ViewRay
Annual Report 2018

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549 FORM 10-K (Mark One)☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018OR☐☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Commission File Number: 001-37725 ViewRay, Inc.(Exact Name of Registrant as Specified in its Charter) Delaware42-1777485(State or other jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification No.) 2 Thermo Fisher WayOakwood Village, OH44146(Address of principal executive offices)(Zip Code) Registrant’s telephone number, including area code: (440) 703-3210 Securities registered pursuant to section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which RegisteredCommon Stock, par value $0.01 The Nasdaq Global MarketSecurities registered pursuant to Section 12(g) of the Exchange Act:None Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90days. Yes ☒ No ☐Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best ofRegistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growthcompany. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Small reporting company ☒ Emerging growth company ☒ If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revisedfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒At June 30, 2018, the aggregate market value of the Registrant’s common stock held by non-affiliates of the Registrant was $404,955,660 based on the closing sale price asreported on the Nasdaq Global Market. As of March 5, 2019, the Registrant had 96,669,649 shares of common stock, $0.01 par value per share, outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Registrant’s definitive proxy statement to be delivered to stockholders in connection with the 2019 annual meeting of stockholders are incorporated byreference in Part III of this Form 10-K where indicated.  VIEWRAY, INC.FORM 10-KANNUAL REPORTTABLE OF CONTENTS Page PART I Item 1.Business 4 Item 1A.Risk Factors 25 Item 1B.Unresolved Staff Comments 63 Item 2.Properties 63 Item 3.Legal Proceedings 63 Item 4.Mine Safety Disclosures 63 PART II Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 64 Item 6.Selected Financial Data 65 Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations 67 Item 7A.Quantitative and Qualitative Disclosure About Market Risk 80 Item 8.Financial Statements and Supplementary Data 81 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 111 Item 9A.Controls and Procedures 111 Item 9B.Other Information 112 PART III Item 10.Directors, Executive Officers and Corporate Governance 112 Item 11.Executive Compensation 112 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 112 Item 13.Certain Relationships and Related Transactions, and Director Independence 112 Item 14.Principal Accountant Fees and Services 112 PART IV Item 15.Exhibits and Financial Statement Schedules 112 Item 16.Form 10-K Summary 1192 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K, or this Report, contains forward-looking statements, including, without limitation, in the sections captioned “RiskFactors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere. Any and all statements contained inthis Report that are not statements of historical fact may be deemed forward-looking statements. Terms such as “will”, “may,” “might,” “would,” “should,”“could,” “project,” “estimate,” “pro forma,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,”“intend,” “expect,” “future” and terms of similar import (including the negative of any of the foregoing) may be intended to identify forward-lookingstatements. However, not all forward-looking statements may contain one or more of these identifying terms. Forward-looking statements in this Report mayinclude, without limitation, statements regarding (i) the plans and objectives of management for future operations, including plans or objectives relating tothe development of products, (ii) a projection of income (including income/loss), earnings (including earnings/loss) per share, capital expenditures,dividends, capital structure or other financial items, (iii) our future financial performance, including any such statement contained in a discussion andanalysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the Securities and ExchangeCommission, or the SEC, and (iv) the assumptions underlying or relating to any statement described in points (i), (ii) or (iii) above.The forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may not be realized becausethey are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks anduncertainties and other influences, many of which we have no control over. Actual results and the timing of certain events and circumstances may differmaterially from those described by the forward-looking statements as a result of these risks and uncertainties. Factors that may influence or contribute to theinaccuracy of the forward-looking statements or cause actual results to differ materially from expected or desired results may include, without limitation: •market acceptance of magnetic resonance imaging (“MRI”) guided radiation therapy; •the benefits of MR Image-Guided radiation therapy; •our ability to successfully sell and market MRIdian® in our existing and expanded geographies; •the performance of MRIdian in clinical settings; •competition from existing technologies or products or new technologies and products that may emerge; •the pricing and reimbursement of MR Image-Guided radiation therapy; •the implementation of our business model and strategic plans for our business and MRIdian; •the scope of protection we are able to establish and maintain for intellectual property rights covering MRIdian; •our ability to obtain regulatory approval in targeted markets for MRIdian; •our ability to procure materials and components in connection with the manufacture and installation of MRIdian; •estimates of our future revenue, expenses, capital requirements and our need for additional financing; •our financial performance; •our expectations related to the MRIdian linear accelerator technology, or MRIdian Linac; •developments relating to our competitors and the healthcare industry; and •other risks and uncertainties, including those listed under the section titled “Risk Factors.”Any forward-looking statements in this Report reflect our current views with respect to future events or to our future financial performance and involveknown and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from anyfuture results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differmaterially from current expectations include, among other things, those listed under Item 1A, titled “Risk3 Factors” and discussed elsewhere in this Report. Given these uncertainties, you are cautioned not to place undue reliance on these forward-lookingstatements. We disclaim any obligation to update the forward-looking statements contained in this Report to reflect any new information or future events orcircumstances or otherwise, except as required by law.This Report also contains estimates, projections and other information concerning our industry, our business, and the markets for certain devices, includingdata regarding the estimated size of those markets. Information that is based on estimates, forecasts, projections, market research or similar methodologies isinherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information.Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data preparedby market research firms and other third parties, industry, medical and general publications, government data and similar sources.PART IItem 1. BUSINESSIn this report, “ViewRay”, the “Company”, “we”, “us” and “our” refer to ViewRay, Inc. and its wholly-owned subsidiary, ViewRay Technologies, Inc.Company OverviewWe design, manufacture and market the ViewRay MRIdian®. The MRIdian is an innovative system that integrates high quality radiation therapy withsimultaneous magnetic resonance imaging (MRI). There are two generations of the MRIdian: the first generation MRIdian with Cobalt-60 based radiationbeams and the second generation MRIdian Linac, with more advanced linear accelerator or ‘linac’ based radiation beams.The MRIdian combines MRI and external-beam radiation therapy to simultaneously image and treat cancer patients. MRI is a broadly used imaging tool thathas the ability to clearly differentiate between types of soft tissue. In contrast, X-ray or computed tomography (CT), the most commonly used imagingtechnologies in radiation therapy today, are often unable to distinguish soft tissues such as the tumor and critical organs. MRIdian integrates MRItechnology, radiation delivery and our proprietary software to clearly See the soft tissues, Shape the dose to accommodate for changes in anatomy and Strikethe target precisely using real-time targeting throughout the treatment. The MRIdian system is Sized to fit into standard radiation therapy vaults withouthaving to remove ceiling or walls. These capabilities allow MRIdian to deliver radiation to the tumor accurately, while reducing the radiation amountdelivered to nearby healthy tissue, as compared to other radiation therapy treatments currently available. We believe this will lead to improved patientoutcomes and reduced treatment-related side effects.Both generations of the MRIdian have received 510(k) marketing clearance from the US Food and Drug Administration, or FDA, and permission to affix theCE mark. •We received initial 510(k) marketing clearance from the US Food and Drug Administration, or FDA, for our treatment planning and deliverysoftware in January 2011. •We received 510(k) marketing clearance for MRIdian, with Cobalt-60 as the radiation source, in May 2012. We received permission to affix theCE mark to MRIdian with Cobalt-60 in November 2014, allowing MRIdian with Cobalt-60 to be sold within the European Economic Area, orEEA. In August 2016, we received regulatory approval from the Japanese Ministry of Health, Labor and Welfare to market MRIdian with Cobalt-60 in Japan. In August 2016, we also received approval from the China Food and Drug Administration to market MRIdian with Cobalt-60 inChina. •In September 2016, we received the CE mark for MRIdian Linac (with a linear accelerator as the radiation source) in the EEA. In February 2017,we received 510(k) clearance from the FDA to market MRIdian Linac. In June 2017, we received 510(k) clearance to market RayZR™, our high-resolution beam-shaping multi-leaf collimator, or MLC. We also received MRIdian Linac regulatory approval in Taiwan and Canada in August2017, and in Israel in November 2017. In March 2018, we received regulatory approval from the Japanese Ministry of Health, Labor and Welfareto market MRIdian Linac in Japan. In February 2019, we received 510(k) clearance to market new soft tissue visualization capabilities forMRIdian system. We are also seeking required MRIdian Linac approvals in other countries such as China.4 MRIdian is the first radiation therapy solution that enables simultaneous radiation treatment delivery and real-time MRI imaging of a patient’s internalanatomy. It generates high-quality images that differentiate between the targeted tumor, surrounding soft tissue and nearby critical organs. MRIdian alsorecords the level of radiation dose that the treatment area has received, enabling physicians to adapt the prescription between treatments, as needed. Webelieve this improved visualization and accurate dose recording will enable better treatment, improve patient outcomes and reduce side effects. Key benefitsto users and patients include: improved imaging and patient alignment; the ability to adapt the patient’s radiation treatments to changes while the patient isstill on the treatment table, or “on-table adaptive treatment planning”; MRI-based motion management; and an accurate recording of the delivered radiationdose. Physicians have already used MRIdian to treat a broad spectrum of radiation therapy patients with more than 45 different types of cancer, as well aspatients for whom radiation therapy was previously not an option.We currently market MRIdian through a direct sales force in North America and are developing a sales force to assist distributors in the rest of the world. As ofDecember 31, 2018, we had installed or delivered 28 MRIdian systems worldwide and had a backlog with total value of $212.3 million. We generatedrevenue of $81.0 million, $34.0 million, and $22.2 million for the years ended December 31, 2018, 2017 and 2016, respectively. We had net losses of $76.4million, $72.2 million and $50.6 million for the years ended December 31, 2018, 2017 and 2016, respectively.Cancer and Radiation Therapy MarketIncidence of CancerCancer is a leading cause of death globally and the second leading cause of death in the United States behind cardiovascular disease. According to theAmerican Cancer Society, nearly 1.7 million people are expected to be diagnosed with cancer in the United States during 2019 and approximately0.6 million are expected to die from cancer, which translates to about 1,660 deaths per day. As a result of a growing and aging population, the InternationalAgency for Research on Cancer (IARC), part of the World Health Organization, reported that the worldwide cancer burden has risen to 18.1 million new casesand 9.6 million cancer deaths in 2018.Cancer TherapyThe primary goal of cancer therapy is to kill cancerous tissues, while minimizing damage to healthy tissues. There are three main ways to treat cancer:surgery, chemotherapy and radiation therapy. Surgery attempts to remove the tumor from the body, while minimizing trauma to healthy tissue andpreventing the spread or translocation of the disease to other parts of the body. Surgery is particularly effective because the surgeon can see the tumor andsurrounding healthy tissue directly throughout the course of the procedure and can adapt his or her planned removal approach mid-procedure accordingly.Chemotherapy uses drugs to kill cancer cells. Unlike surgery, most forms of chemotherapy circulate throughout the patient’s body to reach cancer cellsalmost anywhere in the body systemically. Chemotherapy is most effective at destroying microscopic levels of disease. Radiation therapy is typically used asa local treatment, directed at a tumor and surrounding areas where microscopic cancerous cells are assumed to have spread. Radiation may be used as theprimary treatment modality, or in combination with either chemotherapy or surgery or both. Radiation therapy works by damaging genetic material in cellsand other cell components through interaction with ionizing energy. Effective radiation therapy balances destroying cancer cells with minimizing damage tonormal cells. It can be used at high doses to ablate a tumor, an effect similar to surgery, or at moderate doses to target local microscopic disease, as is donewith chemotherapy. Other, more recently developed ways of treating cancer, include hormone therapy and targeted therapy, such as immunotherapy.Radiation TherapyRadiation therapy has become widespread, with nearly two-thirds of all treated cancer patients in the United States receiving some form of radiation therapyduring the course of their cancer treatments, according to estimates by American Society for Radiation Oncology, ASTRO. For most cancer types treated withradiation therapy, at least 75% of the patients are treated with the intent to cure the cancer. For lung and brain cancers, that number is somewhat lower, with59% of lung cancer patients and 50% of brain cancer patients being treated with the goal of curing cancer. The remainder of cases are treated with palliativeintent to relieve pain or other tumor related symptoms. The type of radiation therapy delivered by linac or Cobalt 60 based devices is a non-invasiveoutpatient procedure with little or no recovery time and can be used on patients who are unable to undergo conventional5 surgery. According to IMV, 97% of patients receiving radiation therapy in the United States are treated using a linac.Radiation is used to kill cancer cells primarily by damaging their DNA but can also kill healthy cells in the same way or cause them to become cancerousthemselves. As a result, the goal of curative radiation therapy is to balance delivery of a sufficiently high dose of radiation to a tumor to kill the cancer cellswhile, at the same time, minimizing damage to healthy cells, particularly those in critical organs. Normal cells are better able to repair themselves afterradiation than tumor cells, so doses of radiation are often fractionated, or delivered in separate sessions with rest periods in between. As a result, standardradiation therapy is often given once a day, five times a week, for one to nine weeks. According to a 2017 IMV report, patients made an estimated 20.2million radiation therapy treatment visits in the United States from March 2016 to March 2017.Radiation Therapy Equipment MarketAccording to Markets and Markets 2015 Radiotherapy Market Global Forecasts 2020 report, the global radiotherapy market is estimated to grow toapproximately $6.3 billion by 2020. According to IAEA Human Health Campus, there are nearly 12,000 linacs installed at over 7,300 centers worldwide. Inthe United States, there are over 4,000 linacs installed at over 2,100 centers. The annual market for linacs is estimated to be 1,000 units per year globally, themajority of which are replacements for older machines.In the radiation therapy market, new technologies have historically been adopted at a rapid rate. According to IMV, the percentage of centers performingintensity modulated radiation therapy, or IMRT, grew from 30% in 2002 to 96% in 2012. The percentage of sites utilizing image-guided radiation therapy, orIGRT, grew even more quickly: from 15% in 2004 to 83% in 2012. The majority of IGRT procedures use on-board X-ray systems. As leading cancer centersadopt and study MR Image-Guided radiation therapy, we believe that our current-generation linac based MRI system will also follow a rapid adoption curvein the broader linac replacement market.Limitations of Traditional Radiation TherapyLimitations with traditional radiation therapy result from imaging technologies that make accurate visualization of a tumor and its relation to critical organsdifficult or impossible during the treatment delivery. Most current traditional systems take images of the tumor before and after treatments, but, none do socontinuously during the treatments in real time. As a result, treatments may not be delivered with the precision assumed by the physician and may not resultin the necessary efficacy or reduction in local tumor recurrence. Also, healthy tissues may be exposed to radiation levels different from those predicted by theplanning system and can result in patient injury. •Inability to accurately SEE a tumor for treatment alignment. To locate a tumor, current radiation therapy systems rely on CT scans takenwhile the patient is on the delivery unit treatment table, or “on-table.” Because it is difficult to differentiate between the tumor and nearbysoft tissues with CT images, clinicians use surrogate registration markers, including existing bone structures, external marks and surgicallyimplanted fiducials, to align a patient’s tumor to the treatment beams prior to commencing treatment.6 Comparison of On-Table CT Images to On-Table MRIdian Images 7 However, the spatial relationship between tumors and the registration markers used to locate them often changes between the time of the patient’s initialimaging and the time of his or her first treatment session. This is particularly true for tumors which are located in soft tissue. By relying on a marker as aproxy for the tumor location, rather than on the tumor itself, clinicians risk missing the tumor when they deliver radiation beams into the patient’s body. Inaddition, placement of surgically implanted fiducial markers comes with inherent risks: the procedures are invasive; there is a risk of pain, infection, bleedingand lung collapse; and fiducials may change location and even migrate inside the body. Despite placement of fiducials, physicians are often unable to trackchanges in tumor shape. Also, fiducials made of dense metals, such as gold, may cause artifacts which interfere with imaging. •Inability to SHAPE and adapt treatment on-table. A physician designs a treatment plan and dose prescription based on images that arecaptured days or even weeks prior to initiation of radiation therapy. Creating a treatment plan can take up to several weeks in complex cases,and treatment itself can take up to nine weeks. However, during the course of therapy, tumors often change size, orientation or shape, andpatient anatomy can change for a variety of reasons such as weight loss or gain. These changes can alter the planned radiation exposure toboth the targeted regions and nearby healthy organs; this has the potential to increase the risk of local tumor recurrence and to reduce thesafety of the radiation delivery. Adjusting for these changes on conventional delivery units requires re-planning, which includes getting newpatient images needed to create a new treatment plan. This process may take several days and is highly resource intensive. As a result of theselimitations, re-planning is infrequently performed.Due to limitations in imaging technologies, physicians may actually be unaware of changes in the tumor and surroundinganatomy. Consequently, they may continue to administer radiation dose according to the original treatment plan, without realizing itspotential to reduce the effectiveness of the tumor treatment and to increase the risk of patient injury. •Inability to STRIKE and track tumor and organ motion accurately. In addition to the difficulty of locating a tumor accurately in a patient’sbody at the time treatment begins, a further challenge is accounting for ongoing tumor movement that takes place during treatment. Tumorshave been shown to move multiple centimeters relative to surrogate registration markers over the course of only a few seconds. Breathing andother normal bodily functions, such as changes in the bladder or bowel during treatment, can cause significant tumor motion. Althoughphysicians use internal markers, external cameras and blocks placed on the patients’ body to track respiratory and other motion, they aretypically unable to track the tumor itself. As a result, physicians usually enlarge the total region to be irradiated. This limitation increases theprobability of missing the targeted treatment area and exposing healthy tissues to unnecessary radiation.Each of these limitations increases the risk of missing a tumor and hitting healthy tissue during treatment. If a tumor is insufficiently irradiated, it may notrespond to treatment, resulting in a greater probability of local tumor recurrence and reduced overall survival for the patient. The ability to avoid irradiatinghealthy tissue has been shown to reduce side effects. If healthy tissues, particularly critical organs, are irradiated, the side effects can be severe, including:scarring of lung tissue; fibrosis and cardiotoxicity in lung and breast cancers; incontinence and sexual dysfunction in pelvic and prostate cancers; infertilityin pediatric cancers; memory loss, seizures and necrosis in brain cancer; secondary cancers, and in serious cases, death.Although MR technology is an imaging tool broadly used to differentiate between types of soft tissue in diagnostic settings, MR technology had not beenavailable in the radiation treatment delivery room before the launch of ViewRay’s MRIdian System. In the past, MR was not used with radiation therapybecause the technologies interfered with each other: the magnetic field generated by an MRI interfered with the linac beam, while the radiofrequenciesproduced by the linac distorted the MR images. Current forms of CT have improved over time, but issues with radiation dose and image quality limit theutility of these technologies. Fluoroscopy and cone-beam CT, which is a form of on-board CT, involve the use of X-rays, a form of ionizing radiation, andpose an increased risk of radiation-induced cancer to the patient.Our SolutionWe developed MRIdian to address the key limitations of existing external-beam radiation therapy technologies. MRIdian employs MRI-based technology toprovide real-time imaging that clearly defines the targeted tumor from the surrounding soft tissue and other critical organs, both before and during radiationtreatment delivery. We believe8 this combination of enhanced anatomy visualization and accurate dose calculation and delivery will significantly improve the safety and efficacy ofradiation therapy, leading to better outcomes for patients suffering from cancer.Over the past decade, significant technological advances in radiotherapy have come into clinical practice including improved treatment planning, bettertumor localization, and individualized motion management. While life-saving developments continue, limitations such as poor soft tissue contrast, the use ofsurrogates to identify anatomy, and having no real-time imaging during beam-on have constrained the possibility to safely deliver higher, potentially moreeffective radiation doses.In order for clinicians to deliver high precision adaptive radiotherapy, the MRIdian Linac was designed with a purpose-built magnet, high precision doublestacked double focused MLC, a high dose rate linear accelerator, and a Treatment Planning and Delivery System (TPDS) software suite built from the groundup. We believe that MRIdian provides the following clinical and commercial benefits to physicians, hospitals and patients: •The ability to See: SmartVISION® – Unlike MRI systems used for diagnostic radiology, MRIdian's SmartVISION MR imaging was purpose-built for radiation oncology and MRI-Guided ROAR delivery. Most importantly, SmartVISION provides diagnostic-quality, multi-sequenceMR imaging while being completely interoperable with the linear accelerator. SmartVISION’s patented imaging technology was specificallydesigned to not interfere with high-fidelity beam delivery while significantly reducing the risk of skin toxicities, trapped or distorted dose,and other concerns which may occur when high magnetic fields interact with radiation beams. With a patented split-magnet MR designexclusive to SmartVISION, MRIdian provides a unique unobstructed beam path enabling a source-axis-distance (SAD) capable of supportingsophisticated beam dosimetry, exceptionally sharp penumbra tailored for stereotactic radiosurgery, or SRS and stereotactic body radiationtherapy, or SBRT, and high dose rate beam delivery. •The ability to Shape: SmartADAPT® – Normal bodily function regularly results in significant changes to the daily shape and position ofboth the tumor and surrounding healthy tissues. Using MRIdian's SmartADAPT software, clinicians can now generate daily on-table MRsetup scans in seconds and leverage high-contrast, high-definition detail to detect and rapidly reshape dose delivery to accommodate thesubtle anatomical changes that occur each day throughout the course of treatment. Taking advantage of groundbreaking advances incomputing technology, SmartADAPT calculates new individualized Monte Carlo plans in seconds based on the exact anatomy at that time -all while the patient is in the treatment position. •The ability to Strike: SmartTARGET® – Gas bubbles emerge, bladders fill, and respiratory motion constantly occurs. As a result, tumors andsurrounding critical structures can rapidly change position and shape during beam delivery. Utilizing MR imaging to detect the slightestintra-fraction motion, MRIdian's SmartTARGET allows oncologists to non-invasively visualize the tumor's edges and surrounding organposition in real-time using a non-ionizing streaming video perspective. When tumors move or deform, or organs-at-risk abruptly changeposition, SmartTARGET instantly reacts, automatically turning radiation beams both on and off, providing greater confidence prescribeddoses reach the target while avoiding critical structures. •The ability to Size: SmartSITE® – MRIdian’s compact SmartSITE footprint addresses common physical space limitations and challengesassociated with large-scale vaults and the need for a custom built solution. SmartSITE is designed to fit within almost any existing standardlinear accelerator vault and shielding configuration, avoiding excessive delays, interruptions and costs necessary to build custom, large-scalevaults. SmartSITE is able to fit through conventional vault doorways, there is no need to remove walls, raise ceilings, or dig trenches.MRIdian can treat a broad spectrum of radiation therapy indications and disease sites with its ability to perform three-dimensional conformal radiationtherapy, or 3D-CRT, IMRT, IGRT, SBRT and SRS. MRIdian treatments are supported by existing radiation therapy reimbursement codes. We believeMRIdian’s increased tumor target accuracy will allow physicians to treat patients with higher radiation doses over fewer treatment fractions; this potentiallyenables the clinic to treat more patients with greater overall efficiency and patient throughput. 9 We believe the ability to image with MRI and treat cancer patients with radiation simultaneously will lead to improved patient outcomes.Our StrategyWe are dedicated to making MR Image-Guided radiation delivery the standard of care for radiation therapy. To achieve our objective of providing cliniciansnew and innovative ways to deliver radiation therapy, we are focused on delivering on an integrated plan that incorporates a bold commercial strategy, arelentless focus on operational excellence, the pursuit of the highest customer satisfaction and therapy adoption. We are also committed to attracting,retaining and developing the best talent across all functions. We believe this will allow us to expand the market and target more customers, accelerate oursales cycle, and significantly improve the customer’s overall experience. •Investment in the commercial organization. We are continuing to expand our sales force for the United States and Canada, while developing adirect sales force to assist distributors in EMEA and Japan, which collectively makes up about 70% of the global market opportunity according toMarkets and Markets 2015 Radiotherapy Market Global Forecasts 2020 report. We intend to build a commercial presence that is highlycompetitive and expect to see significant improvements in execution from this developing commercial team. •Operational excellence. While focusing external efforts on building the customer pipeline, we are also committed to achieving internaloperational excellence in parallel. We will seek to create efficiencies across the organization to reduce the purchase order to revenue recognitioncycle time. This goal will be driven by the proactive engagement with customers to achieve vault readiness; driving supplier qualityenhancements; and developing more robust and efficient manufacturing capabilities. •Customer service. Key to our value system is pursuing the highest customer satisfaction. We will measure this by continuously quantifyingcustomer satisfaction and loyalty, and adjusting our priorities accordingly. By hearing the voices of the radiation oncologists, the medicalphysicists and radiation oncology dosimetrists, therapists and administrators, we will continue to improve and refine the capabilities andresulting benefits of MRIdian over competitive radiation therapy systems. Current priorities are focused on addressing service and technicalsupport, clinical workflow enhancements, the development of clinical data and maintaining our competitive lead in MR Image-Guided radiationtherapy through continued innovation. •MRIdian therapy adoption. We believe that MRIdian adoption will accelerate as we leverage three key drivers: innovation, clinical data andtraining. •Innovation. Innovation is one of our greatest strengths as an organization, a strength that we fully intend to capitalize on. We intendto continue to invest in our technology to maintain our leadership position in the emerging MR Image-Guided radiation therapymarket. In the next year, we intend to introduce enhancements to the system and software to provide improved capabilities forMRIdian users and patients. As we continue to build a strong intellectual property portfolio, our pipeline includes projects to addresstreatment delivery speed, machine vision and biological imaging. We will work proactively with key opinion leaders, clinicians,hospitals and free standing centers to refine and improve MRIdian’s features, optimize clinical workflow and maximize patientthroughput while incorporating our advanced features. •Clinical data. MRIdian customers continue to develop an impressive compendium of clinical data. Over the last five year, over 45ICD 10 diagnoses codes have been treated on MRIdian systems. Radiation oncologists and medical physicists have expandedtreatment to areas such as beating heart, central lung and non-invasive heart ablations. •Training. Training remains paramount to adoption. We plan to invest in peer-to-peer symposia and training courses to facilitatesharing of the best practices of key opinion leaders with new customers. We also plan to invest in our clinical field team. In order todrive awareness and adoption, we will continue to work with current customers and their respective institutions to host visitingphysicians, train new users in best-practices, and engage in outreach events worldwide.10 The MRIdian SystemThe MRIdian is comprised of three major components, (i) the MRI system, (ii) the radiation delivery system, and an (iii) integrated treatment planning anddelivery software. Photo of an Installed MRIdian (University ofHeidelberg) MRIdian System Components MRIdian MRI SystemThe MRI system is the component of MRIdian that captures soft tissue images of the patient’s body. To address the technical complications that arise fromcombining an MRI with an external-beam radiation delivery unit, we have designed a proprietary split superconducting magnet that will allow radiationdoses to be delivered through a central gap, which eliminates MRI components from the path of the beam. Our MRI system captures and displays live, high-quality images in one plane, four times per second or in three planes, two times per second. These real-time images automatically track selected structures andcontrol radiation treatment beam delivery.We have engineered our MRI system to be able to produce clear images using a low-field strength 0.35 Tesla magnet, which enables us to avoid image andradiation dose distortions that result when higher field strength magnets are used. In addition, MRIdian’s 0.35 Tesla field strength prevents over-heating ofthe patient during uninterrupted imaging, which could occur when a higher field strength magnet is used for fast imaging during radiation delivery. Over-heating can require interruption or termination of the imaging or of the overall treatment.MRIdian Radiation Delivery SystemIn the first-generation MRIdian, which we no longer make available for sale, radiation was delivered from three Cobalt-60 radiation therapy headssymmetrically mounted on a rotating ring gantry, providing full 360-degree coverage and simultaneous dose delivery.In the second generation MRIdian, our currently available system, we developed solutions to two long-standing problems that had prevented compactintegration of a linac beam with an MRI system: 1) linac radiofrequency interference with the operation of the MRI; and 2) MRI magnetic interference withthe operation of the linac. First, linacs utilize high-powered microwave generators similar to equipment used in radar at airports. These “radar stations”inside the linac create radiofrequency emissions, or “noise” that can corrupt the delicate signals measured from the patient’s body to generate MR images.ViewRay solved this problem by introducing technology similar to that used in stealth aircraft. Airplanes built with stealth technology can hide from radarby using a coating that absorbs microwaves, thus preventing radar beams that strike the aircraft from bouncing back to the radar station. In a similar manner,we absorb the output of the linac “radar station” to hide it from the MRI, producing images as noise-free as those created without an integrated linac. Second, MRIs utilize high-powered superconducting magnets required to image the patient’s tissues that must be placed close to the linac components usedfor radiation therapy. But many linac components will not operate properly when placed close to or inside these strong magnetic fields. ViewRay overcamethis challenge by creating magnetic shielding shells that create voids in the magnetic field, without significantly disturbing the magnetic field11 used for imaging. This allows the linac to operate on the MRIdian gantry as if there were no magnetic field present. MRIdian Linac uses the same split-magnet MRI system used in the first generation MRIdian system. It is specifically designed to fit in standard radiotherapy vaults so that customers do notneed to build new vaults in order to replace an X-ray guided linear accelerator with a MRIdian. Existing first generation MRIdian systems currently in usecan be upgraded to the MRIdian Linac in the field.Integrated Treatment Planning and Delivery SoftwareOur proprietary treatment planning and delivery software work with the integrated patented split-magnet MRI System and unobstructed radiation beam pathand optimal source-axis-distance (SAD) of the Radiation Delivery System to unlock beam dosimetry, sharp SRS and SBRT-tailored penumbra, and high doserate beam delivery.Installed Base and Clinical UseAt December 31, 2018, seven MRIdian with Cobalt-60 and 17 MRIdian Linac systems are in operation at 22 cancer centers (10 in the United States and 12outside the United States). Four MRIdian Linacs have already been delivered to customers and are expected to be installed in 2019.New Orders and BacklogNew orders are defined as the sum of gross product orders, representing MRIdian contract price, recorded in backlog during the period. Backlog is theaccumulation of all orders for which revenue has not been recognized and which we consider valid. Backlog includes customer deposits or letters of credit,except when the sale is to a customer where a deposit is not deemed necessary or customary. Deposits received are recorded as customer deposit, which is aliability on the balance sheet. Orders may be revised or cancelled according to their terms or upon mutual agreement between the parties. Therefore, it isdifficult to predict with certainty the amount of backlog that will ultimately result in revenue. The determination of backlog includes objective andsubjective judgment about the likelihood of an order contract becoming revenue. We perform a quarterly review of backlog to verify that outstanding ordersin backlog remain valid, and based upon this review, orders that are no longer expected to result in revenue are removed from backlog. Among other criteriawe use to determine whether a transaction to be in backlog, we must possess both an outstanding and effective written agreement for the delivery of aMRIdian signed by a customer with a minimum customer deposit or a letter of credit requirement, except when the sale is to a customer where a deposit is notdeemed necessary or customary (i.e. sale to a government entity, a large hospital, group of hospitals or cancer care group that has sufficient credit, sales viatender awards, or indirect channel sales that have signed contracts with end-customers). We decide whether to remove or add back an order from or to ourbacklog by evaluating the following criteria: changes in customer or distributor plans or financial conditions; the customer’s or distributor’s continued intentand ability to fulfill the order contract; changes to regulatory requirements; the status of regulatory approval required in the customer’s jurisdiction, if any;and other reasons for potential cancellation of order contracts.We received new orders for MRIdian systems, totaling $140.7 million, $113.6 million and $77.0 million in fiscal years 2018, 2017 and 2016, respectively.Based on our assessment, we removed $53.5 million and $11.1 million from the backlog for fiscal year 2018 and 2017 respectively; none were removed forfiscal year 2016. At December 31, 2018, we had a backlog with a total value of $212.3 million. There can be no assurance that backlog will result in revenuein any particular time period or at all.Installation ProcessFollowing execution of an order contract, it generally takes nine to 15 months for a customer to prepare an existing facility or construct a new vault, althoughin some cases customers may request installation for a date later in the future to meet their own clinical or business requirements. After the customercompletes its vault customization, it typically takes approximately ninety days to complete the installation and on-site testing of the system, including thecompletion of acceptance test procedures. MRIdian is designed to fit into a typical radiation therapy vault, similar to other replacement linear accelerators.MRIdian’s components all fit through standard hospital vault entrances for assembly. On-site training takes approximately one week and can be conductedconcurrent with installation and acceptance testing.Our customers are responsible for removing any outgoing linear accelerator equipment and preparing the room for the MRidian system unless otherwisestipulated within the contract with the customer. This includes ensuring12 adequate radiation and radio frequency shielding, preparing the floor for the mounting plate, and upgrading facility utilities to meet system requirements.Clinical DevelopmentTo date, we have primarily relied on clinical symposia and case studies presented at ASTRO and the European Society for Radiotherapy and Oncology, orESTRO, to raise awareness of MR Image-Guided radiation therapy and to market MRIdian to leading cancer centers. In order to promote broader adoptionrates at other cancer centers and hospitals, we plan to work with our customers to collect and publish data on clinical efficacy, treatment times and clinicalresults for patients who have been treated on a MRIdian. Outcomes data presented at the 2017 Annual Meeting of ASTRO highlighted potentiallycompelling early results using the Company's MRIdian system for the treatment of inoperable, locally advanced pancreatic cancer. These initial results willbe explored further in a multi-center, prospective, single-arm clinical trial for inoperable, locally advanced or borderline resectable pancreatic cancer. Thetrial is being conducted by ViewRay and the first patient was enrolled in December, 2018.Additionally, Washington University has published a prospective study on Magnetic Resonance Image Guided Radiation Therapy for External BeamAccelerated Partial-Breast Irradiation using a one-week course of treatment. This study demonstrated that on-board MR image-guidance allowed for a greaterthan 50% reduction of margins while maintaining the same dose to the tumor with patients reporting 100% Excellent/Good Cosmesis.While we do not currently have statistically significant, prospective evidence that MRIdian improves patient outcomes or decreases healthcare costs relativeto CT-based radiotherapy, we believe sponsoring and supporting studies will demonstrate the benefits of MR Image-Guided radiation therapy and adaptivetreatment planning. As data accumulate from the use of MRIdian, we plan to work with professional healthcare organizations to support further globalmarketing efforts, additional product clearances, approvals and/or registrations and potential improvements in reimbursement.Selling and MarketingWe currently market MRIdian through a direct sales force in North America and continue to expand our global footprint by going direct and addingadditional distributors to our network in key markets. We market MRIdian to a broad range of worldwide customers, including university research andteaching hospitals, community hospitals, private practices, government institutions and freestanding cancer centers. As with the traditional linac market, oursales and revenue cycles vary based on the particular customer and can be lengthy, sometimes lasting up to 18 to 24 months (or more) from initial customercontact to order contract execution.To sell MRIdian globally, we use a combination of sales executives, sales directors and a network of international third-party distributors with internalsupport from sales operations, product management and application specialists. A targeted group of fourteen senior sales directors are responsible for sellingMRIdian within the North America. Our product management function helps market MRIdian and works with our engineering group to identify and developupgrades and enhancements. We also have a team of application specialists who provide post-sales support.We engage in various physician-targeted advertising efforts, and our selling and marketing practices include participating in trade shows and symposia.CompetitionWe compete directly with companies marketing IGRT devices for the treatment of cancer using MRI, CT, ultrasound, optical tracking and X-ray imaging. Wealso compete with companies developing next-generation IGRT devices, specifically those developing MR Image-Guided devices, amongst others. Weexpect the following to drive worldwide competitive market dynamics; technological advances, including the ability to provide real-time imaging; clinicaloutcomes; reimbursement; system size, price, and operational complexity; and operational efficiency.Our major competitors with devices approved for distribution in the United States or globally include Accuray Incorporated, or Accuray, Elekta AB, orElekta, and Varian Medical Systems, Inc., or Varian. Many of our direct competitors have greater financial, sales and marketing, service infrastructure andresearch and development capabilities than we do, as well as more established reputations and current market share. The main limitation of currentlyapproved non MRI-based devices is the lack of clear images with soft tissue contrast before and during the treatment.13 Elekta is the only competitor which also markets an MRI device combined with a linear accelerator. Elekta Unity received FDA clearance in early Decemberof 2018. Other Image Guided therapy devices. The University of Sydney, Ingham Institute and the University of Queensland have formed a partnership to develop anMRI-linac. MagnetTX, which licensed its technology from the university of Alberta’s Cross Cancer Institute, is working on a MRI-linac as well. Althoughthese academic research centers and very early stage companies may not pose as immediate commercial competition, if they were to form a partnership orother relationship with one of our competitors, it could impact our sales negatively.The limited capital expenditure budgets of our customers result in all suppliers to these entities competing for a limited pool of funds. Our customers may berequired to select between two items of capital equipment. For example, some of our potential customers are considering expensive proton therapy systems,which could consume a significant portion of their capital expenditure budgets.ManufacturingWe have adopted a model in which we rely on subsystem manufacturing, assembly and testing by our key suppliers. The MRIdian subsystems are then fullyintegrated at the customer site. Through this approach, we avoid the majority of the fixed cost structure of manufacturing facilities. We purchase majorcomponents and subsystems for MRIdian from national and international third-party original equipment manufacturers, or OEM, suppliers and contractmanufacturers. These major components include the magnet, MRI electronics, ring gantry, radiation therapy heads, Cobalt-60 sources, linear accelerator,multi-leaf collimators, patient-treatment table and computers. We also purchase minor components and manufacture parts directly ourselves. For sales forwhich we are responsible for installation, we assemble and integrate these components with our proprietary software and perform multiple levels of testingand qualification at the customer site. The system undergoes a final acceptance test, which is performed in conjunction with the customer.Many of the major subsystems and components of MRIdian are currently procured through single and sole source suppliers. Among these are the magnet,MRI electronics, MRI coils, ring gantry, Cobalt-60 sources, linear accelerator and the patient-treatment table. We have entered into multi-year supplyagreements for most of our major components and subsystems.We manage our supplier relationships with scheduled business reviews and periodic program updates. We closely monitor supplier quality and deliveryperformance to ensure compliance with all MRIdian system specifications. We believe our supply chain has adequate capacity to meet our projected salesover the next several years.Intellectual PropertyThe proprietary nature of, and protection for, MRIdian components, new technologies, processes and know-how are important to our business. Our policy isto seek patent protection in the United States and in certain foreign jurisdictions for our MRIdian systems and other technology where available and whenappropriate. We also in-license technology, inventions and improvements we consider important to the development of our business.We hold a license to four issued U.S. patents, 18 issued foreign patents (eight of which were issued in Great Britain, Germany, France and the Netherlands as aresult of two patent applications filed and allowed through the European Patent Office), one pending U.S. application and four pending foreign applicationsas of January 15, 2019. We own an additional 24 issued U.S. patents, 52 issued foreign patents (15 of which were issued in Great Britain, Germany, France,Italy and the Netherlands as a result of three patent applications filed and allowed through the European Patent Office), 25 pending U.S. applications and 108pending foreign applications as of January 15, 2019. Assuming all required fees are paid, individual patents or patent applications owned or licensed by uswill expire between 2021 and 2039. We also have a joint ownership interest with Case Western Reserve University in one issued patent and one U.S.application.Our portfolio includes patents and patent applications directed to system-wide aspects of MRIdian and to key aspects of its subsystems and components. Theinitial licensed patents for our core technology broadly cover the simultaneous use of MR imaging and isotopic external-beam radiation therapy. Thesepatents have been granted in the United States, Europe, Hong Kong, Australia, China, Canada and Japan, and additional related patent applications remainpending in Canada, the United States, Australia and Japan. We have issued U.S. and foreign patents and pending continuation applications of the licensedpatents that extend this core technology to alternate beam technologies. Additionally, we have patents and patent applications that cover critical designelements14 including, among others, our approach to Cobalt IMRT, our methods for integrating MRI with the radiation delivery system, and the design of ourdisassemblable, or “pop apart,” magnet which enables the MRI sub-system to fit into most standard radiation therapy vaults. The U.S. patent application onour approach to Cobalt IMRT has been issued, the patent application on our split gradient coil has been issued in the United States, Japan, Australia andChina and numerous applications on other design elements are pending in the United States and foreign jurisdictions. In addition, we have U.S., Chinese,European and Australian patents and U.S. and foreign patent applications that cover the use of MR- imaging at a frequency sufficient to account for real-timeorgan motion to provide video-rate tissue tracking in disciplines outside of radiation therapy. Many of the patents and applications in our portfolio coveringaspects of the MRIdian with Cobalt-60 system also cover the MRIdian Linac. In addition, we have patents issued in the U.S., Europe, Australia, Japan andChina, and additional applications pending in the U.S. and foreign jurisdictions, specifically directed to technology enabling the MRIdian Linaccombination of MRI and linear accelerator technology. We continue to review new technological developments in our system and in the field as a whole, in order to make decisions about what filings would bemost appropriate for us. An additional key component of our intellectual property is our proprietary software used in planning and delivering MRIdian’stherapeutic radiation dose.In December 2004, we entered into a licensing agreement with the University of Florida Research Foundation, Inc., or UFRF, whereby UFRF granted us aworldwide exclusive license to certain of UFRF’s patents in exchange for 33,653 shares of common stock and a royalty from sales of products developed andsold by us utilizing the licensed patents. We were obligated to meet certain product development and commercialization milestones by various dates throughDecember 31, 2014. The significant milestones met prior to December 31, 2013 included: (i) completion of a business plan and Small Business TechnologyTransfer grant application; (ii) securing a minimum of $20.0 million venture financing; (iii) successful relocation and build out of our headquarters;(iv) receipt of the first magnet from an OEM partner; (v) hiring of a chief executive officer with industry experience in developing and commercializingsimilar products; and (vi) filing for FDA approval. The final milestone, which required us to recognize the first commercial sale of the MRIdian system toretail customers by December 31, 2014, was met during the year ended December 31, 2013. If these milestones had not been accomplished, UFRF would havehad the right to terminate the licensing agreement. Royalty payments are based on 1% of net sales, defined as the amount collected on sales of licensedproducts and/or licensed processes after deducting trade and/or quantity discounts, credits on returns and allowances, outbound transportation costs paid andsales tax. Minimum quarterly royalty payments of $50,000 commenced with the quarter ended March 31, 2014 and are payable in advance. Minimumroyalties paid in any calendar year will be credited against earned royalties for that calendar year. The royalty payments continue until the earlier of (i) thedate that no licensed patents remain enforceable; or (ii) the payment of earned royalties, once begun in 2014, cease for more than four consecutive calendarquarters.In addition to our patents, we also rely upon trade secrets, know-how, trademarks, copyright protection and continuing technological and licensingopportunities to develop and maintain our competitive position. We have periodically monitored and continue to monitor the activities of our competitorsand other third parties with respect to their use of intellectual property. We require our employees, consultants and outside scientific collaborators to executeconfidentiality and invention assignment agreements upon commencing employment or consulting relationships with us. Despite these safeguards, any ofour know-how or trade secrets not protected by a patent could be disclosed to, or independently developed by, a competitor.Coverage and ReimbursementWe believe that reimbursement rates in the United States have generally supported a favorable return on investment for the purchase of new radiotherapyequipment, including MRIdian. Payments for standard radiation therapy treatments using MRIdian, including 3D-CRT, IMRT and SBRT, are generallycovered and reimbursed under existing Current Procedural Terminology, or CPT, codes and coverage policies currently in place. User experience to dateindicates that our initial customers have treated a wide spectrum of different patients and treatment modalities using MRIdian. Physicians use the MRIdiansystem’s on-board MRI for distinct procedures which can be billed by physicians using existing CPT codes, including: complex simulation weekly IMRT ordaily for SBRT; special physics consult; and adaptive re-planning. Each of these are distinct procedures which can be billed by physicians using existingCPT codes, so long as these procedures are reimbursed and so long as they meet medical necessity and other documentation and coverage criteria establishedby government or other third-party payors.15 Third-party payors, including governmental healthcare programs such as Medicare and Medicaid, establish coverage policies and reimbursement rates fordiagnostic examinations and therapeutic procedures performed by physicians in hospitals and free-standing clinics. Private insurers often model theirpayment rates and coverage policies based on those established by the government. The U.S. Congress from time to time considers various Medicare andother healthcare reform proposals that could affect both private and public third-party payor coverage and reimbursement for healthcare services provided inhospitals and clinics. In addition, third-party payors regularly update reimbursement amounts, including annual updates to payments to physicians, hospitalsand clinics for medical procedures, including radiation treatments using MRIdian.The Centers for Medicare & Medicaid Services, or CMS, also publishes annual updates to the hospital outpatient prospective payment system, or HOPPS.These payments are bundled amounts received by our hospital customers for hospital outpatient services, including conventional radiation therapy andIMRT, which may result in lower reimbursement to our customers for procedures performed using MRIdian.Foreign Reimbursement RegulationsInternationally, reimbursement and healthcare payment systems vary from country to country and include single-payor, and government managed systems aswell as systems in which private payors and government-managed systems exist side-by-side. In general, the process of obtaining coverage approvals isslower outside of the United States. Our ability to achieve adoption of MRIdian, as well as significant sales volume in international markets we enter willdepend in part on the availability of reimbursement for procedures performed using MRIdian.Research and Development Continued innovation and development of advanced technologies is critical to our goal of making MR Image-Guided radiation therapy the standard of carefor cancer treatment. Our current development activities include improvements in and expansion of product capabilities, continued clinical workflowrefinements, design improvements to reduce system costs and improvements in reliability.The modular design of MRIdian enables the development of new capabilities and performance enhancements by generally allowing each subsystem toevolve within the overall platform design. Access to regular MRIdian upgrades protects customer investment in MRIdian and facilitates the adoption of newfeatures and capabilities among existing installed base customers.In addition, we believe our existing and expanding IP portfolio will enable us to continuously develop innovative technologies to further strengthen thedifferentiation of MRIdian in the marketplace. Magnetic resonance imaging is a powerful and versatile measurement technique and is widely usedthroughout radiology and medicine because of its ability to generate information about tissues and disease states.Government RegulationU.S. Medical Device Regulation and Nuclear Materials RegulationAs a manufacturer and seller of medical devices and devices that deliver radiation, we and some of our suppliers and distributors are subject to extensive andrigorous regulation by the FDA, the Nuclear Regulatory Commission, or the NRC, other federal, state and local authorities in the United States and foreignregulatory authorities. The U.S. Food, Drug, and Cosmetic Act, or FDCA, and the regulations promulgated by the FDA relating to medical devices andradiation-producing devices govern, among other things, the following activities that we perform or that are performed on our behalf, and that we willcontinue to perform or have performed on our behalf: •product design, development and testing; •manufacturing; •approval or clearance; •packaging, labeling and storage; •marketing, advertising and promotion, sales; •distribution, including importing and exporting;16 •installation; •possession and disposal; •record keeping; •service and surveillance, including post-approval monitoring and reporting; •complaint handling; and •repair or recall of products and issuance of field safety corrective actions.FDA Clearance and Approval of Medical DevicesThe FDA regulates medical devices in the United States to ensure that medical products distributed domestically are safe and effective for their intended uses.Unless an exemption applies, the FDA requires that all new medical devices and all marketed medical devices that have been significantly changed, or thatwill be marketed with a new indication for use, obtain either clearance via a 510(k) premarket notification or approval via a Premarket Approval, or PMA,application before the manufacturer may commercially market or distribute the product in the United States.The FDA classifies medical devices into one of three classes. Devices deemed to pose the lowest risk are placed in Class I.Moderate risk devices are placed in Class II, for which safety and effectiveness can be reasonably assured by adherence to: (i) a set of regulations referred toas General Controls, which require compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, (ii) Special Controls, which caninclude performance standards, guidelines and post-market surveillance; and (iii) regulations regarding facility registration and product listing, reporting ofadverse events and malfunctions, and appropriate, truthful and non-misleading labeling and promotional materials. Most Class II devices are subject to510(k) premarket review and clearance by the FDA.Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantiallyequivalent to a previously cleared 510(k) devices are placed in Class III. Class III devices require FDA approval of a PMA prior to marketing.Both generations of the MRIdian System have been classified as Class II medical devices subject to the 510(k) clearance process.510(k) clearance process. Most Class II devices are subject to premarket review and clearance by the FDA, which is accomplished through the 510(k)premarket notification process. Under the 510(k) process, the manufacturer must submit to the FDA a premarket notification, demonstrating that the device is“substantially equivalent” to a “predicate” device, which is a legally marketed similar device that is not subject to PMA requirements.To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device and either have the same technologicalcharacteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than thepredicate device. Clinical data are sometimes required to support substantial equivalence. The FDA is in the process of evaluating and implementingsignificant reforms to the device premarket review process, such as encouraging 510(k) applicants to use newer predicate devices to demonstrate substantialequivalence, and other policies that are intended to promote the use of modern technologies, improve the efficiency of the review process, and protect thepublic health.The process of obtaining 510(k) clearance usually takes from three to 12 months from the date the application is filed and generally requires submittingsupporting design and test data, which can be extensive and can prolong the process for a considerable period of time. If the FDA agrees that the device issubstantially equivalent, it will grant clearance to commercially market the device.After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a new or majorchange in the intended use of the device, may require a new 510(k) clearance or, depending on the modification, could require approval of a PMA. The FDArequires each manufacturer to make this determination in the first instance, but the FDA can review any such decision. If the FDA disagrees with themanufacturer’s decision, it may retroactively require the manufacturer to submit a request for 510(k)17 clearance or PMA approval and can require the manufacturer to cease marketing and/or recall the product in the United States until 510(k) clearance or PMAapproval is obtained.We received 510(k) clearances for the treatment planning and delivery software system in January 2011 and for MRIdian in May 2012. Since obtaining510(k) clearances in 2011 and 2012, we have made changes to MRIdian that we believe do not require new 510(k) clearance.In February 2017, we received 510(k) clearance from the FDA to market the MRIdian Linac system. We received 510(k) clearance from the FDA for amodification of the MRIdian Linac system in June 2017.Premarket application approval process. Submission and approval of a PMA is required before marketing of a Class III product may proceed. ThePMA must contain sufficient valid scientific evidence to assure that the device is safe and effective for its intended use. The PMA process is the FDA’s moststringent premarket review process for devices, typically requiring the submission of extensive information including clinical study data. None of ourproducts have been subject to the PMA approval process, and we have no plans for any indication, system improvements or extensions that we believe wouldrequire a PMA.Clinical trials. Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Clinical trials aresubject to extensive monitoring, record keeping and reporting requirements. Clinical trials must be conducted under the oversight of an institutional reviewboard, or IRB, for the relevant clinical trial sites and must comply with FDA regulations, including but not limited to those relating to good clinical practices.To conduct a clinical trial, the patient’s informed consent must be obtained in form and substance that complies with both FDA requirements and state andfederal privacy and human subject protection regulations. The clinical trial sponsor, the FDA or the IRB could suspend or terminate a clinical trial at anytime for various reasons, including a belief that the subjects are being exposed to an unacceptable health risk. Even if a trial is completed, the results ofclinical testing may not adequately demonstrate the safety and effectiveness of the device or may otherwise not be sufficient to obtain FDA clearance orapproval to market the product.Continuing FDA regulation. Any devices we manufacture or distribute pursuant to 510(k) clearance or PMA approval by the FDA are subject topervasive and continuing regulation by the FDA and certain state agencies. These include product listing and establishment registration requirements, whichhelp facilitate FDA inspections and other regulatory actions.In addition, our manufacturing operations for medical devices and those of our suppliers must comply with the FDA’s Quality System Regulation, or QSR.The QSR requires that each manufacturer, including third party manufacturers, establish and implement a quality system by which the manufacturer monitorsthe manufacturing process and maintains records that show compliance with FDA regulations and the manufacturer’s written specifications and procedures.Among other things, the QSR requires that manufacturers establish performance requirements before production and follow stringent requirements applicableto the device design, testing, production, control, record keeping, documentation, labeling and installation, as well as supplier/contractor selection,complaint handling and other quality assurance procedures during all aspects of the manufacturing process. Compliance with the QSR is necessary to be ableto continue to market medical devices that have received FDA approval or clearance, and to receive FDA clearance or approval to market new or significantlymodified medical devices. The FDA makes announced and unannounced inspections of medical device manufacturers, and these inspections may include themanufacturing facilities of subcontractors. Following an inspection, the FDA may issue a FDA Form 483 report that describes the conditions or practices thatthe FDA investigator believes are in violation of FDA’s requirements. FDA may also issue warning letters documenting regulatory violations observed duringan inspection, for failure to adequately address inspectional observations, or for other violations of the FDCA. The manufacturer’s failure to adequately andpromptly respond to such reports or warning letters may result in further FDA enforcement action against the manufacturer and related consequences,including, among other things, fines, injunctions, civil penalties, recalls or seizures of products, total or partial suspension of production, FDA refusal to grant510(k) clearance or PMA approval, withdrawal of existing clearances or approvals, and criminal prosecution.18 Manufacturers must also comply with post-market surveillance regulations, including medical device reporting regulations, which require that manufacturersreview and report to the FDA any incident in which their device may have caused or contributed to a death or serious injury, or malfunctioned in a way thatwould likely cause or contribute to a death or serious injury if it were to recur. In addition, corrections and removals reporting regulations require thatmanufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy aviolation of the FDCA that may present a risk to health. The FDA may also order a mandatory recall if there is a reasonable probability that the device wouldcause serious adverse health consequences or death.The FDA and the Federal Trade Commission, or FTC, also regulate the promotion and advertising of MRIdian. In general, we may not promote or advertiseMRIdian for uses not within the scope of our clearances or approvals or make unsupported safety and effectiveness claims.Failure to comply with applicable FDA requirements, including delays in or failures to report incidents to the FDA or for promoting devices for unapprovedor uncleared uses, can result in enforcement action by the FDA, such as: •warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties; •customer notifications or repair, replacement, refunds, recall, administrative detention or seizure of our MRIdian systems; •operating restrictions or partial suspension or total shutdown of production; •refusing or delaying requests for 510(k) clearance or PMA approval of new or modified products; •withdrawing 510(k) clearances or PMA approvals that have already been granted; •refusal to grant export approval for products; or •criminal prosecution.Radiological health. We are also regulated by the FDA under the Electronic Product Radiation Control provisions of the FDCA because MRIdiancontains radiation producing components, and because we assemble these components during manufacturing and service activities. The Electronic ProductRadiation Control provisions require radiation producing products to comply with certain regulations and applicable performance standards. Manufacturersare required to certify in product labeling and reports to the FDA that their products comply with all necessary standards as well as maintain manufacturing,testing and sales records for their products. The Electronic Product Radiation Control provisions also require manufacturers to report product defects andaffix appropriate labeling to covered products. Failure to comply with these requirements could result in enforcement action by the FDA, which can includeany of the sanctions described above.Nuclear Regulatory Commission and U.S. State AgenciesIn the United States, as a manufacturer of medical devices and devices utilizing radioactive byproduct material (i.e. depleted uranium shielding and Cobalt-60 sources), we are subject to extensive regulation by not only federal governmental authorities, such as the NRC, but also by state and local governmentalauthorities, such as the Ohio Department of Health, to ensure such devices are safe and effective. In Ohio, the Department of Health, by agreement with theNRC, regulates the possession, use, and disposal of radioactive byproduct material as well as the manufacture of devices containing radioactive sealedsources to ensure compliance with state and federal laws and regulations. We have received sealed source device approval from the Ohio Department ofHealth for MRIdian and have entered into a standby letter of credit with PNC for $103,000 to provide certification of financial assurance fordecommissioning Cobalt-60 radioactive materials in accordance with Ohio Department of Health regulations. We and/or our supplier of radiation sourcesmust also comply with NRC and U.S. Department of Transportation regulations on the labeling and packaging requirements for shipment of radiation sourcesto hospitals or other users of MRIdian. Compliance with NRC, state and local requirements is required for distribution, installation, use and service withineach state that we intend to install MRIdian systems.Existing radiation therapy facilities practicing nuclear medicine, brachytherapy or Gamma Knife therapy are already required to have necessary NRC and/orstate licenses and a radiation safety program requiring compliance to various provisions under NRC regulations at Part 35 of Title 10 of the Code of FederalRegulations (“Medical uses of byproduct material”). Use of MRIdian is regulated under Section 35.1000 of the NRC’s regulations (“Other medical19 uses of byproduct material or radiation from byproduct material”). In 2013, the NRC released licensing guidance under its regulations to guide our customersin the NRC requirements applicable to the use of MRIdian. We believe that this guidance is favorable in that it is consistent with clinical use of existingimage-guided radiation therapy devices.Moreover, our use, management, and disposal of certain radioactive substances and wastes are subject to regulation by several federal and state agenciesdepending on the nature of the substance or waste material. We believe that we are in compliance with all federal and state regulations for this purpose.Outside the United States, various laws apply to the import, distribution, installation and use of MRIdian, in consideration of the nuclear materials withinMRIdian. We do not believe that the MRIdian Linac falls under these regulations.U.S. Privacy and Security LawsWe may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. The federalHealth Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology and Clinical Health Act, orHITECH, and their respective implementing regulations, including the final omnibus rule published on January 25, 2013, imposes specified requirementsrelating to the privacy, security and transmission of individually identifiable health information. Further, “business associates,” defined as independentcontractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for oron behalf of a covered entity are also subject to certain HIPAA privacy and security standards. HITECH also increased the civil and criminal penalties thatmay be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actionsfor damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civilactions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other insignificant ways and may not have the same effect, thus complicating compliance efforts.U.S. Fraud and Abuse Laws and RegulationsThe healthcare industry is also subject to a number of fraud and abuse laws and regulations, including physician anti-kickback, false claims and physicianpayment transparency laws. Violations of these laws can lead to civil and criminal penalties, including exclusion from participation in federal healthcareprograms and significant monetary penalties, among others. These laws, among other things, constrain the sales, marketing and other promotional activitiesof manufacturers of medical products, such as us, by limiting the kinds of financial arrangements we may have with hospitals, physicians and other potentialpurchasers of medical products who may seek reimbursement from a federal or state health care program such as Medicare or Medicaid.Anti-kickback laws. The federal Anti-Kickback Statute makes it a criminal offense to knowingly and willfully solicit, offer, receive or pay anyremuneration in exchange for, or to induce, the referral of business, including the purchase, order, lease of any good, facility, item or service, that arereimbursable by a state or federal health care program, such as Medicare or Medicaid. The term “remuneration” has been broadly interpreted to includeanything of value. The Anti-Kickback Statute has been interpreted to apply to the purchase of medical devices from a particular manufacturer or the referralof patients to a particular supplier of diagnostic services utilizing such devices. Although, there are established statutory exceptions and regulatory safeharbors that define certain financial transactions and practices that are not subject to the Anti-Kickback Statute, the exceptions and safe harbors are drawnnarrowly. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per seillegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of allits facts and circumstances.Generally, courts have taken a broad interpretation of the scope of the Anti-Kickback Statute, holding that the statute may be violated if merely one purposeof a payment arrangement is to induce referrals or purchases. Further, a person or entity does not need to have actual knowledge of the statute or specificintent to violate it in order to have committed a violation.20 Violations of this law are punishable by up to five years in prison, and can also result in criminal fines, administrative civil money penalties and exclusionfrom participation in federal healthcare programs. In addition, a claim including items or services resulting from a violation of the federal Anti-KickbackStatute constitutes a false or fraudulent claim for purposes of the federal False Claims Act. Many states have also adopted statutes similar to the federal Anti-Kickback Statute, some of which apply to payments in connection with the referral of patients for healthcare items or services reimbursed by any source, notonly governmental payor programs.False Claims Act. The federal civil False Claims Act prohibits anyone from knowingly and willfully presenting, or causing to be presented, claimsfor payment, that are false or fraudulent, such as claims for payment of services not provided as claimed. In addition to actions initiated by the governmentitself, the statute authorizes actions to be brought on behalf of the federal government by a private party having knowledge of the alleged fraud called a“relator”. Because the complaint is initially filed under seal, the action may be pending for some time before the defendant is even aware of the action. If thegovernment is ultimately successful in obtaining redress in the matter or if the relator succeeds in obtaining redress without the government’s involvement,then the relator is typically entitled to receive a percentage of the recovery. When an entity is determined to have violated the False Claims Act, it may berequired to pay up to three times the actual damages sustained by the government, plus civil penalties ranging from $11,181 to $22,363 for each separatefalse claim, and may be excluded from participation in federal health care programs, and, although the federal False Claims Act is a civil statute, violationsmay also implicate various federal criminal statutes. Several states have also adopted comparable state false claims act, some of which apply to all payors.Civil monetary penalties laws. The civil monetary penalties statute imposes penalties against any person or entity that, among other things, isdetermined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service thatwas not provided as claimed or is false or fraudulent.Other fraud and abuse laws. HIPAA also created new federal criminal statutes that prohibit among other actions, knowingly and willfully executing,or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling orstealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying,concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment forhealthcare benefits, items or services. Like the federal Anti-Kickback Statute, the intent standard for certain healthcare fraud statutes under HIPAA wasamended by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the AffordableCare Act, such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed aviolation.Physician payment transparency laws. There has been a recent trend of increased federal and state regulation of payments made to physicians andother healthcare providers and entities. The Affordable Care Act, among other things, imposed new reporting requirements on certain manufacturers,including certain device manufacturers, for payments provided to physicians and teaching hospitals, as well as ownership and investment interests held byphysicians and their immediate family members. Failure to submit timely, accurately, and completely the required information may result in civil monetarypenalties of up to an aggregate of $169,170 per year and up to an aggregate of $1,127,799 per year for “knowing failures.” Device manufacturers must submitreports by the 90th day of each calendar year.Certain states also mandate implementation of compliance programs, impose restrictions on device manufacturer marketing practices and/or require thetracking and reporting of gifts, compensation and other remuneration to healthcare providers and entities.The laws and regulations and their enforcement are constantly undergoing change, and we cannot predict what effect, if any, changes may have on ourbusiness. In addition, new laws and regulations may be adopted which adversely affect our business. There has been a trend in recent years, both in the UnitedStates and internationally, toward more stringent regulation and enforcement of requirements applicable to medical device manufacturers and requirementsregarding protection and confidentiality of personal data.21 State Certificate of Need LawsIn some states, a certificate of need, or CON, or similar regulatory approval is required by hospitals and other healthcare providers prior to the acquisition ofhigh-cost capital items, including MRIdian, or the provision of new services. These laws generally require appropriate state agency determination of publicneed and approval prior to the acquisition of such capital items or addition of new services. CON requirements may preclude our customers from acquiring, orsignificantly delay acquisition of, MRIdian and/or from performing treatments using MRIdian. CON laws are the subject of ongoing legislative activity, anda significant increase in the number of states regulating the offering and use of MRIdian through CON or similar requirements could adversely affect us.Healthcare ReformIn the United States and foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to thehealthcare system seeking, among other things, to reduce healthcare costs that could affect our results of operations.By way of example, in the United States, the Affordable Care Act was signed into law in March 2010.Among other things, the Affordable Care Act: •imposed an annual excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the United States which,due to subsequent legislative amendments, has been suspended through January 1, 2020; and •implemented payment system reforms; and •created an independent payment advisory board.There is uncertainty with respect to the Affordable Care Act and changes that the current presidential administration and the U.S. Congress may implement.Any changes will likely take time to unfold and could have an impact on coverage and reimbursement for healthcare items and services covered by plans thatwere authorized by the Affordable Care Act.We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal andstate governments will pay for healthcare products and services, which could result in reduced demand for MRIdian or additional pricing pressure.Foreign Regulation of Medical DevicesOur activities outside the United States are subject to regulatory requirements that vary from country to country and frequently differ significantly from thosein the United States. Failure to obtain and maintain regulatory approval or clearance in any foreign country in which we market or plan to market MRIdianand MRIdian Linac may have a negative effect on our ability to generate revenue and harm our business.In general, MRIdian and MRIdian Linac are regulated outside the United States as medical devices by foreign governmental agencies similar to the FDA andthe FTC. In addition, in foreign countries where we have operations or sell MRIdian, we are subject to laws and regulations applicable to manufacturers ofmedical devices, radiation producing devices and to the healthcare industry, and laws and regulation of general applicability relating to environmentalprotection, safe working conditions, manufacturing practices and other matters. These laws and regulations are often comparable to, or more stringent thanU.S. laws and regulations. Our sales of MRIdian in foreign countries are also subject to regulation of matters such as product standards, packagingrequirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements. We rely in some countries on our foreign distributorsto assist us in complying with applicable regulatory requirements.Regulation in the EUIn the European Union, or EU, we are required under the European Medical Device Directive (Council Directive 93/42/EEC) to affix the CE mark to ourMRIdian systems in order to sell the MRIdian systems in member countries of the EU. The CE mark is an international symbol that represents adherence tocertain essential principles of safety and effectiveness mandated in the European Medical Device Directive (the so-called “essential requirements”). Onceaffixed, the CE mark enables a product to be sold within the EEA, which is composed of the 28 Member States of the EU plus Norway, Iceland andLiechtenstein.22 To demonstrate compliance with the essential requirements, we must undergo a conformity assessment procedure which varies according to the type ofmedical device and its classification. Except for certain low risk medical devices where the manufacturer can issue an EC Declaration of Conformity based ona self-assessment of the conformity of its products with the essential requirements of the Medical Devices Directive, a conformity assessment procedurerequires the intervention of an organization accredited by a Member State of the EEA to conduct conformity assessments, or a Notified Body. Depending onthe relevant conformity assessment procedure, the Notified Body would typically audit and examine the technical file and the quality system for themanufacture, design and final inspection of our devices. The Notified Body issues a CE Certificate of Conformity following successful completion of aconformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with the essential requirements. ThisCertificate entitles the manufacturer to affix the CE mark to its medical devices after having prepared and signed a related EC Declaration of Conformity.We received the CE Certificate of Conformity from our Notified Body in November 2014, allowing us to affix the CE mark to MRIdian in order to sell itthroughout the EEA. In September 2016, we received approval for CE mark in the European Union for our MRIdian Linac.If we modify MRIdian we may need to undergo a new conformity assessment procedure to be able to affix the CE mark to the modified product. Additionally,we will need to undergo new conformity assessments for any new products that we may develop in the future before we are able to affix the CE mark to thesenew products. We cannot be certain that the outcome of these conformity assessments will be positive and that we will be able to affix the CE mark formodified or new products or that we will continue to meet the quality and safety standards required to maintain the CE marks that we already have or mayhave in the future. In addition, if we are unable to affix the CE mark to our future products, we would be unable to sell them in EU member countries.In September 2012, the European Commission published proposals for the revision of the EU regulatory framework for medical devices. The proposals wouldreplace the Medical Devices Directive and the Active Implantable Medical Devices Directive with two new regulations: the Medical Devices Regulation andthe In-Vitro Diagnostic Medical Devices Regulation. Unlike directives, which must be implemented into the national laws of the EU Member States, theregulations would be directly applicable, i.e., without the need for adoption of EU Member State laws implementing them, in all EEA Member States and areintended to eliminate current differences in the regulation of medical devices among EEA Member States.The Medical Devices Regulation will apply to ViewRay starting on May 26, 2020. Once applicable, the new regulation will among other things: •strengthen the rules on placing devices on the market and reinforce surveillance once they are available; •establish explicit provisions on manufacturers' responsibilities for the follow-up of the quality, performance and safety of devices placed onthe market; •improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;and •set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products availablein the EU.Regulation in Other CountriesWe will be subject to additional regulations in foreign countries in which we intend to market, sell and import MRIdian. We or our distributors must receiveall necessary approvals or clearance prior to marketing and importing MRIdian in those international markets. We received a license and permission toimport MRIdian into the United Arab Emirates in December 2014. We received regulatory approval for MRIdian with Cobalt-60 in Italy in January 2015,Korea in September 2015, as well as Japan and China in August 2016. We also received regulatory approval for MRIdian Linac in Israel in November 2017.We will seek approvals in other countries as may be required in the future.The International Standards Organization promulgates internationally recognized standards, including those for the requirements of quality systems. We arecertified to the ISO 13485:2016 standard, which specify the quality system requirements for medical device manufacturers. To support our ISO certifications,we are subject to surveillance23 audits by a Notified Body yearly and recertification audits every three years that assess our continued compliance with the relevant ISO standards. Our mostrecent recertification audit occurred in March 2017.EmployeesAt December 31, 2018, we had 221 full-time employees, 49 of whom were engaged in research and development, and 172 in sales and marketing, businessdevelopment, finance, human resources, facilities and general management and administration. None of our employees are covered by a collective bargainingagreement, and we have not experienced any work stoppages. We consider our relations with our employees to be good.GeneralWe make our periodic and current reports, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxystatements and any amendments to those reports, available free of charge, on our website as soon as practicable after such material is electronically filed orfurnished with the Securities and Exchange Commission (the “SEC”). Our website address is www.viewray.com and the reports are filed under “SEC Filings”,on the Company – Investor Relations portion of our website. Our Code of Business Conduct and Ethics, Corporate Governance Guidelines and the charters ofthe Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee are also available under “Corporate Governance”,on the Investor Relations portion of our website. Investors and others should note that we announce material financial and operational information to ourinvestors using our investor relations website (http://investors.viewray.com/), press releases, SEC filings and public conference calls and webcasts. Pleasenote that information on, or that can be accessed through, our website is not deemed “filed” with the SEC and is not to be incorporated by reference into anyof our filings under the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended (the “Exchange Act”).We operate our business as one segment as defined by U.S. generally accepted accounting principles. Our financial results for the years ended December 31,2018, 2017 and 2016 are discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8.Financial Statements and Supplementary Data” of this Annual Report.We commenced operations as a Florida corporation in 2004 and subsequently reincorporated in Delaware in 2007. Our corporate headquarters are located at2 Thermo Fisher Way, Oakwood Village, Ohio 44146. Our telephone number is (440) 703-3210, and our website address is www.viewray.com.24 Item 1A. RISK FACTORSYou should consider carefully the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-Kand other filings we have made and make in the future with the Securities and Exchange Commission, or the SEC. If any of the following risks are realized,our business, financial condition, results of operations and prospects could be materially and adversely affected. Risks Related to Our Business and StrategyWe have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. In thefuture, these factors may raise substantial doubt about our ability to continue as a going concern.We have historically incurred substantial net losses, including net losses of $76.4 million, $72.2 million and $50.6 million during the years ended December31, 2018, 2017 and 2016, respectively. At December 31, 2018, we had an accumulated deficit of $399.0 million. We expect our net losses to continue as aresult of ongoing investments in product development and expansion of our commercial operations, including increased manufacturing, and sales andmarketing. These net losses have had, and will continue to have, a negative impact on our working capital, total assets and stockholders’ equity. Because ofthe numerous risks and uncertainties associated with our development and commercialization efforts, we are unable to predict when we will becomeprofitable, and we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly orannual basis. Our inability to achieve and then maintain profitability would harm our business, financial condition, results of operations and cash flows.Further, the net losses we incur may fluctuate significantly from quarter-to-quarter and year-to-year, such that a period-to-period comparison of our results ofoperations may not be a good indication of our future performance quarter-to-quarter and year-to-year, due to factors including the timing of productapproval, commercial ramp, clinical trials, any litigation that we may file or that may be filed against us, the execution of collaboration, licensing or otheragreements and the timing of any payments we make or receive under them. These factors may raise substantial doubt about our ability to continue as a goingconcern.If clinicians do not widely adopt MR Image-Guided radiation therapy or MRIdian Linac fails to achieve and sustain sufficient market acceptance, we willnot generate sufficient revenue and our growth prospects, financial condition and results of operations could be harmed.Our MR Image-Guided radiation therapy system, MRIdian, may never gain significant acceptance in the marketplace and, therefore, may never generatesubstantial revenue or allow us to achieve or maintain profitability. Widespread adoption of MR Image-Guided radiation therapy depends on many factors,including: acceptance by clinicians that MR Image-Guided radiation therapy is clinically-effective and cost-effective in treating a wide range of cancers;demand by patients for MR Image-Guided treatment; successful education of clinicians on the various aspects of this therapeutic approach; and coverage andadequate reimbursement for procedures performed using MR Image-Guided radiation therapy. If we are not successful in conveying to clinicians andhospitals that MR Image-Guided radiation therapy provides equivalent or superior radiation therapy compared to existing technologies, we may experiencereluctance or refusal on the part of clinicians and hospitals to order, and third-party payors to pay for, performing a treatment in which MRIdian is utilized.Our ability to achieve commercial market acceptance for MRIdian or any other future products also depends on the strength of our sales, marketing anddistribution organizations. In addition, our expectations regarding clinical benefits and cost savings from using MRIdian may not be accurate. These hurdlesmay make it difficult to demonstrate to physicians, hospitals and other healthcare providers that MRIdian is an appropriate option for radiation therapy, andmay be both superior to available radiation therapy systems and more cost-effective than alternative technologies.Furthermore, we may encounter difficulty in gaining inclusion in cancer treatment guidelines and gaining broad market acceptance by healthcare providers,third-party payors and patients. Healthcare providers may have difficulty in obtaining adequate reimbursement from government and/or third-party payors forcancer treatment, which may negatively impact adoption of MRIdian.We may not be able to generate sufficient revenue from the commercialization of our MRIdian systems to achieve and maintain profitability.We rely entirely on the commercialization of MRIdian Linac to generate revenue. During the year ended December 31, 2018, we recognized revenue of $76.6million from installation or delivery of 13 MRIdian Linac systems and25 two systems upgrades; $3.9 million from service revenue at certain customer sites; and $0.5 million from distribution rights revenue. In order to successfullycommercialize MRIdian Linac, we will need to: continue to expand our marketing efforts to develop new relationships and expand existing relationshipswith customers; continue to expand our commercial footprint via direct sales and distribution network; receive clearance or approval for MRIdian systems inadditional countries; achieve and maintain compliance with all applicable regulatory requirements; and develop and commercialize new features forMRIdian systems. We cannot assure you that we will be able to achieve or maintain profitability. If we fail to successfully commercialize MRIdian systems,we may never receive a return on the substantial investments in product development, sales and marketing, regulatory compliance, manufacturing andquality assurance that we have made, as well as further investments we intend to make.In addition, potential customers may decide not to purchase MRIdian systems, or our customers may decide to cancel orders due to changes in treatmentofferings, research and product development plans, difficulties in obtaining coverage or reimbursement for MR Image-Guided radiation therapy treatment,complications with facility build-outs, utilization of MR Image-Guided radiation therapy or other cancer treatment methods developed by other parties, lackof financing or the inability to obtain or delay in obtaining a certificate of need from state regulatory agencies or zoning restrictions, all of which arecircumstances outside of our control.In addition, demand for MRIdian systems may not increase as quickly as we predict, and we may be unable to increase our revenue levels as we expect. Evenif we succeed in increasing adoption of MRIdian systems by hospitals and other healthcare providers, maintaining and creating relationships with ourexisting and new customers and developing and commercializing new features for MRIdian systems, we may not be able to generate sufficient revenue toachieve or maintain profitability.We are an early, commercial-stage company and have a limited history commercializing MRIdian, which may make it difficult to evaluate our currentbusiness and predict our future performance.We are an early, commercial-stage company and have a limited operating history. We commenced operations as a Florida corporation in 2004 andsubsequently reincorporated in Delaware in 2007. However, we did not begin commercial operations until 2013. Our limited history commercializingMRIdian may make it difficult to evaluate our current business and predict our future performance. Any assessment as to if or when we may become profitableor predictions about our future success or viability, are subject to significant uncertainty. We have encountered and will continue to encounter risks anddifficulties frequently experienced by early, commercial-stage companies in rapidly evolving industries. If we do not address these risks successfully, ourbusiness could be harmed.If MRIdian does not perform as expected, or if we are unable to satisfy customers’ demands for additional product features, our reputation, business andresults of operations will suffer.Our success depends on the market’s confidence that MRIdian can provide reliable, high-quality MR Image-Guided radiation therapy. At December 31,2018, there were seven MRIdian with Cobalt-60 and 21 MRIdian Linacs installed or delivered. Consequently, we have limited statistics regarding theefficacy or reliability of MRIdian. We believe that our customers are likely to be particularly sensitive to product defects and errors, including functionaldowntime that limits the number of patients that can be treated using the system or a failure that is costly to repair. We cannot assure that similar productdefects or other errors will occur in the future. This could also include the mistreatment of a patient with MRIdian caused by human error on the part ofMRIdian’s operators or prescribing physicians or as a result of a machine malfunction. We may be subject to regulatory enforcement action or legal claimsarising from any defects or errors that may occur. Any failure of MRIdian to perform as expected could harm our reputation, business and results ofoperations.26 In addition, our customers are technologically well informed and at times have specific demands or requests for additional functionality. If we are unable tomeet those demands through the development of new features for MRIdian or future products, or those new features or products do not function at the levelthat our customers expect, or we are unable to increase patient throughput as expected or we are unable to obtain regulatory clearance or approval of thosenew features or products, where applicable, our reputation, business and results of operations could be harmed.The safety and efficacy of MRIdian systems for certain uses is not currently supported by long-term clinical data, and may therefore be less safe andeffective than initially anticipated.To date, we have not been required to complete long-term clinical studies in connection with the sale of MRIdian with Cobalt-60 or MRIdian Linac. As aresult, we currently lack the breadth of published long-term clinical data supporting the efficacy of MRIdian with Cobalt-60 or MRIdian Linac and thebenefits each offers that might have been generated in connection with other marketing authorization processes. In addition, because only a few MRIdiansystems have been installed at customer sites, we have limited complication or patient survival rate data with respect to treatments using the systems. If futurepatient studies or clinical testing do not support our belief that MRIdian with Cobalt-60 or MRIdian Linac offers a more advantageous treatment for a widevariety of cancer types, market acceptance of these systems could fail to increase or could decrease and our business could be harmed.If we choose to, or are required to, conduct additional studies, the results of these studies or experience could reduce the rate of coverage and reimbursementby both public and private third-party payors for procedures that are performed with MRIdian with Cobalt-60 or MRIdian Linac, slow the market adoption ofour product by physicians, significantly reduce our ability to achieve expected revenues and prevent us from becoming profitable. In addition, if futurestudies and experience indicate that MRIdian with Cobalt-60 or MRIdian Linac causes unexpected or serious complications or other unforeseen negativeeffects, we could be subject to mandatory product recalls or suspension or withdrawal of FDA clearance, and our reputation with physicians, patients andhealthcare providers may suffer.There have been instances of patients’ severe injury or death due to a variety of factors, including operator error, misuse, radiation therapy product orcustomer system malfunctions, and other factors. If our redundant safety systems do not operate as we expect, or any of these or other causes arose in the useof our products, MRIdian with Cobalt-60 or MRIdian Linac could severely injure or kill a patient. This could result in lawsuits, fines or damage to ourreputation.We may be delayed or prevented from implementing our long-term sales strategy if we fail to educate clinicians and patients about the benefits ofMRIdian.In order to increase revenue, we must increase awareness of the range of benefits that we believe MRIdian offers to both existing and potential customers,primarily cancer clinicians. An important part of our sales strategy involves educating and training clinicians to utilize the entire functionality of MRIdian.In addition, we must further educate clinicians about the ability of MRIdian to treat a wide range of cancer types effectively and efficiently. If clinicians arenot properly educated about the use of MRIdian for radiation therapy, they may be unwilling or unable to take advantage of the full range of functionalitythat we believe MRIdian offers, which could have a negative impact on MRIdian sales. Clinicians may decide that certain tumors can be adequately treatedusing traditional radiation therapy systems, notwithstanding the benefits of MRIdian. We must also succeed in educating customers about the potential forreimbursement for procedures performed using MRIdian. In addition, we need to increase awareness of MRIdian among potential patients, who areincreasingly educated about cancer treatment options and therefore impact adoption of new technologies by clinicians. If our efforts to expand sales ofMRIdian in the long-term are not successful, our business and results of operations will be harmed.We may not be able to gain the support of leading hospitals and key opinion leaders, or to publish the results of our clinical trials in peer-reviewedjournals, which may make it difficult to establish MRIdian as a standard of care and achieve market acceptance.Our strategy includes developing relationships with leading hospitals and key opinion leaders in our industry. If these hospitals and key industry thoughtleaders determine that MRIdian is not clinically effective or that alternative technologies are more effective, or if we encounter difficulty promoting adoptionor establishing MRIdian as a standard of care, our ability to achieve market acceptance of MRIdian could be significantly limited.27 We believe that publication of scientific and medical results in peer-reviewed journals and presentation of data at leading conferences are critical to the broadadoption of MRIdian. Publication in leading medical journals is subject to a peer-review process, and peer reviewers may not consider the results of studiesinvolving MRIdian sufficiently novel or worthy of publication.We have limited experience in marketing and selling MRIdian, and if we are unable to adequately address our customers’ needs, it could negativelyimpact sales and market acceptance of MRIdian and we may never generate sufficient revenue to achieve or sustain profitability.We have limited experience in marketing and selling MRIdian. We have only been selling MRIdian since 2013 and have seven MRIdian with Cobalt-60 and21 MRIdian Linac installed or delivered at December 31, 2018. Our devices have only been used to treat patients since early 2014. MRIdian is a newtechnology in the radiation therapy systems sector and our future sales will largely depend on our ability to increase our sales and marketing efforts andadequately address our customers’ needs. We believe it is necessary to maintain a sales force that includes sales representatives with specific technicalbackgrounds that can address those needs as part of the sales cycle. Competition for these types of employees is intense and we may not be able to attract andretain sufficient personnel to maintain an effective sales and marketing force. If we are unable to adequately address our customers’ needs, it could negativelyimpact sales and market acceptance of MRIdian and we may never generate sufficient revenue to achieve or sustain profitability.The long sales cycle and low unit volume sales of MRIdian, as well as other factors, may contribute to substantial fluctuations in our operating results andstock price and make it difficult to compare our results of operations to prior periods and predict future financial results.Because of the relatively small number of systems we expect to install in any period, each installation of a MRIdian may represent a significant percentage ofour revenue for a particular period. Additionally, customer site construction, certificate of need and additional zoning and licensing permits are oftenrequired in connection with the sale of a MRIdian, any of which may further delay the installation process. When we are responsible for installing a system,we only recognize revenue from the sale of a MRIdian after the system has been installed and accepted by the customer. When a qualified third party isresponsible for the installation, we recognize revenue when title is transferred. Therefore, if we do not install a MRIdian or transfer title when anticipated, ouroperating results will vary significantly from our expectations. We have had experiences with customers postponing installation of MRIdian systems due todelays in facility build-outs, which are often lengthy and costly processes for our existing and potential customers. In addition, if our customers delay orcancel purchases, we may be required to modify or terminate contractual arrangements with our suppliers, which may result in the loss of deposits. Due tofuture fluctuations in revenue and costs, as well as other potential fluctuations, you should not rely upon our operating results in any particular period as anindication of future performance. In addition to the other risks described, the following factors may also contribute to these fluctuations: •timing of when we are able to recognize revenue associated with sales of MRIdian; •actions relating to regulatory matters, including regulatory requirements in some states for a certificate of need prior to the installation of aMRIdian; •delays in shipment due to, for example, unanticipated construction delays at customer locations where MRIdian is to be installed, labordisturbances or natural disasters; •delays in our manufacturing processes or unexpected manufacturing difficulties; •timing of the announcements of contract executions or other customer and commercial developments; •timing of the announcement, introduction and delivery of new products or product features by us and by our competitors; •timing and level of expenditures associated with expansion of sales and marketing activities and our overall operations; •fluctuations in our gross margins and the factors that contribute to such fluctuations, as described in “Management’s Discussion and Analysisof Financial Condition and Results of Operations” elsewhere in this Annual Report; •our ability to effectively execute on our strategic and operating plans;28 •the extent to which MRIdian gains market acceptance and the timing of customer demand for MRIdian; •our ability to protect our proprietary rights and defend against third-party challenges; •disruptions in the supply or changes in the costs of raw materials, labor, product components or transportation services; and •changes in third-party coverage and reimbursement, government regulation or in a customer’s ability to obtain financing.These factors are difficult to forecast and may contribute to fluctuations in our reported revenue and results of operations and variation from our expectations,particularly during the periods in which our sales volume is low. Any fluctuations in our financial results may cause volatility in our stock price.Each MRIdian is a major capital equipment item and is subject to a lengthy sales cycle. The time from initial customer contact to execution of a contract cantake 18 to 24 months or more. Following execution of a contract, it generally takes nine to 15 months for a customer to customize an existing facility orconstruct a new vault. During this time, facilities support and transitioning, as well as permitting, are typically required, which can take several months. Thetime required to customize an existing facility prior to installation, including modifications of a standard vault to accommodate an MRI, is typicallycurrently two to three months. If a customer does not have an existing vault available, it may take longer to construct a new vault. In some cases, customersmay request installation for a date later in the future to meet their own clinical or business requirements. Upon the commencement of installation at acustomer’s facility, it typically takes approximately 60 to 90 days to complete the installation and on-site testing of the system, including the completion ofacceptance test procedures. If a small number of customers defer installation of a MRIdian for even a short period, recognition of a significant amount ofrevenue may be deferred to a subsequent period. Because our operating costs are relatively fixed, our inability to recognize revenue in a particular periodmay impact our profitability in that period. The inability to recognize revenue in a particular period may also make it difficult to compare our operatingresults with prior periods. The price of a MRIdian requires a portion of our target customers to obtain outside financing before committing to purchase aMRIdian. This financing may be difficult for our customers to obtain in any given period, if at all. The requirement of site-specific modifications orconstruction may also delay adoption or overall demand. In addition, while we believe that our backlog of orders provides a better measure at any particularpoint in time of the long-term performance prospects of our business than our operating results for a particular period, investors may attribute significantweight to our operating results for a particular period, which may be volatile and as a result, cause fluctuations in our stock price.A large portion of our revenue in any given reporting period may be derived from a small number of contracts.Given that a significant portion of the purchase price for MRIdian will generally be recognized as revenue in a single reporting period, we expect a smallnumber of contracts in any given reporting period to account for a substantial portion of our revenue in any period. Any decrease in revenue from thesecontracts could harm our operating results. Accordingly, our revenue and results of operations may vary from period to period. We are also subject to creditrisk associated with the concentration of our accounts receivable from our customers. If one or more of our customers at any given time were either toterminate their contracts with us, cease doing business with us or fail to pay us on a timely basis, our business, financial condition and results of operationscould be harmed.The payment structure we use in our customer arrangements may lead to fluctuations in operating cash flows in a given period.While our customers typically provide a deposit upon entering into an order contract with us, the substantial majority of the payment owed for a MRIdian isnot due until the time of shipment of a MRIdian or following final acceptance by the customer upon installation. If we miss targeted shipments or ourcustomers do not actively work towards completing installation, our receipt of payments and our operating cash flows could be impacted. In addition, ifcustomers do not adhere to our payments terms, our operating cash flows could be impacted in any given period. Due to these fluctuations in operating cashflows and other potential fluctuations, you should not rely upon our operating results in any particular period as an indication of future performance.29 Amounts included in backlog may not result in actual revenue and are an uncertain indicator of our future earnings.We define backlog as the accumulation of all orders for which revenue has not been recognized and we consider valid. The determination of backlogincludes, among other factors, our subjective judgment about the likelihood of an order becoming revenue and the regulatory approval required in thecustomer’s jurisdiction, if any. Our judgments in this area have been, and in the future, may be, incorrect and we cannot assure you that, for any orderincluded in backlog, we will recognize revenue with respect to it. In addition, orders can be delayed for a number of reasons, many of which are beyond ourcontrol, including supplier delays, which may cause delays in our manufacturing process, customer delays in commencing or completing construction of itsfacility, delays in obtaining zoning or other approvals and delays in obtaining financing. We may not be aware of these delays affecting our suppliers andcustomers and as a result may not consider them when evaluating the contemporaneous effect on backlog. Moreover, orders generally do not have firm datesby when a customer must take delivery or accept our systems, and certain customers may not provide a deposit or letter of credit with the contract, either ofwhich could allow a customer greater flexibility to delay the order without cancelling the contract. Further, our backlog could be reduced due to cancellationof orders by customers. Should a cancellation occur, our backlog and anticipated revenue would be reduced unless we were able to replace it. Reductions inour backlog could negatively impact our future results of operations or the price of our common stock.We evaluate our backlog at least quarterly to determine if the orders continue to meet our criteria for inclusion in backlog. We may adjust our reportedbacklog to account for any changes in: customer or distributor plans or financial conditions; the customer’s or distributor’s continued intent and ability tofulfill the order contract; regulatory requirements; the status of regulatory approval required in the customer’s jurisdiction (or other factors); or due to changesin our judgment about the likelihood of completing an order contract. Because revenue will not be recognized until we have fulfilled our obligations to acustomer, there may be a significant amount of time from signing a contract with a customer or shipping a system and revenue recognition. We cannot assureyou that our backlog will result in revenue on a timely basis or at all, or that any cancelled contracts will be replaced.Our ability to achieve profitability depends substantially on increasing our gross margins by standardizing the selling price, reducing costs of MRIdianand improving our economies of scale, which we may not be able to achieve.We are not, and never have been, profitable. The MRIdian purchase contracts we have entered into to date have been at a range of selling prices. Generally,earlier contracts have been at lower prices and more recent contracts have been at higher prices. Our ability to enter into contracts at higher selling pricesdepends on a number of factors including: •our ability to achieve commercial market acceptance for our system; •the pricing of competitors’ systems; •availability of coverage and adequate reimbursement by commercial and government payors; and •our ability to manufacture and install our systems in a timely and cost-effective manner.We bear the risk of warranty claims on all products we supply, including equipment and component parts manufactured by third parties. We cannot assureyou that we will be successful in claiming recovery under any warranty or indemnity provided to us by our suppliers or vendors in the event of a successfulwarranty claim against us by a customer or that any recovery from the vendor or supplier would be adequate. In addition, warranty claims brought by ourcustomers related to third-party components may arise after our ability to bring corresponding warranty claims against the suppliers expires, which couldresult in additional costs to us. There is a risk that warranty claims made against us will exceed our warranty reserve and our business, financial condition andresults of operations could be harmed.Our customer contracts provide that our customers commit to purchase a MRIdian system for a fixed price, and a MRIdian system will generally not bedelivered for nine to 15 months. In some circumstances, delivery can be postponed several months due to customer delays related to construction, vaultpreparation or concurrent facility expansion, and the cost of product supplies may increase significantly in the intervening time period. In addition, inflationmay generally reduce the real value of the purchase price payable upon the achievement of future progress30 payment milestones. Either of these occurrences could cause our gross margins to decline or cause us to lose money on the sale of a MRIdian.Moreover, our gross margins may decline in a given period due in part to significant replacement rates for components, resulting in increased warrantyexpense, negative profit margins on service contracts and customer dissatisfaction. If we are unable to reduce our product costs and improve or maintainquality and reliability, our gross margin may be negatively impacted. Additionally, we may face increased demands for compensation from customers whoare not satisfied with the quality and reliability of MRIdian, which could increase our service costs or require us to issue credits against future servicepayments and negatively impact future product sales. For example, we may have to extend a warranty period due to our failure to meet up-time requirements.We continually work to reduce the cost of our MRIdian product; however, we may be unable to reduce our product cost as quickly as we anticipate and, insome instances, may experience increases in costs from our suppliers. Even if we are able to implement cost reduction and quality improvement efforts successfully, our service operations may remain unprofitable given therelatively small size and geographic dispersion of our installed base, which prevents us from achieving significant economies of scale for the provision ofservices. If we are unable to achieve increasingly higher gross margins on our MRIdian systems, we may never become profitable.We may not be able to develop new products or enhance the capabilities of MRIdian to keep pace with our industry’s rapidly changing technology andcustomer requirements.Our industry is characterized by rapid technological changes, new product introductions and enhancements and evolving industry standards. Our businessprospects depend on our ability to develop new products and applications for our technology in new markets that develop as a result of technological andscientific advances, while improving the performance and cost-effectiveness of MRIdian. New technologies, techniques or products could emerge that mightoffer better combinations of price and performance than MRIdian systems. The market for radiation therapy treatment products is characterized by rapidinnovation and advancement in technology. It is important that we anticipate changes in technology and market demand, as well as physician, hospital andhealthcare provider practices to successfully develop, obtain clearance or approval, if required, and successfully introduce new, enhanced and competitivetechnologies to meet our prospective customers’ needs on a timely and cost-effective basis. Nevertheless, we must carefully manage our introduction of newproducts. If potential customers believe that new products will offer enhanced features or be sold for a more attractive price, they may delay purchases untilthey are available. We may also have excess or obsolete inventory as we transition to new products, and we have no experience in managing producttransitions. If we do not successfully innovate and introduce new technology into our anticipated product lines, or effectively manage the transitions of ourtechnology to new product offerings, our business, financial condition and results of operations could be harmed.We face competition from numerous companies, many of whom have greater resources than we do or offer alternative technologies at lower prices thanour MRIdian systems, which may make it more difficult for us to achieve significant market penetration and profitability.The market for radiation therapy equipment is characterized by intense competition and pricing pressure. In particular, we compete with a number of existingtherapy equipment companies, including Elekta AB, Varian Medical Systems, Inc. and Accuray Incorporated. Many of these competitors are large, well-capitalized companies with significantly greater market share and resources than we have. As a result, these companies may be better positioned than we areto spend more aggressively on marketing, sales, intellectual property and other product initiatives and research and development activities. In addition, wemay compete with certain MRI-linear accelerator research projects that are currently in development and may be commercialized.Existing technologies may offer certain advantages compared to the MRI technology used by our MRIdian system. For example, computed tomography, orCT, is known to hold certain potential advantages over MRI technology for use in radiation therapy. Diagnostic CT is currently the most widely adoptedimaging modality for treatment planning, and can be used to directly measure the electron density of patient tissues, which enables more accurate dosecomputation. In addition, CT imaging provides superior imaging of bones and boney anatomy than MRI, which is advantageous when imaging thosestructures for planning and alignment for treatment. Finally, CT is a less expensive technology than MRI and might be preferred by customers seeking alower cost solution.Our current competitors or other potential competitors may develop new products at any time or may receive approval or clearance in new jurisdictions; forexample, Elekta received FDA 510k clearance in the United States for its Unity product in December 2018. In addition, competitors may be able to respondmore quickly and31 effectively than we can to new or changing opportunities, technologies, standards or customer requirements. If we are unable to develop products thatcompete effectively against the products of existing or future competitors, our future revenue could be negatively impacted. Some of our competitors maycompete by changing their pricing model or by lowering the price of their therapy systems. If these competitors’ pricing techniques are effective, it couldresult in downward pressure on the price of all therapy systems. If we are unable to maintain or increase our selling prices in the face of competition, we maynot improve our gross margins.In addition to the competition that we face from technologies performing similar functions to MRIdian, competition also exists for the limited capitalexpenditure budgets of our customers. A potential purchaser may be forced to choose between two items of capital equipment. Our ability to compete mayalso be negatively impacted when purchase decisions are based largely upon price, because MRIdian is a premium-priced system relative to other capitalexpenditures and alternative radiation therapy technologies. In certain circumstances, a purchaser may decide that an alternative radiation therapy systempriced below MRIdian may be sufficient for its patient population given the relative upfront cost savings.Negative press regarding MR Image-Guided radiation therapy for the treatment of cancer could harm our business.The comparative efficacy and overall benefits of MR Image-Guided radiation therapy are not yet well understood, particularly with respect to certain types ofcancer. These types of reports could negatively impact the market’s acceptance of MR Image-Guided radiation therapy, and therefore our ability to generaterevenue could be negatively impacted.We may acquire other businesses, form joint ventures or make investments in other companies or technologies that could negatively affect our operatingresults, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense.We may pursue acquisitions of businesses and assets. We also may pursue strategic alliances and joint ventures that leverage our proprietary technology andindustry experience to expand our offerings or distribution. We have no experience with acquiring other companies and limited experience with formingstrategic partnerships. We may not be able to find suitable partners or acquisition candidates, and we may not be able to complete such transactions onfavorable terms, if at all. If we make any acquisitions, we may not be able to integrate these acquisitions successfully into our existing business, and we couldassume unknown or contingent liabilities. Any future acquisitions also could result in the incurrence of debt, contingent liabilities or future write-offs ofintangible assets or goodwill, any of which could have a negative impact on our cash flows, financial condition and results of operations. Integration of anacquired company also may disrupt ongoing operations and require management resources that we would otherwise focus on developing our existingbusiness. We may experience losses related to investments in other companies, which could harm our financial condition and results of operations. We maynot realize the anticipated benefits of any acquisition, strategic alliance or joint venture.Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across different culturesand languages, currency risks and the particular economic, political and regulatory risks associated with specific countries.To finance any acquisitions or joint ventures, we may choose to issue shares of common stock as consideration, which could dilute the ownership of ourstockholders. Additional funds may not be available on terms that are favorable to us, or at all. If the price of our common stock is low or volatile, we may notbe able to acquire other companies or fund a joint venture project using our stock as consideration.Risks Related to Our Reliance on Third PartiesWe rely on a limited number of third-party suppliers and, in some cases, sole suppliers, for the majority of our components, subassemblies and materialsand may not be able to find replacements or immediately transition to alternative suppliers.We rely on a number of suppliers, including several sole suppliers such as Japan Superconductor Technology, Inc., Siemens AG, Best Theratronics Ltd., TeslaEngineering Limited and Quality Electrodynamics, LLC, for components of MRIdian. For us to be successful, our suppliers must be able to provide us withproducts and components in substantial quantities, in compliance with regulatory requirements, in accordance with agreed upon specifications, at acceptablecosts and on a timely basis. We have experienced and may in the future experience32 delays in obtaining components and materials from suppliers which could impede our ability to manufacture, assemble and install MRIdian on our expectedtimeline, which could result in order cancellations or contractual penalties. For example, in August 2018, in response to a worldwide shortage of liquidhelium, our liquid helium supplier imposed on all its customers, including our company, a reduction in helium allocation amounts. The reduction inallocation covered the remainder of 2018 and has extended into 2019. If we are required to transition to new third-party suppliers for certain components of MRIdian, we believe that there are only a few other manufacturers thatare currently capable of supplying the necessary components. In addition, the use of components or materials furnished by these alternative suppliers couldrequire us to alter our operations. Furthermore, if we are required to change the manufacturer of a critical component of MRIdian, we will be required to verifythat the new manufacturer maintains facilities, procedures and operations that comply with our quality and applicable regulatory requirements, which couldfurther impede our ability to manufacture MRIdian in a timely manner. Transitioning to a new supplier could be time-consuming and expensive, may resultin interruptions in our operations and product delivery, could affect the performance specifications of MRIdian or could require that we modify the design ofMRIdian. If the change in manufacturer results in a significant change to MRIdian, a new 510(k) clearance from the FDA or similar international regulatoryauthorization may be necessary, which could cause substantial delays. The occurrence of any of these events could harm our ability to meet the demand forMRIdian in a timely manner or cost-effectively.An interruption in our commercial operations could occur if we encounter delays or difficulties in securing these components and materials and we cannotassure you that we will be able to secure alternative equipment and materials we require for MRIdian. Any such interruption could harm our reputation,business, financial condition and results of operations.In addition, we are in early stages of developing suppliers for components that are specific to MRIdian Linac. The inability of these suppliers to producereliable components and to sufficiently scale up manufacturing could harm our ability to install MRIdian Linac systems in a timely or cost-effective manner.We depend on third-party distributors to market and distribute MRIdian in international markets.We expect a significant amount of our revenue to come from international sales and we depend on a number of distributors for sales in certain internationalmarkets. Our distributors may not be able to successfully market and sell MRIdian and may not devote sufficient time and resources to support the marketingand selling efforts that enable the product to develop, achieve or sustain market acceptance. In some jurisdictions, we rely on our distributors to manage theregulatory process, and we are dependent on their ability to do so effectively. In addition, if a dispute arises with a distributor or if a distributor is terminatedby us or goes out of business, it may take time to locate an alternative distributor, to seek appropriate regulatory approvals and to train that distributor’spersonnel to market MRIdian; our ability to sell and service MRIdian in the region formerly serviced by the terminated distributor could be harmed. Any ofour distributors could become insolvent or otherwise become unable to pay amounts owed to us when due. Any of these factors could reduce our revenuefrom affected international markets, increase our costs in those markets or damage our reputation. In addition, if we are unable to attract additionalinternational distributors, our international revenue may not grow.Failures by our third-party distributors to deliver or install MRIdian properly and on time could harm our reputation.We rely on arrangements with third-party distributors for sales and installation of MRIdian in certain international markets. As a result of our reliance onthird-party distributors, we may be subject to disruptions and increased costs due to factors beyond our control, including labor strikes, third-party error andother issues. If the services of any of these distributors become unsatisfactory, including their failure to properly install MRIdian, we may experience delaysin meeting our customers’ product demands and we may not be able to find a suitable replacement on a timely basis or on commercially reasonable terms.Any failure to deliver, install or service products in a timely manner may damage our reputation and could cause us to lose current or potential customers.We rely on third parties to store our inventory and to perform spare parts shipping and other logistics functions on our behalf. A failure or disruption withour logistics providers could harm our business.Customer service is a critical element of our sales strategy. Third-party logistics providers store most of our spare parts inventory in depots around the worldand perform a significant portion of our spare parts logistics and shipping activities. If any of our logistics providers suffers an interruption in its business orexperiences delays, disruptions or33 quality control problems in its operations or we have to change and qualify alternative logistics providers for our spare parts, shipments of spare parts to ourcustomers may be delayed and our reputation, business, financial condition and results of operations could be negatively harmed.If third-party payors do not provide coverage and adequate reimbursement to our customers, it could negatively impact sales of MRIdian.In the United States, hospitals and other healthcare providers who purchase MRIdian generally rely on third-party payors to reimburse all or part of the costsand fees associated with the treatments performed with our system. Accordingly, sales of MRIdian depend, in part, on whether coverage and adequatereimbursement for standard planning methodologies are available to our customers from third-party payors, such as government healthcare insuranceprograms, including the Medicare and Medicaid programs, private insurance plans, health maintenance organizations and preferred provider organizations.In general, third-party payors in the United States have become increasingly cost-conscious, which has limited coverage for, and reimbursement of, certainprocedures such as MR Image-Guided radiation therapy. Third-party payors have also increased utilization controls related to the use of products such as oursby healthcare providers.Furthermore, there is no uniform policy on coverage and reimbursement for MR Image-Guided radiation therapy among third-party payors. Payors continueto review their coverage policies carefully for existing and new therapies and can, without notice, deny coverage for treatments that include the use ofMRIdian.The Medicare program is increasingly used as a model for how private payors and other governmental payors develop their coverage and reimbursementpolicies for medical services and procedures. Medicare coverage of advanced and conventional radiation therapies using MRIdian currently variesdepending upon the geographic location in which the services are provided. The Centers for Medicare & Medicaid Services, or CMS has not adoptednational coverage determination for such therapies that would determine coverage nationally. In the absence of a national coverage determination, MedicareAdministrative Contractors, or MACs, with jurisdiction over specific geographic regions have the discretion to determine whether and when the use of MRImage-Guided radiation therapy will be considered medically necessary and covered in their respective regions. A number of MACs have adopted orproposed local coverage determinations covering MR Image-Guided radiation therapy. However, these local coverage determinations do not ensure thatcoverage will be available for MR Image-Guided radiation therapy for all types of cancer, as the coverage policies may limit coverage to only certain types ofcancer.Even if MR Image-Guided radiation therapy is covered and reimbursed by third-party payors, adverse changes in payors’ coverage and reimbursementpolicies that affect MRIdian could harm our ability to market and sell MRIdian. We cannot be sure that third-party payors will reimburse our customers forprocedures using MRIdian at a level that will enable us to achieve or maintain adequate sales and price levels for MRIdian. Without coverage and adequatereimbursement from third-party payors, the market for MRIdian may be limited.Third-party payors regularly update reimbursement amounts and also, from time to time, revise the methodologies used to determine reimbursement amounts.This includes annual updates to payments to physicians, hospitals and ambulatory surgery centers for the radiation treatments performed with MRIdian.Generally, because the cost of MRIdian is recovered by the healthcare provider as part of the payment for performing the treatment and not separatelyreimbursed, these updates could directly impact the demand for MRIdian. An example of payment updates is the Medicare program’s updates to hospital andphysician payments, which are done on an annual basis using a prescribed statutory formula.Historically, under the Medicare Physician Fee Schedule, or MPFS, when the application of the formula resulted in lower payment, Congress passed interimlegislation to prevent the reductions. In April 2015, however, the Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, was signed into law,which repealed and replaced the statutory formula for Medicare payment adjustments to physicians. MACRA provided a permanent end to the annual interimlegislative updates that had previously been necessary to delay or prevent significant reductions to payments under the Medicare Physician Fee Schedule.MACRA provided for a 0.5% update from July 1, 2015 through December 31, 2015, and for each calendar year through 2019, after which there will be a 0%annual update each year through 2025. In addition, MACRA required the establishment of the Merit-Based Incentive Payment System, beginning in 2019,under which physicians may receive performance-based payment incentives or payment reductions based on their performance with respect to clinicalquality, resource use, clinical improvement activities and meaningful use of electronic health records. MACRA also required CMS, beginning in 2019, toprovide incentive payments for physicians and other eligible professionals that participate in alternative payment models,34 such as accountable care organizations, that emphasize quality and value over the traditional volume-based fee-for-service model. It is unclear what impact, ifany, MACRA will have on our business and operating results, but any resulting decrease in payment may result in reduced demand for our services.CMS also publishes annual updates to HOPPS. These payments are bundled amounts received by our hospital customers for hospital outpatient services,including conventional radiation therapy and IMRT, which may result in lower reimbursement to our customers for procedures performed using MRIdian.In addition, in 2016, CMS implemented changes to the reimbursement of certain services performed in the freestanding center setting which, to date, have nothad any material impact on the services delivered with our products.Any significant cuts in reimbursement rates or changes in reimbursement methodology or administration for MR Image-Guided radiation therapy, or concernsor proposals regarding further cuts or changes in methodology or administration, could further increase uncertainty, influence our customers’ decisions,reduce demand for MRIdian, cause customers to cancel orders and impact our revenue and harm our business.Foreign governments also have their own healthcare reimbursement systems, which vary significantly by country and region, and we cannot be sure thatadequate reimbursement will be made available with respect to MRIdian under any foreign reimbursement system.Our employees, consultants and commercial partners may engage in misconduct or other improper activities, including insider trading and non-compliance with regulatory standards and requirements.We are exposed to the risk that our employees, consultants, distributors, and commercial partners may engage in fraudulent or illegal activity. Misconduct bythese parties could include intentional, reckless or negligent conduct or disclosure of unauthorized activities that violate the regulations of the FDA and non-U.S. regulators, including those laws requiring the reporting of true, complete and accurate information to such regulators, manufacturing standards,healthcare fraud and abuse laws and regulations in the United States and abroad or laws that require the true, complete and accurate reporting of financialinformation or data. In particular, sales, marketing and business arrangements in the healthcare industry, including the sale of medical devices, are subject toextensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations mayrestrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other businessarrangements. It is not always possible to identify and deter misconduct by our employees and other third parties, and the precautions we take to detect andprevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or otheractions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us and we are not successful indefending ourselves or asserting our rights, those actions could result in the imposition of significant fines or other sanctions, including the imposition ofcivil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federalhealthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment of operations, any of which couldadversely affect our ability to operate our business and our results of operations. Whether or not we are successful in defending against such actions orinvestigations, we could incur substantial costs, including legal fees, and divert the attention of management in defending ourselves against any of theseclaims or investigations.35 Risks Related to Our Financial Condition and Capital RequirementsWe may need to raise additional capital to fund our existing commercial operations, develop and commercialize new features for MRIdian and newproducts and expand our operations. Based on our current business plan, we expect that our existing cash and cash equivalents will enable us to conduct our planned operations for at least thenext 12 months. If our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, we may, fromtime to time, seek to raise capital through a variety of sources, including the public equity market, private equity financing, and/or public or private debt.We may consider raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing opportunitiesor for other reasons, including to: •increase our sales and marketing efforts to increase market adoption of MRIdian and address competitive developments; •provide for supply and inventory costs associated with plans to accommodate potential increases in demand for MRIdian systems; •fund development and marketing efforts of any future products and technologies or additional features to then-current products; •acquire, license or invest in new technologies; •acquire or invest in complementary businesses or assets; and •finance capital expenditures and general and administrative expenses.Our present and future funding requirements will depend on many factors, including: •our ability to achieve revenue growth and improve gross margins; •our rate of progress in establishing coverage and reimbursement arrangements with domestic and international commercial third-party payorsand government payors; •the cost of expanding our operations and offerings, including our sales and marketing efforts; •our rate of progress in, and cost of the sales and marketing activities associated with, establishing adoption of MRIdian; •the cost of research and development activities; •the effect of competing technological and market developments; •costs related to international expansion; and •the potential cost of and delays in product development as a result of any regulatory oversight applicable to MRIdian.36 The various ways we could raise additional capital carry potential risks. If we raise funds by issuing equity securities, dilution to our stockholders will result.Any equity securities issued also could provide for rights, preferences or privileges senior to those of holders of our common stock. If we raise funds byissuing debt securities, those debt securities would have rights, preferences and privileges senior to those of holders of our common stock. The terms of debtsecurities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. If we raise funds through collaborationsand licensing arrangements, we might be required to relinquish significant rights to certain components contained within MRIdian, or grant licenses on termsthat are not wholly favorable to us.We have incurred, and will continue to incur significant costs as a result of operating as a public company and our management expects to continue todevote substantial time to public company compliance programs.As a public company, we have incurred, and will continue to incur significant legal, accounting and other expenses due to our compliance with regulationsand disclosure obligations applicable to us, including compliance with the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well as rulesimplemented by the SEC, and the Nasdaq Stock Market. Stockholder activism, the current political environment and the current high level of governmentintervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs andimpact, in ways we cannot currently anticipate, the manner in which we operate our business. Our management and other personnel have devoted, and willcontinue to devote a substantial amount of time to these compliance programs and monitoring of public company reporting obligations and as a result of thenew corporate governance and executive compensation related rules, regulations and guidelines prompted by the Dodd-Frank Wall Street Reform andConsumer Protection Act, or the Dodd-Frank Act, and further regulations and disclosure obligations expected in the future, and we will likely need to devoteadditional time and costs to comply with such compliance programs and rules. These rules and regulations will continue to cause us to incur significant legaland financial compliance costs and will make some activities more time-consuming and costly.To comply with the requirements of being a public company, we may need to undertake various actions, including implementing new internal controls andprocedures and hiring additional accounting or internal audit staff. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls andprocedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that aredesigned to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reportedwithin the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Securities Exchange Act of 1934,or the Exchange Act, is accumulated and communicated to our principal executive and financial officers. Our current controls and any new controls that wedevelop may become inadequate and weaknesses in our internal control over financial reporting may be discovered in the future. Any failure to develop ormaintain effective controls could negatively impact the results of periodic management evaluations and annual independent registered public accountingfirm attestation reports regarding the effectiveness of our internal control over financial reporting that we may be required to include in our periodic reportswe will file with the SEC under Section 404 of the Sarbanes-Oxley Act, harm our operating results, cause us to fail to meet our reporting obligations or resultin a restatement of our prior period financial statements. In the event that we are not able to demonstrate compliance with the Sarbanes-Oxley Act, that ourinternal control over financial reporting is perceived as inadequate or that we are unable to produce timely or accurate financial statements, investors maylose confidence in our operating results and the price of our common stock could decline. In addition, if we are unable to continue to meet theserequirements, our common stock may not be able to remain eligible for quotation on The Nasdaq Global Market. Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reportinguntil the first annual report required to be filed with the SEC following the date we are no longer an “emerging growth company” as defined in the JOBS Act.If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable toexpress an opinion on the effectiveness of our internal control over financial reporting, we could lose investor confidence in the accuracy and completenessof our financial reports, which could harm our business.Regulations related to “conflict minerals” may force us to incur additional expenses, may result in damage to our business reputation and may adverselyimpact our ability to conduct our business.The Dodd‑Frank Wall Street Reform and Consumer Protection Act and the rules promulgated by the SEC under such act require companies, including us, todisclose the existence in their products of certain metals, including37 tantalum, tin, gold, tungsten and their derivatives, that originate from the Democratic Republic of the Congo and adjoining countries. Under these rules, weare required to obtain sourcing data from suppliers, perform supply chain due diligence, and file annually with the SEC a specialized disclosure report onForm SD covering the prior calendar year. These requirements could adversely affect the sourcing, availability, and pricing of minerals used in themanufacture of components used in MRIdian. We may face reputational harm if we determine that certain of our components contain minerals not determinedto be conflict free or if we are unable to alter our processes or sources of supply to avoid using such materials. Additionally, we may also encounter customerswho require that all of the components of our products be certified as conflict free. If we are not able to meet this requirement, such customers may choose notto purchase our products, which could adversely impact sales of our products, and impact our results of operations. In addition, we have incurred and expectto incur additional costs to comply with these disclosure requirements, including costs related to determining the source of any of the relevant minerals andmetals used in MRIdian.Our loan and security agreement with Silicon Valley Bank (SVB), contains operating and financial covenants that may restrict our business and financingactivities. At December 31, 2018, we had $56.0 million in outstanding debt to SVB. Borrowings under our loan and security agreement with SVB are secured bysubstantially all of our personal property, except that the collateral does not include any intellectual property held by the Company, provided, however, thecollateral shall include all accounts and proceeds of such intellectual property. Our loan and security agreement restrict our ability to, among other things: •dispose of or sell our assets; •make material changes in our business; •merge with or acquire other entities or assets; •incur additional indebtedness; •create liens on our assets; •pay dividends; •make investments; and •pay off subordinated indebtedness.The operating and financial restrictions and covenants in our loan and security agreement, as well as any future financing agreements into which we mayenter, may restrict our ability to finance our operations and engage in, expand or otherwise pursue our business activities and strategies. Our ability to complywith these covenants may be affected by events beyond our control, and future breaches of any of these covenants could result in a default under our loan andsecurity agreement. If not waived, future defaults could cause all of the outstanding indebtedness under our loan and security agreement to becomeimmediately due and payable and terminate all commitments to extend further credit.If we do not have or are unable to generate sufficient cash available to repay our debt obligations when they become due and payable, either upon maturity orin the event of a default, we may not be able to obtain additional debt or equity financing on favorable terms, if at all, which may negatively impact ourability to operate and continue our business as a going concern.38 Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.At December 31, 2018, we had federal net operating loss carryforwards, or NOLs, of $330.8 million, which begin to expire in the year ending December 31,2024, and $198.1 million related to state net operating loss carryforwards, which begin to expire in the year ending December 31, 2019. We also had federaland state research and development tax credit carryforwards of $4.6 million and $2.0 million, respectively, which expire at various dates through the yearending December 31, 2024. Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownershipchange” is subject to limitations on its ability to utilize its NOLs to offset future taxable income. We believe we have experienced two ownership changes inthe past, none of which had a corresponding limitation of tax attributes. However, future owner or equity changes including changes that may be outside ofour control, could result in limitations on net operating loss and credit carryforwards. Our NOLs may also be limited under similar provisions of state law. Wehave recorded a full valuation allowance related to our NOLs and other deferred tax assets due to the uncertainty of the ultimate realization of the future taxbenefits of such assets.We face risks related to the current global economic environment, which could delay or prevent our customers from obtaining financing to purchaseMRIdian and implement the required facilities, which could harm our business, financial condition and results of operations.The state of the global economy continues to be uncertain. The current global economic conditions and uncertain credit markets and concerns regarding theavailability of credit pose a risk that could impact customer demand for MRIdian, as well as our ability to manage normal commercial relationships with ourcustomers, suppliers and creditors, including financial institutions. If the current global economic environment deteriorates, our business could be negativelyaffected.Risks Related to Administrative, Organizational and Commercial Operations and GrowthWe may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy.We anticipate growth in our business operations. This future growth could create a strain on our organizational, administrative and operational infrastructure,including manufacturing operations, supply chain, quality control, technical support and customer service, sales force management and general and financialadministration. We may not be able to maintain the quality of or installation timelines of MRIdian or satisfy customer demand as it grows. Our ability tomanage our growth properly will require us to continue to improve our operational, financial and management controls, as well as our reporting systems andprocedures. We may implement new enterprise software systems in a number of areas affecting a broad range of business processes and functional areas. Thetime and resources required to implement these new systems is uncertain and failure to complete this in a timely and efficient manner could harm ourbusiness.If we are unable to support demand for MRIdian and our future products, including ensuring that we have adequate resources to meet increased demand,or we are unable to successfully manage the evolution of our MR Image-Guided radiation technology, our business could be harmed.As our commercial operations and sales volume grow, we will need to continue to increase our workflow capacity for manufacturing, customer service, billingand general process improvements and expand our internal quality assurance program, among other things. We will also need to purchase additionalequipment, some of which can take several months or more to procure, set up and validate, and increase our manufacturing, maintenance, software andcomputing capacity to meet increased demand. We cannot assure you that any of these increases in scale, expansion of personnel, purchase of equipment orprocess enhancements will be successfully implemented.The loss of or our inability to attract and retain key personnel, including highly skilled executives, scientists and salespeople, could negatively impact ourbusiness.The loss or incapacity of existing members of our executive management team could negatively impact our operations if we experience difficulties in hiringqualified successors. Our executive officers have employment agreements; however, the existence of an employment agreement does not guarantee theretention of the executive officer for any period of time.39 Our commercial, manufacturing and research and development programs and operations depend on our ability to attract and retain highly skilled engineers,scientists and salespeople. We may not be able to attract or retain qualified personnel in the future due to the competition for qualified personnel amongmedical device businesses, including in California and Ohio. We also face competition from universities and public and private research institutions inrecruiting and retaining highly qualified scientific personnel. Recruiting and retention difficulties can limit our ability to support our commercial,manufacturing and research and development programs. All of our employees are at-will, which means that either we or the employee may terminate his or heremployment at any time.We have a limited history of manufacturing, assembling and installing MRIdian in commercial quantities and may encounter related problems or delaysthat could result in lost revenue. The pre-installation manufacturing processes for MRIdian include sourcing components from various third-party suppliers, subassembly, assembly, systemintegration and testing. We must manufacture and assemble MRIdian in compliance with regulatory requirements and at an acceptable cost in order toachieve profitability. We have only a limited history of manufacturing, assembling and installing MRIdian and, as a result, we may have difficultymanufacturing, assembling and installing MRIdian in sufficient quantities in a timely manner. To manage our manufacturing and operations with oursuppliers, we forecast anticipated product orders and material requirements to predict our inventory needs up to 18 months in advance and enter intopurchase orders on the basis of these requirements. Our limited manufacturing history may not provide us with sufficient data to accurately predict futurecomponent demand and to anticipate our costs effectively. Likewise, we have experienced and may in the future experience delays in the assembly and installation of MRIdian at customer sites on our expectedtimeline associated with contractor timing delays, which could result in order cancellations or contractual penalties. For example, one of our end customershas informed us that they believe we are late on delivery of one system and that we will be subject to penalties as a result. While we have disputed that claim,there can be no assurance that we will be successful, and penalties could adversely affect our results of operations. In another instance, one of our endcustomers experienced flooding at its site on two occasions, which has delayed our ability to complete installation and which may adversely affect our resultsof operations.Alternatively, delays or postponements of scheduled customer installations could lead to excess inventory due to our limited flexibility to postpone or delaycomponent shipments from suppliers. Accordingly, we may encounter difficulties in production of MRIdian, including problems with quality control andassurance, component supply shortages or surpluses, increased costs, shortages of qualified personnel and difficulties associated with compliance with local,state, federal and foreign regulatory requirements. In addition, if we are unable to maintain larger-scale manufacturing capabilities, our ability to generaterevenue will also be limited and our reputation could be harmed. If we cannot achieve the required level and quality of production, we may need to makechanges in our supply chain or enter into licensing and other arrangements with third parties who possess sufficient manufacturing facilities and capabilitiesin compliance with regulatory requirements. Even if we outsource necessary production or enter into licensing or other third-party arrangements, theassociated cost could reduce our gross margin and harm our financial condition and results of operations.If we were sued for product liability or professional liability, we could face substantial liabilities that exceed our resources.The marketing, sale and use of MRIdian could lead to the filing of product liability claims were someone to allege that MRIdian did not effectively treat theconditions its users were intending to target, caused serious medical conditions or injury, or failed to perform as designed. We may also be subject to liabilityfor errors in, a misunderstanding of or inappropriate reliance upon the information we provide in the ordinary course of our business activities, such ascustomer support or operating instructions. A product liability claim could result in substantial damages and be costly and time-consuming for us to defend.40 We maintain product liability insurance, but the amounts of insurance coverage may not fully protect us from the financial impact of defending againstproduct liability claims (and we have significant deductibles). Any product liability claim brought against us, with or without merit, could increase ourinsurance rates or prevent us from securing insurance coverage in the future. Additionally, any product liability lawsuit could lead to regulatoryinvestigations, product recalls or withdrawals, damage our reputation or cause current vendors, suppliers and customers to terminate existing agreements andpotential customers and partners to seek other suppliers of radiation therapy systems, any of which could negatively impact our results of operations.The results of the United Kingdom’s referendum on withdrawal from the EU may have a negative effect on global economic conditions, financial marketsand our business.In June 2016, a majority of voters in the United Kingdom, or the U.K., elected to withdraw from the EU in a national referendum, also known as Brexit. TheU.K. is currently negotiating the terms of its exit from the EU. The effects of Brexit will depend on any agreements the U.K. reaches to retain access to EUmarkets either during a transitional period or more permanently. Nevertheless, the referendum has created significant uncertainty about the future relationshipbetween the U.K. and the EU, including with respect to the laws and regulations that will apply as the U.K. determines which EU laws to replace or replicatein the event of a withdrawal, including those governing manufacturing, labor, environmental, data protection/privacy, competition, medical sales andadvertising and other matters applicable to the medical device industry. The referendum has also given rise to calls for the governments of other EU memberstates to consider withdrawal. These developments, or the perception that any of them could occur, have had and may continue to have a material adverseeffect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict theability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity and restrict our access tocapital, which could have a material adverse effect on our business, financial condition and results of operations and reduce the price of our securities.We face risks associated with our international business.In addition to our marketing and sales of MRIdian in the United States, we also market MRIdian in other regions, with contracts signed with customers anddistributors in those regions. Our international business operations are subject to a variety of risks, including: •difficulties in staffing and managing foreign and geographically dispersed operations; •effective compliance with various U.S. and international laws, including export control laws and the U.S. Foreign Corrupt Practices Act of1977, or the FCPA, and anti-money laundering laws; •effective compliance with privacy, data protection and information security laws, such as the European Union General Data ProtectionRegulation (GDPR) and the Cybersecurity Law of the People’s Republic of China; •differing regulatory requirements for obtaining clearances or approvals to market MRIdian and future product enhancements for MRIdian; •changes and uncertainties relating to foreign rules and regulations that may impact our ability to sell MRIdian, perform services or repatriateprofits to the United States; •tariffs, export or import restrictions, restrictions on remittances abroad, imposition of duties or taxes that limit our ability to move MRIdianout of these countries or interfere with the import of essential materials into these countries; •limitations on our ability to enter into cost-effective arrangements with distributors of MRIdian, or at all; •fluctuations in foreign currency exchange rates; •imposition of limitations on production, sale or export of MRI-guided radiation therapy systems in foreign countries; •imposition of limitations on or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries or jointventures;41 •differing multiple payor reimbursement regimes, government payors or patient self-pay systems; •imposition of differing labor laws and standards; •economic, political or social instability in foreign countries and regions; •dependence on, and potential disruptions to, our international supply chain, including as a result of changes in foreign laws and regulations,tariffs, export or import restrictions, political, economic and social instability or otherwise; •an inability, or reduced ability, to protect our intellectual property, including any effect of compulsory licensing imposed by governmentaction; and •availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us.We expect that we will begin expanding into more markets; however, we cannot assure you that our expansion plans will be realized, or if realized, besuccessful. We expect each market to have particular regulatory and funding hurdles to overcome and future developments in these markets, including theuncertainty relating to governmental policies and regulations, could harm our business. If we expend significant time and resources on expansion plans thatfail or are delayed, our reputation, business and financial condition may be harmed.International tariffs, including tariffs applied to our MRIdian systems sold into China, could materially and adversely affect our business operations andfinancial condition.Our global business could be negatively affected by trade barriers and other governmental protectionist measures, any of which can be imposed suddenly andunpredictably. For example, in June 2018, the U.S. Government announced 25% tariffs on radiation therapy equipment imported from China, and in August2018, China retaliated by announcing 25% tariffs on medical or surgical x-ray equipment, which may include MRIdian systems. The imposition of tariffs onMRIdian systems imported into China or elsewhere could require us to raise prices, which may negatively impact the demand for our products in the affectedmarket and/or reduce our gross margins. In addition, any of our competitors that are based outside the United States or that are otherwise not subject to tariffsthat affect us might gain a competitive advantage as a result. Given the uncertainty regarding the scope and duration of trade actions by the U.S., China andother countries, the impact of these trade actions or any other trade barriers, tariffs or similar measures on our business operations or financial conditionremains uncertain.Our results may be impacted by changes in foreign currency exchange rates.Currently, the majority of our international order contracts are denominated in U.S. dollars. We pay certain of our suppliers in a foreign currency under theterms of their supply agreements, and we may pay other suppliers in the future in foreign currency. As a result, an increase in the value of the U.S. dollarrelative to foreign currencies could require us to reduce our selling price or risk making MRIdian less competitive in international markets or could cause ourcosts to increase. Also, if our international sales increase, we may enter into a greater number of transactions denominated in non-U.S. dollars, which couldexpose us to foreign currency risks, including changes in currency exchange rates. We do not currently engage in any hedging transactions. If we are unableto address these risks and challenges effectively, our international operations may not be successful and our business could be harmed.We could be negatively impacted by violations of applicable anti-corruption laws or violations of our internal policies designed to ensure ethical businesspractices.We operate in a number of countries throughout the world, including in countries that do not have as strong a commitment to anti-corruption and ethicalbehavior that is required by U.S. laws or by corporate policies. We are subject to the risk that we, our U.S. employees or our employees located in otherjurisdictions or any third parties such as our sales agents and distributors that we engage to do work on our behalf in foreign countries may take actiondetermined to be in violation of anti-corruption laws in any jurisdiction in which we conduct business, including the FCPA and the Bribery Act of 2010, orthe U.K. Anti-Bribery Act. In addition, we operate in certain countries in which the government may take an ownership stake in an enterprise and suchgovernment ownership may not be readily apparent, thereby increasing potential anti-corruption law violations. Any violation of the FCPA42 and U.K. Anti-Bribery Act or any similar anti-corruption law or regulation could result in substantial fines, sanctions, civil and/or criminal penalties andcurtailment of operations in certain jurisdictions and might harm our business, financial condition or results of operations. In addition, we have internalethics policies with which we require our employees to comply in order to ensure that our business is conducted in a manner that our management deemsappropriate. If these anti-corruption laws or internal policies were to be violated, our reputation and operations could also be substantially harmed. Further,detecting, investigating and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.We are subject to export restrictions and laws affecting trade and investments, and the future sale of our MRIdian system may be further limited orprohibited in the future by a government agency or authority.As a global company headquartered in the United States, our MRIdian system is subject to U.S. laws and regulations that may limit, restrict or require alicense to export (and re-export from other countries) our MRIdian system and related product and technical information due to MRIdian’s use of hazardousmaterials, including MRIdian with Cobalt’s use of Cobalt-60, lead and depleted uranium. We are also subject to the export and import laws of those foreignjurisdictions to which we sell or from which we re-export our MRIdian system. Compliance with these laws and regulations could significantly limit ouroperations and our sales in the future and failure to comply, even indirectly, could result in a range of penalties, including restrictions on exports of ourMRIdian system for a specified time period, or forever, and severe monetary penalties. In certain circumstances, these restrictions may affect our ability tointeract with any of our future foreign subsidiaries and otherwise limit our trade with third parties, including suppliers and customers, operating inside andoutside the United States. In addition, if we introduce new products, we may need to obtain licenses or approvals from the United States and othergovernments to ship them into foreign countries. Failure to receive the appropriate approvals may mean that our commercial efforts and expenses related tosuch efforts may not result in any revenue, which could harm our business.We depend on our information technology systems, and any failure of these systems could harm our business.We depend on information technology and telecommunications systems for significant elements of our operations. We have developed proprietary softwarefor the management and operation of MRIdian by our customers. We have installed, and expect to expand, a number of enterprise software systems that affecta broad range of business processes and functional areas, including for example, systems handling human resources, financial controls and reporting, contractmanagement, inventory management, regulatory compliance and other infrastructure operations. In addition to the aforementioned business systems, weintend to extend the capabilities of both our preventative and detective security controls by augmenting the monitoring and alerting functions, the networkdesign and the automatic countermeasure operations of our technical systems. These information technology and telecommunications systems support avariety of functions, including sales and marketing, manufacturing operations, customer service support, billing and reimbursement, research anddevelopment activities and general administrative activities.Information technology and telecommunications systems are vulnerable to damage from a variety of sources, including telecommunications or networkfailures, malicious human acts and natural disasters. Moreover, despite network security and back-up measures, some of our servers are potentially vulnerableto physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautionary measures we have taken to preventunanticipated problems that could affect our information technology and telecommunications systems, failures or significant downtime of our informationtechnology or telecommunications systems or those used by our third-party service providers could prevent us from providing maintenance and supportservices to our customers, conducting research and development activities and managing the administrative aspects of our business. Any disruption or loss ofinformation technology or telecommunications systems on which critical aspects of our operations depend could harm our business.Our operations are vulnerable to interruption or loss due to natural or other disasters, power loss, strikes and other events beyond our control.We conduct a significant portion of our activities, including administration and data processing, at facilities located in California, Ohio and other areas thathave experienced major earthquakes, tornadoes and other natural disasters. A major earthquake, tornado or other disaster (such as a major fire, hurricane,flood, tsunami, volcanic eruption or terrorist attack) affecting our facilities, or those of our suppliers, could significantly disrupt our operations, and delay orprevent product shipment or installation during the time required to repair, rebuild or replace our suppliers’ damaged manufacturing facilities; these delayscould be lengthy and costly. If any of our suppliers’ or customers’43 facilities are negatively impacted by a disaster, shipments of MRIdian could be delayed. Additionally, customers may delay purchases of MRIdian untiloperations return to normal. Even if we are able to quickly respond to a disaster, the ongoing effects of the disaster could create some uncertainty in theoperations of our business. In addition, our facilities may be subject to a shortage of available electrical power and other energy supplies. Any shortages mayincrease our costs for power and energy supplies or could result in blackouts, which could disrupt the operations of our affected facilities and harm ourbusiness. Further, MRIdian is typically shipped from a limited number of ports, and any disaster, strike or other event blocking shipment from these portscould delay or prevent shipments and harm our business. In addition, concerns about terrorism, the effects of a terrorist attack, political turmoil or an outbreakof epidemic diseases, such as Ebola or influenza, could have a negative effect on our operations, those of our suppliers and customers and the ability to travel,which could harm our business, financial condition and results of operations.The recently enacted tax reform bill could adversely affect our business and financial condition.On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act,” or the TCJA, which significantly amends the Internal Revenue Code of1986. The TCJA, among other things, reduces the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limits the tax deduction for interestexpense to 30% of adjusted earnings, eliminates net operating loss carrybacks, imposes a one-time tax on offshore earnings at reduced rates regardless ofwhether they are repatriated, allows immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifiesor repeals many business deductions and credits. We have completed our evaluation of the impact of these changes on our effective tax rate and reflected theamounts in our financial statements. However, the overall impact of the TCJA also depends on the future interpretations and regulations that may be issuedby U.S. tax authorities, and it is possible that future guidance could adversely impact us.Risks Related to Intellectual PropertyLitigation or other proceedings or third-party claims of intellectual property infringement could require us to spend significant time and money and couldprevent us from selling MRIdian or impact our stock price.There is considerable intellectual property litigation and contested patent disputes in the medical device area. Third parties may, in the future, assert claimsthat we are employing their proprietary technology without authorization, including claims from competitors or from non-practicing entities that have norelevant product revenue and against whom our own patent portfolio may have no deterrent effect. As we continue to commercialize MRIdian in its current oran updated form, launch new products and enter new markets, we expect that competitors may claim that MRIdian infringes their intellectual property rightsas part of business strategies designed to impede our successful commercialization and entry into new markets. Although we are presently unaware of anybasis by which a third-party would be justified in making such claims, in the future, we may receive letters or other threats or claims from third partiesinviting us to take licenses under, or alleging that we infringe, their patents. Third parties may have obtained, and may in the future obtain, patents underwhich such third parties may claim that the use of our technologies constitutes patent infringement.Moreover, we may become party to future adversarial proceedings regarding our patent portfolio or the patents of third parties. Such proceedings couldinclude contested post-grant proceedings such as oppositions, inter parties review, reexamination, interference or derivation proceedings before the U.S.Patent and Trademark Office or foreign patent offices. The legal threshold for initiating litigation or contested proceedings is low, so that even lawsuits orproceedings with a low probability of success might be initiated. Litigation and contested proceedings can also be expensive and time-consuming, and ouradversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we can.44 We could incur substantial costs and divert the attention of our management and technical personnel in defending ourselves against any of these claims or inany of such proceedings. Any adverse ruling or perception of an adverse ruling in defending ourselves against these claims could have a negative impact onour cash position and stock price. Furthermore, parties making claims against us may be able to obtain injunctive or other relief, which could block ourability to develop, commercialize and sell products, and could result in the award of substantial damages against us. In the event of a successful claim ofinfringement or misappropriation against us, we may be required to pay damages, obtain one or more licenses from third parties or be prohibited from sellingcertain products, all of which could have a negative impact on our cash position, business and financial condition.In addition, we may be unable to obtain these licenses at a reasonable cost, if at all. We could therefore incur substantial costs related to royalty payments forlicenses obtained from third parties, which could negatively affect our gross margins. Moreover, we could encounter delays in product introductions while weattempt to develop alternative methods or products. Defense of any lawsuit or adversarial proceeding or failure to obtain any of these licenses on favorableterms could prevent us from commercializing products, and the prohibition of sale of MRIdian or future products could impact our ability to grow andmaintain profitability and could harm our business.If we are unable to adequately protect our proprietary technology or maintain issued patents that are sufficient to protect MRIdian, others could competeagainst us more directly, which could harm our business, financial condition and results of operations.Our commercial success will depend in part on our success in obtaining and maintaining issued patents and other intellectual property rights in the UnitedStates and elsewhere and protecting our proprietary technology. If we do not adequately protect our intellectual property and proprietary technology,competitors may be able to use our technologies and erode or negate any competitive advantage we may have, which could harm our business and ability toachieve profitability.Specifically, we hold a license to four issued U.S. patents, 18 issued foreign patents (eight of which were issued in Great Britain, Germany, France and theNetherlands as a result of two patent applications filed and allowed through the European Patent Office), one pending U.S. patent application and fourpending foreign patent applications as of January 15, 2019. We own an additional 24 issued U.S. patents, 52 issued foreign patents (15 of which were issuedin Great Britain, Germany, France, Italy and the Netherlands as a result of three patent applications filed and allowed through the European Patent Office), 25pending U.S. patent applications and 108 pending foreign patent applications as of January 15, 2019. Assuming all required fees are paid, individual patentsor patent applications owned or licensed by us will expire between 2021 and 2039. We also have a joint ownership interest with Case Western ReserveUniversity in one issued patent and one U.S. patent application. We cannot provide any assurances that any of our patents have, or that any of our pendingpatent applications that mature into issued patents will include, claims with a scope sufficient to protect MRIdian, any additional features we develop forMRIdian or any new products. Other parties may have developed technologies that may be related or competitive to our platform, may have filed or may filepatent applications and may have received or may receive patents that overlap or conflict with our patent applications, either by claiming the same methodsor devices or by claiming subject matter that could dominate our patent position. The patent positions of medical device companies, including our patentposition, involve complex legal and factual questions, and, therefore, the issuance, scope, validity and enforceability of any patent claims that we may obtaincannot be predicted with certainty. Patents, if issued, may be challenged, deemed unenforceable, invalidated or circumvented. U.S. patents and patentapplications may also be subject to supplemental examination or contested post-grant proceedings such as inter parties review, reexamination, interference orderivation proceedings before the U.S. Patent and Trademark Office and challenges in district court. Patents may be subjected to opposition, post-grantreview or comparable proceedings lodged in various foreign, both national and regional, patent offices. These proceedings could result in either loss of thepatent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, suchproceedings may be costly. Thus, any patents that we may own or exclusively license may not provide any protection against competitors. Furthermore, anadverse decision in an interference proceeding can result in a third-party receiving the patent right sought by us, which in turn could affect our ability tocommercialize MRIdian.Furthermore, though an issued patent is presumed valid and enforceable, its issuance is not conclusive as to its validity or its enforceability and it may notprovide us with adequate proprietary protection or competitive advantages against competitors with similar products. Competitors may also be able to designaround our patents. Other parties may develop and obtain patent protection for more effective technologies, designs or methods. We45 may not be able to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by consultants, agents, distributors, suppliers,vendors, former employees and current employees. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws ofthe United States, and we may encounter significant problems in protecting our proprietary rights in these countries. If any of these developments were tooccur, they each could have a negative impact on our results of operations and business.Our ability to enforce our patent rights depends on our ability to detect infringement. It is difficult to detect infringers who do not advertise the componentsthat are used in their products. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’sproduct. Any litigation to enforce or defend our patent rights, even if we were to prevail, could be costly and time-consuming and would divert the attentionof our management and key personnel from our business operations. We may not prevail in any lawsuits that we initiate and the damages or other remediesawarded if we were to prevail may not be commercially meaningful.In addition, proceedings to enforce or defend our patents could put our patents at risk of being invalidated, held unenforceable or interpreted narrowly. Suchproceedings could also provoke third parties to assert claims against us, including that some or all of the claims in one or more of our patents are invalid orotherwise unenforceable. If any of our patents covering MRIdian are invalidated or found unenforceable, our financial position and results of operationscould be negatively impacted. In addition, if a court found that valid, enforceable patents held by third parties covered MRIdian, our financial position andresults of operations could be harmed.The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that: •any of our patents, or any of our pending patent applications, if issued, will include claims having a scope sufficient to protect MRIdian orany other products; •any of our pending patent applications will issue as patents; •we will be able to successfully commercialize MRIdian on a substantial scale before our relevant patents expire; •we were the first to make the inventions covered by each of our patents and pending patent applications; •we were the first to file patent applications for these inventions; •others will not develop similar or alternative technologies that do not infringe our patents; •any of our patents will be found to ultimately be valid and enforceable; •any patents issued to us will provide a basis for an exclusive market for our commercially viable products, will provide us with anycompetitive advantages or will not be challenged by third parties; •we will develop additional proprietary technologies or products that are separately patentable; or •our commercial activities or products will not infringe upon the patents of others.We rely, in part, upon unpatented trade secrets, unpatented know-how and continuing technological innovation to develop and maintain our competitiveposition, which we seek to protect, in part, by confidentiality agreements with our employees and our collaborators and consultants. We also have agreementswith our employees and selected consultants that obligate them to assign their inventions to us and have non-compete agreements with some, but not all, ofour consultants. It is possible that technology relevant to our business will be independently developed by a person that is not a party to such an agreement.Furthermore, if the employees and consultants who are parties to these agreements breach or violate the terms of these agreements, we may not have adequateremedies for any such breach or violation, and we could lose our trade secrets through such breaches or violations. Further, our trade secrets could otherwisebecome known or be independently discovered by our competitors.46 If we are not able to meet the requirements of our license agreement with the University of Florida Research Foundation, Inc., we could lose access to thetechnologies licensed thereunder and be unable to manufacture, market or sell MRIdian.We license patents and patent applications from the UFRF, covering our combination of MRI and radiation therapy, and other key technologies, incorporatedinto MRIdian under a license agreement that requires us to pay royalties to UFRF. In addition, the license agreement obligates us to pursue an agreeddevelopment plan and to submit periodic reports and restricts our ability to take actions to defend the licensed patents. The license agreement terminateswhen the underlying patents expire in 2025, although UFRF has the right to unilaterally terminate the agreement if we do not meet our royalty paymentobligations, including minimum royalty payments of $50,000 per quarter, or if we fail to satisfy other development and commercialization obligationsrelated to our utilization of the technology. If UFRF were to terminate the agreement or if we were to otherwise lose the ability to exploit the licensed patents,our competitive advantage could be reduced, we may not be able to find a source to replace the licensed technology and we may be prevented from sellingMRIdian. The license agreement reserves to UFRF the initial right to defend or prosecute any claim arising with respect to the licensed technology. If UFRFdoes not vigorously defend the patents, we may be required to engage in expensive patent litigation to enforce our rights and any competitive advantage wehave based on the licensed technology may be hampered. Any of these events could harm our business, financial condition and results of operations.Changes in U.S. patent laws may limit our ability to obtain, defend or enforce our patents.Past or future patent reform legislation or precedent could increase the uncertainties and costs surrounding the prosecution of our patent applications and theenforcement or defense of our issued patents. For example, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, includes a number of significantchanges to U.S. patent law. These include provisions that affect the way patent applications are prosecuted and also affect patent litigation. The first to fileprovisions of the Leahy-Smith Act limit the rights of an inventor to patent an invention if not the first to file an application for patenting that invention, evenif such invention was the first invention.The Leahy-Smith Act also created an administrative tribunal known as the Patent Trial and Appeal Board, or PTAB, that provides a venue for companies tochallenge the validity of a competitor’s patents at a cost that is much lower than district court litigation and on timelines that are much faster. Although it isnot clear what, if any, long-term impact the PTAB proceedings will have on the operation of our business, the initial results of patent challenge proceedingsbefore the PTAB since its inception in 2013 have resulted in the invalidation of many U.S. patent claims. The availability of the PTAB as a lower-cost, fasterand potentially more potent tribunal for challenging patents could therefore increase the likelihood that our own patents will be challenged, therebyincreasing the uncertainties and costs of maintaining and enforcing them. Moreover, if such challenges occur with regard to our UFRF-licensed patents, asindicated above, we have only limited rights to control the defense.If we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be harmed.In addition to patent protection, we also rely upon copyright and trade secret protection, as well as non-disclosure agreements and invention assignmentagreements with our employees, consultants and third parties, to protect our confidential and proprietary information. In addition to contractual measures, wetry to protect the confidential nature of our proprietary information using physical and technological security measures. Such measures may not, for example,in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietaryinformation. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and theoutcome is unpredictable. In addition, trade secrets may be independently developed by others in a manner that could prevent legal recourse by us. If any ofour confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any such information was independentlydeveloped by a competitor, our competitive position could be harmed.We may not be able to enforce our intellectual property rights throughout the world.The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies haveencountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. This could make it difficult for usto stop the infringement of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many foreign countrieshave compulsory licensing laws under which a patent owner must grant licenses to third parties. In47 addition, many countries limit the enforceability of patents against certain third parties, including government agencies or government contractors. In thesecountries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive andtime-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have thebenefit of patent protection in such countries.Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of ourbusiness. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legaldecisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement ofintellectual property.Third parties may assert ownership or commercial rights to inventions we develop.Third parties may, in the future, make claims challenging the inventorship or ownership of our intellectual property. We have written agreements withcollaborators that provide for the ownership of intellectual property arising from our collaborations. These agreements provide that we must negotiate certaincommercial rights with collaborators with respect to joint inventions or inventions made by our collaborators that arise from the results of the collaboration.In some instances, there may not be adequate written provisions to address clearly the resolution of intellectual property rights that may arise from acollaboration. If we cannot successfully negotiate sufficient ownership and commercial rights to the inventions that result from our use of a third-partycollaborator’s materials where required, or if disputes otherwise arise with respect to the intellectual property developed with the use of a collaborator’stechnology, we may be limited in our ability to capitalize on the market potential of these intellectual property rights. In addition, we may face claims bythird parties that our agreements with employees, contractors or consultants obligating them to assign intellectual property to us are ineffective or in conflictwith prior or competing contractual obligations of assignment, which could result in ownership disputes regarding intellectual property we have developedor will develop and interfere with our ability to capture the commercial value of such intellectual property. Litigation may be necessary to resolve anownership dispute, and if we are not successful, we may be precluded from using certain intellectual property or may lose our exclusive rights in thatintellectual property. Either outcome could harm our business.Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.We employ individuals who were previously employed at universities or other medical device companies, including our competitors or potentialcompetitors. Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us,we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectualproperty, including trade secrets or other proprietary information, of a former employer or other third parties. Litigation may be necessary to defend againstthese claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and otheremployees.A network or data security incident may allow unauthorized access to our products, our network or our data and also that of our customers, resulting indisruption of critical information systems, harm to our reputation and creation of additional liability that could adversely impact our financial results.Increasingly, companies are subject to a wide variety of attacks on their products, networks and systems on an ongoing basis. In addition to traditionalcomputer “hackers,” malicious code (such as viruses and worms), employee theft or misuse, and denial-of-service attacks, sophisticated nation-state andnation-stated supported actors now engage in attacks (including advanced persistent threat intrusions). Despite significant efforts to create security barriers tosuch threats, it is virtually impossible to entirely mitigate these risks. If we do not allocate and effectively manage the resources necessary to build andsustain the proper infrastructure in our business technology or in our product design, we could be subject to, among other things: transaction errors;processing inefficiencies; the loss of customers; business disruptions; the loss of or damage to intellectual property through a security breach; or the inabilityto comply with applicable laws.48 If a breach of data security were to occur at a customer site through one of our products as a result of third-party action, employee error, malfeasance orotherwise, and the confidentiality, integrity or availability of our customers’ data, including patient health information (PHI) and personally identifiableinformation (PII) were disrupted, we could incur significant liability to our customers and to individuals or businesses whose information was being stored byour customers. Our systems may be perceived as less desirable, which could negatively affect our business and damage our reputation. In addition, a networkor security breach could result in the loss of customers and make it more challenging to acquire new customers. Because techniques used to obtainunauthorized access to, or to sabotage, systems change frequently and generally are not recognized until launched against a target, we may be unable toanticipate these techniques or to implement adequate preventive measures. In addition, security breaches impacting our network could result in a risk of lossor unauthorized disclosure of customers’ data, which, in turn, could lead to litigation, governmental audits and investigations and possible liability, damageour relationships with our existing customers, and have a negative impact on our ability to attract and retain new customers. In addition, the costs associatedwith the investigation, remediation and potential notification of the breach to customers and counter-parties could be material.Third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or otherinformation or otherwise compromise the security of our internal networks, electronic systems and/or physical facilities in order to gain access to our data orour customers’ data, which could result in significant legal and financial exposure, interruptions or malfunctions in our operations, and, ultimately, harm toour future business prospects and revenue. We may be required to expend significant capital and financial resources to protect against threats such as these, orto alleviate problems caused by breaches in security.Risks Related to Regulatory MattersMRIdian and our operations are subject to extensive government regulation and oversight both in the United States and abroad, and our failure to complywith applicable requirements could harm our business.MRIdian is a medical device that is subject to extensive regulation in the United States and elsewhere, including by the FDA and its foreign counterparts.The FDA and foreign regulatory agencies regulate, among other things, with respect to medical devices: •design, development and manufacturing; •testing, labeling, content and language of instructions for use and storage; •clinical trials; •product safety; •marketing, sales and distribution; •premarket clearance and approval; •record keeping procedures; •advertising and promotion; •recalls and field safety corrective actions; •post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death orserious injury; •post-market approval studies; and •product import and export.The regulations to which we are subject are complex and have tended to become more stringent over time. Regulatory changes could result in restrictions onour ability to carry on or expand our operations, higher than anticipated costs or lower than anticipated sales.49 In the United States, before we can market a new medical device, or a new use of, new claim for or significant modification to an existing product, we mustfirst receive either clearance under Section 510(k) of the FDCA or approval of a premarket approval, or PMA, application from the FDA, unless an exemptionapplies. In the 510(k) clearance process, the FDA must determine that a proposed device is “substantially equivalent” to a device legally on the market,known as a “predicate” device, in order to clear the proposed device for marketing. To be “substantially equivalent,” the proposed device must have the sameintended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technologicalcharacteristics and not raise different questions of safety or effectiveness than the predicate device. Clinical data are sometimes required to supportsubstantial equivalence. The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life-sustaining, life-supporting orimplantable devices.Certain modifications made to products cleared through a 510(k) may require a new 510(k) clearance, or possible PMA approval. The 510(k) clearanceprocess can be expensive, lengthy and uncertain. The FDA’s 510(k) clearance process usually takes from three to 12 months, but can last longer. Despite thetime, effort and cost, we cannot assure you that any particular device will be approved or cleared by the FDA. Any delay or failure to obtain necessaryregulatory approvals could harm our business.In the United States, we have obtained 510(k) premarket clearance from the FDA to market MRIdian for the provision of stereotactic radiosurgery andprecision radiotherapy for lesions, tumors and conditions anywhere in the body where radiation treatment is indicated. An element of our strategy is tocontinue to upgrade MRIdian to incorporate new software and hardware enhancements. We expect that such upgrades, as well as other future modifications,may require new 510(k) clearance; however, future upgrades may be subject to the substantially more costly, time-consuming and uncertain PMA process. Ifthe FDA requires us to go through a lengthier, more rigorous examination for future products or modifications to existing products than we had expected,product introductions or modifications could be delayed or cancelled, which could cause our sales to decline. In August 2016, we filed for FDA 510(k)clearance for the MRIdian Linac and received FDA clearance in February 2017. In June 2017, we received 510(k) clearance to market RayZR, our high-resolution MLC.The FDA can delay, limit or deny clearance or approval of a device for many reasons, including: •we may not be able to demonstrate to the FDA’s satisfaction that MRIdian is substantially equivalent to the proposed predicate device or safeand effective for its intended use; •the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required; and •the manufacturing process or facilities we use may not meet applicable requirements.In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions, whichmay prevent or delay approval or clearance of our future products under development or impact our ability to modify our currently cleared product on atimely basis. For example, the FDA issued guidance (“Deciding When to Submit a 510(k) for a Change to an Existing Device” and “Deciding When toSubmit a 510(k) for a Software Change to an Existing Device”) on October 25, 2017 to assist industry in determining when a change to a previously 510(k)-cleared product requires a new premarket notification to be submitted to the FDA. These guidance documents replaced the 1997 guidance on the same topic.In November 2018, the FDA announced plans to significantly revise aspects of the 510(k) program to reduce reliance on older predicate devices (e.g.,predicates that are less than 10 years old). In January 2019, the FDA also finalized guidance on an alternative 510(k) pathway, the “Safety and PerformanceBased Pathway,” which relies on modern performance-based criteria and current technological principles to demonstrate substantial equivalence rather thanon direct comparisons to older predicates; the draft guidance was published earlier in 2018. With the changes to the 510(k) pathway, the FDA expectsincreased use of the de novo pathway, which is for the review of novel, low to moderate risk devices for which there is no existing predicate to use indetermining substantial equivalence. The FDA intends these reform actions to improve the efficiency and transparency of the clearance process, as well asbolster patient safety. The FDA’s proposed changes to the 510(k) pathway and these guidance documents could impose additional regulatory requirementsupon us that could: increase the costs of compliance; restrict our ability to maintain our current clearances; and delay our ability to obtain 510(k) clearances.50 Even after we have obtained the proper regulatory clearance or approval to market a product, we have ongoing responsibilities under FDA regulations. Thefailure to comply with applicable regulations could jeopardize our ability to sell MRIdian and result in enforcement actions such as: •warning letters; •fines; •injunctions; •civil penalties; •termination of distribution; •recalls or seizures of products; •delays in the introduction of products into the market; •total or partial suspension of production; •refusal to grant future clearances or approvals; •withdrawals or suspensions of current clearances or approvals, resulting in prohibitions on sales of MRIdian; and •in the most serious cases, criminal penalties.Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and harm our reputation, business, financial condition andresults of operations.We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action,either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. The Trumpadministration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, orotherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking,issuance of guidance, and review and approval of marketing applications. Uncertainty at the FDA or if the FDA were under-staffed, could result in delays inFDA’s responsiveness or in its ability to review submissions or applications, issue regulations or guidance, or implement or enforce regulatory requirementsin a timely fashion or at all. Moreover, on January 30, 2017, President Trump issued an Executive Order, applicable to all executive agencies, including the FDA, that requires that foreach notice of proposed rulemaking or final regulation to be issued in fiscal year 2017, the agency shall identify at least two existing regulations to berepealed, unless prohibited by law. These requirements are referred to as the “two-for-one” provisions. This Executive Order includes a budget neutralityprovision that requires the total incremental cost of all new regulations in the 2017 fiscal year, including repealed regulations, to be no greater than zero,except in limited circumstances. For fiscal years 2018 and beyond, the Executive Order requires agencies to identify regulations to offset any incrementalcost of a new regulation and approximate the total costs or savings associated with each new regulation or repealed regulation. In interim guidance issued bythe Office of Information and Regulatory Affairs within OMB on February 2, 2017, the administration indicates that the “two-for-one” provisions may applynot only to agency regulations, but also to significant agency guidance documents. In addition, on February 24, 2017, President Trump issued an executiveorder directing each affected agency to designate an agency official as a “Regulatory Reform Officer” and establish a “Regulatory Reform Task Force” toimplement the two-for-one provisions and other previously issued executive orders relating to the review of federal regulations, however it is difficult topredict how these requirements will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If theseexecutive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the normal course, our business may benegatively impacted.In order to sell MRIdian in member countries of the European Economic Area, or EEA, MRIdian must comply with the essential requirements of the EUMedical Devices Directive (Council Directive 93/42/EEC). Compliance with these requirements is a prerequisite to be able to affix the CE mark to MRIdian,without which they cannot be sold or marketed in the EEA. To demonstrate compliance with the essential requirements we must undergo a conformityassessment procedure, which varies according to the type of medical device and its classification. Except for low-51 risk medical devices, where the manufacturer can issue an EC Declaration of Conformity based on a self-assessment of the conformity of its products with theessential requirements of the EU Medical Devices Directive, a conformity assessment procedure requires the intervention of an organization accredited by aMember State of the EEA to conduct conformity assessments, or a Notified Body. Depending on the relevant conformity assessment procedure, the NotifiedBody would typically audit and examine the technical file and the quality system for the manufacture, design and final inspection of our devices. TheNotified Body issues a CE Certificate of Conformity following successful completion of a conformity assessment procedure conducted in relation to themedical device and its manufacturer and their conformity with the essential requirements. This certificate entitles the manufacturer to affix the CE mark to itsmedical devices after having prepared and signed a related EC Declaration of Conformity.As a general rule, demonstration of conformity of medical devices and their manufacturers with the essential requirements must be based, among other things,on the evaluation of clinical data supporting the safety and performance of the products during normal conditions of use. Specifically, a manufacturer mustdemonstrate that the device achieves its intended performance during normal conditions of use, that the known and foreseeable risks, and any adverse events,are minimized and acceptable when weighed against the benefits of its intended performance, and that any claims made about the performance and safety ofthe device (e.g., product labeling and instructions for use) are supported by suitable evidence. We have the right to affix the CE mark to MRIdian withCobalt-60 since November 2014 and MRIdian Linac since September 2016. If we fail to remain in compliance with applicable European laws and directives,we would not be able to continue to affix the CE mark to MRIdian with Cobalt-60 and MRIdian Linac, which would prevent us from selling MRIdian withCobalt-60 or MRIdian Linac within the EEA. We will also need to obtain regulatory approval in other foreign jurisdictions in which we plan to market andsell MRIdian with Cobalt-60 and MRIdian Linac.Modifications to MRIdian and our future products may require new 510(k) clearances or PMA approvals, or may require us to cease marketing or recallthe modified products until clearances are obtained.In the United States, we have obtained 510(k) premarket clearance from the FDA to market MRIdian for the provision of stereotactic radiosurgery andprecision radiotherapy for lesions, tumors and conditions anywhere in the body where radiation treatment is indicated. Any modification to a 510(k)-cleareddevice that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires anew 510(k) clearance or, possibly, approval of a PMA.In February 2017, we received a 510(k) premarket clearance from the FDA to market the MRIdian system that contains MRIdian Linac. As we make otherchanges or enhancements to our MRIdian system, we will need to determine whether additional FDA clearance is required or not. However, the FDA may notagree with our decisions regarding whether new clearances or approvals are necessary. We have made modifications to MRIdian in the past and havedetermined based on our review of the applicable FDA regulations and guidance that in certain instances new 510(k) clearances or PMA approvals were notrequired. We may make similar modifications or add additional features in the future that we believe do not require a new 510(k) clearance or approval of aPMA. If the FDA disagrees with our determination and requires us to submit new 510(k) notifications or PMA applications for modifications to ourpreviously cleared products for which we have concluded that new clearances or approvals are unnecessary, we may be required to cease marketing or torecall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties.Furthermore, the FDA’s ongoing review of and proposed changes to the 510(k) clearance process may make it more difficult for us to make modifications toour previously cleared products, either by imposing more strict requirements on when a new 510(k) notification for a modification to a previously clearedproduct must be submitted, or applying more onerous review criteria to such submissions. More recently, the FDA issued guidance “Deciding When toSubmit a 510(k) for a Change to an Existing Device” and “Deciding When to Submit a 510(k) for a Software Change to an Existing Device”) on October 25,2017 (replacement of a 1997 guidance document) to assist industry in determining when a change to a previously 510(k)-cleared product requires a new premarket notification to be submitted to the FDA. In November 2018, the FDA announced plans to significantly revise aspects of the 510(k) program to reducereliance on older predicate devices (e.g., predicates that are less than 10 years old). In January 2019, the FDA also finalized guidance on an alternative 510(k)pathway, the “Safety and Performance Based Pathway,” which relies on modern performance-based criteria and current technological principles todemonstrate substantial equivalence rather than on direct comparisons to older predicates; the draft guidance was published earlier in 2018. In addition, FDAissued guidance “Postmarket Management of Cybersecurity in Medical Devices” on December 28, 2016 and on October 18 2018, the FDA published relateddraft guidance, “Content of Premarket Submissions for Management of Cybersecurity in Medical Devices”. These new guidance documents could imposeadditional regulatory requirements upon us that could: increase the costs of compliance; restrict our ability to maintain our current clearances; and delay ourability to obtain 510(k) clearances. We cannot guarantee52 whether the FDA’s approach in future guidance will result in substantive changes to existing policy and practice regarding the assessment of whether a new510(k) is required for changes or modifications to existing devices. The FDA continues to review its 510(k) clearance process, which could result inadditional changes to regulatory requirements or guidance documents, which could increase the costs of compliance or restrict our ability to maintain currentclearances.If treatment guidelines for cancer radiation therapies change or the standard of care evolves, we may need to redesign and seek new marketingauthorization from the FDA for MRIdian.If treatment guidelines for cancer radiation therapies or the standard of care evolves, we may need to redesign MRIdian and seek new clearances or approvalsfrom the FDA for MRIdian. Our 510(k) clearance from the FDA is based on current treatment guidelines. If treatment guidelines change so that differenttreatments become desirable, the clinical utility of MRIdian could be diminished and our business could suffer. For example, competition by other forms ofcancer treatment, in particular personalized medicine approaches in targeting drugs and biologics, could reduce the use of radiation therapy as a standard ofcare in certain indications.The misuse or off-label use of MRIdian with Cobalt-60 or MRIdian Linac may harm our reputation in the marketplace, result in injuries that lead toproduct liability suits or result in costly investigations, fines or sanctions by regulatory bodies if we are deemed to have engaged in the promotion of theseuses, any of which could be costly to our business.Clinicians or physicians may misuse MRIdian with Cobalt-60 or MRIdian Linac or use improper techniques if they are not adequately trained or otherwise,potentially leading to injury and an increased risk of product liability. If MRIdian with Cobalt-60 or MRIdian Linac is misused or used with impropertechnique, we may become subject to costly litigation by our customers or their patients. Product liability claims could divert management’s attention fromour core business, be expensive to defend and result in sizeable damage awards against us that may not be covered by insurance. In addition, any of theevents described above could harm our business and lead to regulatory action.In addition, MRIdian with Cobalt-60 and MRIdian Linac have been cleared by the FDA for specific treatments. We train our marketing and direct sales forceto not promote MRIdian with Cobalt-60 and MRIdian Linac for uses outside of the FDA-cleared indications for use, known as “off-label uses.” For example,MRIdian with Cobalt and MRIdian Linac have not been indicated for diagnostic use. We cannot, however, prevent a physician from using MRIdian withCobalt-60 or MRIdian Linac off-label, when in the physician’s independent professional medical judgment, he or she deems it appropriate. There may beincreased risk of injury to patients if physicians attempt to use MRIdian with Cobalt-60 or MRIdian Linac off-label. Furthermore, the use of MRIdian withCobalt-60 or MRIdian Linac for indications other than those cleared by the FDA or authorized by any foreign regulatory body may not effectively treat suchconditions, which could harm our reputation in the marketplace among physicians and patients.If the FDA or any foreign regulatory body determines that our promotional materials or training constitute promotion of an off-label use, it could request thatwe modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance or imposition of an untitled letter,which is used for violators that do not necessitate a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal,state or foreign enforcement authorities might take action under other regulatory authority, such as false claims laws, if they consider our business activitiesto constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil and administrativepenalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment of our operations.Our MRIdian systems may cause or contribute to adverse medical events that we are required to report to regulatory bodies outside of the U.S. and to theFDA, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business, financial condition and results of operations. Thediscovery of serious safety issues with our MRIdian systems, or a recall of our MRIdian systems either voluntarily or at the direction of the FDA or anothergovernmental authority, could have a negative impact on us.We are subject to the FDA’s medical device reporting regulations and similar foreign regulations, which require us to report to the FDA when we receive orbecome aware of information that reasonably suggests that MRIdian may have caused or contributed to a death or serious injury or malfunctioned in a waythat, if the malfunction were to recur, it could cause or contribute to a death or serious injury. The timing of our obligation to report is triggered by the datewe become aware of the adverse event as well as the nature of the event. We may fail to report adverse53 events of which we become aware within the prescribed timeframe. We may also fail to recognize that we have become aware of a reportable adverse event,especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of MRIdian. If we fail tocomply with our reporting obligations, the FDA could take action, including warning letters, untitled letters, administrative actions, criminal prosecution,imposition of civil monetary penalties, revocation of our device clearance, seizure of MRIdian or delay in clearance of future products.The FDA and foreign regulatory bodies have the authority to require the recall of commercialized products in the event of material deficiencies or defects indesign or manufacture of a product or in the event that a product poses an unacceptable risk to health. The FDA’s authority to require a recall must be basedon a finding that there is reasonable probability that the device could cause serious injury or death. We may also choose to voluntarily recall a product if anymaterial deficiency is found. A government-mandated or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures,malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects, repeated misuse or other deficiencies or failures to comply withapplicable regulations. We cannot assure you that similar or more significant product defects or other errors will not occur in the future. Recalls involvingMRIdian could be particularly harmful to our business, financial condition and results of operations because it is currently our only product.Companies are required to maintain certain records of recalls and corrections, even if they are not reportable to the FDA or other regulatory bodies. We mayinitiate voluntary withdrawals or corrections for MRIdian in the future that we determine do not require notification of the FDA or other regulators in the USand around the world. If the FDA disagrees with our determinations, it could require us to report those actions as recalls and we may be subject to enforcementaction. A future recall announcement could harm our reputation with customers, potentially lead to product liability claims against us and negatively affectour sales.Any actual or perceived failure by us to comply with legal or regulatory requirements related to privacy or data security in one or multiple jurisdictionscould result in proceedings, actions or penalties against us.Many jurisdictions have enacted or are considering enacting privacy and/or data security legislation, including laws and regulations applicable to thecollection, use, storage, transfer, disclosure and/or processing of personal information. For example, the U.S. Department of Health and Human Services haspromulgated rules governing the privacy and security of individually identifiable health information under the Health Insurance Portability andAccountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH. These privacyand security rules protect medical records and other patient health information (PHI) by limiting their use and disclosure, giving individuals the right toaccess, amend and seek accounting of their own health information, limiting most uses and disclosures of health information to the minimum amountreasonably necessary to accomplish the intended purpose, and requiring administrative, technical and physical safeguards. Although we are not a coveredentity under HIPAA, we have entered into agreements with certain covered entity customers, such as health care providers, under which we are considered tobe a “business associate” under HIPAA. As a business associate, we are contractually bound and may also be directly responsible under HIPAA, as amendedby HITECH, to implement policies, procedures and reasonable and appropriate security measures to protect any individually identifiable health informationwe may create, receive, maintain or transmit on behalf of covered entities. We may also be subject to state laws protecting the confidentiality of medicalrecords where those state laws have stricter provisions than HIPAA.The costs of compliance with, and other burdens imposed by, such laws and regulations that are applicable to the businesses of our customers may limit theuse and adoption of our products and reduce overall demand for them. These privacy and data security related laws and regulations are evolving and mayresult in increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions. Although we are working to comply with those federal,state, and foreign laws and regulations, industry standards, contractual obligations and other legal obligations that apply to us, those laws, regulations,standards and obligations are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and mayconflict with one another, other requirements or legal obligations, our practices or the features of our platform. Any failure or perceived failure by us tocomply with federal, state or foreign laws or regulations, industry standards, contractual obligations or other legal obligations, or any actual or suspectedsecurity incident, whether or not resulting in unauthorized access to, or acquisition, release or transfer of personal information or other data, may result ingovernmental enforcement actions and prosecutions, private litigation, fines and penalties or adverse publicity and could cause our customers to lose trust inus, which could have an adverse effect on our reputation and business.54 Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable laws, regulations, policies, industrystandards, contractual obligations, or other legal obligations could result in additional cost and liability to us, damage our reputation, inhibit sales, andadversely affect our business.We also expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and informationsecurity in the United States, the European Union and other jurisdictions, and we cannot yet determine the impact such future laws, regulations and standardsmay have on our business. In addition to government activity, privacy advocacy groups and technology and other industries are considering various new,additional or different self-regulatory standards that my place additional burdens on us. New laws, amendments to or re-interpretations of existing laws andregulations, industry standards, contractual obligations and other obligations may require us to incur additional costs and restrict our business operations.Such laws and regulations may require companies to implement privacy and security policies, inform individuals of security breaches that affect theirpersonal information, and, in some cases, obtain individuals’ consent to use personal information for certain purposes.Our failure to comply with applicable laws and regulations could result in enforcement action against us, including fines and public censure, claims fordamages by customers and other affected individuals, damage to our reputation and loss of goodwill (both in relation to existing customers and prospectivecustomers), any of which could harm our business, results of operations and financial condition.If we or our distributors do not obtain and maintain international regulatory registrations or approvals for MRIdian, we will not be able to market andsell MRIdian outside of the United States.Sales of our devices outside the United States are subject to foreign regulatory requirements that vary widely from country to country. In addition, the FDAregulates exports of medical devices from the United States. While the regulations of some countries may not impose barriers to marketing and sellingMRIdian or only require notification, others require that we or our distributors obtain the approval of a specified regulatory body. Complying with foreignregulatory requirements, including obtaining registrations or approvals, can be expensive and time-consuming, and we cannot be certain that we or ourdistributors will receive regulatory approvals in each country in which we plan to market MRIdian or that we will be able to do so on a timely basis. The timerequired to obtain registrations or approvals, if required by other countries, may be longer than that required for FDA clearance, and requirements for suchregistrations or approvals may significantly differ from FDA requirements. If we modify MRIdian, we or our distributors may need to apply for additionalregulatory approvals before we are permitted to sell the modified product. In addition, we may not continue to meet the quality and safety standards requiredto maintain the authorizations that we or our distributors have received. If we or our distributors are unable to maintain our authorizations in a particularcountry, we will no longer be able to sell MRIdian in that country, which could harm our business.Regulatory clearance or approval by the FDA does not ensure marketing authorization by regulatory authorities in other countries, and authorization formarketing by one or more foreign regulatory authorities does not ensure marketing authorization will be granted by regulatory authorities in other foreigncountries or by the FDA. However, a failure or delay in obtaining marketing authorization in one country may have a negative effect on the regulatoryprocess in others.We must manufacture MRIdian in accordance with federal and state regulations, and we could be forced to recall our installed systems or terminateproduction if we fail to comply with these regulations.The methods used in, and the facilities used for, the manufacture of MRIdian must comply with the FDA’s QSR, which is a complex regulatory scheme thatcovers the procedures and documentation of the design, testing, production, process controls, quality assurance, labeling, packaging, handling, storage,distribution, installation, servicing and shipping of MRIdian. Furthermore, we are required to verify that our suppliers maintain facilities, procedures andoperations that comply with our quality and applicable regulatory requirements. The FDA enforces the QSR through periodic announced or unannouncedinspections of medical device manufacturing facilities, which may include the facilities of subcontractors. MRIdian is also subject to similar state regulationsand various laws and regulations of foreign countries governing manufacturing.55 We cannot guarantee that we or any subcontractors will take the necessary steps to comply with applicable regulations, which could cause delays in thedelivery of MRIdian. In addition, failure to comply with applicable FDA requirements or later discovery of previously unknown problems with MRIdian ormanufacturing processes could result in, among other things: •warning letters or untitled letters; •fines, injunctions or civil penalties; •suspension or withdrawal of approvals or clearances; •seizures or recalls of MRIdian; •total or partial suspension of production or distribution; •administrative or judicially imposed sanctions; •FDA’s refusal to grant pending or future clearances or approvals for MRIdian; •clinical holds; •refusal to permit the import or export of MRIdian; and •criminal prosecution of us or our employees.Any of these actions could significantly and negatively impact supply of MRIdian. If any of these events occurs, our reputation could be harmed, we couldbe exposed to product liability claims and we could lose customers and suffer reduced revenue and increased costs.Legislative or regulatory reforms in the United States or the EU may make it more difficult and more costly for us to obtain regulatory clearances orapprovals for MRIdian or to produce, market or distribute MRIdian after clearance or approval is obtained.From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulation ofmedical devices or the reimbursement thereof. In addition, the FDA or the NRC regulations and guidance are often revised or reinterpreted by the FDA orNRC in ways that may significantly affect our business and our MRIdian systems In addition, as part of Food and Drug Administration Safety and InnovationAct, or FDASIA, Congress reauthorized the Medical Device User Fee Amendments with various FDA performance goal commitments and enacted several“Medical Device Regulatory Improvements” and miscellaneous reforms, which are further intended to clarify and improve medical device regulation bothpre- and post-clearance or approval. Any new statutes, regulations or revisions or reinterpretations of existing regulations may impose additional costs orlengthen review times of any future products or make it more difficult to manufacture, market or distribute MRIdian or future products. We cannot determinewhat effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in thefuture. Such changes could, among other things, require: •additional testing prior to obtaining clearance or approval; •changes to manufacturing methods; •recall, replacement or discontinuance of MRIdian or future products; or •additional record keeping.Any of these changes could require substantial time and cost and could harm our business and our financial results.On April 5, 2017, the European Parliament passed the Medical Devices Regulation, which repealed and replaced the Medical Devices Directive. The MedicalDevices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA formedical devices and ensure a high level of safety and health while supporting innovation.The Medical Devices Regulation will become applicable three years after publication. Once applicable, the new regulations will among other things:56 •strengthen the rules on placing devices on the market and reinforce surveillance once they are available; •establish explicit provisions on manufacturers' responsibilities for the follow-up of the quality, performance and safety of devices placed onthe market; •improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number; •set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products availablein the EU; •strengthen rules for the assessment of certain high-risk devices, which may have to undergo an additional check by experts before they areplaced on the market.These modifications may have an impact on the way we conduct our business in the EEA.Our business involves the use of hazardous materials and we and our third-party manufacturers must comply with environmental laws and regulations,which may be expensive and restrict how we do business.Our third-party manufacturers’ activities and our own activities involve the controlled storage, use and disposal of hazardous materials, including Cobalt-60,lead and depleted uranium. We and our manufacturers are subject to federal, state, local and foreign laws and regulations governing the use, generation,manufacture, storage, handling and disposal of these hazardous materials. We currently carry no insurance specifically covering environmental claimsrelating to the use of hazardous materials, but we do reserve funds to address these claims at both the federal and state levels. Although we believe that oursafety procedures for handling and disposing of these materials and waste products comply with the standards prescribed by these laws and regulations, wecannot eliminate the risk of accidental injury or contamination from the use, storage, handling or disposal of hazardous materials. In the event of an accident,state or federal or other applicable authorities may curtail our use of these materials and interrupt our business operations. In addition, if an accident orenvironmental discharge occurs, or if we discover contamination caused by prior operations, including by prior owners and operators of properties weacquire, we could be liable for cleanup obligations, damages and fines. If such unexpected costs are substantial, this could significantly harm our financialcondition and results of operations.We are subject to federal and state fraud and abuse laws and health information privacy and security laws, which, if violated, could subject us tosubstantial penalties. Additionally, any challenge to or investigation into our practices under these laws could cause adverse publicity and be costly torespond to, and thus could harm our business.There are numerous U.S. federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback, false claims and physician transparencylaws. Our relationships with providers and hospitals are subject to scrutiny under these laws. We may also be subject to patient privacy regulation by both thefederal government and the states in which we conduct our business. The laws that may affect our ability to operate include: •the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving orproviding remuneration, directly or indirectly, in cash or in kind, to induce either the referral of an individual or furnishing or arranging for agood or service, for which payment may be made, in whole or in part, under federal healthcare programs, such as Medicare and Medicaid. Aperson or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation. Moreover,the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes afalse or fraudulent claim for purposes of the False Claims Act; Some states have adopted laws similar to the federal Anti-Kickback Statute, someof which apply to the referral of patients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaidprograms; •federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities fromknowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false orfraudulent; •HIPAA, which created federal criminal statutes that prohibit, among other things, executing a scheme to defraud any healthcare benefit programand making false statements relating to healthcare matters.57 Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent toviolate it to have committed a violation; •the federal physician sunshine requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care andEducation Reconciliation Act, collectively referred to as the Affordable Care Act, which require certain manufacturers of drugs, devices,biologics and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments andother transfers of value to physicians, which is defined broadly to include other healthcare providers and teaching hospitals and ownership andinvestment interests held by physicians and their immediate family members; •state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or servicesreimbursed by any third-party payor, including commercial insurers; •state laws that require device companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance guidancepromulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referralsources; and •state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and otherhealthcare providers or marketing expenditures.These laws, among other things, constrain our business, marketing and other promotional activities by limiting the kinds of financial arrangements, includingsales programs, we may have with hospitals, physicians or other potential purchasers of medical devices. We have a variety of arrangements with ourcustomers that could implicate these laws. Due to the breadth of these laws, the narrowness of statutory exceptions and safe harbors available, and the rangeof interpretations to which they are subject, it is possible that some of our current or future practices might be challenged under one or more of these laws.Even an unsuccessful challenge or investigation into our practices could cause adverse publicity, and be costly to respond to, and thus could harm ourbusiness, financial condition and results of operations.If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject topenalties, including administrative, civil and criminal penalties, damages, fines, exclusion from participation in government healthcare programs, such asMedicare and Medicaid, imprisonment and the curtailment or restructuring of our operations, any of which could negatively impact our ability to operate ourbusiness and our results of operations.Healthcare policy changes, including legislation reforming the U.S. healthcare system, could harm our cash flows, financial condition and results ofoperations.In March 2010, the Affordable Care Act was enacted in the United States, which made a number of substantial changes in the way healthcare is financed byboth governmental and private insurers. Among other things, the Affordable Care Act requires each medical device manufacturer to pay a sales tax equal to2.3% of the price for which such manufacturer sells its medical devices, which, due to subsequent legislative amendments, has been suspended until January1, 2020;We expect that the current presidential administration and U.S. Congress will seek to modify, repeal, or otherwise invalidate all or certain provisions of,the Affordable Care Act. There is uncertainty with respect to the impact the current presidential administration and the U.S. Congress may have, if any, andany changes will likely take time to unfold, and could have an impact on coverage and reimbursement for healthcare items and services covered by plans thatwere authorized by the Affordable Care Act.We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal andstate governments will pay for healthcare products and services, which could result in reduced demand for MRIdian or additional pricing pressure. 58 Risks Related to Ownership of Our Common StockThe price of our common stock may be volatile and may be influenced by numerous factors, some of which are beyond our control.Factors that could cause volatility in the market price of our common stock include, but are not limited to: •actual or anticipated fluctuations in our financial condition and operating results; •actual or anticipated changes in our growth rate relative to our competitors or market expectations; •commercial success and market acceptance of MRIdian; •success of our competitors in discovering, developing or commercializing products; •ability to commercialize or obtain regulatory approvals for MRIdian, or delays in commercializing or obtaining regulatory approvals; •strategic transactions undertaken by us; •additions or departures of key personnel; •product liability claims; •prevailing economic conditions; •disputes concerning our intellectual property or other proprietary rights; •FDA or other U.S. or foreign regulatory actions affecting us or the healthcare industry; •healthcare reform measures in the United States; •sales of our common stock by our officers, directors or significant stockholders; •future sales or issuances of equity or debt securities by us; •business disruptions caused by earthquakes, tornadoes or other natural disasters; and •changes in the manner that investors and securities analysts who provide research on us to the marketplace analyze the value of our commonstock.In addition, the stock markets in general, and the markets for medical device companies in particular, have experienced extreme volatility that have beenoften unrelated to the operating performance of the issuer. These broad market fluctuations may negatively impact the price or liquidity of our commonstock. In the past, when the price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against theissuer. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of ourmanagement would be diverted from the operation of our business.We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies willmake our common stock less attractive to investors.We are an “emerging growth company,” as defined in the JOBS Act, and may take advantage of certain exemptions from various reporting requirements thatare applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestationrequirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxystatements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of anygolden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on theseexemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stockprice may be more volatile.In addition, Section 102 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided inSection 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. An “emerginggrowth company” can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private59 companies. However, we chose to “opt out” of such extended transition period, and as a result, we comply with new or revised accounting standards on therelevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decisionto opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.Future sales of our common stock or securities convertible or exchangeable for our common stock may cause our stock price to decline.If our existing stockholders or option holders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after anyapplicable legal restrictions on resale lapse, the price of our common stock could decline. The perception in the market that these sales may occur could alsocause the price of our common stock to decline. At December 31, 2018, we have outstanding a total of 96,332,023 shares of common stock.In addition, at December 31, 2018, based on the number of shares subject to outstanding awards under our 2008 Stock Option and Incentive Plan, or 2008Plan, and 2018 Inducement Plan, or 2018 Plan, 1,167,158 shares and 5,620,000 shares, respectively, of common stock are subject to outstanding options;based on the number of shares subject to outstanding awards or available for issuance under our 2015 Equity Incentive Award Plan, or 2015 Plan, and 2015Employee Stock Purchase Plan, or 2015 ESPP, 8,582,917 shares and 1,780,020 shares, respectively, of common stock are subject to outstanding options orreserved for future issuance. These shares will become eligible for sale in the public market to the extent permitted by the provisions of various vestingschedules and Rule 144 and Rule 701 under the Securities Act, which includes, for shares held by directors, executive officers and other affiliates, volumelimitations under Rule 144 under the Securities Act. The 2015 Plan contains provisions for the annual increase of the number of shares reserved for issuanceunder such plan. If the shares we may issue from time to time under the 2008 Plan, 2015 Plan, 2018 Plan or 2015 ESPP are sold, or if it is perceived that theywill be sold, by the award recipients in the public market, the price of our common stock could decline.You may experience dilution of your ownership interests because of the future issuance of additional shares of our common or preferred stock or othersecurities that are convertible into or exercisable for our common or preferred stock.In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our presentstockholders and the purchasers of our common stock. We are authorized to issue an aggregate of 300,000,000 shares of common stock and 10,000,000shares of “blank check” preferred stock. We may issue additional shares of our common stock or other securities that are convertible into or exercisable forour common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for otherbusiness purposes. The future issuance of any such additional shares of our common stock may create downward pressure on the trading price of the commonstock. We may need to raise additional capital in the near future to meet our working capital needs, and there can be no assurance that we will not be requiredto issue additional shares, warrants or other convertible securities in the future in conjunction with these capital raising efforts, including at a price (orexercise prices) below the price you paid for your stock. Our operating results for a particular period may fluctuate significantly or may fall below the expectations of investors or securities analysts, each ofwhich may cause our stock price to fluctuate or decline.We expect our operating results to be subject to fluctuations. Our operating results will be affected by numerous factors, including: •variations in the level of expenses related to MRIdian systems or future development programs; •level of underlying demand for MRIdian and any other products we develop; •addition or termination of clinical trials or funding support; •receipt, modification or termination of government contracts or grants, and the timing of payments we receive under these arrangements; •our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under thesearrangements; •any intellectual property infringement lawsuit or opposition, interference or cancellation proceeding in which we may become involved; and •regulatory developments affecting MRIdian with Cobalt-60, MRIdian Linac or our competitors.60 If our operating results for a particular period fall below the expectations of investors or securities analysts, the price of our common stock could declinesubstantially. Furthermore, any fluctuations in our operating results may, in turn, cause the price of our common stock to fluctuate substantially. We believethat comparisons of our financial results from various reporting periods are not necessarily meaningful and should not be relied upon as an indication of ourfuture performance.Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject tostockholder approval.Based on the beneficial ownership of our common stock at December 31, 2018, our officers and directors, together with holders of 5% or more of ouroutstanding common stock and their respective affiliates, beneficially own approximately 46% of our common stock. Accordingly, these stockholders willcontinue to have significant influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, merger,consolidation or sale of all or substantially all of our assets or any other significant corporate transaction. Further, pursuant to one of the Securities PurchaseAgreements related to the October 2017 Direct Registered Offering discussed elsewhere in this Report, we agreed to (a) appoint a representative of FosunInternational Limited (“Fosun”) as a non-voting observer to our board of directors and (b) after the date, if ever, that Fosun beneficially owns at least 15% ofour then-outstanding shares of common stock, appoint a representative of Fosun as a director upon Fosun’s request. Fosun’s rights expire on the first date thatFosun ceases to own at least 90% of the shares it purchased in the October 2017 Direct Registered Offering discussed elsewhere in this Report. The interestsof these stockholders may not be the same as or may even conflict with your interests. For example, these stockholders could delay or prevent a change incontrol of the Company, even if such a change in control would benefit our other stockholders, which could deprive our stockholders of an opportunity toreceive a premium for their common stock as part of a sale of the Company or our assets and might affect the prevailing price of our common stock. Thesignificant concentration of stock ownership may negatively impact the price of our common stock due to investors’ perception that conflicts of interest mayexist or arise.Provisions of our charter documents or Delaware law could delay or prevent an acquisition of the Company, even if such an acquisition would bebeneficial to our stockholders, which could make it more difficult for you to change management.Provisions in our certificate of incorporation and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control thatstockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. In addition, theseprovisions may frustrate or prevent any attempt by our stockholders to replace or remove our current management by making it more difficult to replace orremove our board of directors. These provisions include: •a classified board of directors so that not all directors are elected at one time; •a prohibition on stockholder action through written consent; •no cumulative voting in the election of directors; •the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or theresignation, death or removal of a director; •a requirement that special meetings of stockholders be called only by the board of directors, the chairman of the board of directors, the chiefexecutive officer or, in the absence of a chief executive officer, the president; •an advance notice requirement for stockholder proposals and nominations; •the authority of our board of directors to issue preferred stock with such terms as our board of directors may determine; and •a requirement of approval of not less than 66 2/3% of all outstanding shares of our capital stock entitled to vote to amend any bylaws bystockholder action, or to amend specific provisions of our certificate of incorporation.In addition, Delaware law prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generallya person who, together with its affiliates, owns, or within the last three years has owned, 15% or more of our voting stock, for a period of three years after thedate of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed61 manner. Accordingly, Delaware law may discourage, delay or prevent a change in control of the Company. Furthermore, our certificate of incorporationspecifies that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for most legal actions involving actions brought against usby stockholders. We believe this provision benefits us by providing increased consistency in the application of Delaware law by chancellors particularlyexperienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection againstthe burdens of multi-forum litigation. However, the provision may have the effect of discouraging lawsuits against our directors and officers. Theenforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it ispossible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our certificate ofincorporation to be inapplicable or unenforceable in such action.Provisions in our charter documents and other provisions of Delaware law could limit the price that investors are willing to pay in the future for shares of ourcommon stock.We do not anticipate paying any cash dividends on our common stock in the foreseeable future; therefore, capital appreciation, if any, of our commonstock will be your sole source of gain for the foreseeable future.We have never declared or paid cash dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in theforeseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. In addition,our current loan and security agreement with CRG contains, and our future loan arrangements may contain, terms prohibiting or limiting the amount ofdividends that may be declared or paid on our common stock. As a result, capital appreciation, if any, of our common stock will be your sole source of gainfor the foreseeable future.If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our stock price and tradingvolume could decline.The trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about us or our business.If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our stock pricecould decline. In addition, if our operating results fail to meet the forecast of analysts, our stock price could decline. If one or more of these analysts ceasecoverage of the Company or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our stock price andtrading volume to decline.Risks Related to Information Security and CybersecurityAn information security incident, including a cybersecurity breach, could have a negative impact to the Company’s business or reputation.To meet business objectives, we rely on both internal information technology (IT) systems and networks, and those of third parties and their vendors, toprocess and store sensitive data, including confidential research, business plans, financial information, intellectual property, and personal data that may besubject to legal protection. The extensive information security and cybersecurity threats, which affect companies globally, pose a risk to the security andavailability of these IT systems and networks, and the confidentiality, integrity, and availability of our sensitive data. We assess these threats and makesinvestments to increase internal protection, detection, and response capabilities, as well as ensure that our third-party providers have required capabilities andcontrols, to address this risk. To date, we have not experienced any material impact to the business or operations resulting from information or cybersecurityattacks; however, because of the frequently changing attack techniques, along with the increased volume and sophistication of the attacks, there is thepotential that we could be adversely impacted. This impact could result in reputational, competitive, operational or other business harm as well as financialcosts and regulatory action.62 * * *This Annual Report contains forward-looking statements that involve unknown risks, uncertainties and other factors that may cause the actual results,financial condition, performance or achievements of the Company to be materially different from any future results, performance or achievements expressedor implied by such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those set out above. Item 1B. UNRESOLVED STAFF COMMENTSNone.Item 2. PROPERTIESFacilitiesOur corporate headquarters are located in Oakwood Village, Ohio, where we lease and occupy approximately 19,800 square feet of office space. The currentterm of our Oakwood Village lease expires on October 31, 2019, with an option to extend the term through October 31, 2021. We also maintain two offices inMountain View, California. For the first office, we lease and occupy approximately 25,500 square feet of office space. The current term of this Mountain Viewlease expires on July 31, 2025. In connection with this lease, we entered into a standby letter of credit with PNC Bank, National Association for $0.8 million,which is still outstanding at December 31, 2018. In April 2018, we entered into a lease agreement to lease approximately 24,600 square feet of additionaloffice space for our second office in Mountain View, California. This lease expires on the seventh anniversary of the commencement date, and the Companyhas the option to extend the term of the lease for a period of up to five years.We have analyzed our current facilities in light of our anticipated requirements and have determined to increase our foot-print in other states to meet theneeds of our operations; we are currently seeking additional space on commercially reasonable terms.Item 3. LEGAL PROCEEDINGSWe are not currently involved in any material litigation. From time to time, we may become involved in various lawsuits and legal proceedings which arise inthe ordinary course of business. However, litigation is subject to inherent uncertainties, and one or more unfavorable outcomes in any claim or litigationagainst us could have a material adverse effect for the period in which they are resolved and on our business generally. In addition, regardless of their meritsor their ultimate outcomes, lawsuits and legal proceedings are costly, divert management attention and may materially adversely affect our reputation, even ifresolved in our favor. The information under the caption “Commitments and Contingencies” in Note 6 of the consolidated financial statements of this Annual Report on Form 10-K is incorporated herein by reference.Item 4. MINE SAFETY DISCLOSURES Not applicable. 63 PART IIItem 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES Our common stock is traded on the Nasdaq Global Market under the symbol “VRAY”, which listing was completed on March 30, 2016.As of March 5, 2019, there were 92 stockholders of record of our common stock, although we believe that there are a significantly larger number of beneficialowners of our common stock.We have never paid cash dividends on our capital stock and do not anticipate paying cash dividends in the foreseeable future. We intend to retain futureearnings to fund ongoing operations and future capital requirements. Any future determination to pay cash dividends will be at the discretion of our board ofdirectors and will be dependent upon financial condition, results of operations, capital requirements and such other factors as the board of directors deemsrelevant.For equity compensation plan information, please refer to Item 12 in Part III of this Annual ReportRecent Sales of Unregistered SecuritiesDuring the year ended December 31, 2018, there were no sales of unregistered equity securities by the Company.Purchases of Equity Securities by the Issuer and Affiliated PurchasersThe Company does not have a stock repurchase program and did not make any share repurchases during the year ended December 31, 2018. 64 Item 6. SELECTED FINANCIAL DATAThe following selected financial data are qualified in their entirety by, and should be read in conjunction with, the more detailed information contained inthe consolidated financial statements, the notes thereto and the information set forth in “Management’s Discussion and Analysis of Financial Condition andResults of Operations” included elsewhere in this Annual Report on Form 10-K. Year Ended December 31, 2018 2017 2016 2015 2014 (in thousands, except share and per share amounts) Consolidated Statements of Operations Data: Revenue: Product $76,626 $30,458 $20,555 $9,620 $5,988 Service 3,861 3,109 1,504 530 411 Distribution rights 475 475 178 — — Grant — — — 240 — Total revenue 80,962 34,042 22,237 10,390 6,399 Cost of revenue: Product 66,522 25,488 23,897 12,673 8,176 Service 7,837 2,222 1,969 1,871 975 Total cost of revenue 74,359 27,710 25,866 14,544 9,151 Gross margin 6,603 6,332 (3,629) (4,154) (2,752)Operating expenses: Research and development(1) 16,520 14,709 11,442 10,449 9,404 Selling and marketing(1) 15,062 8,412 5,601 5,139 4,681 General and administrative(1) 50,113 31,375 23,503 21,685 14,742 Total operating expenses 81,695 54,496 40,546 37,273 28,827 Loss from operations (75,092) (48,164) (44,175) (41,427) (31,579)Interest income 8 5 2 2 1 Interest expense (7,701) (7,247) (5,951) (3,452) (2,243)Other income (expense), net 6,389 (16,770) (512) (117) 21 Loss before provision for income taxes $(76,396) $(72,176) $(50,636) $(44,994) $(33,800)Provision for income taxes — — — 1 — Net loss and comprehensive loss $(76,396) $(72,176) $(50,636) $(44,995) $(33,800)Amortization of beneficial conversion feature related to Series Aconvertible preferred stock (2,728) — — — — Deemed capital contribution on repurchase of Series A preferred stock — — — — 9 Net loss attributable to common stockholders, basic and diluted $(79,124) $(72,176) $(50,636) $(44,995) $(33,791)Net loss per share attributable to common stockholders, basic and diluted(2) $(0.98) $(1.23) $(1.26) $(2.58) $(37.87)Weighted-average common shares used in computing net loss per share attributable to common stockholders, basic and diluted(2) 81,123,140 58,457,868 40,068,307 17,432,434 892,315 65 (1)Includes stock-based compensation expense as follows: Year Ended December 31, 2018 2017 2016 2015 2014 (in thousands) Research and development $1,411 $952 $593 $262 $85 Selling and marketing 700 303 120 50 15 General and administrative 12,058 4,064 2,194 754 218 Total stock-based compensation expense $14,169 $5,319 $2,907 $1,066 $318 (2)See Note 16 to our consolidated financial statements for an explanation of the method used to calculate our basic and diluted net loss per shareattributable to common stockholders. December 31, 2018 2017 2016 2015 2014 (in thousands) Consolidated Balance Sheets Data: Cash and cash equivalents $167,432 $57,389 $14,198 $20,667 $11,129 Total assets 294,970 135,711 48,764 52,157 34,105 Deferred revenue, current and noncurrent portion 19,475 23,389 10,433 5,961 7,361 Long-term debt 55,364 44,504 44,290 29,016 14,642 Total liabilities 127,661 133,724 92,417 59,114 39,618 Total stockholders' equity (deficit) 167,309 1,987 (43,653) (6,957) (150,623) 66 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following management’s discussion and analysis should be read in conjunction with the financial statements and the related notes thereto contained inthis Annual Report. In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of Section27A of the Securities Act of 1933, as amended, or the Securities Act, and section 21E of the Securities Exchange Act of 1934, as amended, or the ExchangeAct. These forward-looking statements are subject to risks and uncertainties, including those under “Risk Factors” in this Annual Report that could causeactual results or events to differ materially from those expressed or implied by the forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report.Unless otherwise indicated, references in this section to “ViewRay,” “we,” “us,” “our,” “the Company” and “our Company” refer to ViewRay, Inc. and itsconsolidated subsidiary, ViewRay Technologies, Inc.As a result of the merger of ViewRay, Inc. and ViewRay Technologies, Inc. in July 2015, or the Merger, and the change in business and operations of theCompany, a discussion of the past financial results of the Company is not pertinent, and under applicable accounting principles the historical financialresults of ViewRay Technologies, Inc., the accounting acquirer, prior to the Merger are considered the historical financial results of the Company.The following discussion highlights our results of operations and the principal factors that have affected our financial condition as well as our liquidity andcapital resources for the periods described, and provides information that management believes is relevant for an assessment and understanding of thestatements of financial condition and results of operations presented herein. The following discussion and analysis are based on our consolidated financialstatements contained in this Annual Report, which we have prepared in accordance with United States generally accepted accounting principles. You shouldread this discussion and analysis together with such consolidated financial statements and the related notes thereto.Company OverviewWe design, manufacture and market the ViewRay MRIdian®. The MRIdian is an innovative system that integrates high quality radiation therapy withsimultaneous resonance imaging (MRI). There are two generations of the MRIdian: the first generation MRIdian with Cobalt-60 based radiation beams andthe second generation MRIdian Linac, with more advanced linear accelerator or ‘linac’ based radiation beams.Both generations of the MRIdian have received 510(k) marketing clearance from the United States Food and Drug Administration, or FDA, and permission toaffix the CE mark. MRIdian is the first radiation therapy system that enables simultaneous radiation treatment delivery and real-time MRI imaging of a patient’s internalanatomy. It generates high-quality images that differentiate between the targeted tumor, surrounding soft tissue and nearby critical organs. MRIdian alsorecords the level of radiation dose that the treatment area has received, enabling physicians to adapt the prescription between treatments, as needed. Webelieve this improved visualization and accurate dose recording will enable better treatment, improve patient outcomes and reduce side effects. Key benefitsto users and patients include: improved imaging and patient alignment; the ability to adapt the patient’s radiation treatments to changes while the patient isstill on the treatment table, or “on-table adaptive treatment planning”; MRI-based motion management; and an accurate recording of the delivered radiationdose. Physicians have already used MRIdian to treat a broad spectrum of radiation therapy patients with more than 45 different types of cancer, as well aspatients for whom radiation therapy was previously not an option.At December 31, 2018, we had seven MRIdian with Cobalt-60 systems and 17 MRIdian Linac systems installed at 22 cancer centers worldwide (10 in theUnited States and 12 outside the United States). Four MRIdian Linacs have already been delivered and are expected to be installed in 2019.We currently market MRIdian through a direct sales force in North America and continue to expand our global footprint by going direct and addingadditional distributors to our network in key markets. We market MRIdian to a broad range of worldwide customers, including university research andteaching hospitals, community hospitals, private practices, government institutions and freestanding cancer centers. As with the traditional linac market, oursales and revenue cycles vary based on the particular customer and can be lengthy, sometimes lasting up to 18 to 24 months (or more) from initial customercontact to order contract execution. Following execution of an order contract, it generally takes nine to 15 months for a customer to customize an existingfacility or construct a new67 vault. Upon the commencement of installation at a customer’s facility, it typically takes approximately 60 to 90 days for us to install MRIdian and performon-site testing of the system, including the completion of acceptance test procedures.We generated product, service and distribution rights revenues of $81.0 million, $34.0 million and $22.2 million, and had net losses of $76.4 million, $72.2million and $50.6 million during the years ended December 31, 2018, 2017 and 2016, respectively.We expect to continue to incur significant expenses and operating losses for the foreseeable future. We expect our expenses will increase substantially inconnection with our ongoing activities, as we: •add personnel to support our product development and commercialization efforts; •continue our research and development efforts; •seek regulatory approval for MRIdian in certain foreign countries; and •operate as a public company.Accordingly, we may seek to fund our operations through public or private equity, debt financings or other sources. However, we may be unable to raiseadditional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such otherarrangements as and when needed would have a negative impact on our financial condition and our ability to develop enhancements to and integrate newtechnologies into MR Image-Guided radiation therapy systems.August 2018 Public Offering of Common StockOn August 14, 2018, we entered into an underwriting agreement with Morgan Stanley & Co. LLC and Jefferies LLC, as representatives of severalunderwriters, or the Underwriters, in connection with the issuance and sale of 16,216,217 shares of our common stock at a public offering price of $9.25 pershare, or the August 2018 Public Offering of Common Stock. In addition, we granted the Underwriters a 30-day option to purchase up to 2,432,432 additionalshares of common stock on the same terms, which the Underwriters exercised in full. We completed the offering on August 17, 2018 and received aggregatenet proceeds of approximately $161.9 million, after deducting underwriting discounts and commissions and offering expenses payable by us.March 2018 Direct Registered OfferingIn February 2018, we entered into a securities purchase agreement pursuant to which we sold (i) 4,090,000 shares of our common stock; (ii) 3,000,581 sharesof our Series A convertible preferred stock and (iii) warrants to purchase 1,418,116 shares of our common stock, or the 2018 Offering Warrants, for total grossproceeds of $59.1 million, or the March 2018 Direct Registered Offering. We completed the March 2018 Direct Registered Offering on March 5, 2018. The2018 Offering Warrants have an exercise price of $8.31 per share, became exercisable upon issuance and expire in March 2025. All outstanding shares ofSeries A convertible preferred stock were converted into common stock at a conversion ratio of 1:1 on April 19, 2018.October 2017 Direct Registered OfferingIn October 2017, we entered into Securities Purchase Agreements pursuant to which we sold an aggregate of 8,382,643 shares of common stock for total grossproceeds of $49.9 million, or the October 2017 Direct Registered Offering. We completed the closing of the October 2017 Direct Registered Offering onOctober 25, 2017. 2017 Private PlacementIn January 2017, we entered into a Securities Purchase Agreement pursuant to which we sold an aggregate of 10,323,101 shares of common stock consistingof 8,602,589 shares of common stock and warrants to purchase 1,720,512 shares of common stock, or the 2017 Placement Warrants, for total gross proceeds of$26.1 million, or the 2017 Private Placement. We completed the closing of the 2017 Private Placement on January 18, 2017. The 2017 Placement Warrantshave a per share exercise price of $3.17 per share, and became exercisable in July 2017 and expire seven years from the date of issuance.68 2016 Private PlacementOn August 19, 2016, we entered into a Securities Purchase Agreement pursuant to which we sold an aggregate of 5,983,251 shares of common stockconsisting of 4,602,506 shares of common stock and warrants to purchase 1,380,745 shares of common stock, or the 2016 Placement Warrants, for aggregateproceeds of $13.2 million, net of offering cost, or the 2016 Private Placement. We completed the initial closing of the 2016 Private Placement on August 22,2016 with the final closing on September 9, 2016. The 2016 Placement Warrants have an exercise price of $2.95 per share, are exercisable at any time at theoption of the holder and expire seven years from the date of issuance.SVB Term LoanIn December 2018, we entered into a term loan agreement, or the SVB Term Loan, with Silicon Valley Bank, for a principal amount of $56.0 million. TheSVB 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 $215.0 million from January 1, 2019to December 1, 2020 and elects to apply such later date), the Company will make thirty-six equal monthly payments of principal (or thirty equal payments, ifthe 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 originalaggregate principal amount of the SVB Term Loan.The SVB Term Loan is secured by substantially all our assets, except that the collateral does not include any intellectual property held by us, provided,however, the collateral shall include all accounts and proceeds from the sale or license of such intellectual property.Additional details regarding the SVB Term Loan are included in the section entitled “Notes to Consolidated Financial Statements – Note 5 – Debt” in theconsolidated financial statements included elsewhere in this Form 10-K.CRG Term LoanIn June 2015, we entered into our long-term debt facility from Capital Royalty II L.P., Capital Royalty Partners II—Parallel Fund “A” L.P., Capital RoyaltyPartners II (Cayman) L.P. and Parallel Investment Opportunities Partners II L.P., or together with their successors by assignment, CRG, and such loan, the CRGTerm Loan, for up to $50.0 million, of which $30.0 million was made available to us upon closing with the remaining $20.0 million to be available on orbefore June 26, 2016 upon meeting certain milestones. We drew down the first $30.0 million on the closing date in June 2015. In March 2016, the CRGTerm Loan was amended with regard to the conditions for borrowing the remaining $20.0 million available under the CRG Term Loan. We achieved onemilestone at March 31, 2016 and borrowed an additional $15.0 million in May 2016.In December 2018, we used the proceeds of the SVB Term Loan and cash on hand to repay in full our obligations under the outstanding CRG Term Loan andno amounts remain outstanding as of December 31, 2018.At-The-Market Offering of Common StockIn January 2017, we filed a registration statement with the SEC which covers the offering, issuance and sale of up to a maximum aggregate offering price of$75.0 million of our common stock, preferred stock, debt securities, warrants, purchase contracts and/or units; and we entered into a sales agreement withFBR Capital Markets & Co., or FBR, under which we may sell up to $25.0 million of our common shares pursuant to an at-the-market offering program inaccordance with Rule 415(a)(4) under the Securities Act. FBR acted as sales agent on a best efforts basis and used commercially reasonable efforts to sell onour behalf all of the shares of common stock requested to be sold by us, consistent with its normal trading and sales practices, on mutually agreed termsbetween FBR and us. There is no arrangement for funds to be received in any escrow, trust or similar arrangement. In May 2018, we agreed to sell up to anadditional $25.0 million of our common stock in accordance with the terms of a sales agreement with FBR and pursuant to an at-the-market offering programin accordance with Rule 415(a)(4) under the Securities Act. FBR is entitled to compensation of up to 3.0% of the gross sales price per share sold.During fiscal year 2017, we sold an aggregate of approximately 6.6 million shares of our common stock at an average market price of $6.10 per share underthe at-the-market offering program, resulting in aggregate gross proceeds of approximately $40.1 million. During fiscal year 2018, we sold 33,097 shares ofour common stock at an69 average market price of $8.41 under the at-the-market offering program, resulting in aggregate gross proceeds of approximately $0.3 million. As of December31, 2018, there was approximately $9.5 million left under this program for future stock issuance.In January 2019, we 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 ourcommon shares pursuant to our at-the-market offering program with FBR. New Orders and BacklogNew orders are defined as the sum of gross product orders, representing MRIdian contract price, recorded in backlog during the period. Backlog is theaccumulation of all orders for which revenue has not been recognized and which we consider valid. Backlog includes customer deposits or letters of credit,except when the sale is to a customer where a deposit is not deemed necessary or customary. Deposits received are recorded in a customer deposit liabilityaccount on the balance sheet. Orders may be revised or cancelled according to their terms or upon mutual agreement between the parties. Therefore, it isdifficult to predict with certainty the amount of backlog that will ultimately result in revenue. The determination of backlog includes objective andsubjective judgment about the likelihood of an order contract becoming revenue. We perform a quarterly review of backlog to verify that outstanding ordersin backlog remain valid, and based upon this review, orders that are no longer expected to result in revenue are removed from backlog. Among other criteriato consider for a transaction to be in backlog, we must possess both an outstanding and effective written agreement for the delivery of a MRIdian signed by acustomer with a minimum customer deposit or a letter of credit requirement except when the sale is to a customer where a deposit is not deemed necessary orcustomary (i.e. sale to a government entity, a large hospital, group of hospitals or cancer care group that has sufficient credit, sales via tender awards, orindirect channel sales that have signed contracts with end-customers). We decide whether to remove or add back an order from or to our backlog byevaluating the following criteria: changes in customer or distributor plans or financial conditions; the customer’s or distributor’s continued intent and abilityto fulfill the order contract; changes to regulatory requirements; the status of regulatory approval required in the customer’s jurisdiction, if any; the length oftime the order has been on our backlog; and other reasons for potential cancellation of order contracts.During the years ended December 31, 2018, 2017 and 2016, our new orders were $140.7 million, $113.6 million and $77.0 million, respectively. Based onour assessment, we removed $53.5 million and $11.1 million from the backlog for fiscal year 2018 and 2017 respectively; none were removed for fiscal year2016. At December 31, 2018 and 2017, we had backlog with a total value of $212.3 million and $203.6 million, respectively.Components of Statements of OperationsRevenueProduct Revenue. Product revenue consists of revenue recognized from sales of MRIdian systems, as well as optional components, such as additionalplanning workstations and body coils.Following execution of an order contract, it generally takes nine to 15 months for a customer to customize an existing facility or construct a new vault for thepurchased system. Upon the commencement of installation at a customer’s facility, it typically takes approximately 60 to 90 days to complete the installationand on-site testing of the system, including the completion of acceptance test procedures. On-site training takes approximately one week and can beconducted concurrently with installation and acceptance testing. Order contracts generally include customer deposits upon execution of the agreement, andin certain cases, additional amounts due at shipment or commencement of installation, and final payment due generally upon customer acceptance.Revenue recognition for MRIdian systems that we install generally occurs when the customer acknowledges that the system operates in accordance withstandard product specifications, the customer accepts the installed unit and the control of the system is transferred to the customer. For sales of MRIdiansystems for which we are not responsible for installation, revenue is recognized when the entire system is delivered, which is when the control of the system istransferred to the customer.Service Revenue. Our contracts typically include service warranty at no additional costs for one year. In addition, we offer multi-year, post-installationmaintenance and support contracts that provide various levels of service support, which enables our customers to select the level of on-going supportservices, including parts and labor, which they70 require. These post-installation contracts are for a period of one to five years and provide services ranging from on-site parts and labor, and preventativemaintenance to labor only with a longer response time. We also offer technology upgrades to our MRIdian systems, when and if available, for an additionalfee. Service revenue is recognized ratably over the term during which the contracted services are provided.Distribution Rights Revenue. In December 2014, we entered into a distribution agreement with Itochu Corporation, or Itochu, pursuant to which weappointed Itochu as our exclusive distributor for the promotion, sale and delivery of MRIdian products within Japan. As consideration for the exclusivedistribution rights granted, we received $4.0 million, which was recorded as deferred revenue and since August 2016, distribution rights revenue has beenrecognized ratably over the remaining term of the distribution agreement, which expires in December 2024. A time-elapsed method is used to measureprogress because the control is transferred evenly over the contractual period.Cost of RevenueProduct Cost of Revenue. Product cost of revenue primarily consists of the cost of materials, installation and services associated with the manufacturing andinstallation of MRIdian systems, and royalty payments to the University of Florida Research Foundation. Product cost of revenue also includes lower of costor net realizable value inventory, or LCNRV, adjustments if the carrying value of the inventory is greater than its net realizable value. We recorded LCNRVcharges of $0.3 million, $0.9 million and $1.9 million for the years ended December 31, 2018, 2017 and 2016, respectively. We expect our materials, installation and service costs to decrease as we continue to scale our operations, improve product designs and work with our third-party suppliers to lower costs. We expect to continue to lower costs and increase sales prices as we transition to MRIdian Linac.Service Cost of Revenue. Service cost of revenue is comprised primarily of personnel costs, training and travel expenses to service and perform maintenanceon installed MRIdian systems. Service cost of revenue also includes the costs of replacement parts under maintenance and support contracts.Operating ExpensesResearch and Development. Research and development expenses consist primarily of compensation and related costs for personnel, including stock-basedcompensation, employee benefits and travel expenses. Other significant research and development costs arise from third-party consulting services, laboratorysupplies, research materials, medical equipment, computer equipment and licensed technology, and related depreciation and amortization. We expenseresearch and development costs as incurred. As we continue to invest in improving MRIdian and developing new technologies, we expect our research anddevelopment expenses to increase.Selling and Marketing. Selling and marketing expenses consist primarily of compensation and related costs for our direct sales force, sales management, andmarketing and customer support personnel, and include stock-based compensation, employee benefits and travel expenses. Selling and marketing expensesalso include costs related to trade shows and marketing programs. We expense selling and marketing costs as incurred. We expect selling and marketingexpenses to increase in future periods as we expand our sales force and our marketing and customer support organizations and increase our participation intrade shows and marketing programs.General and Administrative. Our general and administrative expenses consist primarily of compensation and related costs for our operations, finance, humanresources, regulatory, and other administrative personnel, and include stock-based compensation, employee benefits and travel expenses. In addition, generaland administrative expenses include third-party consulting, legal, audit, accounting services, quality and regulatory functions and facilities costs, and gain orloss on the disposal of property and equipment. We expect our general and administrative expenses to increase as our business grows and as we invest in thedevelopment of our MRIdian Linac.Interest IncomeInterest income consists primarily of interest income received on our cash and cash equivalents.71 Interest ExpenseInterest expense consists primarily of interest and amortization related to our CRG Term Loan. In December 2018, we repaid in full the outstandingobligations under the CRG Term Loan, using the proceeds from the SVB Term Loan and cash on hand.Other Income (Expense), NetOther income (expense), net consists primarily of changes in the fair value of the 2017 and 2016 Placement Warrants and foreign currency exchange gainsand losses.The outstanding 2017 and 2016 Placement Warrants are re-measured to fair value at each balance sheet date with the corresponding gain or loss from theadjustment recorded as a component of other expense, net.Results of OperationsThe following tables set forth our results of operations for the periods presented (in thousands): Year Ended December 31, 2018 2017 2016 Revenue: Product $76,626 $30,458 $20,555 Service 3,861 3,109 1,504 Distribution rights 475 475 178 Total revenue 80,962 34,042 22,237 Cost of revenue: Product 66,522 25,488 23,897 Service 7,837 2,222 1,969 Total cost of revenue 74,359 27,710 25,866 Gross margin 6,603 6,332 (3,629)Operating expenses: Research and development 16,520 14,709 11,442 Selling and marketing 15,062 8,412 5,601 General and administrative 50,113 31,375 23,503 Total operating expenses: 81,695 54,496 40,546 Loss from operations (75,092) (48,164) (44,175)Interest income 8 5 2 Interest expense (7,701) (7,247) (5,951)Other income (expense), net 6,389 (16,770) (512)Loss before provision for income taxes (76,396) (72,176) (50,636)Provision for income taxes — — — Net loss $(76,396) $(72,176) $(50,636)Comparison of the years ended December 31, 2018 and 2017Revenue Year Ended December 31, 2018 2017 Change ($) Change (%) (in thousands) Product $76,626 $30,458 $46,168 151.6%Service 3,861 3,109 752 24.2%Distribution rights 475 475 — 0.0%Total revenue $80,962 $34,042 $46,920 137.8%Total revenue during the year ended December 31, 2018 increased by $46.9 million or 137.8% compared to the year ended December 31, 2017. The increasewas primarily due to revenue recognized from the sale of 13 MRIdian72 systems and two systems upgrades during the year ended December 31, 2018, compared to revenue recognized from the sale of six MRIdian systems duringthe year ended December 31, 2017.Product Revenue. Product revenue increased by $46.2 million, or 151.6%, in fiscal year 2018 compared to fiscal year 2017. The increase is primarilydue to the revenue recognized from the sale of 13 MRIdian systems and two systems upgrades in fiscal year 2018 compared to the revenue recognized fromthe sale of six MRIdian systems in fiscal year 2017.Service Revenue. Service revenue increased by $0.8 million, or 24.2%, in fiscal year 2018 compared to fiscal year 2017 due to increased billings toexisting customers, as well as the growth in our installed base.Distribution Rights Revenue. After receipt of Japanese regulatory approval in August 2016, we started recognizing the distribution rights revenueratably over the remaining term of the distribution agreement with Itochu. Distribution rights revenue remained flat in fiscal year 2018 compared to fiscalyear 2017 due to the ratable recognition of revenue over the term of the agreement.Cost of Revenue Year Ended December 31, 2018 2017 Change ($) Change (%) (in thousands) Product $66,522 $25,488 $41,034 161.0%Service 7,837 2,222 5,615 252.7%Total cost of revenue $74,359 $27,710 $46,649 168.3%Product Cost of Revenue. Product cost of revenue increased by $41.0 million, or 161.0%, in fiscal year 2018 compared to fiscal year 2017. Theincrease was primarily due to costs of two systems upgrades and 13 MRIdian systems sold in fiscal year 2018 compared to costs of six MRIdian systems soldin fiscal year 2017.Service Cost of Revenue. Service cost of revenue increased by $5.6 million, or 252.7%, in fiscal year 2018 compared to fiscal year 2017. The increasein service cost of revenue was primarily due to the larger installed base in fiscal year 2018 and service personnel being fully utilized for service purposes inthe second half of the year. Historically, we allocated a percentage of total service personnel expense to service cost of revenue based on the time servicepersonnel spent on servicing installed units. Unallocated service personnel expense was included in general and administrative expenses. Over time, theallocation percentage has consistently increased as a result of our growing installed base and related utilization of service personnel. Starting in the thirdquarter of 2018, all service personnel expense is allocated to service cost of revenue. Operating Expenses Year Ended December 31, 2018 2017 Change ($) Change (%) (in thousands) Research and development $16,520 $14,709 $1,811 12.3%Selling and marketing 15,062 8,412 6,650 79.1%General and administrative 50,113 31,375 18,738 59.7%Total operating expenses $81,695 $54,496 27,199 49.9%Research and Development. Research and development expenses increased by $1.8 million, or 12.3%, in fiscal year 2018 compared to fiscal year2017. This increase was primarily attributable to a $2.4 million increase in personnel expense and a $0.9 million increase in facility expense due to higheraverage headcount. In addition, travel and office expense also increased by $0.5 million. The increase was partially offset by a decrease of $2.1 million inoutside services and product development cost due to decreased usage of consultants and contractors.Selling and Marketing. Selling and marketing expenses increased by $6.7 million, or 79.1%, in fiscal year 2018 compared to fiscal year 2017. Thisincrease was primarily attributable to a $5.2 million increase in personnel expense due to higher average headcount in fiscal 2018, $0.6 million increase intravel expense, $0.5 million increase in outside services and $0.2 million increase in marketing expense.73 General and Administrative. General and administrative expenses increased by $18.7 million, or 59.7%, in fiscal year 2018 compared to fiscal year2017. This increase was primarily attributable to a $10.4 million increase in personnel expense due to higher average headcount, a $5.0 million of severanceexpense associated with certain terminated executives and $1.2 million of increased depreciation expense. The remaining increase was attributable to anincrease in legal expense and office expense.Interest Expense Year Ended December 31, 2018 2017 Change ($) Change (%) (in thousands) Interest expense $(7,701) $(7,247) $(454) 6.3% Interest expense increased by $0.5 million in fiscal year 2018 compared to fiscal year 2017, mainly due to the increase in the loan balance under the effectiveinterest rate method, including deferred payment in-kind interest to our CRG Term Loan, although the nominal loan balance remained the same during bothperiods. Other Income (Expense), Net Year Ended December 31, 2018 2017 Change ($) Change (%) (in thousands) Other income (expense), net $6,389 $(16,770) $23,159 -138.1% Other income (expense), net for fiscal year 2018 consisted primarily of a $9.4 million gain attributable to the change in fair value of warrant liability relatedto the 2017 and 2016 Placement Warrants and a $2.4 million loss on the CRG Term Loan extinguishment. Other income (expense), net for fiscal year 2017consisted primarily of a $16.6 million charge attributable to the change in fair value of warrant liability related to the 2017 and 2016 Placement Warrants.Comparison of the Years Ended December 31, 2017 and 2016Revenue Year Ended December 31, 2017 2016 Change ($) Change (%) (in thousands) Product $30,458 $20,555 $9,903 48.2%Service 3,109 1,504 1,605 106.7%Distribution rights 475 178 297 166.9%Total revenue $34,042 $22,237 11,805 53.1%Total revenue during the year ended December 31, 2017 increased by $11.8 million, or 53.1%, compared to the year ended December 31, 2016. The increasewas primarily due to revenue recognized from six MRIdian Linac systems during the year ended December 31, 2017, compared to revenue recognized fromfour MRIdian with Cobalt-60 units during the year ended December 31, 2016.Product Revenue. Product revenue increased by $9.9 million, or 48.2%, in fiscal year 2017 compared to fiscal year 2016. The increase is primarilydue to revenue recognized from six MRIdian Linac systems in fiscal year 2017 compared to revenue recognized from four MRIdian with Cobalt-60 units infiscal year 2016.Service Revenue. Service revenue increased by $1.6 million, or 106.7%, in fiscal year 2017 compared to fiscal year 2016 due to increased billings toexisting customers, as well as the growth in our installed base.Distribution Rights Revenue. Distribution rights revenue increased by $0.3 million, or 166.9%, in fiscal year 2017 compared to fiscal year2016. After receipt of Japanese regulatory approval in August 2016, we started recognizing the distribution rights revenue on a straight-line basis over theremaining term of the distribution agreement with Itochu. The increase was due to recognition of revenue for twelve months in fiscal year 2017 compared tofour and a half months in fiscal year 2016.74 Cost of Revenue Year Ended December 31, 2017 2016 Change ($) Change (%) (in thousands) Product $25,488 $23,897 $1,591 6.7%Service 2,222 1,969 253 12.8%Total cost of revenue $27,710 $25,866 $1,844 7.1%Product Cost of Revenue. Product cost of revenue increased by $1.6 million, or 6.7%, in fiscal year 2017 compared to fiscal year 2016. The increasewas primarily due to costs of six MRIdian Linac systems sold in fiscal year 2017 compared to costs of four MRIdian with Cobalt-60 units sold in fiscal year2016. The increase was partially offset by the lower cost of MRIdian Linac systems.Service Cost of Revenue. Service cost of revenue increased by $0.3 million, or 12.8%, in fiscal year 2017 compared to fiscal year 2016. The increasein service cost of revenue was primarily due to the larger installed base in fiscal year 2017.Operating Expenses Year Ended December 31, 2017 2016 Change ($) Change (%) (in thousands) Research and development $14,709 $11,442 $3,267 28.6%Selling and marketing 8,412 5,601 2,811 50.2%General and administrative 31,375 23,503 7,872 33.5%Total operating expenses $54,496 $40,546 $13,950 34.4% Research and Development. Research and development expenses increased by $3.3 million, or 28.6%, in fiscal year 2017 compared to fiscal year2016. This increase was primarily attributable to a $1.4 million increase in engineering and research expense and expenses for project supplies, a $1.0 millionincrease in consulting and contract labor expense due to increased usage of consultants and contractors, and a $0.7 million increase in personnel costs due tohigher average headcount.Selling and Marketing. Selling and marketing expenses increased by $2.8 million, or 50.2%, in fiscal year 2017 compared to fiscal year 2016. Thisincrease was primarily attributable to a $1.4 million increase in trade show costs, a $1.1 million increase in personnel expense due to higher averageheadcount in fiscal year 2017, and a $0.2 million increase in travel expense.General and Administrative. General and administrative expenses increased by $7.9 million, or 33.5%, in fiscal year 2017 compared to fiscal year2016. This increase was primarily attributable to a $4.0 million increase in personnel expense due to higher average headcount, a $2.3 million increase inconsulting and contract labor expense, a $0.6 million increase in depreciation expense, and a $0.6 million increase in travel and other general expenses.Interest Expense Year Ended December 31, 2017 2016 Change ($) Change (%) (in thousands) Interest expense $(7,247) $(5,951) $(1,296) 21.8%Interest expense increased by $1.3 million, or 21.8%, in fiscal year 2017, due primarily to the higher outstanding CRG loan balance in fiscal year 2017.75 Other Expense, Net Year Ended December 31, 2017 2016 Change ($) Change (%) (in thousands) Other expense, net $(16,770) $(512) $(16,258) 3175.4%Other expense, net for fiscal year 2017 consisted primarily of a $16.6 million charge attributable to the change in fair value of warrant liability related to the2017 and 2016 Placement Warrants. Other expense, net for fiscal year 2016 consisted primarily of a $0.4 million loss on disposal of fixed assets.Liquidity and Capital ResourcesSince our inception in 2004, we have incurred significant net losses and negative cash flows from operations. During the years ended December 31, 2018,2017 and 2016, we had a net loss of $76.4 million, $72.2 million and $50.6 million, respectively. At December 31, 2018 and 2017, we had an accumulateddeficit of $399.0 and $319.9 million, respectively.At December 31, 2018 and 2017, we had cash and cash equivalents of $167.4 and $57.4 million, respectively. To date, we have financed our operationsprincipally through offerings of our capital stock, issuances of warrants, issuances of convertible promissory notes, use of term loans and receipts of customerdeposits for new orders and payments from customers for systems installed and delivered. We may, from time to time, seek to raise capital through a variety ofsources, including the public equity market, private equity financing, and public or private debt. In January 2017, we issued common stock and warrants topurchase common stock via the 2017 Private Placement for gross proceeds of $26.1 million. In 2017, we also raised aggregate gross proceeds of $40.1 millionthrough our at-the-market offering program under which we sold approximately 6.6 million shares of our common stock at an average sale price of $6.10 pershare. In October 2017, we issued common stock in the October 2017 Direct Registered Offering for gross proceeds of $49.9 million. In March 2018, weissued common stock, Series A convertible preferred stock and warrants to purchase common stock in the March 2018 Direct Registered Offering for grossproceeds of $59.1 million. In May 2018, we raised additional aggregate gross proceeds of $0.3 million through our at-the-market offering program underwhich we sold 33,097 shares of our common stock at an average sale price of $8.41 per share. In August 2018, we raised aggregate gross proceeds of $172.5million via a public offering, in which we sold approximately 18.6 million shares of our common stock at a price of $9.25 per share. In December 2018, weentered into SVB Term Loan for a principal amount of $56.0 million. We used the proceeds from SVB Term Loan and cash on hand to repay in full ourobligations under the outstanding CRG Term Loan. We expect that our existing cash and cash equivalents, together with proceeds from the sales of MRIdiansystems, will enable us to conduct our planned operations for at least the next 12 months.In January 2019, we 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 ourcommon shares pursuant to our at-the-market offering program with FBR. We could potentially use our available financial resources sooner than we currently expect, and we may incur additional indebtedness to meet futureoperating needs. Adequate additional funding may not be available to us on acceptable terms or at all. In addition, although we anticipate being able toobtain additional financing, we may be unable to do so. Our failure to raise capital as and when needed could have significant negative consequences for ourbusiness, financial condition and results of operations. Our future capital requirements and the adequacy of available funds will depend on many factors,including those set forth in the section titled “Risk Factors.”The following table summarizes our cash flows for the periods presented (in thousands): Year Ended December 31, 2018 2017 2016 Cash used in operating activities $(122,194) $(70,053) $(28,156)Cash used in investing activities (3,685) (2,163) (7,043)Cash provided by financing activities 236,712 115,407 28,93076 Operating ActivitiesWe have historically experienced cash outflows as we developed MRIdian with Cobalt-60 and MRIdian Linac and expanded our business. Our primarysource of cash flow from operating activities is cash receipts from customers including sales of MRIdian systems and, to a lesser extent, up-front paymentsfrom customers. Our primary uses of cash from operating activities are amounts due to vendors for purchased components and employee-related expenditures.During fiscal year 2018, cash used in operating activities was $122.2 million, resulting from our net loss of $76.4 million, a $60.5 million net change in ouroperating assets and liabilities and aggregate non-cash charges of $14.7 million. The net change in our operating assets and liabilities was primarily a resultof changes in inventory, accounts receivable, accrued expenses and other long-term liabilities, prepaid expenses and other assets, customer deposits anddeferred revenue, accounts payable and deposits on purchased inventory, which was partially offset by changes in deferred cost of revenue. Inventory anddeposits on purchased inventory increased by $33.3 million, in anticipation of upcoming shipments and installations of MRIdian systems. Accountsreceivable increased by $16.5 million resulting from the timing of collections and increase in sales. The decrease of $9.2 million in accrued expense andother long-term liabilities primarily resulted from the payoff of accrued CRG Term Loan interest. Prepaid expenses and other assets increased $2.3 millionmainly due to prepayments made for insurance premiums and deferred sales commissions. Customer deposits and deferred revenue decreased by $1.8 millionas a result of the recognition of service revenue deferred for units installed prior to fiscal year 2018. Accounts payable decreased by $0.9 million resultingfrom the timing of payment. The net change in our operating assets and liabilities was partially offset by a $3.5 million decrease in deferred cost of revenueprimarily due to the revenue recognized for MRIdian systems for fiscal year 2018, partially offset by the shipment of additional components for MRIdiansystems currently being installed. Non-cash charges included $14.2 million of stock-based compensation expense, $3.6 million of amortization of debtdiscount and interest accrual related to the CRG Term Loan, $3.5 million of depreciation and amortization expense, $2.4 million of loss on debtextinguishment triggered by the payoff of the CRG Term Loan, and $0.3 million of inventory lower of cost and net realizable value adjustment, partiallyoffset by a $9.4 million gain related to the change in fair value of the 2017 and 2016 Placement Warrants.During fiscal year 2017, cash used in operating activities was $70.1 million as a result of our net loss of $72.2 million and a $26.3 million net change in ouroperating assets and liabilities, partially offset by aggregated non-cash charges of $28.4 million. The net change in our operating assets and liabilities wasprimarily a result of an increase in inventory and deposits on purchased inventory, an increase in accounts receivable, an increase in deferred cost of revenueand an increase in prepaid expenses and other assets, partially offset by an increase in customer deposits and deferred revenue, an increase in accountspayable and an increase in accrued expenses and other long-term liabilities. Inventory and deposits on purchased inventory increased by $12.3 million and$4.5 million, respectively, in anticipation of upcoming shipments and installation of MRIdian Linac systems. Deferred cost of revenue increased by $9.8million due to the shipment of additional components for MRIdian Linac systems currently being installed. Prepaid expenses and other assets increased by$2.0 million, primarily attributable to deferred sales commission on new order contracts and prepaid insurance premium. The $16.2 million increase inaccounts receivable resulted primarily from the timing of collection from shipment and installation of four units of MRIdian Linac in the last quarter of fiscalyear 2017. The net change in our operating assets and liabilities was partially offset by an $11.4 million increase in customer deposits and deferred revenuemainly due to installation in progress. The $6.3 million increase in accounts payable resulted from the timing of payment. The $0.8 million increase inaccrued expenses and other long-term liabilities was primarily due to the timing of invoice receipts for services and inventory purchased. Non-cash chargesincluded a $16.6 million change in the fair value of warrant liability related to the 2017 and 2016 Placement Warrants, $3.3 million of amortization of debtdiscount and interest accrual related to the CRG Term Loan, $5.3 million of stock-based compensation expense, $2.2 million of depreciation andamortization expense as well as $0.9 million due to lower of cost and net realizable value inventory adjustments.During fiscal year 2016, cash used in operating activities was $28.2 million primarily as a result of our net loss of $50.6 million, partially offset by a $12.9million net increase in our operating assets and liabilities and aggregate non-cash charges of $9.5 million. The net change in our operating assets andliabilities was primarily the result of an increase in customer deposits, deferred revenue and accrued expenses, and a decrease in deferred cost of revenue anddeposits on purchased inventory components, offset by an increase in accounts receivable, inventory and prepaid expenses and other current assets. The$11.1 million increase in customer deposits and deferred revenue was the result of 13 new order contracts and the receipt of payment from Itochu related tothe distribution agreement during the year ended December 31, 2016. The $4.9 million decrease in deferred cost of revenue and the $1.477 million decrease in deposits on purchased inventory components were due to the recognition of revenue on four MRIdian systems sales during the yearended December 31, 2016. The $2.2 million increase in accrued expenses is attributable to the timing of invoice receipts for services and inventorypurchased, as well as accrued bonuses. The net increase in our operating assets and liabilities was partially offset by a $3.4 million increase in accountsreceivable attributable to our increased sales, a $2.1 million increase in inventories due to upcoming shipments and installations of MRIdian systems, and a$1.7 million increase in prepaid expenses and other current assets due to prepayments made for deferred sales commission on new order contracts. Non-cashcharges primarily included $2.9 million of stock-based compensation, $2.6 million due to amortization of debt discount and interest accrual related to theCRG Term Loan, $1.9 million due to LCNRV adjustments related to the reduction of carrying value of inventory to its net realizable value, and $1.7 milliondepreciation and amortization expense.Investing ActivitiesCash used in investing activities for fiscal year 2018, 2017 and 2016 of $3.7 million, $2.2 million and $7.0 million, respectively, primarily resulted fromcapital expenditures to purchase property and equipment.Financing ActivitiesDuring fiscal year 2018, financing activities provided $236.7 million in cash, consisting of $172.5 million gross proceeds from the August 2018 PublicOffering of Common Stock, $59.1 million gross proceeds from the March 2018 Direct Registered Offering, $56.0 million gross proceeds from the SVB TermLoan, $0.3 million gross proceeds from our at-the-market offering program and $5.3 million proceeds from the exercise of stock options, partially offset byoffering costs of $10.6 million for the August 2018 Public Offering of Common Stock and $0.2 million for the March 2018 Direct Registered Offering, thepayoff of the CRG Term Loan of $45.0 million and $0.2 million in related debt extinguishment fee, and issuance costs of $0.5 million related to the SVBTerm Loan.Cash provided by financing activities for fiscal year 2017 of $115.4 million primarily resulted from $49.9 million gross proceeds from the October 2017Direct Registered Offering, $26.1 million gross proceeds from the 2017 Private Placement, $40.1 million gross proceeds from our at-the-market offeringprogram, $0.7 million from the exercise of stock options, and $0.1 million from the exercise of warrants, partially offset by offering costs of $1.2 million forour at-the-market offering program and offering costs of $0.4 million for our October 2017 Direct Registered Offering, the 2017 Private Placement and the2016 Private PlacementCash provided by financing activities for fiscal year 2016 of $28.9 million primarily resulted from the net proceeds of $15.0 million related to the additionalCRG draw down, net proceeds of $13.4 million related to the 2016 Private Placement and $0.5 million from the exercise of stock options.Contractual ObligationsThe following summarizes our contractual obligations at December 31, 2018, and the effect such obligations are expected to have on our liquidity and cashflow over the next five years (in thousands): Payment due by period Total Less than 1 year 1-3 years 3-5 years More than 5years SVB Term Loan (1) $56,000 $— $20,222 $35,778 $— Interest on SVB Term Loan(1) 13,877 3,312 6,517 4,048 — Operating leases(2) 16,446 2,070 4,777 5,067 4,532 Total $86,323 $5,382 $31,516 $44,893 $4,532 (1)Refer to “Note 5. Debt” (2)Refer to “Note 6. Commitments and Contingencies”Off-Balance Sheet ArrangementsAs of December 31, 2018, we do not have any off-balance sheet arrangements except for our operating leases disclosed in more detail in the section entitled“Notes to Consolidated Financial Statements – Note 6 – Commitments and Contingencies” in the consolidated financial statements included elsewhere inthis Form 10-K. 78 Critical Accounting Policies and EstimatesOur consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States, or U.S. GAAP, whichrequires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptionsare based on historical experience and on various other factors that we believe are reasonable under the circumstances. We evaluate our estimates andassumptions on an ongoing basis.In addition to the accounting policies that are more fully described in the Notes to the Consolidated Financial Statements included in this Annual Report onForm 10-K, we consider the critical accounting policies described below to be affected by critical accounting estimates, and those estimates have the greatestpotential impact on our consolidated financial statements. Such accounting policies require us to use judgments, often as a result of the need to makeestimates and assumptions regarding matters that are inherently uncertain, and actual results could differ from these estimates.Revenue RecognitionOur revenues are derived primarily from the sale of MRIdian systems and related services as well as support and maintenance services on sold systems. Werecognize the revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we expect to beentitled to receive in exchange for those goods or services. For sales of MRIdian systems that we are required to install at the customer site, product revenue isrecognized upon receipt of customer acceptance. For sales of MRIdian systems for which we are notresponsible for installation, product revenue is recognized when the entire system is delivered, which is when the control of the system is transferred to thecustomer. For sales of the related support and maintenance services, a time-elapsed method is used to measure progress toward complete satisfaction ofperformance obligations and service revenue is recognized ratably over the service contract term, which is typically 12 months.We frequently enter into sales arrangements that contain multiple performance obligations including MRIdian system and product support. Judgments as tothe standalone selling price and allocation of consideration from an arrangement to the individual performance obligations, and the appropriate timing ofrevenue recognition are critical with respect to these arrangements. Changes to the performance obligations can impact the arrangement and amountsallocated to each performance obligation could affect the timing and amount of revenue recognition.Stock-Based CompensationStock-based compensation expense is measured and recognized in the consolidated financial statements based on the fair value of the awards granted. Thefair value of each option award is estimated on the grant date using the Black-Scholes option-pricing model. The fair value of restricted stock units, or RSUs,is based on the closing market price of the Company’s common stock on the grant date. Stock-based compensation expense is recognized, net of estimatedforfeitures, over the requisite service periods of the awards, which are generally four years.Our use of the Black-Scholes option-pricing model requires the input of highly subjective assumptions, including the options’ expected term and pricevolatility of the underlying stock. The assumptions used in our option-pricing model represent management’s best estimates. These estimates involveinherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensationexpense could be materially different in the future.Common Stock WarrantsWe issued the 2017 and 2016 Placement Warrants in connection with the 2017 and 2016 Private Placements. The 2017 and 2016 Placement Warrants wereaccounted for as a liability with subsequent changes in fair value recorded in other expenses, net at each reporting date until the warrants are exercised orexpired. Inventory ValuationInventory consists primarily of purchased components for assembling MRIdian systems and other direct costs associated with MRIdian system installation.Inventory is stated at the lower of cost or net realizable value. When the net realizable value of inventory is lower than related costs, we reduce the carryingvalue of inventory for the difference while recording a corresponding charge to cost of product revenues. The assumptions we used in79 estimating the net realizable value of the inventory primarily include the total cost to complete the applicable MRIdian system.Income TaxesWe are subject to income taxes in the United States, and we use estimates in determining our provision for income taxes. We use the asset and liabilitymethod of accounting for income taxes. Under this method, we calculate deferred tax asset or liability account balances at the balance sheet date usingcurrent tax laws and rates in effect for the year in which the differences are expected to affect our taxable income.We estimate actual current tax exposure together with assessing temporary differences resulting from differences in accounting for reporting purposes and taxpurposes for certain items, such as accruals and allowances not currently deductible for tax purposes. These temporary differences result in deferred tax assetsand liabilities, which are included in our consolidated balance sheets. In general, deferred tax assets represent future tax benefits to be received when certainexpenses previously recognized in our consolidated statements of operations and comprehensive loss become deductible expenses under applicable incometax laws or when net operating loss or credit carryforwards are utilized. Accordingly, realization of our deferred tax assets is dependent on future taxableincome against which these deductions, losses and credit carryforwards can be utilized.We assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not likely,establish a valuation allowance. At December 31, 2018, 2017, and 2016, we have a full valuation allowance set up for our net deferred tax assets.Under federal and similar state tax statutes, changes in our ownership, including ownership changes resulting from the Merger, may limit our ability to useour available net operating loss and tax credit carryforwards. The annual limitation, as a result of a change of ownership, may result in the expiration of netoperating losses and credits before utilization. We performed a Section 382 analysis in February of 2018 and two ownership changes were identified, none ofwhich had a corresponding limitation of tax attributes. Future owner or equity shifts could result in limitations on net operating loss and credit carryforwards.JOBS Act Accounting ElectionWe are an “emerging growth company” within the meaning of the JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company cantake advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to privatecompanies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accountingstandards on the relevant dates on which adoption of such standards is required for other public companies that are not emerging growth companies.Recently Issued and Adopted Accounting PronouncementsWe review new accounting standards to determine the expected financial impact, if any, that the adoption of each such standard will have. For the recentlyissued accounting standards that we believe may have an impact on our consolidated financial statements, see the section entitled “Notes to ConsolidatedFinancial Statements – Note 2 – Summary of Significant Accounting Policies” in the consolidated financial statements.Item 7A. Quantitative and Qualitative Disclosures About Market RiskWe are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.80 Item 8. Financial Statements and Supplementary Data VIEWRAY, INC.Index to Financial Statements Page Report of Independent Registered Public Accounting Firm 82 Consolidated Balance Sheets 83 Consolidated Statements of Operations and Comprehensive Loss 84 Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) 85 Consolidated Statements of Cash Flows 86 Notes to Consolidated Financial Statements 87 81 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of ViewRay, Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of ViewRay, Inc. and its subsidiary (the "Company") as of December 31, 2018 and 2017, therelated consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows for eachof the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the "financial statements"). In our opinion, thefinancial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of itsoperations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally acceptedin the United States of America.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financialstatements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations ofthe Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, norwere we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding ofinternal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control overfinancial reporting. Accordingly, we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures inthe financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLPSan Francisco, CaliforniaMarch 15, 2019 We have served as the Company's auditor since 2012.82 VIEWRAY, INC.Consolidated Balance Sheets(In thousands, except share and per share data) December 31, 2018 2017 ASSETS Current assets: Cash and cash equivalents $167,432 $57,389 Accounts receivable 36,867 20,326 Inventory 49,462 19,375 Deposits on purchased inventory 8,142 7,043 Deferred cost of revenue 9,736 13,696 Prepaid expenses and other current assets 6,045 4,862 Total current assets 277,684 122,691 Property and equipment, net 13,958 11,564 Restricted cash 1,933 1,143 Intangible assets, net - 78 Other assets 1,395 235 TOTAL ASSETS $294,970 $135,711 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $10,207 $11,014 Accrued liabilities 9,983 7,207 Customer deposits 19,968 17,820 Deferred revenue, current portion 13,731 20,151 Total current liabilities 53,889 56,192 Deferred revenue, net of current portion 5,744 3,238 Long-term debt 55,364 44,504 Warrant liability 11,844 22,420 Other long-term liabilities 820 7,370 TOTAL LIABILITIES 127,661 133,724 Commitments and contingencies (Note 6) Stockholders’ equity: Convertible preferred stock, par value $0.01 per share; 10,000,000 shares authorized at December 31, 2018 and 2017; no shares issued and outstanding at December 31, 2018 and 2017 — — Common stock, par value of $0.01 per share; 300,000,000 shares authorized at December 31, 2018 and 2017; 96,332,023 and 67,653,974 shares issued and outstanding at December 31, 2018 and 2017 952 666 Additional paid-in capital 565,334 321,174 Accumulated deficit (398,977) (319,853)TOTAL STOCKHOLDERS’ EQUITY 167,309 1,987 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $294,970 $135,711 The accompanying notes are an integral part of these consolidated financial statements.83 VIEWRAY, INC.Consolidated Statements of Operations and Comprehensive Loss(In thousands, except share and per share data) Year Ended December 31, 2018 2017 2016 Revenue: Product $76,626 $30,458 $20,555 Service 3,861 3,109 1,504 Distribution rights 475 475 178 Total revenue 80,962 34,042 22,237 Cost of revenue: Product 66,522 25,488 23,897 Service 7,837 2,222 1,969 Total cost of revenue 74,359 27,710 25,866 Gross margin 6,603 6,332 (3,629)Operating expenses: Research and development 16,520 14,709 11,442 Selling and marketing 15,062 8,412 5,601 General and administrative 50,113 31,375 23,503 Total operating expenses 81,695 54,496 40,546 Loss from operations (75,092) (48,164) (44,175)Interest income 8 5 2 Interest expense (7,701) (7,247) (5,951)Other income (expense), net 6,389 (16,770) (512)Loss before provision for income taxes $(76,396) $(72,176) $(50,636)Provision for income taxes — — — Net loss and comprehensive loss $(76,396) $(72,176) $(50,636)Amortization of beneficial conversion feature related to Series A convertible preferredstock (2,728) — — Net loss attributable to common stockholders, basic and diluted $(79,124) $(72,176) $(50,636)Net loss per share, basic and diluted $(0.98) $(1.23) $(1.26)Weighted-average common shares used to compute net loss per share attributable to common stockholders, basic and diluted 81,123,140 58,457,868 40,068,307 The accompanying notes are an integral part of these consolidated financial statements.84 VIEWRAY, INC.Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)(In thousands, except share data) Convertible Preferred Stock Common Stock Shares Amount AdditionalPaid-inCapital Shares Amount AdditionalPaid-inCapital AccumulatedDeficit TotalStockholders’Equity (Deficit) Balance at January 1, 2016 — $— $— 38,204,960 $372 $189,712 $(197,041) $(6,957)Issuance of common stock from option exercises — — — 773,718 8 531 — 539 Stock-based compensation — — — — — 2,907 — 2,907 Issuance of common stock upon private placement(net of offering cost of $529) — — — 4,602,506 46 10,448 — 10,494 Net loss — — — — — — (50,636) (50,636)Balance at December 31, 2016 — $— $— 43,581,184 $426 $203,598 $(247,677) $(43,653)Issuance of common stock from option exercises 420,377 4 661 — 665 Issuance of common stock from releases of restrictedstock units — — — 57,626 — — — — Stock-based compensation — — — — — 5,319 — 5,319 Issuance of common stock upon private placement(net of offering cost of $111) — — — 8,602,589 86 22,530 — 22,616 Issuance of common stock upon direct registeredoffering (net of offering cost of $81) — — — 8,382,643 84 49,776 — 49,860 Issuance of common stock from at-the-market offering(net of offering cost of 1,147) — — — 6,575,062 66 38,913 — 38,979 Issuance of common stock from warrant exercises — — — 34,493 — 103 — 103 Reclassification of warrant liability to additional paid-in capital upon warrant exercises — — — — — 274 — 274 Net loss — — — — — — (72,176) (72,176)Balance at December 31, 2017 — $— $— 67,653,974 $666 $321,174 $(319,853) $1,987 Issuance of common stock from option exercises — — — 2,608,812 26 5,259 — 5,285 Issuance of common stock from releases of restrictedstock units — — — 59,437 — — — — Stock-based compensation — — — — — 14,169 — 14,169 Issuance of common stock upon direct registeredoffering (net of offering cost of $177) — — — 4,090,000 41 30,052 — 30,093 Issuance of preferred Series A stock upon directregistered offering 3,000,581 30 22,177 — — 2,728 (2,728) — Issuance of common stock warrants in connectionwith direct registered offering — — — — — 6,623 — 6,623 Conversion of Series A preferred stock into commonstock (3,000,581) (30) (22,177) 3,000,581 30 22,177 — 22,207 Issuance of common stock upon public offering (netof offering cost of $10,631) — — — 18,648,649 187 161,682 — 161,869 Issuance of common stock from at-the-market offering(net of offering cost of $6) — — — 33,097 — 272 — 272 Issuance of common stock from warrant exercises — — — 237,473 2 1 — 3 Reclassification of warrant liability to additional paid-in capital upon warrant exercises — — — — — 1,197 — 1,197 Net loss — — — — — — (76,396) (76,396)Balance at December 31, 2018 — $— $— 96,332,023 $952 $565,334 $(398,977) $167,309 The accompanying notes are an integral part of these consolidated financial statements.85 VIEWRAY, INC.Consolidated Statements of Cash Flows(In thousands) Year Ended December 31, 2018 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(76,396) $(72,176) $(50,636)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 3,499 2,197 1,708 Stock-based compensation 14,169 5,319 2,907 Accretion on asset retirement obligation 33 40 36 Change in fair value of warrant liability (9,379) 16,598 (3)Loss on disposal of property and equipment 3 9 358 Inventory lower of cost and net realizable value adjustment 340 911 1,939 Amortization of debt discount and interest accrual 3,628 3,321 2,629 Loss on debt extinguishment 2,416 — — Changes in operating assets and liabilities: Accounts receivable (16,541) (16,126) (3,370)Inventory (32,214) (12,329) (2,065)Deposits on purchased inventory (1,099) (4,521) 1,414 Deferred cost of revenue 3,500 (9,787) 4,873 Prepaid expenses and other assets (2,343) (2,044) (1,633)Accounts payable (870) 6,309 381 Accrued expenses and other long-term liabilities (9,174) 850 2,197 Customer deposits and deferred revenue (1,766) 11,376 11,109 Net cash used in operating activities (122,194) (70,053) (28,156)CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (3,685) (2,163) (7,031)Purchase of intangible and other assets — — (12)Net cash used in investing activities (3,685) (2,163) (7,043)CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from draw down of long-term debt, gross 56,000 — 15,000 Payment of debt issuance cost (468) — (18)Payment of long-term debt (45,000) — — Payment on debt extinguishment fee (172) — — Proceeds from common stock public offering, gross 172,500 — — Payment of offering costs related to common stock public offering (10,631) — — Proceeds from direct registered offering, gross 59,100 49,941 — Payment of offering costs related to direct registered offering (177) (81) — Proceeds from common stock private placement, gross — 26,100 13,750 Payment of offering costs related to common stock private placement — (300) (341)Proceeds from at-the-market offering of common stock, gross 278 40,126 — Payment of offering costs related to at-the-market offering of common stock (6) (1,147) — Proceeds from the exercise of stock options 5,285 665 539 Proceeds from the exercise of warrants 3 103 — Net cash provided by financing activities 236,712 115,407 28,930 NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 110,833 43,191 (6,269)CASH, CASH EQUIVALENTS AND RESTRICTED CASH — BEGINNING OF PERIOD 58,532 15,341 21,610 CASH, CASH EQUIVALENTS AND RESTRICTED CASH — END OF PERIOD $169,365 $58,532 $15,341 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $11,161 $3,925 $3,310 Cash paid for taxes $— $1 $— SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES: Fair value of common stock warrants reclassed from liability to additional paid-in capital upon exercise $1,197 $274 $— Transfer of property and equipment from inventory $2,247 $125 $117 Purchase of property and equipment in accounts payable and accrued expenses $157 $96 $193 Offering costs included in accounts payable and accrued expenses $168 $— $189 The accompanying notes are an integral part of these consolidated financial statements.86 VIEWRAY, INC.Notes to Consolidated Financial Statements 1.Background and OrganizationViewRay, Inc., or ViewRay or the Company, and its wholly-owned subsidiary ViewRay Technologies, Inc., designs, manufactures and markets MRIdian, anMR 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 marketingactivities, raising capital and the manufacturing, shipment and installation of MRIdian systems. In May 2012, ViewRay Technologies, Inc. was grantedclearance from the FDA, to sell MRIdian with Cobalt-60. In November 2013, ViewRay Technologies, Inc. received its first clinical acceptance of a MRIdianwith 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 theCE mark to MRIdian with Cobalt-60 in the European Economic Area since November 2014. In September 2016, the Company received the rights to affix theCE mark to MRIdian Linac, and in February 2017, the Company received 510(k) clearance from the FDA to market MRIdian Linac.The Company’s consolidated financial statements have been prepared on the basis of the Company continuing as a going concern for a reasonable period oftime. The Company’s principal sources of liquidity are cash flows from public and private shares offerings and available borrowings under its term loanagreement, as well as cash receipts from its sales of MRIdian systems. These have historically been sufficient to meet working capital needs, capitalexpenditures, and debt service obligations. During the year ended December 31, 2018, the Company incurred a net loss from operations of $76.4 million andused cash in operations of $122.2 million. The Company believes that its existing cash balance of $167.4 million as of December 31, 2018, together withanticipated cash proceeds from sales of MRIdian systems will be sufficient to provide liquidity to fund its operations for at least the next 12 months. 2.Summary of Significant Accounting PoliciesBasis of PresentationThe consolidated financial statements have been prepared in conformity with U.S. GAAP, and pursuant to the rules and regulations of the Securities andExchanges Commission, or SEC. The consolidated financial statements include the accounts of ViewRay, Inc. and its wholly-owned subsidiary, ViewRayTechnologies, Inc. All inter-company accounts and transactions have been eliminated in consolidation.Effective January 1, 2018, the Company adopted Accounting Standards Codification Topic 606, or ASC 606, Revenues from Contracts with Customers, byusing the full retrospective method. The adoption of ASC 606 has no impact on the Company’s prior period financial statements. Please see the Company’s“Revenue Recognition” policy section below for further information and related disclosures.Use of EstimatesThe preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affectthe amounts reported and disclosed in the consolidated financial statements and accompanying notes. Such estimates include, but are not limited to,allocation of revenue to multiple performance obligations within an arrangement, inventory write-downs to reflect net realizable value, assumptions used inthe valuation of stock-based awards and warrant liability, and valuation allowances against deferred tax assets. Actual results could differ from theseestimates.Cash and Cash EquivalentsThe Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Companydeposits its cash primarily in checking and money market accounts.87 Restricted CashAt December 31, 2018 and 2017, the Company had an aggregate of $0.9 million of outstanding letters of credit related to its operating leases and itscontractual obligations with distributors and customers. The letters of credit are collateralized by a restricted cash deposit account, which is presented as partof noncurrent assets on the balance sheets because the Company is not certain when the restriction will be lifted on the collateralized letters of credit. AtDecember 31, 2018, and 2017, no amounts were drawn on the letters of credit.The restricted cash balance as of December 31, 2018 and 2017 also includes collateral of $1.0 million and $0.2 million, respectively, for credit card accounts.Concentration of Credit Risk, Other Risks and UncertaintiesFinancial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accountsreceivable. Cash and cash equivalents are deposited in checking and money market accounts with various financial institutions. At times, cash balances maybe in excess of the amounts insured by the Federal Deposit Insurance Corporation. Management believes the financial risk associated with these balances isminimal and has not experienced any losses to date. The Company performs periodic credit evaluations of its customers’ financial condition and generallyrequires deposits from its customers. The Company’s accounts receivable were derived from billings to customers. The Company’s customers representinggreater than 10% of accounts receivable or revenue for the periods presented were as follows: Revenue Accounts Receivables Year Ended December 31, December 31, Customers 2018 2017 2016 2018 2017 Customer A 23% Customer B 22% Customer C 19% Customer D 23% 16% Customer E 15% Customer F 16% 24% Customer G 25% Customer H 17% Customer I 17% Customer J 16% Customer K 14% 16% Customer L 10% Customer M 36% Customer N 47% The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results andcause actual results to vary materially from expectations include, but are not limited to, rapid technological change, continued acceptance of MRIdian,competition from substitute products and larger companies, protection of proprietary technology, ability to maintain distributor relationships anddependence on key individuals. Furthermore, new products to be developed by the Company require approval from the FDA or other international regulatoryagencies prior to commercial sales. There can be no assurance that the Company’s future products will receive the necessary clearances.The Company relies on a concentrated number of suppliers to manufacture essentially all of the components used in MRIdian. The Company’s suppliers mayencounter problems during manufacturing due to a variety of reasons, including failure to comply with applicable regulations, including the FDA’s QualitySystem Regulation, equipment malfunction and environmental factors, any of which could delay or impede our ability to meet demand.88 Accounts Receivables and Allowance for Doubtful AccountsAccounts receivable are recorded at the invoiced amount, net of any allowance for doubtful accounts, and do not bear interest. The allowance for doubtfulaccounts, if any, is based on the assessment of the collectability of customer accounts.There was no allowance for doubtful accounts recorded at December 31, 2018 and 2017.Fair Value of Financial InstrumentsFinancial instruments consist of cash and cash equivalents, accounts receivable, restricted cash, prepaid expenses and other current assets, accounts payable,accrued liabilities, warrant liability and long-term debt. Cash equivalents are stated at amortized cost, which approximates fair value at the balance sheetdates, due to the short period of time to maturity. Accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities arestated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date. The warrant liability is carried atfair value. The carrying amount of the Company’s long-term debt approximates its fair value as the stated interest rate approximates market rates currentlyavailable to the Company.Inventory and Deposits on Purchased InventoryInventory consists of purchased components for assembling MRIdian systems and other direct and indirect costs associated with MRIdian systeminstallation. Inventory is stated at the lower of cost or net realizable value. All inventories expected to be placed in service during the normal operating cycleof the Company for the delivery and assembly of MRIdian systems, including items expected to be on hand for more than one year, are classified as currentassets.The Company reduces the carrying value of its inventory for the difference between cost and net realizable value and records a charge to cost of productrevenues. The Company recorded an inventory lower of cost and net realizable value adjustment of $0.3 million, $0.9 million and $1.9 million during theyears ended December 31, 2018, 2017 and 2016, respectively.The Company records inventory items which have been paid for but not yet received and for which title has not yet transferred to the Company as deposits onpurchased inventory. Deposits on purchased inventory are included within current assets as the related inventory items are expected to be received and usedin MRIdian systems within the Company’s normal operating cycle. The Company assesses the recoverability of deposits on purchased inventory based oncredit assessments of the vendors and their history supplying these assets. At December 31, 2018, the Company did not have any instances whereby depositsfor purchased inventory were written off or the purchased inventory was not delivered.Shipping and Handling CostsShipping and handling costs for product shipments to customers are included in cost of product revenue. Shipping and handling costs incurred for inventorypurchases are capitalized in inventory and expensed in cost of product revenue.Property and EquipmentProperty and equipment are recorded at cost. Depreciation is computed over the estimated useful lives, ranging from two to 15 years, of the related assetsusing the straight-line method. Acquired software is recorded at cost. Amortization of acquired software generally occurs over three years using the straight-line method. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life or term of the lease. Demonstration units, whichare the Company products used for demonstration purpose for customers and/or potential customers, and generally not intended to be sold, are amortizedusing the straight-line method.89 Depreciation and amortization periods for property and equipment are as follows:Property and Equipment Estimated Useful LifePrototype 2 yearsMachinery and equipment 3 – 15 yearsFurniture and fixture 5 – 10 yearsSoftware 3 yearsLeasehold improvements Lesser of estimated useful life or remaining lease termAsset Retirement ObligationIn connection with a lease agreement entered into in October 2015, the Company has a legal obligation to remove long-lived assets constructed on the leasedproperty and to restore the leased property to its original condition. The Company records the fair value of the asset retirement obligation in the period inwhich it is incurred. The fair value is measured based upon the present value of the expected future payments at inception and remeasured upon the extensionof the lease agreement. The liability is accreted to its present value each period and the capitalized cost is depreciated over the remaining leaseterm. Accretion expense is calculated by applying the effective interest rate to the carrying amount of the liability at the beginning of each period. Theeffective interest rate is the credit-adjusted risk-free rate applied when the liability was initially measured at inception and remeasured upon the leaseextension. At December 31, 2018, the Company had outstanding asset retirement obligations of $192,000, which was included in other long-term liabilities in theaccompanying consolidated balance sheets. For the years ended December 31, 2018, 2017 and 2016, the Company recognized accretion expenses of$33,000, $40,000 and $36,000 in the accompanying statements of operations and comprehensive loss. Impairment of Long-Lived AssetsThe Company reviews the recoverability of long-lived assets, including equipment, leasehold improvements, software and intangible assets when events orchanges in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based onthe ability to recover the carrying value of the assets from the expected future cash flows (undiscounted and without interest charge) of the related operations.If these cash flows are less than the carrying value of such assets, an impairment loss for the difference between the estimated fair value and carrying value isrecorded. There was no impairment loss recognized during the years ended December 31, 2018, 2017 and 2016.Revenue RecognitionThe Company derives revenues primarily from the sale of MRIdian systems and related services as well as support and maintenance services on sold systems.The Company accounts for revenue contracts with customers by applying the requirements of ASC 606, which includes the following steps:• Identification of the contract, or contracts, with a customer;• Identification of the performance obligations in the contract• Determination of the transaction price;• Allocation of the transaction price to the performance obligations in the contract; and• Recognition of revenue when, or as, the Company satisfies a performance obligation.In all sales arrangements, revenues are recognized when control of the promised goods or services are transferred to customers, in an amount that reflects theconsideration the Company expects to be entitled to receive in exchange for those goods or services. For sales of MRIdian systems that the Company isrequired to install at the customer site, product revenue is recognized upon receipt of customer acceptance. For sales of MRIdian systems for which theCompany is not responsible for installation; product revenue is recognized when the entire system is delivered and control of the system is transferred to thecustomer. For sales of the related support and maintenance services, a time-elapsed method is used to measure progress toward complete satisfaction ofperformance obligations and service revenue is recognized ratably over the service contract term, which is typically 12 months.Arrangements with Multiple Performance ObligationThe 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 and90 embedded software, and (ii) product support, which includes extended service and maintenance. For such arrangements, the Company allocates revenue toeach performance obligation based on its relative standalone selling price. The standalone selling price, or SSP, is determined based on observable prices atwhich the Company separately sells the products and services. If an SSP is not directly observable, the Company will estimate the SSP considering marketconditions or internally approved pricing guidelines related to the performance obligations.Product RevenueProduct revenue is derived primarily from the sales of MRIdian system. The system contains both software and non-software components that together deliveressential functionality.The Company’s customer contracts generally call for on-site assembly of the system components and system integration. Once the system installation iscompleted, the Company performs a detailed demonstration with the customer showing that the MRIdian system meets the standard product specifications.After successful demonstration, the customer signs a document indicating customer’s acceptance. For sales of MRIdian systems that the Company is requiredto install at the customer site, revenue recognition occurs when the customer acknowledges that the system operates in accordance with standard productspecifications, the customer accepts the installed unit by signing the acceptance document and the control of the system is transferred to the customer.Certain customer contracts with distributors do not require ViewRay installation at the ultimate user site, and the distributors typically perform theinstallation. For sales of MRIdian systems for which the Company is not responsible for installation, revenue recognition occurs when the entire system isdelivered, which is when the control of the system is transferred to the customer.Service RevenueService revenue is derived primarily from maintenance services. The maintenance and support service is a stand-ready obligation which is performed over theterm of the arrangement and, as a result, service revenue is recognized ratably over the service period as the customers benefit from the service throughout theservice period.Distribution Rights RevenueIn December 2014, the Company entered into a distribution agreement with Itochu Corporation pursuant to which it appointed Itochu as its exclusivedistributor for the promotion, sale and delivery of MRIdian products within Japan. In consideration of the exclusive distribution rights granted, the Companyreceived $4.0 million, which was recorded as deferred revenue. Starting in August 2016, distribution rights revenue is recognized ratably over theremaining term of the distribution agreement of approximately 8.5 years. A time-elapsed method is used to measure progress because the control is transferredevenly over the remaining contractual period.The following table presents revenue disaggregated by type and geography (in thousands): Years Ended December 31, U.S. 2018 2017 2016 Product $32,265 $9,529 $— Service 1,966 1,977 1,066 Distribution rights — — 40 Total U.S. revenue $34,231 $11,506 $1,106 Outside of U.S. ("OUS") Product $44,361 $20,929 $20,555 Service 1,895 1,132 438 Distribution rights 475 475 138 Total OUS revenue $46,731 $22,536 $21,131 Total Product $76,626 $30,458 $20,555 Service 3,861 3,109 1,504 Distribution rights 475 475 178 Total revenue $80,962 $34,042 $22,23791 Contract BalancesThe timing of revenue recognition, billings and cash collections results in short-term and long-term trade receivables, customer deposits, deferred revenuesand deferred cost of revenue on the consolidated balance sheets.Trade receivables are recorded at the original invoiced amount, net of an estimated allowance for doubtful accounts. Trade credit is generally extended on ashort-term basis. The Company occasionally provides for long-term trade credit for its maintenance services so that the period between when the services arerendered 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 orcontain a significant financing component. Long-term trade receivables of $0.4 million were reported within other assets in the consolidated balance sheetsat December 31, 2018. These amounts are billed in accordance with the terms of the customer contracts to which they relate and are expected to be collectedthree to four 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 accountsreceivable on the consolidated balance sheets. The Company had no long-term trade receivables at December 31, 2017.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. Tradereceivables that are deemed uncollectible are offset against the allowance for doubtful accounts. The Company generally does not require collateral for tradereceivables. There was no allowance for doubtful accounts recorded at December 31, 2018 and 2017.Customer deposits represent payments received in advance of system installation. For domestic and international sales, advance payments received prior toinventory shipments and customer acceptance are recorded as customer deposits. Advance payments are subsequently reclassified to deferred revenue uponinventory shipment when the title and risk of loss of inventory items transfer to customers. All customer deposits, including those that are expected to be adeposit for more than one year, are classified as current liabilities based on consideration of the Company’s normal operating cycle (the time betweenacquisition 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 thefulfillment of contract obligations and satisfaction of all revenue recognition criteria consistent with the Company’s revenue recognition policy. Deferredservice revenue results from the advance billing for services to be delivered over a period of time. Deferred revenues expected to be realized within one yearor the Company’s normal operating cycle are classified as current liabilities.Deferred cost of revenue consists of cost for inventory items that have been shipped with title and risk of loss transferred to the customer, but the customeracceptance has not yet been received. Deferred cost of revenue is included as part of current assets as the corresponding deferred product revenue is expectedto be realized within one year or the Company’s normal operating cycle.During the years ended December 31, 2018, 2017 and 2016, the Company recognized $19.9 million, $6.6 million and $0.6 million, respectively, in revenuethat was included in the deferred revenue balance at the beginning of each reporting period.Variable ConsiderationThe Company records revenue from customers in an amount that reflects the transaction price it expects to be entitled to after transferring control of thosegoods or services. The Company estimates the transaction price at contract inception, including any variable consideration, and updates the estimate eachreporting period for any changes. During the year ended December 31, 2018, one of the contracts contained variable consideration, which is attributed to anasserted penalty that the Company is disputing related to a system installation for one customer. The Company estimated the variable consideration based onthe best information available to management and applied the most likely amount method to estimate the transaction price. The transaction price, whichincludes variable consideration reflecting the impact of the asserted penalty dispute, may be subject to constraint and is included in the net revenues only tothe extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period when theuncertainty is subsequently resolved. The net transaction price after reducing the variable consideration was then proportionally allocated to all the distinctperformance obligations92 in the transaction. The Company will update the estimate of the variable consideration at each reporting period until the uncertainty is resolved.Practical Expedients ElectionAs part of the Company's adoption of ASC 606, the Company elected to use the practical expedient to expense costs to obtain a contract as incurred when theamortization period would have been one year or less. Such costs include the Company's internal sales force compensation program.Research and Development CostsExpenditures, including payroll, contractor expenses and supplies, for research and development of products and manufacturing processes are expensed asincurred.Software development costs incurred subsequent to establishing technological feasibility are capitalized through the general release of MRIdian systems thatcontain the embedded software elements. Technological feasibility is demonstrated by the completion of a working model. The Company has not capitalizedany software development costs at December 31, 2018 or 2017, since the costs incurred subsequent to achieving technological feasibility and completing theresearch and development for the software components were immaterial.Stock-Based CompensationThe Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options. The Black-Scholes option-pricing model requires theuse of highly subjective assumptions, including the options’ expected term and the price volatility of the underlying stock. The fair value of restricted stockunits, or RSUs, is based on the closing market price of the Company’s common stock on the grant date. The fair value of the portion of the award that isultimately expected to vest is recognized as compensation expense over the awards’ requisite service periods in the consolidated statements of operationsand comprehensive loss. The Company attributes the value of stock-based compensation to expense using the straight-line method.Deferred CommissionsDeferred commissions are the direct and incremental costs directly associated with the MRIdian system contracts with customers, which primarily consist ofsales commissions to our direct sales force. The commissions are deferred and expensed in proportion to the revenue recognized upon the acceptance of theMRIdian system. At December 31, 2018 and 2017, the Company had $3.9 million and $3.5 million deferred commissions recorded as part of prepaidexpenses and other current assets on the consolidated balance sheets.Income TaxesThe Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future taxconsequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differencesare expected to be recovered or settled. Deferred tax expense or benefit is the result of changes in the deferred tax assets and liabilities. Valuation allowancesare established when necessary to reduce deferred tax assets where, based upon the available evidence, management concludes that it is more-likely-than notthat the deferred tax assets will not be realized. Because of the uncertainty of the realization of the deferred tax assets, the Company has recorded a fullvaluation allowance against its net deferred tax assets.In evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, including itsoperating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In the event the Company was todetermine that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, it would make an adjustment tothe valuation allowance which would reduce the provision for income taxes.Reserves are provided for tax benefits for which realization is uncertain. Such benefits are only recognized when the underlying tax position is consideredmore likely than not to be sustained on examination by a taxing authority, assuming they possess full knowledge of the position and facts. It is theCompany’s policy to include any penalties and interest related to income taxes in its income tax provision; however, the Company currently has no penaltiesor93 interest related to income taxes. The earliest year that the Company is subject to examination is the year ended December 31, 2004.Warrant LiabilityCertain warrants to purchase common stock provide for cash settlement in the event of a change in control, and are recorded as liabilities on the balancesheets at fair value upon issuance (see Note 12). These warrants are subject to re-measurement to fair value at each balance sheet date. Any changes in fairvalue are recognized in the consolidated statements of operations and comprehensive loss as other expense, net. Upon exercise or expiration of the warrants,the related warrant liability will be reclassified to additional paid-in capital.Net Loss per ShareThe Company’s basic net loss per share is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding for theperiod. Contingently issuable shares are included in the computation of basic net loss per share as of the date that all necessary conditions have been satisfiedand issuance of the shares is no longer contingent. The diluted net loss per share is computed by giving effect to all potential common stock equivalentsoutstanding for the period determined using the treasury stock method. For purposes of this calculation, stock options, restricted stock units and warrants topurchase common stock are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share as theireffect is anti-dilutive.Recent Accounting PronouncementsIn February 2016, the FASB issued Accounting Standards Update, or ASU, No. 2016-02, Leases and issued subsequent amendments to the initial guidance inSeptember 2017 within ASU 2017-13, in January 2018 within ASU 2018-01 and in July 2018 within ASU 2018-11 (collectively, Topic 842). Topic 842supersedes Topic 840, Leases, and requires lessees to recognize on their balance sheets all leases, with the exception of short-term leases, as a right-of-useasset and a corresponding lease liability measured at the present value of the lease payments. The new standard also requires expanded disclosures regardingleasing arrangements. Topic 842 is effective for fiscal years beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. TheCompany is substantially complete with its evaluation of the effect that the adoption of Topic 842 will have on its consolidated financial statements. Uponadoption on January 1, 2019, the Company expects to recognize the right-of-use assets and lease liabilities totaling approximately $11.9 million and $12.6million, respectively, to reflect the present value of remaining lease payments under existing lease arrangements. The difference between the leased assets andlease liabilities represents the existing deferred rent liabilities balance, resulting from historical straight-lining of operating leases, which will be effectivelyreclassified upon adoption to reduce the measurement of the leased assets. While the recognition of such assets and liabilities will impact the consolidatedbalance sheets, the Company does not expect a material impact on its consolidated statements of operations and comprehensive loss or cash flows. TheCompany will apply the modified retrospective transition approach and recognize a cumulative effect adjustment to the opening balance of retained earningson the effective date and will not recast prior periods. As permitted by the standard, the Company will elect the transition practical expedient package, whichamong other things, allows the carryforward of historical lease classifications.In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based PaymentAccounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU2018-07 is effective for fiscal years beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. The Company does notexpect the adoption will have a material impact on its consolidated financial statements and related disclosures.In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure Requirementsfor Fair Value Measurement, to modify the disclosure requirements on fair value measurements in Topic 820. ASU 2018-13 is effective for fiscal yearsbeginning after December 15, 2019, and interim periods therein. The Company is allowed to early adopt either the entire standard or only the provisions thateliminate or modify the requirements of Topic 820. The Company is evaluating the impact of this update on its consolidated financial statements.94 Recently Adopted Accounting PronouncementsIn May 2014, the FASB issued ASC 606. Under the standard, revenue is recognized when a customer obtains control of promised goods or services in anamount that reflects the consideration the entity expects to receive in exchange for those goods or services. Effective January 1, 2018, the Company adoptedthe requirements of ASC 606 using the full retrospective method. The adoption had no impact on the prior period financial statements, and the relateddisclosures required by the new standard have been updated in the “Significant Accounting Policies” section above.On January 1, 2018, the Company adopted ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and CashPayments and ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash on a retrospective basis. The adoption of ASU 2016-15 did not havea material impact on the Company’s consolidated statements of cash flows and related disclosures. Under ASU 2016-18, restricted cash and restricted cashequivalent amounts are presented along with cash and cash equivalents when reconciling the total beginning and ending amounts shown on the statementsof cash flows. The Company reflected the impact of ASU 2016-18 to the comparative prior periods which resulted in an increase of $1.1 million in thebeginning and ending cash, cash equivalents and restricted cash balances for the prior periods presented, except for the beginning cash, cash equivalents andrestricted cash for the fiscal year 2016 with an increase of $0.9 million.In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which providesclarified guidance on applying modification accounting to changes in the terms or conditions of a share-based payment award. The Company adopted ASU2017-09 on January 1, 2018, and the adoption did not have a material impact on its consolidated financial statements and related disclosures.In the first quarter of 2018, the Company adopted ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC StaffAccounting Bulletin No. 118, which included amendments to expand income tax accounting and disclosure guidance pursuant to SEC Staff AccountingBulletin No. 118, or SAB 118, issued by the SEC in December 2017. SAB 118 provides guidance on accounting for the income tax effects of the Tax ReformAct. Refer to Note 14, Income Taxes, for more information and disclosures related to this amended guidance.3.Balance Sheet ComponentsProperty and Equipment, NetProperty and equipment consisted of the following (in thousands): December 31, 2018 2017 Prototype $12,425 $11,929 Machine and equipment 12,654 7,831 Leasehold improvements 4,600 4,438 Furniture and fixtures 636 558 Software 1,250 1,142 Construction in progress 148 — Property and equipment, gross 31,713 25,898 Less: accumulated depreciation and amortization (17,755) (14,334)Property and equipment, net $13,958 $11,564Depreciation and amortization expense related to property and equipment was $3.4 million, $2.2 million and $1.6 million during the years ended December31, 2018, 2017 and 2016, respectively.95 Accrued LiabilitiesAccrued liabilities consisted of the following (in thousands): December 31, 2018 2017 Accrued payroll and related benefits $5,047 $3,944 Accrued accounts payable 3,626 2,671 Payroll withholding tax, sales and other tax payable 782 149 Accrued legal and accounting 360 322 Other 168 121 Total accrued liabilities $9,983 $7,207Deferred RevenueDeferred revenue consisted of the following (in thousands): December 31, 2018 2017 Deferred revenue: Product $9,623 $18,861 Services 6,981 1,182 Distribution rights 2,871 3,346 Total deferred revenue 19,475 23,389 Less: current portion of deferred revenue (13,731) (20,151)Noncurrent portion of deferred revenue $5,744 $3,238 Other Long-Term LiabilitiesOther long-term liabilities consisted of the following (in thousands): December 31, 2018 2017 Accrued interest, noncurrent portion $— $6,218 Deferred rent, noncurrent portion 628 167 Other 192 985 Total other-long term liabilities $820 $7,370 4.Fair Value of Financial InstrumentsAssets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with theinputs 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 exitprice) 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 standarddescribes 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—Quoted prices in active markets for identical assets or liabilities.Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quotedprices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the fullterm of the assets or liabilities.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.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 fairvalue measurement.96 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 liquidbank deposits and money market funds, which were not material at December 31, 2018 and 2017. Level 3 liabilities that are measured on a recurring basisrelate to the 2017 and 2016 Placement Warrants, as described in Note 12. Placement warrant liabilities are valued using the Black-Scholes option-pricingmodel. Generally, increases (decreases) in the fair value of the underlying stock, estimated term and volatility would result in a directionally similar impact tothe fair value of the warrant (see Note 12). During the year ended December 31, 2018 and 2017, warrants to purchase 385,627 shares and 34,493 shares ofcommon stock were exercised and the aggregate fair value upon exercise of $1.2 million and $0.3 million, respectively, was reclassified from liabilities toadditional paid-in-capital. There were no warrants exercised during the year ended December 31, 2016.The gains and losses from re-measurement of Level 3 financial liabilities are recorded as part of other income (expense), net in the consolidated statements ofoperations and comprehensive loss. During the year ended December 31, 2018 and 2017, the Company recorded a gain of $9.4 million and a loss of $16.6million, respectively, related to the change in fair value of the 2017 and 2016 Placement Warrants. There have been no transfers between Level 1, Level 2 andLevel 3 in any periods presented.The following table sets forth the fair value of the Company’s financial liabilities by level within the fair value hierarchy (in thousands): At December 31, 2018 Level 1 Level 2 Level 3 Total 2017 Placement Warrants Liability $— $— $7,115 $7,115 2016 Placement Warrants Liability $— $— $4,729 $4,729 Total Warrant Liability $— $— $11,844 $11,844 At December 31, 2017 Level 1 Level 2 Level 3 Total 2017 Placement Warrants Liability $— $— $12,487 $12,487 2016 Placement Warrants Liability $— $— $9,933 $9,933 Total Warrant Liability $— $— $22,420 $22,420 The following table summarizes the changes in the fair value of the Company’s Level 3 financial liabilities (in thousands): Year Ended December 31, 2018 2017 2016 Fair value, beginning of period $22,420 $2,723 $— Issuance of 2016 Placement Warrants — — 2,726 Issuance of 2017 Placement Warrants — 3,373 — Change in fair value of Level 3 financial liabilities (9,379) 16,598 (3)Fair value of 2016 Placement Warrants at exercise (1,187) (200) — Fair value of 2017 Placement Warrants at exercise (10) (74) — Fair value, end of period $11,844 $22,420 $2,7235.DebtCRG Term LoanIn June 2015, ViewRay Technologies, Inc. entered into a term loan agreement, or the CRG Term Loan, with Capital Royalty Partners II L.P., Capital RoyaltyPartners II – Parallel Fund “A” L.P., Capital Royalty Partners II (Cayman) L.P. and Parallel Investment Opportunities Partners II L.P. or together with theirsuccessors by assignment, CRG, for up to $50.0 million of which $30.0 million was made available to the Company upon closing with the remaining $20.0million to be available on or before June 30, 2016 upon the achievement of certain milestones. The Company drew down the first $30.0 million on theclosing date. The CRG Term Loan had a maturity date of June 30, 202097 and bears cash interest at a rate of 12.5% per annum to be paid quarterly during the interest-payment-only period of three years. In April 2017, the CRG TermLoan was amended to allow for interest-payment-only until March 31, 2020. During the interest-payment-only period, the Company had the option to electto pay only 8% of the 12.5% per annum interest in cash, and the remaining 4.5% of the 12.5% per annum interest as compounded interest, or deferredpayment in-kind interest, added to the aggregate principal amount of the CRG Term Loan. Principal payment and any deferred payment in-kind interestwould be paid on maturity date.The CRG Term Loan was subject to a prepayment penalty of: 3% on the outstanding balance during the first 12 months following the funding of the TermLoan; 2% on the outstanding balance after year 1 but on or before year 2; 1% on the outstanding balance after year 2 but on or before year 3; and 0% on theoutstanding loan if prepaid after year 3 thereafter until maturity. The CRG Term Loan was also subject to a facility fee of 7% based on the total outstandingprincipal and payment in-kind interest, which was payable on the maturity date. All direct financing costs were accounted for as a discount on the CRG TermLoan and were amortized to interest expense during the term of the loan using the effective interest method. The CRG Term Loan was subject to financialcovenants and was collateralized by essentially all assets of the Company and limits the Company’s ability with respect to additional indebtedness,investments or dividends, among other things, subject to customary exceptions.In March 2016, the Company amended the agreement with regard to the conditions for borrowing the remaining $20.0 million under the CRG Term Loan ifcertain product and service revenue amounts were achieved. In May 2016, the Company drew down an additional $15.0 million under the CRG Term Loan.In April and October 2017, and in February 2018, the Company executed three amendments, which allowed the Company to borrow the remaining $5.0million through June 30, 2017, included an additional $15.0 million borrowing capacity available through December 31, 2017, extended the interest onlyand payment in-kind period, decreased the combined 2016 and 2017 revenue covenant, and increased the facility fee by 1.75%. The Company did not drawdown any amounts under these amendments and they have since expired.In December 2018, the Company paid off its outstanding obligations under the CRG Term Loan using the proceeds from the SVB Term Loan.SVB Term LoanIn December 2018, the Company entered into a term loan agreement, or the SVB Term Loan, with Silicon Valley Bank, for a principal amount of $56.0million. 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 theloan. 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 toapply such later date), the Company will make thirty-six equal monthly payments of principal (or thirty equal payments, if the Company so elects). Inaddition, 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 amountof 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 the then outstanding CRG TermLoan and to pay fees and expenses related thereto. The Company accounted for the termination of the CRG Term Loan as a debt extinguishment andrecorded a debt extinguishment loss of $2.4 million from the difference between the net carrying amount of debt and the amount paid. The debtextinguishment loss includes $0.3 million in write-off 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 debtdiscount and issuance costs and presented as a direct deduction from the carrying amount of debt on the Company’s consolidated balance sheets. Debtdiscount, 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 is secured by substantially all assets of the Company, except that the collateral does not include any intellectual property held by theCompany, provided, however, the collateral shall include all accounts and proceeds of such intellectual property.The SVB Term Loan contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and itssubsidiaries, 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 also contains financial covenants that require the98 Company to maintain a minimum cash balance in accounts maintained at Silicon Valley Bank or one of its affiliates or else comply with a liquidity ratioand/or a minimum revenue target.The SVB Term Loan includes standard events of default, including, among other things, subject in certain cases to customary grace periods, thresholds andnotice requirements, the Company’s failure to fulfill its obligations under the SVB Term Loan or the occurrence of a material adverse change in theCompany's business, operations, or condition (financial or otherwise). In the event of default by the Company under the SVB Term Loan, Silicon ValleyBank would be entitled to exercise its remedies thereunder, including the right to accelerate the debt, upon which the Company may be required to repay allamounts then outstanding under the SVB Loan, which could harm the Company's financial condition.The Company’s scheduled future payments on the SVB Term Loan at December 31, 2018 are as follows (in thousands):Year Ended December 31, 2019 $- 2020 1,555 2021 18,667 2022 18,667 2023 17,111 Total future principal payments 56,000 Less: unamortized debt discount (636)Carrying value of long-term debt 55,364 Less: current portion — Long-term portion $55,364 6.Commitments and ContingenciesOperating LeasesThe Company leases office space in Oakwood Village, Ohio and Mountain View, California under noncancelable operating lease agreements. The Companyleases and occupies approximately 19,800 square feet of office space in Oakwood Village, Ohio, which expires on October 31, 2019, with an option to extendthe term through October 31, 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, which expires on November 30, 2019. In June 2018, the Company entered into an amendment to extend the term of the lease agreement throughJuly 31, 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 on the seventh anniversary of the commencement date, and the Company has the optionto extend the term of the lease for a period of up to five years.At December 31, 2018, the future minimum payments for the operating leases are as follows (in thousands): Year Ended December 31, 2019 $2,070 2020 2,353 2021 2,424 2022 2,496 2023 2,571 Thereafter 4,532 Total future minimum payments $16,446 Rent expense incurred under operating leases was $1.4 million, $1.3 million and $1.3 million in each of the years ended December 31, 2018, 2017 and 2016,respectively.99 Legal ProceedingsIn the normal course of business, the Company may become involved in legal proceedings. The Company will accrue a liability for such matters when it isprobable that a loss has been incurred and the amount can be reasonably estimated. When only a range of possible losses can be established, the mostprobable 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 inthe range is accrued. At December 31, 2018, and 2017, the Company was not involved in any material legal proceedings.Purchase CommitmentsAt December 31, 2018 and 2017, the Company had no outstanding firm purchase commitments.7.Licensing AgreementIn December 2004, ViewRay Technologies, Inc. entered into a licensing agreement with the University of Florida Research Foundation, Inc., 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 aroyalty from sales of products developed and sold by the Company utilizing the licensed patents. ViewRay Technologies, Inc. met all of the productdevelopment and commercialization milestones at December 31, 2013, and started to make quarterly royalty payments in 2014. Royalty payments are basedon 1% of net sales, defined as the amount collected on sales of licensed products and/or licensed processes after deducting trade and/or quantity discounts,credits on returns and allowances, outbound transportation costs paid and sales tax. Minimum quarterly royalty payments of $50 thousand commenced withthe quarter ended March 31, 2014, and are payable in advance. Minimum royalties paid in any calendar year are credited against earned royalties for suchcalendar year. The royalty payments continue until the earlier of (i) the date that no licensed patents remain enforceable or (ii) once the payment of earnedroyalties cease for more than four consecutive calendar quarters. Royalty expenses based on 1% of net sales were $0.6 million, $0.3 million and $0.2 millionduring the years ended December 31, 2018, 2017 and 2016, respectively, and were recorded as product cost of revenue in the consolidated statements ofoperations and comprehensive loss. The minimum royalty payments in excess of 1% of net sales were $30 thousand, $25 thousand and $57 thousand duringthe years ended December 31, 2018, 2017 and 2016, respectively, and were recorded as general and administrative expenses in the consolidated statements ofoperations and comprehensive loss.8.Distribution AgreementIn December 2014, the Company entered into a distribution agreement with Itochu Corporation, or Itochu, a Japanese entity, pursuant to which the Companyappointed Itochu as its exclusive distributor for the sale and delivery of its MRIdian products within Japan. The exclusive distribution agreement has aninitial term of 10 years from December 2014, and contains features customary in such distribution agreements. Under this distribution agreement, theCompany will supply its products and services to Itochu based upon the Company’s then-current pricing. In consideration of the exclusive distributionrights granted, ltochu agreed to pay a distribution fee of $4.0 million in three installments: (i) the first installment of $1.0 million was due upon execution ofthe distribution agreement; (ii) the second installment of $1.0 million was due within 10 business days following submission of the application for regulatoryapproval of the Company’s product to the Japan regulatory authority; and (iii) the final installment of $2.0 million was due within 10 business daysfollowing receipt of approval for the Company’s product from the Japanese Ministry of Health, Labor and Welfare. The first and second installments of$2.0 million in aggregate were received in December 2014 and December 2015, respectively. In August 2016, the Company received the third and final $2.0million installment upon the receipt of regulatory approval to market MRIdian in Japan. The entire $4.0 million distribution fee received was reclassified todeferred revenue as it was no longer refundable. In August 2016, the Company started recognizing distribution rights revenue ratably over the remaining termof the exclusive distribution agreement of approximately 8.5 years. The distribution rights revenue was $0.5 million, $0.5 million and $0.2 million duringthe years ended December 31, 2018, 2017 and 2016, respectively.100 9.Equity FinancingPublic Offering of Common StockOn August 14, 2018, the Company entered into an underwriting agreement with Morgan Stanley & Co. LLC and Jefferies LLC, as representatives of severalunderwriters, or the “Underwriters”, in connection with the issuance and sale of 16,216,217 shares of the Company’s common stock at a public offering priceof $9.25 per share. In addition, the Company granted the Underwriters a 30-day option to purchase up to 2,432,432 additional shares of common stock on thesame terms, which the Underwriters exercised in full. The Company completed the offering on August 17, 2018 and received aggregate net proceeds ofapproximately $161.9 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company.Direct Registered OfferingsIn October 2017, the Company entered into securities purchase agreements pursuant to which it sold 8,382,643 shares of its common stock for total grossproceeds of $49.9 million, or the October 2017 Direct Registered Offering. The October 2017 Direct Registered Offering was closed on October 25, 2017.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 OfferingWarrants, for total gross proceeds of $59.1 million, or the March 2018 Direct Registered Offering. The March 2018 Direct Registered Offering was closed onMarch 5, 2018. The 2018 Offering Warrants have an exercise price of $8.31 per share, became exercisable upon issuance and expire in March 2025. Alloutstanding shares of Series A convertible preferred stock were converted into common stock at a conversion ratio of 1:1 on April 19, 2018 (see Note 11).Private PlacementsIn 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 2016Placement Warrants, and raised total gross proceeds of $13.8 million. The 2016 Placement Warrants have an exercise price of $2.95 per share, are exercisableat 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) 8,602,589shares of its common stock and (ii) warrants that provide the warrant holders the right to purchase 1,720,512 shares of common stock, or the 2017 PlacementWarrants, 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 July2017 and expire in January 2024.At-The-Market Offering of Common StockIn January 2017, the Company filed a shelf registration statement on Form S-3 with the SEC, which included a base prospectus covering the offering,issuance and sale of up to a maximum aggregate offering of $75.0 million of the Company’s common stock, preferred stock, debt securities, warrants,purchase contracts and/or units. In January and April 2017, the Company agreed to sell up to a cumulative $50.0 million of its common stock in accordancewith the terms of a sales agreement with FBR Capital Markets & Co., or FBR, pursuant to an at-the-market offering program in accordance with Rule 415(a)(4) under the Securities Act.Under the at-the-market offering program, the Company sold an aggregate of 33,097 shares of its common stock at an average market price of $8.41 per share,resulting in aggregate gross proceeds of approximately $0.3 million for the year ended December 31, 2018; and sold an aggregate of 6,575,062 shares of itscommon stock at an average market price of $6.10 per share, resulting in aggregate gross proceeds of approximately $40.1 million for the year endedDecember 31, 2017.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 offeringprice 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 theCompany’s common shares pursuant to the Company’s at-the-market offering program with FBR. 101 10.Common Stock Reserved for IssuanceThe common stock reserved for future issuance at December 31, 2018 and 2017 was as follows: December 31, 2018 2017 Shares underlying outstanding stock options 11,603,708 8,592,747 Shares available for future stock option grants 1,908,626 969,783 Shares issuable upon settlement of restricted stock units outstanding 1,857,741 149,636 ESPP shares available for issuance 1,780,020 1,103,481 Warrants to purchase common stock 4,426,244 3,393,755 Total shares of common stock reserved 21,576,339 14,209,402 11.Convertible Preferred StockIn March 2018, the Company issued 3,000,581 shares of Series A convertible preferred stock to an existing investor through the March 2018 DirectRegistered Offering at a price of $8.31 per share (see Note 9). At the date of the financing, because the effective conversion rate of the preferred stock was lessthan the market value of the Company’s common stock, a beneficial conversion feature of $2.7 million was recorded as a discount to the convertible preferredstock and an increase to additional paid in capital. Because the preferred stock was perpetual and convertible at the option of the holder at any time, theCompany fully amortized the discount related to the beneficial conversion feature as a deemed dividend which was recognized as an increase to accumulateddeficit and net loss attributable to common stockholders. Effective on April 19, 2018, all outstanding shares of Series A convertible preferred stock wereconverted into shares of common stock at a conversion ratio of 1:1. Further, in May 2018, the Company filed a Certificate of Elimination of the Series AConvertible Preferred Stock de-authorizing the 3,000,581 shares of Series A convertible preferred stock. The Company had no outstanding preferred stock asof December 31, 2018.12.WarrantsEquity Classified Common Stock WarrantsIn connection with a debt financing in December 2013, the Company issued warrants to purchase 128,231 shares of its common stock with an exercise priceof $5.84 per share. These warrants are exercisable any time at the option of the holder until December 16, 2023. None of these warrants have been exercised todate and they all remained outstanding at December 31, 2018.In connection with the merger of ViewRay, Inc. and ViewRay Technologies, Inc. in July 2015, or the Merger, in July and August 2015, the Companyconducted a private placement offering as part of which the Company issued warrants, or the 2015 Placement Warrants, that provide the warrant holder theright 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 theoption of the holder until the five-year anniversary of their date of issuance. During the year ended December 31, 2018, the Company issued 92,487 shares ofits common stock upon the net exercise of 159,010 shares of the 2015 Placement Warrants. The remaining 39,750 shares of the 2015 Placement Warrantshave not been exercised and remained outstanding at December 31, 2018.In connection with the March 2018 Direct Registered Offering, the Company issued warrants to purchase 1,418,116 shares of common stock at an exerciseprice of $8.31 per share. The 2018 Offering Warrants became exercisable upon issuance and expire in March 2025. None of the 2018 Offering Warrants havebeen exercised to date and they all remained outstanding at December 31, 2018.As separate classes of securities were issued in a bundled transaction, the gross proceeds from the March 2018 Direct Registered Offering of $59.1 millionwere allocated to common stock, Series A convertible preferred stock and the 2018 Offering Warrants based on their respective relative fair value uponissuance. The aggregate fair value102 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% Liability Classified Common Stock WarrantsIn connection with the 2017 and 2016 Private Placements, the Company issued the 2017 and 2016 Placement Warrants, that provide the warrant holder theright to purchase 1,720,512 and 1,380,745 shares of common stock. The 2017 and 2016 Placement Warrants contain protection whereby the warrant holderswill have the right to receive cash in the amount equal to the Black-Scholes value of the warrants upon the occurrence of a change in control, as defined inthe 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 balancesheet date, with the change in fair value recorded as a component of other income (expense), net in the consolidated statements of operations andcomprehensive loss. The key terms and activity of the 2017 and 2016 Placement Warrants are summarized as follows: Issuance Date Term ExercisePrice PerShare Warrants Exercisedduring the YearEnded December 31,2017 WarrantsOutstanding atDecember 31,2017 Warrants Exercisedduring the YearEnded December31, 2018 WarrantsOutstanding atDecember 31,2018 2017 PlacementWarrants January 2017 7 years $3.17 9,389 1,711,123 1,591 1,709,532 2016 PlacementWarrants August and September2016 7 years $2.95 25,104 1,355,641 225,026 1,130,615 Total 34,493 3,066,764 226,617 2,840,147 As separate classes of securities were issued in a bundled transaction, the gross proceeds of $26.1 million and $13.8 million from the 2017 and 2016 PrivatePlacement were allocated first to the 2017 and 2016 Placement Warrants based on their fair value upon issuance, and the residuals were allocated to commonstock. The fair value upon issuance of $3.4 million and $2.7 million were estimated using the Black-Scholes option-pricing model using the followingassumptions: Upon Issuance 2017 PlacementWarrants 2016 PlacementWarrants Expected term (in years) 7.0 7.0 Expected volatility (%) 62.9% 61.6% Risk-free interest rate (%) 2.2% 1.4% Expected dividend yield (%) 0% 0% During the year ended December 31, 2018, the Company recorded a gain of $5.4 million and $4.0 million, respectively, related to the change in fair value ofthe 2017 and 2016 Placement Warrants. During the year ended December 31, 2017, the Company recorded a loss of $9.2 million and $7.4 million,respectively, related to the change in fair value of the 2017 and 2016 Placement Warrants. The fair value of the 2017 and 2016 Placement103 Warrants at December 31, 2018 and 2017 was estimated using the Black-Scholes option-pricing model and the following weighted-average assumptions: 2017 Placement Warrants 2016 Placement Warrants December 31,2018 December 31,2017 December 31,2018 December 31,2017 Expected term (in years) 5.1 6.1 4.7 5.7 Expected volatility 60.8% 62.3% 60.9% 62.1% Risk-free interest rate 2.5% 2.3% 2.5% 2.2% Expected dividend yield 0% 0% 0% 0% 13.Stock-Based CompensationThe Company adopted the 2008 Stock Option and Incentive Plan, or the 2008 Plan, and the 2015 Equity Incentive Award Plan, or the 2015 Plan, providingfor the issuance of stock-based compensation awards to its employees, officers, directors, advisors and consultants. With the establishment of the 2015 Plan,the Company no longer grants stock options under the 2008 Plan, and the shares available for future grants under the 2008 Plan were transferred to the 2015Plan. In July 2018, the Company adopted the 2018 Equity Inducement Award Program, or the 2018 Plan. The operative terms of the 2018 Plan adhere to theterms and conditions of the 2015 Plan.Only stock options were granted under the 2008 Plan. The 2015 Plan and the 2018 Plan provide for the grant of stock and stock-based awards includingstock options, restricted stock awards, restricted stock units and stock appreciation rights.Options granted pursuant to the 2008 Plan and the 2015 Plan may be either incentive stock options or non-statutory stock options. Options granted pursuantto the 2018 Plan are non-statutory stock options. Under the 2008 Plan, incentive stock options could only be granted to employees at an exercise price of noless than the fair value of the common stock on the grant date and non-statutory options may be granted to employees or consultants at an exercise price ofno less than 85% of the fair value of the common stock on the grant date, as determined by the board of directors. Under the 2015 Plan and the 2018 Plan, forboth incentive stock options and non-statutory options, the exercise price should not be less than the fair value of the common stock on the date of grant.Under the 2008 Plan, the 2015 Plan and the 2018 Plan, if, at the time of grant, the optionee is a 10% shareholder, owning stock representing more than 10%of the voting power of all classes of stock of the Company, the exercise price must be at least 110% of the fair value of the common stock on the grant date asdetermined by the board of directors. Options generally vest ratably over four years, and expire in 10 years from the date of grant, or five years from the dateof grant for 10% shareholders.In July 2015, the Company adopted the 2015 Employee Stock Purchase Plan, or the 2015 ESPP. At December 31, 2018 and 2017, 1,780,020 shares and1,103,481 shares were reserved for issuance and no shares have been issued under the 2015 ESPP.104 A summary of the Company’s stock option activity and related information is as follows: Options Outstanding SharesAvailablefor Grant Numberof StockOptionsOutstanding Weighted-AverageExercisePrice Weighted-AverageRemainingContractual Life(Years) AggregateIntrinsicValue (In thousands) Balance at December 31, 2017 969,783 8,592,747 $3.69 7.4 $47,864 Additional authorized 8,326,158 — Granted (6,997,114) 6,997,114 8.44 Exercised — (2,608,812) 2.03 Cancelled 1,377,341 (1,377,341) 6.12 RSUs granted (1,767,542) — Balance at December 31, 2018 1,908,626 11,603,708 $6.64 7.6 $10,151 Vested and exercisable at December 31, 2018 4,299,323 $4.28 5.7 $8,581 Vested and expected to vest at December 31, 2018 11,124,469 $6.58 7.6 $10,092 The weighted-average grant date fair value of options granted to employees was $4.89, $3.38 and $2.72 per share for the years ended December 31, 2018,2017 and 2016. The grant date fair value of options vested was $6.3 million, $4.8 million and $2.4 million, respectively, for the years ended December 31,2018, 2017 and 2016, 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 value of options exercised was $17.7 million, $2.6 million and $2.3 million for the years ended December 31,2018, 2017 and 2016, respectively.At December 31, 2018, total unrecognized compensation cost related to stock-based awards granted to employees, net of estimated forfeitures, was $29.0million which is expected to be recognized over a weighted-average period of 3.2 years.Determination of Fair ValueThe 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 theCompany’s common stock, as well as assumptions regarding a number of complex and subjective variables. The variables used to calculate the fair value ofstock options using the Black-Scholes option-pricing model include actual and projected employee stock option exercise behaviors, expected pricevolatility of the Company’s common stock, the risk-free interest rate and expected dividends. Each of these inputs is subjective and generally requiressignificant judgment to determine.Fair Value of Common StockBeginning March 31, 2016, the Company’s common stock shares were listed on The Nasdaq Global Market. Fair value of the common stock is the adjustedclosing price of the Company’s common stock on the trading date.Expected TermThe expected term represents the period that the Company’s option awards are expected to be outstanding. The Company considers several factors inestimating the expected term of options granted, including the expected lives used by a peer group of companies within the Company’s industry that theCompany considers to be comparable to its business and the historical option exercise behavior of its employees, which the Company believes isrepresentative of future behavior.Expected VolatilityAs the Company does not have a sufficient trading history for its common stock, the expected stock price volatility for the Company’s common stock wasestimated by taking the average historic price volatility of industry peers based on daily price observations over a period equivalent to the expected term ofthe stock option grants. The105 Company intends to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historicalinformation regarding the volatility of its own stock price becomes available.Risk-Free Interest RateThe risk-free interest rate is based on the zero-coupon U.S. Treasury notes, with maturities similar to the expected term of the options.Expected Dividend YieldThe Company does not anticipate paying any dividends in the foreseeable future and, therefore, uses an expected dividend yield of zero in the Black-Scholesoption-pricing model.In addition to the Black-Scholes assumptions discussed above, the estimated forfeiture rate also has a significant impact on stock-based compensation. Theforfeiture rate of stock options is estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. TheCompany uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that areexpected to vest.The fair value of employee stock options was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-averageassumptions: Year Ended December 31, 2018 2017 2016 Expected term (in years) 6.0 5.9 6.0 Expected volatility (%) 60.4% 66.0% 67.1% Risk-free interest rate (%) 2.8% 2.1% 1.3% Expected dividend yield (%) 0% 0% 0%Restricted Stock UnitsFrom time to time, the Company grants RSUs to its board of directors for their services. These RSUs are either fully vested upon issuance or vest over a periodof 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. InDecember 2016, the Company granted RSUs to certain executive officers and one consultant for services rendered, and these RSUs were fully vested uponissuance. In November 2017, the Company granted RSUs to one executive officer upon his termination, and these RSUs were fully vested upon issuance. InJuly 2018, the Company granted RSUs to two new executive officers, and these RSUs vest in equal annual installments over three years from the grant date.The fair value of RSUs is based on the closing market price of the Company’s common stock on the grant date. The weighted -average grant date fair value ofRSUs granted in fiscal year 2017 and 2016 was $8.02 per share and $3.52 per share, respectively.A summary of the Company’s RSU activity and related information is as follows: RSUs Number of Shares Weighted Average GrantDate Fair Value Unvested at December 31, 2017 — $— RSUs granted 1,767,542 $9.65 RSUs vested (31,308) $9.17 Unvested at December 31, 2018 1,736,234 $9.65 Vested and unreleased 121,507 Outstanding at December 31 2018 1,857,741 The total grant date fair value of RSUs awarded was $17.0 million, $0.4 million and $0.5 million for the years ended December 31, 2018, 2017 and 2016,respectively. The total fair value of RSUs vested was $0.3 million, $0.4 million and $0.5 million for the years ended December 31, 2018, 2017 and 2016,respectively.106 As of December 31, 2018, total unrecognized stock-based compensation cost related to RSUs was $13.3 million, which is expected to be recognized over aweighted-average period of 2.6 years. As of December 31, 2018, 1,616,819 shares of RSUs are expected to vest.Stock-Based Compensation ExpenseTotal stock-based compensation expense recognized in the Company’s consolidated statements of operations and comprehensive loss is classified as follows(in thousands): Year Ended December 31, 2018 2017 2016 Research and development $1,411 $952 $593 Selling and marketing 700 303 120 General and administrative 12,058 4,064 2,194 Total stock-based compensation expense $14,169 $5,319 $2,907 During the years ended December 31, 2018, 2017 and 2016, there were no stock-based compensation expenses capitalized as a component of inventory orrecognized in cost of revenue. Stock-based compensation relating to stock-based awards granted to consultants was insignificant for the years endedDecember 31, 2018, 2017 and 2016.14.Income TaxesOn December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“TCJA”). The TCJAreduced the U.S. statutory corporate tax rate to 21%, effective January 1, 2018. Consequently, we recorded a decrease to the Company’s federal deferred taxassets of $38.7 million, which was fully offset by a reduction in the Company’s valuation allowance for the year ended December 31, 2017. The otherprovisions of the TCJA did not have an impact on the Company’s financial statements as of December 31, 2017 or December 31, 2018.In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the TCJA (“SAB 118”), which allowedcompanies to record provisional amounts during a measurement period not to extend beyond one year of the TCJA enactment date. In the fourth quarter of2018, we completed our accounting for the TCJA and we did not have any adjustments to provisional amounts recorded as of December 31, 2017. Income Tax ExpenseThe following reconciles the differences between income taxes computed at the federal income tax rate and the provision for income taxes: Year Ended December 31, 2018 2017 2016 Expected income tax benefit at the federal statutory rate 21.0 % 34.0 % 34.0 %State taxes, net of federal benefit 0.0 0.0 0.0 Change in federal statutory rate 0.0 (54.1) 0.0 Non-deductible items and other (0.2) 0.5 (0.7) Federal and state credits 0.7 0.5 0.6 Change in valuation allowance (21.5) 19.1 (33.9) Total 0.0 % 0.0 % 0.0 % 107 Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposesand the amounts used for income tax purposes. The principal components of the Company’s net deferred tax assets consisted of the following atDecember 31, 2018 and 2017 (in thousands): Year Ended December 31, 2018 2017 Net operating loss carryforwards $76,753 $61,049 Research and development tax credits 4,699 3,731 Reserves and accruals 1,444 1,168 Other 9,109 6,611 Total deferred tax assets 92,005 72,559 Valuation allowance (92,005) (72,559)Net deferred tax assets $— $— The Company maintains a valuation allowance related to its deferred tax asset position when management believes it is more likely than not that the netdeferred tax assets will not be realized in the future. The Company’s valuation allowance increased by $19.4 million and decreased by $11.0 million duringthe year ended December 31, 2018 and 2017, respectively.At December 31, 2018, the Company had federal net operating loss carryforwards of $330.8 million, which begin to expire in the year ending December 31,2024, and $198.1 million related to state net operating loss carryforwards, which begin to expire in the year ending December 31, 2019. The Company hadfederal research and development tax credit carryforwards of $4.6 million, and state carryforwards of $2.0 million at the year ended December 31, 2018. Thesecredits expire at various dates through the year ending December 31, 2024.Under the provisions of the Internal Revenue Code, or IRC, net operating loss and credit carryforwards and other tax attributes may be subject to limitation ifthere has been a significant change in ownership of the Company, as defined by the IRC. The Company performed a Section 382 analysis in February of 2018and two ownership changes were identified, none of which had a corresponding limitation of tax attributes. Future owner or equity shifts could result inlimitations on net operating loss and credit carryforwards.Because of the net operating loss and credit carryforwards, all of the Company’s federal tax returns and state returns since the year ended December 31, 2004remain subject to federal and California examination.The Company accounts for uncertain tax positions using a “more-likely-than-not” threshold. The evaluation of uncertain tax positions is based on factorsincluding, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement ofmatters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. The Company evaluates these tax positions on anannual basis. In addition, the Company also accrues for potential interest and penalties related to unrecognized tax benefits in income tax expense.At December 31, 2018 and 2017, the Company’s unrecognized tax benefits consist of the following: Year Ended December 31, 2018 2017 Unrecognized tax benefit, beginning of period $1,135 $940 Gross increases — current year tax positions 422 327 Gross increases — prior year tax positions 38 73 Gross decreases — prior year tax positions — (205)Unrecognized tax benefit, end of period $1,595 $1,135 15.Employee BenefitsThe Company has a 401(k) Plan which covers its eligible employees. The 401(k) Plan permits the participants to defer a portion of their compensation inaccordance with the provisions of Section 401(k) of the IRC. Participant contributions are limited to a maximum annual amount as set periodically by theIRC. The Company started to match 50% of eligible participant contributions up to 6% annual contribution during the year ended December 31,108 2018. The Company’s matching contribution to the 401(k) Plan was $0.5 million for the year ended December 31, 2018. There were no matching or profit-sharing contributions during the years ended December 31, 2017 or 2016.16.Net Loss per ShareThe following table sets forth the computation of the Company’s basic and diluted net loss per share for the periods presented (in thousands, except share andper share data): Year Ended December 31, 2018 2017 2016 Net loss attributable to common stockholders, basic and diluted $(79,124) $(72,176) $(50,636)Weighted-average common shares used in computing net loss per share, basic and diluted 81,123,140 58,457,868 40,068,307 Net loss per share, basic and diluted $(0.98) $(1.23) $(1.26) 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 allperiods presented, because the inclusion of any potential common shares outstanding would have an anti-dilutive effect. The following weighted-averagecommon stock equivalents were excluded from the calculation of diluted net loss per share for the periods presented, because including them would have hadan anti-dilutive effect: Year Ended December 31, 2018 2017 2016 Convertible preferred stock (if converted) 369,934 — — Options to purchase common stock 10,486,468 7,914,067 6,181,015 Common stock warrant 4,464,965 3,345,674 804,248 Restricted stock units 903,163 108,107 33,835 17.Segment and Geographic InformationThe Company has one business activity, which is radiation therapy technology combined with magnetic resonance imaging, and operates in one reportablesegment. The Company’s chief operating decision-maker, its chief executive officer, reviews its operating results on an aggregate basis for purposes ofallocating resources and evaluating financial performance. Also, the Company does not have segment managers as the Company manages its operations as asingle operating segment.The following table sets forth revenue by geographic area based on the customers’ location (in thousands): Year Ended December 31, 2018 2017 2016 United States $34,231 $11,506 $1,106 Germany 13,727 — — Rest of world 33,004 22,536 21,131 Total revenue $80,962 $34,042 $22,237 At December 31, 2018 and 2017, all long-lived assets are located in the United States.18.Related Party TransactionsAs discussed in Note 7, the Company pays a royalty to UFRF, a stockholder in the Company, related to a licensing agreement.109 In January 2017, the Company entered into a sales consulting agreement with Puissance Capital Management, or PCM, to assist with business developmentactivities in a key market in Asia. PCM is the investment manager of Puissance Cross Board Opportunities LLP, a stockholder in the Company. Theodore T.Wang, Ph.D., a member of the Company’s board of directors, is the managing member of the general partners of PCM for the year ended December 31, 2018.The sales consulting agreement has a term of one year with a total consideration of $1.3 million. This amount has been fully expensed in the first quarter of2018. 110 Item 9. Changes in and Disagreements with Accountants and Financial Disclosure and Supplementary DataNone.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresWe maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded,processed, summarized and reported within the timelines specified in the SEC’s rules and forms, and that such information is accumulated and communicatedto our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding requireddisclosure.As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management,including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures,as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective at December 31, 2018 at the reasonable assurance level.Changes in Internal ControlThere were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of theExchange Act during the fourth quarter of 2018 that materially affected, or are reasonably likely to materially affect, our internal control over financialreporting.Limitations on Effectiveness of Controls and ProceduresIn designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designedand operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of controls and procedures mustreflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls andprocedures relative to their costs.Management’s Annual Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f)of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projectionsof any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detailaccurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are beingmade only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted anevaluation of the effectiveness of our internal control over financial reporting as of December 31, 2018 based on the framework established in “InternalControl – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our management concludedthat our internal control over financial reporting was effective as of that date.As an emerging growth company, pursuant to the rules of the SEC, this Annual Report on Form 10-K does not include an attestation report of the Company’sindependent registered public accounting firm regarding our internal control over financial reporting.111 Item 9B. Other Information. None. PART IIIItem 10. Directors, Executive Officers and Corporate GovernanceDirectors, Executive Officers and Corporate GovernanceThe information in our Proxy Statement for the 2019 Annual Meeting of stockholders regarding directors and executive officers appearing under theheadings "Proposal No. 1—Election of Directors," "Executive Officers" and "Information About Stock Ownership -Section 16(a) Beneficial OwnershipReporting Compliance" is incorporated herein by reference.In addition, the information in our Proxy Statement for the 2019 Annual Meeting of stockholders regarding the director nomination process, the AuditCommittee financial expert and the identification of the Audit Committee members appearing under the heading "Corporate Governance and Board ofDirectors Matters" is incorporated herein by reference.Code of Conduct and EthicsWe have adopted a Code of Conduct and Ethics that applies to all employees, including our principal executive officer and principal financial officer. Thefull text of our Code of Business Conduct and Ethics is posted on our website at http://investors.viewray.com/corporate-governance/highlights. We intend todisclose future amendments to certain provisions of our code, or waivers of such provisions granted to executive officers and directors, on our website withinfour business days following the date of such amendment or waiver. Any information on ViewRay’s website or which can be accessed through it is not a partof this Annual Report on Form 10-K.Item 11. Executive CompensationWe maintain employee compensation programs and benefit plans in which our executive officers are participants. Copies of these plans and programs are setforth or incorporated by reference as Exhibits to this Annual Report. The information in our Proxy Statement for the 2019 Annual Meeting of stockholdersappearing under the heading “Executive Compensation” is incorporated herein by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management Related Stockholder MattersThe information in our Proxy Statement for the 2019 Annual Meeting of stockholders appearing under the heading "Information About Stock Ownership -Security Ownership of Certain Beneficial Owners and Management" and "Executive Compensation - Equity Compensation Plan Information" is incorporatedherein by reference.Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe information in our Proxy Statement for the 2019 Annual Meeting of stockholders appearing under the headings Certain Relationships and Related PartyTransactions" and "Corporate Governance and Board of Directors Matters—Director Independence" is incorporated herein by reference.Item 14. Principal Accountant Fees and ServicesThe information in our Proxy Statement for the 2019 Annual Meeting of stockholders appearing under the headings "Proposal No. 2—Ratification ofAppointment of Independent Registered Public Accounting Firm—Audit and Non-Audit Services" and "Proposal No. 2—Ratification of Appointment ofIndependent Registered Public Accounting Firm—Audit Committee Pre-Approval Policies and Procedures" is incorporated herein by reference. PART IVItem 15. Exhibits and Financial Statement Schedules(a) (1) The financial statements required by Item 15(a) are filed in Item 8 of this Report.112 (2) The financial statement schedules required by Item 15(a) are omitted because they are not applicable, not required or the required information is includedin the financial statements or notes thereto as filed in Item 8 of this Report.(3) We have filed, or incorporated into this report by reference, the exhibits listed below. Incorporated by Reference ExhibitNumber Description Form Exhibit Date Filed FiledHerewith 2.1 Agreement and Plan of Merger and Reorganization, dated as of July 23, 2015,by and among ViewRay Inc., Acquisition Sub and ViewRay Technologies, Inc. S-1/A 2.1 12/16/15 3.1 Amended and Restated Certificate of Incorporation. S-1/A 3.1 12/16/15 3.2 Amended and Restated Bylaws of ViewRay, Inc. 8-K 3.2 5/10/18 3.3 Certificate of Merger of Acquisition Sub with and into ViewRay Technologies,Inc. S-1/A 3.3 12/16/15 3.4 Certificate of Designations, Preferences and Rights of Series A ConvertiblePreferred Stock of ViewRay, Inc. 10-K 3.4 3/12/18 3.5 Form of Series A Convertible Preferred Stock Certificate. 8-K/A 3.2 3/7/18 3.6 Certificate of Elimination of the Series A Convertible Preferred Stock ofViewRay, Inc. 8-K 3.1 5/10/18 4.1 Form of Common Stock Certificate. S-1/A 4.1 12/16/15 4.2 Form of Placement Agent Warrant for Common Stock of ViewRay, Inc. S-1/A 10.6 12/16/15 4.3 Form of Warrants issued pursuant to that certain Securities PurchaseAgreement, dated as of August 19, 2016, by and among ViewRay, Inc. and thePurchasers named therein. S-1 10.3 9/26/16 4.4 Form of Warrants issued pursuant to that certain Securities PurchaseAgreement, dated as of January 13, 2017, by and among ViewRay, Inc. and thePurchasers named therein. 10-K 4.4 3/17/17 10.1 Split-Off Agreement, dated as of July 23, 2015, by and among ViewRay, Inc.,Mirax Enterprise Corp. and Dinara Akzhigitova. S-1/A 10.1 12/16/15 10.2 General Release Agreement, dated as of July 23, 2015, by and amongViewRay, Inc., Mirax Enterprise Corp. and Dinara Akzhigitova. S-1/A 10.2 12/16/15 10.3 Form of Lock-Up and No Short Selling Agreement between ViewRay, Inc., andthe officers, directors and shareholders party thereto. S-1/A 10.3 12/16/15 10.4 Form of Securities Purchase Agreement between ViewRay, Inc., and theinvestors party thereto. S-1/A 10.4 12/16/15 10.5 Engagement Letter, dated June 9, 2015, among ViewRay, Inc. and thePlacement Agents as defined therein. S-1/A 10.5 12/16/15 113 Incorporated by Reference ExhibitNumber Description Form Exhibit Date Filed FiledHerewith 10.6 Form of Registration Rights Agreement, by and among ViewRay, Inc. andcertain investors named therein. S-1/A 4.2 12/16/15 10.7(a) Office Lease, effective April 17, 2008, by and between Cleveland IndustrialPortfolio, LLC and ViewRay Incorporated. S-1/A 10.7(a) 12/16/15 10.7(b) First Amendment to the Office Lease, effective April 16, 2013 by and betweenCleveland Industrial Portfolio, LLC and ViewRay Incorporated. S-1/A 10.7(b) 12/16/15 10.7(c) Second Amendment to the Office Lease, effective August 15, 2014 by andbetween Cleveland Industrial Portfolio, LLC and ViewRay Incorporated. S-1/A 10.7(c) 12/16/15 10.8 Office Lease, effective June 19, 2014, by and between BXP Research Park LPand ViewRay Incorporated. S-1/A 10.8 12/16/15 10.9† Employment Agreement, effective January 18, 2013, by and between ViewRayIncorporated and Chris A. Raanes. S-1/A 10.9 12/16/15 10.10† Offer Letter, effective November 11, 2010, by and between ViewRayIncorporated and D. David Chandler. S-1/A 10.10 12/16/15 10.11† First Amended and Restated Offer Letter, dated October 6, 2010, by andbetween ViewRay Incorporated and James F. Dempsey, Ph.D. S-1/A 10.11 12/16/15 10.12† Offer Letter, dated December 9, 2011, by and between ViewRay Incorporatedand Michael Brandt. S-1/A 10.12 12/16/15 10.13# Manufacturing and Supply Agreement, effective September 18, 2013, by andbetween ViewRay Incorporated and Japan Superconductor Technology, Inc. S-1/A 10.13 12/16/15 10.14(a)# Development and Supply Agreement, effective May 29, 2008, by and betweenViewRay Incorporated and Siemens Aktiengesellschaft, Healthcare Sector. S-1/A 10.14(a) 12/16/15 10.14(b)# Amendment No. 1 to the Development and Supply Agreement, effectiveDecember 1, 2009, by and between ViewRay Incorporated and SiemensAktiengesellschaft, Healthcare Sector. S-1/A 10.14(b) 12/16/15 10.14(c)# Amendment No. 2 to the Development and Supply Agreement, effective May4, 2010, by and between ViewRay Incorporated and SiemensAktiengesellschaft, Healthcare Sector. S-1/A 10.14(c) 12/16/15 10.14(d)# Amendment No. 3 to the Development and Supply Agreement, effectiveFebruary 9, 2011, by and between ViewRay Incorporated and SiemensAktiengesellschaft, Healthcare Sector. S-1/A 10.14(d) 12/16/15 10.14(e)# Amendment No. 4 to the Development and Supply Agreement, effective May11, 2012, by and between ViewRay Incorporated and SiemensAktiengesellschaft, Healthcare Sector. S-1/A 10.14(e) 12/16/15 114 Incorporated by Reference ExhibitNumber Description Form Exhibit Date Filed FiledHerewith 10.14(f)# Amendment No. 5 to the Development and Supply Agreement, effective May30, 2012, by and between ViewRay Incorporated and SiemensAktiengesellschaft, Healthcare Sector. S-1/A 10.14(f) 12/16/15 10.14(g)# Amendment No. 6 to the Development and Supply Agreement, effectiveFebruary 21, 2014, by and between ViewRay Incorporated and SiemensAktiengesellschaft, Healthcare Sector. S-1/A 10.14(g) 12/16/15 10.15# Cobalt-60 Source Supply and Removal Agreement, effective December 19,2013, by and between ViewRay Incorporated and Best Theratronics, Ltd. S-1/A 10.15# 12/16/15 10.16# Development and Supply Agreement, effective June 24, 2009, by and betweenViewRay Incorporated and Manufacturing Sciences Corporation. S-1/A 10.16# 12/16/15 10.17(a)# Development and Supply Agreement, effective July 9, 2009, by and betweenViewRay Incorporated and Tesla Engineering Limited. S-1/A 10.17(a) 12/16/15 10.17(b)# Amendment No. 1 to the Development and Supply Agreement, effectiveJanuary 20, 2015, by and between ViewRay Incorporated and TeslaEngineering Limited. S-1/A 10.17(b) 12/16/15 10.18# Development and Supply Agreement, effective July 2, 2010, by and betweenViewRay Incorporated and PEKO Precision Products, Inc. S-1/A 10.18 12/16/15 10.19(a)# Amended and Restated Joint Development and Supply Agreement, effectiveMay 15, 2008, by and between ViewRay Incorporated and 3D Line GmbH. S-1/A 10.19(a) 12/16/15 10.19(b)# Amendment No. 1 to the Amended and Restated Joint Development andSupply Agreement, effective August 13, 2008, by and between ViewRayIncorporated and Euromechanics Medical GmbH. S-1/A 10.19(b) 12/16/15 10.19(c)# Amendment No. 2 to the Amended and Restated Joint Development andSupply Agreement, effective November 27, 2009, by and between ViewRayIncorporated and Euromechanics Medical GmbH. S-1/A 10.19(c) 12/16/15 10.20# Development and Supply Agreement, effective June 1, 2010, by and betweenViewRay Incorporated and Quality Electrodynamics, LLC. S-1/A 10.20 12/16/15 10.21(a)# Standard Exclusive License Agreement with Sublicensing Terms, effectiveDecember 15, 2004, by and between ViewRay Incorporated and the Universityof Florida Research Foundation, Inc. S-1/A 10.21(a) 12/16/15 10.21(b)# Amendment No. 1 to the Standard Exclusive License Agreement withSublicensing Terms, effective December 6, 2007, by and between ViewRayIncorporated and the University of Florida Research Foundation, Inc. S-1/A 10.21(b) 12/16/15 115 Incorporated by Reference ExhibitNumber Description Form Exhibit Date Filed FiledHerewith 10.22 Warrant Agreement, effective December 16, 2013, by and between ViewRayIncorporated and Hercules Technology III, L.P. S-1/A 10.23 12/16/15 10.23(a)# Term Loan Agreement, effective June 26, 2015, by and among ViewRayIncorporated, the Subsidiary Guarantors (as defined therein), Capital RoyaltyPartners II L.P., Capital Royalty Partners II—Parallel Fund “A” L.P., CapitalRoyalty Partners II (Cayman) L.P. and Parallel Investment OpportunitiesPartners II L.P. S-1/A 10.22 12/16/15 10.23(b) Amendment No. 1 to Term Loan Agreement effective March 24, 2016, by andamong ViewRay Technologies, Inc. (formerly known as ViewRayIncorporated), the Subsidiary Guarantors (as defined therein), Capital RoyaltyPartners II L.P., Capital Royalty Partners II—Parallel Fund “A” L.P., CapitalRoyalty Partners II (Cayman) L.P. and Parallel Investment OpportunitiesPartners II L.P. 10-K 10.23(b) 3/28/16 10.23(c) Amendment No. 2 to Term Loan Agreement dated April 12, 2017, by andamong ViewRay Technologies, Inc. (formerly known as ViewRayIncorporated), the Subsidiary Guarantors (as defined therein), Capital RoyaltyPartners II L.P., Capital Royalty Partners II—Parallel Fund “A” L.P., CapitalRoyalty Partners II (Cayman) L.P. and Parallel Investment OpportunitiesPartners II L.P. 10-Q 10.1 8/7/17 10.23(d) Amendment No. 3 to Term Loan Agreement effective September 30, 2017, byand among ViewRay Technologies, Inc. (formerly known as ViewRayIncorporated), the Subsidiary Guarantors (as defined therein), Capital RoyaltyPartners II L.P., Capital Royalty Partners II—Parallel Fund “A” L.P., CapitalRoyalty Partners II (Cayman) L.P. and Parallel Investment OpportunitiesPartners II L.P. 10-Q 10.1 11/13/17 10.23(e) Amendment No. 4 to Term Loan Agreement effective December 31, 2017, byand among ViewRay Technologies, Inc. (formerly known as ViewRayIncorporated), the Subsidiary Guarantors (as defined therein), Capital RoyaltyPartners II L.P., Capital Royalty Partners II—Parallel Fund “A” L.P., CapitalRoyalty Partners II (Cayman) L.P. and Parallel Investment OpportunitiesPartners II L.P 10-K 10.23(e) 3/12/18 10.24(a)† ViewRay Incorporated 2008 Stock Incentive Plan. S-1/A 10.24(a) 12/16/15 10.24(b)† Form of Incentive Stock Option and Reverse Vesting Agreement (Change ofControl) under the 2008 Plan. S-1/A 10.24(b) 12/16/15 10.24(c)† Form of Incentive Stock Option and Reverse Vesting Agreement under the2008 Plan. S-1/A 10.24(c) 12/16/15 116 Incorporated by Reference ExhibitNumber Description Form Exhibit Date Filed FiledHerewith10.24(d)† Form of Nonstatutory Stock Option and Reverse Vesting Agreement under the2008 Plan. S-1/A 10.24(d) 12/16/15 10.25† Contingent Equity Agreement, effective January 8, 2008, by and amongViewRay Incorporated, James F. Dempsey, Ph.D., Russell S. Donda, JimCarnall and William Wells. S-1/A 10.25 12/16/15 10.26(a)† ViewRay, Inc. 2015 Equity Incentive Award Plan. S-1/A 10.26(a) 12/16/15 10.26(b)† Form of Option Agreement under the 2015 Plan. S-1/A 10.26(b) 12/16/15 10.26(c)† Form of Restricted Stock Agreement under the 2015 Plan. S-1/A 10.26(c) 12/16/15 10.26(d)† Form of Restricted Stock Unit Agreement under the 2015 Plan. S-1/A 10.26(d) 12/16/15 10.27† Form of Indemnification Agreement for directors and executive officers. S-1/A 10.27 12/16/15 10.28† Agreement, effective June 11, 2008, by and among ViewRay Incorporated,James F. Dempsey, Ph.D., William W. Wells, James D. Carnall and Russell S.Donda. S-1/A 10.28 12/16/15 10.29† ViewRay, Inc. 2015 Employee Stock Purchase Plan. S-1/A 10.29 12/16/15 10.30† Offer Letter, dated April 30, 2015, between ViewRay, Inc. and Doug Keare. S-1/A 10.30 12/16/15 10.31 Securities Purchase Agreement, dated as of August 19, 2016, by and amongViewRay, Inc. and the Purchasers named therein. S-1 10.1 9/26/16 10.32 Registration Rights Agreement, dated as of August 22, 2016, by and amongViewRay, Inc. and the Purchasers named therein. S-1 4.3 9/29/16 10.33 Securities Purchase Agreement, dated as of January 13, 2017, by and amongViewRay, Inc. and the Purchasers named therein. 10-K 10.33 3/17/17 10.34 Stockholders’ Agreement, dated as of January 13, 2017, by and amongViewRay, Inc. and the Purchasers named therein. 10-K 10.34 3/17/17 10.35 Agreement for Consulting Services by and among ViewRay, Inc. andPuissance Capital Management dated January 13, 2017. 10-Q 10.3 5/15/17 10.36 Securities Purchase Agreement, dated as of October 23, 2017, by and amongViewRay, Inc. and Fosun International Limited named therein. 8-K 10.1 10/25/17 10.37 Securities Purchase Agreement, dated as of October 23, 2017, by and amongViewRay, Inc. and the Purchasers named therein. 8-K 10.2 10/25/17 10.38 Registration Rights Agreement, dated as of October 23, 2017, by and amongViewRay, Inc. and Strong Influence Limited. 8-K 10.3 10/25/17 117 Incorporated by Reference ExhibitNumber Description Form Exhibit Date Filed FiledHerewith10.39 Registration Rights Agreement, dated as of October 23, 2017, by and amongViewRay, Inc. and KVP Capital, LP. 8-K 10.4 10/25/17 10.40 Amended and Restated Securities Purchase Agreement, dated as of March 5,2018, by and among ViewRay, Inc. and Fosun International Limited namedtherein 10-K 10.40 3/12/18 10.41 Amended and Restated Registration Rights Agreement, dated as of March 5,2018, by and among ViewRay, Inc. and Strong Influence Limited. 10-K 10.41 3/12/18 10.42 Warrant Agreement, effective February 25, 2018, by and between ViewRayInc. and Strong Influence Limited. 10-K 10.42 3/12/18 10.43 Vanni Business Park Industrial Lease by and between Vanni Business Park,LLC and ViewRay, Inc. dated April 11, 2018. 10-Q 10.1 8/7/18 10.44 Second Amendment to Office Lease by and between BXP Research Park LPand ViewRay, Inc. dated September 1, 2018. 10-Q 10.2 8/7/18 10.45† Separation Agreement, dated July 22, 2018, by and between ViewRay Inc. andChris A. Raanes 10-Q 10.3 8/7/18 10.46† Separation Agreement, dated July 22, 2018, by and between ViewRay Inc. andDoug Keare 10-Q 10.4 8/7/18 10.47† Employment Agreement, dated July 22, 2018, by and between ViewRay Inc.and Scott Drake 10-Q 10.5 8/7/18 10.48† Employment Agreement, dated July 22, 2018, by and between ViewRay Inc.and Shahriar Matin 10-Q 10.6 8/7/18 10.49† ViewRay, Inc. 2018 Equity Inducement Award Program S-8 99.1 8/10/18 10.50 Loan and Security Agreement by and between Silicon Valley Bank, ViewRay,Inc. and ViewRay Technologies, Inc. dated December 28, 2018. 8-K 10.1 12/31/18 10.51† Amendment to Employment Agreement, dated December 20, 2018 by andbetween ViewRay Inc. and Scott Drake X 10.52† Amendment to Employment Agreement, dated December 20, 2018 by andbetween ViewRay Inc. and Shar Matin X 10.53 At Market Issuance Sales Agreement, dated as of May 10, 2018, by andbetween ViewRay, Inc. and B. Riley FBR, Inc. S-3 1.2 5/10/18 21 List of Subsidiaries. X 23.1 Consent of Deloitte & Touche LLP X 24 Power of Attorney (contained on the signature page hereto). X 31.1 Certification of Principal Executive Officer Required under SecuritiesExchange Act Rule 13a-14(a) and 15d-14(a). X 118 Incorporated by Reference ExhibitNumber Description Form Exhibit Date Filed FiledHerewith31.2 Certification of Principal Financial Officer under Securities Exchange ActRule 13a-14(a) and 15d-14(a). X 32.1 Certification of Principal Executive Officer and Principal Financial Officerpursuant to 18 U.S.C. 1350 and Securities Exchange Act Rule 13a-14(b). X 101 Interactive Data Files of Financial Statements and Notes. X 101.INS Instant Document. X 101.SCH XBRL Taxonomy Schema Document. X 101.CAL XBRL Taxonomy Calculation Linkbase Document. X 101.DEF XBRL Taxonomy Definition Linkbase Document. X 101.LAB XBRL Taxonomy Label Linkbase Document. X 101.PRE XBRL Taxonomy Presentation Linkbase Document. X #Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment and this exhibit has been filedseparately with the SEC.†Indicates management contract or compensatory plan. Item 16. Form 10-K SummaryNone.119 SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized, on March 15, 2019. VIEWRAY, INC. By: /s/ Scott Drake Scott Drake Chief Executive OfficerPOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Scott Drake and AjayBansal, and each of them, with full power of substitution and full power to act without the other, his or her true and lawful attorney-in-fact and agent to act forhim or her in his or her name, place and stead, in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same,with exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, hereby ratifying and confirming allthat said attorney-in-fact, or his substitute, may do or cause to be done by virtue thereof.Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities andon the dates indicated. SignatureTitleDate /s/ Scott DrakeDirector, President and Chief Executive OfficerMarch 15, 2019Scott Drake(Principal Executive Officer) /s/ Ajay BansalChief Financial OfficerMarch 15, 2019Ajay Bansal(Principal Financial and Accounting Officer) /s/ Daniel MooreDirectorMarch 15, 2019Daniel Moore /s/ Caley Castelein, M.D.DirectorMarch 15, 2019Caley Castelein, M.D. /s/ James F. Dempsey, Ph.D.Director and Chief Scientific OfficerMarch 15, 2019James F. Dempsey, Ph.D. /s/ Keith GrossmanDirectorMarch 15, 2019Keith Grossman /s/ Aditya PuriDirectorMarch 15, 2019Aditya Puri /s/ Henry A. McKinnell, Jr., Ph.D.DirectorMarch 15, 2019Henry A. McKinnell, Jr., Ph.D /s/ Brian K. RobertsDirectorMarch 15, 2019Brian K. Roberts /s/ Theodore T. Wang, Ph.D.DirectorMarch 15, 2019Theodore T. Wang, Ph.D. /s/ Scott HuennekensDirectorMarch 15, 2019Scott Huennekens 120 Exhibit 10.51 Amendment Amendment Date:December 20, 2018Parties:ViewRay, Inc.Scott Drake Original Agreement:Employment Agreement dated July 22, 2018 The below signatories are parties to the Original Agreement. The parties hereby agree to amend the Original Agreement asfollows: 1.Section 4 of the Original Agreement is amended with the addition of the following clause: Notwithstanding anything to the contrary in the Original Agreement, as of October 22, 2018,Executive’s office location shall be Denver, Colorado or a Colorado-based home office, andthe “stipend” provided under the Original Agreement shall be deemed terminated of even datetherewith. 2.This Amendment is effective as of the date set forth above. This Amendment may be executed in multiple counterparts all ofwhich together will constitute one instrument. This Amendment is made a part of the Original Agreement. Except as specificallyamended by this Amendment, the Original Agreement will remain in full force and effect without addition, deletion or change. ViewRay, Inc. By: (signature) Printed Name: Title: Executive By: (signature) Printed Name:Scott Drake Title:President, CEO [Type here]  Exhibit 10.52 Amendment Amendment Date:December 20, 2018Parties:ViewRay, Inc.Shahriar Matin Original Agreement:Employment Agreement dated July 22, 2018 The below signatories are parties to the Original Agreement. The parties hereby agree to amend the Original Agreement asfollows: 1.Section 4 of the Original Agreement is amended with the addition of the following clause: Notwithstanding anything to the contrary in the Original Agreement, as of January 23, 2019,Executive’s office location shall be Denver, Colorado or a Colorado-based home office, andthe “stipend” provided under the Original Agreement shall be deemed terminated of even datetherewith. 2.This Amendment is effective as of the date set forth above. This Amendment may be executed in multiple counterparts all ofwhich together will constitute one instrument. This Amendment is made a part of the Original Agreement. Except as specificallyamended by this Amendment, the Original Agreement will remain in full force and effect without addition, deletion or change. ViewRay, Inc. By: (signature) Printed Name: Title: Executive By: (signature) Printed Name:Shahriar Matin Title:Chief Operating Officer Exhibit 21 Subsidiaries EntityJurisdiction of OrganizationViewRay Technologies, Inc. (formerly known as ViewRay Incorporated)Delaware Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statements No. 333-216797, No. 333-222264, and No. 333-229145 onForm S-3, Registration Statements No. 333-224013, No. 333-226797, No. 333-227383, No. 333-210472 and No. 333-216794 onForm S-8, of our report dated March 15, 2019, relating to the consolidated financial statements of ViewRay, Inc. and its subsidiary (the“Company”) appearing in this Annual Report on Form 10-K of the Company for the year ended December 31, 2018. /s/ Deloitte & Touche LLPSan Francisco, CAMarch 15, 2019 Exhibit 31.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TOEXCHANGE ACT RULE 13a-14(a)/15d-14(a)AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Scott Drake, certify that:1. I have reviewed this Annual Report on Form 10-K of ViewRay, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles;c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. Date: March 15, 2019 /s/ Scott Drake Scott Drake Title: Chief Executive Officer and President(Principal Executive Officer) Exhibit 31.2CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TOEXCHANGE ACT RULE 13a-14(a)/15d-14(a)AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Ajay Bansal, certify that:1. I have reviewed this Annual Report on Form 10-K of ViewRay, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles;c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. Date: March 15, 2019 /s/ Ajay Bansal Ajay Bansal Title: Chief Financial Officer(Principal Financial Officer) Exhibit 32.1 CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICERPURSUANT TO 18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officers of ViewRay,Inc., a Delaware corporation (the “Company”), hereby does certify that:(i) the Annual Report on Form 10-K of the Company for the year ended December 31, 2018 (the “Report”) fully complies with the requirements ofSection 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. The foregoing certification (i) is given to such officers’ knowledge, based upon such officers’ investigation as such officers reasonably deemappropriate; and (ii) is being furnished solely pursuant to 18 U.S.C. § 1350 (section 906 of the Sarbanes-Oxley Act of 2002) and is not being filed as part ofthe Report or as a separate disclosure document and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, asamended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporationlanguage contained in such filing. VIEWRAY, INC. Dated: March 15, 2019By: /s/ Scott Drake Name: Scott Drake Title: Chief Executive Officer(Principal Executive Officer) Dated: March 15, 2019By: /s/ Ajay Bansal Name: Ajay Bansal Title: Chief Financial Officer(Principal Financial Officer) 

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