Item 1. Unaudited Condensed Consolidated Financial Statements
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.
|
Background and Organization
|
ViewRay, Inc., or ViewRay or the Company, and its wholly-owned subsidiary ViewRay Technologies, Inc., designs, manufactures and markets MRIdian, an MR Image-Guided radiation therapy system to simultaneously image and treat cancer patients.
Since inception, ViewRay Technologies, Inc. has devoted substantially all of its efforts towards research and development, initial selling and marketing activities, raising capital and the manufacturing, shipment and installation of MRIdian systems. In May 2012, ViewRay Technologies, Inc. was granted clearance from the U.S. Food and Drug Administration, or FDA, to sell MRIdian with Cobalt-60. In November 2013, ViewRay Technologies, Inc. received its first clinical acceptance of a MRIdian with Cobalt-60 at a customer site, and the first patient was treated with that system in January 2014. ViewRay Technologies, Inc. has had the right to affix the Conformité Européene, or CE, mark to MRIdian with Cobalt-60 in the European Economic Area, or EEA, since November 2014. In September 2016, the Company received the rights to affix the CE mark to MRIdian Linac, and in February 2017, the Company received 510(k) clearance from the FDA to market MRIdian Linac. In February 2019, the Company received 510(k) clearance from the FDA for advancements in MRI, 8 frames per second cine, and Functional imaging (T1/T2/DWI) and High-Speed MLC. In December 2019, we received the CE mark for these advancements in the EEA.
The Company’s condensed consolidated financial statements have been prepared on the basis of the Company continuing as a going concern for a reasonable period of time. The Company’s principal sources of liquidity are cash flows from public and private offerings and available borrowings under its term loan agreement, as well as cash receipts from its sales of MRIdian systems. These have historically been sufficient to meet working capital needs, capital expenditures, operating expenses, and debt service obligations. During the six months ended June 30, 2020, the Company incurred a net loss from operations of $53.7 million and used cash in operations of $45.0 million. The Company believes that its existing cash balance of $179.5 million as of June 30, 2020, together with anticipated cash proceeds from sales of MRIdian systems will be sufficient to provide liquidity to fund its obligations for at least the next 12 months.
2.
|
Summary of Significant Accounting Policies
|
Basis of Presentation
The condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States, or U.S. GAAP, and pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC. The condensed consolidated financial statements include the accounts of ViewRay, Inc. and its wholly-owned subsidiary, ViewRay Technologies, Inc. All inter-company accounts and transactions have been eliminated in consolidation.
In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair presentation of the Company’s unaudited condensed consolidated financial statements, have been included. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or any future period. These unaudited condensed consolidated financial statements and their notes should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Significant Accounting Policies
The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in the notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on March 12, 2020, and have not changed significantly since that filing.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. Topic 740 reduces complexity in certain areas of accounting for income taxes and makes minor improvements to the codification. The ASU removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The amendments in this ASU will be effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is evaluating the impact of this update on its consolidated financial statements and related disclosures.
8
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.
Recently Adopted Accounting Pronouncements
Effective January 1, 2020, the Company adopted FASB ASU 2018-13, Fair Value Measurements (Topic 820). Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The standard eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information, and modifies some disclosure requirements. As the result of the adoption the Company is no longer required to disclose (1) the amount of and the reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels, and (3) the valuation process for Level 3 fair value measurements. Additionally, the Company is required to disclose (1) the changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. No significant changes were made to our fair value disclosures in the notes to the consolidated financial statements in order to comply with ASU 2018-13. Refer to Note 4, Fair Value of Financial Instruments.
3.
|
Balance Sheet Components
|
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Prototype
|
|
$
|
16,901
|
|
|
$
|
16,419
|
|
Machinery and equipment
|
|
|
16,522
|
|
|
|
15,816
|
|
Leasehold improvements
|
|
|
6,857
|
|
|
|
6,718
|
|
Furniture and fixtures
|
|
|
1,295
|
|
|
|
1,284
|
|
Software
|
|
|
1,389
|
|
|
|
1,389
|
|
Construction in progress
|
|
|
5,096
|
|
|
|
4,176
|
|
Property and equipment, gross
|
|
|
48,060
|
|
|
|
45,802
|
|
Less: accumulated depreciation and amortization
|
|
|
(25,342
|
)
|
|
|
(22,403
|
)
|
Property and equipment, net
|
|
$
|
22,718
|
|
|
$
|
23,399
|
|
Depreciation and amortization expense related to property and equipment were $1.5 million and $1.1 million during the three months ended June 30, 2020 and 2019, and $3.0 million and $2.0 million during the six months ended June 30, 2020 and 2019, respectively.
Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Accrued payroll and related benefits
|
|
$
|
8,641
|
|
|
$
|
9,577
|
|
Accrued accounts payable
|
|
|
3,285
|
|
|
|
4,764
|
|
Payroll withholding tax, sales and other tax payable
|
|
|
873
|
|
|
|
1,066
|
|
Accrued legal, accounting and professional fees
|
|
|
1,619
|
|
|
|
1,175
|
|
Product upgrade reserve
|
|
|
2,534
|
|
|
|
3,794
|
|
Other
|
|
|
409
|
|
|
|
1,014
|
|
Total accrued liabilities
|
|
$
|
17,361
|
|
|
$
|
21,390
|
|
9
Deferred Revenue
Deferred revenue consisted of the following (in thousands):
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Deferred revenue:
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
9,028
|
|
|
$
|
3,141
|
|
Service
|
|
|
8,671
|
|
|
|
8,473
|
|
Distribution rights
|
|
|
2,158
|
|
|
|
2,396
|
|
Total deferred revenue
|
|
|
19,857
|
|
|
|
14,010
|
|
Less: current portion of deferred revenue
|
|
|
(16,788
|
)
|
|
|
(10,457
|
)
|
Noncurrent portion of deferred revenue
|
|
$
|
3,069
|
|
|
$
|
3,553
|
|
Other Long-Term Liabilities
Other long-term liabilities consisted of the following (in thousands):
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Accrued interest, noncurrent portion
|
|
$
|
778
|
|
|
$
|
516
|
|
Asset retirement obligation
|
|
|
902
|
|
|
|
861
|
|
Total other-long term liabilities
|
|
$
|
1,680
|
|
|
$
|
1,377
|
|
4.
|
Fair Value of Financial Instruments
|
Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
Level 1—Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3—Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
The assets’ or liabilities’ fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The Company’s financial instruments that are carried at fair value mainly consist of Level 1 assets and Level 3 liabilities. Level 1 assets include highly liquid bank deposits and money market funds, which were not material at June 30, 2020 and December 31, 2019. Level 3 liabilities that are measured on a recurring basis relate to the 2017 and 2016 Placement Warrants, as described in Note 9. Placement warrant liabilities are valued using the Black-Scholes option-pricing model. Generally, increases (decreases) in the fair value of the underlying stock, volatility and estimated term would result in a directionally similar impact to the fair value of the warrants (see Note 9). During the six months ended June 30, 2020, no warrants were exercised. During the six months ended June 30, 2019, warrants to purchase 248,315 shares of common stock were exercised and the aggregate fair value upon exercise of $2.1 million was reclassified from liabilities to additional paid-in-capital.
The gains and losses from re-measurement of Level 3 financial liabilities are recorded as part of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss. During the three and six months ended June 30, 2020, the Company recorded a gain of $0.4 million and a gain of $3.3 million, respectively, related to the change in fair value of the 2017 and 2016 Placement Warrants. During the three and six months ended June 30, 2019, the Company recorded a loss of $1.8 million and a loss of $4.8 million, respectively, related to the change in fair value of the 2017 and 2016 Placement Warrants. There were no transfers between Level 1, Level 2 and Level 3 in any periods presented.
10
The following table sets forth the fair value of the Company’s financial liabilities by level within the fair value hierarchy (in thousands):
|
|
At June 30, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
2017 Placement Warrants Liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,573
|
|
|
$
|
1,573
|
|
2016 Placement Warrants Liability
|
|
|
—
|
|
|
|
—
|
|
|
|
499
|
|
|
|
499
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,072
|
|
|
$
|
2,072
|
|
|
|
December 31, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
2017 Placement Warrants Liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,330
|
|
|
$
|
1,330
|
|
2016 Placement Warrants Liability
|
|
|
—
|
|
|
|
—
|
|
|
|
4,043
|
|
|
|
4,043
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,373
|
|
|
$
|
5,373
|
|
The following table sets forth a summary of the changes in fair value of the Company’s Level 3 financial liabilities (in thousands):
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Fair value, beginning of period
|
|
$
|
5,373
|
|
|
$
|
11,844
|
|
Change in fair value of Level 3 financial liabilities
|
|
|
(3,301
|
)
|
|
|
6,935
|
|
Fair value of 2016 Placement Warrants at exercise
|
|
|
—
|
|
|
|
(2,039
|
)
|
Fair value of 2017 Placement Warrants at exercise
|
|
|
—
|
|
|
|
(65
|
)
|
Fair value, end of period
|
|
$
|
2,072
|
|
|
$
|
16,675
|
|
SVB Term Loan
In December 2018, the Company entered into a term loan agreement, or the SVB Term Loan, with Silicon Valley Bank, for a principal amount of $56.0 million. The SVB Term Loan has a maturity date of December 1, 2023 and bears interest at a rate of 6.30% per annum to be paid monthly over the term of the loan. Beginning on December 1, 2020 (or June 1, 2021, if the Company achieves a trailing twelve-month revenue of at least a specified amount and elects to apply such later date), the Company will make thirty-six equal monthly payments of principal (or thirty equal payments, if the Company so elects). In addition, upon repayment of the SVB Term Loan in full, the Company will make a final payment equal to 3.15% of the original aggregate principal amount of the SVB Term Loan.
The Company used the proceeds of the SVB Term Loan and cash on hand to repay in full its outstanding obligations under its then outstanding term loan, or the CRG Term Loan, and to pay fees and expenses related thereto. The Company accounted for the termination of the CRG Term Loan as a debt extinguishment and recorded a debt extinguishment loss of $2.4 million from the difference between the net carrying amount of debt and the amount paid. The debt extinguishment loss includes $0.3 million in write-offs of unamortized debt discount and debt issuance costs associated with the CRG Term Loan.
The Company received net proceeds of $55.4 million after related legal and consulting fees totaling $0.6 million. Such fees are accounted for as debt discount and issuance costs and presented as a direct deduction from the carrying amount of debt on the Company’s consolidated balance sheets. Debt discount, issuance costs and the final payment are amortized or accreted as interest expense over the term of the loan using the effective interest method.
The SVB Term Loan requires that the Company maintain a minimum cash balance in accounts at Silicon Valley Bank or one of its affiliates or else comply with a liquidity ratio and/or a minimum revenue financial covenant. On December 31, 2019, the Company entered into the First Amendment (the Amendment) to the SVB Term Loan. The Amendment, among other things, amended the SVB Term Loan to (i) suspend testing of the minimum revenue financial covenant for the fiscal quarter ended December 31, 2019, (ii) provide for the minimum trailing twelve-month revenue thresholds under the minimum revenue financial covenant for periods ending on the last day of fiscal quarters in fiscal years subsequent to 2020 to be determined annually at the greater of (a) a 25% cushion to revenue forecasts provided by the Company to SVB and (b) 10% year-over-year annual growth, unless otherwise agreed, (iii) increase the minimum liquidity ratio financial covenant from 1.50:1.00 to 1.75:1.00 and (iv) increase the prepayment premium from 1.00% to 2.00% for amounts prepaid under the SVB Term Loan prior to the maturity date thereof, subject to certain exceptions.
The SVB Term Loan is secured by substantially all assets of the Company, except that the collateral does not include any intellectual property held by the Company, provided, however, the collateral shall include all accounts and proceeds of such intellectual property.
11
The SVB Term Loan contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness, dividends and other distributions and transactions with affiliates.
The SVB Term Loan includes standard events of default, including, among other things, subject in certain cases to customary grace periods, thresholds and notice requirements, the Company’s failure to fulfill its obligations under the SVB Term Loan or the occurrence of a material adverse change in the Company's business, operations, or condition (financial or otherwise). In the event of default by the Company under the SVB Term Loan, Silicon Valley Bank would be entitled to exercise its remedies thereunder, including the right to accelerate the debt, upon which the Company may be required to repay all amounts then outstanding under the SVB Term Loan, which could harm the Company's financial condition.
The Company’s scheduled future payments on the SVB Term Loan at June 30, 2020 are as follows (in thousands):
Year Ended December 31,
|
|
|
|
|
The remainder of 2020
|
|
$
|
1,555
|
|
2021
|
|
|
18,667
|
|
2022
|
|
|
18,667
|
|
2023
|
|
|
17,111
|
|
2024
|
|
|
—
|
|
Total future principal payments
|
|
|
56,000
|
|
Less: unamortized debt discount
|
|
|
(355
|
)
|
Carrying value of long-term debt
|
|
|
55,645
|
|
Less: current portion
|
|
|
(10,889
|
)
|
Long-term portion
|
|
$
|
44,756
|
|
6.
|
Commitments and Contingencies
|
Operating Leases
The Company entered into agreements to lease office space in Oakwood Village, Ohio, Mountain View, California and Denver, Colorado under noncancelable operating lease agreements.
In April 2008, the Company entered into an agreement to lease approximately 19,800 square feet of office space in Oakwood Village, Ohio, which expires in October 2021.
In June 2014, the Company entered into an office lease agreement to lease approximately 25,500 square feet of office space located in Mountain View, California, with an original expiration date of November 2019. In June 2018, the Company entered into an amendment to extend the term of the lease agreement through July 2025.
In April 2018, the Company entered into a lease agreement to lease approximately 24,600 square feet of additional office space located in Mountain View, California. The lease commenced in December 2018 and will expire in December 2025. The Company has the option to extend the term of the lease for a period of up to five years.
In May 2019, the Company entered into a sub-lease agreement to lease approximately 19,800 square feet of office space located in Denver, Colorado. The sub-lease commenced in June 2019 and will expire in July 2021.
In recognition of the right-of-use assets and the related lease liabilities, the options to extend the lease term have not been included as the Company is not reasonably certain that it will exercise any such option. At June 30, 2020, the weighted-average remaining lease term in years is 4.9 years and the weighted-average discount rate used is 7.7%.
The Company recognized the following lease costs arising from lease transactions (in thousands):
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Operating lease cost
|
|
$
|
781
|
|
|
$
|
677
|
|
|
$
|
1,562
|
|
|
$
|
1,303
|
|
The Company recognized the following cash flow transactions arising from lease transactions (in thousands):
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
1,567
|
|
|
$
|
1,074
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
|
|
—
|
|
|
|
1,647
|
|
12
At June 30, 2020, the future payments and interest expense for the operating leases are as follows (in thousands):
Year Ending December 31,
|
|
Future Payments
|
|
The remainder of 2020
|
|
$
|
1,580
|
|
2021
|
|
|
2,831
|
|
2022
|
|
|
2,497
|
|
2023
|
|
|
2,571
|
|
2024
|
|
|
2,604
|
|
2025
|
|
|
1,924
|
|
Total undiscounted cash flows
|
|
$
|
14,007
|
|
Less: imputed interest
|
|
|
(2,367
|
)
|
Present value of lease liabilities
|
|
$
|
11,640
|
|
Legal Proceedings
In the normal course of business, the Company may become involved in legal proceedings. The Company will accrue a liability for legal proceedings when it is probable that a liability has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued.
Patent Litigation
On September 10, 2019, a complaint for patent infringement was filed by Varian Medical Systems, Inc., in U.S. District Court for the Northern District of California against the Company. Captioned Varian Medical Systems, Inc., v. ViewRay, Inc., the complaint alleges that the Company infringes two related patents, U.S. Patent Nos. 8,637,841 and 9,082,520 and seeks injunctive relief and monetary damages. The Company filed its answer on November 1, 2019. The District Court matter is presently in discovery. The Company believes the allegations in the complaint are without merit and intends to vigorously defend the litigation.
On July 7, 2020 and July 31, 2020, the Company filed a petition with the Patent Trial & Appeal Board of the United States Patent and Trademark Office, requesting institution of inter partes review (IPR) and cancellation of claims 1-3, 5-8, 10, 13, 14 of Varian’s U.S. Patent No. 9,082,520.
Class Action Litigation
On September 13, 2019, a class action complaint for violation of federal securities laws was filed in U.S. District Court for the Northern District of Ohio against the Company, its chief executive officer, chief scientific officer, and former chief financial officer. On December 19, 2019, the court appointed Plymouth County Retirement Association as the lead plaintiff, and on February 28, 2020 the lead plaintiff filed an amended complaint asserting securities fraud claims against the Company, its chief executive officer, chief operating officer, chief scientific officer, and former chief executive officer and former chief financial officer. Now captioned Plymouth County Retirement Association v. ViewRay, Inc., et al., the amended complaint alleges that the Company violated federal securities laws by issuing materially false and misleading statements that failed to disclose adverse facts concerning the its business, operations, and financial results, and seeks damages, interest, and other relief. The Company filed a motion to dismiss the amended complaint on May 28, 2020. That motion is now fully briefed and under consideration by the court. The Company believes the allegations in the complaint are without merit and intends to vigorously defend the litigation.
Given the early stage of each of the litigation matters described above, at this time the Company is unable to reasonably estimate possible losses or form a judgment that an unfavorable outcome is either probable or remote. However, litigation is subject to inherent uncertainties, and one or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect on the period in which they are resolved and on our business generally. In addition, regardless of their merits or their ultimate outcomes, lawsuits and legal proceedings are costly, divert management attention and may materially adversely affect our reputation, even if resolved in our favor.
Purchase Commitments
At June 30, 2020, the Company had $2.9 million in outstanding firm purchase commitments.
13
The Company derives revenue primarily from the sale of MRIdian systems and related services as well as support and maintenance services on sold systems. Revenue is categorized as product revenue, service revenue and distribution rights revenue.
The following table presents revenue disaggregated by type and geography (in thousands):
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
$
|
5,685
|
|
|
$
|
22,288
|
|
|
$
|
7,303
|
|
|
$
|
22,288
|
|
Service
|
|
2,029
|
|
|
|
1,320
|
|
|
|
3,495
|
|
|
|
1,954
|
|
Total U.S. revenue
|
$
|
7,714
|
|
|
$
|
23,608
|
|
|
$
|
10,798
|
|
|
$
|
24,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside of U.S. ("OUS")
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
$
|
4,930
|
|
|
$
|
5,617
|
|
|
$
|
14,782
|
|
|
$
|
24,491
|
|
Service
|
|
1,461
|
|
|
|
823
|
|
|
|
2,656
|
|
|
|
1,480
|
|
Distribution rights
|
|
119
|
|
|
|
119
|
|
|
|
238
|
|
|
|
238
|
|
Total OUS revenue
|
$
|
6,510
|
|
|
$
|
6,559
|
|
|
$
|
17,676
|
|
|
$
|
26,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
$
|
10,615
|
|
|
$
|
27,905
|
|
|
$
|
22,085
|
|
|
$
|
46,779
|
|
Service
|
|
3,490
|
|
|
|
2,143
|
|
|
|
6,151
|
|
|
|
3,434
|
|
Distribution rights
|
|
119
|
|
|
|
119
|
|
|
|
238
|
|
|
|
238
|
|
Total revenue
|
$
|
14,224
|
|
|
$
|
30,167
|
|
|
$
|
28,474
|
|
|
$
|
50,451
|
|
Arrangements with Multiple Performance Obligations
The Company frequently enters into sales arrangements that include multiple performance obligations. Such performance obligations mainly consist of (i) sale of MRIdian systems, which generally includes installation and embedded software, and (ii) product support, which includes extended service and maintenance. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The standalone selling price, or SSP, is determined based on observable prices at which the Company separately sells the products and services. If an SSP is not directly observable, the Company will estimate the SSP considering market conditions or internally approved pricing guidelines related to the performance obligations.
Product Revenue
Product revenue is derived primarily from the sales of MRIdian systems. The system contains both software and non-software components that together deliver essential functionality.
For contracts in which control of the system transfers upon delivery and inspection, the Company recognizes revenue for the systems at the point in time when delivery and inspection by the customer has occurred. For these same contracts, the Company recognizes installation revenue over the period of installation as the installation services are performed and control is transferred to the customer. For all contracts in which control transfers upon post-installation customer acceptance, revenue for the system and installation are recognized upon customer acceptance.
Certain customer contracts with distributors do not require ViewRay to complete installation at the ultimate user site, and the distributors may either perform the installation themselves or hire another party to perform the installation. For sales of MRIdian systems for which the Company is not responsible for installation, revenue recognition generally occurs when the entire system is shipped, which is when the control of the system is transferred to the customer.
Service Revenue
Service revenue is derived primarily from maintenance services. The maintenance and support service is a stand-ready obligation which is performed over the term of the arrangement and, as a result, service revenue is recognized ratably over the service period as the customers benefit from the service throughout the service period.
Distribution Rights Revenue
In December 2014, the Company entered into a distribution agreement with Itochu Corporation pursuant to which it appointed Itochu as its exclusive distributor for the promotion, sale and delivery of its MRIdian products within Japan. In consideration of the exclusive distribution rights granted, the Company received $4.0 million, which was recorded as deferred revenue. Starting in August 2016, the
14
distribution rights revenue is recognized ratably over the remaining term of the distribution agreement of approximately 8.5 years. A time-elapsed method is used to measure progress because control is transferred evenly over the remaining contractual period.
Contract Balances
The timing of revenue recognition, billings and cash collections results in short-term and long-term trade receivables, customer deposits, deferred revenues and deferred cost of revenue on the condensed consolidated balance sheets.
Trade receivables are recorded at the original invoiced amount, net of an estimated allowance for credit losses. Trade credit is generally extended on a short-term basis. The Company occasionally provides for long-term trade credit for its maintenance services so that the period between when the services are rendered to its customers and when the customers pay for that service is within one year. Thus, the Company’s trade receivables do not bear interest or contain a significant financing component. Long-term trade receivables of $0.3 million and $0.2 million were reported within other assets in the condensed consolidated balance sheets at June 30, 2020 and at December 31, 2019, respectively. These amounts are billed in accordance with the terms of the customer contracts to which they relate and are expected to be collected two to three years from the date of invoice as the underlying maintenance services are rendered. At times, billing occurs subsequent to revenue recognition, resulting in an unbilled receivable which represents a contract asset. This contract asset is recorded as an unbilled receivable and reported as part of accounts receivable on the consolidated balance sheets.
Trade receivables are periodically evaluated for collectability based on past credit history of the respective customers and their current financial condition. Changes in the estimated collectability of trade receivables are included in the results of operations for the period in which the estimate is revised. Trade receivables that are deemed uncollectible are offset against the estimated allowance for credit losses. The Company generally does not require collateral for trade receivables. There were no estimated allowances for credit losses recorded at June 30, 2020 or December 31, 2019.
Customer deposits represent payments received in advance of system installation. For domestic and international sales, advance payments received prior to inventory shipments are recorded as customer deposits. Advance payments are subsequently reclassified to deferred revenue upon inventory shipment. All customer deposits, including those that are expected to be a deposit for more than one year, are classified as current liabilities based on consideration of the Company’s normal operating cycle (the time between acquisition of the inventory components and the final cash collection from customers on these inventory components) which is in excess of one year.
Deferred revenue consists of deferred product revenue and deferred service revenue. Deferred product revenue arises from timing differences between the fulfillment of contract obligations and satisfaction of all revenue recognition criteria consistent with the Company’s revenue recognition policy. Deferred service revenue results from the advance billing for services to be delivered over a period of time. Deferred revenues expected to be realized within one year or normal operating cycle are classified as current liabilities.
Deferred cost of revenue consists of cost for inventory items that have been shipped, but revenue recognition has not yet occurred. Deferred cost of revenue is included as part of current assets as the corresponding deferred product revenue is expected to be realized within one year or the Company’s normal operating cycle.
During the three and six months ended June 30, 2020, the Company recognized $2.1 million and $5.4 million of revenues that was included in the deferred revenue balance at the beginning of the reporting period. During the three and six months ended June 30, 2019, the Company recognized $1.3 million and $9.2 million of revenues that were included in the deferred revenue balance at the beginning of the reporting period.
Variable Consideration
The Company records revenue from customers in an amount that reflects the transaction price it expects to be entitled to after transferring control of those goods or services. The Company estimates the transaction price at contract inception, including any variable consideration, and updates the estimate each reporting period for any changes. There were no amounts recognized during the three and six months ended June 30, 2020 from performance obligations satisfied in the prior period. For the three and six months ended June 30, 2019, the Company recognized $0.0 million and $0.9 million in revenue from performance obligations satisfied in the prior period.
Public Offering of Common Stock
On August 14, 2018, the Company entered into an underwriting agreement with Morgan Stanley & Co. LLC and Jefferies LLC, as representatives of several underwriters, or the August 2018 Underwriters, in connection with the issuance and sale of 16,216,217 shares of the Company’s common stock at a public offering price of $9.25 per share. In addition, the Company granted the August 2018 Underwriters a 30-day option to purchase up to 2,432,432 additional shares of common stock on the same terms, which the August 2018 Underwriters exercised in full. The Company completed the offering on August 17, 2018 and received aggregate net proceeds of approximately $161.9 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company.
15
On December 3, 2019, the Company entered into an underwriting agreement with Piper Jaffray & Co., as representatives of several underwriters, or the December 2019 Underwriters, in connection with the issuance and sale of 41,550,000 shares of our common stock at a public offering price of $3.13 per share. In addition, the Company granted the December 2019 Underwriters a 30-day option to purchase up to 6,232,500 additional shares of common stock on the same terms, which the December 2019 Underwriters exercised in full. The Company completed the offering on December 6, 2019 and received aggregate net proceeds of approximately $138.6 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company.
Direct Registered Offerings
In February 2018, the Company entered into a securities purchase agreement pursuant to which it sold (i) 4,090,000 shares of its common stock; (ii) 3,000,581 shares of its Series A convertible preferred stock and (iii) warrants to purchase 1,418,116 shares of its common stock, or the 2018 Offering Warrants, for total gross proceeds of $59.1 million, or the March 2018 Direct Registered Offering. The March 2018 Direct Registered Offering was closed on March 5, 2018. The 2018 Offering Warrants have an exercise price of $8.31 per share, became exercisable upon issuance and expire in March 2025.
Private Placements
In September 2016, the Company completed the final closing of a private placement offering, or the 2016 Private Placement, through which it sold (i) 4,602,506 shares of its common stock and (ii) warrants that provide the warrant holders the right to purchase 1,380,745 shares of common stock, or the 2016 Placement Warrants, and raised total gross proceeds of $13.8 million. The 2016 Placement Warrants have an exercise price of $2.95 per share, are exercisable at any time at the option of the holder and expire seven years from the date of issuance.
In January 2017, the Company completed the final closing of a private placement offering, or the 2017 Private Placement, through which it sold (i) 8,602,589 shares of its common stock and (ii) warrants that provide the warrant holders the right to purchase 1,720,512 shares of its common stock, or the 2017 Placement Warrants, and raised total gross proceeds of $26.1 million. The 2017 Placement Warrants have an exercise price of $3.17 per share, became exercisable in July 2017 and expire in January 2024.
At-The-Market Offering of Common Stock
In January 2019, the Company filed a registration statement with the SEC which covers the offering, issuance and sale of up to a maximum aggregate offering price of $250.0 million of our common stock, preferred stock, debt securities, warrants, purchase contracts and/or units, including up to $100.0 million of the Company’s common shares that may be sold pursuant to the Company’s at-the-market offering program with FBR Capital Markets & Co. (“FBR”). The shares in the December 2019 Public Offering of Common stock were sold pursuant to the January 2019 registration statement and did not impact the $100.0 million of our common shares pursuant to our at-the-market offering program with FBR. The Company has not sold any securities under the 2019 registration statement pursuant to its at-the-market offering program.
Equity Classified Common Stock Warrants
In connection with a debt financing in December 2013, the Company issued warrants to purchase 128,231 shares of its common stock with an exercise price of $5.84 per share. These warrants are exercisable any time at the option of the holder until December 16, 2023. In August 2019, the Company issued 36,457 shares of its common stock upon the net exercise of 128,231 2013 Placement Warrants. All of the December 2013 Placement Warrants have been exercised and none of the warrants are outstanding at June 30, 2020.
In connection with the merger of the Company and ViewRay Technologies, Inc. in July 2015, or the Merger, in July and August 2015, the Company conducted a private placement offering as part of which the Company issued warrants, or the 2015 Placement Warrants, that provide the warrant holder the right to purchase 198,760 shares of common stock at an exercise price of $5.00 per share. The 2015 Placement Warrants are exercisable at any time at the option of the holder until the five-year anniversary of its date of issuance. During the year ended December 31, 2018, the Company issued 92,487 shares of its common stock upon the net exercise of 159,010 shares of the 2015 Placement Warrants. The remaining 39,750 shares of the 2015 Placement Warrants have not been exercised and remained outstanding at June 30, 2020.
In connection with the March 2018 Direct Registered Offering, the Company issued warrants to purchase 1,418,116 shares of common stock at an exercise price of $8.31 per share. The 2018 Offering Warrants became exercisable upon issuance and expire in March 2025. None of the 2018 Offering Warrants have been exercised to date and they all remained outstanding at June 30, 2020.
16
As separate classes of securities were issued in a bundled transaction, the gross proceeds from the March 2018 Direct Registered Offering of $59.1 million were allocated to common stock, Series A convertible preferred stock and the 2018 Offering Warrants based on their respective relative fair value upon issuance. The aggregate fair value of the 2018 Offering Warrants of $7.4 million was estimated using the Black-Scholes option-pricing model with the following assumptions:
|
|
Upon Issuance
|
|
Common Stock Warrants:
|
|
|
|
|
Expected term (in years)
|
|
|
7.0
|
|
Expected volatility (%)
|
|
62.5%
|
|
Risk-free interest rate (%)
|
|
2.8%
|
|
Expected dividend yield (%)
|
|
0%
|
|
The allocated proceeds from the 2018 Offering Warrants of $6.6 million were recorded in additional paid-in-capital.
Liability Classified Common Stock Warrants
In connection with the 2017 and 2016 Private Placements, the Company issued warrants that provide the warrant holder the right to purchase 1,720,512 and 1,380,745 shares of common stock. The 2017 and 2016 Placement Warrants contain protection whereby the warrant holders will have the right to receive cash in the amount equal to the Black-Scholes value of the warrants upon the occurrence of a change of control, as defined in the warrant agreement. The 2017 and 2016 Placement Warrants were accounted for as a liability at the date of issuance and are adjusted to fair value at each balance sheet date, with the change in fair value recorded as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss. The key terms of the 2017 and 2016 Placement Warrants are as follows:
|
|
Issuance Date
|
|
Term
|
|
Exercise Price Per Share
|
|
|
Warrants Exercised during the Six Months Ended June 30, 2020
|
|
|
Warrants Outstanding at June 30, 2020
|
|
2017 Placement Warrants
|
|
January 2017
|
|
7 years
|
|
$
|
3.17
|
|
|
|
—
|
|
|
|
1,618,890
|
|
2016 Placement Warrants
|
|
August and September 2016
|
|
7 years
|
|
$
|
2.95
|
|
|
|
—
|
|
|
|
537,263
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
2,156,153
|
|
During the three and six months ended June 30, 2020, the Company recorded a gain of $0.4 and $3.3 million, respectively, related to the change in fair value of the 2016 and 2017 Placement Warrants. During the three and six months ended June 30, 2019, the Company recorded a loss of $1.8 million and a loss of $4.8 million, respectively, related to the change in fair value of the 2016 and 2017 Placement Warrants. The fair value of the 2016 and 2017 Placement Warrants at June 30, 2020 and December 31, 2019, respectively, was estimated using the Black-Scholes option-pricing model and the following weighted-average assumptions:
|
|
2017 Placement Warrants
|
|
|
2016 Placement Warrants
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Expected term (in years)
|
|
|
3.6
|
|
|
|
4.0
|
|
|
|
3.1
|
|
|
|
3.6
|
|
Expected volatility
|
|
74.4%
|
|
|
68.0%
|
|
|
73.3%
|
|
|
67.5%
|
|
Risk-free interest rate
|
|
0.2%
|
|
|
1.7%
|
|
|
0.2%
|
|
|
1.6%
|
|
Expected dividend yield
|
|
0.0%
|
|
|
0.0%
|
|
|
0.0%
|
|
|
0.0%
|
|
17
10.
|
Stock-Based Compensation
|
A summary of the Company’s stock option activity and related information is as follows:
|
|
|
|
|
|
Options Outstanding
|
|
|
|
Shares
Available
for Grant
|
|
|
Number
of Stock
Options
Outstanding
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual Life
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Balance at December 31, 2019
|
|
|
948,415
|
|
|
|
11,165,846
|
|
|
$
|
7.44
|
|
|
|
7.6
|
|
|
$
|
1,907
|
|
Additional options authorized
|
|
|
9,137,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(736,579
|
)
|
|
|
736,579
|
|
|
|
1.97
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
—
|
|
|
|
(20,579
|
)
|
|
|
0.72
|
|
|
|
|
|
|
|
|
|
Options cancelled
|
|
|
2,165,317
|
|
|
|
(2,165,317
|
)
|
|
|
6.27
|
|
|
|
|
|
|
|
|
|
Withheld shares to pay for taxes on released RSUs
|
|
|
45,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs granted
|
|
|
(5,962,979
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs forfeited
|
|
|
557,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020
|
|
|
6,155,182
|
|
|
|
9,716,529
|
|
|
$
|
7.26
|
|
|
|
7.9
|
|
|
$
|
907
|
|
Vested and exercisable at June 30, 2020
|
|
|
|
|
|
|
4,870,115
|
|
|
$
|
7.04
|
|
|
|
7.3
|
|
|
$
|
626
|
|
Vested and expected to vest at June 30, 2020
|
|
|
|
|
|
|
9,297,531
|
|
|
$
|
7.28
|
|
|
|
7.8
|
|
|
$
|
871
|
|
The weighted-average grant date fair value of options granted to employees was $1.20 and $4.79 per share during the six months ended June 30, 2020 and 2019, respectively. The grant date fair values of options vested was $5.7 million and $3.3 million during the six months ended June 30, 2020 and 2019, respectively.
Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options. The aggregate intrinsic values of options exercised was $0.0 million and $6.5 million during the six months ended June 30, 2020 and 2019, respectively.
At June 30, 2020, total unrecognized compensation cost related to stock options granted to employees, net of estimated forfeitures, was $18.9 million which is expected to be recognized over a weighted-average period of 2.2 years.
Determination of Fair Value
The determination of the fair value of stock options on the date of grant using an option-pricing model is affected by the estimated fair value of the Company’s common stock, as well as assumptions regarding a number of complex and subjective variables. The variables used to calculate the fair value of stock options using the Black-Scholes option-pricing model include actual and projected employee stock option exercise behaviors, expected price volatility of the Company’s common stock, the risk-free interest rate and expected dividends. Each of these inputs is subjective and generally requires significant judgment to determine.
The fair value of employee stock options is estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions:
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Expected term (in years)
|
|
|
6.0
|
|
|
|
6.0
|
|
Expected volatility
|
|
68.8%
|
|
|
60.1%
|
|
Risk-free interest rate
|
|
0.7%
|
|
|
2.5%
|
|
Expected dividend yield
|
|
0.0%
|
|
|
0.0%
|
|
18
Restricted Stock Units
From time to time, the Company grants Restricted Stock Units, or RSUs, to its board of directors and certain employees for their services. Certain board members elected RSUs in lieu of retainer and committee service fees, which vest over a period of time from the grant date and will be released and settled upon termination of the board member’s services or the occurrence of a change in control event. In January and June 2020, the Company granted RSUs to its Board of Directors as part of the director compensation program. The January 2020 RSUs granted to board members vested in full on the date of our 2020 Annual Meeting of Stockholders. The June 2020 RSUs granted to board members vest in full on the date of our 2021 Annual Meeting of Stockholders. In January and June 2020, the Company granted RSUs to the Company’s CEO that vest annually at 42% on the first anniversary date of the grant, and 29% on the second and third anniversary date of the grant. In January and March of 2020, the Company granted RSUs to several employees. These RSUs vest in equal annual installments over three years from the grant date and are subject to the participants continuing service to the Company over that period. The fair value of RSUs is based on the closing market price of the Company’s common stock on the grant date.
|
|
RSUs
|
|
|
|
Number of Shares
|
|
|
Weighted Average Grant Date Fair Value
|
|
Unvested at December 31, 2019
|
|
|
4,379,777
|
|
|
$
|
5.14
|
|
RSUs granted
|
|
|
5,962,979
|
|
|
|
2.78
|
|
RSUs vested
|
|
|
(393,772
|
)
|
|
|
6.20
|
|
RSUs forfeited
|
|
|
(557,428
|
)
|
|
|
3.16
|
|
Unvested at June 30, 2020
|
|
|
9,391,556
|
|
|
$
|
3.72
|
|
Vested and unreleased
|
|
|
142,336
|
|
|
|
|
|
Outstanding at June 30, 2020
|
|
|
9,533,892
|
|
|
|
|
|
The total grant date fair value of RSUs awarded was $16.4 million for the six months ended June 30, 2020. The total fair value of RSUs vested was $2.4 million for the six months ended June 30, 2020. The total grant date fair value of RSUs awarded was $5.3 million for the six months ended June 30, 2019. The total fair value of RSUs vested was $0.2 million for the six months ended June 30, 2019.
As of June 30, 2020, total unrecognized stock-based compensation cost related to RSUs was $24.5 million, which is expected to be recognized over a weighted-average period of 2.1 years. At June 30, 2020, 8,765,862 shares of RSUs are expected to vest.
Stock-Based Compensation Expense
Total stock-based compensation expense recognized for employee stock awards and employee stock purchase plan shares in the Company’s condensed consolidated statements of operations and comprehensive loss is classified as follows (in thousands):
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Cost of revenue
|
|
$
|
270
|
|
|
$
|
628
|
|
|
$
|
508
|
|
|
$
|
1,210
|
|
Research and development
|
|
|
636
|
|
|
|
946
|
|
|
|
1,156
|
|
|
|
1,824
|
|
Selling and marketing
|
|
|
343
|
|
|
|
365
|
|
|
|
559
|
|
|
|
642
|
|
General and administrative
|
|
|
4,554
|
|
|
|
2,968
|
|
|
|
9,081
|
|
|
|
5,783
|
|
Total stock-based compensation expense
|
|
$
|
5,803
|
|
|
$
|
4,907
|
|
|
$
|
11,304
|
|
|
$
|
9,459
|
|
Stock-based compensation relating to stock-based awards granted to consultants was insignificant during the three and six months ended June 30, 2020 and 2019.
Due to the current operating losses, the Company recorded zero income tax expense during the three and six months ended June 30, 2020 and 2019, respectively. During these periods, the Company’s activities were limited to U.S. federal and state tax jurisdictions, as it does not have any significant foreign operations. The federal and state effective tax rate before valuation allowance is approximately 24% for the six months ended June 30, 2020.
Due to the Company’s history of cumulative losses and after considering all the available objective evidence, management concluded that it is not more likely than not that all of the Company’s net deferred tax assets will be realized in the future. Accordingly, the Company’s deferred tax assets, which include net operating loss, or NOL, carryforwards and tax credits related primarily to research and development, continue to be subject to a valuation allowance as of June 30, 2020. The Company expects to continue to maintain a full valuation allowance until there is sufficient evidence to support recoverability of its deferred tax assets.
19
The Company had unrecognized tax benefits of $2.6 million and $2.2 million at June 30, 2020 and December 31, 2019, respectively. The reversal of the uncertain tax benefits would not affect the effective tax rate to the extent that the Company continues to maintain a full valuation allowance against its deferred tax assets. Unrecognized tax benefits may change during the next 12 months for items that arise in the ordinary course of business.
Interest and/or penalties related to income tax matters are recognized as a component of income tax expense. At June 30, 2020 and December 31, 2019, there were no accrued interest and penalties related to uncertain tax positions.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the six months ended June 30, 2020.
Since the Company was in a loss position for all periods presented, diluted net loss per common share is the same as basic net loss per common share for all periods presented, because the inclusion of all potential common shares outstanding would have an anti-dilutive effect. The following weighted-average common stock equivalents were excluded from the calculation of diluted net loss per share for the periods presented, because including them would have an anti-dilutive effect:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Options to purchase common stock
|
|
|
9,423,891
|
|
|
|
10,277,120
|
|
|
|
10,245,135
|
|
|
|
10,899,546
|
|
Common stock warrants
|
|
|
3,614,019
|
|
|
|
4,336,072
|
|
|
|
3,614,019
|
|
|
|
4,370,302
|
|
Restricted stock units
|
|
|
1,995,840
|
|
|
|
575,129
|
|
|
|
3,379,806
|
|
|
|
1,070,969
|
|
Total
|
|
|
15,033,749
|
|
|
|
15,188,321
|
|
|
|
17,238,960
|
|
|
|
16,340,817
|
|
13.
|
Related Party Transactions
|
In December 2004, the Company entered into a licensing agreement with the University of Florida Research Foundation, or UFRF, whereby UFRF granted the Company a worldwide exclusive license to certain of UFRF’s patents in exchange for 33,652 shares of common stock and a 1% royalty, with a minimum $0.1 million royalty payment per quarter, from sales of products developed and sold by the Company utilizing the licensed patents. Minimum royalty payments in any calendar year are credited against earned royalties for such calendar year. Royalty expenses based on 1% of net sales were $0.2 million and $0.3 million during the three and six months ended June 30, 2020, respectively, and were recorded as product cost of revenue. Royalty expenses based on 1% of net sales were $0.1 million and $0.4 million during the three and six months ended June 30, 2019, respectively, and were recorded as product cost of revenue.
In November 2019, the Company entered into a distribution agreement with Chindex Shanghai International Trading Company Limited, or Chindex, which became effective in February 2020. Chindex is a subsidiary of Fosun International Limited, or Fosun. Kevin Xie, Ph.D., a member of the Company’s board of directors, was previously designated by Fosun for election to the board pursuant to a Securities Purchase Agreement dated October 23, 2017 and related to the Company’s 2017 direct registered offering of common stock.
Under the distribution agreement, Chindex will act as the Company’s distributor and regulatory agent for the sale and delivery of its MRIdian products within the People’s Republic of China, excluding Hong Kong, Macau and Taiwan. The distribution agreement has an initial term of five years with an option to renew for an additional five years. Under the distribution agreement, the Company will supply its products and services to Chindex based on an agreed upon price between the Company and Chindex. In accordance with the agreement, Chindex agreed to pay ViewRay an upfront fee, portions of which may be refundable under certain conditions, of $3.5 million, payable in three installments: (i) the first installment of $1.5 million due approximately 60 days after the effectiveness of the distribution agreement; (ii) the second installment of $1.0 million due on the first anniversary from the effective date of the agreement; and (iii) the third installment of $1.0 million due on the second anniversary from the effective date of the agreement. No amounts have been received as of June 30, 2020 as there have been delays with certain regulatory requirements needed to collect the first installment. Currently, the Company expects the first installment to be received in the second half of 2020.
On July 6, 2020, the Company reduced its workforce by approximately 20%. As the workforce reduction was finalized and communicated in June 2020, the Company accrued a total charge of $0.9 million related to employee termination costs at June 30, 2020. The majority of this charge is expected to be paid in the third quarter of 2020.
20
Stockholder Derivative Lawsuit
On July 22, 2020, a stockholder derivative lawsuit was filed against ViewRay (as a nominal defendant) and certain of its current and former officers and directors in the U.S. District Court for the Northern District of Ohio. This action alleges, purportedly on behalf of ViewRay, that the officers and directors violated Section 14(a) of the Securities Exchange Act of 1934, breached their fiduciary duties, wasted corporate assets, and were unjustly enriched based on factual assertions substantially similar to those in the class action complaint described in Note 6, Commitments and Contingencies. The complaint seeks, among other things, damages awarded to ViewRay, restitution and disgorgement of profits in an unspecified amount, and corporate reforms.
Given the early stage of the litigation matter described above, at this time the Company is unable to reasonably estimate possible losses or form a judgment that an unfavorable outcome is either probable or remote. However, litigation is subject to inherent uncertainties, and one or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect on the period in which they are resolved and on our business generally. In addition, regardless of their merits or their ultimate outcomes, lawsuits and legal proceedings are costly, divert management attention and may materially adversely affect our reputation, even if resolved in our favor.