##### 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 September 30, 2009
 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
Index
 PagePart I. FINANCIAL INFORMATION
    
    
    3Item 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 the 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
    
    
    29Item 4. Controls and Procedures
    
    
    29Part II. OTHER INFORMATION
    
    
    31Item 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    33Item 4. Submission of Matters to a Vote of Security Holders
    
    
    33Item 5. Other Information
    
    
    33Item 6. Exhibits
    
    
    34SIGNATURES
    
    
    35EXHIBIT INDEX
    
    
    36Exhibit 10.3Exhibit 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)
 September 30,
    
    
    December 31,2009
    
    
    2008(As adjusted,Note A)ASSETSCash and cash equivalents
    
    $
    68,527
    
    
    $
    65,967Short-term investments
    
    
    78,598
    
    
    
    88,825Receivables, net
    
    
    21,771
    
    
    
    41,259Inventories, net
    
    
    59,884
    
    
    
    63,983Deferred tax assets
    
    
    
    
    
    
    496Prepaid expenses and other current assets
    
    
    3,268
    
    
    
    1,890Total current assets
    
    
    232,048
    
    
    
    262,420Property and equipment, net
    
    
    19,804
    
    
    
    22,157Other non-current assets, net
    
    
    13,533
    
    
    
    11,851TOTAL ASSETS
    
    $
    265,385
    
    
    $
    296,428LIABILITIES AND EQUITYAccounts payable
    
    $
    7,862
    
    
    $
    7,804Accrued expenses
    
    
    18,916
    
    
    
    18,324Accrued warranty
    
    
    3,797
    
    
    
    7,431Deferred revenue
    
    
    29,569
    
    
    
    28,139Customer deposits
    
    
    13,793
    
    
    
    15,494Total current liabilities
    
    
    73,937
    
    
    
    77,192Other non-current liabilities
    
    
    2,270
    
    
    
    3,487TOTAL LIABILITIES
    
    
    76,207
    
    
    
    80,679COMMITMENTS AND CONTINGENCIES (Note F)EQUITYPreferred stock, $1 per share par value, 10,000,000 shares authorized at September 30, 2009 and
December 31, 2008; no shares issued and outstanding at September 30, 2009 and December 31, 2008
    
    
    
    
    
    
    Common stock, $0.01 per share par value, 200,000,000 shares authorized at September 30, 2009 and
December 31, 2008; 53,675,870 and 53,637,598 shares issued and outstanding at September 30,
2009 and
52,065,400 and 52,063,768 shares issued and outstanding at December 31, 2008
    
    
    510
    
    
    
    506Additional paid-in capital
    
    
    663,911
    
    
    
    659,379Treasury stock, 38,272 and 1,632 shares at cost at September 30, 2009 and December 31, 2008,
respectively
    
    
    (123
    )
    
    
    Accumulated other comprehensive income
    
    
    310
    
    
    
    202Accumulated deficit
    
    
    (480,495
    )
    
    
    (446,493
    )Total shareholders equity
    
    
    184,113
    
    
    
    213,594Noncontrolling interests
    
    
    5,065
    
    
    
    2,155TOTAL EQUITY
    
    
    189,178
    
    
    
    215,749TOTAL LIABILITIES AND EQUITY
    
    $
    265,385
    
    
    $
    296,428
   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 September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(As adjusted,
    
    
    
    
    
    
    (As adjusted,Note A)
    
    
    
    
    
    
    Note A)Revenue
    
    $
    34,378
    
    
    $
    27,374
    
    
    $
    106,081
    
    
    $
    118,295Cost of revenue
    
    
    30,820
    
    
    
    28,281
    
    
    
    91,469
    
    
    
    98,459Gross profit
    
    
    3,558
    
    
    
    (907
    )
    
    
    14,612
    
    
    
    19,836Operating expenses:Research and development
    
    
    7,218
    
    
    
    10,947
    
    
    
    20,086
    
    
    
    30,516Selling, general and administrative
    
    
    12,470
    
    
    
    11,547
    
    
    
    34,347
    
    
    
    35,850Total operating expenses
    
    
    19,688
    
    
    
    22,494
    
    
    
    54,433
    
    
    
    66,366Loss from operations
    
    
    (16,130
    )
    
    
    (23,401
    )
    
    
    (39,821
    )
    
    
    (46,530
    )Other income (expense):Interest income
    
    
    617
    
    
    
    1,032
    
    
    
    2,009
    
    
    
    3,896Interest expense
    
    
    (18
    )
    
    
    (17
    )
    
    
    (47
    )
    
    
    (34
    )Other income (expense), net
    
    
    105
    
    
    
    479
    
    
    
    (258
    )
    
    
    323Total other income
    
    
    704
    
    
    
    1,494
    
    
    
    1,704
    
    
    
    4,185Loss before income tax and
noncontrolling interests
    
    
    (15,426
    )
    
    
    (21,907
    )
    
    
    (38,117
    )
    
    
    (42,345
    )Income tax expense (benefit)
    
    
    256
    
    
    
    (6,300
    )
    
    
    (162
    )
    
    
    (12,220
    )Net loss
    
    
    (15,682
    )
    
    
    (15,607
    )
    
    
    (37,955
    )
    
    
    (30,125
    )Noncontrolling interests
    
    
    1,802
    
    
    
    2,654
    
    
    
    3,953
    
    
    
    4,139Net loss attributable to shareholders
    
    $
    (13,880
    )
    
    $
    (12,953
    )
    
    $
    (34,002
    )
    
    $
    (25,986
    )Loss per common share  basic and diluted
    
    $
    (0.27
    )
    
    $
    (0.26
    )
    
    $
    (0.67
    )
    
    $
    (0.52
    )
   4




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##### Table of Contents



TOMOTHERAPY INCORPORATED AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands) (unaudited)
 Nine Months Ended September 30,2009
    
    
    2008(As adjusted,Note A)Cash flows from operating activities:Net loss
    
    $
    (37,955
    )
    
    $
    (30,125
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    8,147
    
    
    
    6,397Share-based compensation
    
    
    4,406
    
    
    
    3,212Deferred income tax benefit
    
    
    (360
    )
    
    
    (12,876
    )Other noncash items
    
    
    167
    
    
    
    248Changes in operating assets and liabilities:Receivables
    
    
    19,849
    
    
    
    19,820Inventories
    
    
    2,234
    
    
    
    (33,565
    )Other assets
    
    
    (1,252
    )
    
    
    (2,578
    )Accounts payable
    
    
    51
    
    
    
    (4,721
    )Accrued expenses
    
    
    (576
    )
    
    
    (9,390
    )Accrued warranty
    
    
    (3,634
    )
    
    
    (2,249
    )Deferred revenue
    
    
    1,308
    
    
    
    6,339Customer deposits
    
    
    (1,700
    )
    
    
    9,547Other liabilities
    
    
    
    
    
    
    678Net cash used in operating activities
    
    
    (9,315
    )
    
    
    (49,263
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (1,685
    )
    
    
    (6,421
    )Purchases of test systems
    
    
    
    
    
    
    (2,777
    )Purchases of short-term investments (1)
    
    
    (7,499
    )
    
    
    (125,409
    )Proceeds from sales and maturities of short-term investments
    
    
    17,376
    
    
    
    4,679Other investing activities
    
    
    (3,130
    )
    
    
    (797
    )Net cash provided by (used in) investing activities
    
    
    5,062
    
    
    
    (130,725
    )Cash flows from financing activities:Payments on notes payable
    
    
    (101
    )
    
    
    (81
    )Repurchases of common stock
    
    
    (123
    )
    
    
    Proceeds from exercises of stock options and warrants
    
    
    130
    
    
    
    1,411Proceeds from issuance of CPAC common stock
    
    
    6,863
    
    
    
    9,257Net cash provided by financing activities
    
    
    6,769
    
    
    
    10,587Effect of exchange rate changes on cash and cash equivalents
    
    
    44
    
    
    
    (244
    )Increase (decrease) in cash and cash equivalents
    
    
    2,560
    
    
    
    (169,645
    )Cash and cash equivalents at beginning of period
    
    
    65,967
    
    
    
    191,780Cash and cash equivalents at end of period
    
    $
    68,527
    
    
    $
    22,135
 (1)
    
    The Company made its initial investment of its excess cash balances in short-term
investments during the quarter ended June 30, 2008. As a result, cash used in the purchases of
short-term investments for the nine months ended September 30, 2009 were significantly lower than
that of the nine months ended September 30, 2008.   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 A)Balance at December 31, 2007
    
    $
    497
    
    
    $
    652,688
    
    
    $
    
    
    
    $
    (523
    )
    
    $
    (413,005
    )
    
    $
    
    
    
    $
    239,657Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,488
    )
    
    
    (7,102
    )
    
    
    (40,590
    )Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (401
    )
    
    
    
    
    
    
    
    
    
    
    (401
    )Net unrealized investment gain, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,126
    
    
    
    
    
    
    
    
    
    
    
    1,126Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,865
    )Issuance of common stock
    
    
    3
    
    
    
    537
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,257
    
    
    
    9,797Exercise of stock options
    
    
    6
    
    
    
    1,415
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,421Exercise of common stock warrants
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Share-based compensation expense
    
    
    
    
    
    
    4,731
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,731Balance at December 31, 2008
    
    
    506
    
    
    
    659,379
    
    
    
    
    
    
    
    202
    
    
    
    (446,493
    )
    
    
    2,155
    
    
    
    215,749Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,002
    )
    
    
    (3,953
    )
    
    
    (37,955
    )Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    251
    
    
    
    
    
    
    
    
    
    
    
    251Net unrealized investment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (143
    )
    
    
    
    
    
    
    
    
    
    
    (143
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,847
    )Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,863
    
    
    
    6,863Exercise of common stock warrants
    
    
    4
    
    
    
    126
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130Repurchases of common stock
    
    
    
    
    
    
    
    
    
    
    (123
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (123
    )Share-based compensation expense
    
    
    
    
    
    
    4,406
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,406Balance at September 30, 2009
    
    $
    510
    
    
    $
    663,911
    
    
    $
    (123
    )
    
    $
    310
    
    
    $
    (480,495
    )
    
    $
    5,065
    
    
    $
    189,178
   6




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##### Table of Contents



NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Description of Business
  Principles of Consolidation
  Basis of Presentation
    Third Quarter and Year-to-Date 2009 Results of Operations
   7




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Use of Estimates
  Revenue Recognition
        Capitalized Software Development Costs
   8




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##### Table of Contents



Share-Based Compensation
  Recent Accounting Pronouncements
         9




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NOTE B  SUPPLEMENTAL FINANCIAL INFORMATION
 Cash and Cash Equivalents
  Short-term Investments
   September 30, 2009Unrealized
    
    
    UnrealizedCost basis
    
    
    gains
    
    
    losses
    
    
    Fair ValueU.S. Government and Agency securities
    
    $
    60,551
    
    
    $
    1,312
    
    
    $
    
    
    
    $
    61,863Corporate bonds
    
    
    16,375
    
    
    
    360
    
    
    
    
    
    
    
    16,735$
    76,926
    
    
    $
    1,672
    
    
    $
    
    
    
    $
    78,598
 December 31, 2008Unrealized
    
    
    UnrealizedCost basis
    
    
    gains
    
    
    losses
    
    
    Fair ValueU.S. Government and Agency securities
    
    $
    69,317
    
    
    $
    1,963
    
    
    $
    
    
    
    $
    71,280Corporate bonds
    
    
    17,692
    
    
    
    62
    
    
    
    (209
    )
    
    
    17,545$
    87,009
    
    
    $
    2,025
    
    
    $
    (209
    )
    
    $
    88,825
  September 30, 2009
    
    
    December 31, 2008Cost basis
    
    
    Fair Value
    
    
    Cost basis
    
    
    Fair ValueDue in one year or less
    
    $
    47,729
    
    
    $
    48,421
    
    
    $
    16,676
    
    
    $
    16,815Due after one year through five years
    
    
    29,197
    
    
    
    30,177
    
    
    
    70,333
    
    
    
    72,010$
    76,926
    
    
    $
    78,598
    
    
    $
    87,009
    
    
    $
    88,825
  
    
    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.
   10




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##### Table of Contents



Accounts Receivable
   Inventories
   September 30,
    
    
    December 31,2009
    
    
    2008Raw materials
    
    $
    42,613
    
    
    $
    47,721Work-in-process
    
    
    8,299
    
    
    
    5,614Finished goods
    
    
    8,972
    
    
    
    10,648$
    59,884
    
    
    $
    63,983
 Accrued Warranty
   September 30,
    
    
    September 30,2009
    
    
    2008Balance, beginning of period
    
    $
    7,431
    
    
    $
    7,973Charged to cost of revenue
    
    
    5,313
    
    
    
    6,762Charged to selling, general and
administrative
    
    
    282
    
    
    
    Adjustments related to change in estimate
    
    
    (2,933
    )
    
    
    660Actual product warranty expenditures
    
    
    (6,296
    )
    
    
    (9,671
    )Balance, end of period
    
    $
    3,797
    
    
    $
    5,724
 Other Comprehensive Income (Loss)
   11




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NOTE C  LOSS PER COMMON SHARE
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Loss per common share  basic and diluted:Net loss attributable to shareholders
    
    $
    (13,880
    )
    
    $
    (12,953
    )
    
    $
    (34,002
    )
    
    $
    (25,986
    )Weighted-average common shares outstanding
    
    
    50,748
    
    
    
    50,244
    
    
    
    50,645
    
    
    
    50,147Loss per common share
    
    $
    (0.27
    )
    
    $
    (0.26
    )
    
    $
    (0.67
    )
    
    $
    (0.52
    )
  NOTE D  SEGMENT INFORMATION
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Product
    
    $
    24,252
    
    
    $
    20,416
    
    
    $
    75,937
    
    
    $
    98,150Service and other
    
    
    10,126
    
    
    
    6,958
    
    
    
    30,144
    
    
    
    20,145$
    34,378
    
    
    $
    27,374
    
    
    $
    106,081
    
    
    $
    118,295
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008North America
    
    $
    24,567
    
    
    $
    21,949
    
    
    $
    68,171
    
    
    $
    84,646Europe and Middle East
    
    
    1,670
    
    
    
    4,780
    
    
    
    20,258
    
    
    
    20,476Asia-Pacific
    
    
    8,141
    
    
    
    645
    
    
    
    17,652
    
    
    
    13,173$
    34,378
    
    
    $
    27,374
    
    
    $
    106,081
    
    
    $
    118,295
  12




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NOTE E  INCOME TAXES
   NOTE F  COMMITMENTS AND CONTINGENCIES
  Pending Litigation
   Operating leases
    13




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NOTE G  WARRANTS
  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, 2008
    
    
    266
    
    
    
    5,774
    
    
    $
    5.17
    
    
    
    1,472
    
    
    $
    6.02Authorized
    
    
    5,033
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    (1,856
    )
    
    
    204
    
    
    
    2.62
    
    
    
    1,652
    
    
    
    4.50Exercised
    
    
    
    
    
    
    (10
    )
    
    
    3.18
    
    
    
    (455
    )
    
    
    3.67Cancelled
    
    
    108
    
    
    
    (301
    )
    
    
    6.52
    
    
    
    (63
    )
    
    
    6.10Balance at September 30, 2009
    
    
    3,551
    
    
    
    5,667
    
    
    $
    5.01
    
    
    
    2,606
    
    
    $
    5.04Exercisable at September 30, 2009
    
    
    
    
    
    
    4,035
    
    
    $
    4.30
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Cost of revenue
    
    $
    314
    
    
    $
    228
    
    
    $
    889
    
    
    $
    650Research and development
    
    
    406
    
    
    
    350
    
    
    
    1,108
    
    
    
    973Selling, general and administrative
    
    
    814
    
    
    
    648
    
    
    
    2,409
    
    
    
    1,589Income tax benefit
    
    
    
    
    
    
    (39
    )
    
    
    
    
    
    
    (423
    )$
    1,534
    
    
    $
    1,187
    
    
    $
    4,406
    
    
    $
    2,789
  14




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##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Expected term (years)
    
    
    N/A
    
    
    
    4.25
    
    
    
    4.25
    
    
    
    4.25Risk-free interest rate
    
    
    N/A
    
    
    
    2.7 - 3.1
    %
    
    
    1.9 - 2.8
    %
    
    
    2.7 - 3.1
    %Expected volatility
    
    
    N/A
    
    
    
    48-49
    %
    
    
    53 - 55
    %
    
    
    46 - 49
    %Expected dividend
    
    
    N/A
    
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected forfeiture rate
    
    
    N/A
    
    
    
    5.5
    %
    
    
    5.5
    %
    
    
    5.5
    %Weighted-average fair value at grant date
    
    
    N/A
    
    
    $
    6.00
    
    
    $
    2.62
    
    
    $
    9.69
 NOTE I  RELATED PARTY TRANSACTIONS
  NOTE J  INVESTMENT IN COMPACT PARTICLE ACCELERATION CORPORATION
   NOTE K  OTHER EVENTS
 Share Registration
  Restructuring
    15




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##### Table of Contents



Reserve for Contingency
     16




---



##### 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.
   
    
    The majority of our System shipments generally occur 9 to 12 months after we receive
the order. 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 nor can we 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
internal resources to develop.
  18




---



##### Table of Contents




    
    Our focus on sales to for-profit, multi-center customers in the United States may
require us to lower selling prices, as these customers have negotiated quantity
discounts. In addition, we have a limited history of working with these for-profit,
multi-center customers. 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. If the global economy does not improve, our customers 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.
  Service revenue.
  Cost of revenue
   
    
    Component supply and cost.Our cost of revenue continues to be impacted by high
component costs and high, but declining, 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.
 
    
    Service and support expenses.We have a declining number of individual service
contracts that produce negative gross profit margins for which we have recorded a reserve
for the related estimated future losses. The decline is due in part to our success 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, introducing component design changes,
restructuring the service organization to streamline functions and outsourcing certain
tasks when cost-effective and feasible. In addition, we believe that achieving certain of
these initiatives should also lead to reduced warranty costs and improved system
performance.
  19




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##### Table of Contents



Operating expenses
   Nonoperating expenses
  Interest income
  Income tax expense (benefit)
   Noncontrolling interests
   20




---



##### Table of Contents



Results of Operations
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenue
    
    
    89.6
    
    
    
    103.3
    
    
    
    86.2
    
    
    
    83.2Gross profit
    
    
    10.4
    
    
    
    -3.3
    
    
    
    13.8
    
    
    
    16.8Operating expenses:Research and development
    
    
    21.0
    
    
    
    40.0
    
    
    
    18.9
    
    
    
    25.8Selling, general and administrative
    
    
    36.3
    
    
    
    42.2
    
    
    
    32.4
    
    
    
    30.3Total operating expenses
    
    
    57.3
    
    
    
    82.2
    
    
    
    51.3
    
    
    
    56.1Loss from operations
    
    
    -46.9
    
    
    
    -85.5
    
    
    
    -37.5
    
    
    
    -39.3Other income
    
    
    2.0
    
    
    
    5.5
    
    
    
    1.6
    
    
    
    3.5Loss before income tax and noncontrolling interests
    
    
    -44.9
    
    
    
    -80.0
    
    
    
    -35.9
    
    
    
    -35.8Income tax expense (benefit)
    
    
    0.7
    
    
    
    -23.0
    
    
    
    -0.1
    
    
    
    -10.3Net loss
    
    
    -45.6
    
    
    
    -57.0
    
    
    
    -35.8
    
    
    
    -25.5Noncontrolling interests
    
    
    5.2
    
    
    
    9.7
    
    
    
    3.7
    
    
    
    3.5Net loss attributable to shareholders
    
    
    -40.4
    %
    
    
    -47.3
    %
    
    
    -32.1
    %
    
    
    -22.0
    %
 Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
 Revenue
  Three Months Ended September 30,2009
    
    
    2008Product revenue
    
    $
    24,252
    
    
    
    71
    %
    
    $
    20,416
    
    
    
    75
    %Service and other revenue
    
    
    10,126
    
    
    
    29
    
    
    
    6,958
    
    
    
    25$
    34,378
    
    
    
    100
    %
    
    $
    27,374
    
    
    
    100
    %
  Three Months Ended September 30,2009
    
    
    2008North America
    
    $
    24,567
    
    
    
    71
    %
    
    $
    21,949
    
    
    
    80
    %Europe and Middle East
    
    
    1,670
    
    
    
    5
    
    
    
    4,780
    
    
    
    18Asia-Pacific
    
    
    8,141
    
    
    
    24
    
    
    
    645
    
    
    
    2$
    34,378
    
    
    
    100
    %
    
    $
    27,374
    
    
    
    100
    %
    21




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##### Table of Contents



Cost of revenue
     Research and development expenses
  Three Months Ended September 30,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeHi Art R&D
    
    $
    5,473
    
    
    $
    7,995
    
    
    $
    (2,522
    )
    
    
    -31.5
    %Proton Project / CPAC R&D
    
    
    1,745
    
    
    
    2,952
    
    
    
    (1,207
    )
    
    
    -40.9$
    7,218
    
    
    $
    10,947
    
    
    $
    (3,729
    )
    
    
    -34.1
    %
  Selling, general and administrative expenses
   22




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##### Table of Contents



Other income (expense)
  Income tax expense (benefit)
  Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
 Revenue
  Nine Months Ended September 30,2009
    
    
    2008Product revenue
    
    $
    75,937
    
    
    
    72
    %
    
    $
    98,150
    
    
    
    83
    %Service and other revenue
    
    
    30,144
    
    
    
    28
    
    
    
    20,145
    
    
    
    17$
    106,081
    
    
    
    100
    %
    
    $
    118,295
    
    
    
    100
    %
  Nine Months Ended September 30,2009
    
    
    2008North America
    
    $
    68,171
    
    
    
    64
    %
    
    $
    84,646
    
    
    
    72
    %Europe and Middle East
    
    
    20,258
    
    
    
    19
    
    
    
    20,476
    
    
    
    17Asia-Pacific
    
    
    17,652
    
    
    
    17
    
    
    
    13,173
    
    
    
    11$
    106,081
    
    
    
    100
    %
    
    $
    118,295
    
    
    
    100
    %
   23




---



##### Table of Contents



Cost of revenue
     Research and development expenses
  Nine Months Ended September 30,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeHi Art R&D
    
    $
    16,406
    
    
    $
    24,186
    
    
    $
    (7,780
    )
    
    
    -32.2
    %Proton Project / CPAC R&D
    
    
    3,680
    
    
    
    6,330
    
    
    
    (2,650
    )
    
    
    -41.9$
    20,086
    
    
    $
    30,516
    
    
    $
    (10,430
    )
    
    
    -34.2
    %
   24




---



##### Table of Contents



Selling, general and administrative expenses
  Other income (expense)
  Income tax expense (benefit)
  Liquidity and Capital Resources
  Financial Condition
  September 30, 2009Unrealized
    
    
    UnrealizedCost basis
    
    
    gains
    
    
    losses
    
    
    Fair ValueU.S. Government and Agency securities
    
    $
    60,551
    
    
    $
    1,312
    
    
    $
    
    
    
    $
    61,863Corporate bonds
    
    
    16,375
    
    
    
    360
    
    
    
    
    
    
    
    16,735$
    76,926
    
    
    $
    1,672
    
    
    $
    
    
    
    $
    78,598
    25




---



##### Table of Contents



Cash Flows
 Cash flows from operating activities
   Cash flows from investing activities
   Cash flows from financing activities
     26




---



##### Table of Contents



Loans and Available Borrowings
  Contractual Obligations and Commitments
  Pending Litigation
   Operating Capital and Capital Expenditure Requirements
  
    
    Revenue generated from sales of the System and service plans;
 
    
    Costs associated with our sales and marketing, general and administrative and
manufacturing activities;
 
    
    The performance of the Systems operating in the field and cost of maintaining those
systems;
 
    
    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.
   27




---



##### Table of Contents



Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
   Loss Per Common Share
  Recent Accounting Pronouncements
     28




---



##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
    29




---



##### Table of Contents



Material Weakness in Internal Control Over Financial Reporting
    Changes in Internal Control Over Financial Reporting
   30




---



##### Table of Contents



Part II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  Our success will depend on our ability to effectively manage employee costs while also attracting
and retaining qualified personnel.
  Changes in healthcare policies and changes to reimbursement to healthcare providers for radiation
cancer therapy could adversely affect sales of our products.
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
 (a) Sales of Unregistered Securities
   31




---



##### Table of Contents



(b) Use of Proceeds from Public Offering of Common Stock
    Working capital
    
    $
    59.4Purchases of property and equipment
    
    
    15.7Purchases of test systems
    
    
    5.7Acquisition of Chengdu Twin Peak Accelerator Technology Inc.
    
    
    1.2Repayment of debt
    
    
    0.2Total net proceeds used
    
    $
    82.2
 (c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  Total Number of
    
    
    Approximate DollarTotal
    
    
    
    
    
    
    Shares Purchased as
    
    
    Value of SharesNumber
    
    
    Average
    
    
    Part of Publicly
    
    
    that May yet Beof Shares
    
    
    Price Paid
    
    
    Announced Plans or
    
    
    Purchased Under thePeriod
    
    Purchased
    
    
    per Share
    
    
    Programs
    
    
    Plans or ProgramsJuly 1, 2009 through July 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    August 1, 2009 through August 31,
2009
    
    
    26,375
    (1)
    
    
    3.67
    
    
    
    
    
    
    
    (2
    )September 1, 2009 through
September 30, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    $
    3.67
    
    
    
    
    
    
    $
    
 (1)
    
    Consists of shares surrendered to us to satisfy tax withholding obligations that arose upon the
vesting of restricted stock awards.(2)
    
    Pursuant to the TomoTherapy Incorporated 2007 Equity Incentive Plan, as amended (the Plan),
the Company may, from time to time, repurchase shares of its common stock from recipients of
restricted stock awards under the Plan in order to permit such participants to satisfy tax
liabilities arising upon the vesting of such restricted stock awards. The amount of such future
share repurchases, if any, is unascertainable as of the date of this Quarterly Report on Form 10-Q.  32




---



##### Table of Contents



Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
  
 Item 5.
    
    Other Information
    33




---



##### 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 Company10.1
    (2)
    
    Letter Agreement containing amendments and waivers to Agreement dated October 13, 2009, among the
Company, Avalon Capital Group, Inc., Avalon Portfolio, LLC and Avalon Technology, LLC10.2
    (3)*
    
    Magnetron Subscription Agreement, dated April 24, 2009 and effective May 1, 2009, among the Company, e2v
Inc. and e2v Technologies (UK) Limited10.3
    *
    
    Second Amendment to Employment Agreement dated October 1, 2009 between the Company and Frederick A.
Robertson10.4
    (4)
    
    First Amendment to
Employment Agreement dated July 1, 2009 between the Company and
Frederick A. Robertson10.5
    (4)
    
    Form of First Amendment to Employment Agreement dated July 1, 2009 between the Company and each of
Thomas E. Powell, Thomas Rockwell Mackie, and Steven G. Books31.1
    *
    
    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 Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission on
November 7, 2008 (File No. 001-33452).(2)
    
    Previously filed as an exhibit to the Companys current report on Form
8-K filed with the Securities and Exchange Commission on October 16,
2009 (File No. 001-33452).(3)
    
    Previously filed as an exhibit to the Companys amended current report
on Form 8-K/A filed with the Securities and Exchange Commission on
October 28, 2009 (File No. 001-33452).(4)
    
    Previously filed as an exhibit to the Companys Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission on August
6, 2009 (File No. 001-33452).*
    
    Filed herewith.
    
    Confidential treatment has been requested for portions of this
exhibit. These portions have been omitted from the referenced Form 8-K
and submitted separately to the Securities and Exchange Commission.  34




---



##### Table of Contents



SIGNATURES
  TOMOTHERAPY INCORPORATEDDate: November 6, 2009
    By:
    /s/ Frederick A. RobertsonFrederick A. RobertsonChief Executive Officer and PresidentDate: November 6, 2009
    By:
    /s/ Thomas E. PowellThomas E. PowellChief Financial Officer and Treasurer  35




---



##### 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 Company10.1
    (2)
    
    Letter Agreement containing amendments and waivers to Agreement dated October 13, 2009, among the
Company, Avalon Capital Group, Inc., Avalon Portfolio, LLC and Avalon Technology, LLC10.2
    (3)*
    
    Magnetron Subscription Agreement, dated April 24, 2009 and effective May 1, 2009, among the Company, e2v
Inc. and e2v Technologies (UK) Limited10.3
    *
    
    Second Amendment to Employment Agreement dated October 1, 2009 between the Company and Frederick A.
Robertson10.4
    (4)
    

First
Amendment to Employment Agreement dated July 1, 2009 between the
Company and Frederick A. Robertson10.5
    (4)
    
    Form of First Amendment to Employment Agreement dated July 1, 2009 between the Company and each of
Thomas E. Powell, Thomas Rockwell Mackie, and Steven G. Books31.1
    *
    
    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 Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission on
November 7, 2008 (File No. 001-33452).(2)
    
    Previously filed as an exhibit to the Companys current report on Form
8-K filed with the Securities and Exchange Commission on October 16,
2009 (File No. 001-33452).(3)
    
    Previously filed as an exhibit to the Companys amended current report
on Form 8-K/A filed with the Securities and Exchange Commission on
October 28, 2009 (File No. 001-33452).(4)
    
    Previously filed as an exhibit to the Companys Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission on August
6, 2009 (File No. 001-33452).*
    
    Filed herewith.
    
    Confidential treatment has been requested for portions of this
exhibit. These portions have been omitted from the referenced Form 8-K
and submitted separately to the Securities and Exchange Commission.  36