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Stockholders' Equity

3 Months Ended

Mar. 31, 2023

Stockholders’ Equity

Common stock

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.

On March 30, 2021, the Company's board of directors adopted a resolution approving a Certificate of Amendment to the Company's Restated Certificate of Incorporation to increase the Company's number of authorized shares of Common Stock from 200,000,000 to 300,000,000 (the “Certificate of Amendment”). The Company's stockholders approved the Certificate of Amendment at the 2021 Annual Meeting. The total number of the Company's authorized common stock was decreased to 20,000,000 after giving effect to the Reverse Stock Split.

Reverse Stock Split

At the Company’s 2022 Annual Meeting of Stockholders, the Company’s stockholders approved a proposed amendment to the Company’s Restated Certificate of Incorporation to effect a reverse stock split of all of the Company’s outstanding shares of common stock by one of several fixed ratios between 1-for-2 and 1-for-10 and to correspondingly decrease the number of authorized shares of the Company’s common stock as disclosed in the Company’s proxy statement for the 2022 Annual Meeting of Stockholders. The reverse stock split was proposed to address the Company’s current non-compliance with Nasdaq’s $1.00 per share minimum bid price requirement.

On October 26, 2022, the Company held a Special Meeting of Stockholders and the Company’s stockholders approved an additional proposed amendment to the Company’s Restated Certificate of Incorporation to effect a reverse stock split of all of the Company’s outstanding shares of common stock by one of three fixed ratios, 1-for-15, 1-for-20 and 1-for-25, and to correspondingly adjust the number of authorized shares of the Company’s common stock by the approved ratio, 1-for-9, 1-for-12 and 1-for-15, respectively (the “Updated Reverse Stock Split Proposal”), as disclosed in the Company’s proxy statement for the October 26, 2022 Special Meeting of Stockholders. The Updated Reverse Stock Split Proposal amendment was proposed to address the Company’s current non-compliance at such time with Nasdaq’s $1.00 per share minimum bid price requirement.

The Company’s Board of Directors determined to proceed with implementing the 1-for-25 reverse stock split that was approved by shareholder on October 26, 2022, and such 1-for-25 reverse stock split was implemented in November 2022 (the “Reverse Stock Split”) . As a result of the Reverse Stock Split, each of the holders of the Company’s Common Stock received one (1) new share of Common Stock for every twenty-five (25) shares such shareholder held immediately prior. Fractional shares as a result of the Reverse Stock Split were paid in cash. The Reverse Stock Split also affected the Company’s outstanding stock options and warrants and resulted in the number of shares underlying such instruments being reduced and the exercise price being increased proportionately to the Reverse Stock Split ratio.

All share and per share information in this report has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated. The total number of the Company’s authorized shares of preferred stock was not affected by the foregoing. However, the total number of the Company's authorized common stock was decreased to 20,000,000. In connection with the Reverse Stock Split, there was no change in the par value per share of $0.00001.

Preferred stock

The Company’s Restated Certificate of Incorporation authorizes the Company to issue 5,000,000 shares of preferred stock, $0.00001 par value, all of which is undesignated. No shares were issued and outstanding at March 31, 2023 and December 31, 2022.

Demand registration rights

In conjunction with a private placement, on June 25, 2019, the Company entered into a registration rights agreement (the "Registration Rights Agreement") with Innovatus, Innovatus Life Science Offshore Fund I, LP and Innovatus Life Sciences Offshore Fund I-A, LP (collectively, the "Innovatus Investors") pursuant to which the Company agreed to register for resale the shares held by the Innovatus Investors (the “Shares”) under certain circumstances. Under the Registration Rights Agreement, in the event that the Company receives a written request

from the Innovatus Investors that the Company file with the SEC a registration statement covering the resale of all of the Shares, the Company shall promptly but no later than 120 days after the date of such request prepare and file with the SEC such registration statement. The Innovatus Investors have agreed to use best efforts not to make such a request, including by effecting any planned sales of Shares under Rule 144 under the Securities Act. The Company has agreed to use commercially reasonable efforts to cause such registration statement to become effective and to keep such registration statement effective until the date the Shares covered by such registration statement have been sold or may be resold pursuant to Rule 144 without restriction. The Company has agreed to be responsible for all fees and expenses incurred in connection with the registration of the Shares. The Company has granted the Innovatus Investors customary indemnification rights in connection with the registration statement. The Innovatus Investors have also granted the Company customary indemnification rights in connection with the registration statement.

Incidental registration rights

If the Company proposes to file a registration statement in connection with a public offering of its common stock, subject to certain exceptions, the holders of registrable shares are entitled to notice of registration and, subject to specified exceptions, including market conditions, the Company will be required, upon the holder’s request, to register their then held registrable shares.

"At-the-market” program

On March 23, 2020, the Company filed a shelf registration statement on Form S-3 (the "Shelf Registration Statement"), which was declared effective by the SEC on August 5, 2020. Under the Shelf Registration Statement, the Company is permitted 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. On August 5, 2020, the Company filed with the SEC a prospectus supplement, for the sale and issuance of up to $25 million of its common stock and entered into a sales agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”) pursuant to which the Company may offer and sell shares of the Company’s common stock to or through Cowen, acting as agent and/or principal, from time to time, in an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act, including without limitation sales made by means of ordinary brokers’ transactions on the NASDAQ Capital Market or otherwise at market prices prevailing at the time of sale, in block transactions, or as otherwise directed by the Company. Under the Sales Agreement, Cowen will use commercially reasonable efforts to sell the Common Stock from time to time, based upon instructions from the Company (including any price, time or size limits or other customary parameters or conditions the Company may impose). The Company will pay Cowen a commission of up to 3.0% of the gross sales proceeds of any Common Stock sold through Cowen under the Sales Agreement, and we have provided Cowen with customary indemnification rights. Any shares of Common Stock offered pursuant to the Sales Agreement will be offered and sold pursuant to the Shelf Registration Statement. The Company is not obligated to make any sales of Common Stock under the Sales Agreement. The offering of shares of Common Stock pursuant to the Sales Agreement will terminate upon the earlier of (i) the sale of all Common Stock subject to the Sales Agreement or (ii) termination of the Sales Agreement in accordance with its terms. As of the date hereof, the Company has not sold any shares under the Sales Agreement.

2021 common stock offering

On February 17, 2021, the Company closed an offering of its common stock under the Shelf Registration Statement and issued and sold 3,238,095 shares of its common stock at a public offering price of $26.25 per share (adjusted for the 1-for-25 reverse stock split), for aggregate net proceeds of approximately $79.6 million. The Company intends to use the net proceeds of the offering of the shares for general corporate purposes.

Registered direct offering

On September 23, 2020, the Company and a healthcare-focused institutional investor entered into a subscription agreement, pursuant to which the Company sold (i) 340,483 shares of its common stock and accompanying warrants to purchase up to 340,483 shares of common stock and (ii) pre-funded warrants to purchase up to 379,718 shares of common stock and accompanying warrants to purchase up to 379,718 shares of common stock in a registered direct offering (in each case, adjusted for the 1-for-25 reverse stock split) for gross proceeds of approximately $17.3 million. The common stock (or pre-funded warrants in lieu thereof) and accompanying warrants were sold as units, each consisting of one share (or one pre-funded warrant to purchase

one share of common stock in lieu thereof) and one warrant to purchase one share of common stock, at an offering price of $23.95 per unit.

The pre-funded warrants became exercisable immediately upon issuance, have an exercise price of $0.0025 per share and were exercisable until all of the pre-funded warrants were exercised in full. As of March 31, 2021, all pre-funded warrants were exercised. The warrants became exercisable immediately upon issuance, have an exercise price of $21.87 per share (adjusted for the 1-for-25 reverse stock split), and will expire five years from the date of issuance. The pre-funded warrants and the warrants each prohibit the holder from exercising any portion thereof to the extent that the holder would own more than 9.99% of the number of shares of common stock outstanding immediately after exercise. The number of shares issuable upon exercise of the warrants and pre-funded warrants and the exercise price of the warrants and pre-funded warrants is adjustable in the event of stock splits, stock dividends, combinations of shares and similar recapitalization transactions. The net proceeds to the Company from the offering, after deducting the placement agent's fees and other estimated offering expenses payable by the Company, was approximately $15.9 million.

Warrants

The Company has issued warrants to certain investors and consultants to purchase shares of the Company’s common stock. Based on the Company’s assessment of the warrants granted in 2013 and 2014 relative to ASC 480, Distinguishing Liabilities from Equity, such warrants are classified as equity. According to ASC 480, an entity shall classify as a liability any financial instrument, other than an outstanding share, that, at inception, both a) embodies an obligation to repurchase the issuer’s equity shares, or is indexed to such obligation and b) requires or may require the issuer to settle the obligation by transferring assets. The warrants do not contain any provision that requires the Company to repurchase the shares and are not indexed to such an obligation. The warrants also do not require the Company to settle by transferring assets. All of these warrants were exercisable immediately upon issuance.

In connection with the September 23, 2020 registered direct offering, the Company issued 379,718 pre-funded common stock warrants with an exercise price of $0.0025 per share and an additional 720,201 common stock warrants with an exercise price of $21.87 per share (in each case, adjusted for the 1-for-25 reverse stock split). All of these warrants are exercisable for one share of common stock and were exercisable immediately. As of March 31, 2023, approximately 240,000 of the common stock warrants have been exercised. The pre-funded warrants were exercisable indefinitely, while the additional warrants are exercisable for 5 years from the date of issuance. All pre-funded warrants were exercised. Based on the Company’s assessment of the warrants granted relative to ASC 480, Distinguishing Liabilities from Equity and ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, these warrants are classified as equity instruments. The fair value of the common stock warrants of approximately $10.2 million at the date of issuance was estimated using the Black-Scholes model which used the following inputs: term of 5 years, risk free rate of 0.28%, 0% dividend yield, volatility of 90.15%, an exercise price of $21.87 and share price of $20.83 per share based on the trading price of the Company’s common stock (adjusted for the 1-for-25 reverse stock split).

Warrants to purchase 480,837 shares of common stock were outstanding as of March 31, 2023 and December 31, 2022. Outstanding common stock warrants are currently exercisable with varying exercise expiration dates from 2024 through 2025. At March 31, 2023 and December 31, 2022, the weighted average warrant exercise price per share for common stock and the weighted average contractual life was as follows:


	Number of Common Stock Warrants*	Weighted Average Exercise Price Per Share*		Weighted Average Remaining Contractual Life	Number of Warrants Exercisable*	Weighted Average Price Per Share*
















Outstanding December 31, 2022	480,837	$	22.22	2.73	480,837	$	22.22
Granted	—	$	—	—	—	$	—

Exercised	—	—		—	—	—
Cancelled/expired	—	—		—	—	—
Outstanding March 31, 2023	480,837	$	22.22	2.48	480,837	$	22.22

*Adjusted for the 1-for-25 reverse stock split

Stock option plans

The 2015 Stock Incentive Plan ("2015 Plan") provides for an annual increase, to be added on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2016 and continuing until, and including, the fiscal year ending December 31, 2025, equal to the lesser of (a) 3,000,000 shares of the Company's common stock, (b) 3% of the number of share of its common stock outstanding on the first day of such fiscal year and (c) an amount determined by the Company's board of directors. Effective January 1, 2023, an additional 120,000 shares of the Company's common stock were added to the 2015 Plan under the terms of this provision (adjusted for the 1-for-25 reverse stock split), and at the 2021 Annual Meeting of Stockholders on May 24, 2021, the Company' Stockholders approved a First Amendment to the 2015 Plan to increase by 240,000 (adjusted for the 1-for-25 reverse stock split), the maximum number of shares of common stock available for issuance under the 2015 Plan ("Plan Amendment"). As of March 31, 2023, 315,063 shares of common stock were available for future issuance under the 2015 Plan (adjusted for the 1-for-25 reverse stock split).

On April 29, 2019, the stockholders approved the Conformis, Inc. 2019 Sales Team Performance-Based Equity Incentive Plan ("2019 Sales Team Plan") for up to 3,000,000 shares of common stock available to grant to certain sales representatives or independent sales agents. The 2019 Sales Team Plan provides for the grant of performance-based equity, including incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards. Shares covered by awards under the 2019 Sales Team Plan that expire or are terminated, surrendered, or cancelled without having been fully exercised or are forfeited in whole or in part (including as the result of shares subject to such award being repurchased by us at the original issuance price pursuant to a contractual repurchase right) or that result in any shares not being issued, will again be available for the grant of awards under the 2019 Sales Team Plan. Equity granted under the 2019 Sales Team Plan will expire ten years from the date of grant.

As of March 31, 2023, there were 94,481 shares of common stock available for future issuance under the 2019 Sales Team Plan (adjusted for the 1-for-25 reverse stock split).

Activity under all stock option plans was as follows:


	Number of Options*	Weighted Average Exercise Price per Share*		Aggregate Intrinsic Value (in Thousands)*












Outstanding December 31, 2022	175,783	$	44.76	$	—
Granted	—	—		—

Expired	(2,046)	158.55		—
Cancelled/Forfeited	—	—		—
Outstanding March 31, 2023	173,737	$	43.42	$	—

Total vested and exercisable	43,947	$	136.49	$	—

*Adjusted for the 1-for-25 reverse stock split

The total fair value of stock options that vested during the three months ended March 31, 2023 was $0.0 million. The weighted average remaining contractual term for the total stock options outstanding was 7.91 years as of March 31, 2023. The weighted average remaining contractual term for the total stock options vested and exercisable was 4.43 years as of March 31, 2023.

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


	Number of Shares*	Weighted Average Fair Value*
Unvested December 31, 2022	237,966	$	18.77
Granted	—	—
Vested	(4,136)	27.19
Forfeited	(8,014)	18.39
Unvested March 31, 2023	225,816	$	18.63

*Adjusted for the 1-for-25 reverse stock split

The total fair value of restricted common stock awards that vested during the three months ended March 31, 2023 was $0.1 million.

Inducement Awards

In February 2020, the Company granted inducement awards outside of the 2015 Plan and 2019 Sales Team Plan (i) to the Company's Chief Financial Officer in the form of an option to purchase 5,000 shares of the Company's common stock with an exercise price per share equal to $24.50 and 5,000 restricted stock units (in each case, adjusted for the 1-for-25 reverse stock split). The option and restricted stock unit awards were granted as inducements material to their commencement of employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4).

In November 2021, the Company granted inducement awards outside of the 2015 Plan and 2019 Sales Team Plan to the Company's Vice President, Marketing in the form of 6,000 restricted stock units (adjusted for the 1-for-25 reverse stock split). The restricted stock unit award was granted as an inducement material to his commencement of employment with the Company in accordance with NASDAQ Listing Rule 5635(c)(4).

In March 2022, the Company granted inducement awards outside of the 2015 Plan and 2019 Sales Team Plan to the Company's Chief Legal Officer and Corporate Secretary in the form of an option to purchase 18,000 shares of the Company's common stock with an exercise price per share equal to $15.25 and 18,000 restricted stock units (in each case, adjusted for the 1-for-25 reverse stock split). The option and restricted stock unit awards were granted as inducements material to her commencement of employment with the Company in accordance with NASDAQ Listing Rule 5635(c)(4).

In April 2022, the Company granted inducement awards outside of the 2015 Plan and 2019 Sales Team Plan to the Company's Chief Operating Officer in the form of an option to purchase 17,000 shares of the Company's common stock with an exercise price per share equal to $16.00 and 17,000 restricted stock units (in each case, adjusted for the 1-for-25 reverse stock split). The option and restricted stock unit awards were granted as inducements material to his commencement of employment with the Company in accordance with NASDAQ Listing Rule 5635(c)(4).

Stock-based compensation

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 its initial public offering 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:


	Three Months Ended March 31,
	2023	2022
Risk-free interest rate	—%	2.54%
Expected term (in years)	0.00	8.00
Dividend yield	—%	—%
Expected volatility	—%	87.49%

Risk-free interest rate. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.

Expected term. The expected term of stock options represents the period the stock options are expected to remain outstanding and is based on the “SEC Shortcut Approach” as defined in “Share-Based Payment” (SAB 107) ASC 718-10-S99, “Compensation-Stock Compensation-Overall-SEC Materials,” which is the midpoint between the vesting date and the end of the contractual term. With certain stock option grants, the exercise price may exceed the fair value of the common stock. In these instances, the Company adjusts the expected term accordingly.

Dividend yield. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation model.

Expected volatility. Expected volatility measures the amount that a stock price has fluctuated or is expected to fluctuate during a period. The Company estimates volatility based on the historical volatility of the Company's stock.

Forfeitures. The Company recognizes forfeitures as they occur.

Stock-based compensation expense was $0.6 million and $0.7 million for the three months ended March 31, 2023 and 2022, 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.

The following is a summary of stock-based compensation expense (in thousands):


	Three Months Ended March 31,
	2023		2022
Cost of revenues	$	14	$	(35)
Sales and marketing	136		176
Research and development	71		138
General and administrative	400		457
	$	621	$	736

As of March 31, 2023, the Company had $1.0 million of total unrecognized compensation expense for options that will be recognized over a weighted average period of 4.12 years. As of March 31, 2023, the Company had $3.2 million of total unrecognized compensation expense for restricted awards that will be recognized over a weighted average period of 1.91 years.