##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ______________ to ________________
 Commission File Number: 001-33452
 TomoTherapy Incorporated
  Wisconsin
(State or other jurisdiction of incorporation or organization)
    
    39-1914727
(I.R.S. Employer Identification No.)1240 Deming Way, Madison, Wisconsin
(Address of principal executive offices)
    
    53717
(Zip Code)
 (608) 824-2800
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 Yes o No þ




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##### 



TomoTherapy Incorporated and Subsidiaries
Index
 PagePart I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)
    
    
    3Condensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Operations
    
    
    4Condensed Consolidated Statements of Cash Flows
    
    
    5Condensed Consolidated Statements of Equity
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3. Defaults Upon Senior Securities
    
    
    29Item 4. [Removed and Reserved]
    
    
    29Item 5. Other Information
    
    
    29Item 6. Exhibits
    
    
    30SIGNATURES
    
    
    31EXHIBIT INDEX
    
    
    32Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements
 TOMOTHERAPY INCORPORATED AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(unaudited)
 March 31,
    
    
    December 31,2010
    
    
    2009ASSETSCash and cash equivalents (CPAC balances of $6,300 and $1,590, respectively)
    
    $
    92,071
    
    
    $
    76,108Short-term investments
    
    
    56,632
    
    
    
    78,225Receivables, net
    
    
    33,660
    
    
    
    33,559Inventories, net
    
    
    53,555
    
    
    
    47,669Prepaid expenses and other current assets (CPAC balances of $939 and $494,
respectively)
    
    
    4,326
    
    
    
    3,633Total current assets
    
    
    240,244
    
    
    
    239,194Property and equipment, net (CPAC balances of $1,152 and $555, respectively)
    
    
    18,383
    
    
    
    18,628Other non-current assets, net (CPAC balances of $25 and $30, respectively)
    
    
    11,582
    
    
    
    12,429TOTAL ASSETS
    
    $
    270,209
    
    
    $
    270,251LIABILITIES AND EQUITYAccounts payable (CPAC balances of $443 and $24, respectively)
    
    $
    11,812
    
    
    $
    6,269Accrued expenses (CPAC balances of $62 and $20, respectively)
    
    
    17,384
    
    
    
    19,588Accrued warranty
    
    
    3,579
    
    
    
    4,173Deferred revenue
    
    
    32,780
    
    
    
    34,145Customer deposits
    
    
    10,567
    
    
    
    13,266Total current liabilities
    
    
    76,122
    
    
    
    77,441Other non-current liabilities (CPAC balances of $19 and $18, respectively)
    
    
    3,995
    
    
    
    5,475TOTAL LIABILITIES
    
    
    80,117
    
    
    
    82,916COMMITMENTS AND CONTINGENCIES (Note G)Preferred stock, $1 per share par value, 10,000,000 shares authorized at March
31, 2010 and
December 31, 2009; no shares issued and outstanding at March 31, 2010 and
December 31, 2009
    
    
    
    
    
    
    Common stock, $0.01 per share par value, 200,000,000 shares authorized at
March 31, 2010 and
December 31, 2009; 54,144,133 and 54,102,360 shares issued and outstanding
at March 31, 2010 and
53,980,728 and 53,938,955 shares issued and outstanding at December 31, 2009
    
    
    517
    
    
    
    515Additional paid-in capital
    
    
    669,567
    
    
    
    667,177Treasury stock, 41,773 shares at cost at March 31, 2010 and December 31, 2009
    
    
    (137
    )
    
    
    (137
    )Accumulated other comprehensive loss
    
    
    (575
    )
    
    
    (268
    )Accumulated deficit
    
    
    (488,541
    )
    
    
    (483,863
    )Total shareholders equity
    
    
    180,831
    
    
    
    183,424Noncontrolling interests
    
    
    9,261
    
    
    
    3,911TOTAL EQUITY
    
    
    190,092
    
    
    
    187,335TOTAL LIABILITIES AND EQUITY
    
    $
    270,209
    
    
    $
    270,251
   3




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##### Table of Contents



TOMOTHERAPY INCORPORATED AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
 Three Months Ended March 31,2010
    
    
    2009Revenue:Product
    
    $
    29,229
    
    
    $
    21,133Service and other
    
    
    12,851
    
    
    
    9,490Total revenue
    
    
    42,080
    
    
    
    30,623Cost of revenue:Product
    
    
    12,785
    
    
    
    11,745Service and other
    
    
    16,691
    
    
    
    16,339Total cost of revenue
    
    
    29,476
    
    
    
    28,084Gross profit
    
    
    12,604
    
    
    
    2,539Operating expenses:Research and development
    
    
    7,540
    
    
    
    5,849Selling, general and administrative
    
    
    11,034
    
    
    
    10,652Total operating expenses
    
    
    18,574
    
    
    
    16,501Loss from operations
    
    
    (5,970
    )
    
    
    (13,962
    )Other income (expense):Interest income
    
    
    531
    
    
    
    697Interest expense
    
    
    (11
    )
    
    
    (14
    )Other expense, net
    
    
    (448
    )
    
    
    (256
    )Total other income
    
    
    72
    
    
    
    427Loss before income tax
    
    
    (5,898
    )
    
    
    (13,535
    )Income tax benefit
    
    
    44
    
    
    
    100Net loss
    
    
    (5,854
    )
    
    
    (13,435
    )Noncontrolling interests
    
    
    1,176
    
    
    
    436Net loss attributable to shareholders
    
    $
    (4,678
    )
    
    $
    (12,999
    )Weighted-average common shares outstanding 
basic and diluted
    
    
    51,566
    
    
    
    50,592Loss per common share  basic and diluted
    
    $
    (0.09
    )
    
    $
    (0.26
    )
   4




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TOMOTHERAPY INCORPORATED AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
(unaudited)
 Three Months Ended March 31,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (5,854
    )
    
    $
    (13,435
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    2,503
    
    
    
    2,422Share-based compensation
    
    
    1,819
    
    
    
    1,490Deferred income tax benefit
    
    
    (72
    )
    
    
    (172
    )Other noncash items
    
    
    2
    
    
    
    16Changes in operating assets and liabilities:Receivables, net
    
    
    (181
    )
    
    
    8,480Inventories, net
    
    
    (6,136
    )
    
    
    (783
    )Other assets
    
    
    (1,109
    )
    
    
    (666
    )Accounts payable
    
    
    5,548
    
    
    
    3,278Accrued expenses
    
    
    (2,348
    )
    
    
    (2,063
    )Accrued warranty
    
    
    (594
    )
    
    
    (1,598
    )Deferred revenue
    
    
    (1,950
    )
    
    
    2,158Customer deposits
    
    
    (2,699
    )
    
    
    (752
    )Net cash used in operating activities
    
    
    (11,071
    )
    
    
    (1,625
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (1,239
    )
    
    
    (1,170
    )Purchases of short-term investments
    
    
    
    
    
    
    (7,499
    )Proceeds from sales and maturities of short-term investments
    
    
    21,250
    
    
    
    4,876Other investing activities
    
    
    (241
    )
    
    
    (922
    )Net cash provided by (used in) investing activities
    
    
    19,770
    
    
    
    (4,715
    )Cash flows from financing activities:Payments on notes payable
    
    
    (34
    )
    
    
    (35
    )Proceeds from exercises of stock options and warrants
    
    
    573
    
    
    
    2Proceeds from issuance of CPAC common stock
    
    
    6,526
    
    
    
    6,364Net cash provided by financing activities
    
    
    7,065
    
    
    
    6,331Effect of exchange rate changes on cash and cash equivalents
    
    
    199
    
    
    
    671Increase in cash and cash equivalents
    
    
    15,963
    
    
    
    662Cash and cash equivalents at beginning of period
    
    
    76,108
    
    
    
    65,967Cash and cash equivalents at end of period
    
    $
    92,071
    
    
    $
    66,629
   5




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##### Table of Contents



TOMOTHERAPY INCORPORATED AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
(unaudited)
 Shareholders EquityAccumulatedAdditional
    
    
    
    
    
    
    OtherCommon
    
    
    Paid-in
    
    
    Treasury
    
    
    Comprehensive
    
    
    Accumulated
    
    
    NoncontrollingStock
    
    
    Capital
    
    
    Stock
    
    
    Income (Loss)
    
    
    Deficit
    
    
    Interests
    
    
    Total Equity(As adjusted,Note B)Balance at December 31, 2008
    
    $
    506
    
    
    $
    659,379
    
    
    $
    
    
    
    $
    202
    
    
    $
    (446,493
    )
    
    $
    2,155
    
    
    $
    215,749Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,999
    )
    
    
    (436
    )
    
    
    (13,435
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (428
    )
    
    
    
    
    
    
    
    
    
    
    (428
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,863
    )Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,364
    
    
    
    6,364Exercise of stock options and
common stock warrants
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Share-based compensation expense
    
    
    
    
    
    
    1,490
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,490Balance at March 31, 2009
    
    $
    506
    
    
    $
    660,871
    
    
    $
    
    
    
    $
    (226
    )
    
    $
    (459,492
    )
    
    $
    8,083
    
    
    $
    209,742Balance at December 31, 2009
    
    $
    515
    
    
    $
    667,177
    
    
    $
    (137
    )
    
    $
    (268
    )
    
    $
    (483,863
    )
    
    $
    3,911
    
    
    $
    187,335Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,678
    )
    
    
    (1,176
    )
    
    
    (5,854
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (307
    )
    
    
    
    
    
    
    
    
    
    
    (307
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,161
    )Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,526
    
    
    
    6,526Exercise of stock options
    
    
    2
    
    
    
    571
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    573Share-based compensation expense
    
    
    
    
    
    
    1,819
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,819Balance at March 31, 2010
    
    $
    517
    
    
    $
    669,567
    
    
    $
    (137
    )
    
    $
    (575
    )
    
    $
    (488,541
    )
    
    $
    9,261
    
    
    $
    190,092
   6




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##### Table of Contents



TOMOTHERAPY INCORPORATED AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE A  DESCRIPTION OF BUSINESS
 Organization
  NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
  Basis of Presentation
  Use of Estimates
  Fair Value of Financial Instruments
   7




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##### Table of Contents



TOMOTHERAPY INCORPORATED AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Revenue Recognition
          Capitalized Software Development Costs
   8




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##### Table of Contents



TOMOTHERAPY INCORPORATED AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Share-Based Compensation
  Income Taxes
   Recent Accounting Pronouncements
   NOTE C  SUPPLEMENTAL FINANCIAL INFORMATION
 Cash and Cash Equivalents
   9




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TOMOTHERAPY INCORPORATED AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Short-term Investments
   March 31, 2010Cost basis
    
    
    Unrealized gains
    
    
    Unrealized losses
    
    
    Fair valueU.S. Government and Agency securities
    
    $
    43,456
    
    
    $
    813
    
    
    $
    
    
    
    $
    44,269Corporate bonds
    
    
    12,099
    
    
    
    264
    
    
    
    
    
    
    
    12,363$
    55,555
    
    
    $
    1,077
    
    
    $
    
    
    
    $
    56,632
 December 31, 2009Cost basis
    
    
    Unrealized gains
    
    
    Unrealized losses
    
    
    Fair valueU.S. Government and Agency securities
    
    $
    60,531
    
    
    $
    1,043
    
    
    $
    
    
    
    $
    61,574Corporate bonds
    
    
    16,334
    
    
    
    317
    
    
    
    
    
    
    
    16,651$
    76,865
    
    
    $
    1,360
    
    
    $
    
    
    
    $
    78,225
  March 31, 2010
    
    
    December 31, 2009Cost basis
    
    
    Fair value
    
    
    Cost basis
    
    
    Fair valueDue in one year or less
    
    $
    30,817
    
    
    $
    31,124
    
    
    $
    48,345
    
    
    $
    48,809Due after one year through five years
    
    
    24,738
    
    
    
    25,508
    
    
    
    28,520
    
    
    
    29,416$
    55,555
    
    
    $
    56,632
    
    
    $
    76,865
    
    
    $
    78,225
  
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
 
    
    Level 2  Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities, quoted prices in
markets that are not active, or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities.
 
    
    Level 3  Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or liabilities.
  Receivables, net
    10




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TOMOTHERAPY INCORPORATED AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Inventories, net
   March 31,
    
    
    December 31,2010
    
    
    2009Raw materials
    
    $
    41,490
    
    
    $
    40,091Work-in-process
    
    
    4,843
    
    
    
    1,847Finished goods
    
    
    7,222
    
    
    
    5,731$
    53,555
    
    
    $
    47,669
 Accrued Expenses
  March 31,
    
    
    December 31,2010
    
    
    2009Commissions, severance and payroll-related
    
    $
    3,184
    
    
    $
    4,531Bonuses
    
    
    1,077
    
    
    
    1,705Accrued distributor relation costs
    
    
    5,318
    
    
    
    5,188Sales, use and other indirect taxes
    
    
    2,838
    
    
    
    3,450Other
    
    
    4,967
    
    
    
    4,714$
    17,384
    
    
    $
    19,588
 Accrued Warranty
   March 31,
    
    
    March 31,2010
    
    
    2009Balance, beginning of period
    
    $
    4,173
    
    
    $
    7,431Charged to cost of revenue
    
    
    1,260
    
    
    
    1,341Adjustments related to change in estimate
    
    
    (373
    )
    
    
    (780
    )Actual product warranty expenditures
    
    
    (1,481
    )
    
    
    (2,159
    )Balance, end of period
    
    $
    3,579
    
    
    $
    5,833
  11




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TOMOTHERAPY INCORPORATED AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Deferred Revenue
    Other Comprehensive Income (Loss)
  NOTE D  LOSS PER COMMON SHARE
    Three Months Ended March 31,2010
    
    
    2009Stock options
    
    
    5,028
    
    
    
    5,677Restricted stock
    
    
    2,436
    
    
    
    1,4467,464
    
    
    
    7,123
 NOTE E  SEGMENT INFORMATION
    12




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TOMOTHERAPY INCORPORATED AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  Three Months Ended March 31,2010
    
    
    2009Americas (1)
    
    $
    13,333
    
    
    $
    18,239Europe and Middle East
    
    
    19,563
    
    
    
    6,275Asia-Pacific
    
    
    9,184
    
    
    
    6,109$
    42,080
    
    
    $
    30,623
 (1)
    
    Americas contains revenue from the United States of $12.7 million and $17.6 million
for the periods ended March 31, 2010 and 2009, respectively. NOTE F  INCOME TAXES
   NOTE G  COMMITMENTS AND CONTINGENCIES
  Pending Litigation
    13




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TOMOTHERAPY INCORPORATED AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Reserve for Contingency
  Operating leases
   NOTE H  STOCK INCENTIVE PLANS
    Incentive Stock Options
    
    
    Restricted StockWeighted-Shares
    
    
    Number of
    
    
    Weighted-
    
    
    
    
    
    
    AverageAvailable
    
    
    Options
    
    
    Average
    
    
    Number of
    
    
    Fair Valuefor Grant
    
    
    Outstanding
    
    
    Exercise Price
    
    
    Shares
    
    
    at Grant DateBalance at December 31, 2009
    
    
    3,667
    
    
    
    5,347
    
    
    $
    5.02
    
    
    
    2,488
    
    
    $
    5.01Exercised
    
    
    
    
    
    
    (213
    )
    
    
    2.69
    
    
    
    (2
    )
    
    
    2.70Cancelled
    
    
    62
    
    
    
    (106
    )
    
    
    7.32
    
    
    
    (50
    )
    
    
    4.81Balance at March 31, 2010
    
    
    3,729
    
    
    
    5,028
    
    
    $
    5.07
    
    
    
    2,436
    
    
    $
    5.02Exercisable at March 31, 2010
    
    
    
    
    
    
    4,256
    
    
    $
    4.61
   14




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TOMOTHERAPY INCORPORATED AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  Three Months Ended March 31,2010
    
    
    2009Expected term (years)
    
    
    N/A
    
    
    
    4.25Risk-free interest rate
    
    
    N/A
    
    
    
    1.9
    %Expected volatility
    
    
    N/A
    
    
    
    53
    %Expected dividend
    
    
    N/A
    
    
    
    0
    %Expected forfeiture rate
    
    
    N/A
    
    
    
    5.5
    %Weighted-average fair value at grant date
    
    
    N/A
    
    
    $
    2.70
 NOTE I  RELATED PARTY TRANSACTIONS
  NOTE J  INVESTMENT IN COMPACT PARTICLE ACCELERATION CORPORATION
     15




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TOMOTHERAPY INCORPORATED AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 NOTE K  RESTRUCTURING
  Balance, at December 31, 2009
    
    $
    998Additions
    
    
    Payments
    
    
    (902
    )Balance, at March 31, 2010
    
    $
    96
  16




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion should be read together with our unaudited condensed consolidated
financial statements and the notes to those financial statements, which are included in this
report. This report may contain or incorporate by reference forward-looking statements made
pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended
(the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act). These statements reflect managements expectations, estimates and assumptions,
based on information available at the time of the statement or, with respect to any document
incorporated by reference, available at the time that such document was prepared. Forward-looking
statements include, but are not limited to, statements regarding future events, plans, goals,
objectives, prospects and expectations. Forward-looking statements are often, but not always, made
through the use of words such as believe, anticipate, should, intend, plan, will,
likely, expect, estimate, project and similar expressions. Forward-looking statements are
not guarantees of future performance and involve risks, uncertainties, and other factors,
including, but not limited to, those discussed below under Factors Affecting Our Financial
Performance and those in the section entitled Risk Factors under Part II, Item 1A. of this
Quarterly Report on Form 10-Q , which may cause our actual results, performance or achievements to
be materially different from any future results, performance or achievements expressed or implied
by those statements. We undertake no obligation to, and expressly disclaim any such obligation to,
update or revise any forward-looking statements to reflect changed assumptions, the occurrence of
anticipated or unanticipated events or changes to future results over time or otherwise, except as
required by law.
 Overview
     Factors Affecting Our Financial Performance
  Incoming Orders
   17




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##### Table of Contents



Backlog
   Revenue
 Product revenue.
   
    
    On average, the System is shipped to our customer within 12 months after we receive the
order. However, individual orders may become delayed and take longer than 12 months to
ship. Timing of deliveries can be affected by factors out of our control such as
construction delays at customer project sites and customer credit issues. For direct and
non-certified distributor sales, we recognize revenue upon end customer acceptance of the
System, which usually occurs three to four weeks after its delivery. For certified
distributor sales, we recognize revenue upon shipment of the System to the certified
distributor. Each System installation represents a significant percentage of our revenue
for the period in which it occurs.
 
    
    Our geographic mix of customers may impact our average selling prices. Increased sales
of the System outside of North America have tended to favorably impact our gross margins
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. As of March 31, 2010, we did not have a hedging program in place to offset
foreign exchange risk and, therefore, cannot be certain of how foreign currency exchange
rates will impact our financial results in the future.
 
    
    Our ability to demonstrate the clinical benefits of the System compared to competing
systems is a factor in our ability to increase market demand for the System. To compete
effectively, we may need to offer additional features that could require substantial
additional resources to develop.
 
    
    Our focus on sales to group purchasing organizations (GPOs) and multi-center customers
may require us to lower selling prices, as these customers have negotiated quantity
discounts. Orders from these customers may remain in backlog longer than those from customers who place single unit orders, as units sold to multi-center
customers tend to install sequentially over a longer period of time.
 
    
    The System is a major capital equipment item that represents a significant purchase for
most of our customers. While we believe macroeconomic conditions are beginning to improve,
our customers remain cautious and, as a result, may choose to delay some of their capital
spending or may not have or be able to obtain the funds necessary to purchase equipment
such as the System. As a result, our incoming orders and subsequent revenue recognition
may be materially adversely affected.
  18




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##### Table of Contents



Service revenue.
  Cost of revenue
   
    
    Service and support expenses.We have a small number of individual service contracts
that produce negative gross profit margins for which we have recorded a reserve for the
related estimated future losses. We anticipate the number of contracts producing negative
margins will decline as we further our efforts in reducing the overall average direct
service costs per installed System. We expect to continue to improve service contract
margins by leveraging our service infrastructure costs over a larger installed base,
increasing the price for some of our older annual service contracts, training our personnel
to improve their problem-solving capabilities, implementing remote diagnostic
functionalities, outsourcing certain tasks when cost-effective and feasible and introducing
component design changes aimed at reducing costs, increasing longevity and improving
serviceability of our spare parts. We believe that achieving certain of these initiatives
should also lead to reduced warranty costs and improved System performance.
 
    
    Component supply and cost.Our cost of revenue continues to be impacted by high
component costs and high replacement rates. We continue to develop alternate components
and implement enhancements to increase the performance of components used in the System.
We are also seeking to identify lower-priced components of comparable or improved
performance and quality, as well as making engineering improvements to the System in order
to reduce costs. We believe that achieving these goals should result in reduced
manufacturing, warranty and service support costs in the long term.
  Research and development expenses
   19




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##### Table of Contents



Selling, general and administrative expenses
   Nonoperating expenses
  Interest income
  Income tax expense (benefit)
   Noncontrolling interests
   20




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##### Table of Contents



Results of Operations
  Three Months Ended March 31,2010
    
    
    2009Revenue:Product
    
    
    69.5
    %
    
    
    69.0
    %Service and other
    
    
    30.5
    
    
    
    31.0Total revenue
    
    
    100.0
    
    
    
    100.0Cost of revenue:Product
    
    
    30.4
    
    
    
    38.4Service and other
    
    
    39.6
    
    
    
    53.3Total cost of revenue
    
    
    70.0
    
    
    
    91.7Gross profit
    
    
    30.0
    
    
    
    8.3Operating expenses:Research and development
    
    
    17.9
    
    
    
    19.1Selling, general and administrative
    
    
    26.2
    
    
    
    34.8Total operating expenses
    
    
    44.1
    
    
    
    53.9Loss from operations
    
    
    (14.1
    )
    
    
    (45.6
    )Other income
    
    
    0.2
    
    
    
    1.4Loss before income tax
    
    
    (13.9
    )
    
    
    (44.2
    )Income tax benefit
    
    
    0.1
    
    
    
    0.3Net loss
    
    
    (13.8
    )%
    
    
    (43.9
    )%
 Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
 Revenue
  Three Months Ended March 31,2010
    
    
    2009Product revenue
    
    $
    29,229
    
    
    
    69.5
    %
    
    $
    21,133
    
    
    
    69.0
    %Service and other revenue
    
    
    12,851
    
    
    
    30.5
    
    
    
    9,490
    
    
    
    31.0$
    42,080
    
    
    
    100.0
    %
    
    $
    30,623
    
    
    
    100.0
    %
  Three Months Ended March 31,2010
    
    
    2009Americas (1)
    
    $
    13,333
    
    
    
    31.7
    %
    
    $
    18,239
    
    
    
    59.6
    %Europe and Middle East
    
    
    19,563
    
    
    
    46.5
    
    
    
    6,275
    
    
    
    20.5Asia-Pacific
    
    
    9,184
    
    
    
    21.8
    
    
    
    6,109
    
    
    
    19.9$
    42,080
    
    
    
    100.0
    %
    
    $
    30,623
    
    
    
    100.0
    %
 (1)
    
    Americas contains revenue from the United States of $12.7 million and $17.6 million
for the periods ended March 31, 2010 and 2009, respectively.    21




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##### Table of Contents



Cost of revenue
     Research and development expenses
  Three Months Ended March 31,2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeSystem R&D
    
    $
    6,643
    
    
    $
    5,581
    
    
    $
    1,062
    
    
    
    19.0
    %Proton Project / CPAC R&D
    
    
    897
    
    
    
    268
    
    
    
    629
    
    
    
    234.7$
    7,540
    
    
    $
    5,849
    
    
    $
    1,691
    
    
    
    28.9
    %
  Selling, general and administrative expenses
  Other income (expense)
  Income tax expense (benefit)
   22




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##### Table of Contents



Liquidity and Capital Resources
  Financial Condition
  March 31, 2010Cost basis
    
    
    Unrealized gains
    
    
    Unrealized losses
    
    
    Fair valueU.S. Government and Agency securities
    
    $
    43,456
    
    
    $
    813
    
    
    $
    
    
    
    $
    44,269Corporate bonds
    
    
    12,099
    
    
    
    264
    
    
    
    
    
    
    
    12,363$
    55,555
    
    
    $
    1,077
    
    
    $
    
    
    
    $
    56,632
   Cash Flows
 Cash flows from operating activities
    23




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##### Table of Contents



Cash flows from investing activities
   Cash flows from financing activities
    Loans and Available Borrowings
  Contractual Obligations and Commitments
  Pending Litigation
    24




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##### Table of Contents



Reserve for Contingency
  Operating Capital and Capital Expenditure Requirements
  
    
    Revenue generated from sales of the System and service contracts;
 
    
    The performance of the System operating in the field and corresponding service costs;
 
    
    The level of investment required by our service and support organization;
 
    
    The level of investment required for research and development activities;
 
    
    Costs associated with our manufacturing, sales and marketing and general and
administrative activities; and
 
    
    Effects of competing technological and market developments.
  Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
   Recent Accounting Pronouncements
   25




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##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
   26




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##### Table of Contents



Part II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  We face competition from numerous competitors, many of which have greater resources than we do,
which may make it more difficult for us to achieve significant market penetration and maintain or
increase our prices.
  Changes in healthcare policies and laws resulting from recent passage of the new healthcare law in
the United States could adversely affect our business.
   27




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##### Table of Contents



Changes in reimbursement to healthcare providers for use of the TomoTherapy treatment system could
adversely affect sales of the TomoTherapy treatment system.
   Our sales and receivables may be adversely impacted if current economic conditions persist or
worsen, or credit becomes more difficult to obtain on reasonable terms.
  Modifications, upgrades and future products related to the System may require new FDA premarket
approvals or 510(k) clearances, and such approval or clearance processes may be different than in
the past, which may impact our ability to market and sell both new and existing products.
   28




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##### Table of Contents



Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
 (a) Sales of Unregistered Securities
  (b) Use of Proceeds from Public Offering of Common Stock
    Working capital
    
    $
    70.7Purchases of property and equipment
    
    
    17.2Purchases of test systems
    
    
    5.7Acquisition of Chengdu Twin Peak Accelerator Technology Inc.
    
    
    1.5Repayment of debt
    
    
    0.3Total net proceeds used
    
    $
    95.4
 (c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    [Removed and Reserved]
 
 Item 5.
    
    Other Information
   29




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##### Table of Contents



Item 6.
    
    Exhibits
 Exhibit Number
    
    Description3.1
    (1)
    
    Amended and Restated Articles of Incorporation of the Company3.2
    (1)
    
    Amended and Restated Bylaws of the Company31.1
    *
    
    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)
    
    Previously filed as an exhibit to the Companys Quarterly Report
on Form 10-Q filed with the Securities and Exchange Commission on
November 7, 2008 (File No. 001-33452).*
    
    Filed herewith.  30




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##### Table of Contents



SIGNATURES
  TOMOTHERAPY INCORPORATEDDate: May 6, 2010
    By:
    /s/ Frederick A. RobertsonFrederick A. RobertsonChief Executive Officer and PresidentDate: May 6, 2010
    By:
    /s/ Thomas E. PowellThomas E. PowellChief Financial Officer and Treasurer  31




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##### Table of Contents



EXHIBIT INDEX
 Exhibit Number
    
    Description3.1
    (1)
    
    Amended and Restated Articles of Incorporation of the Company3.2
    (1)
    
    Amended and Restated Bylaws of the Company31.1
    *
    
    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)
    
    Previously filed as an exhibit to the Companys Quarterly Report
on Form 10-Q filed with the Securities and Exchange Commission on
November 7, 2008 (File No. 001-33452).*
    
    Filed herewith.  32