IT Server and Conference Room (adjacent to IT Server) walls to go to deck.

•

Patch walls at points of demolition.

•

Provide necessary blocking in walls for new millwork and equipment.

FIRE SUPPRESSION

•

Modify existing sprinkler system heads to accommodate the new floor plan.

•

Fire Alarm per code and coordinated with Building's Fire Alarm System.

•

Rework sprinklers per NFPA per new floor layout – sprinkler heads turned down into acoustical lay in ceilings and/or drywall ceilings/soffits.

•

Furniture wall mounted fire extinguishers throughout per code.

HVAC

•

Rework existing HVAC supply diffusers and returns to accommodate the new space plan. Tenant responsible for VAV’s within defined lease space.

•

Provide 2-ton split system supplemental cooling system for the IT Server Room #224.

•

Thermostats and Controls per building standard system.

•

Test and air balance entire floor upon completion.

ELECTRICAL

•

Rework existing systems due to demolition to accommodate the new Floor Plan.

•

Furnish and install new floor power/data poke thru’s in Conference/Training and Conference rooms.

•

Furnish and install power and data in open office areas (Sales Reps and Customer Service Reps) to accommodate tenant provided and tenant installed systems furniture.

•

Furnish and install new T-8, deep cell parabolic light fixtures.

•

Furnish and install new dimmable fluorescent light fixtures in Conference/Training and Conference rooms.

•

Furnish and install new duplex, quads and special outlets mounted at 18” from finish floor, unless otherwise noted.

•

Provide dedicated 20 amp outlets and data jacks at copiers and printers.

•

New electrical devices and faceplates throughout - change any existing to match new device and faceplate color. Devices to be white.

•

Furnish and install new data junction boxes.

•

Furnish and install new junction boxes for tenant provided and tenant installed card readers.

•

Maintain existing electrical panels, upgrade to accommodate new plan.

•

Furnish and install exit signs, emergency lights and Fire Alarm as required by code.

•

Telephone data outlets - box with conduit stubbed above ceiling, typical.

PLUMBING

•

Furnish and install new sink (by GC), dishwasher (by Tenant) and ice machine (by Tenant) in Café

#236.

•

Furnish and install new sink in Mothers Room #238.

SPECIALTIES

•

Existing Cafeteria commercial grade equipment to be removed and discarded.

DESIGN/MANAGEMENT

•

Finish selections are to be provided by Erbach Waddell Architects. Above finish scope for design intent only.

•

Permit fee allowance is excluded.

•

Contractor’s general conditions and overhead/profit, and CBRE project management fees are included.

Exclusions / Qualifications:

•

FF&E to be provided and installed by Tenant.

•

Emergency Generator or UPS Systems are not included.

•

Window treatments are not included.

•

Appliances provided and installed by Tenant.

•

Security and card access systems are not included.

•

Tele/data wiring, systems and related improvements are not included.

•

Moving of Tenant’s personal items, computers, artwork and the like are not included.

•

Projection screens and or audio visual equipment are not included.

•

Structural alterations for File Systems, HVAC, Generators, UPS systems, etc. are not included.

•

Unforeseen conditions are not included.

•

Signage and/or graphics are not included.

•

Level 5 Finishes are not included unless noted above.

•

Repairs to finishes after the tenants move in are not included.

•

Other items not specifically referenced above.

Exhibit E

FORM OF LEASE COMMENCEMENT NOTICE

This is to confirm that the Occupancy Date, as defined in Paragraph 2.2 of the Lease Agreement (“ Lease ”), by and among Cleveland American, LLC, a Delaware limited liability company, and Holdings Cleveland American , LLC , a Delaware limited liability company (collectively, “ Landlord ”), and Inogen, Inc. , a Delaware corporation (“ Tenant ”), for Premises initially consisting of an agreed-upon 6,000 rentable square feet of space in the property located at 1 American Road, Brooklyn, Ohio 44144, is, for all purposes, agreed to be ________________________, __________ and the Commencement Date, as defined in Paragraph 2.2 of the Lease, is, for all purposes, agreed to be ________________________, __________.

LANDLORD :

CLEVELAND AMERICAN, LLC,

a Delaware limited liability company

By:
		Christopher Semarjian, Manager

HOLDINGS CLEVELAND AMERICAN, LLC,

a Delaware limited liability company

By:

Holdings Ohio Manager, LLC,

a Delaware limited liability company

its Manager

		By:
			John A. Mase, Chief Executive Officer

TENANT :

INOGEN, INC.,

a Delaware corporation

By:
		Name:
		Title:

Exhibit F

EXCLUSIONS FROM OFFICE COMMON EXPENSES AND INDUSTRIAL COMMON EXPENSES

The following items shall be excluded from the definition of Office Common Expenses and Industrial Common Expenses:

1.	Repairs or other work occasioned by fire, windstorm, or other casualty of an insurable nature, or by the exercise of the right of eminent domain, to the extent of insurance proceeds for insurance carried or required to be carried or condemnation rewards received.

2.	Attorneys’ fees, costs, and disbursements, and other expenses incurred in connection with negotiations or disputes with tenants, other occupants, or prospective tenants or occupants of the Property.

3.	Expenses incurred in tenant build-out, renovating or otherwise improving or decorating, painting or redecorating space for tenants or other Property occupants, including, without limitation, permits, license, design, space planning, and inspection costs.

4.	Expenses in connection with services or other benefits of a type which are not provided to Tenant but which are provided to another tenant or occupant of the Property.

5.	Landlord’s cost of electricity or other services that are sold to tenants or for which Landlord is entitled to be reimbursed by tenants or other parties.

6.	Any cost for depreciation and amortization except as specifically noted herein.

7.	Reserves of any kind.

Costs for repairs or replacements that are considered to be of a capital nature, (per GAAP, consistently applied) including, without limitation, capital improvements, capital repairs, capital equipment, capital tools, and other capital items (each a “Capital Item”) shall not be excluded from Office Common Expenses and Industrial Common Expenses. The foregoing notwithstanding, Landlord may include into Office Common Expenses and Industrial Common Expenses the cost of any Capital Item incurred to comply with laws enacted after the Commencement Date, amortized over their reasonably anticipated useful life. Landlord may also include into Office Common Expenses and Industrial Common Expenses the cost of any Capital Item incurred for “cost savings devices” to the extent that the cost savings is equal to or greater than the amortization over the reasonably anticipated useful life of such device. In addition to the foregoing, if the Landlord replaces a Capital Item during the Term, then any subsequent replacement of such Capital Item shall be included in Office Common Expenses and Industrial Common Expenses, as applicable, and shall be amortized over its reasonably anticipated useful life of such Capital Item.

9.	Costs incurred due to violation by Landlord or any tenant of the terms and conditions of any lease.

10.	Costs and expenses due to termination or underfunding of any plan under ERISA or any other law or regulation governing employee pension plans or other benefits.

11.	Costs or fees paid to Landlord or affiliates of Landlord to the extent in excess of competitive costs or fees paid to independent suppliers and contractors.

12.	Financing or refinancing costs, including interest, principal, points and fees on debts or amortization on any mortgage or mortgages or any other debt instrument encumbering the Building or the Property.

13.	Rental payments on any ground lease or other underlying lease.

14.	Landlord’s general overhead, to include reasonable rent and office space except to the extent it is reasonably expended in connection with Landlord’s management of the Property.

15.

Costs incurred by Landlord which are associated with the operation of the business of the legal entity which constitutes Landlord, as the same is separate and apart from the cost of the operation of the Property, including legal entity formation and legal entity accounting (including the incremental accounting fees relating to the operation of the Property to the extent incurred separately in reporting operating results to the Property ’ s owners or lenders).

16.	Compensation or benefits provided to clerks, attendants, or other persons in commercial concessions operated by Landlord.

17.	Any fines or penalties incurred due to violation by Landlord of any governmental rule or authority.

18.	Late fees assessed for failure to timely make any payment.

19.	Costs of sculpture, paintings, or other objects purporting to be art.

20.	Travel and entertainment costs.

21.	Costs of gifts, to include the cost of any tenant appreciation events.

22.	Costs incurred in the repair, maintenance and operation of any garage or parking facility for which a use fee is charged, including, without limitation, electricity, insurance, taxes and salaries and benefits of attendants.

23.

Compensation and benefits provided to (a) administrative and executive personnel of Landlord above the level of Property superintendent or manager, and (b) employees involved in the operation of properties other than the Property to the extent of the time not spent on the operation of the Property (as reasonably estimated by Landlord).

24.	Management fees in excess of five percent (5%) of the gross rental income from the Property.

25.

Advertising, promotional and marketing costs and leasing commissions, attorneys’ fees and other related costs and expenses in connection with the negotiation and preparation of correspondence, deal memos, letters of intent, leases, subleases, assignments, space planning costs, and other costs and expenses incurred in connection with lease, sublease and assignment negotiations and transactions with present or prospective tenants or other occupants of the Property.

26.	Costs arising from Landlord’s charitable or political contributions.

27.	Any costs or expenses that Landlord and Tenant have expressly agreed are Landlord’s or Tenant’s sole responsibility under this Lease.

28.	Any costs related to the abatement, remediation or removal of any Hazardous Materials, including any asbestos-containing materials.

29.	Any costs for which Landlord is reimbursed by insurance or from any other source.

EXHIBIT G

Real Estate Commission Agreement

[SEE ATTACHED]

January 31, 2017 Real Estate Commission Agreement This document will confirm the agreement between CBRE, Inc. (“Tenant Broker”) and Cleveland American, LLC (“Landlord”) in the event a lease is executed by Inogen (Tenant”) at 1 American Road in Brooklyn, Oh. Landlord shall pay to Tenant Broker in consideration for brokerage services rendered, a brokerage commission in accordance with th eterms below: 1) Initial Fee Amount: Landlord agrees to pay Tnant Broker a total cash commission equal to five percent (5%) of the Aggregate Net Base Rental Consideration due under the new lease. In the even the lease is not written with a Net Base Rent structure, then the Net Base Rental Consideration will be defined as the modified gross base rent of the lease less the base year esitmate of the operating expenses, taxes, insurance, etc. Example $11.85 per RSF modified gross base rent - $3.85 per rsf base year (opex, re taxes, insurance) $8.00 per rsf net base rent 2) time of payment: the commission for the initial lease term shall be fifty percent (50%) due and payable upon lease execution and 50% due payable upon commencement of base rent as defined in the lease. 3) expansion/rofr/renewal: in the event of tenant’s exercise of any option to expand, right of first refusal, or renewal option as written in the lease, landlord shall pay tenant broker per the schedule in section 1 herein unless tenant provides written direction to landlord that such fee is to be paid to another broker. One hundred percent (100%) of such fee shall be due an dpayable upon lease or lease amendment (as applicable) execution. No fees shall be paid for any rents applying to the time period that is more than five (5) years after the expiration date of the initial lease term in the evfent of tenant’s exercise of any option to expand, right of first refusal, or renewal option as written in the lease. Fee share disclosure: tenant may or may not participate in a protion of the fee (share) per its agreement with cbre, inc. assignment /sale of property if the landlord assigns, sells, or otherwise transfers he lease on property for which commissions are payable prior to the final payment landlord shall remain liable for commissions due to tenant broke for commissions stated above on the same terms as provided in this agreement. Authority and Capacity: the person signing below represents and warrants (i) having full authority and signing capacity on behalf o flandlord and (ii) financial capability to pay such commissions.

7) Prevailing Party: If either party instututes legal action to enforce its rights under this agreement, the prevailing party will be entitled to recover its reasonable attorney’ fees and other costs so incurred. Any portion of a commission not paid to CBRE, Inc. within ten (10) business days of when due will bear interest from the due date until paid at a ten percent (10%) rate of interest per annum. Landlord: Cleveland America, LLC Tenant Broker: CBRE, Inc. Signature Signature Printed Name Ryan C. Jeffers Printed Name Title/Date First Vice President 1-31-17 Title/Date

Exhibit 10.2

FIRST AMENDMENT TO LEASE AGREEMENT

This First Amendment to Lease Agreement (“Amendment”) is made as of the 10th day of January, 2018, by and among CLEVELAND AMERICAN, LLC, a Delaware limited liability company, and HOLDINGS CLEVELAND AMERICAN, LLC, a Delaware limited liability company (collectively, “Landlord”), and INOGEN, INC., a Delaware corporation (“Tenant”).

WHEREAS, Tenant currently leases from Landlord approximately 22,100 square feet of space (the “Premises”) in the building located at 1 American Road, Cleveland, Ohio 44144, pursuant to that certain Lease Agreement dated May 31, 2017 (the “Lease”);

WHEREAS, Tenant has exercised its right to expand the Premises upon and subject to the terms set forth in the Lease; and

WHEREAS, the parties have agreed to modify the Lease in accordance with the terms and provisions set forth herein.

NOW, THEREFORE, for good and valuable consideration, Landlord and Tenant agree as follows:

Terms . Capitalized terms not otherwise defined herein shall have the same meaning as set forth in the Lease.

Office Expansion . The term “Office Increment” shall mean all 20,000 square feet of the Expansion Area #1 as more precisely depicted on the space plan incorporated herein as First Amendment Exhibit A. On the later to occur of (i) mutual execution of this First Amendment and (ii) January 2, 2018 (the “Office Increment Possession Date”): (i) the Office Increment is added to the Premises; (ii) Section B of the Lease Summary and Paragraph 1.2.A of the Lease and Paragraph 5.1.P are hereby amended to provide that the Premises contains approximately 42,100 rentable square feet of the Building; and (iii) Section K and Paragraph 5.1.T of the Lease are hereby amended to provide that Tenant’s Office Share for the Premises is 8.34%, which is determined by dividing 42,100 SF Rentable Area of the Premises by the 504,942 SF Rentable Office Area of the Building. The term for the Office Increment shall be coterminous with the initial Premises and expire on September 30, 2024. Promptly after mutual execution of this First Amendment, the Security Deposit shall be increased by $16,500. Tenant has elected not to receive any Office Increment Allowance in connection with the Office Increment. The Office Increment Commencement Date shall be the last to occur of (i) April 1, 2018 and (ii) 90 days after the Office Increment Possession Date and (iii) completion by Landlord of all Landlord Work pursuant to Exhibits D-1 and D-2 of the Lease. Tenant shall be provided parking spaces pursuant to Section 6 of the Lease, other than the patching and restriping of the parking field which shall be completed as weather permits. Landlord shall pay a commission to Tenant’s Broker pursuant to Section 3 of Exhibit G of the Lease.

Counterparts; Conflicts . This Amendment may be executed in counterparts, which taken together shall constitute one and the same instrument and any one of the parties hereto may execute this Amendment by signing such counterpart. In the event of any inconsistency between the terms of the Lease and this Amendment, the terms of this Amendment shall control.

Lease Binding . Except as expressly amended hereby, the Lease shall remain in full force and effect and fully binding upon the parties hereto.

SIGNATURE PAGE FOLLOWS

The parties have duly executed this Amendment as of the date first- above written.

LANDLORD:

CLEVELAND AMERICAN, LLC,
a Delaware limited liability company,

By:	/s/ Christopher Semarjian
	Christopher Semarjian, Manager

HOLDINGS CLEVELAND AMERICAN, LLC,
a Delaware limited liability company

By:	Holdings Ohio Manager, LLC, a Delaware limited liability company, its Manager
	By:	/s/ John A. Mase
		John A. Mase, Chief Executive Officer


TENANT :

INOGEN, INC.,
a Delaware corporation

By:	/s/ Alison Bauerlein
	Name:		Alison Bauerlein
	Title:		Chief Financial Officer

STATE OF OHIO	)
	)	SS:
COUNTY OF CUYAHOGA	)

The foregoing instrument was acknowledged before me this 5th day of January, 2018, by Christopher Semarjian, the Manager of Cleveland American, LLC, a Delaware limited liability company, on behalf of the limited liability company.

/s/ Sue A. Speck
Notary Public
My commission expires:	10/19/2019

STATE OF CALIFORNIA	)
	)	ss.
COUNTY OF SANTA BARBARA	)

On December 28, 2017, before me, Gretchen L. Smith, Notary Public personally appeared Alison K. Bauerlein, who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that she executed the same in her authorized capacity, and that by her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Signature

/s/ Gretchen L. Smith

(Seal)

STATE OF CALIFORNIA	)
	)	SS:
COUNTY OF LOS ANGELES	)

On January 10, 2018 , before me, Renay Irene Cardona Marquez , Notary Public personally appeared John A. Mase , who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Signature

/s/ Renay Irene Cardona Marquez

(Seal)

EXHIBIT A

[SEE ATTACHED]

Exhibit A Phase combined totals phase 2 fp-2 floor plan inogen - phase 2 one American way – Brooklyn ohio November 29,2017

Exhibit 10.3

SECOND AMENDMENT TO LEASE AGREEMENT

This Second Amendment to Lease Agreement (“Second Amendment”) is made as of the 1st day of May, 2018, by and among CLEVELAND AMERICAN, LLC, a Delaware limited liability company, and HOLDINGS CLEVELAND AMERICAN, LLC, a Delaware limited liability company (collectively, “Landlord”), and INOGEN, INC., a Delaware corporation (“Tenant”).

WHEREAS, Tenant currently leases from Landlord approximately 42,100 square feet of space (the “Premises”) in the building located at 1 American Road, Cleveland, Ohio 44144, pursuant to that certain Lease Agreement dated May 31, 2017 (the “Original Lease”), as amended by that certain First Amendment to Lease Agreement dated January 10, 2018 (the “First Amendment” and together with the Original Lease, the “Lease”);

WHEREAS, Landlord and Tenant have agreed to expand the Premises upon and subject to the terms set forth in the Lease and this Second Amendment; and

WHEREAS, the parties have agreed to modify the Lease in accordance with the terms and provisions set forth herein.

NOW, THEREFORE, for good and valuable consideration, Landlord and Tenant agree as follows:

Terms . Capitalized terms not otherwise defined herein shall have the same meaning as set forth in the Lease.

Office Expansion .

(a) The term “Second Office Increment” shall mean all 12,039 square feet of the Expansion Area #2 as more precisely depicted on the space plan incorporated herein as Second Amendment Exhibit A. The term “Third Office Increment” shall mean all 17,941 square feet of the Expansion Area #3 as more precisely depicted on the space plan incorporated herein as Second Amendment Exhibit A. The term “Fourth Office Increment” shall mean all 21,554 square feet of the Expansion Area #4 as more precisely depicted on the space plan incorporated herein as Second Amendment Exhibit A. The term “Fifth Office Increment” shall mean all 25,192 square feet of the Expansion Area #5 as more precisely depicted on the space plan incorporated herein as Second Amendment Exhibit A. The term “Sixth Office Increment” shall mean all 27,912 square feet of the Expansion Area #6 as more precisely depicted on the space plan incorporated herein as Second Amendment Exhibit A.

(b) On May 1, 2018 (the “Second Office Increment Possession Date”): (i) the Second Office Increment is added to the Premises; (ii) Section B of the Lease Summary, Paragraph 1.2.A of the Lease and Paragraph 5.1.P of the Lease are hereby amended to provide that the Premises contains approximately 54,139 rentable square feet of the Building; and (iii) Section K of the Lease Summary and Paragraph 5.1.T of the Lease are hereby amended to provide that Tenant’s Office Share for the Premises is 10.72%, which is determined by dividing 54,139 SF Rentable Area of the Premises by the 504,942 SF Rentable Office Area of the Building. The term for the Second Office Increment shall be coterminous with the initial Premises and expire on September 30, 2024. The “Second Office Increment Commencement Date” shall occur on the later of (i) August 1, 2018; (ii) ninety (90) days after the Second Office Increment Possession Date; and (iii) substantial completion by Landlord of all Landlord Work subject to punchlist items and other items that do not materially adversely affect Tenant’s operations from the Second Office Increment, pursuant to Exhibits D-1 and D-2 of this Second Amendment. Landlord shall provide Tenant with 10 parking spaces per 1,000 rentable square feet of the Second Office Increment (the “Second Expansion Parking Field”). The Second Expansion Parking Field shall be within “Zone 1” as approximately shown on Exhibit F, which shall be completed prior to the Second Office Increment Commencement Date.

(c) On the earlier to occur of (i) 90 days after the date upon which Landlord delivers possession of the Third Office Increment to Tenant with Landlord’s Work, pursuant to Exhibits D-1 and D-2 of this Second Amendment, Substantially Complete, subject to punchlist items and other items that do not materially adversely affect Tenant’s operations from the Third Office Increment; or (ii) the date upon

which any of Tenant ’s employees occupy all or any portion of the Third Office Increment ( in either event, the “ Third Office Increment Commencement Date”), (x) the Third Office Increment is added to the Premises ; (y) Se ction B of the Lease Summary, Paragraph 1.2.A of the Lease and Paragraph 5.1.P of the Lease are hereby amended to provide that the Premises contains approximately 72,080 rentable squa re feet of the Building; and (z ) Section K of the Lease Summary and Paragraph 5.1.T of the Lease are hereby amended to provide that Tenant’s Office Share for the Premises is 14.27%, which is determined by dividing 72,080 SF Rentable Area of the Premises by the 504,942 SF Rentable Office Area of the Building. Notwithstanding the foregoing, unless any of Tenant’s employees occupy all or any portion of the Third Office Increment before November 1, 201 8 , the Third Office Increment Co mmencement Date shall not be deemed to occur before November 1, 201 8 . Notwithstanding the foregoing, Tenant shall be permitted to access the Third Office Increment prior to the Third Office Increment Commencement Date provided, however, Tenant shall only occupy such portions of the Third Office Increment as approved by Landlord and Tenant shall not interfere with the performance of Landlord’s Work. The term for the Third Office Increment shall be coterminous with the initial Premises and expire on September 30, 2024. Landlo rd shall provide Tenant with 4 parking spaces per 1,000 rentable square feet of the Third Office Increment (the “Third Expansion Parking Field” ) . The Third Expansion P arking Field shall be within “ Zone 1 ” as approximately shown on Exhibit F, which shall be co mpleted prior to November 1, 201 8 .

(d) On the earlier to occur of (i) 90 days after the date upon which Landlord delivers possession of the Fourth Office Increment to Tenant with Landlord’s Work, pursuant to Exhibits D-1 and D-2 of this Second Amendment, Substantially Complete, subject to punchlist items and other items that do not materially adversely affect Tenant’s operations from the Fourth Office Increment; or (ii) the date upon which any of Tenant’s employees occupy all or any portion of the Fourth Office Increment (in either event, the “Fourth Office Increment Commencement Date”), (x) the Fourth Office Increment is added to the Premises; (y) Section B of the Lease Summary, Paragraph 1.2.A of the Lease and Paragraph 5.1.P of the Lease are hereby amended to provide that the Premises contains approximately 93,634 rentable square feet of the Building; and (z) Section K of the Lease Summary and Paragraph 5.1.T of the Lease are hereby amended to provide that Tenant’s Office Share for the Premises is 18.54%, which is determined by dividing 93,634 SF Rentable Area of the Premises by the 504,942 SF Rentable Office Area of the Building. Notwithstanding the foregoing, unless any of Tenant’s employees occupy all or any portion of the Third Office Increment before July 1, 2019, the Fourth Office Increment Commencement Date shall not be deemed to occur before July 1, 2019. Notwithstanding the foregoing, Tenant shall be permitted to access the Fourth Office Increment prior to the Fourth Office Increment Commencement Date provided, however, Tenant shall only occupy such portions of the Fourth Office Increment as approved by Landlord and Tenant shall not interfere with the performance of Landlord’s Work. The term for the Fourth Office Increment shall be coterminous with the initial Premises and expire on September 30, 2024. Landlord shall provide Tenant with 8.5 parking spaces per 1,000 rentable square feet of the Fourth Office Increment (the “Fourth Expansion Parking Field”). The Fourth Expansion Parking Field shall be within “Zone 2” as approximately shown on Exhibit F, and Landlord and Tenant agree that patching and restriping of the Fourth Expansion Parking Field shall be completed as weather permits. In the event that the Fourth Expansion Parking Field requires additional construction to accommodate the number of parking spaces within the Fourth Expansion Parking Field, Landlord shall complete such construction prior to the Fourth Office Increment Commencement Date unless Landlord provides sufficient parking in an alternate parking area which shall be no more distant from the Building entrance than the Fourth Expansion Parking Field.

Promptly after mutual execution of this Second Amendment, the Security Deposit shall be increased by $51,023.07. Tenant shall not receive any Office Increment Allowance or any other Landlord provided allowance in connection with the Second Office Increment, the Third Office Increment, or the Fourth Office Increment. Landlord shall pay a commission to Tenant’s Broker pursuant to that Real Estate Commission Agreement dated January 31, 2017 attached to the Lease as Exhibit G. Such Commission Agreement shall also apply to the Fifth Office Increment and, if applicable, the Sixth Office Increment if Tenant exercises any expansion option or ROFR set forth in this Second Amendment.

Condition . Tenant acknowledges that other than those Landlord Work obligations set forth on Exhibits D-1 and D-2 of this Second Amendment, Tenant is leasing and accepts the Second Office Increment, the Third Office Increment, and the Fourth Office Increment in their “as-is” condition.

Base Rent – Second Office Increment . Notwithstanding anything to the contrary contained in the Lease, assuming the Second Office Increment Commencement Date is during Lease Year 1, Tenant’s obligation to pay Base Rent shall increase by $9,932.18 per month, based on $9.90 per rentable square foot of the Second Office Increment per annum. Base Rent for the Second Office Increment shall continue as set forth on Exhibit B of this Second Amendment. In the event that the Term is extended beyond the end of Lease Year 12, Tenant’s obligation to pay Base Rent for the Second Office Increment for each Lease Year thereafter shall increase by two and one-half percent (2.5%) per year, on a cumulative basis.

Base Rent – Third Office Increment . Notwithstanding anything to the contrary contained in the Lease, assuming the Third Office Increment Commencement Date is during Lease Year 2, Tenant’s obligation to pay Base Rent shall increase by $17,686.84 per month, based on $11.83 per rentable square foot of the Third Office Increment per annum. Base Rent for the Third Office Increment shall continue as set forth on Exhibit C of this Second Amendment. In the event that the Term is extended beyond the end of Lease Year 12, Tenant’s obligation to pay Base Rent for the Third Office Increment for each Lease Year thereafter shall increase by two and one-half percent (2.5%) per year, on a cumulative basis.

Base Rent – Fourth Office Increment . Notwithstanding anything to the contrary contained in the Lease, assuming the Fourth Office Increment Commencement Date is during Lease Year 2, Tenant’s obligation to pay Base Rent shall increase by $23,404.05 per month, based on $13.03 per rentable square foot of the Third Office Increment per annum. Base Rent for the Fourth Office Increment shall continue as set forth on Exhibit E of this Second Amendment. In the event that the Term is extended beyond the end of Lease Year 12, Tenant’s obligation to pay Base Rent for the Fourth Office Increment for each Lease Year thereafter shall increase by two and one-half percent (2.5%) per year, on a cumulative basis.

Fifth Office Increment . Provided that Tenant is not then in Default, beyond all applicable notice and cure periods, under any of the terms of the Lease and has not been in monetary or other material Default, beyond all applicable notice and cure periods, more than two (2) times during the Term, Tenant shall have the option to lease all, but not a portion, of the Fifth Office Increment provided, however, that such Fifth Office Increment Space is not leased to another tenant or Landlord is not in current, reciprocal written negotiations for the lease of all or part of such Fifth Office Increment Space with another tenant which is subject to and subordinate to the provisions of Section 35.A of the Lease. Tenant and Landlord shall enter into an amendment to the Lease evidencing the expansion into the Fifth Office Increment at the Base Rent as set forth on Exhibit E of this Second Amendment. In the event that Tenant properly exercises its option to expand into the Fifth Office Increment, the lease of such space shall commence on the earlier to occur of (i) 90 days after the date upon which Landlord delivers possession of the Fifth Office Increment to Tenant with Landlord’s Work, pursuant to Exhibits D-1 and D-2 of this Second Amendment, Substantially Complete, subject to punchlist items and other items that do not materially adversely affect Tenant’s operations from the Fifth Office Increment; or (ii) the date upon which any of Tenant’s employees occupy all or any portion of the Fifth Office Increment (the “Fifth Office Increment Commencement Date”) and shall be coterminous with the Term. Notwithstanding the foregoing, if at the time Tenant occupies the Fifth Office Increment, fewer than five (5) full calendar years remain on the Term, the Lease shall be extended for all of the Premises so that a minimum of five (5) years remain on the Term. In the event that the Term is extended beyond the end of Lease Year 12, Tenant’s obligation to pay Base Rent for the Fifth Office Increment for each Lease Year thereafter shall increase by two and one-half percent (2.5%) per year, on a cumulative basis. Landlord shall provide Tenant with 214 parking spaces (the “Fifth Expansion Parking Field”). The Fifth Expansion Parking Field shall be within the “Zone 2”, as approximately shown on Exhibit F, and Landlord and Tenant agree that patching and restriping of the Fifth Expansion Parking Field shall be completed as weather permits. In the event that the Fifth Expansion Parking Field requires additional construction to accommodate the number of parking spaces within the Fifth Expansion Parking Field Landlord shall complete such construction prior to the Fifth Office Increment Commencement Date unless Landlord provides sufficient parking in an alternate parking area which shall be no more distant from the Building entrance than the Fifth Expansion Parking Field. Tenant shall not receive any Office Increment Allowance or any other Landlord provided allowance in connection with the Fifth Office Increment.

ROFR . Upon the full execution of this Second Amendment, t he provisions of Section 35.A. of the Lease shall apply only to the Fifth Office Increment, provided, however, if a Third Party leases all or any portion of the Fifth Office Increment for a lease term longer than five (5) calendar years, the provisions of Section 35 .A shall no longer apply to the Fifth Office Increment .

Sixth Office Increment . In the event that Tenant is leasing all of the Fourth Office Increment and thereafter Landlord sends a Space Offer Notice to Tenant in reference to the Fifth Office Increment pursuant to Section 35.A of the Lease and Tenant does not deliver an Acceptance Notice regarding the Fifth Office Increment, all of Tenant’s option and ROFR rights and obligations regarding the Fifth Office Increment as set forth in Section 6, Section 7 and Section 8 of this Second Amendment shall apply to the Sixth Office Increment (the “Sixth Office Increment Expansion Rights”), including, without limitation, the Base Rent per RSF as set forth on Exhibit E of this Second Amendment and providing Tenant 237 parking spaces in Zone 2, provided, however, that the Sixth Office Increment is not leased to another tenant or Landlord is not in current, reciprocal written negotiations for the lease of all or part of such Sixth Office Increment Space with another tenant. Notwithstanding the foregoing, the Sixth Office Increment Expansion Rights shall be subject and subordinate to the rights of any other party leasing space in the Building as of the Fourth Office Increment Commencement Date.

10.

Section 1.4 . Section 1.4 and Section 1.5 of the Lease are hereby deleted in their entirety. All references to Warehouse Space contained in the Lease are no longer applicable because Landlord and Tenant agree that Tenant shall no longer have the right to expand into any Warehouse Space.

11.

Section 35 . Section 35.B of the Lease is deleted in its entirety.

12.

Counterparts; Conflicts . This Second Amendment may be executed in counterparts, which taken together shall constitute one and the same instrument and any one of the parties hereto may execute this Second Amendment by signing such counterpart. In the event of any inconsistency between the terms of the Lease and this Second Amendment, the terms of this Amendment shall control.

13.

Lease Binding . Except as expressly amended hereby, the Lease shall remain in full force and effect and fully binding upon the parties hereto.

SIGNATURE PAGE FOLLOWS

The parties have duly executed this Second Amendment as of the date first- above written.


LANDLORD:

CLEVELAND AMERICAN, LLC,
a Delaware limited liability company,

By:	/s/ Christopher Semarjian
	Christopher Semarjian, Manager

HOLDINGS CLEVELAND AMERICAN, LLC,
a Delaware limited liability company

By:	Holdings Ohio Manager, LLC, a Delaware limited liability company, its Manager
	By:	/s/ John A. Mase
		John A. Mase, Chief Executive Officer


TENANT :

INOGEN, INC.,
a Delaware corporation

By:	/s/ Alison Bauerlein
	Name:		Alison Bauerlein
	Title:		Chief Financial Officer


STATE OF OHIO	)
	)	SS:
COUNTY OF CUYAHOGA	)

The foregoing instrument was acknowledged before me this 14th day of May, 2018, by Christopher Semarjian, the Manager of Cleveland American, LLC, a Delaware limited liability company, on behalf of the limited liability company.


/s/ Sue A. Speck
Notary Public
My commission expires:	10/19/2019


STATE OF CALIFORNIA	)
	)	ss.
COUNTY OF LOS ANGELES	)

On May 10, 2018 , before me, Renay Irene Cardona Marquez , Notary Public personally appeared John A. Mase , who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.


Signature	/s/ Renay Irene Cardona Marquez	(Seal)


STATE OF CALIFORNIA	)
	)	ss.
COUNTY OF SANTA BARBARA	)

On May 8, 2018 , before me, Gretchen L. Smith , Notary Public personally appeared Alison Bauerlein , who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that she executed the same in her authorized capacity and that by her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.


Signature	/s/ Gretchen L. Smith	(Seal)

EXHIBIT A

EXHIBIT B

Second Office Increment Base Rent


Lease Year	Base Rent PSF Per Annum
Lease Year 1	$9.90
Lease Year 2	$10.15
Lease Year 3	$10.40
Lease Year 4	$10.66
Lease Year 5	$10.93
Lease Year 6	$11.20
Lease Year 7	$11.48
Lease Year 8	$11.77
Lease Year 9	$12.06
Lease Year 10	$12.36
Lease Year 11	$12.67
Lease Year 12	$12.99

EXHIBIT C

Third Office Increment Base Rent


Lease Year	Base Rent PSF Per Annum
Lease Year 1	$11.54
Lease Year 2	$11.83
Lease Year 3	$12.12
Lease Year 4	$12.43
Lease Year 5	$12.74
Lease Year 6	$13.06
Lease Year 7	$13.38
Lease Year 8	$13.72
Lease Year 9	$14.06
Lease Year 10	$14.41
Lease Year 11	$14.77
Lease Year 12	$15.14

Exhibit D ‑1

LANDLORD’S WORK

*NOTE: For purposes of this Exhibit D-1 the term “Premises” shall mean the Second Office Increment, the Third Office Increment, the Fourth Office Increment, the Fifth Office Increment and/or the Sixth Office Increment, as applicable.

The term “Substantially Completed” means that (A) the contractor has substantially completed Landlord’s Work, which shall be deemed complete even though minor details of construction, mechanical adjustments or decorations which do not materially interfere with Tenant’s use of the applicable portion of the Premises (items normally referred to as “Punch-List Items”) remain to be performed, (B) Tenant shall have access to the applicable portion of the Premises and Parking Facilities, and substantially all services provided for in this Lease, (C) the Premises shall be free of all material construction equipment and debris; and (D) if a permit is required for any portion of the Landlord’s Work, a certificate of occupancy or temporary certificate of occupancy (or its equivalent, such as a “final sign-off” by the building inspector) has been obtained for the applicable portion of the Premises but only to the extent such may be obtained without completion of Tenant Improvements. Landlord and Tenant shall jointly prepare the list of Punch-List Items. Landlord shall cause the Punch-List Items to be corrected as soon as reasonably possible and practical. Tenant’s occupancy of the applicable portion of the Premises shall be deemed acceptance of the applicable portion of the Premises and Landlord’s Work, subject to the Punch-List Items.

Exhibit D-2

LIST OF LANDLORD’S WORK

*NOTE: For purposes of this Exhibit D-2 the term “Premises” shall mean the Second Office Increment, the Third Office Increment, the Fourth Office Increment, the Fifth Office Increment and/or the Sixth Office Increment, as applicable.

The following Tenant Improvements shall fully comprise the scope of work which is the List of Landlord’s Work will be completed to make the Premises ready for Occupancy:

LANDLORD SCOPE OF WORK

•

All roofing inspections, repairs, maintenance and replacements necessary to ensure the roof over the Premises is water tight.

•

Demising, ingress, and egress for access to the Premises as necessary to secure the Premises and meet applicable code and ADA requirements for access to the Premises.

•

Sub-metering of electricity for overhead lights, base plugs, and supplemental HVAC.

•

Existing Men’s and Women’s restrooms adjacent to the Premises in good working order, compliant with ADA, and with sufficient capacity to meet code requirements and service Tenant’s employees.

•

Parking field patched and restriped, as well as sufficient lighting in place consistent with parking exhibit

•

Premises clear of all FF&E and property of prior tenant and Landlord; and Premises in broom clean condition.

•

For any Office Premises, paint all wall surfaces with Sherwin-Williams Duration or better (Tenant to select no more than 3 colors), and paint new door and sidelight frames.

•

For any Office Premises, install flooring with an installation allowance of $28.00 per square yard wherever carpet is specified:

Landlord to furnish and install new carpet tile using a $28.00 per square yard installation allowance in all areas unless listed below.

Landlord to furnish and install new building standard VCT in Copy/Mail/Work, IT Server and IT Work/Storage rooms.

Landlord to furnish and install new 4” standard vinyl base in all areas of new flooring, straight base for carpeting, cove base for hard surface flooring.

DEMOLITION

•

Landlord to have Premises clear of all FF&E and property of prior tenant and Landlord; and Premises in broom clean condition prior to General Contractor mobilization.

CARPENTRY

•

Landlord to furnish any new demising walls, ingress, and egress as necessary to secure the Premises and meet applicable code and ADA requirements.

HVAC

•

Landlord responsible for maintenance, repair, and rebalancing of main plant equipment, metering of

devices and to ensure the cooling capacity will meet load requirements per Tenant’s engineer. (1 ton of cooling for every 400 rentable square feet).

ATRIA AND OPEN STAIRWELLS

•

Prior to the delivery of Possession of any Expansion Areas that include open stairwells and atria connecting to the 1st floor (Expansion Areas 3, 4, 6, and 7), Landlord shall appropriately secure and demise these atria with drywall and glass partition for privacy purposes and remove any unneeded stairs to ensure a secure premises for Tenant and compliance with all fire and ingress/egress issues related to local code.

SOUTH WALL WINDOWS

•

On or before July 1, 2019 Landlord shall prepare window holes along the southern wall of the Fourth Office Increment that may be utilized in the construction of the courtyard window project (“Courtyard Window Construction”), and Landlord at its option can either cover the holes with drywall or insert windows in connection with the Courtyard Window Construction.

EXHIBIT E

Fourth Office Increment, Fifth Office Increment and Sixth Office Increment Base Rent


Lease Year	Base Rent PSF Per Annum
Lease Year 1	$12.71
Lease Year 2	$13.03
Lease Year 3	$13.35
Lease Year 4	$13.69
Lease Year 5	$14.03
Lease Year 6	$14.38
Lease Year 7	$14.74
Lease Year 8	$15.11
Lease Year 9	$15.49
Lease Year 10	$15.87
Lease Year 11	$16.27
Lease Year 12	$16.68

EXHIBIT F

[see attached]

Exhibit 31.1

Certification by the Chief Executive Officer Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Scott Wilkinson, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Inogen, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 7, 2018

By:

/s/ Scott Wilkinson

Scott Wilkinson

Chief Executive Officer, President and Director

(Principal Executive Officer)

Exhibit 31.2

Certification by the Chief Financial Officer Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Alison Bauerlein, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Inogen, Inc.;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 7, 2018

By:

/s/ Alison Bauerlein

Alison Bauerlein

Chief Financial Officer

Executive Vice President, Finance

Secretary and Treasurer

(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

I, Scott Wilkinson, the chief executive officer of Inogen, Inc. (the “Company”), certify for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge,

(i) the Quarterly Report of the Company on Form 10-Q for the three months ended June 30, 2018 (the “Report”), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 7, 2018	By:	/s/ Scott Wilkinson
		Scott Wilkinson
		Chief Executive Officer, President and Director

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

I, Alison Bauerlein, the chief financial officer of Inogen, Inc. (the “Company”), certify for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge,

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 7, 2018

By:

/s/ Alison Bauerlein

Alison Bauerlein

Chief Financial Officer

Executive Vice President, Finance

Secretary and Treasurer