iRobot 2005 Annual Report Download - page 26

particular types of robots or during particular time periods. The expansion of the consumer robot market and
the market for our products depends on a number of factors, such as:
‚ the cost, performance and reliability of our products and products offered by our competitors;
‚ public perceptions regarding the effectiveness and value of robots;
‚ customer satisfaction with robots; and
‚ marketing efforts and publicity regarding robots.
Even if consumer robots gain wide market acceptance, our robots may not adequately address market
requirements and may not continue to gain market acceptance. If robots generally, or our robots specifically,
do not gain wide market acceptance, we may not be able to achieve our anticipated level of growth, and our
revenue and results of operations would suffer.
Our business and results of operations could be adversely affected by significant changes in the policies
and spending priorities of governments and government agencies.
We derive a substantial portion of our revenue from sales to and contracts with U.S. federal, state and
local governments and government agencies, and subcontracts under federal government prime contracts. For
the years ended December 31, 2005 and December 31, 2004, U.S. federal government orders, contracts and
subcontracts accounted for 28.3% and 20.1%, of total revenue, respectively. We believe that the success and
growth of our business will continue to depend on our successful procurement of government contracts either
directly or through prime contractors. Many of our government customers are subject to stringent budgetary
constraints and our continued performance under these contracts, or award of additional contracts from these
agencies, could be jeopardized by spending reductions or budget cutbacks at these agencies. We cannot assure
you that future levels of expenditures and authorizations will continue for governmental programs in which we
provide products and services. A significant decline in government expenditures generally, or with respect to
programs for which we provide products, could adversely affect our government product and funded research
and development revenues and prospects, which would harm our business, financial condition and operating
results. Our operating results may also be negatively impacted by other developments that affect these
governments and government agencies generally, including:
‚ changes in government programs that are related to our products and services;
‚ adoption of new laws or regulations relating to government contracting or changes to existing laws or
regulations;
‚ changes in political or public support for security and defense programs;
‚ delays or changes in the government appropriations process;
‚ uncertainties associated with the war on terror and other geo-political matters; and
‚ delays in the payment of our invoices by government payment offices.
These developments and other factors could cause governments and governmental agencies, or prime
contractors that use us as a subcontractor, to reduce their purchases under existing contracts, to exercise their
rights to terminate contracts at-will or to abstain from renewing contracts, any of which would cause our
revenue to decline and could otherwise harm our business, financial condition and results of operations.
We face intense competition from other providers of robots, including diversified technology providers, as
well as competition from providers offering alternative products, which could negatively impact our
results of operations and cause our market share to decline.
We believe that a number of companies have developed or are developing robots that will compete
directly with our product offerings. Additionally, large and small companies, government-sponsored laborato-
ries and universities are aggressively pursuing contracts for robot-focused research and development. Many
current and potential competitors have substantially greater financial, marketing, research and manufacturing
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