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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
 Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number:
    001-33452
 TomoTherapy
    Incorporated
 (Exact name of Registrant as
    specified in its charter)
  Wisconsin

39-1914727(State of Other Jurisdiction
    of
    Incorporation or Organization)

(I.R.S. Employer
    Identification No.)1240 Deming Way, Madison, Wisconsin(Address of principal
    executive offices)

53717(Zip Code)   (608) 824-2800
 (Registrants telephone
    number, including area code)
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon stock

The NASDAQ Stock Market LLC   Securities registered pursuant to section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
    Large accelerated
    filer o

Accelerated
    filer o

Non-accelerated
    filer þ
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
    DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 





TomoTherapy
    Incorporated
  INDEX
  
  PagePART IItem 1.


Business


3Item 1A.


Risk Factors


21Item 1B.


Unresolved Staff Comments


36Item 2.


Properties


36Item 3.


Legal Proceedings


36Item 4.


Submission of Matters to a Vote of Security
    Holders


36PART IIItem 5.


Market for the Registrants Common Equity,
    Related Shareholder Matters and Issuer Purchases of Equity
    Securities


36Item 6.


Selected Financial Data


39Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


40Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


60Item 8.


Financial Statements and Supplementary Data


61Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


90Item 9A.


Controls and Procedures


90Item 9B.


Other Information


90PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


90Item 11.


Executive Compensation


91Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Shareholder Matters


91Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


91Item 14.


Principal Accountant Fees and Service


91PART IVItem 15.


Exhibits and Financial Statement Schedules


92Signatures


94Employment Agreement - Steven G. BooksEmployment Agreement - Mary Elizabeth KleinConsent of Grant Thornton LLPConsent of Virchow Krause Valuation, LLCCertificationCertificationCertificationCertification   2




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PART I  Item 1.
    Business  Overview
        Form 10-K.
 3




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Market
    Overview
        Radiation
    Treatment
      
    Intensity modulated radiation
    therapy.  Intensity modulated radiation therapy,
    or IMRT, involves varying, or modulating, the radiation beam
    intensity across the treatment area. This technique attempts to
    conform the high dose region of the radiation beam more closely
    with the shape of the tumor, enabling the delivery of higher
    doses of radiation to tumors with a reduced impact on
    surrounding healthy tissue. Using IMRT, medical professionals
    can design a more individualized treatment plan for each patient. 4




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
    Image guided radiation therapy.  Image guided
    radiation therapy, or IGRT, involves delivering IMRT guided by
    images of the treatment area taken shortly before treatment
    using CT, x-ray, ultrasound or other imaging technologies. By
    combining imaging with radiation treatment, clinicians can
    adjust the patients position relative to the radiation
    source prior to each treatment to target the tumor more
    precisely. However, the precision and effectiveness of IGRT
    depends largely on the quality of the images and the degree to
    which the radiation delivery system is integrated with the
    images. Compared to traditional IMRT without image guidance,
    accurate image guidance enables clinicians to improve patient
    outcomes by concentrating higher doses of radiation at tumors
    and further reducing the exposure of healthy tissue to
    radiation. According to a 2006 report by the Advisory Board
    Company, a provider of research and analysis on the healthcare
    industry, 33% of radiation therapy facilities offered IGRT and
    43% planned to do so within the subsequent three years. The
    survey was based on 267 radiation therapy facilities in the
    United States.
    Adaptive radiation therapy.  Adaptive radiation
    therapy involves adjusting a patients radiation therapy
    plan between fractions to account for changes in the
    patients anatomy, the amount and location of the radiation
    received by the patient, and the size, shape and location of the
    tumor. While there is no widely accepted definition of adaptive
    radiation therapy, it has been characterized to include as
    little as an adjustment to the physical position of the patient
    relative to the radiation source prior to treatment, as occurs
    during IGRT, rather than adjustment to the treatment plan. We
    believe that adaptive radiation therapy requires continual
    adjustments to the treatment plan facilitated by both the
    regular acquisition of updated quantitative images showing the
    location, geometry and density of the tumor, as well as
    verification of the actual radiation dose received by the
    patient throughout the entire course of treatment. We believe
    that achieving truly adaptive radiation therapy currently
    represents the most significant challenge for existing radiation
    therapy systems.
    Dose escalation.  Higher doses of radiation
    have been shown to yield greater local control of the tumor. The
    advent of innovative technological features in radiation therapy
    treatment planning and delivery has allowed the clinical use of
    dose escalation, increasing the radiation dose administered to
    tumors in the patient, which has result in improved local tumor
    control and, in some cases, improved patient survival.
    Hypofractionation is an evolving radiation therapy technique
    that involves reducing the number of fractions and delivering
    larger doses of radiation per fraction. The benefits of
    hypofractionation include the patient convenience of fewer
    visits and more efficient use of radiation therapy systems.
    Stereotactic radiation therapy and stereotactic radiosurgery
    procedures, in which treatment is provided in one to five
    sessions, are extreme examples of hypofractionation.
    Hypofractionation has been used to date to treat only a limited
    number of tumor types. These tumors are generally small and are
    located in a few specific, sensitive regions of the body, such
    as the head and neck, spinal cord, lung and prostate, where the
    very high intensity radiation involved in dose escalation
    increases the need for a radiation delivery system that is
    capable of locating tumors and delivering radiation with high
    precision.    
    Limited versatility and precision.  The C-arm
    configuration of traditional radiation therapy systems has a
    limited range and speed of motion due to its size and mechanical
    structure. Most existing MLCs, which modulate or shape the
    radiation beams, also have mechanical limitations that reduce
    their beam-shaping ability and the speed at which they operate.
    These design elements limit the motion and dynamic range of IMRT
    intensities capable of being delivered by traditional radiation
    therapy systems and often make it impractical to deliver
    radiation from more than five to nine treatment angles during a
    typical treatment session. These limited treatment angles reduce
    the ability to deliver precisely targeted radiation that avoids
    healthy tissue. Such imprecision may prevent clinicians from
    treating tumors near sensitive structures, such as the eye or
    the spinal cord, or from re-treating patients in an area of the
    body that was previously exposed to radiation and may be unable
    to tolerate additional exposure.
    Limited ability to provide frequent, quantitative
    images.  Precise radiation therapy requires
    frequent images that accurately depict the size, shape, location
    and density of the tumor, which we refer to as 5




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quantitative images. Many traditional radiation therapy systems
    either do not incorporate CT imaging functionality or use
    imaging technologies that do not have the ability to generate
    quantitative images. Lacking this data, traditional radiation
    therapy systems measure the amount of radiation emitted by the
    device based on the systems performance specifications.
    This calculation does not provide the clinician with data
    regarding the amount of radiation that was actually received by
    the patient or what tissue within the patients body
    received any particular amount of radiation. In addition, most
    radiation therapy systems that have imaging capabilities are not
    capable of performing daily imaging of the patient due to
    concerns about the additional radiation exposure associated with
    most imaging technologies. Since it is common for internal
    organs to shift and for the size of the tumor to change during
    the course of treatment, failure to obtain updated images and
    adapt the treatment plan throughout the course of treatment may
    result in a portion, or potentially all, of the radiation dose
    missing the tumor and instead being absorbed by healthy tissue.  
    Failure to integrate multiple functions.  Many
    traditional radiation therapy systems were designed solely for
    the purpose of delivering radiation and therefore do not possess
    integrated imaging, treatment planning, dose verification or
    quality assurance capabilities necessary for more advanced
    treatment protocols. Some systems have subsequently been adapted
    to include certain elements of this functionality by
    incorporating modular add-on devices to legacy linear
    accelerator designs. These separate modular components can
    provide imaging, treatment planning, quality assurance
    procedures or post-treatment analysis functionality. However,
    this modular approach often requires the clinician to
    reconfigure and recalibrate the system between patient imaging,
    treatment planning, radiation delivery and quality assurance,
    which can increase the time required to plan and deliver
    treatments.  The
    TomoTherapy Solution
    
    More versatile treatment capabilities.  The Hi
    Art systems high-speed ring gantry and MLC allow treatment
    to be delivered continuously in a helical pattern 360 degrees
    around the patients body, allowing radiation delivery from
    thousands of angles to improve radiation dose distribution
    without extending the time it takes to complete comparable
    procedures using other systems. In addition, the versatility of
    the Hi Art system enables an operator to provide IMRT, IGRT or
    stereotactic treatments anywhere within a cylindrical volume of
    80 centimeters (2.6 feet) in diameter and up to 160
    centimeters (5.3 feet) long. This broad treatment field
    allows large areas of the body to be treated in a single session
    and facilitates complex treatments, such as total bone
    irradiation, which specifically irradiates bone marrow, and the
    treatment of widely distant tumors. The Hi Art systems
    precision and range of treatment angles also enable the
    treatment of hard to reach tumors, such as spinal tumors, as
    well as treatments that can be challenging or impractical to
    treat with other traditional radiation therapy systems because
    of the need to avoid or minimize radiation delivery to critical
    structures.
    Daily, quantitative imaging for better identification of
    tumors, dose verification and treatment
    planning.  The Hi Art system is the only
    commercially available radiation therapy system offering
    integrated quantitative CT imaging capabilities, which depict
    the density of tumors and healthy tissue more accurately than
    traditional radiation therapy systems. Our integrated
    mega-voltage computerized tomography, or MVCT, which we market
    as our CTrue imaging technology, enables quantitative imaging
    and delivers less radiation during the imaging process compared
    to the imaging technologies used by other commercially available
    radiation therapy systems. This lower dose allows the clinician
    to collect daily, quantitative images, which can be used to
    monitor changes in the patients internal anatomy and
    quickly and accurately quantify the amount of radiation absorbed
    by specific areas of the patients body, including both
    tumors and healthy tissue. We believe that daily, quantitative
    images are essential to optimizing patient treatment by enabling
    clinicians to adapt the treatment plan in response to anatomical
    changes and the cumulative amount of radiation received by
    specific areas within the patient over time. We believe that
    both of these factors can have a significant impact on the
    targeting and amount of the radiation dose to be delivered. 6




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
    Fully integrated treatment system for more precise radiation
    delivery.  We believe that the integration of our
    CTrue imaging technology, treatment planning and helical
    delivery of radiation beams shaped by the MLC enables highly
    precise radiation delivery. Our planned adaptive software allows
    clinicians to establish at the time of treatment the precise
    contours of a tumor and any sensitive structures at risk. The Hi
    Art system uses a highly efficient dose computation algorithm to
    ensure that the radiation beam conforms to the patients
    tumor and avoids sensitive structures, providing a
    highly-targeted dose distribution. These features significantly
    benefit patients by maximizing the radiation delivered to
    cancerous tissues and minimizing damage to nearby healthy
    tissues. In addition, because the Hi Art system can precisely
    deliver a high dose of targeted radiation, we believe that our
    system reduces the temporary side effects and permanent damage
    to healthy tissue associated with traditional radiation therapy
    systems. This capability allows clinicians to accelerate the
    treatment regimen by maximizing the radiation delivered to tumor
    cells in fewer fractions.
    Efficient clinical workflow for IGRT and adaptive radiation
    therapy.  The Hi Art system integrates into a
    single system all of the key elements for radiation therapy,
    including treatment planning, CT image-guided patient
    positioning, treatment delivery, quality assurance and adaptive
    planning. The imaging and treatment planning capabilities of
    many traditional systems are more modular or require cumbersome
    add-ons or separate treatment planning systems that result in
    clinicians taking more steps between scanning, planning and
    treatment of patients, and may reduce the precision of
    treatment. Conversely, the integrated imaging and treatment
    features of the Hi Art system allow clinicians to scan, plan and
    treat cancer patients easily and efficiently. This capability
    enables healthcare providers to increase patient throughput for
    sophisticated IGRT and adaptive radiation therapy procedures
    using the Hi Art system. Daily images can be easily accessed
    remotely, via our TomoPortal web-enabled interface, to verify
    patient positioning and collaboratively define patient treatment
    strategies. In mid-2007 we introduced StatRT, which is software
    for the Hi Art treatment system that allows the full radiation
    therapy process  CT scanning, treatment planning and
    treatment delivery  to be completed much more rapidly
    than existing systems. The software is currently used primarily
    to enhance the quality of care for palliative and other
    time-critical cancer cases by allowing patients to be treated
    immediately. This treatment option is not available for other
    systems which lack full integrated capabilities, where scanning
    and treatment planning are usually completed a full day or more
    prior to delivery of treatment.
    Low barriers to installation and
    implementation.  All external beam radiation
    systems must be housed in rooms which have special radiation
    shielding to capture any radiation not absorbed by the patient.
    The Hi Art systems size and self-contained design allow
    customers to retrofit the Hi Art system into existing treatment
    rooms previously used for legacy radiation therapy systems and
    avoid, or reduce, the significant construction costs that can be
    associated with building new, larger treatment rooms, which are
    required to install many other radiation therapy systems. With
    both imaging and radiation delivery capabilities in its ring
    gantry, the Hi Art system requires less space than other
    systems, which use large moving arms to position the linear
    accelerator or incorporate adjacent imaging equipment used for
    treatment planning. In addition, because the Hi Art system has
    an integrated radiation beam stop, which captures radiation that
    passes through the patient, it requires less radiation shielding
    in treatment room walls as compared to the shielding required by
    a traditional system. We also preassemble, test and commission
    each Hi Art system at our manufacturing facility, and ship the
    system almost fully assembled. This assembly process allows
    radiation beam on within four days and treatments to
    begin within 45 days after delivery in most cases.
    Platform for further technological advancements in adaptive
    radiation therapy.  We believe that the Hi Art
    system is the only commercially available treatment device that
    enables adaptive radiation therapy because of its unique ability
    to provide daily, quantitative images, high speed delivery of
    radiation helically from 360 degrees around the body and
    real-time verification of the dose received by the patient. We
    believe that the combination of these design features and our
    integrated treatment planning and optimization software will
    allow us to continue to enhance the Hi Art systems
    adaptive capabilities to a point where clinicians will routinely
    and easily adjust a patients treatment as needed.   7




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Our
    Strategy
    
    Increase market awareness of the Hi Art systems
    clinical and economic benefits.  In order to
    expand our installed base of Hi Art systems, we intend to
    continue to position the Hi Art system as the most advanced
    radiation therapy system for treating a wide range of cancer
    types effectively and efficiently. We intend to accomplish this
    through traditional sales and marketing efforts, such as
    tradeshows, educational symposia,
    e-business
    avenues, marketing collateral, case studies and direct mail
    campaigns. An important aspect of our sales and marketing
    efforts is also to raise awareness of the Hi Art system among
    patient populations who are increasingly educated about
    treatment options and therefore help to drive adoption of new
    technologies by clinicians. We also intend to educate clinicians
    about using the Hi Art system to treat tumors that they may
    currently believe can be adequately treated using competing
    technologies in order to drive sales to smaller treatment
    centers that may only have one treatment system.
    Expand our worldwide sales presence.  Our early
    sales and marketing efforts were primarily focused on North
    America. As of December 31, 2007, 67% of our installed
    systems were in North America. We have established both direct
    and indirect sales capabilities in Western Europe and
    Asia-Pacific, as well as indirect sales capabilities in Eastern
    Europe and the Middle East, where we believe that there is
    significant potential to expand our installed base. We intend to
    add additional direct sales representatives to further penetrate
    the United States market, while investing in direct and indirect
    sales and marketing capabilities in international markets. In
    particular, we plan to expand our sales and marketing
    capabilities in India, China, Australia and New Zealand, South
    and Central America, the Middle East and Eastern Europe.
    Increase our profitability through cost reductions and
    improved operating leverage.  Over the last two
    years our operating margins have been impacted by our decision
    to invest in our global service and support infrastructure,
    including the establishment of spare part depots and the
    addition of personnel to support our international operations
    and anticipated future growth. In addition, we incurred
    increased costs due to higher component costs during early
    production and the higher failure rates of certain components.
    In order to increase our profitability, we will seek to decrease
    our reliance on single-source suppliers of key components in
    order to enable us to negotiate better prices with a wider range
    of suppliers and to improve component reliability. In addition,
    a number of opportunities exist to reduce costs through
    re-engineering higher cost components. We will also seek to
    increase our profitability by leveraging our investments in our
    global service and support infrastructure, which we believe
    positions us to better absorb the costs associated with
    increased sales volumes.
    Continue to enhance our customer service and support
    capabilities.  We believe that an important
    differentiating feature of our business is our strong customer
    support. We have invested heavily in our customer service and
    support infrastructure in the United States and internationally.
    We provide comprehensive customer support beginning with a
    dedicated site-planning and installation team and continuing
    through training, product technical support, access to physicist
    support that is unique among our competitors, field service
    engineering and value-added maintenance services. We intend to
    build upon our infrastructure and technology advantages by
    hiring additional support personnel, implementing regional
    training programs and expanding the number of local spare parts
    depots to continually augment and refine our customer service.
    Enhance the Hi Art systems treatment capabilities
    through on-going research and development
    initiatives.  In order to increase patient
    throughput and increase our customers return on their
    investment, our research 8




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and development initiatives are focused on more fully automating
    the treatment optimization and adaptive therapy processes
    thereby decreasing the time necessary for clinicians to develop
    and adapt treatment plans. For example, in mid-2007 we released
    our StatRT software, which allows clinicians to generate a
    treatment plan in three to five minutes while the patient is
    positioned on the Hi Art systems patient couch. In late
    October, 2007, we introduced the High Performance patient couch
    which provides the user with enhanced functionality and improved
    clinical workflow efficiency. We are also engaged in initiatives
    to accommodate real-time patient movements during treatment. We
    believe that these developments will further improve the
    precision of treatment offered by the Hi Art system and increase
    patient throughput. In addition, we believe that our work in
    remote and automatic quality assurance should reduce the amount
    of time and resources needed to perform system verification and
    maintenance. We believe that these developments will improve the
    precision of treatment and increase patient throughput.  
    Continue to expand and protect our intellectual property
    portfolio.  The Hi Art system is comprised of
    multiple sophisticated proprietary components. We hold or
    license 23 U.S. patents, 36 pending U.S. patent
    applications, over 70 foreign patents, and over 85 foreign
    patent applications. These patents cover various components and
    techniques incorporated into the Hi Art treatment system, such
    as the MLC, the patient couch and aspects of the helical
    delivery of therapeutic radiation, or that are being
    incorporated into new technologies that we are currently
    developing, all of which we believe will allow us to maintain a
    competitive advantage in the field of radiation treatment. We
    will continue to seek patent protection for our new inventions
    and seek licensing rights for inventions of others that can add
    substantial value to our products and services.
    Increase our commercial opportunities and growth through
    acquisitions, investments, or third party
    collaborations.  We believe that we can increase
    our commercial opportunities through a combination of strategic
    acquisitions, investments and collaborations with third parties.
    We seek to identify opportunities to acquire or collaborate in
    the development of new technologies that leverage our existing
    operational infrastructure and distribution, provide our
    customers with improved or additional capabilities or expand our
    growth opportunities into new markets. For example, in the Fall
    of 2007 we announced several strategic partnerships that allow
    us to offer customers additional tools and accessories
    compatible with the Hi Art system. We currently have research
    and development collaborations for the development of a compact,
    lower-cost, intensity modulated proton therapy system and
    further accessories for use with the Hi Art system. We will
    continue to evaluate opportunities to vertically integrate
    through acquisition or investment in suppliers of key components.  The Hi
    Art System
    Clinical
    Workflow
    Patient imaging.
  Treatment planning and
    optimization.
 9




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Patient positioning and treatment
    delivery.
  Dose verification.
    Technology
    Ring gantry.
  Quantitative fan beam CT.
  Multi-leaf collimator.
 10




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Treatment planning system.
  Optimizer.
  Integrated database server.
  Primary beam stop and radiation beam
    shielding.
  Marketing
    and Sales
     11




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North America.
  Europe.
  Asia-Pacific.
    Customer
    Service and Support
    Site planning and installation.
 12




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Training.
  Standard warranty and support services.
  Tomo Lifecycle Care. on-site
  Online resources.
  
    TomoGateway.  TomoGateway links our customer
    call centers directly to a customers Hi Art system over a
    secure connection. Using this direct connection, our support
    staff can perform online diagnostics, examine system log files
    and look at data immediately and easily to assist customers in
    identifying and addressing problems with their units. Such
    accessible data allows us to provide our customers with
    continual support and enables our customers to maintain high
    levels of system operability. Access to TomoGateway is included
    at no additional charge during the standard one-year warranty
    period and with Total TLC and Partnership TLC.
    TomoExchange.  TomoExchange is a secure,
    web-based tool that is designed to provide a communication
    portal between TomoTherapy and our customers and to facilitate
    communication and collaboration among all end users of Hi Art.
    The platform features
    e-mail
    integration and a product feedback tool as well as an on-line
    forum that allows customers to share information about the Hi
    Art system, learn about relevant 13




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upcoming events and review important announcements. TomoExchange
    is available to all customers operating the Hi Art system.  Competition
            Research
    and Development
     14




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Manufacturing
    and Suppliers
           15




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Reimbursement
  United
    States Reimbursement Regulation
           16




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Foreign
    Reimbursement Regulations
  side-by-side.
  Government
    Regulation
  United
    States Medical Device Regulation
    and/or
      United
    States Privacy and Security Laws
   17




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United
    States Fraud and Abuse Laws and Regulations
    Physician self-referral laws.
  Anti-kickback laws.
  Federal False Claims Act.
  and/or
  State
    Certificate of Need Laws
    Foreign
    Regulation of Medical Devices
     18




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Intellectual
    Property
            Employees
    Information
    Available to Investors
  http://www.tomotherapy.com Form 10-K; Form 10-Q; Form 8-K
 19




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Executive
    Officers of the Registrant
    Name

Age

PositionFrederick A. Robertson


52


Chief Executive Officer and DirectorPaul J. Reckwerdt


56


President, Co-Founder and DirectorStephen C. Hathaway


52


Chief Financial Officer and TreasurerSteven G. Books


58


Chief Operating OfficerMary Elizabeth Klein


51


Vice President of Global SalesShawn D. Guse


37


Vice President, Secretary and General CounselThomas Rockwell Mackie


53


Chairman of the Board of Directors and Co-Founder   Frederick A. Robertson M.D.
  Paul J. Reckwerdt
  Stephen C. Hathaway
  Steven G. Books
 20




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Mary Elizabeth Klein
  Shawn D. Guse J.D.
  Thomas Rockwell Mackie, Ph.D.
  Item 1A.
    Risk
    Factors  Risks
    Related to Our Business
  We
    currently depend on sales of the Hi Art system for substantially
    all of our revenue and, if we are unable to grow or sustain
    sales of the Hi Art system or are unable to diversify our
    business, we may not generate sufficient revenue to support our
    business.
    We may
    experience substantial fluctuations in our quarterly operating
    results and stock price because of the long sales cycle and high
    unit price of the Hi Art system, as well as other factors,
    making it difficult to compare our results of operations to
    prior periods.
   21




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We
    face competition from numerous competitors, many of whom have
    greater resources than we do, which may make it more difficult
    for us to achieve significant market penetration.
        Our
    reliance on single-source suppliers for critical components of
    the Hi Art system could harm our ability to meet demand for our
    products in a timely and cost effective manner.
   22




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Sales
    of the Hi Art system may be adversely affected if clinicians do
    not widely adopt IGRT and adaptive radiotherapy, which is an
    emerging cancer treatment technique.
    We may
    be delayed or prevented from implementing our long-term sales
    strategy if we fail to educate clinicians and patients about the
    benefits of the Hi Art system and to implement enhancements to
    the system in a timely manner.
   23




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Our
    ability to increase our profitability depends in part on
    maintaining our average selling prices and increasing our gross
    margins, which we may not be able to achieve.
      Our
    sales may be impacted, or we may be faced with order
    cancellations, if economic conditions in the United States or
    elsewhere worsen and credit becomes more difficult to obtain on
    reasonable terms.
    If we
    are unable to maintain existing research collaboration
    relationships, enter into new collaboration arrangements in the
    future or enter into license agreements with our collaborators
    and others, our ability to enhance the Hi Art system may be
    adversely affected.
   24




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We
    rely on a third party to perform spare parts shipping and other
    logistics functions on our behalf. A failure or disruption at
    our logistics providers would adversely impact our
    business.
    If
    third-party payors do not continue to provide sufficient
    coverage and reimbursement to healthcare providers for use of
    the Hi Art system, sales of the Hi Art system may be adversely
    affected.
   25




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non-U.S. markets
  Our
    manufacturing operations are conducted at a single location and
    any disruption at our facility could increase our
    expenses.
    We
    rely on local distributors to market and distribute the Hi Art
    system in key markets.
   26




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Our
    results may be adversely affected by changes in foreign currency
    exchange rates.
  non-U.S. competitors.
  Technological
    breakthroughs in cancer treatment could render the Hi Art system
    obsolete.
    A
    significant percentage of our sales are in international
    markets, and economic, political and other risks associated with
    international sales and operations could adversely affect our
    sales or make them less predictable.
      
    difficulties in enforcing agreements and collecting receivables
    in a timely manner through the legal systems of many countries
    outside North America;
    the failure to fulfill foreign regulatory requirements to market
    the Hi Art system on a timely basis or at all;
    availability of, and changes in, reimbursement within prevailing
    foreign health care payment systems;
    difficulties in managing foreign relationships and operations,
    including any relationships that we establish with foreign
    distributors or sales or marketing agents; 27




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
    limited protection for intellectual property rights in some
    countries;
    fluctuations in currency exchange rates;
    the possibility that foreign countries may impose additional
    withholding taxes or otherwise tax our foreign income, impose
    tariffs or adopt other restrictions on foreign trade;
    the possibility of any material shipping delays; and
    significant changes in the political, regulatory, safety or
    economic conditions in a country or region.    Product
    liability suits, whether or not meritorious, could be brought
    against us due to an alleged defective component of the Hi Art
    system or for the misuse of the Hi Art system. These suits could
    result in expensive and time-consuming litigation, payment of
    substantial damages and an increase in our insurance
    rates.
    The
    effectiveness of procedures performed using conformal radiation
    therapy delivery systems like the Hi Art system are not yet
    supported by long-term clinical data and the medical community
    has not yet developed a large body of peer-reviewed literature
    that supports the Hi Art systems efficacy.
    Our
    success will depend on our ability to attract and retain
    qualified personnel.
   28




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##### Table of Contents



If we
    do not effectively manage our growth, our business may be
    significantly harmed.
  scale-up
  We may
    need to raise additional capital in the future and may be unable
    to do so on acceptable terms. This could limit our ability to
    grow and carry out our business plan.
   29




---



##### Table of Contents



We
    have not yet evaluated our internal controls over financial
    reporting in compliance with Section 404 of the
    Sarbanes-Oxley Act.
    Risks
    Related to Our Intellectual Property
  If we
    are not able to meet the requirements of our license agreement
    with the Wisconsin Alumni Research Foundation, or WARF, we could
    lose access to the technologies licensed thereunder and be
    unable to produce or sell the Hi Art system.
    If we
    are not able to adequately protect our intellectual property and
    proprietary technology our competitive position, future business
    prospects and financial performance will be adversely
    affected.
    
    current or future U.S. or foreign patent applications will
    be approved in a timely manner or at all;
    our issued patents will protect our intellectual property and
    not be challenged by third parties;
    we will develop patentable intellectual property;
    the validity of our patents will be upheld;
    the patents of others will not have an adverse effect on our
    ability to do business; or
    others will not independently develop similar or competing
    products or methods or design around any patents that may be
    issued to us.   30




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##### Table of Contents



We may
    initiate lawsuits to protect or enforce our patents or other
    intellectual property rights, which could be expensive and, if
    we lose, could cause us to lose some of our intellectual
    property rights.
      We may
    become subject to costly intellectual property litigation, which
    could affect our future business and financial
    performance.
   31




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##### Table of Contents



We may
    be subject to claims that our employees have wrongfully used or
    disclosed alleged trade secrets of their former
    employers.
    Risks
    Related to Regulatory Matters
  Modifications,
    upgrades and future products related to the Hi Art system or new
    indications may require new FDA premarket approvals or 510(k)
    clearances, and such modifications, or any defects in design or
    manufacture, may require us to recall or cease marketing the Hi
    Art system until approvals or clearances are
    obtained.
       32




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##### Table of Contents



The Hi
    Art system is subject to recalls even after receiving FDA
    clearance or approval, which would harm our reputation, business
    and financial results.
    If we
    or our distributors do not obtain and maintain the necessary
    regulatory approvals in a specific country, we will not be able
    to market and sell the Hi Art system in that
    country.
    We
    must manufacture the Hi Art system in accordance with federal
    and state regulations and we could be forced to recall our
    installed systems or terminate production if we fail to comply
    with these regulations.
    If we
    are found to have violated laws protecting the confidentiality
    of patient health information, we could be subject to civil or
    criminal penalties, which could increase our liabilities and
    harm our reputation or our business.
   33




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##### Table of Contents



We are
    subject to federal and state laws prohibiting
    kickbacks and false or fraudulent claims, which, if
    violated, could subject us to substantial penalties.
    Additionally, any challenge to or investigation into our
    practices under these laws could cause adverse publicity and be
    costly to respond to, and thus could harm our
    business.
      Risks
    Related to Our Common Stock
  Our
    common stock has only recently been publicly traded and the
    price may fluctuate substantially.
    
    fluctuations in quarterly revenue and net income;
    regulatory developments related to the manufacturing, marketing
    or sale of the Hi Art system; 34




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##### Table of Contents




    announcements of technological innovations, new services or
    service enhancements, strategic alliances or significant
    agreements by us or by our competitors;
    recruitment or departure of key personnel;
    changes in the estimates of our operating results or changes in
    recommendations by any securities analyst that elects to follow
    our common stock;
    sales of large blocks of our common stock; and
    changes in accounting principles or changes in interpretations
    of existing principles, which could affect our financial results.    Anti-takeover
    provisions included in our amended and restated articles of
    incorporation and bylaws could delay or prevent a change of
    control of our company, which could adversely impact the value
    of our common stock and may prevent or frustrate attempts by our
    shareholders to replace or remove our current
    management.
    
    our board of directors is authorized to issue preferred stock in
    series, with the designation, powers, preferences and rights of
    each series to be fixed by our board of directors;
    a board of directors divided into three classes serving
    staggered three-year terms, such that not all members of the
    board will be elected at one time;
    a requirement that special meetings of shareholders be called
    only by a majority of our board of directors or our Chief
    Executive Officer upon demand of the holders of record of stock
    representing ten percent or as otherwise required by law;
    advance notice requirements for shareholder proposals and
    nominations; and
    our bylaws may be amended by approval of either our shareholders
    or our board of directors, except where: (i) our articles
    of incorporation or the Wisconsin Business Corporation Law
    reserve the power exclusively to the shareholders, or
    (ii) the shareholders, in adopting, amending or repealing a
    particular bylaw, provide within the bylaws that the board of
    directors may not amend, repeal or readopt such bylaw.   35




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##### Table of Contents



Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    
    an office building totaling approximately 61,000 square
    feet under a lease expiring 2014;
    a manufacturing facility totaling approximately
    64,000 square feet under a lease expiring 2018; and
    a portion of an office building totaling approximately
    46,000 square feet under a lease expiring 2014.    Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for the Registrants Common Equity, Related Shareholder
    Matters and Issuer Purchases of Equity Securities  Stock
    Information
    Year Ended December 31, 2007

High


LowFirst Quarter


N/A



N/ASecond Quarter (beginning May 9, 2007)

$
24.73


$
19.51Third Quarter

$
27.58


$
21.61Fourth Quarter

$
24.24


$
15.85      36




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##### Table of Contents



Stock
    Performance Graph
      COMPARISON
    OF 7 MONTH CUMULATIVE TOTAL RETURN*
    Among TomoTherapy Incorporated, The NASDAQ Composite Index
    and
    The S&P Health Care Index
  
  *
    
    $100 invested on May 9, 2007 in stock or in
    index  including reinvestment of dividends.  Use of
    Proceeds from Public Offering of Common Stock
  Form S-1 No. 333-140600)
     37




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##### Table of Contents



Sales
    of Unregistered Securities.
  Form 10-K, 4-for-1
                  and/or and/or and/or
      Securities
    Authorized for Issuance Under Equity Compensation
    Plans
   38




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##### Table of Contents



Item 6.
    Selected
    Financial Data  Form 10-K.
  Years Ended December 31,2007


2006


2005


2004


2003(In thousands, except per share data)Consolidated statements of operations data:Revenue

$
232,810


$
156,102


$
75,754


$
45,460


$
11,778Cost of revenue


146,137



102,653



50,047



28,078



9,158Gross profit


86,673



53,449



25,707



17,382



2,620Operating expenses:Research and development


34,304



21,397



11,372



6,492



5,530Selling, general and administrative


42,307



23,119



14,197



7,827



4,856Total operating expenses


76,611



44,516



25,569



14,319



10,386Income (loss) from operations


10,062



8,933



138



3,063



(7,766
)Other income (expense), net


6,388



(1,202
)


179



(31
)


(399
)Income (loss) before income tax and cumulative effect of change
    in accounting principle


16,450



7,731



317



3,032



(8,165
)Income tax expense (benefit)


5,788



(7,184
)


78



151



Income (loss) before cumulative effect of change in accounting
    principle


10,662



14,915



239



2,881



(8,165
)Cumulative effect of change in accounting principle(1)






(2,140
)










Net income (loss)


10,662



12,775



239



2,881



(8,165
)Accretion of redeemable convertible preferred stock(2)


(237,582
)


(46,253
)


(68,075
)


(41,960
)


(11,421
)Net loss attributable to common shareholders

$
(226,920
)

$
(33,478
)

$
(67,836
)

$
(39,079
)

$
(19,586
)Basic and diluted net loss per share attributable to common
    shareholders

$
(6.35
)

$
(3.78
)

$
(8.48
)

$
(5.40
)

$
(2.89
)Weighted average common shares used in computing basic and
    diluted net loss per share attributable to common shareholders


35,731



8,856



7,996



7,234



6,766Pro forma basic net income per share(3)

$
0.24


$
0.36











Pro forma diluted net income per share(3)

$
0.21


$
0.32











Pro forma weighted average number of shares used in computing
    basic net income per share(3)


45,028



35,366











Pro forma weighted average number of shares used in computing
    diluted net income per share(3)


49,919



40,130











  39




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##### Table of Contents



(1)
    
    Represents impact of the adoption of Staff Position
    150-5,
    Issuers Accounting under Financial Accounting Standards
    Board (FASB) Statement No. 150 for Freestanding Warrants
    and Other Similar Instruments on Shares That Are Redeemable(FSP
    150-5).
    Pursuant to FSP
    150-5, we
    were required to classify our outstanding warrants to purchase
    preferred stock as a liability on our balance sheet and record
    adjustments to their fair value in our statements of operations
    at the end of each reporting period. For the year ended
    December 31, 2006, the impact of the change in accounting
    principle was to decrease net income by $3.1 million,
    consisting of a $2.2 million cumulative effect adjustment
    for the change in accounting principle as of January 1,
    2006, when the Company adopted FSP
    150-5, and
    $0.9 million of expense that was recorded in other income
    (expense), net to reflect the increase in fair value between
    January 1, 2006 and December 31, 2006. The warrants
    were subject to revaluation at each balance sheet date and any
    change in fair value was recognized as a component of other
    income (expense), net, until the completion of the
    Companys initial public offering when the preferred
    warrants converted to common stock warrants.(2)
    
    Accretion of redeemable convertible preferred stock represents
    the impact attributable to the increase in the fair market value
    of such shares prior to their conversion into common stock upon
    the closing of our initial public offering. The holders of
    Series A, B, C and D preferred stock had the option to put
    their stock back to us at the greater of (i) the original
    purchase price plus accrued dividends, or (ii) the fair
    market value of the stock. The holders of Series E preferred
    stock had the option to put their stock back to us at the
    original purchase price plus accrued dividends. The put option
    and the related accretion of the preferred stock terminated upon
    the completion of our initial public offering when the preferred
    stock converted to common stock.(3)
    
    Pro forma net income per share gives effect to the conversion
    upon the closing of our initial public offering of all of our
    issued and outstanding shares of preferred stock on a
    one-for-one basis into shares of common stock. See Note B
    to our consolidated financial statements for an explanation of
    the number of shares used in computing per share data.  Years Ended December 31,2007


2006


2005


2004


2003(In thousands)Consolidated balance sheet data:Cash and cash equivalents

$
191,780


$
20,137


$
30,396


$
1,950


$
7,524Accounts receivable


44,596



19,050



14,235



5,036



1,771Inventories


53,171



40,026



28,283



15,740



8,179Working capital (deficit)


211,449



7,446



7,792



(4,187
)


(10,973
)Total assets


327,165



109,314



82,303



29,069



20,796Deferred revenue and customer deposits


35,826



43,307



49,281



16,133



21,566Redeemable convertible preferred stock






212,663



166,402



84,234



35,597Total shareholders equity (deficit)


238,694



(184,117
)


(151,406
)


(83,720
)


(44,704
)   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  The following discussion of our consolidated financial
    condition and results of operations should be read together with
    our consolidated financial statements and related notes included
    elsewhere in this
    Form 10-K.
    This discussion contains forward-looking statements based upon
    current expectations that involve risks, uncertainties and
    assumptions. Our actual results may differ materially from those
    anticipated in these forward-looking statements as a result of
    various factors. We discuss factors that we believe could cause
    or contribute to these differences below and elsewhere in this
    filing, including those set forth under Risk
    Factors.
  Overview
   40




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##### Table of Contents



Financial
    Operations
  Revenue
      
    there is persuasive evidence that an arrangement exists;
    the title and risk of loss have been transferred to the
    customer, as evidenced by the customers signature on our
    acceptance test procedure document or upon shipment to a
    certified distributor;
    the sales price is fixed or determinable; and
    collection is reasonably assured.     41




---



##### Table of Contents



Customer concentration.
  Geographic breakdown.
  Years Ended December 31,2007


2006


2005North America


56
%


57
%


78
%Europe


26
%


22
%


7
%Asia-Pacific


18
%


21
%


15
%Total


100
%


100
%


100
%   Distributor sales.
  Sales agents.
  Cost
    of revenue
       42




---



##### Table of Contents



Research
    and development expenses
      Selling,
    general and administrative expenses
      Other
    income (expense)
    Income
    tax expense (benefit)
    Accounting for Contingencies , Accounting for Uncertainty in
    Income Taxes  an Interpretation of FASB Statement
    No. 109
 43




---



##### Table of Contents



Key
    Factors Affecting our Performance
    Extended sales cycle and fluctuations.
  Customer mix and gross margins.
  
    Sales outside of North America accounted for 44%, 43% and 22% of
    our revenue in 2007, 2006 and 2005, respectively. Increased
    sales of the Hi Art system outside of North America have tended
    to impact our gross margins favorably due to higher average
    selling prices in these markets. We intend to continue to expand
    our international selling efforts although we cannot be certain
    that favorable pricing trends will continue.
    The majority of our sales to date have been to university
    research centers, hospitals and cancer treatment centers that
    are early adopters of new technologies and that tend to replace
    equipment regularly in order to upgrade their treatment
    capabilities. Our sales strategy includes increasing sales to
    community hospitals and smaller treatment centers, which have
    traditionally been slower in their adoption of new technologies
    primarily due to cost-based purchasing decisions. Our efforts to
    penetrate this market may require us to lower the price of the
    Hi Art system. Similarly, we may be required to lower the price
    of the Hi Art system in order to sell to national chains or
    large volume purchasers.
    Our ability to demonstrate the clinical benefits of the Hi Art
    system compared to competing systems is likely to be a factor in
    our ability to maintain the selling price of the Hi Art system.
    We may need to demonstrate increased clinical benefits and offer
    additional features in order to compete favorably with our
    competitors in the medium to long term.  Component supply and cost.
  Operating expenses.
 44




---



##### Table of Contents



Results
    of Operations
    Years Ended December 31,2007


2006


2005Revenue


100.0
%


100.0
%


100.0
%Cost of revenue


62.8



65.8



66.1Gross profit


37.2



34.2



33.9Operating expenses:Research and development


14.7



13.7



15.0Selling, general and administrative


18.2



14.8



18.7Total operating expenses


32.9



28.5



33.7Income from operations


4.3



5.7



0.2Other income (expense), net


2.8



(0.7
)


0.2Income before income tax and cumulative effect of change in
    accounting principle


7.1



5.0



0.4Income tax expense (benefit)


2.5



(4.6
)


0.1Income before cumulative effect of change in accounting principle


4.6
%


9.6
%


0.3
%   Year
    Ended December 31, 2007 Compared to Year Ended
    December 31, 2006
  Revenue
      Cost of
    revenue
   45




---



##### Table of Contents



Research
    and development expenses
    Selling,
    general and administrative expenses
    Stock-Based
    Compensation
    Other
    income (expense)
   46




---



##### Table of Contents



Income
    tax expense (benefit)
    Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005
  Revenue
      Cost of
    revenue
    Research
    and development expenses
    Selling,
    general and administrative expenses
   47




---



##### Table of Contents



Stock-Based
    Compensation
    Other
    income (expense)
    Income
    tax expense (benefit)
       48




---



##### Table of Contents



Quarterly
    Results of Operations
    Three Months Ended,Mar. 31,


June 30,


Sept. 30,


Dec. 31,


Mar. 31,


June 30,


Sept. 30,


Dec. 31,2006


2006


2006


2006


2007


2007


2007


2007(In thousands)Revenue

$
27,462


$
31,869


$
37,173


$
59,598


$
51,163


$
43,715


$
59,221


$
78,711Cost of revenue


19,320



22,880



23,651



36,802



29,352



29,191



37,151



50,443Gross profit


8,142



8,989



13,522



22,796



21,811



14,524



22,070



28,268Gross profit margin


29.6
%


28.2
%


36.4
%


38.2
%


42.6
%


33.2
%


37.3
%


35.9
%Total operating expenses


7,441



9,396



12,069



15,610



15,780



16,785



20,750



23,296Income (loss) from operations

$
701


$
(407
)

$
1,453


$
7,186


$
6,031


$
(2,261
)

$
1,320


$
4,972Backlog (in millions)

$
104


$
139


$
146


$
164


$
162


$
207


$
228


$
248Quarterly revenue as a percentage of annual revenue


17.6
%


20.4
%


23.8
%


38.2
%


22.0
%


18.8
%


25.4
%


33.8
%Quarterly gross profit as a percentage of annual gross profit


15.2
%


16.8
%


25.3
%


42.7
%


25.2
%


16.8
%


25.5
%


32.5
%         Liquidity
    and Capital Resources
   49




---



##### Table of Contents



Cash
    Flows
  Cash flows from operating activities.
      Cash flows from investing activities.
     50




---



##### Table of Contents



Cash flows from financing activities.
      Loans
    and Available Borrowings
        Contractual
    Obligations and Commitments
    Payment Due by PeriodLess Than


1-3


3-5


More ThanTotal


1 Year


Years


Years


5 YearsOperating lease obligations

$
22,759


$
2,841


$
6,020


$
5,933


$
7,965Notes payable


841



114



270



432



25Total

$
23,600


$
2,955


$
6,290


$
6,365


$
7,990    51




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##### Table of Contents



Operating
    Capital and Capital Expenditure Requirements
    
    revenue generated by sales of the Hi Art system and service
    plans;
    costs associated with our sales and marketing initiatives and
    manufacturing activities;
    the level of investment needed in our service and support
    infrastructure;
    costs of our research and development activities; and
    effects of competing technological and market developments.    Off-Balance
    Sheet Arrangements
  Regulation S-K.
  Quantitative
    and Qualitative Disclosures about Market Risk
  Inflation
    Critical
    Accounting Policies and Estimates
    Revenue
    Recognition
  Revenue Recognition
 52




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##### Table of Contents



No. 00-21, Revenue Arrangements with Multiple Deliverables.
  
    Persuasive evidence of an arrangement
    exists.  We require evidence of a purchase order
    with a customer specifying the terms and conditions of the
    product or services to be delivered, typically in the form of a
    signed quotation or purchase order from the customer.
    Title and risk of loss have been transferred to the
    customer.  During the installation phase, each Hi
    Art system is fully tested to confirm that it functions within
    operating specifications. Upon completion of the test
    procedures, the customer signs the acceptance test procedures
    document, or ATP, acknowledging acceptance of the system.
    Revenue for the sale of the system is recognized upon receipt of
    the signed ATP or upon shipment to a certified distributor.
    The sales price is fixed or determinable.  All
    contract terms are fixed in the signed quotation or purchase
    order received from the customer. The contracts do not contain
    rights of cancellation, return, exchanges or refunds.
    Collection is reasonably assured.  Due to the
    fact that our sales are to hospitals and cancer treatment
    centers with significant resources, we consider accounts
    receivable to be fully collectible. In addition, contracts
    generally require staged payments as follows: 10% to 30% down
    payment, 60% to 70% due upon shipment and 10% to 20% due upon
    final acceptance by the customer.          SOP No. 97-2, Software Revenue Recognition SOP No. 98-9, Software Revenue Recognition with Respect to Certain
    Agreements. SOP No. 97-2
 53




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##### Table of Contents



Inventories
    Warranty
    Obligations
    Income
    Taxes
  Accounting for Income Taxes.
   54




---



##### Table of Contents



,
    Accounting for Uncertainty in Income Taxes  an
    Interpretation of FASB Statement No. 109 Accounting for Contingencies Accounting for Income Taxes
  Stock-Based
    Compensation
  Share-Based Payment Accounting
    for Stock-Based Compensation.
             55




---



##### Table of Contents




    the issuance price of our series of preferred stock to third
    parties;
    recent third-party transactions in our common stock;
    valuations performed by an independent valuation firm;
    the liquidation preference and other rights of the preferred
    stock;
    our revenue backlog and financial performance;
    trends in the market for public companies involved in similar
    lines of business; and
    the fact that the option grants involved illiquid securities of
    a private company.  Valuation of Privately-Held-Company Equity Securities Issued
    as Compensation
    Valuation
    Methodologies Employed by Virchow Krause
     56




---



##### Table of Contents



Significant
    Factors in Determining the Fair Value as of Each Grant
    Date
    Number of





Fair Value


IntrinsicOptions


Exercise


Estimated


ValueDate of Grant

Granted


Price


per Share


per ShareJanuary 2006


34


$
4.99


$
4.99


$
May 2006


47



5.35



5.35



July 2006


109



5.35



5.35



October 2006


190



6.75



6.75



November 2006


3



6.75



6.75



December 2006


1,958



6.75



8.40



1.65  57




---



##### Table of Contents




    On December 29, 2005, we sold 2,356,435 shares of
    Series E convertible preferred stock at $5.94 per share,
    representing net proceeds of $13.9 million. We engaged
    Virchow Krause to perform an independent valuation of our common
    stock based on this preferred stock transaction. Virchow Krause
    determined that our common stock was valued at $4.99 per share
    as of December 29, 2005. This valuation was then used for
    the option grants made in January 2006.
    In the second quarter of 2006, our board of directors determined
    that an updated independent valuation should be obtained.
    Therefore, we engaged Virchow Krause to perform a valuation of
    all classes of our capital stock. Virchow Krause issued a report
    dated May 16, 2006, which concluded that our common stock
    was valued at $5.35 per share as of March 31, 2006. This
    valuation was then used for the option grants made in May and
    July 2006. We believe that there were no material events and no
    material changes in our financial condition or prospects during
    this period that would have resulted in a change in the
    valuation of a share of our common stock.
    On October 23, 2006, the Chairman of our board of
    directors, T. Rockwell Mackie, sold an aggregate of
    190,400 shares of common stock to two independent
    investors, and our President, Paul Reckwerdt, sold 190,400
    common shares to a single independent investor. The purchase
    price of all these shares was $6.75 per share resulting in
    aggregate proceeds of $1.3 million to each seller. Given
    the significant size of the transactions and the fact that these
    shares were sold to independent third parties, we concluded that
    our common stock should be valued at $6.75 per share as of
    October 23, 2006. Both the buyers and sellers had knowledge
    of the possibility that we would undertake an initial public
    offering. Stock option grants were made based on this price in
    October and November 2006.
    Management did not obtain an independent valuation report for
    the grants made on December 7, 2006 because management did
    not believe that there had been any material change in our
    financial condition or prospects between October 23, 2006
    and December 7, 2006. However, after further consideration
    of an independent valuation study completed by Virchow Krause in
    March 2007 with respect to the fair value of our common stock as
    of December 31, 2006, management and our board of directors
    concluded that the stock options granted on December 7,
    2006 were granted with an exercise price of $1.65 per share less
    than the fair value of our common stock on December 7, 2006
    as established by the December 31, 2006 valuation.    Convertible
    Preferred Stock Warrant Liability
  FSP 150-5. FSP 150-5,
 58




---



##### Table of Contents



Valuation of Privately-Held-Company Equity
    Securities Issued as Compensation.
  Redeemable
    Convertible Preferred Stock
    Recent
    Accounting Pronouncements
  , Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement
    No. 109 Accounting for Income Taxes
  Fair Value Measurements (SFAS No. 157)
  The
    Fair Value Option for Financial Assets and Financial Liabilities
 59




---



##### Table of Contents



Business Combinations Accounting and Reporting of Noncontrolling interest in
    Consolidated Financial Statements, an amendment of ARB
    No. 51
  Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Interest
    Rate Risk
      Foreign
    Currency Exchange Rate Risk
   60




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  TomoTherapy
    Incorporated
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  PageReport of Independent Registered Public Accounting Firm


62Consolidated Balance Sheets


63Consolidated Statements of Operations


64Consolidated Statements of Temporary Equity and
    Shareholders Equity (Deficit)


65Consolidated Statements of Cash Flows


66Notes to Consolidated Financial Statements


67  61




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
           Share-Based Payment 150-5, Issuers Accounting Under FASB Statement No. 150
    for Freestanding Warrants and Other Similar Instruments on
    Shares That Are Redeemable
     62




---



##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
 (In
    thousands, except share amounts)
  December 31,2007


2006ASSETSCash and cash equivalents

$
191,780


$
20,137Accounts receivable


44,596



19,050Inventories


53,171



40,026Deferred tax assets


3,433



5,982Prepaid expenses and other current assets


1,622



1,014Total current assets


294,602



86,209Property and equipment, net


19,894



15,469Deferred tax assets


6,027



1,815Other non-current assets, net


6,642



5,821Total assets

$
327,165


$
109,314LIABILITIES, TEMPORARY EQUITY AND SHAREHOLDERS EQUITY
    (DEFICIT)Accounts payable

$
17,655


$
13,960Accrued expenses


21,699



12,667Customer deposits


20,309



23,103Deferred revenue


15,517



20,204Accrued warranties


7,973



5,307Convertible preferred stock warrant liability






3,522Total current liabilities


83,153



78,763Other non-current liabilities


5,318



2,005Total liabilities


88,471



80,768COMMITMENTS AND CONTINGENCIES (Note E)TEMPORARY EQUITYRedeemable convertible preferred stock, $1 par value, zero
    and 25,686,898 shares authorized; zero and
    25,221,239 shares issued and outstanding at
    December 31, 2007 and December 31, 2006, respectively;
    liquidation amount: zero and $52,587 at December 31, 2007
    and December 31, 2006, respectively






212,663SHAREHOLDERS EQUITY (DEFICIT)Preferred stock, $1 par value, 10,000,000 and zero shares
    authorized at December 31, 2007 and December 31, 2006;
    zero shares issued and outstanding at December 31, 2007 and
    December 31, 2006, respectively






Common stock, $.01 par value, 200,000,000 and
    47,689,147 shares authorized at December 31, 2007 and
    December 31, 2006; 49,740,577 and 9,264,291 shares
    issued and outstanding at December 31, 2007 and
    December 31, 2006, respectively


497



93Additional paid-in capital


651,725



1,771Treasury stock, 1,632 shares at cost






Accumulated other comprehensive loss


(523
)


Accumulated deficit


(413,005
)


(185,981
)Total shareholders equity (deficit)


238,694



(184,117
)TOTAL LIABILITIES, TEMPORARY EQUITY AND SHAREHOLDERS
    EQUITY (DEFICIT)

$
327,165


$
109,314    63




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
 (In
    thousands, except per share amounts)
  Years Ended December 31,2007


2006


2005Revenue

$
232,810


$
156,102


$
75,754Cost of revenue


146,137



102,653



50,047Gross profit


86,673



53,449



25,707Operating expenses:Research and development


34,304



21,397



11,372Selling, general and administrative


42,307



23,119



14,197Total operating expenses


76,611



44,516



25,569Income from operations


10,062



8,933



138Other income (expense):Interest income


6,056



1,292



166Interest expense


(221
)


(1,172
)


(47
)Other income (expense), net


553



(1,322
)


60Total other income (expense)


6,388



(1,202
)


179Income before income tax and cumulative effect of change in
    accounting principle


16,450



7,731



317Income tax expense (benefit)


5,788



(7,184
)


78Income before cumulative effect of change in accounting principle


10,662



14,915



239Cumulative effect of change in accounting principle






(2,140
)


Net income


10,662



12,775



239Accretion of redeemable convertible preferred stock


(237,582
)


(46,253
)


(68,075
)Net loss attributable to common shareholders

$
(226,920
)

$
(33,478
)

$
(67,836
)Net loss per share attributable to common shareholdersBasic and diluted

$
(6.35
)

$
(3.78
)

$
(8.48
)Weighted average common shares outstanding used in computing net
    loss per share attributable to common shareholdersBasic and diluted


35,731



8,856



7,996    64




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF TEMPORARY EQUITY
 AND SHAREHOLDERS EQUITY (DEFICIT)
 (In thousands)
  Shareholders Equity (Deficit)AccumulatedRedeemable Convertible








Additional


Other





TotalPreferred Stock


Common Stock


Paid-in


Comprehensive


Accumulated


ShareholdersShares


Amount


Shares


Amount


Capital


Loss


Deficit


Equity (Deficit)Balance at December 31, 2004


22,705


$
84,234



7,468


$
75


$
872


$



$
(84,667
)

$
(83,720
)Net income


























239



239Accretion of preferred stock to redemption value






68,075



















(68,075
)


(68,075
)Exercise of stock options










970



9



141











150Exercise of preferred stock warrants


160



182























Sale of Series E preferred stock


2,356



13,911























Balance at December 31, 2005


25,221



166,402



8,438



84



1,013







(152,503
)


(151,406
)Net income


























12,775



12,775Accretion of preferred stock to redemption value






46,253



















(46,253
)


(46,253
)Exercise of stock options










826



9



970











979Compensation expense related to stock options


















232











232Reclassification of warrants to liabilities


















(444
)










(444
)Issuance costs for Series E preferred stock






8























Balance at December 31, 2006


25,221



212,663



9,264



93



1,771







(185,981
)


(184,117
)Net income


























10,662



10,662Foreign currency translation adjustments






















(523
)






(523
)Comprehensive income






























10,139Accretion of preferred stock to redemption value






237,582



















(237,582
)


(237,582
)Exercise of stock options










2,850



28



3,155











3,183Exercise of common stock warrants










3



















Exercise of preferred stock warrants


456



3,993























Issuance of contingent common shares










1,289



13



91







(104
)


Compensation expense related to stock options


















3,318











3,318Income tax benefit related to stock options


















3,800











3,800Reclassification of warrant liability to equity


















165











165Initial public offering, net of issuance costs of
    $2.7 million










10,603



106



184,575











184,681Issuance of common stock










55







869











869Conversion of redeemable convertible preferred stock


(25,677
)


(454,238
)


25,677



257



453,981











454,238Balance at December 31, 2007





$




49,741


$
497


$
651,725


$
(523
)

$
(413,005
)

$
238,694    65




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 (In
    thousands)
  Years Ended December 31,2007


2006


2005Cash flows from operating activities:Net income

$
10,662


$
12,775


$
239Adjustments to reconcile net income to net cash provided by
    (used in) operating activities:Depreciation and amortization


6,503



3,053



1,678Noncash charge for stock compensation


3,318



232



Deferred income tax provision (benefit)


3,544



(7,797
)


Excess tax benefit from share-based compensation


(3,800
)






Deferred rent and obligation to landlord


750



31



(16
)Loss on disposal of property and equipment


21



100



Change in carrying value of convertible preferred stock warrants


106



3,078



Gain on extinguishment of debt






(214
)


Changes in operating assets and liabilities:Accounts receivable


(25,546
)


(4,815
)


(9,199
)Inventories


(13,145
)


(11,743
)


(12,543
)Prepaid expenses and other current assets


(608
)


(176
)


(553
)Accounts payable


3,695



6,618



2,087Customer deposits


(2,794
)


(15,084
)


26,590Deferred revenue


(4,687
)


9,110



6,558Accrued expenses


10,222



6,350



3,360Accrued warranties


2,666



2,384



242Net cash provided by (used in) operating activities


(9,093
)


3,902



18,443Cash flows from investing activities:Purchase of property and equipment


(8,320
)


(10,974
)


(2,205
)Cost of test systems


(2,963
)


(4,671
)


(1,832
)Capitalization of software costs


(415
)






Payments for intangible assets


(72
)


(378
)


(133
)Net cash used in investing activities


(11,770
)


(16,023
)


(4,170
)Cash flows from financing activities:Proceeds from notes payable






900



Payments on notes payable


(34
)


(25
)


(70
)Proceeds from the issuance of preferred stock, net of issuance
    costs






8



13,911Excess tax benefit from share-based compensation


3,800







Proceeds from initial public offering, net of issuance costs


184,681







Proceeds from the issuance of common stock


869







Proceeds from exercise of warrants


530







182Proceeds from exercise of stock options


3,183



979



150Net cash provided by financing activities


193,029



1,862



14,173Effect of exchange rate changes on cash


(523
)






Increase (decrease) in cash and cash equivalents


171,643



(10,259
)


28,446Cash and cash equivalents at beginning of period


20,137



30,396



1,950Cash and cash equivalents at end of period

$
191,780


$
20,137


$
30,396Supplemental disclosure of cash flow information:Interest paid

$
233


$
97


$
36Income taxes paid


1,165



172



205Supplemental disclosure of noncash investing activities and
    financing activities:Leasehold improvements funded by landlord

$
524


$



$
Reclassification of preferred stock warrants to liability






444



Reclassification of preferred stock warrants to equity


3,630







    66




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  NOTE A 
    DESCRIPTION
    OF BUSINESS  Organization
    Initial
    Public Offering
    Follow-on
    Public Offering
  30-day
  NOTE B 
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Use of
    Estimates
    Principles
    of Consolidation
    Cash
    and Cash Equivalents
    Fair
    Value of Financial Instruments
   67




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Foreign
    Currency
    Concentration
    of Credit Risk and Other Risks and Uncertainties
        Accounts
    Receivable
    Inventories
  work-in-process first-in
    December 31,2007


2006Raw materials

$
41,405


$
30,091Work-in-process


8,722



4,762Finished goods


3,044



5,173$
53,171


$
40,026  68




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Property
    and Equipment
    December 31,2007


2006Furniture and equipment

$
8,659


$
5,166Computer equipment


5,533



3,706Computer software


4,867



1,522Leasehold improvements


9,150



6,744In process


120



3,20228,329



20,340Less: Accumulated depreciation and amortization


(8,435
)


(4,871
)Property and equipment, net

$
19,894


$
15,469     Furniture and equipment

5 to 10 yearsComputer equipment and software

3 to 5 yearsLeasehold improvements

Lesser of useful life or the remaining lease term     Test
    Systems
      December 31,2007


2006Test systems at cost

$
8,485


$
7,210Less: Accumulated amortization


(2,746
)


(1,861
)Test systems, net

$
5,739


$
5,349     Warranty
    Cost
   69




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006


2005Balance, beginning of year

$
5,307


$
2,923


$
2,681Charged to cost of revenue


12,600



10,138



6,119Adjustments related to change in estimate


(86
)


(244
)


651Actual product warranty expenditures


(9,848
)


(7,510
)


(6,528
)Balance, end of year

$
7,973


$
5,307


$
2,923   Stock
    Split
    Intangible
    Assets
      December 31,2007


2006Intangible assets at cost

$
582


$
511Less: Accumulated amortization


(94
)


(39
)Intangible assets, net

$
488


$
472     Impairment
    of Long-Lived Assets
  Accounting for the Impairment on Disposal of Long-lived
    Assets
 70




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accrued
    Expenses
    December 31,2007


2006Commissions and payroll-related

$
6,597


$
2,338Bonuses


5,249



3,720Other


9,853



6,609Accrued expenses

$
21,699


$
12,667   Revenue
    Recognition
  Revenue Recognition No. 00-21, Revenue Arrangements with Multiple Deliverables.
  
    Persuasive evidence of an arrangement
    exists.  The Company requires evidence of a
    purchase order with a customer specifying the terms and
    conditions of the product or services to be delivered, typically
    in the form of a signed quotation or purchase order from the
    customer.
    Title and risk of loss have been transferred to the
    customer.  During the installation phase, each
    System is fully tested to confirm that it functions within
    operating specifications. Upon completion of the test
    procedures, the customer signs the acceptance test procedures
    document, or ATP, acknowledging acceptance of the system.
    Revenue for the sale of the system is recognized upon receipt of
    the signed ATP or upon shipment to a certified distributor.
    The sales price is fixed or determinable.  All
    contract terms are fixed in the signed quotation or purchase
    order received from the customer. The contracts do not contain
    rights of cancellation, return, exchanges or refunds.
    Collection is reasonably assured.  Due to the
    fact that the Companys sales are to hospitals and cancer
    treatment centers with significant resources, the Company
    considers accounts receivable to be fully collectible. In
    addition, the Companys contracts generally require staged
    payments as follows: 10% to 30% down payment, 60% to 70% due
    upon shipment and 10% to 20% due upon final acceptance by the
    customer.       71




---



##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        SOP No. 97-2, Software Revenue Recognition SOP No. 98-9, Software Revenue Recognition with Respect to Certain
    Agreements. SOP No. 97-2
      Years Ended December 31,2007


2006


2005Product sales

$
213,900


$
147,974


$
73,593Service and other revenue


18,910



8,128



2,161Total revenue

$
232,810


$
156,102


$
75,754   Shipping
    and Handling Costs
  EITF 00-10, Accounting for Shipping and Handling Fees and
    Costs,
  Software
    Development Costs
   72




---



##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Research
    and Development Costs
    Advertising
    Expenses
    Income
    Taxes
  Accounting for Income Taxes.
  Comprehensive
    Income
      Years Ended December 31,2007


2006


2005Net income

$
10,662


$
12,775


$
239Foreign currency translation adjustments


(523
)






Comprehensive income

$
10,139


$
12,775


$
239   Stock-Based
    Compensation
  Accounting for Stock Issued to Employees Accounting for Certain Transactions Involving
    Stock Compensation an Interpretation of APB Opinion
    No. 25 Accounting for Stock Appreciation Rights and Other Variable
    Stock Option or Award Plans Accounting for
    Stock-Based Compensation , Accounting for Stock-Based
    Compensation  Transition and Disclosure
  Share-Based Payment
 73




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Net
    Income (Loss) Per Share of Common Stock
    Years Ended December 31,2007


2006


2005Net income (loss) per common share:Basic and diluted:Income before cumulative effect of change in accounting principle

$
0.30


$
1.68


$
0.03Cumulative effect of change in accounting principle






(0.24
)


Net income

$
0.30


$
1.44


$
0.03Net loss attributable to common shareholders

$
(6.35
)

$
(3.78
)

$
(8.48
)Weighted average common shares outstanding used in:Basic and diluted (in thousands)


35,731



8,856



7,996         Years Ended December 31,2007


2006


2005Preferred stock (as if converted)






25,221



25,221Contingent common shares






1,289



1,289Stock options and warrants


6,338



9,622



8,1686,338



36,132



34,678  74




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2007


2006HistoricalNumerator:Net income loss attributable to common shareholders

$
(226,920
)

$
(33,478
)Denominator:Weighted-average shares of common stock outstanding


35,731



8,856Net loss attributable to common shareholders per
    share  basic and diluted

$
(6.35
)

$
(3.78
)Pro forma (unaudited)Numerator:Net loss

$
(226,920
)

$
(33,478
)Pro forma adjustment to add back preferred stock accretion


237,582



46,253Pro forma net income available for shareholders

$
10,662


$
12,775Denominator for pro forma basic net income per share:Weighted-average shares of common stock outstanding


35,731



8,856Pro forma adjustments to reflect assumed conversion of preferred
    stock (as if converted)


8,845



25,221Pro forma adjustment to reflect assumed conversion of contingent
    common shares (as if converted)


452



1,289Shares used to compute pro forma basic net income per common
    share


45,028



35,366Pro forma basic net income per share

$
0.24


$
0.36Denominator for pro forma diluted net income per share:Weighted-average shares of common stock outstanding


35,731



8,856Pro forma adjustments to reflect assumed conversion of preferred
    stock (as if converted)


8,845



25,221Pro forma adjustment to reflect assumed conversion of contingent
    common shares (as if converted)


452



1,289Pro forma adjustments to reflect assumed exercise of warrants
    and stock options using treasury stock method


4,891



4,764Shares used to compute pro forma diluted net income per share


49,919



40,130Pro forma diluted net income per share

$
0.21


$
0.32Pro forma outstanding anti-dilutive securities not included
    in diluted earnings per share calculationStock options and warrants


173



2,152    75




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Segment
    Information
  Disclosures
    About Segments of an Enterprise and Related Information,
    Years Ended December 31,2007


2006


2005North America

$
129,493


$
88,937


$
59,049Europe


61,337



33,586



5,552Asia  Pacific


41,980



33,579



11,153Total revenue

$
232,810


$
156,102


$
75,754   Change
    in Accounting Principle
  150-5, Issuers Accounting under FASB Statement No. 150 for Freestanding Warrants and
    Other Similar Instruments on Shares That Are Redeemable (FSP 150-5). FSP 150-5 FSP 150-5 FSP 150-5,
  Recent
    Accounting Pronouncements
  , Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement
    No. 109 Accounting for Income Taxes
 76




---



##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair Value Measurements (SFAS No. 157)
  The
    Fair Value Option for Financial Assets and Financial Liabilities
  Business Combinations Accounting and Reporting of Noncontrolling interest in
    Consolidated Financial Statements, an amendment of ARB
    No. 51
  NOTE C 
    LONG-TERM
    DEBT AND NOTES PAYABLE       77




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ending December 31,2008

$
1142009


1332010


1372011


3302012


102Thereafter


25Total principal payments

$
841   NOTE D 
    INCOME
    TAXES    Years Ended December 31,2007


2006


2005CurrentFederal

$
1,269


$
172


$
57State


841



441



21Foreign


134







Total current


2,244



613



78Deferred


3,544



(7,797
)


Total provision (benefit) for income tax

$
5,788


$
(7,184
)

$
78     Years Ended December 31,2007


2006


2005Provision at statutory rate


35.0
%


35.0
%


35.0
%Permanent differences


5.2



2.1



33.3State income taxes, net of federal effect


2.2



5.9



3.8Change in valuation allowance including federal net operating
    losses and credits


1.7



(135.4
)


(52.9
)Change in statuatory rate for deferred taxes


0.0



(3.6
)


0.0Nondeductible warrant expense


0.0



4.3



0.0Research and development credits


(6.6
)


0.0



0.0Other


(2.3
)


(1.2
)


5.3Effective income tax rate


35.2
%


(92.9
)%


24.5
%  78




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006Deferred tax assets:Federal and state operating loss carryforwards

$
1,430


$
4,585Tax credit carryforwards


5,606



1,643Warranty reserves


4,029



2,905Other


1,234



979Total deferred tax assets


12,299



10,112Deferred tax liabilities:Tax depreciation in excess of book depreciation


654



694Prepaid insurance


267



134Other


392



234Total deferred tax liabilities


1,313



1,062Net deferred tax asset


10,986



9,050Valuation allowance


(1,526
)


(1,253
)$
9,460


$
7,797   Accounting for Income
    Taxes
     79




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      , Accounting for Uncertainty in Income
    Taxes  an Interpretation of FASB Statement
    No. 109 Accounting for Contingencies Accounting for Income
    Taxes
  and/or
  Balance at January 1, 2007

$
1.8Additions based on tax positions related to the current year


1.2Balance at December 31, 2007

$
3.0   NOTE E 
    COMMITMENTS
    AND CONTINGENCIES     80




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ending December 31,2008

$
2,8412009


2,9742010


3,0462011


3,1172012


2,816Thereafter


7,965Total minimum lease obligation

$
22,759   NOTE F 
    TEMPORARY EQUITY AND SHAREHOLDERS EQUITY
    (DEFICIT)
  Redeemable
    Convertible Preferred Stock
   81




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2006Authorized shares


25,687Outstanding shares:Series A


3,686Series B


9,353Series C


5,987Series D


3,839Series E


2,356Total outstanding shares


25,221Liquidation amounts:Series A

$
4,828Series B


13,316Series C


11,344Series D


8,267Series E


14,832Total liquidation amount

$
52,587Cumulative proceeds, net of issuance costs:Series A

$
2,938Series B


8,828Series C


8,895Series D


6,734Series E


13,919Total cumulative proceeds, net of issuance costs

$
41,314          82




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Warrants
    FSP 150-5
   83




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Valuation of Privately-Held-Company Equity
    Securities Issued as Compensation.
  Contingent
    Common Shares
  EITF 00-27, Application of Issue No
    98-5 to
    Certain Convertible Instruments. EITF 00-27. paid-in-capital
  Employee
    Stock Purchase Plan
     84




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE G 
    STOCK
    OPTIONS        Shares


Number of


Weighted-Available


Options


Averagefor Grant


Outstanding


Exercise PriceBalance at December 31, 2004


2,856



4,405


$
0.57Authorized


2,720







Granted


(4,334
)


4,334



3.13Exercised






(970
)


0.15Cancelled


67



(67
)


0.86Balance at December 31, 2005


1,309



7,702



2.06Authorized


3,264







Granted


(2,341
)


2,341



6.63Exercised






(826
)


1.18Cancelled


61



(61
)


3.04Balance at December 31, 2006


2,293



9,156



3.30Granted


(232
)


232



20.65Exercised






(2,850
)


1.12Cancelled


16



(207
)


4.80Balance at December 31, 2007


2,077



6,331


$
4.24    85




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
              Number of





Fair Value


IntrinsicOptions


Exercise


Estimated


ValueDate of Grant

Granted


Price


per Share


per ShareJanuary 2006


34


$
4.99


$
4.99


$
May 2006


47



5.35



5.35



July 2006


109



5.35



5.35



October 2006


190



6.75



6.75



November 2006


3



6.75



6.75



December 2006


1,958



6.75



8.40



1.65  86




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Number of


Remaining


Number of


Weighted-Options


Contractual Life


Options


AverageRange of Exercise Price

Outstanding


(Years)


Exercisable


Exercise Price$  .10 - $.61


335



4.92



335


$
0.37$ 2.82


1,738



6.98



587



2.82$ 3.46


1,763



5.00



842



3.46$ 4.99 - $5.35


169



4.27



58



5.33$ 6.75


2,101



4.88



84



6.75$18.46 - $27.20


225



5.63



1



20.516,331



5.32



1,907



2.93Aggregate intrinsic value

$
93,323






$
31,716         Years Ended December 31,2007

2006

2005Expected term (years)

4.25

4.25

5.0Risk-free interest rate

3.4 - 4.6%

3.8 - 5.1%

5.0%Expected volatility

45 - 46%

65%

N/ADividend yield

0%

0%

0%Expected forfeiture rate

5.4%

2.9%

0%   NOTE H 
    RELATED
    PARTY TRANSACTIONS   87




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        NOTE I 
    RETIREMENT
    PLAN    NOTE J 
    QUARTERLY
    FINANCIAL DATA  Fiscal year 2007First


Second


Third


Fourth


Total(In thousands, except per share amounts)

Quarter


Quarter


Quarter


Quarter


YearRevenue

$
51,163


$
43,715


$
59,221


$
78,711


$
232,810Gross profit

$
21,811


$
14,524


$
22,070


$
28,268


$
86,673Income (loss) before cumulative effect of change in accounting
    principle

$
3,886


$
(653
)

$
2,583


$
4,846


$
10,662Net income (loss)

$
3,886


$
(653
)

$
2,583


$
4,846


$
10,662Net income (loss) attributable to common shareholders

$
(131,062
)

$
(103,287
)

$
2,583


$
4,846


$
(226,920
)Basic net income (loss) per share

$
(12.13
)

$
(3.15
)

$
0.05


$
0.10


$
(6.35
)Diluted net income (loss) per share

$
(12.13
)

$
(3.15
)

$
0.05


$
0.09


$
(6.35
)Shares used in basic per share calculation


10,804



32,819



49,130



49,547



35,731Shares used in diluted per share calculation


10,804



32,819



54,405



54,066



35,731   88




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##### Table of Contents



TOMOTHERAPY
    INCORPORATED AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Fiscal year 2006First


Second


Third


Fourth


Total(In thousands, except per share amounts)

Quarter


Quarter


Quarter


Quarter


YearRevenue

$
27,462


$
31,869


$
37,173


$
59,598


$
156,102Gross profit

$
8,142


$
8,989


$
13,522


$
22,796


$
53,449Income before cumulative effect of change in accounting principle

$
606


$
2,295


$
3,144


$
8,870


$
14,915Net income (loss)

$
(1,534
)

$
2,295


$
3,144


$
8,870


$
12,775Net income (loss) attributable to common shareholders

$
(10,594
)

$
(20,448
)

$
(19,616
)

$
17,180


$
(33,478
)Basic net income (loss) per share

$
(1.22
)

$
(2.31
)

$
(2.21
)

$
1.90


$
(3.78
)Diluted net income (loss) per share

$
(1.22
)

$
(2.31
)

$
(2.21
)

$
1.90


$
(3.78
)Shares used in basic per share calculation


8,657



8,844



8,862



9,054



8,856Shares used in diluted per share calculation


8,657



8,844



8,862



9,054



8,856    89




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##### Table of Contents



Item 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    Item 9A.
    CONTROLS
    AND PROCEDURES  Rule 13a-15
    Internal
    Control Over Financial Reporting
  Rule 12b-2 Form 10-K
  Changes
    in Internal Control over Financial Reporting
    Item 9B.
    OTHER
    INFORMATION   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance  Form 10-K
 90




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##### Table of Contents



www.tomotherapy.com
          Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Shareholder Matters  Equity
    Compensation Plan Information
    Number of SecuritiesRemaining Available forNumber of Securities





Future Issuance Underto be Issued


Weighted Average


Equity CompensationUpon Exercise of


Exercise Price of


Plans (ExcludingOutstanding Options,


Outstanding Options,


Securities Reflected in theWarrants and Rights


Warrants and Rights


First Column)Equity compensation plans approved by security holders


6,331


$
4.24



2,077Equity compensation plans not approved by security holders


0


$
0.00



0Total


6,331


$
4.24



2,077     Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   91




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##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  (a) Financial Statements
    (b) Financial Statement Schedule
  SCHEDULE II(in thousands)



Valuation and Qualifying AccountsBalance at








Balance atbeginning of








end ofDecember 31,

Description

period


Increases


Deductions


period2007


Valuation allowance for deferred tax assets

$
1,253


$
297


$
24


$
1,5262006


Valuation allowance for deferred tax assets

$
13,137


$
113


$
11,997


$
1,2532005


Valuation allowance for deferred tax assets

$
12,326


$
1,214


$
403


$
13,137   (c) Exhibits
    3
.1(5)

Amended and Restated Articles of Incorporation of the Registrant3
.3(1)

Amended and Restated Bylaws of the Registrant4
.1(3)

Form of the Registrants Common Stock Certificate4
.2(1)

Form of Series D warrant issued by Registrant on
    February 18, 200410
.1(2)

Amended and Restated Investment Agreement, dated
    February 8, 2007, by and among the Registrant and the other
    parties thereto, as amended10
.2(1)

Loan Agreement, dated February 11, 1999, by and between the
    Registrant and Venture Investors Early Stage Fund II
    Limited Partnership, as amended10
.3(1)

Note and Warrant Purchase Agreement, by and among the Registrant
    and the other parties thereto dated May 1, 2003, as amended10
.4(4)

License Agreement, dated February 22, 1999, by and between
    the Registrant and Wisconsin Alumni Research Foundation, as
    amended10
.5(1)

Equity Agreement, dated February 22, 1999, by and between
    the Registrant and Wisconsin Alumni Research Foundation10
.6(3)

Employment Agreement by and between the Registrant and Frederick
    A. Robertson, M.D.10
.7(3)

Employment Agreement by and between the Registrant and Stephen
    C. Hathaway10
.8(3)

Employment Agreement by and between the Registrant and Paul J.
    Reckwerdt10
.11(4)

Development and OEM Supply Agreement by and between the
    Registrant and Analogic Corporation, dated January 27, 200310
.12(4)

Manufacturing and Supply Agreement by and between the Registrant
    and Siemens Medical Solutions USA, Inc., dated November 14,
    2003, as amended10
.13(1)

Lease Agreement, dated January 26, 2005, as amended, by and
    between the Registrant and Old Sauk Trails Park Limited
    Partnership for the property located at 1240 Deming Way,
    Madison, WI10
.14(1)

Lease Agreement, dated October 28, 2005, by and between the
    Registrant and Adelphia, LLC for the property located at 1209
    Deming Way, Madison, Wisconsin10
.15(1)

Time Sharing Agreement, effective December 2005, by and between
    the Registrant and Cozzens and Cudahy Air, Inc.10
.16(1)

Incentive Stock Option Plan, as amended, and forms of option
    agreements thereunder10
.17(1)

2000 Stock Option Plan, as amended, and forms of option
    agreements thereunder10
.18(1)

2002 Stock Option Plan, as amended, and forms of option
    agreements thereunder10
.19(3)

2007 Equity Incentive Plan10
.20(3)

2007 Employee Stock Purchase Plan10
.21(1)

Standard Terms and Conditions of Sale 92




---



##### Table of Contents



10
.22(1)

International Standard Terms and Conditions of Sale10
.23(1)

Tomo Lifecycle Care (TLC) and Partnership Terms and Conditions10
.24(1)

Logistics Services Agreement between the Registrant and Kuehne +
    Nagal Inc., dated September 7, 200510
.25(4)

Purchase Order between the Registrant and ReMedPar, Inc., dated
    February 7, 200710
.26(3)

Form of Director and Executive Officer Indemnification Agreement10
.27(3)

Form of Noncompetition Agreement10
.28(3)

Form of Assignment of Inventions Agreement10
.29(3)

Form of Confidentiality Agreement10
.30(4)

Variable Pay Plan10
.31(6)

Amendment, dated April 16, 2007, to License Agreement,
    dated February 22, 1999, by and between the Registrant and
    Wisconsin Alumni Research Foundation10
.32(6)

Amendment and Waiver, dated as of September 13, 2007, to
    Amended and Restated Investment Agreement, dated
    February 8, 2007, by and among the Registrant and the other
    parties thereto10
.33(7)

TomoTherapy Deferred Compensation Plan10
.34*

Employment Agreement by and between the Registrant and Steven G.
    Books10
.35*

Employment Agreement by and Between the Registrant and Mary
    Elizabeth Klein21
.1(1)

Subsidiary of the Registrant23
.1*

Consent of Grant Thornton LLP, independent registered public
    accounting firm23
.2*

Consent of Virchow Krause Valuation, LLC31
.1*

Certification of Chief Executive Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 200231
.2*

Certification of Chief Financial Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 200232
.1*

Certification of Chief Executive Officer Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 200232
.2*

Certification of Chief Financial Officer Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002     (1)
    
    Incorporated by reference to the exhibit of like number to the
    Companys registration statement on
    Form S-1
    filed with the SEC on February 12, 2007 (File
    No. 333-140600).(2)
    
    Incorporated by reference to the exhibit of like number to
    Amendment No. 1 to the Companys registration
    statement on
    Form S-1
    filed with the SEC on March 22, 2007 (File
    No. 333-140600).(3)
    
    Incorporated by reference to the exhibit of like number to
    Amendment No. 2 to the Companys registration
    statement on
    Form S-1
    filed with (3) the SEC on April 16, 2007 (File
    No. 333-140600).(4)
    
    Incorporated by reference to the exhibit of like number to
    Amendment No. 3 to the Companys registration
    statement on
    Form S-1
    filed with the SEC on April 19, 2007 (File
    No. 333-140600).(5)
    
    Incorporated by reference to the exhibit of like number to
    Amendment No. 8 to the Companys registration
    statement on
    Form S-1
    filed with the SEC on May 8, 2007 (File
    No. 333-140600).(6)
    
    Incorporated by reference to the exhibit of like number to the
    Companys registration statement on
    Form S-1
    filed with the SEC on September 21, 2007 (File
    No. 333-146219).(7)
    
    Incorporated by reference to exhibit 99.1 to the
    Companys Current Report on
    Form 8-K
    filed with the SEC on December 10, 2007.*
    
    Filed herewith
    
    Confidential treatment has been requested for portions of this
    exhibit. These portions have been omitted from the Registration
    Statement and submitted separately to the Securities and
    Exchange Commission.  Form 10-K Form 10-K,
 93




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##### Table of Contents



SIGNATURES  Form 10-K
  TomoTherapy Incorporated
  By:
    /s/  Frederick
    A. Robertson       POWER OF
    ATTORNEY
  Form 10-K,
  Form 10-K
  Name

Position/s/  Frederick
    A. RobertsonFrederick
    A. Robertson, M.D.

Chief Executive Officer and Director
    (principal executive officer)/s/  Stephen
    C. HathawayStephen
    C. Hathaway

Chief Financial Officer
    (principal financial and accounting officer)/s/  Paul
    J. ReckwerdtPaul
    J. Reckwerdt

President and Director/s/  T.
    Rockwell MackieT.
    Rockwell Mackie, Ph.D.

Director/s/  John
    J. GreischJohn
    J. Greisch

Director/s/  Sam
    R. LenoSam
    R. Leno

Director/s/  John
    J. McDonoughJohn
    J. McDonough

Director 94




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##### Table of Contents



Name

Position/s/  John
    P. NeisJohn
    P. Neis

Director/s/  Cary
    J. NolanCary
    J. Nolan

Director/s/  Carlos
    A. PerezCarlos
    A. Perez, M.D.

Director/s/  Frances
    S. TaylorFrances
    S. Taylor

Director  95