##### 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 June 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
 Yes o No 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
    
    
    5Notes 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
    
    
    28Item 4. Controls and Procedures
    
    
    29Part II. OTHER INFORMATION
    
    
    30Item 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    32Item 5. Other Information
    
    
    33Item 6. Exhibits
    
    
    34SIGNATURES
    
    
    35EXIBIT INDEX
    
    
    36Exhibit 10.5Exhibit 10.6Exhibit 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)
 June 30,
    
    
    December 31,2009
    
    
    2008(As adjusted, Note A)ASSETSCash and cash equivalents
    
    $
    69,207
    
    
    $
    65,967Short-term investments
    
    
    79,362
    
    
    
    88,825Receivables, net
    
    
    29,863
    
    
    
    41,259Inventories, net
    
    
    61,580
    
    
    
    63,983Deferred tax assets
    
    
    
    
    
    
    496Prepaid expenses and other current assets
    
    
    2,811
    
    
    
    1,890Total current assets
    
    
    242,823
    
    
    
    262,420Property and equipment, net
    
    
    20,604
    
    
    
    22,157Other non-current assets, net
    
    
    12,162
    
    
    
    11,851TOTAL ASSETS
    
    $
    275,589
    
    
    $
    296,428LIABILITIES AND EQUITYAccounts payable
    
    $
    9,239
    
    
    $
    7,804Accrued expenses
    
    
    17,512
    
    
    
    18,324Accrued warranty
    
    
    4,907
    
    
    
    7,431Deferred revenue
    
    
    22,689
    
    
    
    28,139Customer deposits
    
    
    15,842
    
    
    
    15,494Total current liabilities
    
    
    70,189
    
    
    
    77,192Other non-current liabilities
    
    
    2,353
    
    
    
    3,487Total liabilities
    
    
    72,542
    
    
    
    80,679COMMITMENTS AND CONTINGENCIES (Note F)EQUITYPreferred stock, $1 per share par value, 10,000,000 shares authorized at June 30, 2009 and
December 31, 2008; no shares issued and outstanding at June 30, 2009 and December 31, 2008
    
    
    
    
    
    
    Common stock, $0.01 per share par value, 200,000,000 shares authorized at June 30, 2009 and
December 31, 2008; 52,121,768 and 52,109,871 shares issued and outstanding at June 30,
2009 and
52,065,400 and 52,063,768 shares issued and outstanding at December 31, 2008
    
    
    506
    
    
    
    506Additional paid-in capital
    
    
    662,253
    
    
    
    659,379Treasury
stock, 11,897 and 1,632 shares at cost at June 30, 2009 and December 31, 2008, respectively
    
    
    (26
    )
    
    
    Accumulated other comprehensive income
    
    
    62
    
    
    
    202Accumulated deficit
    
    
    (466,615
    )
    
    
    (446,493
    )Total shareholders equity
    
    
    196,180
    
    
    
    213,594Noncontrolling interests
    
    
    6,867
    
    
    
    2,155Total equity
    
    
    203,047
    
    
    
    215,749TOTAL LIABILITIES AND EQUITY
    
    $
    275,589
    
    
    $
    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 June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(As adjusted,
    
    
    
    
    
    
    (As adjusted,Note A)
    
    
    
    
    
    
    Note A)Revenue
    
    $
    41,080
    
    
    $
    52,021
    
    
    $
    71,703
    
    
    $
    90,921Cost of revenue
    
    
    32,565
    
    
    
    39,496
    
    
    
    60,649
    
    
    
    70,178Gross profit
    
    
    8,515
    
    
    
    12,525
    
    
    
    11,054
    
    
    
    20,743Operating expenses:Research and development
    
    
    7,020
    
    
    
    10,044
    
    
    
    12,869
    
    
    
    19,569Selling, general and administrative
    
    
    11,224
    
    
    
    13,635
    
    
    
    21,876
    
    
    
    24,303Total operating expenses
    
    
    18,244
    
    
    
    23,679
    
    
    
    34,745
    
    
    
    43,872Loss from operations
    
    
    (9,729
    )
    
    
    (11,154
    )
    
    
    (23,691
    )
    
    
    (23,129
    )Other income (expense):Interest income
    
    
    695
    
    
    
    1,090
    
    
    
    1,392
    
    
    
    2,864Interest expense
    
    
    (15
    )
    
    
    (6
    )
    
    
    (29
    )
    
    
    (17
    )Other expense, net
    
    
    (107
    )
    
    
    (82
    )
    
    
    (363
    )
    
    
    (156
    )Total other income
    
    
    573
    
    
    
    1,002
    
    
    
    1,000
    
    
    
    2,691Loss before income tax and noncontrolling interests
    
    
    (9,156
    )
    
    
    (10,152
    )
    
    
    (22,691
    )
    
    
    (20,438
    )Income tax benefit
    
    
    (318
    )
    
    
    (1,806
    )
    
    
    (418
    )
    
    
    (5,920
    )Net loss
    
    
    (8,838
    )
    
    
    (8,346
    )
    
    
    (22,273
    )
    
    
    (14,518
    )Noncontrolling interests
    
    
    1,715
    
    
    
    1,485
    
    
    
    2,151
    
    
    
    1,485Net loss attributable to shareholders
    
    $
    (7,123
    )
    
    $
    (6,861
    )
    
    $
    (20,122
    )
    
    $
    (13,033
    )Loss per common share  basic and diluted
    
    $
    (0.14
    )
    
    $
    (0.14
    )
    
    $
    (0.40
    )
    
    $
    (0.26
    )
   4




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##### Table of Contents



TOMOTHERAPY INCORPORATED AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (unaudited)
 Six Months Ended June 30,2009
    
    
    2008(As adjusted,Note A)Cash flows from operating activities:Net loss
    
    $
    (22,273
    )
    
    $
    (14,518
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    5,048
    
    
    
    4,128Share-based compensation
    
    
    2,872
    
    
    
    1,986Deferred income tax benefit
    
    
    (458
    )
    
    
    (6,036
    )Other noncash items
    
    
    93
    
    
    
    182Changes in operating assets and liabilities:Receivables
    
    
    11,528
    
    
    
    4,986Inventories
    
    
    1,800
    
    
    
    (21,158
    )Other assets
    
    
    (798
    )
    
    
    (2,977
    )Accounts payable
    
    
    1,419
    
    
    
    (6,285
    )Accrued expenses
    
    
    (1,119
    )
    
    
    (4,927
    )Accrued warranty
    
    
    (2,524
    )
    
    
    (648
    )Deferred revenue
    
    
    (5,440
    )
    
    
    7,529Customer deposits
    
    
    348
    
    
    
    5,055Other liabilities
    
    
    
    
    
    
    112Net cash used in operating activities
    
    
    (9,504
    )
    
    
    (32,571
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (1,445
    )
    
    
    (4,416
    )Purchases of test systems
    
    
    
    
    
    
    (2,331
    )Purchases of short-term investments (1)
    
    
    (7,499
    )
    
    
    (99,754
    )Proceeds from sales and maturities of short-term investments
    
    
    16,626
    
    
    
    Other investing activities
    
    
    (2,080
    )
    
    
    (448
    )Net cash provided by (used in) investing activities
    
    
    5,602
    
    
    
    (106,949
    )Cash flows from financing activities:Payments on notes payable
    
    
    (69
    )
    
    
    (35
    )Repurchases of common stock
    
    
    (26
    )
    
    
    Proceeds from exercises of stock options and warrants
    
    
    2
    
    
    
    1,184Proceeds from issuance of CPAC common stock
    
    
    6,864
    
    
    
    6,500Net cash provided by financing activities
    
    
    6,771
    
    
    
    7,649Effect of
exchange rate changes on cash and cash equivalents
    
    
    371
    
    
    
    672Increase (decrease) in cash and cash equivalents
    
    
    3,240
    
    
    
    (131,199
    )Cash and cash equivalents at beginning of period
    
    
    65,967
    
    
    
    191,780Cash and cash equivalents at end of period
    
    $
    69,207
    
    
    $
    60,581
 (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 six months ended June 30, 2009 were significantly lower than that of
the six months ended June 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,122
    )
    
    
    (2,151
    )
    
    
    (22,273
    )Other comprehensive loss:Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    36Net unrealized investment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (176
    )
    
    
    
    
    
    
    
    
    
    
    (176
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,413
    )Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,863
    
    
    
    6,863Exercise of common stock warrants
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Repurchases of common stock
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26
    )Share-based compensation expense
    
    
    
    
    
    
    2,872
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,872Balance at June 30, 2009
    
    $
    506
    
    
    $
    662,253
    
    
    $
    (26
    )
    
    $
    62
    
    
    $
    (466,615
    )
    
    $
    6,867
    
    
    $
    203,047
   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
 Consolidated Financial Statements
 Basis of Presentation
    Use of Estimates
   7




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##### Table of Contents



Revenue Recognition
 Revenue
Recognition Revenue Arrangements with
Multiple Deliverables
     Software
Revenue Recognition Software Revenue Recognition with
Respect to Certain Agreements.
  Capitalized Software Development Costs
 Accounting for the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed
  8




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##### Table of Contents



Share-Based Compensation
 Share-Based
Payment Accounting for Stock Issued to Employees
 Recent Accounting Pronouncements
 Fair Value Measurements Effective Date of FASB Statement No. 157
 Business Combinations Accounting and Reporting of Noncontrolling Interest in Consolidated Financial
Statements, an amendment of ARB No. 51
 Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133
 Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating Securities
 Subsequent Events
 The FASB Accounting Standard Codification and the
Hierarchy of the Generally Accepted Accounting Principles  a replacement of SFAS No. 162
  9




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NOTE B  SUPPLEMENTAL FINANCIAL INFORMATION
 Cash and Cash Equivalents
  Investments
   June 30, 2009Unrealized
    
    
    UnrealizedCost basis
    
    
    gains
    
    
    losses
    
    
    Fair ValueU.S. Government and Agency securities
    
    $
    60,557
    
    
    $
    1,414
    
    
    $
    
    
    
    $
    61,971Corporate bonds
    
    
    17,164
    
    
    
    233
    
    
    
    (6
    )
    
    
    17,391$
    77,721
    
    
    $
    1,647
    
    
    $
    (6
    )
    
    $
    79,362
 June 30, 2008Unrealized
    
    
    UnrealizedCost basis
    
    
    gains
    
    
    losses
    
    
    Fair ValueU.S. Government and Agency securities
    
    $
    82,726
    
    
    $
    22
    
    
    $
    (234
    )
    
    $
    82,514Corporate bonds
    
    
    16,477
    
    
    
    9
    
    
    
    (95
    )
    
    
    16,391$
    99,203
    
    
    $
    31
    
    
    $
    (329
    )
    
    $
    98,905
  June 30, 2009
    
    
    June 30, 2008Cost basis
    
    
    Fair Value
    
    
    Cost basis
    
    
    Fair ValueDue in one year or less
    
    $
    31,826
    
    
    $
    32,327
    
    
    $
    35,890
    
    
    $
    35,756Due after one year through five years
    
    
    45,895
    
    
    
    47,035
    
    
    
    63,313
    
    
    
    63,149$
    77,721
    
    
    $
    79,362
    
    
    $
    99,203
    
    
    $
    98,905
  10




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##### Table of Contents




    
    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.
  Accounts Receivable
   Inventories
   June 30,
    
    
    December 31,2009
    
    
    2008Raw materials
    
    $
    46,819
    
    
    $
    47,721Work-in-process
    
    
    6,309
    
    
    
    5,614Finished goods
    
    
    8,452
    
    
    
    10,648$
    61,580
    
    
    $
    63,983
  11




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##### Table of Contents



Warranty Cost
   June 30,
    
    
    June 30,2009
    
    
    2008Balance, beginning of period
    
    $
    7,431
    
    
    $
    7,973Charged to cost of revenue
    
    
    3,541
    
    
    
    4,850Charged to selling, general and administrative
    
    
    282
    
    
    
    Adjustments related to change in estimate
    
    
    (1,973
    )
    
    
    710Actual product warranty expenditures
    
    
    (4,374
    )
    
    
    (6,208
    )Balance, end of period
    
    $
    4,907
    
    
    $
    7,325
 Other Comprehensive Income (Loss)
  NOTE C  LOSS PER SHARE OF COMMON STOCK
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Loss per share  basic and diluted:Net loss attributable to common shareholders
    
    $
    (7,123
    )
    
    $
    (6,861
    )
    
    $
    (20,122
    )
    
    $
    (13,033
    )Weighted-average common shares outstanding
    
    
    50,592
    
    
    
    50,173
    
    
    
    50,592
    
    
    
    50,098Loss per common share
    
    $
    (0.14
    )
    
    $
    (0.14
    )
    
    $
    (0.40
    )
    
    $
    (0.26
    )
   12




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NOTE D  SEGMENT INFORMATION
 Disclosures about Segments of an Enterprise and Related Information,
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Product
    
    $
    30,552
    
    
    $
    45,247
    
    
    $
    51,685
    
    
    $
    77,734Service and other
    
    
    10,528
    
    
    
    6,774
    
    
    
    20,018
    
    
    
    13,187$
    41,080
    
    
    $
    52,021
    
    
    $
    71,703
    
    
    $
    90,921
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008North America
    
    $
    25,365
    
    
    $
    32,822
    
    
    $
    43,604
    
    
    $
    62,697Europe and Middle East
    
    
    12,313
    
    
    
    10,911
    
    
    
    18,588
    
    
    
    15,696Asia-Pacific
    
    
    3,402
    
    
    
    8,288
    
    
    
    9,511
    
    
    
    12,528$
    41,080
    
    
    $
    52,021
    
    
    $
    71,703
    
    
    $
    90,921
 NOTE E  INCOME TAXES
 Interim Financial Reporting Accounting for Income Taxes
  NOTE F  COMMITMENTS AND CONTINGENCIES
  Pending Litigation
   13




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##### Table of Contents



Operating leases
   NOTE G  WARRANTS
  NOTE H  STOCK INCENTIVE PLANS
    14




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##### Table of Contents



Restricted StockIncentive Stock Options
    
    
    
    
    
    
    Weighted-Shares
    
    
    Number of
    
    
    Weighted-
    
    
    
    
    
    
    AverageAvailable
    
    
    Options
    
    
    Average
    
    
    Number of
    
    
    Grant Datefor Grant
    
    
    Outstanding
    
    
    Exercise Price
    
    
    Shares
    
    
    Fair ValueBalance at December 31, 2008
    
    
    266
    
    
    
    5,774
    
    
    $
    5.17
    
    
    
    1,472
    
    
    $
    6.02Authorized
    
    
    5,033
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    (312
    )
    
    
    204
    
    
    
    2.62
    
    
    
    108
    
    
    
    2.66Cancelled
    
    
    106
    
    
    
    (210
    )
    
    
    6.57
    
    
    
    (63
    )
    
    
    6.10Balance at June 30, 2009
    
    
    5,093
    
    
    
    5,768
    
    
    $
    5.03
    
    
    
    1,517
    
    
    $
    5.77Exercisable at June 30, 2009
    
    
    
    
    
    
    3,989
    
    
    $
    4.26
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Cost of revenue
    
    $
    271
    
    
    $
    209
    
    
    $
    575
    
    
    $
    422Research and development
    
    
    330
    
    
    
    133
    
    
    
    702
    
    
    
    623Selling, general and administrative
    
    
    781
    
    
    
    635
    
    
    
    1,595
    
    
    
    941Income tax benefit
    
    
    
    
    
    
    (242
    )
    
    
    
    
    
    
    (384
    )$
    1,382
    
    
    $
    735
    
    
    $
    2,872
    
    
    $
    1,602
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Expected term (years)
    
    
    4.25
    
    
    
    4.25
    
    
    
    4.25
    
    
    
    4.25Risk-free interest rate
    
    
    2.0  3.0
    %
    
    
    3.0
    %
    
    
    1.9  3.0
    %
    
    
    3.0
    %Expected volatility
    
    
    55
    %
    
    
    48
    %
    
    
    53  55
    %
    
    
    46  48
    %Expected dividend
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected forfeiture rate
    
    
    5.5
    %
    
    
    5.5
    %
    
    
    5.5
    %
    
    
    5.5
    %Weighted-average fair value at grant date
    
    $
    2.63
    
    
    $
    9.76
    
    
    $
    2.64
    
    
    $
    11.85
 NOTE I  RELATED PARTY TRANSACTIONS
   15




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##### Table of Contents



NOTE J  INVESTMENT IN COMPACT PARTICLE ACCELERATION CORPORATION
   NOTE K  OTHER EVENTS
   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
    
    
    The majority of our Hi Art
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. We generally
recognize revenue from a system sale upon customer acceptance, which usually occurs
three to four weeks after delivery. Each 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 Hi Art 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 Hi Art system compared to
competing systems is a factor in our ability to increase market demand for the Hi Art
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 Hi Art 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 Hi Art 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 replacement rates. We continue to develop alternate components and
implement enhancements to increase the performance of components used in the Hi Art 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 Hi Art 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. However, our overall average direct service costs
per installed system continues to decrease. 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 and introducing component design changes. In addition, we believe that
achieving certain of these initiatives should also lead to reduced warranty costs and
improved system performance.
  19




---



##### Table of Contents



Operating expenses
 Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed .
  Nonoperating expenses
  Interest income
  Income tax expense (benefit)
  Accounting for Income Taxes
 Noncontrolling interests
   20




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##### Table of Contents



Results of Operations
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenue
    
    
    79.2
    
    
    
    75.9
    
    
    
    84.6
    
    
    
    77.2Gross profit
    
    
    20.8
    
    
    
    24.1
    
    
    
    15.4
    
    
    
    22.8Operating expenses:Research and development
    
    
    17.1
    
    
    
    19.3
    
    
    
    18.0
    
    
    
    21.5Selling, general and administrative
    
    
    27.4
    
    
    
    26.2
    
    
    
    30.5
    
    
    
    26.7Total operating expenses
    
    
    44.5
    
    
    
    45.5
    
    
    
    48.5
    
    
    
    48.2Loss from operations
    
    
    -23.7
    
    
    
    -21.4
    
    
    
    -33.1
    
    
    
    -25.4Other income
    
    
    1.4
    
    
    
    1.9
    
    
    
    1.4
    
    
    
    3.0Loss before income tax and noncontrolling interests
    
    
    -22.3
    
    
    
    -19.5
    
    
    
    -31.7
    
    
    
    -22.4Income tax benefit
    
    
    -0.8
    
    
    
    -3.5
    
    
    
    -0.6
    
    
    
    -6.5Net loss
    
    
    -21.5
    
    
    
    -16.0
    
    
    
    -31.1
    
    
    
    -15.9Noncontrolling interests
    
    
    4.2
    
    
    
    2.9
    
    
    
    3.0
    
    
    
    1.6Net loss attributable to shareholders
    
    
    -17.3
    %
    
    
    -13.1
    %
    
    
    -28.1
    %
    
    
    -14.3
    %
 Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
 Revenue
  Three Months Ended June 30,2009
    
    
    2008Product revenue
    
    $
    30,552
    
    
    
    74
    %
    
    $
    45,247
    
    
    
    87
    %Service and other revenue
    
    
    10,528
    
    
    
    26
    
    
    
    6,774
    
    
    
    13$
    41,080
    
    
    
    100
    %
    
    $
    52,021
    
    
    
    100
    %
  Three Months Ended June 30,2009
    
    
    2008North America
    
    $
    25,365
    
    
    
    62
    %
    
    $
    32,822
    
    
    
    63
    %Europe and Middle East
    
    
    12,313
    
    
    
    30
    
    
    
    10,911
    
    
    
    21Asia-Pacific
    
    
    3,402
    
    
    
    8
    
    
    
    8,288
    
    
    
    16$
    41,080
    
    
    
    100
    %
    
    $
    52,021
    
    
    
    100
    %
    21




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##### Table of Contents



Cost of revenue
     Research and development expenses
  Three Months Ended June 30,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeHi Art R&D
    
    $
    5,353
    
    
    $
    8,366
    
    
    $
    (3,013
    )
    
    
    -36.0
    %Proton Project / CPAC R&D
    
    
    1,667
    
    
    
    1,678
    
    
    
    (11
    )
    
    
    -0.7$
    7,020
    
    
    $
    10,044
    
    
    $
    (3,024
    )
    
    
    -30.1
    %
  Selling, general and administrative expenses
   22




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##### Table of Contents



Other income (expense)
  Income tax expense
  Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
 Revenue
  Six Months Ended June 30,2009
    
    
    2008Product revenue
    
    $
    51,685
    
    
    
    72
    %
    
    $
    77,734
    
    
    
    85
    %Service and other revenue
    
    
    20,018
    
    
    
    28
    
    
    
    13,187
    
    
    
    15$
    71,703
    
    
    
    100
    %
    
    $
    90,921
    
    
    
    100
    %
  Six Months Ended June 30,2009
    
    
    2008North America
    
    $
    43,604
    
    
    
    61
    %
    
    $
    62,697
    
    
    
    69
    %Europe and Middle East
    
    
    18,588
    
    
    
    26
    
    
    
    15,696
    
    
    
    17Asia-Pacific
    
    
    9,511
    
    
    
    13
    
    
    
    12,528
    
    
    
    14$
    71,703
    
    
    
    100
    %
    
    $
    90,921
    
    
    
    100
    %
   Cost of revenue
    23




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##### Table of Contents



Research and development expenses
  Six Months Ended June 30,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeHi Art R&D
    
    $
    10,934
    
    
    $
    16,191
    
    
    $
    (5,257
    )
    
    
    -32.5
    %Proton Project / CPAC R&D
    
    
    1,935
    
    
    
    3,378
    
    
    
    (1,443
    )
    
    
    -42.7$
    12,869
    
    
    $
    19,569
    
    
    $
    (6,700
    )
    
    
    -34.2
    %
  Selling, general and administrative expenses
  Other income (expense)
  Income tax expense
   24




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##### Table of Contents



Liquidity and Capital Resources
  Financial Condition
  June 30, 2009Unrealized
    
    
    UnrealizedCost basis
    
    
    gains
    
    
    losses
    
    
    Fair ValueU.S. Government and Agency securities
    
    $
    60,557
    
    
    $
    1,414
    
    
    $
    
    
    
    $
    61,971Corporate bonds
    
    
    17,164
    
    
    
    233
    
    
    
    (6
    )
    
    
    17,391$
    77,721
    
    
    $
    1,647
    
    
    $
    (6
    )
    
    $
    79,362
  Cash Flows
 Cash flows from operating activities
    25




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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
    26




---



##### Table of Contents



Operating Capital and Capital Expenditure Requirements
  
    
    Revenue generated from sales of the Hi Art system and service plans;
 
    
    Costs associated with our sales and marketing, general and administrative and
manufacturing activities;
 
    
    The performance of the Hi Art 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.
  Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
   Loss Per Share of Common Stock
 Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities
  27




---



##### Table of Contents



Recent Accounting Pronouncements
 Fair Value Measurements Effective Date of FASB Statement No. 157
 Business Combinations Accounting and Reporting of Noncontrolling Interest in Consolidated Financial
Statements, an amendment of ARB No. 51
 Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133
  Subsequent Events
 The FASB Accounting Standard Codification and the
Hierarchy of the Generally Accepted Accounting Principles  a replacement of SFAS No. 162
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
   28




---



##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Material Weakness in Internal Control Over Financial Reporting
    Changes in Internal Control Over Financial Reporting
   29




---



##### Table of Contents



Part II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  We may be unable to further penetrate the market we currently serve or the unserved single linear
accelerator facility market if we fail to implement enhancements to the Hi Art system in a timely
manner.
  Changes in healthcare policies and changes to reimbursement to healthcare providers for use of the
Hi Art system could adversely affect sales of the Hi Art system.
   30




---



##### Table of Contents



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.
  If our backlog, which we believe is an important measure of future revenue, declines further, our
future financial performance will be adversely affected.
  
 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
    31




---



##### Table of Contents



Working capital
    
    $
    59.4Purchases of property and equipment
    
    
    15.4Purchases of test systems
    
    
    5.7Acquisition of Chengdu Twin Peak Accelerator Technology Inc.
    
    
    1.2Repayment of debt
    
    
    0.2Total net proceeds used
    
    $
    81.9
 (c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  Votes
    
    
    Votes
    
    
    VotesFor
    
    
    Against
    
    
    Withheld
    
    
    AbstentionsProposal OneElection of Directors:John J. Greisch
    
    
    43,487,110
    
    
    
    
    
    
    
    4,590,396
    
    
    
    Sam R. Leno
    
    
    47,163,538
    
    
    
    
    
    
    
    913,968
    
    
    
    T. Rockwell Mackie
    
    
    47,541,102
    
    
    
    
    
    
    
    536,404
    
    
    
    John J. McDonough
    
    
    47,668,343
    
    
    
    
    
    
    
    409,163
    
    
    
    Cary J. Nolan
    
    
    43,276,981
    
    
    
    
    
    
    
    4,800,525
    
    
    
    Carlos A. Perez
    
    
    33,559,618
    
    
    
    
    
    
    
    14,517,888
    
    
    
    Frederick A. Robertson
    
    
    47,268,516
    
    
    
    
    
    
    
    808,990
    
    
    
    Roy T. Tanaka
    
    
    47,553,624
    
    
    
    
    
    
    
    523,882
    
    
    
    Frances S. Taylor
    
    
    43,502,789
    
    
    
    
    
    
    
    4,574,717
    
    
    
    Jonathan McCloskey
    
    
    46,073,557
    
    
    
    
    
    
    
    841,278
    
    
    
    Proposal TwoRatification of Appointment of
PricewaterhouseCoopers LLP
    
    
    47,786,184
    
    
    
    221,766
    
    
    
    
    
    
    
    69,556Proposal ThreeAmendment of the 2007 Equity Incentive Plan
    
    
    22,262,942
    
    
    
    14,413,675
    
    
    
    
    
    
    
    968,091Proposal FourAmendment of the 2007 Employee Stock Purchase Plan
    
    
    36,002,405
    
    
    
    1,592,773
    
    
    
    
    
    
    
    49,530
  32




---



##### Table of Contents



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)
    
    Agreement dated April 7, 2009, among the Company, Avalon Capital Group, Inc., Avalon Portfolio, LLC and
Avalon Technology, LLC10.2
    (3)
    
    Amendment One to Manufacturing and Supply Agreement with Siemens AG Healthcare Sector dated April 10,
2009, effective as of April 1, 200910.3
    (4)
    
    Magnetron Subscription Agreement with e2v Inc. and e2v Technologies (UK) Limited dated April 24, 2009
and effective May 1, 200910.4
    (5)
    
    Employment Agreement dated June 22, 2009 between the Company and Thomas E. Powell10.5
    *
    
    First Amendment to Employment Agreement dated July 1, 2009 between the Company and Frederick A. Robertson10.6
    *
    
    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 April 8, 2009
(File No. 001-33452).(3)
    
    Previously filed as an exhibit to the Companys current report on Form
8-K filed with the Securities and Exchange Commission on April 13,
2009 (File No. 001-33452).(4)
    
    Previously filed as an exhibit to the Companys current report on Form
8-K filed with the Securities and Exchange Commission on April 29,
2009 (File No. 001-33452).(5)
    
    Previously filed as an exhibit to the Companys current report on Form
8-K filed with the Securities and Exchange Commission on June 11, 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: August 6, 2009
    By:
    /s/ Frederick A. RobertsonFrederick A. RobertsonChief Executive Officer and PresidentDate: August 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)
    
    Agreement dated April 7, 2009, among the Company, Avalon Capital Group, Inc., Avalon Portfolio, LLC and
Avalon Technology, LLC10.2
    (3)
    
    Amendment One to Manufacturing and Supply Agreement with Siemens AG Healthcare Sector dated April 10,
2009, effective as of April 1, 200910.3
    (4)
    
    Magnetron Subscription Agreement with e2v Inc. and e2v Technologies (UK) Limited dated April 24, 2009
and effective May 1, 200910.4
    (5)
    
    Employment Agreement dated June 22, 2009 between the Company and Thomas E. Powell10.5
    *
    
    First Amendment to Employment Agreement dated July 1, 2009 between the Company and Frederick A. Robertson10.6
    *
    
    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 April 8, 2009
(File No. 001-33452).(3)
    
    Previously filed as an exhibit to the Companys current report on Form
8-K filed with the Securities and Exchange Commission on April 13,
2009 (File No. 001-33452).(4)
    
    Previously filed as an exhibit to the Companys current report on Form
8-K filed with the Securities and Exchange Commission on April 29,
2009 (File No. 001-33452).(5)
    
    Previously filed as an exhibit to the Companys current report on Form
8-K filed with the Securities and Exchange Commission on June 11, 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