1317872--3/12/2009--TomoTherapy

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{operation, international, foreign}

{property, intellectual, protect}

{provision, law, control}

{stock, price, share}

{regulation, change, law}

{regulation, government, change}

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{acquisition, growth, future}

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Risks Related to Our Business We currently depend on sales of the Hi Art system for substantially all of our revenue, and, if we are unable to grow or sustain sales of the Hi Art System, we may not generate sufficient revenue to support our business. Because substantially all of our revenue is derived from sales of the Hi Art system, and because of the long sales cycle and high unit price of the Hi Art system, our results of operations will vary significantly from period to period. These fluctuations in revenue may make it difficult to compare our results of operations across periods. We face competition from numerous competitors, many of whom have greater resources than we do, which may make it more difficult for us to achieve significant market penetration and maintain or increase our prices. Our reliance on single-source suppliers for critical components of the Hi Art system could harm our ability to meet demand for our products in a timely and cost-effective manner. Sales of the Hi Art system may be adversely affected if clinicians do not widely adopt IGRT and adaptive radiotherapy, which is an emerging cancer treatment technique. We may be unable to penetrate the market we currently serve or the unserved single linear accelerator facility market if we fail to educate clinicians and patients about the benefits of the Hi Art system and to implement enhancements to the system in a timely manner. Our ability to increase our profitability depends in part on maintaining our average selling prices and increasing our gross margins on product sales, which we may not be able to achieve. Our ability to increase our profitability also depends in part on reducing our warranty and service costs for the Hi Art system and improving our economies of scale, which we may not be able to achieve. Our sales and receivables may be materially adversely impacted if the global economic problems existing as of the date of this report on Form 10-K persist or worsen. If our backlog, which is an important measure of future revenue, declines further, our future financial performance will be adversely affected. We may be required to use more cash generated from our initial public offering to pay expenses, reducing our ability to use those proceeds for long-term investments. If we are unable to maintain existing research collaboration relationships, enter into new collaboration arrangements in the future or enter into license agreements with our collaborators and others, our ability to enhance the Hi Art system may be adversely affected. We rely on a third party to perform spare parts shipping and other logistics functions on our behalf. A failure or disruption at our logistics provider would adversely impact our business. 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. Our manufacturing operations are conducted at a single location, and any disruption at our manufacturing facility could increase our expenses. We are dependent upon third-party local distributors to market and distribute the Hi Art system in key markets. Our results of operations may be adversely affected by changes in foreign currency exchange rates. Technological breakthroughs in cancer treatment could render the Hi Art system obsolete. A significant percentage of our sales are outside of North America, and economic, political and other risks associated with international sales and operations could adversely affect our sales or make them less predictable. Product liability suits, whether or not meritorious, could be brought against us due to an alleged defective component of the Hi Art system or for the misuse of the Hi Art system. These suits could result in expensive and time-consuming litigation, payment of substantial damages and an increase in our insurance rates. We are subject to federal, state and foreign laws governing our business practices, which, if investigated or violated, could subject us to costs and penalties, and cause adverse publicity. The effectiveness of procedures performed using conformal radiation therapy delivery systems like the Hi Art system are not yet supported by long-term clinical data, and the medical community has only begun to develop a large body of peer-reviewed literature that supports the Hi Art system s efficacy. Our success will depend on our ability to attract and retain qualified personnel, while also effectively managing employee costs. We may need to raise additional capital in the future and may be unable to do so on acceptable terms. This could limit our ability to grow and carry out our business plan. In April 2008, we invested in continued development of a new compact proton therapy system through a separate entity. If this development project is unsuccessful, or we are unable to raise the additional capital that may be necessary for this project on acceptable terms, our ability to diversify our business could be impaired. Risks Related to Our Intellectual Property If we are not able to meet the requirements of our license agreement with the Wisconsin Alumni Research Foundation, or WARF, we could lose access to the technologies licensed thereunder and be unable to manufacture, market or sell the Hi Art system. If we are not able to adequately protect our intellectual property and proprietary technology, our competitive position, future business prospects and financial performance will be adversely affected. We may initiate lawsuits to protect or enforce our patents or other intellectual property rights, which could be expensive and, if we lose, could cause us to lose some of our intellectual property rights. We may become subject to costly intellectual property litigation, which could affect our future business and financial performance. We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers. Risks Related to Regulatory Matters Modifications, upgrades and future products related to the Hi Art system or new indications may require new FDA premarket approvals or 510(k) clearances, and such modifications, or any defects in design or manufacture, may require us to recall or cease marketing the Hi Art system until approvals or clearances are obtained. The Hi Art system is subject to recalls even after receiving FDA clearance or approval, which would harm our reputation, business and financial results. If we or our distributors do not obtain and maintain the necessary regulatory approvals in a specific country, we will not be able to market and sell the Hi Art system in that country. We must manufacture the Hi Art system in accordance with federal and state regulations, and we could be forced to recall our installed systems or terminate production if we fail to comply with these regulations. If we are found to have violated laws protecting the confidentiality of patient health information, we could be subject to civil or criminal penalties, which could increase our liabilities and harm our reputation or our business. Risks Related to Our Common Stock Our common stock has only been publicly traded since May 2007, and its price may fluctuate substantially. Anti-takeover provisions included in our amended and restated articles of incorporation and amended and restated bylaws could delay or prevent a change of control of our company, which could materially adversely impact the value of our common stock and may prevent or frustrate attempts by our shareholders to replace or remove our current management.

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1317872--3/12/2009--TomoTherapy_Inc