ConforMIS,Conformis, Inc. and its subsidiaries (the “Company”) is a medical technology company that uses its proprietary iFit Image-to-Implant technology platform to develop, manufacture and sell joint replacement implants that are individually sized and shaped, which the Company refers to as customized, to fit each patient’s unique anatomy. The Company’s proprietary iFit® technology platform is potentially applicable to all major joints. The Company offers a broad line of customized knee implants designed to restore the natural shape of a patient’s knee.

The Company was incorporated in Delaware and commenced operations in 2004. The Company introduced its iUni and iDuo in 2007, its iTotal CR in 2011, and its iTotal PS in 2015.2015, and its Conformis Hip System in 2018 through a limited commercial launch. The Company has its corporate offices in Billerica, Massachusetts.

Since the Company’s inception in June 2004, it has financed its operations primarily through private placements of preferred stock, its initial public offering in July 2015, bank debt and convertible debt financings, equity financings, equipment purchase loans, and product revenue beginning in 2007. The Company has not yet attained profitability and continues to incur operating losses and negative operating cash flows, which adversely impacts the Company's ability to continue as a going concern. At September 30, 2017,March 31, 2019, the Company had an accumulated deficit of $425.0 million.

On January 6, 2017, the Company entered into a senior secured $50 million loan and security agreement (the "2017 Secured Loan Agreement") with Oxford Finance LLC ("Oxford"). Through the term loan facility with Oxford, the Company and accessed the initial $15 million of borrowings on January 6, 2017at closing (the "Term A Loan"), and anotheran additional $15 million of borrowings under Term Loan B on June 30, 2017 with an additional $20 million available, at its option, through June 2018, subject(the "Term B Loan"). Pursuant to a fifth amendment to the satisfaction2017 Secured Loan Agreement (the "Fifth Amendment"), on December 13, 2018, the Company pre-paid $15 million aggregate principal amount of certainthe $30 million outstanding principal amount, as a pro rata portion of the Term A Loan and Term B Loan, together with accrued and unpaid interest thereon and a pro rata prepayment fee.

The Fifth Amendment also reduced revenue milestones and customary drawdown conditions. For further information regarding this facility, see “Note L-Debt and Notes Payable-2017required by the 2017 Secured Loan Agreement”Agreement through December 31, 2019. New minimum revenue milestones, based on product revenue projections, are to be established prior to the consolidated financial statements appearingstart of 2020 and prior to the start of each fiscal year thereafter by the mutual agreement of Oxford and the Company. If the Company is not able to agree with Oxford on new minimum revenue milestones for 2020 or a fiscal year thereafter, the Company must refinance the 2017 Secured Loan Agreement by March 31, 2020 or that next fiscal year, and if the Company fails to refinance the 2017 Secured Loan Agreement, the Company must notify Oxford of such default and Oxford would be permitted to exercise remedies against the Company and its assets in this Quarterly Reportrespect of such event of default, including taking control of our cash and commencing foreclosure proceedings on Form 10-Q.our other assets.

The initial principal payment on the 2017 Secured Loan Agreement is due on February 1, 2020. The Company intends to refinance the 2017 Secured Loan Agreement before the interest only period ends and the principal repayments begin in January 2020. The Company may not be able to refinance or obtain additional financing on terms favorable to us, or at all. To the extent that the Company raises additional capital through the future sale of equity or debt, the ownership interest of our stockholders will be diluted. The terms of these future equity or debt securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders or involve negative covenants that restrict our ability to take specific actions, such as incurring additional debt or making capital expenditures. If the Company is unable to refinance the 2017 Secured Loan Agreement before the interest only period ends or shortly thereafter, then the Company will be required to make principal repayments beginning in January 2020 which will require the Company to raise additional capital through the sale of equity and the ownership interest of our stockholders will be diluted.

In January 2017, the Company filed a shelf registration statement on Form S-3, withwhich was declared effective by the SEC.SEC on May 9, 2017 (the "Shelf Registration Statement"). The shelf registration statementShelf Registration Statement allows the Company to sell from time to time up to $200 million of common stock, preferred stock, debt securities, warrants, or units comprised of any combination of these securities, for its own account in one or more offerings. The shelf registration statement is intended to provide the Company flexibility to conduct sales of its registered securities, subject to market conditions and our future capital needs. The terms of any offering under the shelf registration statement will be established at the time of such offering and will be described in one or more prospectus supplement filed with the SEC prior to the completion of any such offering.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. The most significant estimates used in these consolidated financial statements include the valuation ofrevenue recognition, accounts receivable valuation, inventory reserves, intangible valuation, purchase accounting, impairment assessments, equity instruments, impairment assessments,stock compensation, income tax reserves and related allowances, and the lives of property and equipment.equipment, and valuation of right-of-use lease assets and lease liabilities. Actual results may differ from those estimates. The interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2018.

The Company and its contract manufacturers rely on sole source suppliers and service providers for certain components. There can be no assurance that a shortage or stoppage of shipments of the materials or components that the Company purchases will not result in a delay in production or adversely affect the Company’s business. TheOn an on-going basis, the Company is in the process of validatingvalidates alternate suppliers relative to certain key components which are expected to be phased in during the coming periods.as needed.

For the three and nine months ended September 30, 2017March 31, 2019 and 2016,2018, no customer represented greater than 10% of revenue. There were no customers that represented greater than 10% of the total gross receivable balance as of September 30, 2017March 31, 2019 or December 31, 2016.2018.

Certain of the Company’s financial instruments, including cash and cash equivalents excluding(excluding money market funds,funds), accounts receivable, accounts payable, accrued expenses and other liabilities are carried at cost, which approximates their fair value because of the short-term maturity. Based on borrowing rates currently available

The Company does not have any contract assets or liabilities with customers. Unconditional rights to consideration are reported as receivables. Incidental items that are immaterial in the context of the contract are recognized an initial $5.1 million in aggregate as deferred royaltyexpense.

The Company’s policy is to present taxes collected from customers and remitted to government authorities on a net basis and not to include tax amounts in revenue.

The Company’s research and development costs consist of engineering, product development, quality assurance, clinical and regulatory expense. These costs primarily relate to employee compensation, including salary, benefits and stock-based compensation. The Company also incurs costs related to consulting fees, revenue share, materials and supplies, and marketing studies, including data management and associated travel expense. Research and development costs are expensed as incurred.

In evaluating the need for a valuation allowance, the Company considers all reasonably available positive and negative evidence, including recent earnings, expectations of future taxable income and the character of that income. In estimating future taxable income, the Company relies upon assumptions and estimates of future activity including the reversal of temporary differences. Presently, the Company believes that a full valuation allowance is required to reduce deferred tax assets to the amount expected to be realized.

The tax benefit from an uncertain tax position is only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from these positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company reviews its tax positions on an annual basis and more frequently as facts surrounding tax positions change. Based on these future events, the Company may recognize uncertain tax positions or reverse current uncertain tax positions, the impact of which would affect the consolidated financial statements.

The determination of the fair value of stock-based payment awards utilizing the Black-Scholes option pricing model is affected by the stock price, exercise price, and a number of assumptions, including expected volatility of the stock, expected life of the option, risk-free interest rate and expected dividends on the stock. The Company evaluates the assumptions used to value the awards at each grant date and if factors change and different assumptions are utilized, stock-based compensation expense may differ significantly from what has been recorded in the past. If there are any modifications or cancellations of the underlying unvested securities, the Company may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. See “Note N—Stockholders’ Equity” for a summary of the stock option activity under the Company’s stock-based compensation plan.

The following table sets forth potential shares of common stock equivalents that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive as of the end of each period presented:

Certain amounts in prior periods have been reclassified to conform to the FASB issued ASU No. 2014-9, “Revenuecurrent period presentation. The Company reclassified the cash flow presentation of unrealized foreign currency transaction gains or losses resulting from Contracts with Customers (Topic 606)”. ASU 2014-9 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitledchanges in exchange for those goods or services. In applyingrates between the revenue model to contracts within its scope, an entity identifies the contract(s) with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to the performance obligations in the contract, and recognizes revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers that are within the scope of other topics in the FASB Accounting Standards Codification. ASU 2014-09 also requires significantly expanded disclosures about revenue recognition. Companies have the option of using either a full retrospective or a modified retrospective approach to adopt the guidance. In March 2016, the FASB

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs, other than Level 1 prices, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The Company's investment policy is consistent with the definition of available-for-sale securities. All investments have been classified within Level 1 or Level 2 of the fair value hierarchy because of the sufficient observable inputs for revaluation. The Company's Level 1 cash and equivalents and investments are valued using quoted prices that are readily and regularly available in the active market. The Company’s Level 2 investments are valued at par value or using third-party pricing sources based on observable inputs, such as quoted prices for similar assets at the measurement date; or other inputs that are observable, either directly or indirectly.

    

The following table summarizes, by major security type, the Company's assets that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy and where they are classified on the Consolidated Balance Sheets (in thousands):

Accounts receivable consisted of the following (in thousands):

Summary of allowance for doubtful accounts and returns activity was as follows (in thousands):

Inventories consisted of the following (in thousands):

Property and equipment consisted of the following (in thousands):

Depreciation expense related to property and equipment was $0.9$1.0 million and $0.7$0.9 million for the three months ended September 30, 2017March 31, 2019 and 2016,2018, respectively. Depreciation expense related to property and equipment was $2.5 million and $2.1 million for the nine months ended September 30, 2017 and 2016, respectively. During the three and nine months ended September 30, 2017, the Company recorded an impairment of $0.8 million related to the discontinuance of a software capital project. During the three and nine months ended September 30, 2016 the Company recorded $0.1 million in impairment charges in connection with certain manufacturing equipment previously purchased that was returned to the seller in exchange for a credit toward future purchase, which value is less than the book value of the equipment.

The components of intangible assets consisted of the following (in thousands):

The estimated future aggregated amortization expense for intangible assets owned as of September 30, 2017March 31, 2019 consisted of the following (in thousands):

Accrued expenses consisted of the following (in thousands):

The Company maintains its corporate headquarters in a leased building located in Billerica, Massachusetts. The Company moved its corporate headquarters from Bedford, Massachusetts in April 2017. The Company maintains its manufacturing facilityfacilities in a leased buildingbuildings located in Wilmington, Massachusetts.Massachusetts and Wallingford, Connecticut.

The Billerica facility is leased under a long-term, non-cancellableCompany's leases have remaining lease that is scheduledterms of approximately one to expire in October 2025. The Company leased the Bedford facility under a long-term, non-cancellable sublease that was set to expire in April 2017. In April 2017, the Company and the landlordseven years, some of the Bedford facility agreed to a holdover of 30 days beyond the lease termination through May 31, 2017, which subsequently expired.

The Company is party to revenue share agreements with certain past and present members of its scientific advisory board under which these advisors agreed to participate on itsa scientific advisory board and to assist with the development of the Company’s customized implant products and related intellectual property. These agreements provide that the Company will pay the advisor a specified percentage of the Company’s net revenues,revenue, ranging from 0.1% to 1.33%, with respect to the Company’s products on which the advisor made a technical contribution or, in some cases, which the Companyproducts covered by a claimone or more claims of one of itsor more Company patents on which the advisor is a named inventor. The specific percentage is determined by reference to product classifications set forth in the agreement and is often tiered based on the level of net revenuesrevenue collected by the Company on such product sales. The Company’s payment obligations under these agreements typically expire a fixed number of years after expiration or termination of the agreement or a fixed number of years after the first sale of a product, but in some cases expire on a product-by-product basis or expiration of the last to expire of the Company’s patents where the advisor is a named inventor that claims the applicable product.

In the ordinary course of business, the Company is a party to certain non-cancellable contractual obligations typically related to product royalty and research and development and marketing services.development.  The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. In accordance with its bylaws, the Company has indemnification obligations to its

Long-term debt consisted of the following (in thousands):

    

The principalPrincipal payments due as of September 30, 2017March 31, 2019 consisted of the following (in thousands):

On January 6, 2017, the Company entered into a senior secured $50 million loan and security agreement with Oxford, the 2017 Secured Loan Agreement.Agreement with Oxford. Through the t20172017 Secured Loan Agreement, the Company initially accessed $15 million of borrowings, withunder Term Loan A at closing and an additional $15 million of borrowings under Term Loan B on June 30, 2017. On December 13, 2018, the Company entered into a fifth amendment (the "Term B Loan""Fifth Amendment"), and $20 million of borrowings, (the "Term C Loan"), available to borrow, at its option, through December 2017 and June 2018, respectively, subject to the satisfaction of certain revenue milestones and customary drawdown conditions. On March 9, 2017, the 2017 Secured Loan Agreement, with Oxford, was amendedand pursuant to include an additional revenue milestone in order forthe Fifth Amendment, the Company pre-paid $15 million aggregate principal amount of the $30 million outstanding principal amount, as a pro rata portion of the Term A Loan and Term B Loan, together with accrued and unpaid interest thereon and a pro rata prepayment fee. Under the Fifth Amendment, the Company's cash collateral requirements was reduced to drawdown$5 million.

The Fifth Amendment also reduced the secondrevenue milestones through December 31, 2019. New minimum revenue milestones, based on product revenue projections, are to be established prior to the start of 2020 and third tranches.  On June 30, 2017,prior to the start of each fiscal year thereafter by the mutual agreement of Oxford and the Company. If the Company is not able to agree with Oxford on new minimum revenue milestones for 2020 or a fiscal year thereafter, the Company will have to refinance the 2017 Secured Loan Agreement was further amended to, among other things, amend the period during whichby March 31, 2020 or that next fiscal year, and if the Company was ablefails to borrow the second term loan underrefinance the 2017 Secured Loan Agreement, and also to amend the associated financial covenants of the Company. Amending the 2017 Secured Loan Agreement made the Term B Loan available to the Company throughmust notify Oxford of such default and Oxford would be permitted to exercise remedies against the earlierCompany and our assets in respect of (i) June 30, 2017, or (ii) ansuch event of default, under the 2017 Secured Loan Agreement. Concurrently,including taking control of our cash and commencing foreclosure proceedings on June 30, 2017, the Company drew down Term B Loan. Except as modified by the amendment, all terms and conditions of the 2017 Secured Loan Agreement remain in full force and effect.  The proceeds of the Term B Loan will be used to fund the Company’s ongoing working capital needs.our other assets.

Common stockholders are entitled to dividends as and when declared by the board of directors, subject to the rights of holders of all classes of stock outstanding having priority rights as to dividends. There have been no dividends declared to date. The holder of each share of common stock was entitled to one vote.

Activity under all stock option plans was as follows:

Restricted common stock award activity under the plan was as follows:

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of stock-based payment awards on the date of grant using a pricing model is affected by the value of the Company’s common stock as well as assumptions regarding a number of complex and subjective variables. The valuation of the Company’s common stock prior to the IPO was performed with the assistance of an independent third-party valuation firm using a methodology that includes various inputs including the Company’s historical and projected financial results, peer company public data and market metrics, such as risk-free interest and discount rates. As the valuations included unobservable inputs that were primarily based on the Company’s own assumptions, the inputs were considered level 3 inputs within the fair value hierarchy.

    

The fair value of options at date of grant was estimated using the Black-Scholes option pricing model, based on the following assumptions:

Stock-based compensation expense was $1.4$1.1 million and $0.9 million for the three months ended September 30, 2017March 31, 2019 and 2016, and $4.1 million and $3.5 million for the nine months ended September 30, 2017 and 2016,2018, respectively.  Stock-based compensation expense was calculated based on awards ultimately expected to vest. To date, the amount of stock-based compensation capitalized as part of inventory was not material.

As of September 30, 2017,March 31, 2019, the Company had $3.2$1.1 million of total unrecognized compensation expense for options that will be recognized over a weighted average period of 3.182.25 years. As of September 30, 2017,March 31, 2019, the Company had $7.7$4.1 million of total unrecognized compensation expense for restricted awards that will be recognized over a weighted average period of 2.682.29 years.

The Company operates as one reportable segment as described in Note B to the Consolidated Financial Statements. The countries in which the Company has local revenue generating operations have been combined into the following geographic areas: the United States (including Puerto Rico), Germany and the rest of world, which consists predominately of Europe predominately (including the United Kingdom) and other foreign countries. Sales are attributable to a geographic area based upon the customer’s country of domicile. Net property, plant and equipment are based upon physical location of the assets.

Geographic information consisted of the following (in thousands):