iRobot 2005 Annual Report Download - page 63

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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of the Business
iRobot Corporation, formerly IS Robotics, Inc., was incorporated in 1990 to develop robotics and
artificial intelligence technologies and apply these technologies in producing and marketing robots. The
majority of the Company's revenue is generated from product sales, and government and industrial research
and development contracts.
The Company is subject to risks common to companies in high-tech industries including, but not limited
to, uncertainty of progress in developing technologies, new technological innovations, dependence on key
personnel, protection of proprietary technology, compliance with government regulations, uncertainty of
market acceptance of products and the need to obtain financing, if necessary.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include those of iRobot and our subsidiaries, after
elimination of all intercompany accounts and transactions. iRobot has prepared the accompanying consoli-
dated financial statements in conformity with accounting principles generally accepted in the United States of
America.
Use of Estimates
The preparation of these financial statements in conformity with accounting principles generally accepted
in the United States of America requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and
liabilities. On an ongoing basis, management evaluates these estimates and judgments, including those related
to revenue recognition, sales returns, bad debts, warranty claims, lease termination, inventory reserves,
valuation of investments and income taxes. The Company bases these estimates on historical and anticipated
results and trends and on various other assumptions that the Company believes are reasonable under the
circumstances, including assumptions as to future events. These estimates form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from the
Company's estimates.
Reclassification
Certain reclassifications have been made to the prior year financial statements to conform to the current
year presentation.
Fiscal Year-End
Beginning in fiscal 2005, the Company operates and reports using a 52-53 week fiscal year ending on the
Saturday closest to December 31. Accordingly, the Company's fiscal quarters will end on the Saturday that
falls closest to the last day of the third month of each quarter.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original or remaining maturity of three
months or less at the time of purchase to be cash equivalents. The Company invests its excess cash primarily
in money market funds of major financial institutions. Accordingly, its investments are subject to minimal
credit and market risk. At December 31, 2005 and 2004, cash equivalents were comprised of money market
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