VAPOTHERM INC (Form: 10-Q, Received: 11/04/2020 16:18:01)

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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 September 30, 2020

☐ 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: 001-38740

Vapotherm, Inc.

(Exact name of registrant as specified in its charter)


Delaware	46-2259298
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
100 Domain Drive
Exeter, N.H. (Address of principal executive offices)	03833 (Zip Code)

(603) 658-0011

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	VAPO	New York Stock Exchange

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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting, 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	☐	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 October 29, 2020, there were 25,661,162 outstanding common shares of Vapotherm, Inc.

Vapotherm, Inc.

Form 10-Q

For the Quarterly Period Ended September 30, 2020

TABLE OF CONTENTS


		Page No.
Note Regarding Forward-Looking Statements		3

PART I. FINANCIAL INFORMATION
Item 1	Condensed Consolidated Financial Statements (interim periods unaudited)	5
	Condensed Consolidated Balance Sheets – September 30, 2020 and December 31, 2019	5
	Condensed Consolidated Statements of Comprehensive Loss – Three and nine months ended September 30, 2020 and 2019	6
	Condensed Consolidated Statements of Stockholders’ Equity – Three and nine months ended September 30, 2020 and 2019	7
	Condensed Consolidated Statements of Cash Flows – Nine months ended September 30, 2020 and 2019	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4	Controls and Procedures	38

PART II. OTHER INFORMATION
Item 1	Legal Proceedings	39
Item 1A	Risk Factors	39
Item 6	Exhibits	43
Exhibit Index		43
Signatures		44

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. Forward-looking statements include, but are not limited to, statements concerning:

•

estimates regarding the annual total addressable market for our Precision Flow systems and future product offerings, future results of operations, financial position, capital requirements and our needs for additional financing;

•

commercial success and market acceptance of our Precision Flow systems, our Oxygen Assist Module and any future products we may seek to commercialize;

•

competitive companies and technologies in our industry;

•

our ability to increase and sustain the increased production capacity of our Precision Flow systems in response to the increased demand for our Precision Flow systems from the COVID-19 pandemic, and the ability of our carriers to make timely delivery of our Precision Flow systems during the COVID-19 pandemic;

•

our ability to enhance our Precision Flow systems and our Oxygen Assist Module, expand our indications and develop and commercialize additional products;

•

our business model and strategic plans for our products, technologies and business, including our implementation thereof;

•

our ability to accurately forecast customer demand for our products and manage our production and inventory, particularly in light of the ongoing COVID-19 pandemic;

•

our ability to expand, manage and maintain our direct sales and marketing organizations in the United States and United Kingdom, and to market and sell our Precision Flow systems globally and to expand our limited release and eventually market and sell our Oxygen Assist Module in the United Kingdom, Europe, and the Middle East;

•

our ability to hire and retain our senior management and other highly qualified personnel;

•

our ability to obtain additional financing in the future;

•

our ability to commercialize or obtain regulatory approvals for our products, or the effect of delays in commercializing or obtaining regulatory approvals;

•

U.S. Food and Drug Administration or other United States or foreign regulatory actions affecting us or the healthcare industry generally, including healthcare reform measures in the United States and international markets;

•

the timing or likelihood of regulatory filings and approvals;

•

our ability to establish and maintain intellectual property protection for our High Velocity Therapy, Precision Flow systems and our Oxygen Assist Module, and our ability to avoid claims of infringement;

•

the volatility of the trading price of our common stock; and

•

our expectations about market trends.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of known and unknown risks, uncertainties and assumptions, including those described in the “Risk Factors” section of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 4, 2020, our Quarterly Report on Form 10-Q filed with the SEC on May 5, 2020, our Quarterly Report on Form 10-Q filed with the SEC on August 4, 2020, this Quarterly Report on Form 10-Q, and in our other filings with the SEC. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. Any forward-looking statements made herein speak only as of the date of this Quarterly Report on Form 10-Q, and you should not rely on forward-looking statements as predictions of future events. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

We use “Vapotherm,” “Precision Flow,” “High Velocity Therapy,” “HVT,” “Hi-VNI,” “OAM,” and other marks as trademarks in the United States and/or in other countries. This Quarterly Report on Form 10-Q contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q, including logos, artwork and other visual displays, may appear without the ^® or ^TM symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other entities’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other entity.

Unless otherwise indicated, information contained in this Quarterly Report on Form 10-Q concerning our industry and the markets in which we operate, including our general expectations, market position and market opportunity, is based on our management’s estimates and research, as well as industry and general publications and research, surveys and studies conducted by third parties. We believe that the information from these third-party publications, research, surveys and studies included in this Quarterly Report on Form 10-Q is reliable. Management’s estimates are derived from publicly available information, their knowledge of our industry and their assumptions based on such information and knowledge, which we believe to be reasonable. This data involves a number of assumptions and limitations which are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the “Risk Factors” section of our Annual Report on Form 10-K filed with the SEC on March 4, 2020, our Quarterly Report on Form 10-Q filed with the SEC on May 5, 2020, our Quarterly Report on Form 10-Q filed with the SEC on August 4, 2020, and this Quarterly Report on Form 10-Q. These and other factors could cause our future performance to differ materially from our assumptions and estimates.

Unless the context requires otherwise, references to “Vapotherm,” the “Company,” “we,” “us,” and “our,” refer to Vapotherm, Inc. and its consolidated subsidiary unless stated or the context otherwise requires.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VAPOTHERM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

	September 30, 2020			December 31, 2019
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	139,015		$	71,655
Accounts receivable, net		10,875			8,243
Inventories		25,029			9,137
Prepaid expenses and other current assets		4,895			4,066
Total current assets		179,814			93,101
Property and equipment, net		17,992			15,086
Restricted cash		1,853			1,852
Goodwill		571			588
Intangible assets, net		258			353
Deferred income tax assets		66			66
Other long-term assets		1,063			844
Total assets	$	201,617		$	111,890
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	6,252		$	3,375
Contract liabilities		279			137
Accrued expenses and other current liabilities		19,134			9,187
Short-term line of credit		4,495			3,491
Total current liabilities		30,160			16,190
Long-term loans payable, net		42,000			41,787
Other long-term liabilities		881			174
Total liabilities		73,041			58,151
Commitments and contingencies (Note 9)
Stockholders' equity
Preferred stock ($0.001 par value) 25,000,000 shares authorized; no shares issued and outstanding as of September 30, 2020 and December 31, 2019		-			-
Common stock ($0.001 par value) 175,000,000 shares authorized as of September 30, 2020 and December 31, 2019, 25,625,605 and 20,851,531 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively		26			21
Additional paid-in capital		428,306			319,115
Accumulated other comprehensive income		3			44
Accumulated deficit		(299,759	)		(265,441	)
Total stockholders' equity		128,576			53,739
Total liabilities and stockholders’ equity	$	201,617		$	111,890

The accompanying notes are an integral part of these condensed consolidated financial statements.

Vapotherm, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net revenue	$	30,559		$	10,809		$	84,826		$	35,094
Cost of revenue		15,049			5,999			42,491			19,646
Gross profit		15,510			4,810			42,335			15,448
Operating expenses
Research and development		4,745			3,280			12,002			9,720
Sales and marketing		15,932			9,193			44,107			27,786
General and administrative		6,047			3,978			16,925			13,389
Total operating expenses		26,724			16,451			73,034			50,895
Loss from operations		(11,214	)		(11,641	)		(30,699	)		(35,447	)
Other (expense) income
Foreign currency gain (loss)		38			(28	)		37			(37	)
Interest income		42			242			227			658
Interest expense		(1,308	)		(1,338	)		(3,898	)		(3,783	)
Other		-			-			15			-
Net loss	$	(12,442	)	$	(12,765	)	$	(34,318	)	$	(38,609	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		34			(72	)		(41	)		(70	)
Total other comprehensive income (loss)	$	34		$	(72	)	$	(41	)	$	(70	)
Total comprehensive loss	$	(12,408	)	$	(12,837	)	$	(34,359	)	$	(38,679	)

Net loss per share attributable to common stockholders - basic and diluted	$	(0.49	)	$	(0.65	)	$	(1.48	)	$	(2.16	)
Weighted-average number of shares used in calculating net loss per share, basic and diluted		25,578,328			19,531,153			23,192,703			17,854,730

The accompanying notes are an integral part of these condensed consolidated financial statements.

VAPOTHERM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share amounts)

					Additional		Accumulated Other
	Common Stock				Paid-in		Comprehensive			Accumulated			Stockholders'
	Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance at December 31, 2019		20,851,531	$	21	$	319,115	$	44		$	(265,441	)	$	53,739
Issuance of common stock upon exercise of options		24,687		-		40		-			-			40
Issuance of restricted stock		40,931		-		58		-			-			58
Stock-based compensation expense		-		-		1,447		-			-			1,447
Foreign currency translation adjustments		-		-		-		(71	)		-			(71	)
Net loss		-		-		-		-			(13,844	)		(13,844	)
Balance at March 31, 2020		20,917,149	$	21	$	320,660	$	(27	)	$	(279,285	)	$	41,369

Issuance of common stock in connection with public offering, net		3,852,500		4		93,823		-			-			93,827
Issuance of common stock in connection with at-the-market offering, net		511,648		1		9,783		-			-			9,784
Issuance of common stock upon exercise of options		99,206		-		227		-			-			227
Issuance of common stock under the Employee Stock Purchase Plan		36,389		-		359		-			-			359
Issuance of common stock upon exercise of warrants		41,066		-		-		-			-			-
Issuance of restricted stock		35,100		-		53		-			-			53
Stock-based compensation expense		-		-		1,377		-			-			1,377
Foreign currency translation adjustments		-		-		-		(4	)		-			(4	)
Net loss		-		-		-		-			(8,032	)		(8,032	)
Balance at June 30, 2020		25,493,058	$	26	$	426,282	$	(31	)	$	(287,317	)	$	138,960

Issuance of common stock upon exercise of options		80,020		-		217		-			-			217
Issuance of common stock upon exercise of warrants		16,208		-		-		-			-			-
Issuance of restricted stock		36,319		-		51		-			-			51
Stock-based compensation expense		-		-		1,756		-			-			1,756
Foreign currency translation adjustments		-		-		-		34			-			34
Net loss		-		-		-		-			(12,442	)		(12,442	)
Balance at September 30, 2020		25,625,605	$	26	$	428,306	$	3		$	(299,759	)	$	128,576

The accompanying notes are an integral part of these condensed consolidated financial statements.

VAPOTHERM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY, continued

(Unaudited)

(In thousands, except share amounts)

					Additional		Accumulated Other
	Common Stock				Paid-in		Comprehensive			Accumulated			Stockholders'
	Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance at December 31, 2018		16,782,837	$	17	$	265,926	$	-		$	(214,382	)	$	51,561
Issuance of common stock warrants		-		-		293		-			-			293
Issuance of common stock upon exercise of options		268		-		-		-			-			-
Issuance of restricted stock		116,580		-		194		-			-			194
Stock-based compensation expense		-		-		1,935		-			-			1,935
Net loss		-		-		-		-			(12,964	)		(12,964	)
Balance at March 31, 2019		16,899,685	$	17	$	268,348	$	-		$	(227,346	)	$	41,019

Issuance of common stock upon exercise of warrants		12,164		-		-		-			-			-
Issuance of common stock upon exercise of options		122,497		-		193		-			-			193
Issuance of common stock upon repayment of non-recourse loan		79,854		-		144		-			-			144
Issuance of restricted stock		52,168		-		82		-			-			82
Stock-based compensation expense		-		-		789		-			-			789
Foreign currency translation adjustments		-		-		-		2			-			2
Net loss		-		-		-		-			(12,880	)		(12,880	)
Balance at June 30, 2019		17,166,368	$	17	$	269,556	$	2		$	(240,226	)	$	29,349

Issuance of common stock in connection with public offering, net		3,570,750		4		48,304		-			-			48,308
Issuance of common stock upon exercise of options		22,848		-		37		-			-			37
Issuance of restricted stock		41,647		-		64		-			-			64
Stock-based compensation expense		-		-		217		-			-			217
Foreign currency translation adjustments		-		-		-		(72	)		-			(72	)
Net loss		-		-		-		-			(12,765	)		(12,765	)
Balance at September 30, 2019		20,801,613	$	21	$	318,178	$	(70	)	$	(252,991	)	$	65,138

The accompanying notes are an integral part of these condensed consolidated financial statements.

VAPOTHERM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2020			2019
Cash flows from operating activities
Net loss	$	(34,318	)	$	(38,609	)
Adjustments to reconcile net loss to net cash used in operating activities
Stock-based compensation expense		4,580			2,941
Depreciation and amortization		3,371			2,219
Provision for bad debts		251			77
Provision for inventory valuation		(428	)		(602	)
Loss on disposal of property and equipment		13			112
Amortization of discount on debt		190			171
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable		(2,916	)		616
Inventories		(15,468	)		3,984
Prepaid expenses and other assets		(1,039	)		528
Accounts payable		2,803			(743	)
Contract liabilities		142			(31	)
Accrued expenses and other current liabilities		10,710			807
Net cash used in operating activities		(32,109	)		(28,530	)
Cash flows from investing activities
Purchases of property and equipment		(5,944	)		(3,132	)
Acquisition of business, net of cash acquired		-			(1,560	)
Net cash used in investing activities		(5,944	)		(4,692	)
Cash flows from financing activities
Proceeds from issuance of common stock in connection with public offering, net		94,155			48,669
Proceeds from issuance of common stock in connection with at-the-market offering, net		9,927			-
Common stock offering costs		(471	)		(361	)
Proceeds from issuance of common stock under the Employee Stock Purchase Plan		360			-
Short-term line of credit		995			(260	)
Proceeds from exercise of stock options and purchase of restricted stock		485			374
Proceeds on loans		-			10,500
Debt issuance costs		-			(322	)
Net cash provided by financing activities		105,451			58,600
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(37	)		(26	)
Net increase in cash, cash equivalents and restricted cash		67,361			25,352
Cash, cash equivalents and restricted cash
Beginning of period		73,507			60,022
End of period	$	140,868		$	85,374
Supplemental disclosures of cash flow information
Interest paid during the period	$	3,670		$	3,563
Property and equipment purchases in accounts payable and accrued expenses	$	139		$	222
Issuance of warrants in conjunction with debt draw down	-			$	293
Issuance of common stock upon vesting of restricted stock	$	162		$	340

The accompanying notes are an integral part of these condensed consolidated financial statements.

VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

1. Description of Business

Vapotherm, Inc. (the “Company”) was founded in 1993 and reincorporated under the laws of the State of Delaware in 2013. Since inception, the Company has focused on the development and commercialization of its proprietary High Velocity Therapy products that are used to treat patients of all ages suffering from respiratory distress. The Company’s High Velocity Therapy delivers non-invasive ventilatory support by providing heated, humidified and oxygenated air at a high velocity to patients through a comfortable small-bore nasal interface. The Company’s Precision Flow systems, which use High Velocity Therapy, are clinically validated alternatives to, and address many limitations of, the current standard of care for the treatment of respiratory distress in a hospital setting.

The Company offers four versions of its Precision Flow systems: Precision Flow Hi-VNI, Precision Flow Plus, Precision Flow Classic and Precision Flow Heliox. The Company generates revenue from sales of its Precision Flow systems and related disposable products utilized with its Precision Flow systems. The Company also generates revenue from sales of its Precision Flow system’s companion products, which include the Vapotherm Transfer Unit 2.0, the Q50 compressor and various adaptors. The Company offers different options to its hospital customers for acquiring Precision Flow capital units, ranging from the purchase of the Precision Flow capital units with payment in full at the time of purchase, to financed purchases of the Precision Flow capital units, to bundled discounts involving the placement of Precision Flow capital units for use by the customer at no upfront charge in connection with the customer’s ongoing purchase of disposable products.

The Company sells Precision Flow systems to hospitals through a direct sales force in the United States and in the United Kingdom and through distributors in select other countries outside of the United States and United Kingdom. In addition, the Company utilizes clinical educators who are typically experienced users of high velocity therapy and who focus on medical education efforts to facilitate adoption and increase utilization. The Company is focused on physicians, respiratory therapists and nurses who work in acute hospital settings, including the emergency department (“ED”) and adult, pediatric and neonatal intensive care units (the “ICUs”). The Company’s relationship with these clinicians is particularly important, as it enables its products to follow patients through the care continuum.

In March 2020, the World Health Organization declared a global pandemic related to the novel coronavirus (“COVID-19”). The Company’s high velocity therapy is a first-line therapy for treating respiratory distress, which is experienced by many COVID-19 patients. The Journal of the American Medical Association published data from mainland China in April 2020 suggesting that 19% of all COVID-19 patients experience respiratory distress and require some amount of respiratory support. The Company’s hospital customers around the world are using the Company’s technology to support the respiratory distress experienced by many COVID-19 patients so that they can triage their sickest patients using a limited number of ventilators. As a result, the Company has seen a significant increase in worldwide demand for its products from both new and existing accounts in the first nine months of 2020.

Since inception, the Company has financed its operations primarily through public offerings of its common stock, private placements of its convertible preferred stock, sales of its Precision Flow systems and amounts borrowed under its credit facilities. The Company has devoted the majority of its resources to research and development activities related to its Precision Flow systems, including regulatory initiatives and sales and marketing activities. The Company has invested heavily in its sales and marketing function by increasing the number of sales representatives and clinical educators to facilitate adoption and increase utilization of its high velocity therapy products and expanded its digital marketing initiatives and medical education programs.

The Company is subject to risks common to companies in the medical device industry, including, but not limited to, risks relating to the successful development and commercialization of its Precision Flow products, fluctuations in operating results and financial risks, protection of proprietary knowledge and patent risks, dependence on key personnel and collaborative partners, competition, technological and manufacturing risks, customer acceptance and demand, compliance with the Food and Drug Administration and other governmental regulations, management of growth and effectiveness of marketing by the Company and by third parties.

On November 16, 2018, the Company completed an initial public offering of 4,600,000 shares of common stock, which included the full exercise by the underwriters of their option to purchase 600,000 shares of common stock, at a price of $14.00 per share, which raised net proceeds of $57.4 million after deducting the underwriting discount of $4.5 million and offering expenses of $2.5 million.

On February 28, 2019, the Company acquired Solus Medical Ltd. (“Solus”), its United Kingdom based distributor. See Note 3 “Business Combinations” to these condensed consolidated financial statements for details of this transaction.

VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

In August 2019, the Company completed a public offering of 3,570,750 shares of common stock, which included the full exercise by the underwriters of their option to purchase 465,750 shares of common stock, at a price of $14.50 per share, which raised net proceeds of $48.3 million after deducting the underwriting discount of $3.1 million and offering expenses of $0.4 million.

On December 20, 2019, the Company entered into an Open Market Sales Agreement (the “ATM Agreement”) with Jefferies LLC (“Jefferies”), under which the Company may offer and sell its common stock having aggregate sales proceeds of up to $50.0 million from time to time through Jefferies as its sales agents. During April 2020, the Company sold 511,648 shares of common stock pursuant to the ATM Agreement for gross proceeds of $10.2 million, or $9.8 million net of commissions and offering expenses.

In May 2020, the Company completed a public offering of 3,852,500 shares of common stock, which included the full exercise by the underwriters of their option to purchase 502,500 shares of common stock, at a price of $26.00 per share, which raised net proceeds of $93.8 million after deducting the underwriting discount of $6.0 million and offering expenses of $0.3 million.

2. Summary of Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements and the accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”). Our accounting policies are described in the “Notes to Consolidated Financial Statements” in our 2019 Form 10-K and updated, as necessary, in this report. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from our audited financial statements but does not include all disclosures required by U.S. GAAP.

Principles of Consolidation

These condensed consolidated financial statements include the financial statements of Solus, a wholly owned subsidiary of the Company based in the United Kingdom, which was acquired in the first quarter of 2019. All intercompany accounts and transactions have been eliminated upon consolidation.

Segment Information

Operating segments are defined as components of an enterprise for which separate discrete financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company globally manages the business within one reporting segment, Vapotherm, Inc. and two reporting units, Vapotherm and Solus. Segment information is consistent with how management reviews the business, makes investing and resource allocation decisions and assesses operating performance.

The majority of the Company’s long-term assets are located in the United States. Long-term assets located outside the United States totaled $0.1 million as of each of September 30, 2020 and December 31, 2019.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make judgments, assumptions, and estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. The Company evaluates its estimates on an ongoing basis. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates relied upon in preparing these condensed consolidated financial statements include calculation of stock-based compensation, valuation of warrants, fair values of acquired assets and liabilities, including goodwill and intangibles assets, realizability of inventories, allowance for bad debts, accrued expenses and the valuation allowances against deferred income tax assets. Actual results may differ from these estimates.

VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of September 30, 2020, and the condensed consolidated statements of comprehensive loss, stockholders’ equity and of cash flows for the three and nine months ended September 30, 2020 and 2019 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2020 and the results of its operations and its cash flows for the three and nine months ended September 30, 2020 and 2019. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2020 and 2019 are also unaudited. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.

Reclassification

Certain amounts in 2019 have been reclassified to conform to the presentation in 2020. None of the reclassifications had any impact to the Company’s results of operations.

Concentrations of Credit Risk

As of September 30, 2020, the Company’s financial instruments were comprised of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and debt, the carrying amounts of which approximated fair value due to their short-term nature and market interest rates. All of the Company’s cash and cash equivalents are maintained at creditworthy financial institutions. At September 30, 2020, deposits exceed the amount of any federal depositary insurance provided.

The Company extends credit to customers in the normal course of business but typically does not require collateral or any other security to support amounts due. Management performs ongoing credit evaluations of the Company’s customers. An allowance for potentially uncollectible accounts is provided based on history, economic conditions, and composition of the accounts receivable aging. In some cases, the Company makes allowances for specific customers based on these and other factors. Provisions for the allowance for doubtful accounts are recorded in general and administrative expenses in the accompanying condensed consolidated statements of comprehensive loss.

Foreign Currency and Foreign Operations

The functional currency of the Company is the currency of the primary economic environment in which the entity operates, which is the U.S. dollar. For our non-U.S. subsidiary that transacts in a functional currency other than the U.S. dollar, assets and liabilities are translated at current rates of exchange as of the balance sheet date. Income and expense items are translated at the average foreign currency exchange rates for the period. Adjustments resulting from the translation of the financial statements of its foreign operations into U.S. dollars are excluded from the determination of net loss and are recorded in accumulated other comprehensive income (loss), a separate component of stockholders’ equity.

Realized foreign currency gains or losses arising from transactions denominated in foreign currencies are recorded in other (expense) income in the condensed consolidated statements of comprehensive loss. Unrealized foreign currency gains or losses arising from transactions denominated in foreign currencies are recorded in accumulated other comprehensive income (loss).

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid temporary investments purchased with original maturities of 90 days or less to be cash equivalents. The Company holds restricted cash related to certificates of deposits and collateral in relation to lease agreements. As of September 30, 2020, $0.4 million of our $140.9 million of cash, cash equivalents and restricted cash balance was located outside the United States.

VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

The following table presents the components of total cash, cash equivalents, and restricted cash as set forth in the Company’s condensed consolidated statements of cash flows:

	September 30, 2020		December 31, 2019
Cash and cash equivalents	$	139,015	$	71,655
Restricted cash		1,853		1,852
Total cash, cash equivalents, and restricted cash	$	140,868	$	73,507

Product Warranty

The Company provides its customers with a standard one-year warranty on its capital equipment sales. Warranty costs are accrued based on actual historical trends and estimated at the time of sale. The warranty liability is included within accrued expenses and other liabilities in the condensed consolidated balance sheets. A roll-forward of the Company’s warranty liability from December 31, 2019 to September 30, 2020 is as follows:

Balance at December 31, 2019	$	225
Provisions for warranty obligations		659
Settlements		(166	)
Balance at September 30, 2020	$	718

Insurance

Effective January 1, 2020, the Company was self-insured for certain obligations related to health insurance. The Company also purchases stop-loss insurance to protect itself from material losses. Judgments and estimates are used in determining the potential value associated with reported claims and for events that have occurred but have not been reported. The Company’s estimates consider expected claim experience and other factors. Receivables for insurance recoveries are recorded as assets, on an undiscounted basis. The Company’s liabilities are based on estimates, and, while the Company believes that its accruals are adequate, the ultimate liability may be significantly different from the amounts recorded. Changes in claims experience, the Company’s ability to settle claims or other estimates and judgments used by management could have a material impact on the amount and timing of expense for any period.

Revenue Recognition

The Company’s revenue is primarily derived from the sale of products, leases and services. Product revenue consists of capital equipment and single-use disposables that are shipped and billed to customers both domestically and internationally. The Company’s main capital equipment products are the Precision Flow Hi-VNI, Precision Flow Plus, Precision Flow Classic, Vapotherm Transfer Unit 2.0 and Q50 compressor. The Company’s main disposable products are single-use disposables and nasal interfaces, or cannulas, and adaptors. Lease revenue consists of two components which include capital equipment that the Company leases out to its customers and, in certain situations, an allocation from disposable revenue to other lease revenue upon the sale of disposable products in bundled arrangements involving the placement of Precision Flow capital units for use by the customer at no upfront charge in connection with the customer’s ongoing purchase of disposable products. Service revenue consists of fees associated with routine service of capital units and the sale of extended service contracts and preventative maintenance plans, which are purchased by a small portion of the Company’s customer base. In addition, the Company sells small quantities of component parts in the United States, United Kingdom and to third-party international service centers who provide service on Precision Flow capital units outside of the United States and United Kingdom. Freight revenue is based upon actual freight costs plus a percentage markup of such costs associated with the shipment of products domestically, and to a lesser extent, internationally, and is included in service revenue. Rebates and fees consist of contractually obligated administrative fees and percentage-of-sales rebates paid to Group Purchasing Organizations (“GPOs”), Integrated Delivery Networks (“IDNs”) and distributor partners and accounted for as a reduction of service revenue.

VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

Under the Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and assesses whether each promised good or service is distinct and determines those that are performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Sales, value-added, and other taxes collected on behalf of third parties are excluded from revenue. The Company’s standard payment terms are generally 30 days from the date of sale.

Contracts with customers may contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative stand-alone selling prices of the promised products or services underlying each performance obligation. The Company determines stand-alone selling prices based on the price at which the performance obligation is sold separately. If the stand-alone selling price is not observable through past transactions, the Company estimates the stand-alone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in paragraph ASC 606-10-32-18, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component during the nine months ended September 30, 2020 or 2019.

The Company’s contracts with its customers have a duration of less than one year. Therefore, the Company has elected to apply a practical expedient and recognizes the incremental costs of obtaining contracts as an expense. These costs are included in sales and marketing expense in the accompanying condensed consolidated statements of comprehensive loss.

Lease Revenue

The Company also enters into agreements to lease its capital equipment. For such sales, the Company accounts for revenue under ASC 840, Leases, and assesses and classifies these transactions as sales-type or operating leases based on whether the lease transfers ownership of the equipment to the lessee by the end of the lease term. This criterion is met in situations in which the lease agreement provides for the transfer of title at or shortly after the end of the lease term. Equipment included in arrangements including transfer of title are accounted for as sales-type leases and the Company recognizes the total value of the lease payments due over the lease term to revenue at the inception of the lease. The Company records the current value of future lease payments under prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets; these amounts totaled $1.7 and $0.9 million at September 30, 2020 and December 31, 2019, respectively. Equipment included in arrangements that do not include the transfer of title, nor any of the capital lease criteria, are accounted for as operating leases and revenue is recognized on a straight-line basis as it becomes receivable monthly over the term of the lease.

The Company also enters into agreements involving the placement of Precision Flow capital units for use by the customer at no upfront charge in connection with the customer’s ongoing purchase of disposable products. In these bundled arrangements, revenue recognized for the sale of the disposables is allocated between disposable revenue and other lease revenue based on the estimated relative stand-alone selling prices of the individual performance obligations.

VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

Shipping and Handling Costs

Amounts billed to customers for shipping and handling are included in service revenue. Shipping and handling costs are included in costs of sales. The total costs of shipping and handling for the three months ended September 30, 2020 and 2019 was $0.6 and $0.2 million, respectively. Shipping and handling costs for the nine months ended September 30, 2020 and 2019 totaled $1.7 and $0.7 million, respectively.

Sales and Value-Added Taxes

When required by local jurisdictions, the Company bills its customers for sales tax and value-added tax calculated on each sales invoice and records a liability for the sales and value-added tax payable, which is included in accrued expenses and other liabilities in the condensed consolidated balance sheets. Sales tax and value-added tax billed to a customer are not included in the Company’s revenue.

Timing and Amount of Revenue Recognition

The Company recognizes revenue on product sales and service of its capital equipment and product sales of disposables to its end users in the United States and United Kingdom and to its distribution partners in other international markets. In each instance, revenue is generally recognized when the customer obtains control of the Company’s product, which generally occurs at a point in time upon shipment based on the contractual shipping terms of a contract.

Product and service revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value amount method to which the Company expects to be entitled. As such, revenue on sales is recorded net of prompt pay discounts and payments made to GPOs, IDNs and distributors. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Determination of whether to include estimated amounts in the transaction price is based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available. The Company believes that the estimates it has established are reasonable based upon current facts and circumstances. Applying different judgments to the same facts and circumstances could result in different estimates.

Stock-Based Compensation

The Company maintains an equity incentive plan to provide long-term incentives for employees, consultants, and members of the board of directors. The plan allows for the issuance of non-statutory and incentive stock options, restricted stock, unrestricted stock, stock units, including restricted stock units, and stock appreciation rights to employees, consultants and non-employee directors. The Company recognizes stock-based compensation expense for awards of equity instruments to employees and non-employees based on the grant date fair value of those awards in accordance with ASC Topic 718, Stock Compensation (“ASC 718”). ASC 718 requires all equity-based compensation awards, including grants of restricted shares and stock options, to be recognized as expense in the condensed consolidated statements of comprehensive loss based on their grant date fair values.

The fair value of each option grant is estimated on the grant date using the Black-Scholes option pricing model. The fair value is then amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. For performance-based awards, the related compensation cost is amortized over the performance period on an accelerated attribution basis. Compensation cost associated with performance awards is based on fair value on the date of grant and the number of units expected to be earned after assessing the probability that certain performance criteria will be met and the associated targeted payout level that is forecasted will be achieved. Cumulative adjustments are recorded each quarter to reflect estimated outcomes of the performance-related conditions until the results are determined and settled. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs, including the expected life (weighted average period of time that the options granted are expected to be outstanding), the volatility of the Company’s common stock and an assumed risk-free interest rate. Expected volatility is calculated based on historical volatility of a group of publicly traded companies that the Company considers a peer group. The expected life is estimated using the simplified method for “plain vanilla” options. The risk-free interest rate is based on U.S. Treasury rates with a remaining term that approximates the expected life assumed at the date of grant. No dividend yield is assumed as the Company does not pay, and does not expect to pay, dividends on its common stock. The Company estimates forfeitures based on historical experience with pre-vested forfeitures. To the extent actual forfeitures differ from the estimate, the difference is recorded to compensation expense in the period of the forfeiture.

VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

The Company recognizes stock-based expense for shares issued pursuant to its 2018 Employee Stock Purchase Plan (“ESPP”) on a straight-line basis over the related offering period. The Company estimates the fair value of shares to be issued under the ESPP based on a combination of options valued using the Black-Scholes option pricing model. The expected life is determined based on the contractual term. Dividend yield and forfeiture rates are estimated in a manner similar to option grants described above and expected volatility is based on the Company’s historical volatility.

Income Tax

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the condensed consolidated financial statements or in the Company’s tax returns. Deferred taxes are determined based on the difference between the financial reporting and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

The Company accounts for uncertainty in income taxes recognized in the condensed consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more likely than not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the condensed consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

The Company’s major tax jurisdictions are the United States, New Hampshire and the United Kingdom. There is no provision or benefit for income taxes for the three or nine months ended September 30, 2020 or 2019 because the Company has historically incurred operating losses and maintains a full valuation allowance against its United States net deferred tax assets.

Utilization of the net operating loss and tax credit carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”) due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of net operating loss and tax credit carryforwards that can be utilized to offset future taxable income and reduce taxes, respectively. The Company has not currently completed an evaluation of ownership changes through September 30, 2020 or December 31, 2019 to assess whether utilization of the Company’s net operating loss and tax credit carryforwards would be subject to an annual limitation under Sections 382 and 383 of the Code. To the extent an ownership change is determined to have occurred under Sections 382 and 383 of the Code, the net operating loss and tax credit carryforwards may be subject to limitation.

Recently Issued Accounting Pronouncements

As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (the “JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use the adoption dates applicable to private companies. As a result, the Company’s consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies. The Company expects it will no longer qualify as an EGC as of December 31, 2020 and, at that time, will begin to adopt certain accounting pronouncements at dates applicable to public companies.

VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

Leases (Topic 842):

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 establishes a comprehensive new lease accounting model. The new standard clarifies the definitions of a lease, requires a dual approach to lease classification similar to current lease classifications, and causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease term of more than twelve months. In July 2018, the FASB issued ASU No. 2018-11 Leases (Topic 842) (“ASU 2018-11”) which provided another transition method in addition to the existing transition method by allowing entities to initially apply the new leases standard at the adoption date. In June 2020, the FASB issued ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842), which defers the effective date for ASU 2016-02 to annual periods beginning after December 15, 2021 and interim periods beginning after December 15, 2022 for private companies or EGCs following private company adoption dates. The standard was effective for public companies for periods beginning after December 31, 2018. The new standard originally required a modified retrospective transition for capital or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements, but it does not require transition accounting for leases that expire prior to the date of the initial application. The Company expects to adopt the new standard in the fourth quarter of 2020 with an effective date of January 1, 2020. The Company is in the process of adopting the new standard, including evaluating the changes that will be required under this standard to its future financial reporting and disclosures, and the Company has designed and implemented related processes and controls to address these changes. The Company expects the most significant effects of adoption to relate to (1) the recognition of new right-of-use assets and lease liabilities on the balance sheet for the Company’s facilities and certain other operating leases; and (2) the need to provide new disclosures about the Company’s leasing activities related to the amount, timing and uncertainty of cash flows arising from leases.

Credit Losses (Topic 326):

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This standard requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used and establishes additional disclosures related to credit risks. In November 2019, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivative and Hedging (Topic 815) and Leases (Topic 842), which defers the effective date for ASU 2016-13 to interim and annual periods beginning after December 15, 2022 for private companies, EGCs following private company adoption dates, or public entities meeting the definition of smaller reporting companies as of the date of issuance of this update. The Company has not yet determined the effects, if any, that the adoption of ASU 2016-13 may have on its financial position, results of operations, cash flows, or disclosures.

3. Business Combinations

On February 28, 2019, the Company completed the acquisition of all outstanding equity securities of Solus, whose principal assets included intangible assets related to supplier agreements. The Company undertook the acquisition to accelerate its penetration in the United Kingdom market. The purchase price, net of cash acquired, of $2.0 million was funded with an initial cash payment of approximately $1.6 million and a settlement of a $0.4 million receivable from a preexisting relationship. Additionally, the Company recognized $1.0 million in contingent consideration as compensation expense during 2019 and expects to recognize contingent consideration of $1.2 million as compensation expense in 2020. The acquisition has been accounted for as an acquisition of a business.

VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

The following table summarizes the purchase price allocation that includes the fair values of the separately identifiable assets acquired and liabilities assumed as of February 28, 2019:

Cash	$	466
Accounts receivable		411
Inventory		492
Prepaids and other assets		3
Property and equipment		1
Goodwill		592
Intangible assets		455
Total assets acquired		2,420
Accounts payable and accrued expenses		(241	)
Contract liabilities		(75	)
Deferred taxes		(78	)
Total liabilities assumed		(394	)
Total purchase price	$	2,026

The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions.

In determining the purchase price allocation, the Company considered, among other factors, the opportunity provided by a customer agreement with the National Health Service. The fair value of the intangible assets associated with this agreement were estimated using a discounted cash flow method with the application of the multi-period excess earnings method. Under this method, an intangible asset’s fair value is equal to the present value of the incremental after-tax cash flows attributable to only the subject intangible assets after deducting contributory asset charges. An income and expenses forecast was built based upon specific intangible asset revenue and expense estimates.

The rate used to discount the estimated future net cash flows to their present values for each intangible asset was based upon a weighted average cost of capital calculation. The discount rate was determined after consideration of market rates of return on debt and equity capital, the weighted average return on invested capital and the risk associated with achieving forecasted sales related to the assets acquired from Solus.

The total weighted average amortization period for the intangible assets is approximately 3.83 years. The intangible assets are being amortized on a straight-line basis, which is consistent with the pattern that the economic benefits of the intangible assets are expected to be utilized based upon estimated cash flows generated from such assets. Goodwill associated with the acquisition was primarily attributable to the market expansion opportunity in the United Kingdom. The goodwill attributable to the United Kingdom jurisdiction is not deductible for tax purposes.

The Company has included the financial results of Solus in the condensed consolidated financial statements from the date of acquisition. The transaction costs associated with the acquisition were approximately $0.2 million and were recorded in general and administrative expense as incurred during 2019.

VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

Pro Forma Financial Information

The following unaudited pro forma information for the three and nine months ended September 30, 2019 presents consolidated information as if the Solus acquisition occurred on January 1, 2019, which was the first day of the Company’s fiscal year 2019:

	Three Months Ended September 30,			Nine Months Ended September 30,
	2019			2019
Net revenue	$	10,809		$	35,331
Net loss	$	(12,765	)	$	(38,553	)
Net loss per share, basic	$	(0.65	)	$	(2.16	)

4. Fair Value Measurements

In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company generally defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company uses a three-tier fair value hierarchy, which classifies the inputs used in measuring fair values. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements), and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

•

Level 1 – inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

•

Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.

•

Level 3 – unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.

The Company’s cash equivalents primarily consist of money market deposits, which totaled approximately $123.2 million at September 30, 2020 and are valued based on Level 1 of the fair value hierarchy. As described in Note 8 “Debt”, during 2019, the Company granted warrants to purchase 19,789 shares of common stock in connection with an amendment to its financing arrangement. These equity-classified warrants were valued using the Black-Scholes pricing model, which falls within Level 3 of the fair value hierarchy.

The assumptions used in the Black-Scholes pricing model were as follows at the date of grant:

Expected dividend yield	0.0	%
Risk free interest rate	2.4	%
Expected stock price volatility	60.9	%
Expected term (years)	10.0

VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

5. Accounts Receivable

Accounts receivable by customer location consists of the following:

	September 30, 2020			December 31, 2019
United States	$	7,530		$	5,574
International		3,883			2,908
Total accounts receivable		11,413			8,482
Less: Allowance for doubtful accounts		(538	)		(239	)
Accounts receivable, net of allowance for doubtful accounts	$	10,875		$	8,243

No individual customer accounted for 10% or more of revenue for the three or nine months ended September 30, 2020 or 2019. No individual customers accounted for 10% or more of total accounts receivable at either September 30, 2020 or December 31, 2019.

6. Inventories

Inventories consist of the following:

	September 30, 2020		December 31, 2019
Component parts	$	10,918	$	4,948
Finished goods		14,111		4,189
Total inventories	$	25,029	$	9,137

7. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill and intangible assets during 2020 are as follows:

	Goodwill			Intangible Assets
Balance at December 31, 2019	$	588		$	353
Acquired during the period		-			-
Amortization		-			(85	)
Foreign currency exchange rate changes		(17	)		(10	)
Balance at September 30, 2020	$	571		$	258

The following table presents a summary of previously acquired intangible assets:

	As of September 30, 2020
	Period of amortization		Gross Carrying Amount		Accumulated Amortization
Customer agreements		3.83	$	440	$	(182	)
Total identifiable intangible assets			$	440	$	(182	)

VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

8. Debt

Revolving Credit Line

On November 16, 2016, the Company entered a Business Financing Agreement (the “Revolver Agreement”) with Western Alliance Bank, an Arizona corporation, which replaced its then-existing revolving line of credit. The Revolver Agreement made available $7.0 million of revolving credit upon the closing date. Availability under the Revolver Agreement is calculated based upon 80% of the eligible receivables (net of pre-paid deposits, pre-billed invoices, other offsets, and contras related to each specific account debtor). The original maturity date under the Revolver Agreement was September 30, 2018. The Company refinanced the Revolver Agreement in April 2018 (the “Amended Revolver Agreement”), increasing the line of credit to $7.5 million and extending the maturity date to September 30, 2020. The principal is due upon maturity. On March 22, 2019, the Company entered into an amendment to the Amended Revolver Agreement (as amended, the “First Amended Revolver Agreement”), which increased the allowable permitted indebtedness under the First Amended Revolver Agreement in connection with the Company’s credit card program from $0.3 million to $0.5 million. On July 7, 2020, the Company entered into a second amendment to the Amended Revolver Agreement (as amended, the “Second Amended Revolver Agreement”), which, under certain circumstances, reduced the amount of funds required to be held on deposit with Western Alliance Bank. On September 29, 2020, the Company entered into a third amendment to the Amended Revolver Agreement (as amended, the “Third Amended Revolver Agreement”), which extended the maturity date to February 28, 2023. Under the Third Amended Revolver Agreement, interest is required to be paid monthly on the outstanding balance at the Wall Street Journal Prime Rate in effect from time to time, subject to a floor of 3.25%.

At September 30, 2020 the interest rate was 3.25%. The outstanding balance under the Third Amended Revolver Agreement was $4.5 million at September 30, 2020 and there was $0.8 million remaining availability based on eligible receivables. At December 31, 2019, the interest rate was 6.50%. The outstanding balance under the Third Amended Revolver Agreement was $3.5 million at December 31, 2019 and the remaining availability based on eligible receivables was $0.8 million. The Third Amended Revolver Agreement requires the Company to comply with a minimum liquidity covenant at all times. As of September 30, 2020, the Company was in compliance with all covenants.

The Third Amended Revolver Agreement is secured by substantially all of the Company’s assets, excluding intellectual property.

As discussed in Note 15 “Subsequent Events,” the Company fully repaid and terminated the Third Amended Revolver Agreement on October 21, 2020.

Term Loans

On April 6, 2018, the Company entered into a Credit Agreement and Guaranty (the “Credit Agreement and Guaranty”) with Perceptive Credit Holdings II, LP (“Perceptive”). Pursuant to the Credit Agreement and Guaranty, a total of $42.5 million was available in three tranches. The first tranche was drawn down in the amount of $20.0 million on the closing date, April 6, 2018, and was used to repay a former loan agreement in full. In connection with this draw down, the Company granted Perceptive warrants to purchase 37,693 shares of Series D preferred stock which were converted into warrants to purchase shares of common stock at the time of the initial public offering. The warrants had an exercise price of $15.92 per share, were fully vested upon issuance, were exercisable at the option of the holder, in whole or in part, and would have expired in April 2028.

On July 20, 2018, pursuant to the Credit Agreement and Guaranty, the Company drew down the second tranche of $10.0 million. In connection with this draw down, the Company granted Perceptive warrants to purchase 18,846 shares of Series D preferred stock which were converted into warrants to purchase shares of common stock at the time of the initial public offering. The warrants had an exercise price of $15.92 per share, were fully vested upon issuance, were exercisable at the option of the holder, in whole or in part, and would have expired in July 2028.

On September 27, 2018, the Company entered into the first amendment to the Credit Agreement and Guaranty (as amended, the “Amended Credit Agreement and Guaranty”) with Perceptive. Pursuant to the Amended Credit Agreement and Guaranty, the Company was permitted to draw the final $12.5 million of availability at any time through March 31, 2019 and the minimum 2018 revenue requirement of $43.2 million that was required to draw down the final tranche was eliminated. Concurrently with the closing of the Amendment, the Company drew down $2.0 million of the remaining $12.5 million available. In connection with this draw down, the Company granted to Perceptive warrants to purchase 3,769 shares of its Series D preferred stock which were converted into warrants to

VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

purchase shares of common stock at the time of the initial public offering. The warrants had an exercise price of $15.92 per share, were fully vested upon issuance, were exercisable at the option of the holder, in whole or in part, and would have expired in September 2028.

On March 22, 2019, the Company drew the remaining $10.5 million of availability under the Amended Credit Agreement and Guaranty. In connection with this draw down, the Company granted Perceptive warrants to purchase 19,789 shares of common stock. The warrants had an exercise price of $15.92 per share, were fully vested upon issuance, were exercisable at the option of the holder, in whole or in part, and would have expired in March 2029.

On March 22, 2019, the Company entered into a second amendment to the Amended Credit Agreement and Guaranty increasing the allowable permitted indebtedness in connection with the Company’s credit card program from $0.3 million to $0.5 million.

On June 10, 2020, Perceptive exercised all of its outstanding warrants. See Note 10 “Warrants” for further details.

On June 16, 2020, the Company entered into a third amendment to the Amended Credit Agreement and Guaranty (the “2020 Amended Credit Agreement and Guaranty”), which amended the prepayment premium by clarifying the methodology for calculating Perceptive’s annualized internal rate of return under the term loan.

Pursuant to the 2020 Amended Credit Agreement and Guaranty, the outstanding principal amount accrues interest at an annual rate equal to 9.06% plus the greater of (a) one-month LIBOR and (b) 1.75% per year. At September 30, 2020, the interest rate was 10.81%. The outstanding balance, including accretion of the additional final payment due upon maturity and described below, was $42.6 million at September 30, 2020 and there was no remaining availability. The 2020 Amended Credit Agreement and Guaranty is secured by substantially all of the Company’s assets, including intellectual property.

On the maturity date, in addition to the payment of principal and accrued interest, the Company will be required to make a payment of 0.5% of the total amount borrowed under the 2020 Amended Credit Agreement and Guaranty unless the Company has already made such a payment in connection with an acceleration or prepayment of borrowings under the agreement. In the event the Company prepays all or part of the amounts borrowed under the 2020 Amended Credit and Guaranty prior to the maturity date, the Company will be subject to additional prepayment fees which decrease as the time to maturity decreases. The 2020 Amended Credit Agreement and Guaranty requires the Company to comply with a minimum liquidity covenant at all times and a minimum revenue covenant measured at the end of each fiscal quarter. As of September 30, 2020, the Company was in compliance with all covenants.

The annual principal maturities of the Company’s term loans as of September 30, 2020 are as follows:

2020		-
2021		-
2022		-
2023		42,603
Less: Discount on loans payable		(603	)
Long-term loans payable	$	42,000

As discussed in Note 15 “Subsequent Events,” the Company fully repaid and terminated the 2020 Amended Credit Agreement and Guaranty on October 21, 2020.

9. Commitments and Contingencies

Legal

From time to time, the Company may become involved in various legal proceedings, including those that may arise in the ordinary course of business. The Company believes there is no litigation pending that could have, individually, or in the aggregate, a material adverse effect on the results of its operations or financial condition.

VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

10. Warrants

The Company’s warrant activity is summarized as follows:

	Common Stock Warrants
	Number of Shares			Weighted Average Exercise Price
Outstanding at December 31, 2019		182,076		$	14.84
Warrants granted		-			-
Warrants exercised		(105,271	)		15.46
Outstanding at September 30, 2020		76,805		$	14.00

On June 10, 2020, a warrant to purchase 80,097 shares of common stock was exercised on a net exercise basis. Upon exercise, the exercise price of $15.92 per share was satisfied through the Company’s withholding of 39,031 of the warrant shares and issuing 41,066 shares of common stock.

On July 10, 2020, a warrant to purchase 20,889 shares of common stock held was exercised on a net exercise basis. Upon exercise, the exercise price of $14.00 per share was satisfied through the Company’s withholding of 6,902 of the warrant shares and issuing 13,986 shares of common stock to the holder.

On August 7, 2020, a warrant to purchase 4,285 shares of common stock held was exercised on a net exercise basis. Upon exercise, the exercise price of $14.00 per share was satisfied through the Company’s withholding of 2,064 of the warrant shares and issuing 2,222 shares of common stock to the holder.

On October 1, 2020, a warrant to purchase 42,857 shares of common stock held was exercised on a net exercise basis. Upon exercise, the exercise price of $14.00 per share was satisfied through the Company’s withholding of 20,689 of the warrant shares and issuing 22,168 shares of common stock to the holder.

11. Revenue

Disaggregated Revenue

The following table shows the Company’s net revenue disaggregated into categories the Company considers meaningful:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020						2020
	US		International		Total		US		International		Total
Net revenue by:
Product Revenue
Capital Equipment	$	13,198	$	2,047	$	15,245	$	30,578	$	8,970	$	39,548
Disposable		10,426		2,618		13,044		29,561		9,076		38,637
Subtotal Product Revenue		23,624		4,665		28,289		60,139		18,046		78,185
Lease Revenue
Capital Equipment		1,117		12		1,129		3,364		43		3,407
Other		442		82		524		1,194		233		1,427
Service and Other Revenue		343		274		617		852		955		1,807
Net Revenue	$	25,526	$	5,033	$	30,559	$	65,549	$	19,277	$	84,826

VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019						2019
	US		International		Total		US		International		Total
Net revenue by:
Product Revenue
Capital Equipment	$	1,408	$	647	$	2,055	$	4,517	$	2,198	$	6,715
Disposable		5,962		1,865		7,827		20,023		5,353		25,376
Subtotal Product Revenue		7,370		2,512		9,882		24,540		7,551		32,091
Lease Revenue		463		-		463		1,410		-		1,410
Service and Other Revenue		202		262		464		812		781		1,593
Net Revenue	$	8,035	$	2,774	$	10,809	$	26,762	$	8,332	$	35,094

United States and International net revenue is based on the customer location to which the product is shipped. No individual foreign country represents more than 10% of the Company’s total revenue.

Contract Balances from Contracts with Customers

Contract liabilities consist of deferred revenue and other contract liabilities associated with rebates and fees payable to GPOs, IDNs and distributor partners. Deferred revenues are included in accrued expenses and other liabilities in the accompanying consolidated balance sheets. The following table presents changes in contract liabilities during the nine months ended September 30, 2020:

	Contract Liabilities			Deferred Revenue
Balance at December 31, 2019	$	137		$	344
Additions		279			912
Subtractions		(137	)		(735	)
Balance at September 30, 2020	$	279		$	521

12. Stock-Based Compensation

Stock-based compensation expense was allocated based on the employees’ and non-employees’ functions as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020		2019			2020		2019
Cost of goods sold	$	86	$	9		$	231	$	147
Research and development		204		11			604		266
Sales and marketing		592		(102	)		1,512		657
General and administrative		874		299			2,233		1,871
Total	$	1,756	$	217		$	4,580	$	2,941

Stock Options

The Company granted options to purchase 964,568 shares of common stock at exercise prices ranging from $10.60 to $52.94 per share, with a weighted average exercise price of $13.07 per share, during the nine months ended September 30, 2020. The Company granted options to purchase 871,346 shares of common stock at exercise prices ranging from $13.35 to $19.40 per share, with a weighted average exercise price of $17.36 per share, during the nine months ended September 30, 2019. The weighted average fair value of stock options granted during the nine months ended September 30, 2020 and 2019 was $9.60 and $10.88, respectively.

VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

The weighted average assumptions used in the Black-Scholes options pricing model are as follows:

	Nine Months Ended September 30,
	2020			2019
Expected dividend yield		0.0	%		0.0	%
Risk free interest rate		1.7	%		2.1	%
Expected stock price volatility		87.6	%		63.5	%
Expected term (years)		6.1			6.2

Restricted Stock

A summary of restricted stock activity for the nine months ended September 30, 2020 is as follows:

				Weighted
				Average
				Grant Date
	Shares			Fair Value
Unvested at December 31, 2019		229,913		$	3.76
Granted		107,209			23.26
Vested		(112,382	)		4.64
Canceled		(500	)		10.97
Unvested at September 30, 2020		224,240		$	10.50

Employee Stock Purchase Plan

In connection with our initial public offering in November 2018, the Company’s board of directors adopted the ESPP and a total of 166,500 shares of common stock were initially reserved for issuance under the ESPP. The number of shares of common stock available for issuance under the ESPP is increased on the first day of each calendar year beginning January 1, 2019 and each year thereafter until 2028 by the lessor of (i) 1% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, and (ii) the number of shares of common stock determined by the Company’s board of directors up to such an initial maximum of 1,741,300 shares of common stock. The number of shares of common stock reserved under the plan at September 30, 2020 totals 512,048.

The ESPP provides for successive discrete offering periods of approximately six months or as determined by the plan administrator. The first offering period began on January 2, 2020. As of September 30, 2020, 36,389 shares of common stock were purchased by employees under the ESPP at a price of $9.88 per share, resulting in cash proceeds of $0.4 million.

The ESPP permits eligible employees to elect to purchase shares of common stock through fixed whole percentage contributions from eligible compensation during each offering period, not to exceed 10% of the eligible compensation a participant receives during an offering period and not to accrue at a rate which exceeds $25,000 of the fair value of the stock (determined on the grant date(s)) for each calendar year. A participant may purchase the lower of (a) a number of shares of common stock determined by dividing such participant’s accumulated payroll deductions on the exercise date by the option price, (b) 5,000 shares, or (c) such other lesser maximum number of shares as shall have been established by the plan administrator.

Amounts deducted and accumulated by the participant will be used to purchase shares of common stock at the end of each offering period. The purchase price of the shares will be 85% of the lower of the fair value of common stock on the first trading day of each offering period or on the purchase date. Participants may end their participation during an offering period up to ten days in advance of the exercise date and will be paid their accumulated contributions that have not been used to purchase shares of common stock. Participation ends automatically upon termination of employment.

VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

The fair value of the purchase right for the ESPP option is estimated on the date of grant using the Black-Scholes pricing model with the following assumptions during 2020:

Expected dividend yield		0.0%
Risk free interest rate		0.2% - 1.6%
Expected stock price volatility		107.9% - 115.8%
Expected term (years)		0.4 - 0.5

13. Net Loss Per Share

The Company excluded the following potential common shares, based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

	As of September 30,
	2020		2019
Options to purchase common stock		1,770,880		1,407,448
Unvested restricted stock		224,240		267,566
Warrants to purchase common stock		76,805		182,076
Employee stock purchase plan shares		23,628	-
		2,095,553		1,857,090

14. Related Party Transactions

See Note 8 “Debt” for a discussion of the Company’s 2020 Amended Credit Agreement and Guaranty and related transactions with Perceptive, a holder of more than 5% of the Company’s common stock.

15. Subsequent Events

On October 21, 2020 (the “Closing Date”), the Company entered into a loan and security agreement with Canadian Imperial Bank of Commerce Innovation Banking (“CIBC”) (the “Loan Agreement”). The Loan Agreement provides for a revolving loan facility of $12.0 million (the “Revolving Facility”) and a term loan facility of $40.0 million (the “Term Facility” and, together with the Revolving Facility, the “Facilities”). The proceeds of the Facilities were used to repay the Company’s existing revolving loan facility and term loan facility and for general corporate and working capital purposes.

The Revolving Facility will mature on October 21, 2022 and may be renewed on an annual basis thereafter by mutual agreement of the Company and CIBC. The Term Facility will mature on October 21, 2025. Advances under the Facilities shall bear interest at a floating rate per annum equal to, (i) in the case of the Revolving Facility, the Wall Street Journal (“WSJ”) Prime Rate plus 1.0% and (ii) in the case of the Term Facility, the WSJ Prime Rate plus 2.5%. In each case, the WSJ Prime Rate is subject to a floor of 3.25%. The Loan Agreement provides for interest-only payments on the Term Facility for the first thirty-six months following the Closing Date. Thereafter, amortization payments on the Term Facility will be payable monthly in twenty-four equal installments. The Term Facility may not be prepaid prior to the first anniversary of the Closing Date without prepaying all of the interest that otherwise would have been payable on the Term Facility during the period commencing on the Closing Date and ending on the first anniversary of the Closing Date plus a prepayment charge of 2.0%. Thereafter, the Term Facility may be prepaid in full, subject to a prepayment charge of (i) 2.0%, if such prepayment occurs after the first anniversary of the Closing Date but on or prior to the second anniversary of the Closing Date, and (ii) 1.0%, if such prepayment occurs after the second anniversary of the Closing Date but on or prior to the third anniversary of the Closing Date. The Facilities are secured by a lien on substantially all of the assets of the Company, including intellectual property.

The Loan Agreement contains customary covenants and representations, including, without limitation, a minimum revenue covenant equal to 80% of each year’s annual operating plan (tested on a trailing twelve month basis at the end of each fiscal quarter) and other financial covenants, reporting obligations, and limitations on dispositions, changes in business or ownership, mergers or acquisitions, indebtedness, encumbrances, distributions and investments, transactions with affiliates and capital expenditures.

VAPOTHERM, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

The events of default under the Loan Agreement include, without limitation, and subject to customary grace periods, (1) the Company’s failure to make any payments of principal or interest under the Loan Agreement or other loan documents, (2) the Company’s breach or default in the performance of any covenant under the Loan Agreement, (3) the occurrence of a material adverse effect or an event that is reasonably likely to result in a material adverse effect, (4) the existence of an attachment or levy on a material portion of funds of the Company or its subsidiaries, (5) the Company’s insolvency or bankruptcy, or (6) the occurrence of certain material defaults with respect to any other indebtedness of the Company in excess of $500,000. If an event of default occurs, CIBC is entitled to take enforcement action, including acceleration of amounts due under the Loan Agreement.

The Loan Agreement also contains other customary provisions, such as expense reimbursement and confidentiality. CIBC has indemnification rights and the right to assign the Facilities, subject to customary restrictions.

On October 21, 2020, the Company used approximately $40 million of the Term Facility, approximately $4.9 million of the Revolving Facility and approximately $5.7 million of cash on hand to pay off all obligations owing under, and to terminate, both the 2020 Amended Credit Agreement and Guaranty and the Third Amended Revolver Agreement, which included a prepayment penalty and exit fees of $3.7 million.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements for the fiscal quarter ended September 30, 2020, included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the “Risk Factors” section of our 2019 Form 10-K filed with the SEC on March 4, 2020, our Quarterly Report on Form 10-Q filed with the SEC on May 5, 2020, our Quarterly Report on Form 10-Q filed with the SEC on August 4, 2020, and this Quarterly Report on Form 10-Q.

Vapotherm, Inc. is a global medical technology company focused on the development and commercialization of our proprietary High Velocity Therapy products that are used to treat patients of all ages suffering from respiratory distress. Our High Velocity Therapy delivers non-invasive ventilatory support by providing heated, humidified and oxygenated air at a high velocity to patients through a comfortable small-bore nasal interface. Our Precision Flow systems, which use High Velocity Therapy, are clinically validated alternatives to, and address many limitations of, the current standard of care for the treatment of respiratory distress in a hospital setting. As of September 30, 2020, more than 2.5 million patients have been treated with our Precision Flow systems, and we have a global installed base of over 24,000 capital units.

The efficacy of Vapotherm’s products is supported by a significant body of clinical evidence across multiple patient populations suffering from respiratory distress. We have developed the only high velocity nasal insufflation device clinically validated as an alternative to non-invasive positive pressure ventilation (“NIPPV”) while addressing many of its limitations, evidenced in part by our sponsored 204 patient, multisite randomized controlled trial in the emergency department (“ED”) which was published in the July 2018 issue of Annals of Emergency Medicine. Additionally, in April 2020 Heart and Lung, the Journal of Cardiopulmonary and Acute Care, published a subgroup analysis from this ED study that showed High Velocity Therapy may provide ventilatory support similar to NIPPV in patients presenting with acute hypercapnic respiratory failure.

In March 2020, the World Health Organization declared a global pandemic related to the novel coronavirus (“COVID-19”). Vapotherm’s High Velocity Therapy is a first-line therapy for treating respiratory distress, which is experienced by many COVID-19 patients. The Journal of the American Medical Association published data from mainland China in April 2020 suggesting that 19% of all COVID-19 patients experience respiratory distress and require some amount of respiratory support. Our hospital customers around the world are using our technology to treat the respiratory distress experienced by many COVID-19 patients so that they can triage their sickest patients to a limited number of ventilators. As a result, we have seen a significant increase in worldwide demand for our products from both new and existing accounts in the first nine months of 2020. Our operations team, with support from our primarily domestic supply chain, has significantly increased our theoretical maximum production capacity. Looking ahead, our focus is on managing our production levels and supply chain to meet customer demand during this pandemic. The recent increase in demand for our products has been accompanied by gross profit headwinds, such as increases in air freight costs and expediting fees for components, a higher mix of capital equipment and international revenue, and many related risks to our business. The full extent of the impact of the COVID-19 pandemic will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to treat or contain COVID-19 or to otherwise limit its impact, among others.

We currently offer four versions of our Precision Flow systems: Precision Flow Hi-VNI, Precision Flow Plus, Precision Flow Classic and Precision Flow Heliox. We also initiated a limited release of our Oxygen Assist Module to certain United Kingdom neonatal intensive care unit accounts in the first quarter of 2020 and to certain adult intensive care unit accounts in Europe and the Middle East in the second quarter of 2020 for adult hypoxic patients, and we expanded those limited releases to additional United Kingdom neonatal and European and Middle Eastern adult intensive care units during the third quarter. The Oxygen Assist Module is designed to be used with all versions of our Precision Flow systems except for the Precision Flow Heliox. Our Oxygen Assist Module is designed to help clinicians maintain the pulse oxygen saturation (“SpO2”) within the target SpO2 range over a significantly greater proportion of time while requiring significantly fewer manual adjustments to the equipment. Maintenance of the prescribed oxygen saturation range may reduce the health risks associated with dosing too much, or too little, oxygen. We intend to further expand the limited release in United Kingdom, European, and Middle Eastern neonatal and adult intensive care units during the fourth quarter and fully launch the Oxygen Assist Module commercially throughout the United Kingdom, and certain European and Middle Eastern countries in the first quarter of 2021, at which time we believe we will begin generating revenue from the product.

In the United States, the Oxygen Assist Module was granted Breakthrough Device Designation by the United States Food and Drug Administration (“FDA”) on April 2, 2020 for the following indication: The Oxygen Assist Module (“OAM”) is an optional module used only with the Vapotherm Precision Flow and is indicated for on-demand titration of oxygen into warm humidified breathing gases

delivered to spontaneously breathing patients based on continuous non-invasive monitoring of pulse oxygen saturation. OAM is intended to treat pediatric patients (neonates and infants ≥1000g) in monitored clinical environments (e.g., the neonatal intensive care unit, or “NICU”). We are continuing to work on an Investigational Device Exemption and, if authorized, plan to initiate a NICU study in the first quarter of 2021.

We generate revenue from sales of our Precision Flow systems and the related disposable products utilized with our Precision Flow systems. To a lesser extent, we generate revenue from sales of the Precision Flow system’s companion products, which include the Vapotherm Transfer Unit 2.0, the Q50 compressor and various adaptors. We offer different options to our hospital customers for acquiring Precision Flow capital units, ranging from the purchase of the Precision Flow capital units with payment in full at the time of purchase, to the financed purchase of Precision Flow capital units, to bundled discounts involving the placement of Precision Flow capital units for use by the customer at no upfront charge in connection with the customer’s ongoing purchase of disposable products.

We sell our Precision Flow systems to hospitals through a direct sales organization in the United States and in the United Kingdom and through distributors in other select countries outside of the United States and United Kingdom. We intend to fully launch our Oxygen Assist Module commercially throughout the United Kingdom, Europe, and the Middle East in the first quarter of 2021 through a direct sales organization in the United Kingdom and through distributors in other select countries in Europe and the Middle East. In addition, we have clinical educators who are experienced users of High Velocity Therapy and who focus on our medical education efforts to facilitate adoption and increase utilization. We focus on physicians, respiratory therapists and nurses who work in acute hospital settings, including the ED and adult, pediatric and neonatal ICUs. Our relationship with these clinicians is particularly important, as it enables our products to follow patients through the care continuum. We have sold our Precision Flow systems to over 1,600 hospitals across the United States, where they have been primarily deployed in the ICU setting.

We assemble our Precision Flow systems in our facility in New Hampshire and we rely on third-party suppliers for a majority of the components of our products, including many single source suppliers. Historically we maintained, and as of the present date we maintain, higher levels of inventory to protect ourselves from supply interruptions, and, as a result, we have been and are currently subject to the risk of inventory obsolescence and expiration, which could lead to inventory impairment charges. At times during the past nine months, however, as we sought to fulfill increased demand in connection with the COVID-19 pandemic, there were times when we were not able to carry higher levels of inventory, and as a result, we experienced and potentially in the future may again experience supply interruptions. We currently ship our Precision Flow systems from our facility in New Hampshire directly to our United States customers and many of our international distributors on a purchase order basis. Warehousing and shipping operations for some of our international distributors are handled by a third-party vendor with facilities located in the Netherlands. While our customers have the right to return purchased products subject to a restocking fee, our historical return experience has been immaterial. However, although we have priority shipping status with our carriers, as a result of the COVID-19 pandemic, we have experienced, and may in the future experience, shipping delays throughout the United States and internationally, and as a result, there have been and may in the future be delays in our ability to ship our product to customers and distributors in a timely manner, which may potentially result in a greater percentage of returned product than we have historically experienced.

Since inception, we have financed our operations primarily through public offerings of our common stock, private placements of our convertible preferred stock, sales of our Precision Flow systems and amounts borrowed under our credit facilities. We have devoted the majority of our resources to research and development activities related to our Precision Flow systems including regulatory initiatives and sales and marketing activities. We have invested heavily in our sales and marketing function by increasing the number of sales representatives and clinical educators to facilitate adoption and increase utilization of our High Velocity Therapy products and expanded our digital marketing initiatives and medical education programs. For the third quarter of 2020, we generated revenue of $30.6 million and had a net loss of $12.4 million compared to revenue of $10.8 million and a net loss of $12.8 million for the third quarter of 2019. Our accumulated deficit as of September 30, 2020 was $299.8 million. In the third quarter of 2020, 83.5% of our revenue was derived in the United States and 16.5% was derived outside the United States. No single customer accounted for more than 10% of our revenue.

We intend to continue to make significant investments in our sales and marketing organization by increasing the number of U.S. sales representatives and clinical educators, expanding our international marketing programs and expanding direct to clinician digital marketing efforts to help facilitate further adoption among existing hospital accounts as well as broaden awareness of our products to new hospitals. We also expect to continue to make investments in research and development, regulatory affairs and clinical studies to develop future generations of our High Velocity Therapy products, support regulatory submissions and demonstrate the clinical efficacy of our new products. In addition, as we seek to maintain our current increased production capacity and explore further expansion thereof to satisfy COVID-19 related demand, we expect to continue to make investments in our production capabilities. Because of these and other factors, we expect to continue to incur net losses for the next several years and we may require additional funding, which may include future equity, including sales under our at-the-market sales agreement with Jefferies LLC dated December 20, 2019 under which we may offer and sell from time to time our common stock having aggregate sales proceeds of up to $50.0 million, and debt financings. During April 2020, the Company sold 511,648 shares of its common stock through its at-the-market stock offering

program. The sales generated net proceeds of approximately $9.8 million, net of sales commissions and offering expenses. As of September 30, 2020, there was approximately $39.7 million in remaining capacity under the at-the-market stock offering program.

Results of Operations

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(in thousands)
Net revenue	$	30,559		$	10,809		$	84,826		$	35,094
Cost of revenue		15,049			5,999			42,491			19,646
Gross profit		15,510			4,810			42,335			15,448
Operating expenses
Research and development		4,745			3,280			12,002			9,720
Sales and marketing		15,932			9,193			44,107			27,786
General and administrative		6,047			3,978			16,925			13,389
Total operating expenses		26,724			16,451			73,034			50,895
Loss from operations		(11,214	)		(11,641	)		(30,699	)		(35,447	)
Other expense, net		(1,228	)		(1,124	)		(3,619	)		(3,162	)
Net loss	$	(12,442	)	$	(12,765	)	$	(34,318	)	$	(38,609	)

Revenue

	Three Months Ended September 30,
	2020					2019					Change
	(in thousands, except percentages)
	Amount		% of Revenue			Amount		% of Revenue			$		%
Product Revenue:
Capital Equipment	$	15,245		49.9	%	$	2,055		19.0	%	$	13,190		641.8	%
Disposable		13,044		42.7	%		7,827		72.4	%		5,217		66.7	%
Subtotal Product Revenue		28,289		92.6	%		9,882		91.4	%		18,407		186.3	%
Lease Revenue
Capital Equipment	$	1,129		3.7	%	$	463		4.3	%	$	666		143.8	%
Other		524		1.7	%		-	-				524		100.0	%
Service and Other Revenue		617		2.0	%		464		4.3	%		153		33.0	%
Net Revenue	$	30,559		100.0	%	$	10,809		100.0	%	$	19,750		182.7	%

Revenue increased $19.8 million, or 182.7%, to $30.6 million for the third quarter of 2020 compared to $10.8 million for the third quarter of 2019. The increase in revenue was primarily attributable to a $13.2 million and $5.2 million increase in capital equipment and disposable revenue, respectively. Capital equipment revenue increased 641.8% in the third quarter of 2020 primarily due to increased sales of our Precision Flow units due to increased demand related to the COVID-19 pandemic and increased average selling prices in the United States. Disposable revenue increased 66.7% in the third quarter of 2020 primarily driven by an increase in the worldwide installed base of Precision Flow units and increased utilization due to the COVID-19 pandemic and higher average selling prices in the United States. Lease revenue also increased primarily due to a higher volume of leases of our Precision Flow units and, to a lesser extent, due to higher utilization of disposables for Precision Flow units under placement arrangements.

Revenue information by geography is summarized as follows:

	Three Months Ended September 30,
	2020					2019					Change
	(in thousands, except percentages)
	Amount		% of Revenue			Amount		% of Revenue			$		%
United States	$	25,526		83.5	%	$	8,035		74.3	%	$	17,491		217.7	%
International		5,033		16.5	%		2,774		25.7	%		2,259		81.4	%
Net Revenue	$	30,559		100.0	%	$	10,809		100.0	%	$	19,750		182.7	%

Revenue generated in the United States increased $17.5 million, or 217.7%, to $25.5 million for the third quarter of 2020, compared to $8.0 million for the third quarter of 2019. Revenue generated in our International markets increased $2.3 million, or 81.4%, to $5.0 million for the third quarter of 2020, compared to $2.8 million for the third quarter of 2019. Both United States and International revenue growth was primarily driven by an increase in the number of Precision Flow units sold year over year due to the COVID-19 pandemic and an increase in single-use disposable sales due to higher installed bases of Precision Flow units, as well as higher average selling prices in the United States.

	Nine Months Ended September 30,
	2020					2019					Change
	(in thousands, except percentages)
	Amount		% of Revenue			Amount		% of Revenue			$		%
Product Revenue:
Capital	$	39,548		46.6	%	$	6,715		19.2	%	$	32,833		489.0	%
Disposable		38,637		45.6	%		25,376		72.3	%		13,261		52.3	%
Subtotal Product Revenue		78,185		92.2	%		32,091		91.5	%		46,094		143.6	%
Lease Revenue
Capital Equipment		3,407		4.0	%		1,410		4.0	%		1,997		141.6	%
Other		1,427		1.7	%		-		-			1,427		100.0	%
Service and Other Revenue		1,807		2.1	%		1,593		4.5	%		214		13.4	%
Net Revenue	$	84,826		100.0	%	$	35,094		100.0	%	$	49,732		141.7	%

Revenue increased $49.7 million, or 141.7%, to $84.8 million for the first nine months of 2020 compared to $35.1 million for the first nine months of 2019. The increase in revenue was primarily attributable to a $32.8 million and $13.3 million increase in capital equipment and disposable revenue, respectively. Capital equipment revenue increased 489.0% in the first nine months of 2020 primarily due to increased sales of our Precision Flow units as a result of increased demand related to the COVID-19 pandemic and increased average selling prices in the United States and International. Disposable revenue increased 52.3% in the first nine months of 2020 primarily driven by an increase in the worldwide installed base of Precision Flow units and higher utilization due to the COVID-19 pandemic. Lease revenue also increased primarily due to a higher volume of leases of our Precision Flow units and, to a lesser extent, due to an increase in the number of disposables for Precision Flow units under placement arrangements.

Revenue information by geography is summarized as follows:

	Nine Months Ended September 30,
	2020					2019					Change
	(in thousands, except percentages)
	Amount		% of Revenue			Amount		% of Revenue			$		%
United States	$	65,549		77.3	%	$	26,762		76.3	%	$	38,787		144.9	%
International		19,277		22.7	%		8,332		23.7	%		10,945		131.4	%
Net Revenue	$	84,826		100.0	%	$	35,094		100.0	%	$	49,732		141.7	%

Revenue generated in the United States increased $38.8 million, or 144.9%, to $65.5 million for the first nine months of 2020, compared to $26.8 million for the first nine months of 2019. Revenue generated in our International markets increased $10.9 million, or 131.4%, to $19.3 million for the first nine months of 2020, compared to $8.3 million for the first nine months of 2019. Both United States and International revenue growth was primarily driven by an increase in the number of Precision Flow units sold year over year due to COVID-19 as well as an increase in single-use disposable sales due to higher installed bases of Precision Flow units and higher disposable utilization.

Cost of Revenue and Gross Profit

Cost of revenue increased $9.1 million, or 150.9%, to $15.0 million in the third quarter of 2020 compared to $6.0 million in the third quarter of 2019. Cost of revenue increased $22.8 million, or 116.3%, to $42.5 million in the first nine months of 2020 compared to $19.6 million in the first nine months of 2019. These increases were primarily due to higher materials and labor costs due to a rapid increase in sales volumes of our Precision Flow units and disposables in order to meet demand related to the COVID-19 pandemic.

Gross profit increased to 50.8% in the third quarter of 2020 compared to 44.5% in the third quarter of 2019. Gross profit increased to 49.9% in the first nine months of 2020 compared to 44.0% in the first nine months of 2019. Gross profit was positively impacted by improved overhead absorption due to higher production volumes, partially offset by higher labor costs, increased supplier freight and expediting fees to meet the rapid increase in production capacity, and a higher mix of Precision Flow system sales. Gross profit was also positively impacted by higher average selling prices of capital equipment in the United States, partially offset by lower average selling prices of disposables in International markets.

Research and Development Expenses

Research and development expenses increased $1.5 million, or 44.7%, to $4.7 million in the third quarter of 2020 compared to $3.3 million in the third quarter of 2019. As a percentage of revenue, research and development expenses decreased to 15.5% in the third quarter of 2020 compared to 30.3% in the third quarter of 2019.

Research and development expenses increased $2.3 million, or 23.5%, to $12.0 million in the first nine months of 2020 compared to $9.7 million in the first nine months of 2019. As a percentage of revenue, research and development expenses decreased to 14.1% in the first nine months of 2020 compared to 27.7% in the first nine months of 2019.

The increase in research and development expenses in both comparison periods was due to increased product development and prototype costs associated with the development of our future generation High Velocity systems and increased employee-related expenses and stock-based compensation.

Sales and Marketing Expenses

Sales and marketing expenses increased $6.7 million, or 73.3%, to $15.9 million in the third quarter of 2020 compared to $9.2 million in the third quarter of 2019. As a percentage of revenue, sales and marketing expenses decreased to 52.1% in the third quarter of 2020 compared to 85.0% in the third quarter of 2019.

Sales and marketing expenses increased $16.3 million, or 58.7%, to $44.1 million in the first nine months of 2020 compared to $27.8 million in the first nine months of 2019. As a percentage of revenue, sales and marketing expenses decreased to 52.0% in the first nine months of 2020 compared to 79.2% in the first nine months of 2019.

The increase in sales and marketing expenses in both comparison periods was primarily due to increased sales commissions as a result of increased revenue due to the COVID-19 pandemic along with increases in the size of the sales and marketing organization and increased stock-based compensation, partially offset by a reduction in travel expenses due to COVID-19. Additionally, the increase in sales and marketing expenses during the first nine months of 2020 was also partially offset by a reduction in marketing initiatives such as trade shows and training costs due to the COVID-19 pandemic.

General and Administrative Expenses

General and administrative expenses increased $2.1 million, or 52.0%, to $6.0 million in the third quarter of 2020 compared to $4.0 million in the third quarter of 2019. As a percentage of revenue, general and administrative expenses decreased to 19.8% in the third quarter of 2020 compared to 36.8% in the third quarter of 2019.

General and administrative expenses increased $3.5 million, or 26.4%, to $16.9 million in the first nine months of 2020 compared to $13.4 million in the first nine months of 2019. As a percentage of revenue, general and administrative expenses decreased to 20.0% in the first nine months of 2020 compared to 38.2% in the first nine months of 2019.

The increase in general and administrative expenses in both comparison periods was primarily due to increases in employee-related expenses, stock-based compensation, audit and compliance related costs, legal costs and insurance. Additionally, the increase in general and administrative expenses during the first nine months of 2020 was related to increased bank services charges and reserves for bad debt due to increased revenue, partially offset by a reduction in travel expenses due to the COVID-19 pandemic.

Other Expense, Net

Other expense, net increased $0.1 million, or 9.3%, to $1.2 million in the third quarter of 2020 compared to $1.1 million in the third quarter of 2019. Other expense, net increased $0.4 million, or 14.5%, to $3.6 million in the first nine months of 2020 compared to $3.2 million in the first nine months of 2019. The increase in other expense, net in the third quarter of 2020 was due to decreased interest income primarily due to lower interest rates on invested balances, partially offset by a decrease in interest expense primarily due to lower interest rates on outstanding borrowings. The increase in other expense, net in the first nine months of 2020 was due to a decreased interest income primarily due to lower interest rates on invested balances and an increase in interest expense primarily related to additional borrowings under our credit facilities.

Liquidity and Capital Resources

As of September 30, 2020, we had cash, cash equivalents and restricted cash of $140.9 million and an accumulated deficit of $299.8 million. Our primary sources of capital to date have been from public offerings of our common stock, private placements of our since-converted preferred stock, sales of our Precision Flow systems and amounts borrowed under credit facilities. Since inception, we have raised a total of $162.6 million in net proceeds from private placements of our convertible preferred stock. On November 16, 2018, we completed an initial public offering of 4,600,000 shares of common stock at a price of $14.00 per share, which raised net proceeds of $57.4 million. In August 2019, we completed a public offering of 3,570,750 shares of common stock, which included the full exercise by the underwriters of their option to purchase 465,750 shares of common stock, at a price of $14.50 per share, which raised net proceeds of $48.3 million after deducting the underwriting discount of $3.1 million and offering expenses of $0.4 million.

On December 20, 2019, the Company entered into an Open Market Sales Agreement (the “ATM Agreement”) with Jefferies LLC (“Jefferies”) under which the Company may offer and sell its common stock having aggregate sales proceeds of up to $50.0 million from time to time through Jefferies as its sales agents. During April 2020, we sold 511,648 shares of common stock pursuant to the ATM Agreement for gross proceeds of $10.2 million, or $9.8 million net of commissions and offering expenses.

In May 2020, we completed a public offering of 3,852,500 shares of common stock, which included the full exercise by the underwriters of their option to purchase 502,500 shares of common stock, at a price of $26.00 per share, which raised net proceeds of $93.8 million after deducting the underwriting discount of $6.0 million and offering expenses of $0.3 million.

As of September 30, 2020, we had $4.5 million of outstanding borrowings and $0.8 million of availability under the Third Amended Revolver Agreement. As of September 30, 2020, we had $42.6 million of term debt outstanding under our 2020 Amended Credit Agreement and Guaranty.

On October 21, 2020, we entered into a loan and security agreement with Canadian Imperial Bank of Commerce Innovation Banking (“CIBC”) (the “Loan Agreement”). The Loan Agreement provides for a revolving loan facility of $12.0 million (the “Revolving Facility”) and a term loan facility of $40.0 million (the “Term Facility” and, together with the Revolving Facility, the “Facilities”). The proceeds of the Facilities were used to repay our existing revolving loan facility and term loan facility and for general corporate and working capital purposes.

We believe that our existing cash resources and availability under our Revolving Facility will be sufficient to meet our capital requirements and fund our operations for at least the next 12 months. If these sources are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or make additional borrowings under our existing line of credit facility or enter new debt financing arrangements. If we raise additional funds by issuing equity securities, our stockholders would experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. Additional financing may not be available at all, or may be available only in amounts or on terms unacceptable to us. If we are unable to obtain additional financing, we may be required to delay the development, commercialization and marketing of our Precision Flow systems and Oxygen Assist Module.

Cash Flows

The following table presents a summary of our cash flows for the periods indicated:

	Nine Months Ended September 30,
	2020			2019
	(in thousands)
Net cash provided by (used in):
Operating activities	$	(32,109	)	$	(28,530	)
Investing activities		(5,944	)		(4,692	)
Financing activities		105,451			58,600
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(37	)		(26	)
Net increase in cash, cash equivalents and restricted cash	$	67,361		$	25,352

Operating Activities

The net cash used in operating activities was $32.1 million in the first nine months of 2020 and consisted primarily of a net loss of $34.3 million and an increase in operating assets of $5.7 million partially offset by $7.9 million in non-cash charges. Non-cash charges consisted primarily of stock-based compensation expense and depreciation and amortization expense.

The net cash used in operating activities was $28.5 million in the first nine months of 2019 and consisted primarily of a net loss of $38.6 million, partially offset by a decrease of $5.2 million in net operating assets and $4.9 million in non-cash charges. Non-cash charges consisted primarily of stock-based compensation expense and depreciation and amortization expense.

Investing Activities

Net cash used in investing activities for the first nine months of 2020 and 2019 consisted of purchases of property and equipment of $5.9 million and $3.1 million, respectively. In addition, the net cash used in investing activities in the first nine months of 2019 included $1.6 million to acquire Solus.

Financing Activities

Net cash provided by financing activities was $105.5 million in the first nine months of 2020 and consisted of proceeds from the issuance of common stock in connection with public and at-the-market offerings of $94.2 and $9.9 million, respectively, borrowings of $1.0 million under our short-term line of credit, and proceeds from common stock issuances in connection with our ESPP and stock option exercises of $0.4 and $0.5 million, respectively, partially offset by common stock offering costs of $0.5 million.

Net cash provided by financing activities was $58.6 million in the first nine months of 2019 and consisted of proceeds from the issuance of common stock in connection with a public offering of $48.7 million, net proceeds from borrowings of $10.2 million under our credit facilities, and proceeds from common stock issuances in connection with stock option exercises and purchases of restricted stock of $0.4 million, partially offset by common stock offering costs of $0.4 million and debt issuance costs of $0.3 million.

Indebtedness

Revolving Line of Credit

In November 2016, we entered into the Revolver Agreement with Western Alliance Bank, which provided for $7.0 million of available borrowings. Availability under the Revolving Facility is calculated based upon 80% of the eligible receivables (net of pre-paid deposits, pre-billed invoices, other offsets, and contras related to each specific account debtor).

On April 6, 2018, we amended and restated the Revolving Facility (the “Amended Revolver Agreement”) to extend the maturity date from September 30, 2018 to September 30, 2020 and increase the revolving line of credit to $7.5 million. On March 22, 2019, we amended and restated the Amended Revolver Agreement (the “First Amended Revolver Agreement”), which increased the allowable permitted indebtedness under the First Amended Revolver Agreement in connection with our credit card program from $0.3 million to $0.5 million. On July 7, 2020, we entered into a second amendment to the Amended Revolver Agreement (as amended, the “Second Amended Revolver Agreement”), which, under certain circumstances, reduced the amount of funds required to be held on deposit with Western Alliance Bank. On September 29, 2020, the Company entered into a third amendment to the Amended Revolver Agreement (as amended, the “Third Amended Revolver Agreement”), which extended the maturity date to February 28, 2023. Under the Third Amended Revolver Agreement, interest is required to be paid monthly on the outstanding balance at the Wall Street Journal Prime Rate in effect from time to time, subject to a floor of 3.25%. The interest rate was 3.25% at September 30, 2020

The outstanding balance under the Third Amended Revolver Agreement was $4.5 million at September 30, 2020. The remaining amount available to borrow based on eligible receivables was $0.8 million at September 30, 2020. The Third Amended Revolver Agreement is secured by substantially all of our assets, excluding intellectual property.

As discussed below, we fully repaid and terminated the Third Amended Revolver Agreement on October 21, 2020.

Term Debt

On April 6, 2018, we entered into the Credit Agreement and Guaranty with Perceptive. The Credit Agreement and Guaranty initially provided for a term loan facility in the amount of $42.5 million, available in three tranches, of which the first tranche of $20.0 million was drawn upon closing. This first tranche was used to repay the borrowings under a former loan arrangement. A second tranche of $10.0 million was drawn on July 20, 2018. The availability of the final tranche of $12.5 million was dependent upon the Company achieving a minimum of $43.2 million in revenue in 2018. On September 27, 2018, the Credit Agreement and Guaranty was amended to remove this revenue requirement and extend the final draw down date to March 31, 2019. We borrowed $2.0 million from this third tranche on September 27, 2018. On March 22, 2019, we drew the remaining $10.5 million under the Amended Credit Agreement and Guaranty increasing the total outstanding balance to $42.5 million. We also entered into a second amendment to the Amended Credit Agreement and Guaranty increasing the allowable permitted indebtedness in connection with our credit card program from $0.3 million to $0.5 million. On June 16, 2020, we entered into a third amendment to the Amended Credit Agreement and Guaranty (the “2020 Amended Credit Agreement and Guaranty”), which amended the prepayment premium by clarifying the methodology for calculating Perceptive’s annualized internal rate of return under the term loan.

The outstanding principal amount of the 2020 Amended Credit Agreement and Guaranty accrues interest at an annual rate equal to the applicable margin of 9.06% plus the greater of (a) one-month LIBOR and (b) 1.75% per year. The term loan is secured by substantially all our personal property including intellectual property. All unpaid and accrued unpaid interest with respect to each such term loan is due and payable in full on the maturity date at April 6, 2023. On the maturity date, in addition to the payment principal and accrued interest, we will be required to make a payment of 0.5% of the total amount borrowed under the 2020 Amended Credit Agreement and Guaranty, unless we have already made such payment in connection with an acceleration or prepayment of borrowings under the term loan. In the event we prepay all or part of this term loan facility prior to the maturity date, we may be subject to additional prepayment fees which decrease as the time to maturity decreases.

We issued warrants to Perceptive to purchase 37,693, 18,846 and 3,769 shares of our Series D convertible preferred stock at an exercise price of $15.92 per share in April 2018, July 2018 and September 2018, respectively. In connection with our initial public offering in November 2018 these warrants converted to common stock warrants at an exercise price of $15.92. Each of the warrants has a term of 10 years. In connection with the draw down on March 22, 2019, we granted warrants to purchase 19,789 shares of common stock. The warrants had an exercise price of $15.92 per share, were fully vested upon issuance, were exercisable at the option of the holder, in whole or in part, and would have expired by March 2029. On June 10, 2020, Perceptive exercised all of its outstanding warrants in a cashless exercise transaction resulting in the issuance of 41,066 shares of common stock to Perceptive.

We were in compliance with all debt covenants under both the Third Amended Revolver Agreement and 2020 Amended Credit Agreement and Guaranty at September 30, 2020.

As discussed below, we fully repaid and terminated the 2020 Amended Credit Agreement and Guaranty on October 21, 2020.

Subsequent Event – Debt Refinancing

On October 21, 2020 (the “Closing Date”), we entered into the Loan Agreement with CIBC. The Loan Agreement provides for a Revolving Facility of $12.0 million and a Term Facility of $40.0 million (the “Term Facility” and, together with the Revolving Facility, the “Facilities”). The proceeds of the Facilities were used to repay our existing revolving loan facility and term loan facility and for general corporate and working capital purposes.

The events of default under the Loan Agreement include, without limitation, and subject to customary grace periods, (1) our failure to make any payments of principal or interest under the Loan Agreement or other loan documents, (2) our breach or default in the performance of any covenant under the Loan Agreement, (3) the occurrence of a material adverse effect or an event that is reasonably likely to result in a material adverse effect, (4) the existence of an attachment or levy on a material portion of our or our subsidiaries’ funds, (5) our insolvency or bankruptcy, or (6) the occurrence of certain material defaults with respect to any other of our indebtedness in excess of $500,000. If an event of default occurs, CIBC is entitled to take enforcement action, including acceleration of amounts due under the Loan Agreement.

On October 21, 2020, we used approximately $40 million of the Term Facility, approximately $4.9 million of the Revolving Facility and approximately $5.7 million of cash on hand to pay off all obligations owing under, and to terminate, both the

2020 Amended Credit Agreement and Guaranty and the Third Amended Revolver Agreement, which included a prepayment penalty and exit fees of $3.7 million.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by applicable regulations of the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Critical Accounting Policies and Estimates

This management’s discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue and expenses during the reporting periods. We monitor and analyze these items for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.

For further information regarding our critical accounting policies, see Note 2 “Summary of Significant Accounting Policies” of Notes to Consolidated Financial Statements and our critical accounting policies within the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2019 Form 10-K. There have been no changes in our accounting policies except for certain new policies or enhanced policy descriptions, which are discussed below related to self-insurance, other lease revenues, and stock compensation expense related to our 2018 Employee Stock Purchase Program (ESPP”).

Insurance

Effective January 1, 2020, we are self-insured for certain obligations related to health insurance. We also purchase stop-loss insurance to protect us from material losses. Judgments and estimates are used in determining the potential value associated with reported claims and for events that have occurred, but have not been reported. Our estimates consider expected claim experience and other factors. Receivables for insurance recoveries are recorded as assets, on an undiscounted basis. Our liabilities are based on estimates, and, while we believe that our accruals are adequate, the ultimate liability may be significantly different from the amounts recorded. Changes in claims experience, our ability to settle claims or other estimates and judgments used by us could have a material impact on the amount and timing of expense for any period.

Lease Revenue

We enter into agreements to lease our capital equipment. For such sales, we account for revenue under ASC 840, Leases, and assess and classify these transactions as sales-type or operating leases based on whether the lease transfers ownership of the equipment to the lessee by the end of the lease term. This criterion is met in situations in which the lease agreement provides for the transfer of title at or shortly after the end of the lease term in exchange for the payment of a nominal fee, for example, the minimum required by statutory regulation to transfer title. Equipment included in arrangements including transfer of title are accounted for as sales-type leases and we recognize the total value of the lease payments due over the lease term to revenue at the inception of the lease. We record the current value of future lease payments under prepaid expenses and other current assets in the condensed consolidated balance sheets and these amounts totaled $1.7 and $0.9 million at September 30, 2020 and December 31, 2019, respectively. Equipment included in arrangements that do not include the transfer of title, nor any of the capital lease criteria, are accounted for as operating leases and revenue is recognized on a straight-line basis as it becomes receivable monthly over the term of the lease.

We also enter into agreements involving the placement of Precision Flow capital units for use by the customer at no upfront charge in connection with the customer’s ongoing purchase of disposable products. In these bundled arrangements, revenue recognized for the sale of the disposables is allocated between disposable revenue and other lease revenue based on the estimated relative stand-alone selling prices of the individual performance obligations.

Stock-Based Compensation

We maintain an equity incentive plan to provide long-term incentives for employees, consultants, and members of the board of directors. The plan allows for the issuance of non-statutory and incentive stock options to employees and non-statutory stock options to consultants and non-employee directors.

We recognize stock-based compensation expense for awards of equity instruments to employees and non-employees based on the grant date fair value of those awards in accordance with ASC Topic 718, Stock Compensation (ASC 718). ASC 718 requires all

equity-based compensation awards, including grants of restricted shares and stock options, to be recognized as expense in the condensed consolidated statements of comprehensive loss based on their grant date fair values.

The fair value of each option grant is estimated on the grant date using the Black-Scholes option pricing model. The fair value is then amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. For performance-based awards, the related compensation cost is amortized over the performance period on an accelerated attribution basis. Compensation cost associated with performance awards is based on fair value on the date of grant and the number of units expected to be earned after assessing the probability that certain performance criteria will be met and the associated targeted payout level that is forecasted will be achieved. Cumulative adjustments are recorded each quarter to reflect estimated outcomes of the performance-related conditions until the results are determined and settled. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs, including the expected life (weighted average period of time that the options granted are expected to be outstanding), the volatility of our common stock and an assumed risk-free interest rate. Expected volatility is calculated based on historical volatility of a group of publicly traded companies that we consider a peer group. The expected life is estimated using the simplified method for “plain vanilla” options. The risk-free interest rate is based on U.S. Treasury rates with a remaining term that approximates the expected life assumed at the date of grant. No dividend yield is assumed as we do not pay, and do not expect to pay, dividends on our common stock. We estimate forfeitures based on historical experience with pre-vested forfeitures. To the extent actual forfeitures differ from the estimate, the difference is recorded to compensation expense in the period of the forfeiture.

We recognize stock-based expense for shares issued pursuant to our ESPP on a straight-line basis over the related offering period. We estimate the fair value of shares to be issued under the ESPP based on a combination of options valued using the Black-Scholes option-pricing model. The expected life is determined based on the contractual term. Expected volatility, dividend yield and forfeiture rates are estimated in a manner similar to option grants described above.

Recent Accounting Pronouncements

A discussion of recent accounting pronouncements is included in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

JOBS Act

As a company with (i) less than $1.07 billion in revenue during our last fiscal year (ii) a market value of our common stock of less than $700.0 million as of our most recently completed second quarter and (iii) less than $1.0 billion of non-convertible debt over a three-year period, we qualify as an “emerging growth company,” as defined in the JOBS Act, as of the date of our last annual evaluation which occurred on December 31, 2019. An emerging growth company may take advantage of reduced reporting requirements that are otherwise applicable to public companies. We expect we will no longer qualify as an emerging growth company as of December 31, 2020 and, at that time, will begin to adopt certain accounting pronouncements at dates applicable to public companies.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company,” we are not required to provide the information required by this item.

ITEM 4. CONTROLS AND PROCEDURES

(a)	Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) at the end of the period covered by this quarterly report.

Based on this evaluation, we concluded that, as of such date, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

We recognize that any controls system, no matter how well designed and operated, can provide only reasonable assurance of achieving its objectives, and our management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

(b)	Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this quarterly report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, the Company may become involved in various legal proceedings, including those that may arise in the ordinary course of business. The Company believes there is currently no litigation pending that could have, individually, or in the aggregate, a material adverse effect on the results of its operations or financial condition.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this quarterly report, you should carefully consider the factors discussed in “Risk Factors” in our 2019 Form 10-K which could materially affect our business, financial condition or future results. Except as set forth below, there have been no material changes from the risk factors previously disclosed in the “Risk Factors” section of our Annual Report on Form 10-K filed with the SEC on March 4, 2020, our Quarterly Report on Form 10-Q filed with the SEC on May 5, 2020, our Quarterly Report on Form 10-Q filed with the SEC on August 4, 2020, and in our other filings with the SEC.

A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, has and may in the future adversely affect our business.

If a pandemic, epidemic or outbreak of an infectious disease occurs, our business may be adversely affected. Such events may result in a period of business and manufacturing disruption or in an inability to scale our production to meet increased demand in a cost-effective manner or at all, any of which could materially affect our business, financial condition and results of operations. For example, in 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus has now spread globally, and United States residents and businesses were hit especially hard during March, April, and May in major urban centers like New York City, and in July throughout the sunbelt in states like Florida, Texas, and Arizona. Additionally, as we move further into the fall and schools and communities continue to implement plans to reopen, new hot spots of COVID-19 infection have emerged and are continuing to emerge. A resurgence in the outbreak and spread of COVID-19 may result in renewed stay-at-home orders and mandatory closings for non-essential businesses. The spread of COVID-19 during the first, second, and third quarters of 2020 resulted in certain disruptions to our business and may in the future result in additional disruptions to our business. Examples of such disruptions include without limitation the following:

•

The health and wellbeing of our employees, including our operations and production teams, our sales representatives and clinical educators who may visit our hospital customers, as well as that of our distributors and suppliers, is at risk – if a critical threshold of our personnel, or the personnel of our distributors or suppliers, were to be diagnosed with COVID-19, placed in quarantine due to potential exposure to COVID-19, or need to care for family members diagnosed with COVID-19, such developments may result in significant business, manufacturing, or distribution disruption.

•

As we scaled production to meet increased demand, we have asked, and will likely continue to ask, employees and suppliers to work extended and unusual hours and we and many of our suppliers have onboarded, and may in the future onboard, a significant number of personnel. While we require these personnel to complete all required training and education before they begin working, and we believe our suppliers, to the extent applicable, do as well, many of the new personnel do not have prior experience with the specific production skills they are being hired to perform and/or otherwise do not have prior experience manufacturing medical devices, and while we have not seen a negative impact to our quality management system or product quality to date, any of the foregoing may result in a negative impact on our quality management system and product quality in the future.

•

As we scaled production to meet increased demand, our employees or suppliers have in the past and may in the future change production processes or fail to document such changes to keep up with our production needs. While we have not seen a negative impact to our quality management system and product quality to date, these changes and/or failure to document such changes may have a negative impact on our quality management system and product quality in the future.

•

Demand for our products and services has been dynamic since March, with extended periods of intense demand resulting in the rapid hiring of temporary employees and scaling up of production and inventory, followed by periods of reduced demand resulting in the reduction of temporary employees and scaling back of production and inventory. The result of these fluctuations in demand have and in the future may continue to drive unevenness in our operations and supply chain and we have experienced and may continue to experience unevenness and volatility in our hiring, production, and inventory levels, any of which can have a negative impact on our business and results of operations.

•

Demand for our products has previously increased at the same time that we began to experience limitations in our supply chain, which has resulted, and may in the future result, in a shortage of supply, increased costs of products, materials, and components and delays in the timely delivery thereof, which has required, and may in the future require, that we pass through expenses or otherwise increase our pricing in certain instances for our customers and distributors. Some of our customers and distributors have rejected, and others in the future may reject, these pricing increases, negatively impacting our business. Similarly, the demand we placed on our suppliers at the same time their sub-suppliers began to face limitations led to our suppliers seeking to pass through expenses or otherwise increase pricing for products, materials, and components we required to meet our production needs, and this may occur again in the future.

•

Some of our suppliers have been, and some of our suppliers may in the future be, partially or, at times, wholly precluded from delivering to us products, materials, and components in the quantities needed on a timely basis, for a variety of reasons, including, without limitation, an evolving understanding of how international, federal, and/or state authorities define “essential business”, their inability to remain open due to lost business in other parts of their portfolios, or because of international, federal, and/or state prioritization orders requiring our suppliers to produce for governmental entities and/or other manufacturers before they produce for us.

•

We have had to develop alternative sources of supply for certain products, materials, and components as a result of the partial or, at times, complete inability of some of some of our suppliers to meet our production needs. Although we have successfully been able to develop and validate these alternate sources of supply to date, doing so is time-consuming, difficult, and costly, and if we need to develop and validate alternative sources of supply in the future for any reason, including if any of our suppliers were to cease operations altogether, discontinue production of our key products, materials, and/or components, or go into extended backorder, we may not be able to do so in a timeframe acceptable to meet customer demand. Additionally, we have had to go to secondary broker markets for some of our alternative sourcing needs, which represent a greater risk for counterfeit products, materials and/or components. Although we were able to validate the products, materials and/or components we purchased from secondary broker markets to date, we may not be able to do so in the future which may result in a negative impact on our quality management system and product quality.

•

Customer demand has necessitated weekly and, in some cases, daily shipments of certain products, materials, and/or components from our suppliers to meet our production targets, and customer demand in the future may necessitate similar delivery frequencies. We have had to and may in the future have to shut down production temporarily if there are delays in the shipments of those products, materials and/or components.

•

Federal authorities may restrict our ability to export products outside the United States, which could negatively impact our business, operations, and relationships with our international distributors and customers in a significant and long-term way that we may not be able to rebuild for an extended period of time, or at all.

•

While we have priority shipping status with our carriers, we have experienced shipping delays throughout the United States and internationally, and as a result, there have been and may continue to be delays in our ability to ship our product to customers and distributors in a timely manner, potentially resulting in returned product, and we have faced and may in the future face extraordinary freight fees, including air freight fees and expedition fees for all modes of transportation.

•

Travel restrictions have impeded, and may in the future continue to impede, our ability to qualify and retain new suppliers or audit our existing suppliers, which may have a negative impact on our quality management system and our product quality in the future.

•

Travel restrictions and hospital limitations or denials of access for non-patients have impacted, and may in the future continue to impact, the ability of our direct sales team and clinical educators in the United States and United Kingdom and our distributors and suppliers in many other countries to access physicians and clinicians in order to train them on our products at a time when we are onboarding many new customers who have no prior experience using our products. We have been training our customers and distributors on our products through online training modules. We are not certain that these alternative means will be as effective as our standard training methods, particularly over the long term in terms of using our products on the full range of patients experiencing respiratory distress, including hypercapnia, or even using our products at all, and while we have not seen a negative impact to our complaint rates to date, we may see higher complaint rates in the future, particularly from new customers who are less familiar with our products.

•

Travel restrictions have prevented, and may in the future continue to prevent, physicians and other caregivers from traveling to attend our training programs, which has resulted, and may in the future continue to result, in fewer physicians trained in person on high velocity therapy, and in the United Kingdom and in Europe, on our Oxygen Assist Module.

•

Travel restrictions have impeded, and may in the future continue to impede, our ability to meet with distributors, negatively impacting our business in a number of ways, including without limitation our ability to train our existing distributors on new products such as the Oxygen Assist Module.

•

Some of our hospital customers in the United States may in the future be unable to continue with business operations as usual or at all due to lost business in other parts of their operations, which may negatively impact or eliminate our business with these customers. Similarly, some of our distributors may in the future be unable to continue with business operations as usual or at all due to lost business in other parts of their portfolios, which may negatively impact or eliminate our business with these distributors and their customers in the countries they serve.

•

We have asked most employees who are not directly involved in our production, shipping, quality, regulatory, and product development efforts to work from home and, while we have not seen a negative impact so far, this could impact our ability to effectively plan, execute, communicate and maintain our corporate culture. The increase in working remotely could also increase our cyber security risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations.

•

Stay at home orders implemented in March, April, and May significantly restricted individuals from traveling outside the home, which limited our ability to hire new employees or backfill terminated employees; if additional stay at home orders are issued in the future, our ability to hire new employees or backfill terminated employees may be further impacted. Additionally, the federal unemployment compensation subsidy passed into law in connection with the COVID-19 pandemic created incentives for certain individuals to stay home rather than seek to enter the job market, which also limited our ability to hire new employees and backfill terminated employees. The federal unemployment compensation subsidy initially expired on July 31, 2020, then was extended in September at a lower rate, and is currently being negotiated further. Any further extension of the federal unemployment compensation subsidy may continue to limit our ability to hire new employees and backfill terminated employees in the future.

•

Our competitors, potentially including companies that we have not previously considered competitors due to their historical operation outside of the respiratory space or even outside of the medical device space entirely, may in the future secure significant purchase agreements from the federal government or various states before we are able to do so, may be selected instead of us, or may be added to these agreements after initially being excluded, and any of the foregoing could limit our access to or preclude us altogether from those commercial opportunities.

The U.S. federal government has cancelled, and the U.S. federal government and/or state or international governments may in the future cancel contracts they have entered into with suppliers to procure competitive respiratory support technologies, thereby leaving those suppliers with significant inventory of components and/or finished goods and creating motivation for those suppliers to enter markets around the world with those devices at extremely competitive pricing; to the extent those suppliers and their products would compete with us, our existing business in markets where we already are established and/or our ability to enter into new markets may be negatively impacted.

•

The transmission risk of different respiratory support modalities for COVID-19 has not been studied extensively. Our assessment of the issue suggests that the Precision Flow, its disposable patient circuits, and its accessories, including the Vapotherm Transfer Unit, the Q50 compressor, and, in the United Kingdom and Europe, the Oxygen Assist Module, do not represent a heightened risk, particularly when (1) used in COVID-19 cohorts or when adequately disinfected between patients, and (2) a simple surgical mask is placed over the patient’s nose and mouth while delivering high velocity nasal insufflation; however, this assessment could prove to be incorrect upon further analysis or new third party information.

•

The FDA or any foreign regulatory body may disagree with our interpretation that our promotional materials, sales practices, and training related to the use of our products on patients in respiratory distress who are suffering from COVID-19 are on label and they could request we modify our promotional materials, sales practices, or training or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state, or foreign enforcement authorities might take action under other regulatory authority, such as false claims laws, if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment of our operations.

•

A significant disruption to our business resulting in an inability to build and ship product to customers for an extended period of time may impair our ability to maintain compliance with our debt covenants.

•

Equity and debt markets in general and Vapotherm securities in particular have experienced significant volatility since the spread of COVID-19 into the United States for a variety of reasons, including, without limitation, media coverage of COVID-19, its impacts, and specific COVID-19 related technologies such as invasive mechanical ventilators and high flow nasal cannula in general and Vapotherm’s Precision Flow, an advanced form of high flow nasal cannula capable of delivering high velocity therapy, in particular. Should significant volatility continue or should the markets in general or Vapotherm securities in particular experience declines due to the economic impact of the COVID-19 pandemic, we may not be able to raise capital or seek other sources of financing at a reasonable valuation or at all.

In addition, the increases in demand we have at times experienced since the onset of the COVID-19 pandemic are correlated with the number of patients suffering from COVID-19 who are being treated for respiratory distress; these increases in demand may not continue after the COVID-19 pandemic subsides. Moreover, the increases in demand we have experienced to date may result in decreased demand for our products after the COVID-19 pandemic subsides as hospitals may have a large surplus of ventilators and other respiratory support equipment, including high flow nasal cannula devices, potentially including Vapotherm’s Precision Flow systems. Additionally, we were awarded a blanket purchase agreement from the Department of Defense and may in the future be compelled to or otherwise enter into other blanket purchase agreements or supply agreements with domestic or foreign governmental entities, and orders may not materialize thereunder for a variety of reasons, including without limitation, the COVID-19 pandemic subsiding or any decision by the relevant domestic or foreign governmental entity to otherwise cancel or alter their purchase order or supply agreement. Even if any such agreement is ultimately fulfilled, the domestic or foreign governmental entity might fail to adequately distribute and install our technology in hospitals where the potential exists for it to generate an ongoing disposable revenue stream. As a result, any present increase or potential future increase in our capital or disposable revenue may not be sustained and our revenue may significantly decrease after the COVID-19 pandemic subsides, which could have an adverse effect on our business. Any sudden and significant decrease in demand may result in a substantial inventory position, which could also have an adverse effect on our business.

The full extent to which the COVID-19 pandemic impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions taken to treat or contain COVID-19 or to otherwise limit its impact, among others. Additionally, strategies relating to limiting the impact of COVID-19 have become highly politicized around the world, including in connection with the 2020 U.S. Presidential election, the outcome of which may result in significant political, economic, and civil instability. To the extent the COVID-19 pandemic, whether on its own or in connection with any political, economic, and civil instability resulting from the 2020 U.S. Presidential election adversely affects our business and financial results, our distributors’ and suppliers’ business and financial results, or our customers’ business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, including without limitation those relating to our ability to generate revenue and improve on or hold our current gross margin, the price of our common stock, our susceptibility to securities or other types of litigation, our significant amount of indebtedness, our need to generate sufficient cash flows to service our substantial indebtedness, and our ability to comply with the covenants contained in the agreements that govern our indebtedness.

ITEM 6. EXHIBITS

The exhibits filed as part of this quarterly report are set forth on the Exhibit Index, which is incorporated herein by reference.

EXHIBIT INDEX

Exhibit Number		Description

10.1		Form of Restricted Stock Unit Agreement for Employees who are Executive Officers pursuant to the Vapotherm, Inc. 2018 Equity Incentive Plan

10.2		Form of Restricted Stock Unit Agreement for Employees who are not Executive Officers pursuant to the Vapotherm, Inc. 2018 Equity Incentive Plan

10.3		Form of Restricted Stock Unit Agreement for Non-Employee Directors pursuant to the Vapotherm, Inc. 2018 Equity Incentive Plan RSU

10.4		Form of Restricted Stock Unit Agreement for Consultants pursuant to the Vapotherm, Inc. 2018 Equity Incentive Plan RSU

10.5		Form of Non-Statutory Stock Option Agreement for Consultants pursuant to the Vapotherm, Inc. 2018 Equity Incentive Plan RSU

10.6		Amended and Restated Vapotherm, Inc. 2018 Equity Incentive Plan French Qualifying Subplan, dated August 31, 2020

10.7		First Amendment dated September 15, 2020 to Indefinite Term Employment Contract by and between Vapotherm, Inc. and Gregoire Ramade, dated March 14, 2016

10.8		Third Amendment to Amended and Restated Business Finance Agreement, dated September 29, 2020, between Vapotherm, Inc. and Western Alliance Bank

10.9		Fourth Amendment to Lease Agreement, dated August 23, 2020, between 100 Domain Drive EI, LLC, as administrator of the tenancy in common with 100 Domain Drive DD and Vapotherm, Inc.
31.1		Certification of Chief Executive Officer 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

31.2		Certification of Chief Financial Officer 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

32.1		Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	VAPOTHERM, INC.

November 4, 2020	By:	/s/ Joseph Army
		Joseph Army
		President and Chief Executive Officer

November 4, 2020	By:	/s/ John Landry
		John Landry
		Senior Vice President and Chief Financial Officer

Exhibit 10.1

Participant Name:	[●]
Number of Restricted Stock Units subject to Award:	[●]
Date of Grant:	[●]

Vapotherm, Inc.

2018 Equity Incentive Plan

Restricted Stock Unit Award Agreement

This agreement (this “Agreement”) evidences an award (the “Award”) of restricted stock units granted by Vapotherm, Inc. (the “Company”) to the individual named above (the “Participant”), pursuant to and subject to the terms of the Vapotherm, Inc. 2018 Equity Incentive Plan (as from time to time amended and in effect, the “Plan”). Except as otherwise defined herein, all capitalized terms used herein have the same meaning as in the Plan.

1.Grant of Restricted Stock Unit Award. The Company grants to the Participant on the date set forth above (the “Date of Grant”) the number of restricted stock units (the “Restricted Stock Units”) set forth above giving the Participant the conditional right to receive, without payment and pursuant to and subject to the terms and conditions set forth in this Agreement and in the Plan, one share of Stock (a “Share”) with respect to each Restricted Stock Unit forming part of the Award, subject to adjustment pursuant to Section 7 of the Plan in respect of transactions occurring after the date hereof.

2.Vesting; Cessation of Employment.

(a)

Vesting. Unless earlier terminated, forfeited, relinquished or expired, [Insert Vesting Terms – e.g. “100% of the Restricted Stock Units will vest on the third (3^rd) anniversary of the Date of Grant”] subject to the Participant remaining in continuous Employment from the Date of Grant through such vesting date.

(b)

Cessation of Employment. Except as expressly provided for in an employment agreement between the Participant and the Company that is in effect at the time of the Participant’s termination of employment, automatically and immediately upon the cessation of the Participant’s Employment, (i) the unvested portion of this Award will terminate and be forfeited for no consideration, and (ii) the vested portion of this Award, if any, will terminate and be forfeited for no consideration if the Participant’s Employment is terminated for Cause or occurs in circumstances that in the determination of the Administrator would have constituted grounds for the Participant’s Employment to be terminated for Cause (in each case, without regard to the lapsing of any required notice or cure periods in connection therewith).

3.Delivery of Shares. Subject to Section 4 below, the Company shall, as soon as practicable upon the vesting of any portion of the Award (but in no event later than thirty (30) days following the date on which such Restricted Stock Units vest), effect delivery of the Shares with respect to such vested Restricted Stock Units to the Participant (or, in the event of the Participant’s death, to the person to whom the Award has passed by will or the laws of descent and distribution). No Shares will be issued pursuant to this Award unless and until all legal requirements applicable

to the issuance or transfer of such Shares have been complied with to the satisfaction of the Administrator.

4.Forfeiture; Recovery of Compensation. By accepting this Award, the Participant expressly acknowledges and agrees that his or her rights, and those of any permitted transferee of this Award, under this Award, including the right to any Shares acquired under this Award or proceeds from the disposition thereof, are subject to Section 6(a)(5) of the Plan (including any successor provision). The Participant further agrees to be bound by the terms of any clawback or recoupment policy of the Company that applies to incentive compensation that includes Awards such as the Restricted Stock Units. Nothing in the preceding sentence may be construed as limiting the general application of Section 9 of this Agreement.

5.Dividends; Other Rights. This Award may not be interpreted to bestow upon the Participant any equity interest or ownership in the Company or any subsidiary prior to the date on which the Company actually delivers Shares to the Participant. The Participant is not entitled to vote any Shares by reason of the granting of this Award or to receive or be credited with any dividends declared and payable on any Share prior to the date on which any such Share is delivered to the Participant hereunder. The Participant will have the rights of a shareholder only as to those Shares, if any, that are actually delivered under this Award.

6.Restrictions on Transfer. This Award may not be transferred except as expressly permitted under Section 6(a)(3) of the Plan.

7.Taxes.

(a)

The Participant expressly acknowledges that the vesting or settlement of the Restricted Stock Units acquired hereunder will give rise to “wages” subject to withholding. No Shares will be delivered pursuant to this Award unless and until the Participant has remitted to the Company in cash or by check (or by such other means as may be acceptable to the Administrator) an amount sufficient to satisfy all taxes required to be withheld in connection with such vesting or settlement.

(b)

The Participant authorizes the Company and its subsidiaries to withhold any amounts due in respect of any required tax withholdings or payments from any amounts otherwise owed to the Participant, but nothing in this sentence may be construed as relieving the Participant of any liability for satisfying his or her obligation under the preceding provisions of this Section 7.

(c)

This Award is intended to be exempt from Section 409A of the Code as a short-term deferral thereunder and shall be construed and administered in accordance with that intent. Notwithstanding the foregoing, in no event will the Company or any of its subsidiaries have any liability relating to the failure or alleged failure of any payment or benefit under this Agreement to comply with, or be exempt from, the requirements of Section 409A.

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subsidiaries to discharge the Participant at any time, or affect any right of the Participant to terminate his or her Employment at any time.

9.Provisions of the Plan. This Agreement is subject in its entirety to the provisions of the Plan, which are incorporated herein by reference. A copy of the Plan as in effect on the Date of Grant has been made available to the Participant. By accepting this Award, the Participant agrees to be bound by the terms of the Plan and this Agreement. In the event of any conflict between the terms of this Agreement and the Plan, the terms of the Plan will control.

10.Acknowledgements. The Participant acknowledges and agrees that (i) this Agreement may be executed in two or more counterparts, each of which will be an original and all of which together will constitute one and the same instrument; (ii) this Agreement may be executed and exchanged using facsimile, portable document format (PDF) or electronic signature, which, in each case, will constitute an original signature for all purposes hereunder; and (iii) such signature by the Company will be binding against the Company and will create a legally binding agreement when this Agreement is countersigned by the Participant.

[Signature page follows.]

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The Company, by its duly authorized officer, and the Participant have executed this Agreement as of the Date of Grant.

		Vapotherm, Inc.

		By:

		Name:

		Title:

Agreed and Accepted:


By
	Participant’s Name

Signature Page to Restricted Stock Unit Award Agreement

Exhibit 10.2

Form Non-Executive Officers – Default Sell to Cover

Participant Name:	[●]
Number of Restricted Stock Units subject to Award:	[●]
Date of Grant:	[●]

Vapotherm, Inc.

2018 Equity Incentive Plan

Restricted Stock Unit Award Agreement

2.Vesting; Cessation of Employment.

(a)

(b)

83849351_5

to the issuance or transfer of such Shares have been complied with to the satisfaction of the Administrator.

6.Restrictions on Transfer. This Award may not be transferred except as expressly permitted under Section 6(a)(3) of the Plan.

7.Certain Tax Matters; Sell to Cover.

(a)

The Participant expressly acknowledges and agrees that the Participant’s rights hereunder, including the right to be issued Shares upon the vesting of the Award (or any portion thereof), are subject to the Participant’s promptly paying, or in respect of any later requirement of withholding being liable promptly to pay at such time as such withholdings are due, to the Company in cash (or by such other means as may be acceptable to the Administrator in its discretion) all taxes required to be withheld, if any, relating to the Award.

(b)

By accepting this Award, the Participant hereby acknowledges and agrees that he or she elects to sell Shares issued in respect of the Award to satisfy the statutory minimum amount of the tax withholdings described in subsection (a) above (the “Withholding Obligation”) and to allow the Agent to remit the cash proceeds of such sale to the Company (“Sell to Cover”). The Participant’s election to Sell to Cover to satisfy the Withholding Obligation is irrevocable.

(c)

The Participant hereby irrevocably appoints Shareworks, or such other registered broker-dealer that is a member of the Financial Industry Regulatory Authority as the Company may select, as the Participant’s agent (the “Agent”) to effectuate the Sell to Cover, and the Participant authorizes and directs the Agent to: (i) sell on the open market at the then prevailing market price(s), on the Participant’s behalf, as soon as practicable on or after the date on which the Shares are delivered to the Participant pursuant to Section 4 hereof in connection with the vesting of the

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83849351_5

Restricted Stock Units, the number (rounded up to the next whole number) of Shares sufficient to generate proceeds to cover (A) the satisfaction of the Withholding Obligation arising from the vesting of the Restricted Stock Units and the related issuance and delivery of Shares to the Participant and (B) all applicable fees and commissions due to, or required to be collected by, the Agent with respect thereto; (ii) remit directly to the Company the proceeds from the sale of the Shares referred to in clause (i) above necessary to satisfy the Withholding Obligation; (iii) retain the amount required to cover all applicable fees and commissions due to, or required to be collected by, the Agent, relating directly to the sale of the Shares referred to in clause (i) above; and (iv) maintain any remaining funds from the sale of the Shares referred to in clause (i) above in the Participant’s account with the Agent. The Participant hereby authorizes the Company and the Agent to cooperate and communicate with one another to determine the number of Shares that must be sold to satisfy the Participant’s obligations hereunder and to otherwise effect the purpose and intent of this Agreement and satisfy the rights and obligations hereunder.

(d)

The Participant acknowledges that the Agent is under no obligation to arrange for the sale of Shares at any particular price under a Sell to Cover and that the Agent may affect sales under any Sell to Cover in one or more sales and that the average price for executions resulting from bunched orders may be assigned to the Participant’s account. The Participant further acknowledges that he or she will be responsible for all brokerage fees and other costs of sale associated with any Sell to Cover or transaction contemplated by this Section 7 and agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale. In addition, the Participant acknowledges that it may not be possible to sell Shares as provided for in this Section 7 due to various circumstances. If it is not possible to sell Shares in a Sell to Cover or if the Company determines that the Withholding Obligation will be satisfied in a manner other than Sell to Cover, the Company will assist the Participant in determining additional alternatives available to the Participant. In the event of the Agent’s inability to sell shares of Common Stock, the Participant will continue to be responsible for the timely payment to the Company of all federal, state, local and foreign taxes that are required by applicable laws and regulations to be paid or withheld with respect to the Restricted Stock Units or the Award. In such event, or in the event that the Company determines that the cash proceeds from a Sell to Cover are insufficient to meet the Withholding Obligation, the Participant authorizes the Company and its subsidiaries to withhold such amounts from any amounts otherwise owed to the Participant, but nothing in this sentence shall be construed as relieving the Participant of any liability for satisfying his or her obligations under the preceding provisions of this Section.

(e)

The Participant hereby agrees to execute and deliver to the Agent or the Company any other agreements or documents as the Agent or the Company reasonably deem necessary or appropriate to carry out the purposes and intent of this Agreement, including without limitation, any agreement intended to ensure the Sell to Cover and the corresponding authorization and instruction to the Agent set forth in this

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83849351_5

Section 7 to sell Shares to satisfy the Withholding Obligation comply with the requirements of Rule 10b5-1(c) under the Exchange Act. The Agent is a third-party beneficiary of this Section 7.

(f)

The Participant expressly acknowledges that because the Award consists of an unfunded and unsecured promise by the Company to deliver Shares in the future, subject to the terms hereof, it is not possible to make a so-called “83(b) election” with respect to the Award.

8.Effect on Employment. Neither the grant of this Award, nor the issuance of Shares upon the vesting of this Award, will give the Participant any right to be retained in the employ or service of the Company or any of its subsidiaries, affect the right of the Company or any of its subsidiaries to discharge the Participant at any time, or affect any right of the Participant to terminate his or her Employment at any time.

[Signature page follows.]

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83849351_5

The Company, by its duly authorized officer, and the Participant have executed this Agreement as of the Date of Grant.

		Vapotherm, Inc.

		By:

		Name:

		Title:

Agreed and Accepted:


By
	Participant’s Name

Signature Page to Restricted Stock Unit Award Agreement

83849351_5

Exhibit 10.3

Non-Employee Director Form

Participant Name:	[●]
Number of Restricted Stock Units subject to Award:	[●]
Date of Grant:	[●]

Vapotherm, Inc.

2018 Equity Incentive Plan

Restricted Stock Unit Award Agreement

2.Vesting; Cessation of Employment.

(a)

(b)

Cessation of Employment. Upon the cessation of the Participant’s Employment, the unvested portion of this Award automatically and immediately will terminate and be forfeited for no consideration.

83849166_1

6.Restrictions on Transfer. This Award may not be transferred except as expressly permitted under Section 6(a)(3) of the Plan.

7.Taxes.

(a)

The Participant is responsible for satisfying and paying all taxes arising from or due in connection with the grant, vesting, and settlement of the Restricted Stock Units or the disposition of any Shares delivered in settlement of this Award. The Company will have no liability or obligation related to the foregoing.

(b)

[Signature page follows.]

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83849166_1

The Company, by its duly authorized officer, and the Participant have executed this Agreement as of the Date of Grant.

		Vapotherm, Inc.

		By:

		Name:

		Title:

Agreed and Accepted:


By
Participant’s Name

Signature Page to Restricted Stock Unit Award Agreement

83849166_1

Exhibit 10.4

Consultant Form

Participant Name:	[_]
Number of Restricted Stock Units subject to Award:	[_]
Date of Grant:	[_]

Vapotherm, Inc.

2018 Equity Incentive Plan

Restricted Stock Unit Award Agreement

2.Vesting; Cessation of Engagement.

(a)

Vesting. Unless earlier terminated, forfeited, relinquished or expired, 100% of the Restricted Stock Units will vest on [_], subject to the Participant continuing to provide services to the Company (the “Engagement”) through such vesting date pursuant to the [Insert Agreement name] between the Participant and the Company dated [Insert Date], as may be amended from time to time. In the event Company determines, in its sole discretion, that Participant has satisfactorily completed the Services, as that term is defined in the Statement of Services between the Participant and the Company dated [Insert Date], before [Date Agreement ends], the Administrator may elect to accelerate the vesting of all or a portion of the Restricted Stock Units as of the date on which the Services have been completed.

(b)

Cessation of Engagement. Automatically and immediately upon the cessation of the Participant’s Engagement the unvested portion of this Award will terminate and be forfeited for no consideration. [Note – consider Employee version of language that follows on case by case basis as an alternative to what is drafted above: (i) the unvested portion of this Award will terminate and be forfeited for no consideration, and (ii) the vested portion of this Award, if any, will terminate and be forfeited for no consideration if the Participant’s Employment is terminated for Cause or occurs in circumstances that in the determination of the Administrator would have constituted grounds for the Participant’s Employment to be terminated for Cause (in each case, without regard to the lapsing of any required notice or cure periods in connection therewith).]

83847411_3

6.Restrictions on Transfer. This Award may not be transferred except as expressly permitted under Section 6(a)(3) of the Plan.

7.Taxes.

(a)

(b)

8.Effect on Engagement. Neither the grant of this Award, nor the issuance of Shares upon the vesting of this Award, will give the Participant any right to be retained in the employ or service of the Company or any of its subsidiaries or have the Engagement continue, affect the right of the Company or any of its subsidiaries to discharge the Participant at any time, or affect any right of the Participant to terminate his or her Engagement at any time.

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83847411_3

[Signature page follows.]

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83847411_3

The Company, by its duly authorized officer, and the Participant have executed this Agreement as of the Date of Grant.

		Vapotherm, Inc.

		By:

		Name:

		Title:

Agreed and Accepted:


By
Participant’s Name

Signature Page to Restricted Stock Unit Award Agreement

83847411_3

Exhibit 10.5

Consultant Form

Name:	[__________]
Number of Shares of Stock subject to the Stock Option:	[__________]
Exercise Price Per Share:	$[__________]
Date of Grant:	[__________]

Vapotherm, Inc.

2018 Equity Incentive Plan

Non-statutory Stock Option Agreement (Consultants)

This agreement (this “Agreement”) evidences a stock option granted by the Company to the individual named above (the “Participant”), pursuant to and subject to the terms of the Vapotherm, Inc. 2018 Equity Incentive Plan (as from time to time amended and in effect, the “Plan”). Except as otherwise defined herein, all capitalized terms used herein have the same meaning as in the Plan.

1.Grant of Stock Option. The Company grants to the Participant on the date set forth above (the “Date of Grant”) an option (the “Stock Option”) to purchase, pursuant to and subject to the terms set forth in this Agreement and in the Plan, up to the number of shares of Stock set forth above (the “Shares”), with an exercise price per Share as set forth above, in each case, subject to adjustment pursuant to Section 7 of the Plan in respect of transactions occurring after the date hereof.

The Stock Option evidenced by this Agreement is a non-statutory option (that is, an option that is not intended to qualify as an ISO) and is granted to the Participant in connection with the Participant’s Engagement (as defined below).

2.Vesting. The term “vest” as used herein with respect to the Stock Option (or any portion thereof) means to become exercisable and the term “vested” with respect to the Stock Option (or any portion) means that the Stock Option (or portion) is then exercisable. Unless earlier terminated, forfeited, relinquished or expired, [100% of the Stock Option will vest on [ ]], subject to the Participant continuing to provide services to the Company (the “Engagement”) through such vesting date pursuant to the [Insert Agreement name] between the Participant and the Company dated [Insert Date], as it may be amended from time to time. In the event Company determines, in its sole discretion, that Participant has satisfactorily completed the Services, as that term is defined in the Statement of Services between the Participant and the Company dated [Insert Date], before [Date Agreement ends], the Administrator may elect to accelerate the vesting of all or a portion of the Stock Option as of the date on which the Services have been completed.

3.Exercise of the Stock Option. No portion of the Stock Option may be exercised until such portion vests. Each election to exercise any vested portion of the Stock Option will be subject to the terms and conditions of the Plan and must be in written or electronic form acceptable to the Administrator, signed (including by electronic signature) by the Participant or, if at the relevant time the Stock Option has passed to a Beneficiary or permitted transferee, the Beneficiary or permitted transferee. Each such written or electronic exercise election must be received by the

84342820_2

Company at its principal office or by such other party as the Administrator may prescribe and be accompanied by payment in full of the exercise price as provided in the Plan. The latest date on which the Stock Option or any portion thereof may be exercised is the tenth (10^th) anniversary of the Date of Grant (the “Final Exercise Date”) and, if not exercised by such date, the Stock Option or any remaining portion thereof will thereupon immediately terminate.

4.Cessation of Engagement. If the Participant’s Engagement ceases, the Stock Option, to the extent not then vested, will be immediately forfeited for no consideration, and any vested portion of the Stock Option that is then outstanding will remain exercisable for the applicable period described in Section 6(a)(4) of the Plan.

5.Restrictions on Transfer; Disqualifying Dispositions. The Stock Option may not be transferred except as expressly permitted under Section 6(a)(3) of the Plan.

6.Forfeiture; Recovery of Compensation. By accepting the Stock Option, the Participant expressly acknowledges and agrees that the Participant’s rights, and those of any permitted transferee, with respect to the Stock Option, including the right to any Shares acquired under the Stock Option or proceeds from the disposition thereof, are subject to Section 6(a)(5) of the Plan (including any successor provision). Nothing in the preceding sentence will be construed as limiting the general application of Section 8 of this Agreement.

7.Taxes. The Participant is responsible for satisfying and paying all taxes arising from or due in connection with the Stock Option, its exercise, or a disposition of any Shares acquired upon exercise of the Stock Option. The Company will have no liability or obligation related to the foregoing.

8.Provisions of the Plan. This Agreement is subject in its entirety to the provisions of the Plan, which are incorporated herein by reference. A copy of the Plan as in effect on the Date of Grant has been made available to the Participant. By accepting the Stock Option, the Participant agrees to be bound by the terms of the Plan and this Agreement. In the event of any conflict between the terms of this Agreement and the Plan, the terms of the Plan will control.

9.Acknowledgements. The Participant acknowledges and agrees that (i) this Agreement may be executed in two or more counterparts, each of which will be an original and all of which together will constitute one and the same instrument; (ii) this Agreement may be executed and exchanged using facsimile, portable document format (PDF) or electronic signature, which, in each case, will constitute an original signature for all purposes hereunder; and (iii) such signature by the Company will be binding against the Company and will create a legally binding agreement when this Agreement is countersigned by the Participant.

[Signature page follows.]

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The Company, by its duly authorized officer, and the Participant have executed this Agreement as of the Date of Grant.

		Vapotherm, Inc.

		By:

		Name:

		Title:

Agreed and Accepted:


By
	[Participant’s Name]

[Signature Page to Non-Statutory Stock Option Agreement]

Exhibit 10.6

2018 EQUITY INCENTIVE PLAN

VAPOTHERM, INC.

FRENCH QUALIFYING SUBPLAN

A company incorporated under the laws of Delaware - United States of America

Registered office: 100 Domain Drive, Exeter, NH 03833

August 31, 2020

Presentation

i. introduction

ii. applicable laws

iii.description of plan

iv.administration of plan

v.exercise of options (for stock options)

vi.miscellaneous

appendix I

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i.		Introduction

On January 23, 2019, Vapotherm, Inc. (hereafter referred to as “the Company”) adopted an Equity Incentive Plan (the “Plan”) as a way to attract, retain and reward key Employees and Directors of, and consultants and advisors to the Company and its subsidiaries, to incentivize them to generate stockholder value, to enable them to participate in the growth of the Company and to align their interests with the interests of the Company’s stockholders.

The Plan permits the granting of the following types of Awards or a combination of them:

–

Stock Options,

–

Share Appreciation Rights,

–

Restricted Stock, Unrestricted Stock,

–

Stock Units including Restricted Stock Units (RSUs),

–

Performance Awards, and

–

Awards (other than Awards described above) that are convertible into or otherwise based on Stock.

The Plan is attached as an Appendix I to this Sub Plan. Exhibit A of the Plan provides that a granted Award can take the form of a Stock Option, i.e., an option entitling the holder to acquire shares of Stock upon payment of the exercise price. Section 12 of the Plan provides that “the Administrator may at any time and from time to time establish one or more sub-plans under the Plan (for local law compliance purposes or other purposes or administrative reasons determined by the Administrator) by adopting supplements to the Plan containing, in each case, (i) such limitations on the Administrator’s discretion under the Plan and (ii) such additional terms and conditions, as the Administrator deems necessary or desirable. Each supplement so established will be deemed to be part of the Plan but will apply only to Participants within the group to which the supplement applies (as determined by the Administrator)”.

Based on these considerations, the Company’s Board of Directors adopted the present appendix as a subplan of the Plan, which shall only and exclusively apply to qualifying Employees and officers who are residents of France.

The provisions of this Sub Plan prevail over those of the Plan which may only apply to the extent they do not contravene the French laws, and especially the Articles of the French Commercial Code (“code de commerce”, when applicable, governing the allocation of stock options and the allocation of free shares, to be complied with for favorable domestic social and tax treatment.

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Under the Sub Plan, qualifying Employees and officers (i.e. those mentioned as Beneficiaries in section III of the Sub Plan) will be granted :

- Stock Options giving them the possibility to acquire shares of the Company under the conditions provided by the Sub Plan, or

- RSUs, which correspond to free shares governed by Articles L. 225-197-1 to L. 225-197-6 of the French Commercial Code, the conditions of which the Company and each Beneficiary (as such term is defined in section III.1 below) undertake to respect.

Definitions: the following terms shall have the meanings ascribed to them in the Plan and notably its Appendix A: (i) Administrator, (ii) Award, (iii) Board, (iv) Company, (v) Employee, (vi) Fair Market Value, (vii) Performance Award, (viii) Plan, (ix) Restricted Stock, (x) Restricted Stock Units, (xi) SAR, (xii) Stock, (xiii) Stock Option, (xiv) Stock Unit, (xv) Unrestricted Stock.



ii.		Applicable laws

The Sub Plan has been prepared and shall be interpreted according to the following French laws and regulations:

•

Law n°70-1322 dated 31 December 1970 amended by law n°84-578 dated 9 July 1984 ;

•

Law n°87-416 dated 17 June 1987 ;

•

Finance Bill for 1990 n°89-935 dated 29 December 1989,

•

Amended Finance Bill 1993 n°94-1353 dated 22 June 1993,

•

Law n°95-116 dated 4 February 1995 ;

•

Law n°95-1346 dated 30 December 1995 ;

•

Regulation n°96-50 dated 24 January 1996 ;

•

Law n°96-1160 dated 27 December 1996 ;

•

Law n°98-546 dated 2 July 1998 ;

•

Law n°2001-420 dated 15 May 2001 ;

•

Law n°2004-1484 dated 30 December 2004 ;

•

Law n°2006-1770 dated 30 December 2006 ;

•

Article 74 of Law n°2007-1822 dated 24 December 2007 ;

•

Law n°2007-1786 dated 19 December 2007 ;

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•

Law n°2008-1258 dated 3 December 2008 ;

•

Law n° 2012-387 dated 22 March 2012 ;

•

Law n°2012-1509 dated 29 December 2012 ;

•

Ordinance n°2013-544 dated 27 June 2013 ;

•

Law n°2014-384 dated 29 March 2014 ;

•

Law n°2015-990 dated 6 August 2015 ;

•

Finance Bill for 2017 n°2016-1917 dated 29 December 2016 ;

•

Finance Bill for 2018 n°2017-1837 dated 30 December 2017 ;

•

Law n°2019-486 dated 22 May 2019 ;

•

Law n°2019-744 dated 19 July 2019 ;

•

Ordinance n°2019-1234 dated 27 November 2019.

As well as any other laws or regulations that may become applicable.

Following the requirements resulting from the above-mentioned applicable laws, the Company’s Board of Directors adopted this Sub Plan authorizing the granting of a certain number of Stock Options or RSUs to Beneficiaries (as such term is defined in section III.1 below) giving them the right to acquire Shares of the Company (and/or to subscribe Shares to be issued by the Company). This authorization has been given until December 31, 2024.



iii.		description of plan

III.1Beneficiaries

Stock Options under the Sub Plan shall be granted only to Employees or officers who are Employees selected, at its discretion, by the Administrator who, at the time of such grant, have the legal status of Employee and do not individually hold more than 10% of the Company’s share capital (“Beneficiaries”).

III.2Conditions for grant

The Stock Options and RSUs under the Sub Plan will be granted to Beneficiaries by the Administrator following authorization given by the Company’s Board of Directors.

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The Stock Options give Employees and officers the right to subscribe to or buy Shares in the Company, subject to the terms and conditions set forth in the Company’s Non-Qualified Stock Option Agreement and under the conditions set forth below.

The RSUs give the Beneficiaries the conditional right to receive, without payment and pursuant to and subject to the terms and conditions set forth in the Company’s Restricted Stock Unit Award Agreement, to receive, without payment, shares of the Company, under the conditions set forth below and in the Restricted Stock Unit Award Agreement.

III.3Stock subject to the Plan

The maximum aggregate number of Company’s Shares which may be issued for all Stock Options and all RSUs granted under the Sub Plan is 150,000 Shares.

In any case :

- the total number of Stock Options granted to Beneficiaries under this Sub Plan and any future stock option plan cannot give right to subscribe to Company’s Shares in excess of 1/3rd of the Company’s share capital.

- the total number of RSUs granted to Beneficiaries under this Sub Plan cannot give right to hold Company’s Shares in excess of 10% of the Company’s total share capital nor have for effect of granting to any Beneficiary more than 10% of the Company’s share capital.

III.4Option exercise price (for Stock Options)

The exercise price per share for the Company’s shares to be issued or purchased pursuant to exercise of a Stock Option shall be the Fair Market Value per share at the date of the option grant.

III.5Exercise of Stock Options and term of options

Stock Options shall vest and become exercisable by a Beneficiary following the provisions of section 6 (a) (4) of the Plan and those of the Non-Qualified Stock Option Agreement, subject to the following restrictions:

If the event of the death of a Beneficiary during the term of his/her Stock Options (i.e., during employment), then, according to provisions of article L 225-183 of French Commercial Code, the Stock Options may be exercised by his/her estate at any time within a one-year period following the date of the death but only to the extent the right to exercise the Options had vested at the date of the death and exercise takes place during the original term of the Stock Options.

A Beneficiary may exercise his/her Stock Options only if he still has the status of an Employee at the time of such exercise. As a result, unvested options terminate on a Beneficiary’s termination

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of employment for any reason and options that are not exercised during the time periods provided below will automatically terminate at the end of the term.

This which implies the following considering the French rules applicable to employment termination and retirement:

In case of voluntary termination of employment by the Employee, said Employee may not exercise his/her vested Stock Options if the exercise date takes place more than 3 months following the delivery to his/her employer of his/her letter notifying his/her decision to leave his/her employment;

In case of retirement, the Employee will lose his/her rights to exercise his/her vested Stock Options 3 months after the day his/her professional activity stops.

In case of termination of employment by the employer, the Employee’s rights to exercise his/her vested Stock Options will be maintained during a 3-month period following the last day of work during the notice period (whether worked or not); the Employee will lose any such rights after that date.

III.6Allocation of RSUs

RSUs shall vest and become validly allocated to a Beneficiary following the provisions of section 6 (a) (4) of the Plan and those of the Restricted Stock Unit Award Agreement, subject to the following restrictions:

Notwithstanding any contrary agreement, the vesting period of the RSUs granted shall not last less than one (1) year, as determined by the Board of Directors in compliance with the minimum duration determined by the shareholders of the Company. If the duration of the vesting period is inferior to two (2) years, the Beneficiaries shall also respect a holding period (hereafter the “Holding Period”) during which the Shares of the Company allocated in accordance with the Restricted Stock Unit Agreement shall not be transferred. The total duration of the vesting period and of the Holding Period together shall not be less than two (2 years).

It is specified that the Beneficiaries shall not be the legal owners of the Shares of the Company allocated under the RSU agreement until the end of the vesting period and can not be entitled before that date to the legal quality of shareholder of the Company nor to the rights attached to this quality.

In any case, the Shares of the Company allocated under any RSU agreement to a Beneficiary shall not be transferred, after the end of the Holding Period, within thirty (30) days preceding the announcement of the disclosing of an intermediate financial report of the Company or preceding the date on which the Company’s annual financial report is made public.

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In accordance with Article L. 225-197-1 of the French Commercial Code, these Shares shall not be transferred by any Beneficiary who has knowledge of any “privileged information” as defined by the regulation (EU) n°596/2014, which has not been made public.

In the event of the death of a Beneficiary during the vesting period, according to provisions of article L 225-197-3 of the French Commercial Code, his/her estate may at any time within a six-month period following the date of the death, ask for the allocation of the free Shares of the Company which would have been allocated in accordance with the RSU agreement, subject to any applicable condition.

In case of restructuring operations intervening during the vesting period (exchange of shares without cash balance following a merger or demerger), the requirements set by Article L.225-197-1 of the French Commercial Code remain applicable.

RSUs allocated to executives of the Company as listed in Article L.225-97-1 of the French Commercial Code (members of the Board of Directors or of a supervisory board, chief executive officer or deputy chief executive officer of the Company), must be held by the concerned Beneficiaries up to the end of their functions.

III.7Adjustments upon changes in capital (for Stock Options)

The number of Shares available to be acquired through a particular Stock Option grant issued under the Sub Plan as well as the exercise price of such Shares shall be definitely set upon the date of such Option grant.

However, applicable laws and notably section L 225-181 of the French Commercial Code provide for adjustment provisions in cases where operations on share capital affecting the number of Shares, such as capital increases by incorporation of reserves, capital decrease, issuance of preference shares. Similar provisions are provided in section 7 of the Plan.

In these situations, the Company shall make the necessary adjustments as provided by section L. 225-181 and L. 228-99 of the Commercial Code consistent with the terms of the Plan. These adjustments may be provided through price adjustment or adjustment in the number of Stock Options.

They may not take the form of substitutions (cash payment or alternative consideration) as mentioned in the Plan.

In order to make such adjustments, the Administrator may temporarily suspend all exercise rights under the Plan for a maximum of a 1-month period. The Beneficiaries will then be informed in writing.

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III.8Non-transferability of stock options and RSUs

The Stock Options and RSUs under the Sub Plan giving right to acquire or being allocated Shares of the Company may not be sold, transferred or disposed of in any manner except in the case of death of a Beneficiary as provided in sections III.5 and III.6 above.

III.9 Notice of grant

Each Beneficiary will receive an individual notice of grant from the Company’s Board of Directors/ or Administrator designating:

The number of Shares to be subscribed or purchased by him through exercise of his/her Stock Options in accordance with the Stock Option agreement or the number of Shares of the Company allocated in accordance with the RSU agreement;

The exercise price per share for the Company’s Shares to be issued or purchased pursuant to the exercise of a Stock Option; and

The period of time during which the Stock Options may be exercised.

A copy of the Sub Plan prepared by the Administrator following the authorization given by the Company’s Board of Directors shall be delivered to each Beneficiary.



iv.		Administration of plan

The Plan will be administered by the Administrator.

With respect to the Administrator’s authority, as described in section 3 of the Plan, to determine the exercise price or purchase price, if any, applicable to any Award, to determine, modify or waive the terms and conditions of any Award, to determine the form of settlement of Awards and to prescribe forms, rules and procedures relating to the Plan and Awards, such authority shall be subject to the express provisions and limitations of the Sub Plan in accordance to the relevant articles of the French Commercial Code. Moreover, any Administrator’s decision taken pursuant to these provisions shall be applicable only if such decision is in favor of the Beneficiaries.

The Administrator will provide the Beneficiaries with any documents required in order to exercise their Stock Options and transfer the acquired Shares, whenever necessary.

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v.		Exercise of options (for stock options)

V.1Conditions for exercise

A Beneficiary may exercise his/her Stock Options only if he is an Employee at the date of such exercise. As a consequence, no exercise may take place in case the employment is interrupted or terminated.

Stock Options may be exercised in one or several times.

Each Stock Option shall give the right to subscribe to or to purchase one Share of the Company.

V.2Procedure for exercise

A Stock Option shall be deemed to be exercised when the following documents have been sent to the Company:

A written notice of exercise sent by registered letter with acknowledgment of receipt, indicating the number of Stock Options exercised;

Full payment of the exercise price, either by check to the Company’s order or by bank transfer to the Company’s benefit or as otherwise directed by the Company. These methods of payment are the only ones acceptable under the Sub Plan.

In case new Shares are issued as a result of the exercise, the Company will deliver a subscription certificate to the Beneficiary.

The date indicated on the notice of exercise shall be the date of exercise of the Stock Option.



vI.		Miscellaneous

The Sub Plan shall have duration of ten (10) years.

Any amendment to the Plan shall be in writing and handed to the Beneficiaries or sent to the address they notified to the Company or, in the absence of such address, to their last domicile known by the Company.

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Appendix I

2018 EQUITY INCENTIVE PLAN

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Vapotherm, Inc.

2018 Equity Incentive Plan

1.Defined Terms

Exhibit A, which is incorporated by reference, defines certain terms used in the Plan and sets forth operational rules related to those terms.

2.Purpose

The Plan is intended to advance the interests of the Company by providing for the grant to Participants of Stock and Stock-based Awards. The purposes of the Plan are to attract, retain, and reward key Employees and Directors of, and consultants and advisors to, the Company and its subsidiaries, to incentivize them to generate stockholder value, to enable them to participate in the growth of the Company and to align their interests with the interests of the Company’s stockholders.

3.Administration

The Plan will be administered by the Administrator. The Administrator has discretionary authority, subject only to the express provisions of the Plan, to administer and interpret the Plan and any Awards; to determine eligibility for and grant Awards; to determine the exercise price, base value from which appreciation is measured, or purchase price, if any, applicable to any Award; to determine, modify or waive the terms and conditions of any Award; to determine the form of settlement of Awards (whether in cash, shares of Stock, other Awards, or other property); to prescribe forms, rules and procedures relating to the Plan and Awards; and to otherwise do all things necessary or desirable to carry out the purposes of the Plan and any Awards. Determinations of the Administrator made with respect to the Plan or any Award are conclusive and bind all persons.

4.Limits on Awards Under the Plan

(a)Number of Shares. Subject to adjustment as provided in Section 7(b), the number of shares of Stock that may be issued in satisfaction of Awards under the Plan is 998,900 shares of Stock (the “Initial Share Pool”). The Initial Share Pool will automatically increase (i) by the number of shares of Stock underlying awards under the Prior Plan (which will not exceed 769,419 shares) that on or after the Date of Adoption expire or are terminated, surrendered or cancelled without the delivery of shares of Stock, are forfeited to, or repurchased by, the Company, or otherwise become available again for grant under the Prior Plan, in each case, in accordance with its terms and (ii) on January 1^st of each year from 2019 until 2028, by the lesser of (A) four percent (4%) of the number of shares of Stock outstanding as of the close of business on the immediately preceding December 31^st and (B) the number of shares of Stock determined by the Board on or prior to such date for such year (the Initial Share Pool, as it may be so increased, the “Share Pool”). Up to 166,500 of the shares of Stock from the Share Pool may be issued in satisfaction of ISOs, but nothing in this Section 4(a) will be construed as requiring that any, or any fixed number of, ISOs be granted under the Plan. For purposes of this Section 4(a), shares of Stock will not be treated as issued under the Plan, and will not reduce the

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Share Pool, unless and until, and to the extent, the shares are actually issued to a Participant. Without limiting the generality of the foregoing, shares of Stock withheld by the Company in payment of the exercise price or purchase price of an Award or in satisfaction of tax withholding requirements with respect to an Award and shares of Stock underlying any portion of an Award that is settled or that expires, becomes unexercisable, terminates or is forfeited to or repurchased by the Company, in each case, without the issuance (or retention (in the case of Restricted Stock)) of Stock, will not be treated as issued in satisfaction of Awards under the Plan and will not reduce the Share Pool. The limits set forth in this Section 4(a) will be construed to comply with the applicable requirements of Section 422.

(b)Substitute Awards. The Administrator may grant Substitute Awards under the Plan. To the extent consistent with the requirements of Section 422 and the regulations thereunder and other applicable legal requirements (including applicable stock exchange requirements), shares of Stock issued in respect of Substitute Awards will be in addition to and will not reduce the Share Pool, but, notwithstanding anything in Section 4(a) to the contrary, if any Substitute Award is settled in cash or expires, becomes unexercisable, terminates or is forfeited to or repurchased by the Company, in each case, without the issuance (or retention (in the case of restricted stock)) of Stock, the shares of Stock previously subject to such Award will not increase the Share Pool or otherwise be available for future issuance under the Plan. The Administrator will determine the extent to which the terms and conditions of the Plan apply to Substitute Awards, if at all; provided that Substitute Awards will not be subject to, and will not count against, the individual limits described in Section 4(d).

(c)Type of Shares. The shares of Stock issued under the Plan may be shares of authorized but unissued Stock, treasury Stock, or Stock acquired in an open-market transaction. No fractional shares of Stock will be issued under the Plan.

(d)Limits on Director Compensation. The aggregate value of all compensation granted or paid to any Director with respect to any calendar year, including Awards granted under the Plan and cash fees or other compensation paid by the Company to such Director outside of the Plan, in each case, for his or her services as a Director during such calendar year, may not exceed $500,000 in the aggregate,calculating the value of any Awards based on the grant date fair value in accordance with the Accounting Rules and assuming maximum payout levels.

5.Eligibility and Participation

The Administrator will select Participants from among key Employees and Directors of, and consultants and advisors to, the Company and its subsidiaries. Eligibility for ISOs is limited to employees of the Company or of a “parent corporation” or “subsidiary corporation” of the Company as those terms are defined in Section 424 of the Code. Eligibility for NSOs and SARs is limited to individuals who are providing direct services on the date of grant of the Award to the Company or to a subsidiary of the Company that would be described in the first sentence of Section 1.409A-1(b)(5)(iii)(E) of the Treasury Regulations.

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6.Rules Applicable to Awards

(a)All Awards.

(1)Award Provisions. The Administrator will determine the terms and conditions of all Awards, subject to the limitations provided herein. By accepting (or, under such rules as the Administrator may prescribe, being deemed to have accepted) an Award, the Participant will be deemed to have agreed to the terms and conditions of the Award and the Plan. Notwithstanding any provision of the Plan to the contrary, Substitute Awards may contain terms and conditions that are inconsistent with the terms and conditions specified herein, as determined by the Administrator.

(2)Term of Plan. No Awards may be made after ten years from the Date of Adoption, but previously granted Awards may continue beyond that date in accordance with their terms.

(3)Transferability. Neither ISOs nor, except as the Administrator otherwise expressly provides in accordance with the third sentence of this Section 6(a)(3), other Awards may be transferred other than by will or by the laws of descent and distribution. During a Participant’s lifetime, ISOs and, except as the Administrator otherwise expressly provides in accordance with the third sentence of this Section 6(a)(3), SARs and NSOs may be exercised only by the Participant. The Administrator may permit the transfer of Awards other than ISOs, subject to applicable securities and other laws and such terms and conditions as the Administrator may determine.

(4)Vesting; Exercisability. The Administrator will determine the time or times at which an Award vests or becomes exercisable and the terms and conditions on which a Stock Option or SAR remains exercisable. Without limiting the foregoing, the Administrator may at any time accelerate the vesting and/or exercisability of an Award (or any portion thereof), regardless of any adverse or potentially adverse tax or other consequences resulting from such acceleration. Unless the Administrator expressly provides otherwise, however, the following rules will apply if a Participant’s Employment ceases:

(A)Except as provided in (B) and (C) below, immediately upon the cessation of the Participant’s Employment each Stock Option and SAR (or portion thereof) that is then held by the Participant or by the Participant’s permitted transferees, if any, will cease to be exercisable and will terminate, and each other Award that is then held by the Participant or by the Participant’s permitted transferees, if any, to the extent not then vested, will be forfeited.

(B)Subject to (C) and (D) below, each vested and unexercised Stock Option and SAR (or portion thereof) held by the Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment, to the extent then exercisable, will remain exercisable for the lesser of (i) a period of three months following such cessation of Employment or (ii) the period ending on the latest

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date on which such Stock Option or SAR could have been exercised without regard to this Section 6(a)(4), and will thereupon immediately terminate.

(C)Subject to (D) below, each vested and unexercised Stock Option and SAR (or portion thereof) held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment due to his or her death or by the Company as a result of his or her Disability, to the extent then exercisable, will remain exercisable for the lesser of (i) the one-year period ending on the first anniversary of the Participant’s death or the date on which the Participant’s Employment is terminated as a result of his or her Disability or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regard to this Section 6(a)(4), and will thereupon immediately terminate.

(D)All Awards (whether or not vested or exercisable) held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment will immediately terminate upon such cessation of Employment if the termination is for Cause or occurs in circumstances that in the determination of the Administrator would have constituted grounds for the Participant’s Employment to be terminated for Cause (in each case, without regard to the lapsing of any required notice or cure periods in connection therewith).

(5)Recovery of Compensation. The Administrator may provide in any case that any outstanding Award (whether or not vested or exercisable), the proceeds from the exercise or disposition of any Award or Stock acquired under any Award, and any other amounts received in respect of any Award or Stock acquired under any Award will be subject to forfeiture and disgorgement to the Company, with interest and other related earnings, (i) if the Participant to whom the Award was granted is not in compliance with any provision of the Plan or any applicable Award, any non-competition, non-solicitation, no-hire, non-disparagement, confidentiality, invention assignment, or other restrictive covenant by which he or she is bound, or any policy of the Company or any of its subsidiaries that is applicable to the Participant and that provides for forfeiture, disgorgement or clawback with respect to incentive compensation that includes Awards under the Plan; or (ii) to the extent required by law or applicable stock exchange listing standards, including, without limitation, Section 10D of the Securities Exchange Act of 1934, as amended. Each Participant, by accepting or being deemed to have accepted an Award under the Plan, agrees (or will be deemed to have agreed) to cooperate fully with the Administrator, and to cause any and all permitted transferees of the Participant to cooperate fully with the Administrator, to effectuate any forfeiture or disgorgement described in this Section 6(a)(5). Neither the Administrator nor the Company nor any other person, other than the Participant and his or her permitted transferees, if any, will be responsible for any adverse tax or other consequences to a Participant or his or her permitted transferees, if any, that may arise in connection with this Section 6(a)(5).

(6)Taxes. The issuance, delivery, vesting, and retention of Stock, cash or other property under an Award are conditioned upon the full satisfaction by the Participant of all tax and other withholding requirements with respect to the Award. The Administrator will prescribe such rules for the withholding of taxes and other amounts with respect to any Award as

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it deems necessary. The Administrator may hold back shares of Stock from an Award or permit a Participant to tender previously-owned shares of Stock in satisfaction of tax or other withholding requirements (but not in excess of the maximum withholding amount consistent with the Award being subject to equity accounting treatment under the Accounting Rules). Any amounts withheld pursuant to this Section 6(a)(6) will be treated as though such payment had been made directly to the Participant.

(7)Dividend Equivalents. The Administrator may provide for the payment of amounts, on such terms and subject to conditions established by the Administrator, in lieu of cash dividends or other cash distributions with respect to Stock subject to an Award, whether or not the holder of such Award is otherwise entitled to share in the actual dividend or distribution in respect of such Award. Subject to Section 6(a)(10), any entitlement to dividend equivalents or similar entitlements will be established and administered either consistent with an exemption from, or in compliance with, the applicable requirements of Section 409A. Dividends and dividend equivalent amounts payable in respect of Awards that are subject to restrictions may be subject to such limitations or restrictions as the Administrator may impose.

(8)Rights Limited. Nothing in the Plan or any Award will be construed as giving any person the right to be granted an Award or to continued employment or service with the Company or any of its subsidiaries, or any rights as a stockholder except as to shares of Stock actually issued under the Plan. The loss of existing or potential profit in any Award will not constitute an element of damages in the event of a termination of a Participant’s Employment for any reason, even if the termination is in violation of an obligation of the Company or any of its subsidiaries to the Participant.

(9)Coordination with Other Plans. Awards under the Plan may be granted in tandem with, or in satisfaction of or substitution for, other Awards under the Plan or awards made under other compensatory plans or programs of the Company or any of its subsidiaries. For example, but without limiting the generality of the foregoing, awards under other compensatory plans or programs of the Company or any of its subsidiaries may be settled in shares of Stock (including, without limitation, Unrestricted Stock) under the Plan if the Administrator so determines, in which case the shares will be treated as issued under the Plan (and will reduce the Share Pool in accordance with the rules set forth in Section 4).

(10)Section 409A.

(A)Without limiting the generality of Section 11(b), each Award will contain such terms as the Administrator determines and will be construed and administered such that the Award either qualifies for an exemption from the requirements of Section 409A or satisfies such requirements.

(B)If a Participant is determined on the date of the Participant’s termination of Employment to be a “specified employee” within the meaning of that term under Section 409A(a)(2)(B) of the Code, then, with regard to any payment that is considered nonqualified deferred compensation under Section 409A, to the extent applicable, payable on account of a “separation from service”, such payment will be made

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or provided on the date that is the earlier of (i) the first business day following the expiration of the six-month period measured from the date of such “separation from service” and (ii) the date of the Participant’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments delayed pursuant to this Section 6(a)(10)(B) (whether they would have otherwise been payable in a single lump sum or in installments in the absence of such delay) will be paid on the first business day following the expiration of the Delay Period in a lump sum and any remaining payments due under the Award will be paid in accordance with the normal payment dates specified for them in the applicable Award agreement.

(C)With regard to any payment considered to be nonqualified deferred compensation under Section 409A, to the extent applicable, that is payable upon a change in control of the Company or other similar event, to the extent required to avoid the imposition of any additional tax, interest, or penalty under Section 409A, no amount will be payable unless such change in control constitutes a “change in control event” within the meaning of Section 1.409A-3(i)(5) of the Treasury Regulations.

(D)For purposes of Section 409A, each payment made under the Plan will be treated as a separate payment.

(b)Stock Options and SARs.

(1)Time and Manner of Exercise. Unless the Administrator expressly provides otherwise, no Stock Option or SAR will be considered to have been exercised until the Administrator receives a notice of exercise in a form acceptable to the Administrator that is signed by the appropriate person and accompanied by any payment required under the Award. Any attempt to exercise a Stock Option or SAR by any person other than the Participant will not be given effect unless the Administrator has received such evidence as it may require that the person exercising the Award has the right to do so.

(2)Exercise Price. The exercise price (or the base value from which appreciation is to be measured) of each Award requiring exercise must be no less than 100% (in the case of an ISO granted to a 10-percent stockholder within the meaning of Section 422(b)(6) of the Code, 110%) of the Fair Market Value of a share of Stock, determined as of the date of grant, or such higher amount as the Administrator may determine in connection with the grant.

(3)Payment of Exercise Price. Where the exercise of an Award (or portion thereof) is to be accompanied by a payment, payment of the exercise price must be made by cash or check acceptable to the Administrator or, if so permitted by the Administrator and if legally permissible, (i) through the delivery of previously acquired unrestricted shares of Stock, or the withholding of unrestricted shares of Stock otherwise issuable upon exercise, in either case, that have a Fair Market Value equal to the exercise price; (ii) through a broker-assisted exercise program acceptable to the Administrator; (iii) by other means acceptable to the Administrator; or (iv) by any combination of the foregoing permissible forms of payment. The delivery of previously acquired shares in payment of the exercise price under clause (i) above may be

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accomplished either by actual delivery or by constructive delivery through attestation of ownership, subject to such rules as the Administrator may prescribe.

(4)Maximum Term. The maximum term of Stock Options and SARs must not exceed 10 years from the date of grant (or five years from the date of grant in the case of an ISO granted to a 10-percent stockholder described in Section 6(b)(2)).

(5)Repricing. Except in connection with a corporate transaction involving the Company (which term includes, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split up, spin-off, combination or exchange of shares) or as otherwise contemplated by Section 7 below, The Company may not, without obtaining stockholder approval, (i) amend the terms of outstanding Stock Options or SARs to reduce the exercise price or base value of such Stock Options or SARs; (ii) cancel outstanding Stock Options or SARs in exchange for Stock Options or SARs with an exercise price or base value that is less than the exercise price or base value of the original Stock Options or SARs; or (iii) cancel outstanding Stock Options or SARs that have an exercise price or base value greater than the Fair Market Value of a share of Stock on the date of such cancellation in exchange for cash or other consideration.

7.Effect of Certain Transactions

(a)Covered Transactions. Except as otherwise expressly provided in an Award agreement or by the Administrator, the following provisions will apply in the event of a Covered Transaction:

(1)Assumption or Substitution. If the Covered Transaction is one in which there is an acquiring or surviving entity, the Administrator may provide for (i) the assumption or continuation of some or all outstanding Awards or any portion thereof or (ii) the grant of new awards in substitution therefor by the acquiror or survivor or an affiliate of the acquiror or survivor.

(2)Cash-Out of Awards. Subject to Section 7(a)(5), the Administrator may provide for payment (a “cash-out”), with respect to some or all Awards or any portion thereof (including only the vested portion thereof), equal in the case of each applicable Award or portion thereof to the excess, if any, of (i) the Fair Market Value of a share of Stock multiplied by the number of shares of Stock subject to the Award or such portion, minus (ii) the aggregate exercise or purchase price, if any, of such Award or portion (or, in the case of a SAR, the aggregate base value above which appreciation is measured), in each case, on such payment and other terms and subject to such conditions (which need not be the same as the terms and conditions applicable to holders of Stock generally ) as the Administrator determines, including that any amounts paid in respect of such Award in connection with the Covered Transaction be placed in escrow or otherwise made subject to such restrictions as the Administrator deems appropriate. For the avoidance of doubt, if the per share exercise or purchase price (or base value) of an Award or portion thereof is equal to or greater than the Fair Market Value of one share of Stock, such Award or portion may be cancelled with no payment due hereunder or otherwise in respect thereof.

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(3)Acceleration of Certain Awards. Subject to Section 7(a)(5), the Administrator may provide that any Award requiring exercise will become exercisable, in full or in part, and/or that the issuance of any shares of Stock remaining issuable under any outstanding Award of Stock Units (including Restricted Stock Units and Performance Awards to the extent consisting of Stock Units) will be accelerated, in full or in part, in each case, on a basis that gives the holder of the Award a reasonable opportunity, as determined by the Administrator, following the exercise of the Award or the issuance of the shares, as the case may be, to participate as a stockholder in the Covered Transaction.

(4)Termination of Awards upon Consummation of Covered Transaction. Except as the Administrator may otherwise determine, each Award will automatically terminate (and in the case of outstanding shares of Restricted Stock, will automatically be forfeited) immediately upon the consummation of the Covered Transaction, other than (i) any Award that is assumed, continued or substituted for pursuant to Section 7(a)(1) and (ii) any Award that by its terms, or as a result of action taken by the Administrator, continues following the Covered Transaction.

(5)Additional Limitations. Any share of Stock and any cash or other property delivered pursuant to Section 7(a)(2) or Section 7(a)(3) with respect to an Award may, in the discretion of the Administrator, contain such limitations or restrictions, if any, as the Administrator deems appropriate, including to reflect any performance or other vesting conditions to which the Award was subject and that did not lapse (and were not satisfied) in connection with the Covered Transaction. For purposes of the immediately preceding sentence, a cash-out under Section 7(a)(2) or an acceleration under Section 7(a)(3) will not, in and of itself, be treated as the lapsing (or satisfaction) of a performance or other vesting condition. In the case of Restricted Stock that does not vest and is not forfeited in connection with the Covered Transaction, the Administrator may require that any amounts delivered, exchanged or otherwise paid in respect of such Stock in connection with the Covered Transaction be placed in escrow or otherwise made subject to such restrictions as the Administrator deems appropriate to carry out the intent of the Plan.

(6)Uniform Treatment. For the avoidance of doubt, the Administrator need not treat Participants or Awards (or portions thereof) in a uniform matter, and may treat different Participants and/or Awards differently, in connection with a Covered Transaction.

(b)Changes in and Distributions with Respect to Stock.

(1)Basic Adjustment Provisions. In the event of a stock dividend, stock split or combination of shares (including a reverse stock split), recapitalization or other change in the Company’s capital structure that constitutes an equity restructuring within the meaning of the Accounting Rules, the Administrator will make appropriate adjustments to the maximum number of shares of Stock specified in Section 4(a) that may be issued under the Plan, the number and kind of shares of stock or securities underlying Awards then outstanding or subsequently granted, any exercise or purchase prices (or base values) relating to Awards and any other provision of Awards affected by such change.

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(2)Certain Other Adjustments. The Administrator may also make adjustments of the type described in Section 7(b)(1) to take into account distributions to stockholders other than those provided for in Section 7(a) and 7(b)(1), or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Plan or any Award.

(3)Continuing Application of Plan Terms. References in the Plan to shares of Stock will be construed to include any stock or securities resulting from an adjustment pursuant to this Section 7.

8.Legal Conditions on the Issuance of Stock

The Company will not be obligated to issue any shares of Stock pursuant to the Plan or to remove any restriction from shares of Stock previously issued under the Plan until: (i) the Company is satisfied that all legal matters in connection with the issuance of such shares have been addressed and resolved; (ii) if the outstanding Stock is at the time of issuance listed on any stock exchange or national market system, the shares to be issued have been listed or authorized to be listed on such exchange or system upon official notice of issuance; and (iii) all conditions of the Award have been satisfied or waived. The Company may require, as a condition to the exercise of an Award or the issuance of shares of Stock under an Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of the Securities Act of 1933, as amended, or any applicable state or non-U.S. securities law. Any Stock issued under the Plan will be evidenced in such manner as the Administrator determines appropriate, including book-entry registration or delivery of stock certificates. In the event that the Administrator determines that stock certificates will be issued in connection with Stock issued under the Plan, the Administrator may require that such certificates bear an appropriate legend reflecting any restriction on transfer applicable to such Stock, and the Company may hold the certificates pending the lapse of the applicable restrictions.

9.Amendment and Termination

The Administrator may at any time or times amend the Plan or any outstanding Award for any purpose which may at the time be permitted by applicable law, and may at any time terminate the Plan as to any future grants of Awards; provided that, except as otherwise expressly provided in the Plan or the applicable Award, the Administrator may not, without the Participant’s consent, alter the terms of an Award so as to materially and adversely affect the Participant’s rights under the Award, unless the Administrator expressly reserved the right to do in the Plan or at the time the applicable Award was granted. Any amendments to the Plan will be conditioned upon stockholder approval only to the extent, if any, such approval is required by applicable law (including the Code) or stock exchange requirements, as determined by the Administrator. For the avoidance of doubt, no adjustment to any Award pursuant to the terms of Section 7 will be treated as an amendment requiring a Participant’s consent.

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10.Other Compensation Arrangements

The existence of the Plan or the grant of any Award will not affect the right of the Company or any of its subsidiaries to grant any person bonuses or other compensation in addition to Awards under the Plan.

11.Miscellaneous

(a)Waiver of Jury Trial. By accepting or being deemed to have accepted an Award under the Plan, each Participant waives (or will be deemed to have waived), to the maximum extent permitted under applicable law, any right to a trial by jury in any action, proceeding or counterclaim concerning any rights under the Plan or any Award, or under any amendment, waiver, consent, instrument, document or other agreement delivered or which in the future may be delivered in connection therewith, and agrees (or will be deemed to have agreed) that any such action, proceedings or counterclaim will be tried before a court and not before a jury. By accepting or being deemed to have accepted an Award under the Plan, each Participant certifies that no officer, representative, or attorney of the Company has represented, expressly or otherwise, that the Company would not, in the event of any action, proceeding, or counterclaim, seek to enforce the foregoing waivers. Notwithstanding anything to the contrary in the Plan, nothing herein is to be construed as limiting the ability of the Company and a Participant to agree to submit any dispute arising under the terms of the Plan or any Award to binding arbitration or as limiting the ability of the Company to require any individual to agree to submit such disputes to binding arbitration as a condition of receiving an Award hereunder.

(b)Limitation of Liability. Notwithstanding anything to the contrary in the Plan or any Award, neither the Company, nor any of its subsidiaries, nor the Administrator, nor any person acting on behalf of the Company, any of its subsidiaries, or the Administrator, will be liable to any Participant, to any permitted transferee, to the estate or beneficiary of any Participant or any permitted transferee, or to any other person by reason of any acceleration of income, any additional tax, or any penalty, interest or other liability asserted by reason of the failure of an Award to satisfy the requirements of Section 422 or Section 409A, by reason of Section 4999 of the Code, or otherwise asserted with respect to any Award.

(c)Unfunded Plan. The Company’s obligations under the Plan are unfunded, and no Participant will have any right to specific assets of the Company in respect of any Award. Participants will be general unsecured creditors of the Company with respect to any amounts due or payable under the Plan.

(d)Section 162(m). To the extent applicable, Awards granted pursuant to the Plan are intended to be eligible for exemption from the limitations of Section 162(m) of the Code by reason of the post-initial public offering transition relief set forth in Section 1.162-27(f) of the Treasury Regulations.

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12.Establishment of Sub-Plans

The Administrator may at any time and from time to time establish one or more sub-plans under the Plan (for local law compliance purposes or other purposes or administrative reasons determined by the Administrator) by adopting supplements to the Plan containing, in each case, (i) such limitations on the Administrator’s discretion under the Plan and (ii) such additional terms and conditions, as the Administrator deems necessary or desirable. Each supplement so established will be deemed to be part of the Plan but will apply only to Participants within the group to which the supplement applies (as determined by the Administrator).

13.Governing Law

(a)Certain Requirements of Corporate Law. Awards and shares of Stock will be granted, issued and administered consistent with the requirements of applicable Delaware law relating to the issuance of stock and the consideration to be received therefor, and with the applicable requirements of the stock exchanges or other trading systems on which the Stock is listed or entered for trading, in each case, as determined by the Administrator.

(b)Other Matters. Except as otherwise provided by the express terms of an Award agreement, under a sub-plan described in Section 12 or as provided in Section 13(a), the domestic substantive laws of the State of New Hampshire govern the provisions of the Plan and of Awards under the Plan and all claims or disputes arising out of or based upon the Plan or any Award under the Plan or relating to the subject matter hereof or thereof, without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction.

(c)Jurisdiction. By accepting (or being deemed to have accepted) an Award, each Participant agrees or will be deemed to have agreed to (i) submit irrevocably and unconditionally to the jurisdiction of the federal and state courts located within the geographic boundaries of the United States District Court for the District of New Hampshire for the purpose of any suit, action or other proceeding arising out of or based upon the Plan or any Award; (ii) not commence any suit, action or other proceeding arising out of or based upon the Plan or any Award, except in the federal and state courts located within the geographic boundaries of the United States District Court for the District of New Hampshire; and (iii) waive, and not assert, by way of motion as a defense or otherwise, in any such suit, action or proceeding, any claim that he or she is not subject personally to the jurisdiction of the above-named courts that his or her property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that the Plan or any Award or the subject matter thereof may not be enforced in or by such court.

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Exhibit A

Definitions

The following terms, when used in the Plan, have the meanings and are subject to the provisions set forth below:

“Accounting Rules”: Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor provision.

“Administrator”: The Compensation Committee, except with respect to such matters that are not delegated to the Compensation Committee by the Board (whether pursuant to committee charter or otherwise). The Compensation Committee (or the Board, with respect to such matters over which it retains authority under the Plan or otherwise) may delegate (i) to one or more of its members (or one or more other members of the Board, including the full Board) such of its duties, powers and responsibilities as it may determine; (ii) to one or more officers of the Company the power to grant Awards to the extent permitted by Section 152 or 157(c) of the Delaware General Corporation Law; and (iii) to such Employees or other persons as it determines such ministerial tasks as it deems appropriate. For purposes of the Plan, the term “Administrator” will include the Board, the Compensation Committee, and the person or persons delegated authority under the Plan to the extent of such delegation, as applicable.

“Award”: Any or a combination of the following:

(1)

Stock Options.

(2)

SARs.

(3)

Restricted Stock.

(4)

Unrestricted Stock.

(5)

Stock Units, including Restricted Stock Units.

(6)

Performance Awards.

(7)

Awards (other than Awards described in (1) through (6) above) that are convertible into or otherwise based on Stock.

“Beneficiary”: In the event of a Participant’s death, the beneficiary named in the written designation (in a form acceptable to the Administrator) most recently filed with the Administrator by the Participant prior to his or her death and not subsequently revoked, or, if there is no such designated beneficiary, the executor or administrator of the Participant’s estate. An effective beneficiary designation will be treated as having been revoked only upon receipt by the Administrator, prior to the Participant’s death, of an instrument of revocation in a form acceptable to the Administrator.

“Board”: The Board of Directors of the Company.

“Cause”: In the case of any Participant who is party to an offer letter or employment or severance-benefit agreement that contains a definition of “Cause,” the definition set forth in such letter or agreement applies with respect to such Participant for purposes of the Plan for

so long as such letter or agreement is in effect. In every other case, “Cause” means, as determined by the Administrator, (i) the Participant’s willful failure to substantially perform his or her duties and responsibilities to the Company or a violation of a material Company policy; (ii) the Participant’s commission of fraud, embezzlement, any material act or acts of dishonesty, or other willful misconduct; (iii) the Participant’s unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom the Participant owes an obligation of nondisclosure as a result of his or her relationship with the Company; or (iv) the Participant’s material breach of any of his or her obligations under any written agreement or covenant with the Company.

“Change in Control”: Any of:

(i)an event in which any “person” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “1934 Act”) (other than (a) the Company, (b) any subsidiary of the Company, (c) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or of any subsidiary of the Company, and (d) any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the “beneficial owner” (as defined in Section 13(d) of the 1934 Act), together with all affiliates and associates (as such terms are used in Rule 12b-2 of the General Rules and Regulations under the 1934 Act) of such person, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities;

(ii)the consummation of the merger or consolidation of the Company with any other company, other than (a) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (b) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) after which no “person” “beneficially owns” (with the determination of such “beneficial ownership” on the same basis as set forth in clause (a) of this definition) securities of the Company or the surviving entity of such merger or consolidation representing 50% or more of the combined voting power of the securities of the Company or the surviving entity of such merger or consolidation; or

(iii)the complete liquidation of the Company or the sale or disposition by the Company of all or substantially all of the Company’s assets.

Notwithstanding the foregoing, to the extent any amount constituting “nonqualified deferred compensation” subject to Section 409A would become payable under an Award by reason of a Change in Control, it shall become payable only if the event or circumstances constituting the Change in Control would also constitute a change in the ownership or effective control of the Company, or a change in the ownership of a substantial portion of the Company’s assets, within the meaning of subsection (a)(2)(A)(v) of Section 409A and the Treasury Regulations thereunder.

“Code”: The U.S. Internal Revenue Code of 1986, as from time to time amended and in effect, or any successor statute as from time to time in effect.

“Company”: Vapotherm, Inc., a Delaware corporation.

“Compensation Committee”: The Compensation Committee of the Board.

“Covered Transaction”: Any of (i) a consolidation, merger or similar transaction or series of related transactions, including a sale or other disposition of stock, in which the Company is not the surviving corporation or which results in the acquisition of all or substantially all of the Company’s then-outstanding common stock by a single person or entity or by a group of persons and/or entities acting in concert; (ii) a sale or transfer of all or substantially all the Company’s assets; (iii) a Change in Control; or (iv) a dissolution or liquidation of the Company. Where a Covered Transaction involves a tender offer that is reasonably expected to be followed by a merger described in clause (i) (as determined by the Administrator), the Covered Transaction will be deemed to have occurred upon consummation of the tender offer.

“Date of Adoption”: The earlier of the date the Plan was approved by the Company’s stockholders or adopted by the Board, as determined by the Committee.

“Director”: A member of the Board who is not an Employee.

“Disability”: A condition under which a Participant would be entitled to long-term disability benefits under the Company’s long-term disability plan in which the Participant participates. Notwithstanding the foregoing, in any case in which a benefit that constitutes or includes “nonqualified deferred compensation” subject to Section 409A would be payable because the Participant has a Disability, the term Disability will mean a condition that would constitute a disability described in Treas. Regs. Section 1.409A-3(i)(4)(i)(A).

“Employee”: Any person who is employed by the Company or any of its subsidiaries.

“Employment”: A Participant’s employment or other service relationship with the Company or any of its subsidiaries. Employment will be deemed to continue, unless the Administrator otherwise determines, so long as the Participant is employed by, or otherwise is providing services in a capacity described in Section 5 to, the Company or any of its subsidiaries. If a Participant’s employment or other service relationship is with any subsidiary of the Company and that entity ceases to be a subsidiary of the Company, the Participant’s Employment will be deemed to have terminated when the entity ceases to be a subsidiary of the Company unless the Participant transfers Employment to the Company or one of its remaining subsidiaries. Notwithstanding the foregoing, in construing the provisions of any Award relating to the payment of “nonqualified deferred compensation” (subject to Section 409A) upon a termination or cessation of Employment, references to termination or cessation of employment, separation from service, retirement or similar or correlative terms will be construed to require a “separation from service” (as that term is defined in Section 1.409A-1(h) of the Treasury Regulations) from the Company and from all other corporations and trades or businesses, if any, that would be treated as a single “service recipient” with the Company under Section 1.409A-1(h)(3) of the Treasury Regulations. The Company may, but need not, elect in writing, subject to the applicable limitations under Section 409A, any of the special elective rules prescribed in Section 1.409A-1(h) of the Treasury Regulations for purposes of determining whether a “separation from service” has occurred. Any such written election will be deemed a part of the Plan.

“Fair Market Value”: As of a particular date, (i) the closing price for a share of Stock reported on the New York Stock Exchange (or any other national securities exchange on which the Stock is then listed) on that date or, if no closing price is reported for that date, the

closing price on the immediately preceding date on which a closing price was reported or (ii) in the event that the Stock is not traded on a national securities exchange, the fair market value of a share of Stock determined by the Administrator consistent with the rules of Section 422 and Section 409A to the extent applicable.

“ISO”: A Stock Option intended to be an “incentive stock option” within the meaning of Section 422. Each Stock Option granted pursuant to the Plan will be treated as providing by its terms that it is to be an NSO unless, as of the date of grant, it is expressly designated as an ISO in the applicable Award agreement.

“NSO”: A Stock Option that is not intended to be an “incentive stock option” within the meaning of Section 422.

“Participant”: A person who is granted an Award under the Plan.

“Performance Award”: An Award subject to performance-vesting conditions, which may include Performance Criteria.

“Performance Criteria”: Specified criteria, other than the mere continuation of Employment or the mere passage of time, the satisfaction of which is a condition for the grant, exercisability, vesting, or full enjoyment of an Award. A Performance Criterion and any targets with respect thereto need not be based upon an increase, a positive or improved result, or avoidance of loss and may be applied to a Participant individually, or to a business unit or division of the Company or to the Company as a whole and may relate to any or any combination of the following or any other criterion or criteria determined by the Administrator (measured either absolutely or comparatively (including, without limitation, by reference to an index or indices or the performance of one or more companies) and determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or geographical basis or in combinations thereof and subject to such adjustments, if any, as the Administrator specifies): sales; revenues; assets; expenses; earnings before or after deduction for all or any portion of interest, taxes, depreciation, or amortization, whether or not on a continuing operations or an aggregate or per share basis; return on equity, investment, capital or assets; one or more operating ratios; borrowing levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; stock price; stockholder return; sales of particular products or services; customer acquisition or retention; acquisitions and divestitures (in whole or in part); joint ventures and strategic alliances; spin-offs, split-ups and the like; reorganizations; recapitalizations, restructurings, financings (issuance of debt or equity) or refinancings; or strategic business criteria, consisting of one or more objectives based on: meeting specified market penetration or value added, product development or introduction (including, without limitation, any clinical trial accomplishments, regulatory or other filings or approvals, or other product development milestones), geographic business expansion, cost targets, cost reductions or savings, customer satisfaction, operating efficiency, acquisition or retention, employee satisfaction, information technology, corporate development (including, without limitation, licenses, innovation, research or establishment of third-party collaborations), manufacturing or process development, legal compliance or risk reduction, or patent application or issuance goals. A Performance Criterion may also be based on individual performance and/or subjective performance criteria. The Administrator may provide that one or more of the Performance Criteria applicable to such Award will be adjusted in a manner to reflect events (for example, but without limitation, acquisitions or dispositions) occurring during the performance period that affect the applicable Performance Criterion or Criteria.

“Plan”: The Vapotherm, Inc. 2018 Equity Incentive Plan, as from time to time amended and in effect.

“Prior Plan”: The Vapotherm, Inc. 2015 Stock Incentive Plan, as amended.

“Restricted Stock”: Stock subject to restrictions requiring that it be forfeited, redelivered, or offered for sale to the Company if specified performance or other vesting conditions are not satisfied.

“Restricted Stock Unit”: A Stock Unit that is, or as to which the issuance of Stock or delivery of cash in lieu of Stock is, subject to the satisfaction of specified performance or other vesting conditions.

“SAR”: A right entitling the holder upon exercise to receive an amount (payable in cash or in shares of Stock of equivalent value) equal to the excess of the Fair Market Value of the shares of Stock subject to the right over the base value from which appreciation under the SAR is to be measured.

“Section 409A”: Section 409A of the Code and the regulations thereunder.

“Section 422”: Section 422 of the Code and the regulations thereunder.

“Stock”: Common stock of the Company, par value $0.0001 per share.

“Stock Option”: An option entitling the holder to acquire shares of Stock upon payment of the exercise price.

“Stock Unit”: An unfunded and unsecured promise, denominated in shares of Stock, to issue Stock or deliver cash measured by the value of Stock in the future.

“Substitute Award”: An Award issued under the Plan in substitution for one or more equity awards of an acquired company that are converted, replaced, or adjusted in connection with the acquisition.

“Unrestricted Stock”: Stock not subject to any restrictions under the terms of the Award.


	Exhibit 10.7


STRICTLY PRIVATE & CONFIDENTIAL	STRICTEMENT CONFIDENTIEL

Grégoire Ramade 43, Avenue André Morizet 92100 Boulogne Billancourt France 15 September 2020 Dear Grégoire,	Grégoire Ramade 43, Avenue André Morizet 92100 Boulogne Billancourt France 15 Septembre 2020 Grégoire,
Variations in terms and conditions of employment	Modifications du contrat de travail
I write to confirm that Vapotherm Inc., (hereafter the “Company”) is making the following changes to your employment contract (hereafter the “Contract”). Such changes are to take effect by 01 September 2020. As we have discussed, the terms and conditions in your current contract of employment will continue to apply with the exception of the following: • Responsibilities: Senior Vice President & Chief Commercial Officer • Compensation: your annual gross base salary will increase to €265,000. • Variable Compensation: €299,549 at 100% target. All other terms and conditions of your employment as described under the Contract remain unchanged. Please return one copy of this letter, duly signed and dated, in order to confirm your agreement to the above mentioned variation to your Contract. Executed in Paris, in two original counterparts on 15 September 2020, (Signatures to be preceded by the handwritten formula "Read and approved”)	Je vous écris pour vous confirmer que Vapotherm Inc., (ci-après la « Société ») apporte les modifications suivantes à votre contrat de travail (ci-après le « Contrat »). Ces modifications entreront en vigueur à compter du 1^er septembre 2020. Comme nous en avons discuté, les conditions générales de votre contrat de travail actuelles demeureront applicables à l’exception des points suivants : • Fonctions : Vice-président Senior et directeur commercial • Rémunération fixe: votre salaire de base brut annuel sera augmenté à 265,000 euros. • Rémunération variable : 299,549 euros à 100% des objectifs atteints. Toutes les autres conditions générales de votre emploi telles que décrites dans le Contrat demeurent inchangées. Veuillez renvoyer une copie de cette lettre, dûment signée et datée, afin de confirmer votre accord sur les modifications susmentionnées à votre Contrat. Fait en deux exemplaires à Paris, le 15 septembre 2020, (Signatures précédées de la mention manuscrite «Lu et Approuvé»)


	Exhibit 10.7

Signed:

Date:

Signe:

Date:

For and on behalf of Vapotherm, Inc.

Joseph Army, CEO

Pour et au nom Vapotherm, Inc.

Joseph Army, CEO

Thank you for the above letter, which I have read and understood.

Je vous remercie de la lettre susmentionnée, que j’ai lue et comprise

Signed:

Date:

Signe:

Date:

Grégoire Ramade

Exhibit 10.8

THIRD AMENDMENT TO AMENDED AND RESTATED BUSINESS FINANCING AGREEMENT

This Third Amendment to Amended and Restated Business Financing Agreement (this “Amendment”) is entered into as of September 29, 2020, by and between WESTERN ALLIANCE BANK, an Arizona corporation (“Bank”) and VAPOTHERM, INC. (“Borrower”).

RECITALS

Borrower and Bank are parties to that certain Amended and Restated Business Financing Agreement dated as of April 6, 2018 (as amended from time to time, including by that certain First Amendment to Amended and Restated Business Financing Agreement dated as of March 22, 2019 and that certain Second Amendment to Amended and Restated Business Financing Agreement dated as of July 7, 2020, collectively, the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Amendment.

NOW, THEREFORE, the parties agree as follows:

1.The following defined terms in Section 17.1 of the Agreement hereby are added, amended or restated as follows:

"Foreign Exchange Sublimit" means Two Hundred Fifty Thousand Dollars ($250,000.00).

"Letter of Credit Sublimit" means Two Hundred Thousand Dollars ($200,000.00).

“Maturity Date” means February 28, 2023 or such earlier date as Lender shall have declared the Obligations immediately due and payable pursuant to Section 8.2.

“Overadvance” means, as of any date of determination, an amount equal to the greater of (a) the amounts (if any) by which the total amount of the outstanding Advances (including deemed Advances with respect to the Letter of Credit Sublimit and Foreign Exchange Sublimit) exceeds the lesser of the Credit Limit or the Borrowing Base or (b) the amounts (if any) by which the total amount of the outstanding deemed Advances with respect to the Letter of Credit Sublimit or Foreign Exchange Sublimit exceed the Letter of Credit Sublimit or Foreign Exchange Sublimit , as applicable.

“Prime Rate” means the greater of 3.25% per year or the Prime Rate published in the Money Rates section of the Western Edition of The Wall Street Journal, or such other rate of interest publicly announced by Lender as its Prime Rate. Lender may price loans to its customers at, above, or below the Prime Rate. Any change in the Prime Rate shall take effect at the opening of business on the day specified in the public announcement of a change in Lender’s Prime Rate.

“Third Amendment Effective Date” means September [__], 2020.

2.The following defined terms in Section 17.1 of the Agreement hereby are deleted as follows:

“Cash Management Sublimit”, “International Sublimit”

3.Section 1.8 of the Agreement is hereby amended and restated as follows:

“1.8Sublimits.

a)Letter of Credit. Subject to the terms and conditions of this Agreement, Lender hereby agrees to issue or cause an Affiliate to issue letters of credit for the account of Borrower (each, a "Letter of Credit" and collectively, "Letters of Credit") from time to time; provided that (a) the Letter of Credit Obligations shall not at any time exceed the Letter of Credit Sublimit and (b) the Letter of Credit Obligations will be treated as Advances for purposes of determining availability under the Credit Limit and shall decrease, on a dollar-for-dollar basis, the amount available for other Advances. The form and substance of each Letter of Credit shall be subject to approval by Lender, in its sole discretion. Each Letter of Credit shall be subject to the additional terms of the Letter of Credit agreements, applications and

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any related documents required by Lender in connection with the issuance thereof (each, a "Letter of Credit Agreement"). Each draft paid under any Letter of Credit shall be repaid by Borrower in accordance with the provisions of the applicable Letter of Credit Agreement. No Letter of Credit shall be issued that results in an Overadvance or while any Overadvance is outstanding. Upon the Maturity Date, the amount of Letters of Credit Obligations shall be secured by unencumbered cash on terms acceptable to Lender if the term of this Agreement is not extended by Lender.

b)Foreign Exchange. Subject to the terms and conditions of this Agreement and any other agreement that Borrower may enter into with Lender in connection with foreign exchange transactions (“FX Contracts”), Borrower may request Lender to enter into FX Contracts with Borrower due not later than the Maturity Date. Borrower shall pay any standard issuance and other fees that Lender notifies Borrower will be charged for issuing and processing FX Contracts for Borrower. The FX Amount shall at all times be equal to or less than the Foreign Exchange Sublimit. The “FX Amount” shall equal the amount determined by multiplying (A) the aggregate amount, in United States Dollars, of FX Contracts between Borrower and Lender remaining outstanding as of any date of determination by (B) the applicable Foreign Exchange Reserve Percentage as of such date. The “Foreign Exchange Reserve Percentage” shall be a percentage as determined by Lender, in its sole discretion from time to time. The initial Foreign Exchange Reserve Percentage shall be 10%.

If at any time a Lender’s obligation to extend credit pursuant to the terms of this Agreement is terminated or otherwise ceases to exist, Borrower shall promptly secure in cash or provide on other terms reasonably acceptable to Lender all obligations under the Letter of Credit Sublimit or Foreign Exchange Sublimit.”

4.Section 1.9 of the Agreement is hereby amended and restated as follows:

“1.9	Intentionally Omitted.”

5.Section 2.1 of the Agreement is hereby amended and restated as follows:

“2.1Finance Charges. Lender may, but is not required to, deduct the amount of accrued Finance Charge from Collections received by Lender. The accrued and unpaid Finance Charge shall be due and payable within ten (10) calendar days after each Month End during the term hereof. Borrower hereby authorizes Bank to automatically deduct the amount of any loan payments that are due and payable hereunder from any deposit account(s) of Borrower held with Bank, including without limitation that certain deposit account identified in writing (including by e-mail) by the Lender to the Borrower on or about the Third Amendment Effective Date. If the funds in the account(s) are insufficient to cover any payment, Bank shall not be obligated to advance funds to cover the payment and Borrower agrees to pay any applicable fees for this service disclosed in the Schedule of Fees and Charges applicable to Borrower’s account(s). Subject to any terms and conditions in the Loan Documents, Borrower or Bank may voluntarily terminate automatic payments at any time for any reason.”

6.Section 2.2(f) of the Agreement is hereby amended and restated as follows:

“(f)FX Forward Contract Fees. Borrower shall pay to Lender fees in connection with the FX Forward Contracts as determined in accordance with Lender’s standard fees and charges then in effect for such activity.”

7.Section 2.2(e) of the Agreement is hereby amended and restated as follows:

“(e)

Annual Management Fee. Borrower shall pay to Lender a non-refundable annual management fee for the account of the Lender, in an amount equal to Fifteen Thousand Dollars ($15,000.00) per year, which fee shall be fully earned, and due and payable in advance, on the Effective Date and each annual anniversary thereafter until the Termination Date; provided, that such amount is to be prorated if this Agreement is terminated prior to such anniversary.”

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8.New subsection (h) is hereby added to Section 2.2 of the Agreement as follows:

“(h)Facility Fee. Borrower shall pay to Lender a non-refundable facility fee in an amount equal to Seven Thousand Five Hundred Dollars ($7,500.00) promptly on the Third Amendment Effective Date and upon each annual anniversary of the Third Amendment Effective Date until the Termination Date.”

9.Section 6.2(a)(Q) of the Agreement is hereby amended and restated as follows:

“Q.a borrowing base certificate, in form and substance satisfactory to Lender, setting forth Eligible Receivables and Receivable Amounts thereof as of the last day of the preceding calendar month (i) if RML is equal to or greater than five (5), no later than thirty (30) days after the last day of each month, (ii) if RML is less than five (5) but equal to or greater than three (3), no later than fifteen (15) and thirty (30) days after the last day of each month and within five (5) Business Days of each advance request, and (iii) if RML is less than three (3), no later than fifteen (15) and thirty (30) days after the last day of each month and within three (3) Business Days of each advance request;”

10.New Section 6.14 is hereby added to the Agreement as follows:

“6.14

Third Amendment Post-Closing Obligations. Notwithstanding any provision herein or in any other Loan Document to the contrary, Borrower shall no later than thirty (30) days after the Third Amendment Effective Date (or such later date agreed to by Lender), in form and substance reasonably satisfactory to Lender, deliver an Affirmation of Intercreditor Agreement, duly executed by Perceptive.”

11.Section 7.13(b) of the Agreement is hereby amended and restated as follows:

“(b)Minimum Revenue. On each calculation date set forth below in the column entitled “Calculation Date” (each, a “Calculation Date”), Revenue for the four consecutive fiscal quarter period ended on such Calculation Date shall not be less than the amount set forth in the column entitled “Revenue”:


Calculation Date	Revenue
September 30, 2020	$49,376,000
December 31, 2020	$50,725,000
March 31, 2021	$51,966,000
June 30, 2021	$53,153,000
September 30, 2021	$54,314,000
December 31, 2021	$55,797,000
March 31, 2022	$57,163,000
June 30, 2022	$58,468,000
September 30, 2022	$59,746,000
December 31, 2022	$61,377,000
March 31, 2023	$62,879,000

As used herein, “Revenue” means, as of any date of determination, the net revenues of the Borrower and its Subsidiaries generated in the ordinary course of business, determined on a consolidated basis in accordance with GAAP, excluding any non-recurring or non-ordinary course payments not related to the sale of goods and services by the Borrower and its Subsidiaries in the ordinary course.”

12.The Compliance Certificate is hereby replaced in its entirety by the Compliance Certificate attached hereto.

13.No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right. Bank’s failure at any time to require strict performance by Borrower

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of any provision shall not affect any right of Bank thereafter to demand strict compliance and performance. Any suspension or waiver of a right must be in writing signed by an officer of Bank.

14.Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.

15.Borrower represents and warrants that (a) the representations and warranties set forth in each Loan Document (as defined in the Agreement) shall, in each case, be true and correct in all material respects with the same effect as if then made (or in the case of any representation and warranty subject to a materiality qualifier, true and correct in all respects), unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date; provided that with respect to the representations and warranties set forth in Section 5.1 of the Agreement, the Perfection Certificate is accurate and complete as of the date the financial statements required under Section 6.2(a)(A) of the Credit Agreement for June 2020 were delivered , and that (b) no Event of Default has occurred and is continuing.

16.As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:

(a)this Amendment, duly executed by Borrower;

(b)an E-Sign Disclosure, duly executed by Borrower;

(c)all reasonable and documented Lender Expenses incurred through the date of this Amendment, which may be debited from any of Borrower's accounts; and

(d)such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

17.This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

[Balance of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.


VAPOTHERM, INC.


By:	/s/ John Landry

Name:	John Landry

Title:	Sr. VP & CFO


WESTERN ALLIANCE BANK, an Arizona corporation


By:	/s/ Darren Gastrock

Name:	Darren Gastrock

Title:	Director

[Signature Page to Third Amendment to Amended and Restated Business Financing Agreement]

WEST\291759554.4

Exhibit 10.9

FOURTH AMENDMENT TO LEASE

THIS FOURTH AMENDMENT TO LEASE (this "Amendment") is dated this ___23rd________ day of August, 2020 (the "Effective Date") by and between 100 DOMAIN DRIVE EI, LLC, a Delaware limited liability company, as administrator of the tenancy in common with 100 DOMAIN DRIVE DD, LLC, a Delaware limited liability company (collectively, "Landlord") and VAPOTHERM, INC., a Delaware corporation ("Tenant").

RECITALS:

WHEREAS, Landlord's predecessor in interest, Albany Road-100 Domain LLC, and Tenant entered into that certain Lease Agreement dated as of September 30, 2016; as amended by that certain First Amendment to Lease dated as of September 11, 2017; as further amended by that certain Second Amendment to Lease dated as of June 6, 2018; as further amended by that certain Third Amendment to Lease dated July 26, 2018, (collectively, the "Existing Lease"), whereby Tenant leases certain premises consisting of approximately 82,968 rentable square feet of office and research and development space (the "Leased Premises") in the building known as 100 Domain Drive, Exeter, New Hampshire, as more particularly described in the Existing Lease (the "Building");

WHEREAS, Landlord purchased the Building from Albany Road-I 00 Domain LLC as of April 3, 2018 and has succeeded to its interests as Landlord under the Existing Lease;

WHEREAS, pursuant to the Existing Lease, Article XVII, as modified by the First Amendment to Lease, Section 19, Tenant has a right of first offer on all space in the Building, including space shown on a Floor Plan attached hereto as Exhibit A and designated “New Medical Device Manufacturing, R&D Lab Area, Office” consisting of approximately 11,180 rentable square feet of space, (the "New Medical Device Manufacturing Area" and also sometimes referred to herein as the “demised premises”);

WHEREAS, by letter dated July 21, 2020, from Tenant to Landlord, Tenant has exercised its right of first offer on the New Medical Device Manufacturing Area, and the Superior ROFO Rights described in Exhibit F to the Existing Lease have been waived and satisfied for purposes of this Fourth Amendment;

WHEREAS, Landlord and Tenant desire to amend the Existing Lease to incorporate the New Medical Device Manufacturing Area into the Premises and subject the New Medical Device Manufacturing Area to the provisions of the Existing Lease, as amended by this Amendment; and

WHEREAS, Landlord and Tenant desire to memorialize their understanding and modify the Existing Lease consistent therewith all subject to the terms, covenants and conditions hereinafter set forth below.

AGREEMENTS:

NOW, THEREFORE, in consideration of the mutual promises herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties hereto, Landlord and Tenant agree as follows:

1.New Medical Device Manufacturing Area Premises. Effective as of the Effective Date, Tenant hereby leases from Landlord, and Landlord hereby leases to Tenant, the New Medical Device Manufacturing Area Premises. As used herein, the term New Medical Device Manufacturing Area Premises

shall mean the approximately 11,180 rentable square feet of space located on the 1^st floor of the Building as further set forth on the New Medical Device Manufacturing Area Floor Plan attached hereto as Exhibit A. As of the Effective Date, all references to the "Premises" shall be deemed to include the Original Premises, the Expansion Premises, the Second Floor Premises, the New R&D Lab Area Premises, and the New Medical Device Manufacturing Area for a total of 95,320 rentable square feet. All references to the "Lease" shall mean the Existing Lease as amended by this Amendment.

2.Rent. Effective as of the Landlord’s delivery and Tenant’s acceptance of the New Medical Device Manufacturing Area to Tenant (“NMDMA Rent Commencement”) in the condition set forth in Section 4 below, which the parties shall confirm in writing and shall not unreasonably delay or deny, Tenant shall commence paying Base Rent and Additional Rent on the New Medical Device Manufacturing Area Premises, which rent shall be in addition to the Base Rent and Additional Rent Tenant is currently paying on the Leased Premises pursuant to the original Lease, the First Amendment to Lease, the Second Amendment to Lease, and the Third Amendment to Lease. Tenant's Proportionate Office Space Share shall be adjusted accordingly to include the New Medical Device Manufacturing Area Premises for purposes of calculating Additional Rent. Tenant shall pay Base Rent on the New Medical Device Manufacturing Area Premises in the same manner as required under the Existing Lease as follows:

Lease Year	Annual Fixed Rental Rate	Annual Fixed Rental	Monthly Fixed Rental
NMDMA Rent Commencement ~ 4/30/2021	$9.53	$106,545.40	$8,878.78
5/1/2021 ~ 4/30/2022	$9.53	$106,545.40	$8,878.78
5/1/2022 ~ 4/30/2023	$9.53	$106,545.40	$8,878.78
5/1/2023 ~ 4/30/2024	$11.00	$122,980.00	$10,248.33
5/1/2024 ~ 1/28/2025	$11.00	$122,980.00	$10,248.33

3.Term. The Term for the New Medical Device Manufacturing Area Premises shall commence as of the Effective Date and be coterminous with the Original Premises, with the First Lease Year being tied to the First Lease Year of the Second Expansion Premises as defined in the First Amendment to Lease. The parties agree that the Lease Commencement date for the New Medical Device Manufacturing Area Premises is August _____, 2020, and the Lease Expiration date for the New Medical Device Manufacturing Area shall be January 28, 2025.

4.New Medical Device Manufacturing Area Premises Delivery, Condition and Tenant Work.

(a)On or before August 28^th, 2020, Landlord, at its sole cost and expense, shall deliver the New Medical Device Manufacturing Area Premises including the construction of a demising walls subject to Section 4(c) below, structural components, and all building systems (including HVAC, life safety systems and electrical systems) in good order and repair and fully operational to serve the demised premises for the permitted uses set forth in Section 6 below including general office use (the “Landlord Work”). In addition to the Landlord Work, Landlord shall cause all FF&E of the vacating tenant, Bauer Hockey, Inc. (“Bauer”) to be removed from the demised premises prior to delivery. In the event that the Tenant requires the Bauer FF&E to be removed prior to August 28^th, 2020 on an expedited basis, Tenant shall pay, upon presentation by Landlord of any invoices therefore, any additional cost incurred by Landlord in causing the removal of the Bauer FF&E on an expedited basis. For avoidance of doubt such amount shall be the difference in cost between removing the Bauer FF&E on or before the scheduled August 28^th date and the cost of removing the Bauer FF&E on or before an earlier date.

(b)Upon delivery of the demises premises to the Tenant shall be responsible for the installation, maintenance, and repair of any Supplemental HVAC Equipment, life safety systems, electrical systems, or other mechanical equipment that Tenant installs in the New Medical Device Manufacturing Area Premises to accommodate Tenant’s specific requirements, and Landlord shall have no responsibility for any such items.

(c)Regarding the demising wall being built to fully separate the demises premises from the space being retained by Bauer, Tenant shall have the option of (i) permitting Landlord to build the demising wall completely at Landlord’s sole cost and expense as set forth in Section 4(a); or (ii) requiring the Landlord to build the portion of the demising wall which faces the space being retained by Bauer and the Tenant building the remaining portion of the demising wall facing into the demised premises. In the event Tenant chooses to procced with (ii) it shall notify the Landlord prior to Landlord’s commencement of construction of the demising wall and Landlord shall provide Tenant a rent credit of $2,500.00. Landlord shall also provide to Tenant upon request the full cost and back-up invoices, quotes, and payment receipts verifying the cost of building the demising wall.

(d)Subject to Section 4(c), Landlord shall demise the New Medical Device Manufacturing Area Premises at its sole cost and shall install an access door as shown on the Floor Plan attached as Exhibit A. Landlord covenants and represents that the foregoing work shall be completed in a good and workmanlike manner and in compliance with all applicable legal requirements, codes and regulations. Landlord’s delivery of the demised premises shall be as soon as possible after a lease amendment has been signed with Bauer, but in no event later than August 28^th, 2020. Tenant shall have a period of two (2) business days to inspect the demised premises to make sure it is in good order and repair and shall provide written notice to Landlord of any deficiencies that must be corrected before Tenant begins its improvements. In the event Tenant is not satisfied with the inspection, Tenant shall notify Landlord and Landlord shall immediately (within 5 calendar days) correct such deficiencies. If Landlord fails to correct such deficiencies, Tenant may undertake the remaining Landlord Work and offset any costs and expenses against Rent. Tenant shall be allowed to make improvements to the New Medical Device Manufacturing Area Premises as set forth in this paragraph. Tenant shall perform all work necessary to permit Tenant to operate the New Medical Device Manufacturing Area Premises for its intended use and in such a manner that shall not unreasonably interfere with other tenants in the Building ("Tenant's Work"). Tenant shall not commence any of Tenant's Work until Tenant has developed with its architect at its sole cost and expense and submitted to Landlord "Space Plans" (in such detail as Landlord shall reasonably require) for such work and Landlord has approved such plans in writing. Upon execution of this Amendment, Tenant shall thereafter engage its architect at its sole cost and expense to prepare plans and specifications for the build-out of the New Medical Device Manufacturing Area Premises ("Build-Out Plans"), which plans and specifications shall be submitted to Landlord for its reasonable approval. Tenant's Work shall be performed in accordance with such approved Space Plans and Build-Out Plans and in accordance with the terms and conditions of this Lease and shall be performed by contractor(s) approved by Landlord, which approval shall not be unreasonably withheld or delayed.

(e)Tenant shall commence Tenant's Work promptly after receipt of Landlord's approval of Tenant's Space Plans and Build-Out Plans and shall diligently prosecute the same to completion. Landlord's approval of Tenant's Space Plans and Build-Out Plans for Tenant's Work shall create no responsibility or liability on the part of Landlord for their completeness, design sufficiency, or compliance with all laws, rules and regulations of governmental agencies or authorities. Prior to beginning Tenant's Work, Tenant shall obtain all necessary permits, including but not limited to zoning and building permits, and, if required by law, obtain appropriate performance and payment bonds covering the labor and materials required to complete Tenant's Work. Prior to beginning Tenant's Work, Tenant shall also deliver to Landlord and Landlord's Mortgagee, at Tenant's cost, a builder's risk insurance policy naming Landlord and Landlord's Mortgagee as additional insureds, as their interests may appear, with the amount and type of coverage being

reasonably required by Landlord and Landlord's Mortgagee and otherwise in compliance with the requirements for insurance set forth in the Lease, together with evidence that the premium for said insurance has been paid in full by Tenant in accordance with the terms of the policy. Tenant covenants and represents that the foregoing work shall be completed in a good and workmanlike manner and in compliance with all applicable legal requirements. Tenant's Work shall be deemed to be "Substantially Complete" upon delivery by Tenant's architect of a Certificate of Substantial Completion and the issuance of a certificate of occupancy by the applicable municipal authority.

5.Landlord Concessions. The parties acknowledge that to make the New Medical Device Manufacturing Premises available to Tenant, Landlord has had to provide a concession in the amount of up to $40,000 to Bauer, the tenant who is giving up the space in the Building that will become the New Medical Device Manufacturing Premises, for the purpose of retrofitting Bauer’s remaining office space. Landlord shall be responsible to pay up to $20,000, and Tenant shall be responsible to pay up to $20,000 of the actual expenses incurred on a 50/50 basis for said work.

6.Use. Tenant intends to use the New Medical Device Manufacturing Premises for medical device manufacturing, research and development of processes and products for Tenant, and office space. Landlord has conditionally granted Tenant the right to use the New Medical Device Manufacturing Area Premises for such use, provided Tenant complies with the following conditions: (i) Tenant substantially complies with the Space Plans and Build-Out Plans set forth in Section 4 herein.

7.Brokerage. Landlord and Tenant each represent and warrant to the other that it has dealt with Deane Navaroli of William & Reeves, Commercial Real Estate (“Broker”) and no other agents, brokers, finders or other parties. Only Broker shall be entitled to any commission or fee with respect to this Fourth Amendment or the Premises or the Property. Landlord and Tenant each agree to indemnify and hold the other party harmless from any claim, demand, cost or liability, including, without limitation, attorneys' fees and expenses, asserted by any such party based upon dealings with that party. Landlord shall be responsible to compensate Broker pursuant to a separate agreement.

8.Ratification of Lease; No Other Amendments. In all other respects, the terms and provisions of the Existing Lease are ratified and reaffirmed hereby, are incorporated herein by this reference and shall be binding upon the parties to this Fourth Amendment. Tenant represents and warrants to Landlord that, solely as of the date of this Fourth Amendment, (a) Tenant is not in default under the terms of the Existing Lease, (b) to the best of Tenant's knowledge, Landlord is not in default under the terms of the Existing Lease; and (c) Landlord has completed all work required under the Existing Lease, if any. As of the date of this Fourth Amendment, Tenant further acknowledges that Tenant currently has no defenses, offsets, claims or counterclaims against Landlord under the Existing Lease or against the obligations of Tenant under the Existing Lease.

9.Definitions. All capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Existing Lease.

10.Conflicts. Any inconsistencies or conflicts between the terms and provisions of the Existing Lease and the terms and provisions of this Fourth Amendment shall be resolved in favor of the terms and provisions of this Fourth Amendment.

11.Execution. The submission of this Fourth Amendment shall not constitute an offer, and this Fourth Amendment shall not be effective and binding unless and until fully executed and delivered by each of the parties hereto. Tenant and Landlord each represents and warrants for itself that all requisite organizational action has been taken in connection with this transaction, and the individual or individuals

signing this Fourth Amendment on behalf of Tenant and Landlord represent and warrant that they have been duly authorized to bind the Tenant and Landlord by their signatures.

12.Counterparts. This Fourth Amendment may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Additionally, telecopied or pdf signatures may be used in place of original signatures on this Fourth Amendment. Landlord and Tenant intend to be bound by the signatures on the telecopied or pdf document, are aware that the other party will rely on the telecopied or pdf signatures, and hereby waive any defenses to the enforcement of the terms of this Fourth Amendment based on the form of signature.

13.Modifications. This Fourth Amendment shall not be modified except in writing signed by both parties hereto.

14.Construction. The parties acknowledge and agree that this Fourth Amendment was negotiated by all parties, that this Fourth Amendment shall be interpreted as if it was drafted jointly by all of the parties, and that neither this Fourth Amendment, nor any provision within it, shall be construed against any party or its attorney because it was drafted in whole or in part by any party or its attorney.

15.Limitation of Landlord Liability. Redress for any claims against Landlord under the Existing Lease and this Fourth Amendment shall only be made against Landlord to the extent of Landlord's interest in the property to which the Premises are a part. The obligations of Landlord under the Existing Lease and this Fourth Amendment shall not be personally binding on, nor shall any resort be had to the private properties of, any of its trustees or board of directors and officers, as the case may be, the general partners thereof or any beneficiaries, stockholders, employees or agents of Landlord, or the investment manager.

16.Amendment to Notice of Lease. Landlord and Tenant shall record an Amendment to and Restatement of the Notice of Lease in the form attached hereto as Exhibit B.

17.Utilities. Tenant shall pay for all utilities in the Premises on the terms and conditions set forth in the Existing Lease. To the extent that any utilities for any portion of the Premises are not sub-metered, Tenant shall pay its Proportionate Share for the utilities in such portions of the Premises. Landlord shall allow separate metering in such portions of the Premises if Tenant is able to obtain separate metering for any utilities. Landlord shall, at Landlord's sole cost and expense, install any such meter or sub-meter.

18.Right of First Offer. Landlord warrants that the rights described in Exhibit F to the Existing Lease have been waived and satisfied for purposes of this Fourth Amendment.

19.Governing Law. This Fourth Amendment shall be governed, construed and interpreted in accordance with the laws of the state in which the Property is located.

IN WITNESS WHEREOF, the parties hereto have executed this Fourth Amendment of Lease as of the date first above written.

LANDLORD

100 DOMAIN DRIVE EI LLC,
a Delaware limited liability company,
as tenancy in common administrator

By:	100 Domain Drive EI Managing Member LLC,
	A Delaware limited liability company


	By:	/s/ Vincent MacNutt
		Vincent MacNutt, Its Manager
		Duly Authorized


TENANT

VAPOTHERM, INC.,
A Delaware corporation


	By:	/s/ John Landry
	Name:	John Landry
	Its:	Chief Financial Officer
	Duly Authorized

EXHIBIT A

NEW MEDICAL DEVICE MANUFACTURING AREA PREMISES

EXHIBIT B

Return To:

Smith Duggan Buell & Rufo LLP

101 Arch Street, Suite 1950

Boston, MA 02110-1118

Attn: Paul Alan Rufo, Esq.

AMENDMENT TO AND RESTATEMENT OF NOTICE OF LEASE

WITH NOTICE OF RIGHT OF FIRST OFFER TO LEASE ADDITIONAL SPACE

Pursuant to the provisions of NH RSA 477:7-a, this notice amends and restates that certain Notice of Lease with Notice of Right of First Offer to Lease Additional Space dated September 11, 2017 and recorded at the Rockingham County Registry of Deeds at Book , Page .

Name and Address of Landlord/Lessor:

100 Domain Drive EI, LLC

60 Thoreau Street #262

Concord, MA 01742

Name and Address of Tenant/Lessee:

Vapotherm, Inc.

100 Domain Drive

Exeter, New Hampshire 03833

Date of Execution of the Lease:

The original Lease was originally executed and delivered on September 30, 2016 and has been amended by a First Amendment to Lease (the "First Amendment") on August 31^s^t_, 2017, by a Second Amendment to Lease (the “Second Amendment”) on June 6, 2018, a third amendment dated July 26, 2018 (the “Third Amendment”) and a fourth amendment dated August 1, 2020 (the “Fourth Amendment”). The original Lease as amended by the First Amendment, the Second Amendment, Third Amendment and Fourth Amendment shall be referred to herein collectively as the "Lease".

Description of Lease Premises:

A total of 95,320 +/- square feet of manufacturing, storage, research and development, and office space within a building containing 263,486 rentable square foot located at 100/150 Domain Drive, Exeter New Hampshire together with a non-exclusive right with other tenants of the Building to use all common areas and facilities, all of which are situated on the land described in Exhibit A. All of the above-described space is depicted on plans attached to the Lease.

Term; Date of Commencement, Extension Options:

The Term of the Lease will run for Seven (7) years commencing on January 28, 2018, and ending on January 28, 2025. Thereafter, the Tenant has two additional five (5) year options to renew subject to the provisions of the Lease.

Right of First Offer: Tenant has the right of first offer to lease all space within the Building, subject to the rights of any existing tenants.

THIS NOTICE IS SUBJECT TO AND WITH THE BENEFIT OF THE SAME TERM RESTRICTIONS AND CONDITIONS CONTAINED IN THE ORIGINAL EXECUTED INSTRUMENT. THIS NOTICE OF LEASE IS EXECUTED ONLY FOR THE PURPOSE GIVING NOTICE OF THE EXISTENCE OF THE LEASE AND IS NOT INTENDED TO MODIFY, EXPAND OR REDUCE ANY OF THE RIGHTS OF THE LANDLORD OR THE TENANT SET FORTH IN THE LEASE. IN THE EVENT OF ANY CONFLICT OR INCONSISTENCY BETWEEN THE TERMS HEREOF AND THE TERMS OF THE LEASE THE TERMS OF THE LEASE SHALL GOVERN.

[Remainder of Page Intentionally Blank. Signature Page to Follow]

Executed this _____ day of _______________, 2020.

LANDLORD

100 DOMAIN DRIVE EI LLC,

a Delaware limited liability company,

as tenancy in common administrator


By:	100 Domain Drive EI Managing Member LLC,
	A Delaware limited liability company


	By:
		Vincent MacNutt, Its Manager
		Duly Authorized



Witness

COMMONWEALTH OF MASSACHUSETTS

COUNTY OF ______________

On this ___ day of July, 2020, before me, the undersigned notary public, personally appeared Vincent MacNutt, as Manager of 100 Domain Drive EI Managing Member LLC, Manager of 100 Domain Drive EI LLC, a Delaware limited liability company, and proved to me through satisfactory evidence of identification, □ Driver’s License or other state or federal governmental document bearing a photographic image, □ oath or affirmation of a credible witness known to me who knows the above signatory, □ or my own personal knowledge of the identity of the signatory, to be the person whose name is signed on the preceding or attached document, and duly acknowledged to me that he executed the same on behalf of 100 Domain Drive EI LLC for the purposes stated therein, as his free act and deed and the free act and deed of 100 Domain Drive EI LLC and who swore or affirmed to me that the contents of the document are truthful and accurate to the best of his knowledge and belief.



Notary Public
Print Name:
My Commission Expires:

3 9085 7

TENANT

VAPOTHERM, INC.,
A Delaware corporation


	By:
	Name:
	Its:
	Duly Authorized


Witness

STATE OF NEW HAMPSHIRE

COUNTY OF ______________

The foregoing instrument was acknowledged before me this ______ day of _______________, 2020, by ____________________, as ______________________________________ of Vapotherm, Inc., a Delaware corporation.



Notary Public
Print Name:
My Commission Expires:

3 9085 7

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph Army, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Vapotherm, 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 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.

/s/ JOSEPH ARMY

Joseph Army

President and Chief Executive Officer

(Principal Executive Officer)

Date: November 4, 2020

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John Landry, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Vapotherm, 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.

/S/ JOHN LANDRY

John Landry

Vice President and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

Date: November 4, 2020

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Vapotherm, Inc. (the “Company”) for the quarterly period ended September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Joseph Army, President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

This certificate is being furnished solely for purposes of Section 906 and is not being filed as part of the Report.

/s/ JOSEPH ARMY

Joseph Army

President and Chief Executive Officer

(Principal Executive Officer)

Date: November 4, 2020

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Vapotherm, Inc. (the “Company”) for the quarterly period ended September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, John Landry, Vice President and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

This certificate is being furnished solely for purposes of Section 906 and is not being filed as part of the Report.

/s/ JOHN LANDRY

John Landry

Vice President and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

Date: November 4, 2020