Table of Contents

	4,300,000 Shares

						Underwriting				Proceeds to				Proceeds to
						Discounts and				iRobot				Selling
		Price to Public				Commissions				Corporation				Stockholders
Per Share			$24.00				$1.68				$22.32				$22.32
Total			$103,200,000				$7,224,000				$72,782,618				$23,193,382

MORGAN STANLEY	JPMORGAN

---

Table of Contents

---

Table of Contents

---

Table of Contents

---

		Page
Prospectus Summary			1
Risk Factors			6
Forward-Looking Statements			24
Use of Proceeds			25
Dividend Policy			25
Capitalization			26
Dilution			27
Selected Consolidated Financial Data			28
Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Business			49
Management			68
Certain Relationships and Related Party Transactions			79
Principal and Selling Stockholders			81
Description of Capital Stock			86
Shares Eligible for Future Sale			90
Underwriters			92
Legal Matters			96
Experts			96
Where You Can Find More Information			96
Index to Consolidated Financial Statements			F-1

i

---

Table of Contents

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the risks of investing in our common stock discussed under “Risk Factors” beginning on page 6, and the consolidated financial statements and notes to those consolidated financial statements, before making an investment decision.

iRobot provides robots that enable people to complete complex tasks in a better way. Founded in 1990 by roboticists who performed research at the Massachusetts Institute of Technology, we have developed proprietary technology incorporating advanced concepts in navigation, mobility, manipulation and artificial intelligence to build industry-leading robots. Our Roomba floor vacuuming robot and recently announced Scooba floor washing robot perform time-consuming domestic chores, and our PackBot tactical military robots perform battlefield reconnaissance and bomb disposal. In addition, we are developing the Small Unmanned Ground Vehicle reconnaissance robot for the U.S. Army’s transformational Future Combat Systems program and, in conjunction with Deere & Company, the R-Gator unmanned ground vehicle. We sell our robots to consumers through a variety of distribution channels, including over 7,000 retail locations and our on-line store, and to the U.S. military and other government agencies worldwide.
As of October 1, 2005, we had 258 full-time employees, of whom over 120 are engineers specializing in the design of robots. We have developed expertise in all the disciplines necessary to build durable, high-performance and cost-effective robots through the close integration of software, electronics and hardware. Our core technologies serve as reusable building blocks that we adapt and expand to develop next generation and new products, reducing the time, cost and risk of product development. Our significant expertise in robot design and engineering, combined with our management team’s experience in military and consumer markets, positions us to capitalize on the expected growth in the market for robots.
Over the past three years, we sold more than 1.5 million of our Roomba floor vacuuming robots. We also sold to the U.S. military during that time more than 300 of our PackBot tactical military robots, most of which have been deployed on missions in Afghanistan and Iraq.

Over the past several decades, the desire to continue to improve productivity and quality of life has led to the development of robots. Historical attempts at producing robots have had limited success due to the inherent complexities in integrating multiple technologies to deliver truly functional robots at affordable prices. Behavior-based robots, which represent a new generation of robots, can effectively deal with dynamic and changing environments, and are particularly well suited for consumer, military and industrial tasks that are repetitive, physically demanding or dangerous. The need for robots has increased in parallel with the evolution of robot technology.
We believe that the demand for robots that can complete domestic chores is developing rapidly due to demographic trends, including the aging population, increasing prevalence of dual-income households, declining birth rates and ongoing reduction in people’s “free” time. According to the 2004 United Nations Economic Commission for Europe in cooperation with the International Federation of Robotics, there will be approximately $2.6 billion spent worldwide on household robots from 2004 through 2007.

1

---

Table of Contents

	•	Deliver Great Products and Continue to Expand Our Existing Markets. Our strategy is to deliver innovative products rapidly at economical price points and continue to extend our consumer and military product offerings.
	•	Innovate to Penetrate New Markets. Our culture of innovation and experience enables us to rapidly develop robots for use in a broad range of applications and to penetrate new market segments globally.
	•	Complement Our Core Competencies With Strategic Alliances. We rely on strategic alliances to provide complementary competencies and enhance our ability to enter and compete in new markets.
	•	Leverage Our Research and Development Efforts Across Different Products and Markets. By using our research and development across all our products and markets, our strategy is to develop cost-effective robots and rapidly bring them to market.
	•	Build a Community of Third-Party Developers Around Our Platforms. Our extendable product platforms with open interfaces allow us to foster a community of third-party developers that we believe will enable us to expand our footprint while maintaining market leadership.
	•	Continue to Strengthen Our Brand. To strengthen our brand, we will reinforce our message of innovation, reliability, safety and value through continued investment in our marketing programs.
	•	Continue to Invest Aggressively in Our Business and Our People. We will maximize long-term profitability by continuing to invest significant resources over the next several years in our product development and sales efforts, and in training highly-qualified personnel.

2

---

Table of Contents

	•	we have incurred significant losses since inception, including net losses of $10.8 million and $7.4 million in the years ended December 31, 2002 and 2003, respectively, resulting in an accumulated deficit of $24.3 million at October 1, 2005, and our future profitability is uncertain;
	•	we operate in an emerging market, which makes it difficult to evaluate our business and future prospects;
	•	we have generated, and expect to continue to generate, more than half of our revenue from our Roomba line of floor vacuuming robots; and
	•	we depend on the U.S. federal government for a significant portion of our revenue.

3

---

Table of Contents

Common stock offered by iRobot			3,260,870 shares
Common stock offered by the selling stockholders			1,039,130 shares
	Total		4,300,000 shares
Common stock to be outstanding after this offering			23,286,889 shares
Over-allotment option offered by selling stockholders			645,000 shares

Use of proceeds		We intend to use the net proceeds to us from this offering for working capital and other general corporate purposes, including to finance the development of new products, sales and marketing activities, capital expenditures and the costs of operating as a public company. We will not receive any proceeds from the sale of shares by the selling stockholders. See “Use of Proceeds” for more information.
Risk factors		You should read the “Risk Factors” section of this prospectus for a discussion of factors that you should consider carefully before deciding to invest in shares of our common stock.
NASDAQ National Market symbol		“IRBT”

	•	3,094,734 shares of common stock issuable upon exercise of the remaining options outstanding as of October 1, 2005, at a weighted average exercise price of $3.23 per share;
	•	1,583,682 shares of common stock reserved as of October 1, 2005 for future issuance under our stock-based compensation plans; and
	•	18,000 shares of common stock issuable upon the exercise of a warrant, with an approximate exercise price of $3.74 per share.

	•	the automatic conversion of all outstanding shares of our preferred stock into 9,557,246 shares of common stock, upon the closing of the offering;
	•	the exercise of options, outstanding as of October 1, 2005, to purchase an aggregate of 48,607 shares of common stock at a weighted average exercise price of $0.39 per share to be sold by selling stockholders in this offering;
	•	except as provided above, no exercise of outstanding options or the outstanding warrant after October 1, 2005;
	•	the filing of our amended and restated certificate of incorporation and the adoption of our amended and restated by-laws immediately prior to the effectiveness of this offering; and
	•	no exercise by the underwriters of their over-allotment option.

4

---

Table of Contents

5

---

Table of Contents

	•	generate sufficient revenue to maintain profitability;
	•	acquire and maintain market share in our consumer and military markets;
	•	manage growth in our operations;
	•	attract and retain customers of our consumer robots;
	•	develop and renew government contracts for our military robots;
	•	attract and retain additional roboticists and other highly-qualified personnel;
	•	adapt to new or changing policies and spending priorities of governments and government agencies; and
	•	access additional capital when required and on reasonable terms.

6

---

Table of Contents

	•	seasonality in the sales of our consumer products;
	•	the size and timing of orders from military and other government agencies;
	•	the mix of products that we sell in the period;
	•	disruption of supply of our products from our manufacturers;
	•	the inability to attract and retain qualified, revenue-generating personnel;
	•	unanticipated costs incurred in the introduction of new products;
	•	costs of labor and raw materials;
	•	changes in our rate of returns for our consumer products;
	•	our ability to introduce new products and enhancements to our existing products on a timely basis;
	•	price reductions;
	•	the amount of government funding and the political, budgetary and purchasing constraints of our government agency customers; and
	•	cancellations, delays or contract amendments by government agency customers.

7

---

Table of Contents

	•	terminate contracts for convenience, in whole or in part, at any time and for any reason;
	•	reduce or modify contracts or subcontracts if its requirements or budgetary constraints change;
	•	cancel multi-year contracts and related orders if funds for contract performance for any subsequent year become unavailable;
	•	exercise production priorities, which allow it to require that we accept government purchase orders or produce products under its contracts before we produce products under other contracts, which may displace or delay production of more profitable orders;
	•	claim certain rights in products provided by us; and
	•	control or prohibit the export of certain of our products.

8

---

Table of Contents

9

---

Table of Contents

	•	lack of direct control over production capacity and delivery schedules;
	•	lack of direct control over quality assurance, manufacturing yields and production costs;
	•	lack of enforceable contractual provisions over the production and costs of consumer products;
	•	risk of loss of inventory while in transit from China; and
	•	risks associated with international commerce with China, including unexpected changes in legal and regulatory requirements, changes in tariffs and trade policies, risks associated with the protection of intellectual property and political and economic instability.

10

---

Table of Contents

	•	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.

	•	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.

11

---

Table of Contents

	•	developers of robotic floor care products such as AB Electrolux, Alfred Kärcher GmbH & Co., Samsung Electronics Co., Ltd., LG Electronics Inc., Koolatron Corp. and Yujin Robotic Co. Ltd.;
	•	developers of small unmanned ground vehicles such as Foster-Miller, Inc.— a wholly owned subsidiary of QinetiQ North America, Inc., Allen-Vanguard Corporation, and Remotec— a division of Northrop Grumman Corporation; and
	•	established government contractors working on unmanned systems such as Lockheed Martin Corporation, BAE Systems, Inc. and General Dynamics Corporation.

12

---

Table of Contents

13

---

Table of Contents

14

---

Table of Contents

	•	our collaborators may not devote the resources necessary or may otherwise be unable to complete development and commercialization of these potential products;
	•	our existing collaborations are and future collaborations may be subject to termination on short notice;
	•	our collaborators may be pursuing alternative technologies or developing alternative products, either on their own or in collaboration with others, that may be competitive with our products, which could affect our collaborators’ commitment to the collaboration with us;
	•	reductions in marketing or sales efforts or a discontinuation of marketing or sales of our products by our collaborators could reduce our revenue;
	•	our collaborators may terminate their collaborations with us, which could make it difficult for us to attract new collaborators or harm our reputation in the business and financial communities; and

15

---

Table of Contents

	•	our collaborators may pursue higher priority programs or change the focus of their development programs, which would weaken our collaborators’ commitment to us.

	•	the Federal Acquisition Regulations and supplemental agency regulations, which comprehensively regulate the formation and administration of, and performance under government contracts;
	•	the Truth in Negotiations Act, which requires certification and disclosure of all cost and pricing data in connection with contract negotiations;
	•	the Cost Accounting Standards, which impose accounting requirements that govern our right to reimbursement under cost-based government contracts;
	•	the Foreign Corrupt Practices Act, which prohibits U.S. companies from providing anything of value to a foreign official to help obtain, retain or direct business, or obtain any unfair advantage;
	•	the False Claims Act and the False Statements Act, which, respectively, impose penalties for payments made on the basis of false facts provided to the government, and impose penalties on the basis of false statements, even if they do not result in a payment; and
	•	laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data.

16

---

Table of Contents

	•	difficulties in integrating the operations, technologies, products, existing contracts, accounting and personnel of the target company and realizing the anticipated synergies of the combined businesses;
	•	difficulties in supporting and transitioning customers, if any, of the target company;
	•	diversion of financial and management resources from existing operations;
	•	the price we pay or other resources that we devote may exceed the value we realize, or the value we could have realized if we had allocated the purchase price or other resources to another opportunity;
	•	risks of entering new markets in which we have limited or no experience;
	•	potential loss of key employees, customers and strategic alliances from either our current business or the target company’s business;
	•	assumption of unanticipated problems or latent liabilities, such as problems with the quality of the target company’s products; and
	•	inability to generate sufficient revenue to offset acquisition costs.

17

---

Table of Contents

	•	hire additional roboticists and other personnel;
	•	develop new or enhance existing robots and robot accessories;
	•	enhance our operating infrastructure;
	•	acquire complementary businesses or technologies; or

18

---

Table of Contents

	•	otherwise respond to competitive pressures.

	•	difficulties in staffing, managing and supporting operations in multiple countries;
	•	difficulties in enforcing agreements and collecting receivables through foreign legal systems and other relevant legal issues;
	•	fewer legal protections for intellectual property;
	•	foreign and U.S. taxation issues and international trade barriers;
	•	difficulties in obtaining any necessary governmental authorizations for the export of our products to certain foreign jurisdictions;
	•	potential fluctuations in foreign economies;
	•	government currency control and restrictions on repatriation of earnings;
	•	fluctuations in the value of foreign currencies and interest rates;
	•	general economic and political conditions in the markets in which we operate;
	•	domestic and international economic or political changes, hostilities and other disruptions in regions where we currently operate or may operate in the future; and
	•	different and changing legal and regulatory requirements in the jurisdictions in which we currently operate or may operate in the future.

19

---

Table of Contents

	•	fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;
	•	changes in estimates of our financial results or recommendations by securities analysts;
	•	failure of any of our products to achieve or maintain market acceptance;
	•	changes in market valuations of similar companies;
	•	success of competitive products;

20

---

Table of Contents

	•	changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
	•	announcements by us or our competitors of significant products, contracts, acquisitions or strategic alliances;
	•	regulatory developments in the United States, foreign countries or both;
	•	litigation involving our company, our general industry or both;
	•	additions or departures of key personnel;
	•	investors’ general perception of us; and
	•	changes in general economic, industry and market conditions.

				% of Total
Number of Shares				Outstanding				Date Available for Sale Into Public Market
	260,840				1.1	%		On the date of this prospectus
	131,048				0.6	%		90 days after the date of this prospectus
	18,467,109				79.3	%		180 days after the date of this prospectus, subject to extension in specified instances, due to lock-up agreements between the holders of these shares and the underwriters. However, Morgan Stanley & Co. Incorporated and J.P. Morgan Securities Inc. can waive the provisions of these lock-up agreements and allow these stockholders to sell their shares at any time
	95,172				0.4	%		180 days after the date of this prospectus, subject to extension in specified instances, due to a lock-up agreement between the holders of these shares and us. However, with the underwriters’ consent, we can waive the provisions of these lock-up agreements and allow these stockholders to sell their shares at any time
	32,720				0.1	%		Between 181 and 365 days after the date of this prospectus, depending on the requirements of the federal securities laws

21

---

Table of Contents

	•	limitations on the removal of directors;
	•	a classified board of directors so that not all members of our board are elected at one time;

22

---

Table of Contents

	•	advance notice requirements for stockholder proposals and nominations;
	•	the inability of stockholders to act by written consent or to call special meetings;
	•	the ability of our board of directors to make, alter or repeal our by-laws; and
	•	the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval.

23

---

Table of Contents

24

---

Table of Contents

25

---

Table of Contents

	•	on an actual basis; and
	•	on an as adjusted basis to give effect to the conversion of our convertible preferred stock, the issuance of 48,607 shares of common stock upon the exercise of outstanding options at a weighted average exercise price of $.39 per share to be sold by selling stockholders in this offering, and to reflect the sale of 3,260,870 shares of common stock that we are offering at the initial public offering price of $24.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

			As of October 1, 2005
			Actual				As Adjusted
			(unaudited)
			(in thousands)
Preferred stock, $.01 par value, 9,557 shares authorized and issued, actual; 5,000 shares authorized, no shares issued, as adjusted:			$	37,506				—
Stockholders’ equity (deficit):
	Common stock, $.01 par value: 35,000 shares authorized; 10,420 shares issued, actual; 100,000 shares authorized, 23,287 shares issued, as adjusted			104				233
	Additional paid-in capital			6,503				114,682
	Deferred stock-based compensation			(3,145	)			(3,145	)
	Accumulated deficit			(24,291	)			(24,291	)
Total stockholders’ equity (deficit)				(20,829	)			87,479
Total capitalization			$	16,677				87,479

26

---

Table of Contents

Initial public offering price per share							$	24.00
	Net tangible book value as of October 1, 2005		$	0.83
	Increase attributable to this offering			2.93
Adjusted net tangible book value per share after this offering								3.76
Dilution in net tangible book value per share to new investors							$	20.24

			Shares Purchased								Total Consideration
																			Average Price
			Number				Percent				Amount				Percent				Per Share
Existing stockholders				20,026,019				86	%		$	39,241				33	%		$	1.96
New investors				3,260,870				14	%			78,261				67	%		$	24.00
	Total			23,286,889				100	%		$	117,502				100	%

27

---

Table of Contents

																								Nine Months Ended
				Year Ended December 31,
																								September 30,				October 1,
				2000				2001				2002				2003				2004				2004				2005
																								(unaudited)
				(in thousands, except per share data)
Consolidated Statement of Operations:
Revenue
	Product revenue(1)			$	1,904			$	1,408			$	6,955			$	45,896			$	82,147			$	48,589			$	83,039
	Contract revenue				8,846				12,077				7,223				7,661				12,365				8,500				12,375
	Royalty revenue				—				27				639				759				531				469				62
		Total revenue			10,750				13,512				14,817				54,316				95,043				57,558				95,476
Cost of Revenue
	Cost of product revenue				1,506				1,148				4,896				31,194				59,321				35,032				55,320
	Cost of contract revenue				6,607				8,566				11,861				6,143				8,371				5,446				8,924
		Total cost of revenue			8,113				9,714				16,757				37,337				67,692				40,478				64,244
Gross Profit (Loss)(1)					2,637				3,798				(1,940	)			16,979				27,351				17,080				31,232
Operating Expenses
	Research and development				3,225				1,846				1,736				3,848				5,504				3,769				8,276
	Selling, general and administrative				3,038				4,669				7,128				20,521				21,404				13,327				20,328
	Stock-based compensation(2)				—				—				—				—				—				—				212
		Total operating expenses			6,263				6,515				8,864				24,369				26,908				17,096				28,816
Operating Income (Loss)					(3,626	)			(2,717	)			(10,804	)			(7,390	)			443				(16	)			2,416
Other Income (Expense), Net					171				101				45				15				(80	)			(48	)			271
Income (Loss) Before Income Taxes					(3,455	)			(2,616	)			(10,759	)			(7,375	)			363				(64	)			2,687
Income Tax Expense					8				16				15				36				144				125				92
Net Income (Loss)				$	(3,463	)		$	(2,632	)		$	(10,774	)		$	(7,411	)		$	219			$	(189	)		$	2,595
Net Income (Loss) Attributable to Common Stockholders				$	(3,463	)		$	(2,632	)		$	(10,774	)		$	(7,411	)		$	118			$	(189	)		$	1,332
Net Income (Loss) Per Common Share
		Basic		$	(0.66	)		$	(0.50	)		$	(2.00	)		$	(0.79	)		$	0.01			$	(0.02	)		$	0.13
		Diluted		$	(0.66	)		$	(0.50	)		$	(2.00	)		$	(0.79	)		$	0.01			$	(0.02	)		$	0.11
Shares Used in Per Common Share Calculations
		Basic			5,231				5,312				5,391				9,352				9,660				9,605				10,080
		Diluted			5,231				5,312				5,391				9,352				19,183				9,605				12,268
Pro Forma Net Income Data(3):
	Pro Forma Net Income Per Common Share
		Basic																		$	0.01							$	0.13
		Diluted																		$	0.01							$	0.12
	Shares Used in Pro Forma Per Common Share Calculations
		Basic																			18,002								19,637
		Diluted																			19,183								21,825

28

---

Table of Contents

(1)	Beginning in the first quarter of 2004, we converted from recognizing revenue from U.S. consumer product sales on a “sell-through” basis (when retail stores sold our robots) to a “sell-in” basis (when our robots are shipped to retail stores). As a result of this conversion, our revenue and gross profit in the first quarter of 2004 included $5.7 million and $2.5 million, respectively, from robots shipped prior to 2004.
(2)	Stock-based compensation recorded in 2005 breaks down by expense classification as follows:

			Nine Months Ended
			October 1, 2005
			(unaudited)
			(in thousands)
Cost of product revenue			$	18
Cost of contract revenue				29
Research and development				59
Selling, general and administrative				106
	Total stock-based compensation		$	212

(3)	We have computed the pro forma net income per common share and the pro forma weighted-average shares outstanding included in the statement of operations data as we describe in Note 2 of the notes to our consolidated financial statements.

		As of December 31,																				As of
																						October 1,
		2000				2001				2002				2003				2004				2005
																						(unaudited)
		(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents		$	806			$	7,179			$	3,014			$	4,620			$	19,441			$	9,217
Total assets			5,241				10,580				8,705				27,827				45,137				59,967
Total liabilities			2,015				3,182				12,049				25,624				31,920				43,290
Total redeemable convertible preferred stock			7,873				14,639				14,639				27,562				37,506				37,506
Total stockholders’ equity (deficit)			(4,646	)			(7,241	)			(17,983	)			(25,359	)			(24,289	)			(20,829	)

29

---

Table of Contents

30

---

Table of Contents

	Cost of Revenue

31

---

Table of Contents

	Gross Profit

	Research and Development Expenses

	•	salaries and related costs for our engineers;
	•	costs for high technology components used in product and prototype development; and
	•	costs of test equipment used during product development.

	Selling, General and Administrative Expenses

	•	salaries and related costs for sales and marketing personnel;
	•	salaries and related costs for executives and administrative personnel;
	•	advertising, marketing and other brand-building costs;
	•	professional services costs;
	•	information systems and infrastructure costs;
	•	travel and related costs; and
	•	occupancy and other overhead costs.

32

---

Table of Contents

	Stock-Based Compensation Expenses

	Fiscal Periods

	Revenue Recognition

33

---

Table of Contents

	Accounting for Stock-Based Awards

34

---

Table of Contents

35

---

Table of Contents

	Accounting for Income Taxes

36

---

Table of Contents

	Warranty

	Inventory Valuation

																	Nine Months Ended
					Fiscal Year Ended December 31,
																	September 30,				October 1,
					2002				2003				2004				2004				2005
																	(unaudited)
					(in thousands)
Revenue
	Product revenue(1)				$	6,955			$	45,896			$	82,147			$	48,589			$	83,039
	Contract revenue					7,223				7,661				12,365				8,500				12,375
	Royalty revenue					639				759				531				469				62
			Total revenue			14,817				54,316				95,043				57,558				95,476
Cost of Revenue
	Cost of product revenue					4,896				31,194				59,321				35,032				55,320
	Cost of contract revenue					11,861				6,143				8,371				5,446				8,924
			Total cost of revenue			16,757				37,337				67,692				40,478				64,244
		Gross profit (loss)(1)				(1,940	)			16,979				27,351				17,080				31,232
Operating Expenses
	Research and development					1,736				3,848				5,504				3,769				8,276
	Selling, general and administrative					7,128				20,521				21,404				13,327				20,328
	Stock-based compensation(2)					—				—				—				—				212
			Total operating expenses			8,864				24,369				26,908				17,096				28,816
Operating Income (Loss)						(10,804	)			(7,390	)			443				(16	)			2,416
Other Income (Expense), Net						45				15				(80	)			(48	)			271
Income (Loss) Before Income Taxes						(10,759	)			(7,375	)			363				(64	)			2,687
Income Tax Expense						15				36				144				125				92
Net Income (Loss)					$	(10,774	)		$	(7,411	)		$	219			$	(189	)		$	2,595

37

---

Table of Contents

(1)	Beginning in the first quarter of 2004, we converted from recognizing revenue from U.S. consumer product sales on a “sell-through” basis (when retail stores sold our robots) to a “sell-in” basis (when our robots are shipped to retail stores). As a result of this conversion, our revenue and gross profit in the first quarter of 2004 included $5.7 million and $2.5 million, respectively, from robots shipped prior to 2004.
(2)	Stock-based compensation recorded in 2005 breaks down by expense classification as follows:

			Nine Months Ended
			October 1, 2005
			(unaudited)
			(in thousands)
Cost of product revenue			$	18
Cost of contract revenue				29
Research and development				59
Selling, general and administrative				106
	Total stock-based compensation		$	212

					Fiscal Year Ended												Nine Months Ended
					December 31,
																	September 30,				October 1,
					2002				2003				2004				2004				2005
Revenue
	Product revenue					47.0	%			84.5	%			86.4	%			84.4	%			87.0	%
	Contract revenue					48.7				14.1				13.0				14.8				13.0
	Royalty revenue					4.3				1.4				0.6				0.8				0.0
			Total revenue			100.0				100.0				100.0				100.0				100.0
Cost of Revenue
	Cost of product revenue					33.0				57.4				62.4				60.8				57.9
	Cost of contract revenue					80.1				11.3				8.8				9.5				9.3
			Total cost of revenue			113.1				68.7				71.2				70.3				67.3
		Gross profit (loss)				(13.1	)			31.3				28.8				29.7				32.7
Operating Expenses
	Research and development					11.7				7.1				5.8				6.5				8.7
	Selling, general and administrative					48.1				37.8				22.5				23.2				21.3
	Stock-based compensation					—				—				—				—				0.2
			Total operating expenses			59.8				44.9				28.3				29.7				30.2
Operating Income (Loss)						(72.9	)			(13.6	)			0.5				0.0				2.5
Other Income (Expense), Net						0.3				—				(0.1	)			(0.1	)			0.3
Income (Loss) Before Income Taxes						(72.6	)			(13.6	)			0.4				(0.1	)			2.8
Income Tax Expense						0.1				—				0.2				0.2				0.1
Net Income (Loss)						(72.7	)%			(13.6	)%			0.2	%			(0.3	)%			2.7	%

	Comparison of Nine Months Ended October 1, 2005 to Nine Months Ended September 30, 2004

	Revenue

38

---

Table of Contents

	Cost of Revenue

	Gross Profit

	Research and Development

39

---

Table of Contents

	Selling, General and Administrative

	Other Income (Expense), Net

	Income Tax Provision

	Comparison of Years Ended December 31, 2004 and 2003

	Revenue

40

---

Table of Contents

	Cost of Revenue

	Gross Profit

	Research and Development

	Selling, General and Administrative

	Other Income (Expense), Net

	Income Tax Provision

41

---

Table of Contents

	Comparison of Years Ended December 31, 2003 and 2002

	Revenue

	Cost of Revenue

	Gross Profit

	Research and Development

	Selling, General and Administrative

	Other Income (Expense), Net

	Income Tax Provision

42

---

Table of Contents

					Fiscal Quarter Ended
					March 31,				June 30,				September 30,				December 31,				March 31,				July 2,				October 1,
					2004				2004				2004				2004				2005				2005				2005
					(unaudited)
					(in thousands)
Revenue
	Product revenue(1)				$	15,812			$	7,275			$	25,502			$	33,558			$	12,531			$	22,193			$	48,315
	Contract revenue					2,221				2,818				3,461				3,865				4,539				3,693				4,143
	Royalty revenue					465				18				(15	)			62				62				—				—
			Total revenue			18,498				10,111				28,948				37,485				17,132				25,886				52,458
Cost of Revenue
	Cost of product revenue					10,417				6,053				18,560				24,290				9,834				16,917				28,569
	Cost of contract revenue					1,352				1,994				2,101				2,924				3,124				2,645				3,155
			Total cost of revenue			11,769				8,047				20,661				27,214				12,958				19,562				31,724
		Gross profit(1)				6,729				2,064				8,287				10,271				4,174				6,324				20,734
Operating Expenses
	Research and development					1,422				1,141				1,206				1,735				3,048				2,665				2,563
	Selling, general and administrative					4,790				4,399				4,139				8,077				5,295				6,766				8,267
	Stock-based compensation(2)					—				—				—				—				27				63				122
			Total operating expenses			6,212				5,540				5,345				9,812				8,370				9,494				10,952
		Operating income (loss)				517				(3,476	)			2,942				459				(4,196	)			(3,170	)			9,782
Other Income (Expense), Net						(35	)			(5	)			(7	)			(32	)			97				114				60
Income (Loss) Before Income Taxes						482				(3,481	)			2,935				427				(4,099	)			(3,056	)			9,842
Income Tax Expense						1				—				124				19				2				—				90
Net Income (Loss)					$	481			$	(3,481	)		$	2,811			$	408			$	(4,101	)		$	(3,056	)		$	9,752

(1)	Beginning in the first quarter of 2004, we converted from recognizing revenue from U.S. consumer product sales on a “sell-through” basis (when retail stores sold our robots) to a “sell-in” basis (when our robots are shipped to retail stores). As a result of this conversion, our revenue and gross profit in the first quarter of 2004 included $5.7 million and $2.5 million, respectively, from robots shipped prior to 2004.
(2)	Stock-based compensation recorded in 2005 breaks down by expense classification as follows:

			Fiscal Quarter Ended
			March 31,				July 2,				October 1,
			2005				2005				2005
			(unaudited)
			(in thousands)
Cost of product revenue			$	3			$	6			$	9
Cost of contract revenue				4				7				18
Research and development				10				22				27
Selling, general and administrative				10				28				68
	Total stock-based compensation		$	27			$	63			$	122

43

---

Table of Contents

					Fiscal Quarter Ended
					March 31,				June 30,				September 30,				December 31,				March 31,				July 2,				October 1,
					2004				2004				2004				2004				2005				2005				2005
Revenue
	Product revenue					85.5	%			72.0	%			88.0	%			89.5	%			73.1	%			85.7	%			92.1	%
	Contract revenue					12.0				27.9				12.0				10.3				26.5				14.3				7.9
	Royalty revenue					2.5				0.1				—				0.2				0.4				—				—
			Total revenue			100.0				100.0				100.0				100.0				100.0				100.0				100.0
Cost of Revenue
	Cost of product revenue					56.3				59.9				64.1				64.8				57.4				65.4				54.5
	Cost of contract revenue					7.3				19.7				7.3				7.8				18.2				10.2				6.0
			Total cost of revenue			63.6				79.6				71.4				72.6				75.6				75.6				60.5
		Gross profit				36.4				20.4				28.6				27.4				24.4				24.4				39.5
Operating Expenses
	Research and development					7.7				11.3				4.2				4.6				17.8				10.3				4.9
	Selling, general and administrative					25.9				43.5				14.3				21.6				30.9				26.1				15.8
	Stock-based compensation					—				—				—				—				0.2				0.2				0.2
			Total operating expenses			33.6				54.8				18.5				26.2				48.9				36.6				20.9
Operating Income (Loss)						2.8				(34.4	)			10.1				1.2				(24.5	)			(12.2	)			18.6
Other Income (Expense), Net						(0.2	)			—				—				(0.1	)			0.6				0.4				0.1
Income (Loss) Before Income Taxes						2.6				(34.4	)			10.1				1.1				(23.9	)			(11.8	)			18.7
Income Tax Expense						—				—				0.4				0.1				—				—				0.1
Net Income (Loss)						2.6	%			(34.4	)%			9.7	%			1.0	%			(23.9	)%			(11.8	)%			18.6	%

44

---

Table of Contents

	Discussion of Cash Flows

45

---

Table of Contents

	Working Capital Facility

46

---

Table of Contents

	•	incur or guaranty additional indebtedness;
	•	create liens;
	•	enter into transactions with affiliates;
	•	make loans or investments;
	•	sell assets;
	•	pay dividends or make distributions on, or repurchase, our stock; or
	•	consolidate or merge with other entities.

	Working Capital and Capital Expenditure Needs

47

---

Table of Contents

		Payments Due by Period
		Less Than				1 to				3 to
		1 Year				3 Years				5 Years				Total
		(in thousands)
Operating leases		$	328			$	3,935			$	94			$	4,357
Minimum contractual payments			875				2,625				875				4,375
Total		$	1,203			$	6,560			$	969			$	8,732

	Foreign Currency Risk

	Interest Rate Sensitivity

48

---

Table of Contents

49

---

Table of Contents

50

---

Table of Contents

51

---

Table of Contents

	iRobot Innovation Engine

52

---

Table of Contents

53

---

Table of Contents

54

---

Table of Contents

55

---

Table of Contents

	Consumer Products

56

---

Table of Contents

	•	the ability to sense a “cliff” or drop-off point and to react by reversing course automatically;
	•	a non-marring bumper to clean up to obstacles without damaging furniture or walls;
	•	a wide cleaning path to clean an entire room on a single battery charge;
	•	an edging brush to clean along surface edges;
	•	dirt-sensing, which allows the Roomba robot to detect dirtier areas in the home and respond by increasing and extending the intensity of its cleaning efforts in that concentrated space; and
	•	improved cleaning and maintenance operations, enhancing the user friendliness of the Roomba robot.

57

---

Table of Contents

	Government and Industrial Products

	Contract Research and Development Projects

58

---

Table of Contents

	•	Route Reconnaissance. Move ahead of the soldier along a planned route of advance and return maps and video of what lies ahead.
	•	Perimeter Reconnaissance. Traverse the entire perimeter of a building complex and return with maps and video.
	•	Street-Based Reconnaissance. Navigate down city streets using street-following behaviors along with GPS/ INS and return maps and video of the urban terrain. The modular Wayfarer navigation payload connects to the standard PackBot payload interface and includes light detection and ranging, or LIDAR, stereo vision, forward-looking infrared, or FLIR, and inertial navigation system sensor hardware.

59

---

Table of Contents

	Deere & Company. We have entered into a strategic business agreement with the commercial and consumer equipment division of Deere & Company to explore and potentially collaborate on multiple projects involving technology and product development and commercialization efforts. We have collaborated with Deere & Company on the development of the R-Gator unmanned ground vehicle. Deere & Company has provided funded research and development, access to its M-Gator military utility vehicle platform and certain other technology, and we have provided robot technologies, including our AWARE Robot Intelligence Systems. Technology jointly developed under the agreement will be owned by both Deere & Company and us, and technology independently developed by either Deere & Company or us will be owned by the developing party. We and Deere & Company are currently in the process of producing a limited number of R-Gator prototypes for evaluation by potential government contractors. Net proceeds from sales of the R-Gator generally will be shared equally between us and Deere & Company, subject to recoupment of each party’s respective contribution to the project.
	To facilitate management of the R-Gator project and additional collaborative activities, we and Deere & Company have established a joint management committee to develop proposals for projects, oversee and report on the progress and fulfillment of projects, and seek opportunities to further the goals of the strategic business relationship through joint demonstration of technology and products at trade shows, industry days and internal management reviews. We believe that our strategic alliance with Deere & Company will lead to technologies, and later products, that are directly applicable to serving markets such as agricultural and construction equipment, in which we believe autonomous vehicles can play a significant role. Under the agreement, we have agreed not to work with any third party on projects competitive with certain Deere & Company products if Deere & Company makes annual payments to us under the agreement of at least $2.0 million.
	The Clorox Company. We have entered into a joint development and license agreement with The Clorox Company, whereby Clorox is the exclusive provider of the cleaning solution for the Scooba floor washing robot. Our alliance with The Clorox Company allows us to integrate their cleaning technology and know-how into our floor washing robot, improves consumer perception and awareness of our brand by association and through joint marketing, and provides a necessary product component at an affordable price.

	Consumer

60

---

Table of Contents

• Amazon.com		• Kohl’s
• Bed Bath & Beyond		• Linens ’n Things
• Best Buy		• Mitsui & Co.
• Brookstone		• M. Block & Sons
• BJ’s Wholesale Club		• Sears
• Hammacher Schlemmer		• The Sharper Image
• The Home Depot		• Target
• Home Shopping Network

	Government and Industrial

Research Support Agencies		Military Customers
• U.S. Defense Advanced Research Projects Agency (DARPA)		• U.S. Army
• U.S. Space and Warfare Command (SPAWAR)		• U.S. Marine Corps
• U.S. Army Tank-automotive and Armaments Command (TACOM)		• U.S. Navy
• Technology Support Working Group (TSWG)

	Customer Service and Support

61

---

Table of Contents

62

---

Table of Contents

	Team Organization

63

---

Table of Contents

	Global Engineering

	Spiral Development

	Leveraged Model

64

---

Table of Contents

	•	developers of robotic floor care products such as AB Electrolux, Alfred Kärcher GmbH & Co., Samsung Electronics Co., Ltd., LG Electronics Inc., Koolatron Corp. and Yujin Robotic Co. Ltd.;
	•	developers of small unmanned ground vehicles such as Foster-Miller, Inc.—a wholly owned subsidiary of QinetiQ North America, Inc., Allen-Vanguard Corporation, and Remotec—a division of Northrop Grumman Corporation; and
	•	established government contractors working on unmanned systems such as Lockheed Martin Corporation, BAE Systems, Inc. and General Dynamics Corporation.

65

---

Table of Contents

	•	the Federal Acquisition Regulations and supplemental agency regulations, which comprehensively regulate the formation and administration of, and performance under government contracts;
	•	the Truth in Negotiations Act, which requires certification and disclosure of all cost and pricing data in connection with contract negotiations;
	•	the Cost Accounting Standards, which impose accounting requirements that govern our right to reimbursement under cost-based government contracts;
	•	the Foreign Corrupt Practices Act, which prohibits U.S. companies from providing anything of value to a foreign official to help obtain, retain or direct business, or obtain any unfair advantages;
	•	the False Claims Act and the False Statements Act, which, respectively, impose penalties for payments made on the basis of false facts provided to the government, and impose penalties on the basis of false statements, even if they do not result in a payment; and
	•	laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data.

66

---

Table of Contents

67

---

Table of Contents

Name		Age				Position
Helen Greiner			37			Chairman of the Board
Colin Angle			38			Chief Executive Officer and Director
Rodney Brooks, Ph.D.			50			Chief Technology Officer and Director
Geoffrey P. Clear			55			Senior Vice President, Chief Financial Officer and Treasurer
Joseph W. Dyer			58			Executive Vice President and General Manager
Gregory F. White			41			Executive Vice President and General Manager
Glen D. Weinstein			35			Senior Vice President, General Counsel and Secretary
Gerald C. Kent, Jr.			40			Vice President and Controller
Ronald Chwang(1)			57			Director
Jacques S. Gansler(2)			70			Director
Andrea Geisser(3)			62			Director
George McNamee(1)(2)(3)			58			Director
Peter Meekin(1)(2)(3)			56			Director

(1)	Member of the compensation committee.
(2)	Member of the nominating and corporate governance committee.
(3)	Member of the audit committee.

68

---

Table of Contents

69

---

Table of Contents

	•	appointing, approving the compensation of, and assessing the independence of our independent registered public accounting firm;
	•	pre-approving auditing and permissible non-audit services, and the terms of such services, to be provided by our independent registered public accounting firm;
	•	reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures;
	•	coordinating the oversight and reviewing the adequacy of our internal control over financial reporting;
	•	establishing policies and procedures for the receipt and retention of accounting related complaints and concerns; and

70

---

Table of Contents

	•	preparing the audit committee report required by Securities and Exchange Commission rules to be included in our annual proxy statement.

	•	annually reviewing and approving corporate goals and objectives relevant to compensation of our chief executive officer;
	•	evaluating the performance of our chief executive officer in light of such corporate goals and objectives and determining the compensation of our chief executive officer;
	•	reviewing and approving the compensation of our other executive officers;
	•	overseeing and administering our compensation, welfare, benefit and pension plans and similar plans; and
	•	reviewing and making recommendations to the board with respect to director compensation.

	•	developing and recommending to the board criteria for board and committee membership;
	•	establishing procedures for identifying and evaluating director candidates including nominees recommended by stockholders;
	•	identifying individuals qualified to become board members;
	•	recommending to the board the persons to be nominated for election as directors and to each of the board’s committees;
	•	developing and recommending to the board a code of business conduct and ethics and a set of corporate governance guidelines; and
	•	overseeing the evaluation of the board and management.

71

---

Table of Contents

	Compensation Earned

											Long-Term
			Annual Compensation								Compensation
											Awards
											Restricted				Securities
											Stock				Underlying				All Other
Name and Principal Position			Salary				Bonus				Awards				Options				Compensation(1)(2)
Colin Angle			$	234,520			$	151,914			$	71,741				—			$	6,150
	Chief Executive Officer
Helen Greiner				234,512				135,804				71,741				—				6,150
	Chairman of the Board
Geoffrey P. Clear				240,757				67,237				24,169				—				6,150
	Senior Vice President, Chief Financial Officer and Treasurer
Gregory F. White				260,467				131,705				443,280				—				6,150
	Executive Vice President and General Manager
Joseph W. Dyer				239,701				104,547				41,251				420,000				6,150
	Executive Vice President and General Manager

(1)	Excludes medical, group life insurance and certain other benefits received by the named executive officers that are available generally to all of our salaried employees and certain perquisites and other personal benefits received by the named executive officers which do not exceed the lesser of $50,000 or 10% of any such named executive officer’s total annual compensation reported in this table.
(2)	Represent 401(k) matching contributions.

72

---

Table of Contents

	Option Grants in Last Fiscal Year

		Individual Grants
																		Potential Realizable Value at
		Number of				% of Total												Assumed Annual Rates of
		Securities				Options												Stock Price Appreciation for
		Underlying				Granted to				Exercise								Option Term
		Options				Employees in				Price Per				Expiration
Name		Granted				2004				Share				Date				5%				10%
Colin Angle			—				—				—				—				—				—
Helen Greiner			—				—				—				—				—				—
Geoffrey P. Clear			—				—				—				—				—				—
Gregory F. White			—				—				—				—				—				—
Joseph W. Dyer			300,000				26.1%			$	2.33				2/18/14			$	11,029,041			$	17,975,946
			120,000				10.4%			$	2.78				9/17/14			$	4,357,617			$	7,136,378

	Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

										Number of Securities
										Underlying Unexercised								Value of Unexercised
		Number of								Options at								In-the-Money Options at
		Shares								December 31, 2004								December 31, 2004
		Acquired				Value
Name		on Exercise				Realized				Exercisable				Unexercisable				Exercisable				Unexercisable
Colin Angle			—				—				347,710				—			$	8,344,971				—
Helen Greiner			—				—				—				—				—				—
Geoffrey P. Clear			53,440			$	119,172				—				80,160				—			$	1,879,752
Gregory F. White			46,601			$	20,971				42,393				210,586			$	918,656			$	4,563,399
Joseph W. Dyer			—				—				75,000				345,000			$	1,625,250			$	7,422,150

73

---

Table of Contents

	Amended and Restated 1994 Stock Plan

	Amended and Restated 2001 Special Stock Option Plan

	Amended and Restated 2004 Stock Option and Incentive Plan

74

---

Table of Contents

	2005 Stock Option and Incentive Plan

75

---

Table of Contents

	401(k) Plan

	Employment and Severance Arrangements

76

---

Table of Contents

	•	any breach of the director’s duty of loyalty to us or our stockholders;
	•	any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
	•	any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or
	•	any transaction from which the director derived an improper personal benefit.

77

---

Table of Contents

	•	we will indemnify our directors, officers and, in the discretion of our board of directors, certain employees to the fullest extent permitted by the Delaware General Corporation Law; and
	•	we will advance expenses, including attorneys’ fees, to our directors and, in the discretion of our board of directors, to our officers and certain employees, in connection with legal proceedings, subject to limited exceptions.

78

---

Table of Contents

Total Common

Aggregate

Purchaser(1)

Stock Equivalents

Consideration Paid

Investment Participation

Stockholders Associated with Directors

Trident Capital(2)

2,194,680

$

10,604,858

Series E and F

Acer Technology Ventures(3)

2,603,699

7,209,635

Series A, C, D, E and F

First Albany Entities(4)

1,418,165

4,241,126

Series B, C, D, E and F

Fenway Partners(5)

1,339,920

5,464,717

Series D, E and F

(1)	See “Principal and Selling Stockholders” for more detail on shares held by these purchasers.
(2)	Trident Capital includes Trident Capital Fund-V, L.P., Trident Capital Fund-V Affiliates Fund, L.P., Trident Capital Fund-V Affiliates Fund (Q), L.P., Trident Capital Fund-V Principals Fund, L.P. and Trident Capital Parallel Fund-V, C.V. Consideration paid to us by Trident Capital for our convertible preferred stock in 2003 and 2004 was $9,500,002 and $1,104,855, respectively. Mr. Meekin, who is one of our directors, is a Managing Director of Trident Capital Management-V, L.L.C., the sole general partner of Trident Capital Fund-V, L.P., Trident Capital Fund-V Affiliates Fund, L.P., Trident Capital Fund-V Affiliates Fund (Q), L.P., and Trident Capital Fund-V Principals Fund, L.P. and the sole investment general partner of Trident Capital Parallel Fund-V, C.V.
(3)	Acer Technology Ventures includes Acer Technology Venture Fund L.P., IP Fund One, L.P. and iD6 Fund, L.P. Consideration paid to us by Acer Technology Ventures for our convertible preferred stock in 1998, 2000, 2001, 2003 and 2004 was $1,550,189, $1,500,001, $1,107,390, $1,900,003 and $1,152,051, respectively. Dr. Chwang, who is one of our directors, is a General Partner of the management company for each of Acer Technology Venture Fund L.P., IP Fund One, L.P. and iD6 Fund, L.P.

79

---

Table of Contents

(4)	First Albany Entities includes First Albany Companies Inc., First Albany Private Fund 1999, LLC, First Albany Private Fund 2003, LLC, FA Technology Ventures, L.P., and First Albany Private Fund 2004, LLC. Consideration paid to us by First Albany Entities for our convertible preferred stock in 1999, 2000, 2001, 2003 and 2004 was $1,000,006, $1,574,999, $568,861, $300,001 and $797,258, respectively. Mr. McNamee, who is our one our directors, is the Chairman of First Albany Companies Inc.
(5)	Fenway Partners includes FPIP Trust, LLC, FPIP, LLC and Fenway Partners Capital Fund II, L.P. Mr. Geisser, who is one of our directors, is a Managing Director of Fenway Partners, Inc., the Managing Member of FPIP Trust, LLC and FPIP, LLC. Consideration paid to us by Fenway Partners for our convertible preferred stock in 2001, 2003 and 2004 was $4,000,000, $871,844 and $592,872, respectively. Mr. Geisser is also a Managing Director of Fenway Partners II, LLC, the sole General Partner of Fenway Partners Capital Fund II, L.P.

80

---

Table of Contents

	•	each person known to us to be the beneficial owner of more than 5% of our common stock;
	•	each named executive officer;
	•	each of our directors;
	•	all of our executive officers and directors as a group; and
	•	each selling stockholder.

			Shares Beneficially												Shares Beneficially
			Owned Prior												Owned After the
			to the Offering								Shares				Offering
											Offered
Beneficial Owner			Number				Percent				(30)				Number				Percent
5% Stockholders:
Acer Technology Ventures(1)				2,603,699				13.0%				125,094				2,478,605				10.6%
	5201 Great America Parkway Suite 270 Santa Clara, CA 95054
Trident Capital(2)				2,194,680				11.0%				105,443				2,089,237				9.0%
	325 Riverside Avenue Westport, CT 06880
Grinnell More(3)				1,455,954				7.3%				42,622				1,413,332				6.1%
First Albany Entities(4)				1,418,165				7.1%				68,136				1,350,029				5.8%
	677 Broadway Albany, NY 12207
Fenway Partners(5)				1,339,920				6.7%				64,376				1,275,544				5.5%
	152 West 57th Street 59th Floor New York, NY 10019

81

---

Table of Contents

		Shares Beneficially												Shares Beneficially
		Owned Prior												Owned After the
		to the Offering								Shares				Offering
										Offered
Beneficial Owner		Number				Percent				(30)				Number				Percent
Directors and Named Executive Officers:
Helen Greiner			1,699,619				8.5%				81,658				1,617,961				6.9%
Colin Angle(6)			2,252,424				11.1%				96,090				2,156,334				9.1%
Rodney Brooks, Ph.D.(7)			2,389,695				12.0%				105,008				2,284,687				9.8%
Geoffrey P. Clear(8)			132,285				*				3,603				128,682				*
Joseph W. Dyer(9)			188,892				*				—				188,892				*
Gregory F. White(10)			457,412				2.3%				7,826				449,586				1.9%
Ronald Chwang(1)			2,603,699				13.0%				—				2,478,605				10.6%
Jacques S. Gansler(11)			16,667				*				—				16,667				*
Andrea Geisser(5)			1,339,920				6.7%				—				1,275,544				5.5%
George McNamee(12)			180,901				*				—				180,901				*
Peter Meekin(2)			2,194,680				11.0%				—				2,089,237				9.0%
Executive officers and directors as a group (13 persons)(13)			13,520,596				65.8%				590,075				12,930,521				54.2%
Other Selling Stockholders:
M. David Adler and Bella G. Adler (JTWROS)			415,000				2.1%				19,939				395,061				1.7%
James R. Allard(14)			55,700				*				2,642				53,058				*
David S. Barrett and Ann H. Barrett (JTWROS)			75,000				*				2,402				72,598				*
Michael R. Bassett(15)			23,500				*				1,129				22,371				*
Boeckh Capital Co. Ltd.			68,334				*				32,831				35,503				*
Robert Campbell			16,876				*				4,804				12,072				*
Chris Casey and Giovanna Casey (JTWROS)			31,000				*				1,489				29,511				*
Mark Chiappetta(16)			25,800				*				1,201				24,599				*
Dale W. Church(17)			66,820				*				32,104				34,716				*
Mike Ciholas(18)			25,000				*				12,011				12,989				*
Michael F. Cronin			16,746				*				4,804				11,942				*
FBF, LLLP			68,344				*				9,609				58,735				*
Walter Fiederowicz(19)			1,464,644				7.3%				2,231				1,394,277				6.0%
Alan Goldberg(20)			1,503,342				7.5%				4,804				1,430,402				6.1%
Hugh Johnson(21)			33,862				*				15,788				18,074				*
Joseph L. Jones and Sue E. Stewart (JTWROS) (22)			96,085				*				4,525				91,560				*
Daniel Kilmurray			30,469				*				7,207				23,262				*
Jonathan Tarter Klein and Ellen Elisabeth Petri (JTWROS)			40,000				*				9,609				30,391				*
Lindalee A. Lawrence			3,844				*				1,847				1,997				*
Michael R. Lindburg			33,748				*				9,609				24,139				*
Kenneth Mabbs			26,827				*				2,883				23,944				*
David P. Miller			114,505				*				6,969				107,536				*
Scott Nielsen Miller and Lisa Anne Cosimi (JTWROS)(23)			76,000				*				4,041				71,959				*
Ullas J. Naik			14,266				*				3,427				10,839				*
Timothy R. Ohm(24)			42,700				*				2,094				40,606				*
Painter Hill Venture Fund I, L.P.			64,405				*				3,123				61,282				*

82

---

Table of Contents

		Shares Beneficially												Shares Beneficially
		Owned Prior												Owned After the
		to the Offering								Shares				Offering
										Offered
Beneficial Owner		Number				Percent				(30)				Number				Percent
Matthew R. Palma and Kelly S. Palma (JTWROS) (25)			25,000				*				2,162				22,838				*
Erik Pedersen			198,435				1.0%				48,045				150,390				*
Polly K. Pook(26)			66,500				*				7,927				58,573				*
Rosario Robert and William Robert (JTWROS)			105,000				*				4,804				100,196				*
Pavlo Rudakevych(27)			152,500				*				4,804				147,696				*
Beno Sternlicht			28,616				*				9,609				19,007				*
Paul J. Tavalone(28)			47,000				*				2,883				44,117				*
Glen Weinstein(29)			64,402				*				977				63,425				*
Steve Weston			200,000				1.0%				48,045				151,955				*
Stephen P. Wink			7,864				*				3,773				4,091				*
Chikyung Won and Laetitia G. Won (JTWROS)			65,000				*				3,123				61,877				*

(1)	Consists of 1,737,279 shares held by Acer Technology Venture Fund L.P., 818,420 shares held by IP Fund One, L.P. and 48,000 shares held by iD6 Fund, L.P. Dr. Chwang is a General Partner of the management company for each of Acer Technology Venture Fund L.P., IP Fund One, L.P. and iD6 Fund, L.P., and may be deemed to share voting and investment power with respect to all shares held by those entities. Dr. Chwang disclaims beneficial ownership of such shares except to the extent of his pecuniary interest, if any. Mr. Chwang is not offering any shares for sale in the offering.
(2)	Consists of 1,966,075 shares held by Trident Capital Fund-V, L.P., 11,427 shares held by Trident Capital Fund-V Affiliates Fund, L.P., 10,904 shares held by Trident Capital Fund-V Affiliates Fund (Q), L.P., 56,905 shared held by Trident Capital Fund-V Principals Fund, L.P. and 149,369 shares held by Trident Capital Parallel Fund-V, C.V. Mr. Meekin is one of six Managing Directors of Trident Capital Management-V, L.L.C., the sole general partner of Trident Capital Fund-V, L.P., Trident Capital Fund-V Affiliates Fund, L.P., Trident Capital Fund-V Affiliates Fund (Q), L.P., and Trident Capital Fund-V Principals Fund, L.P. and the sole investment general partner of Trident Capital Parallel Fund-V, C.V., and may be deemed to share voting and investment power with respect to all shares held by those entities. Mr. Meekin disclaims beneficial ownership of such shares except to the extent of his pecuniary interest, if any. Mr. Meekin is not offering any shares for sale in the offering.
(3)	Includes 1,029,738 shares held by Real World Interface, Inc. Trust. Mr. More is a trustee of the Real World Interface, Inc. Trust and may be deemed to share voting and investment power with respect to such shares. Mr. More disclaims beneficial ownership of such shares except to the extent of his pecuniary interest, if any.
(4)	Consists of 1,218,336 shares held by First Albany Companies Inc., 22,844 shares held by First Albany Private Fund 1999, LLC, 64,378 shares held by First Albany Private Fund 2003, LLC, 94,658 shares held by FA Technology Ventures, L.P. and 17,949 shares held by First Albany Private Fund 2004, LLC. Through a Special Committee of its Board of Directors, consisting of Alan Goldberg and Walter Fiederowicz, First Albany Companies Inc. exercises sole voting and investment power with respect to all shares held by First Albany Companies Inc., First Albany Private Fund 1999, LLC, First Albany Private Fund 2003, LLC and First Albany Private Fund 2004, LLC. Each of the First Albany Entities is an affiliate of First Albany Capital Inc., a broker-dealer and subsidiary of First Albany Companies Inc.
(5)	Consists of 5,053 shares held by FPIP Trust, LLC, 3,665 shares held by FPIP, LLC and 1,331,202 shares held by Fenway Partners Capital Fund II, L.P. Mr. Geisser is a Managing Director of Fenway Partners, Inc., the Managing Member of FPIP Trust, LLC and FPIP, LLC. Mr. Geisser is also a Managing Director of Fenway Partners II, LLC, the sole General Partner of Fenway Partners Capital Fund II, L.P., and may be deemed to share voting and investment power with respect to all shares held by those entities. Mr. Geisser disclaims beneficial ownership of such shares except to the extent of his pecuniary interest, if any. Mr. Geisser is not offering any shares for sale in the offering.
(6)	Includes 347,710 shares issuable to Mr. Angle upon exercise of stock options. Also includes 200,000 shares held in a trust for the benefit of certain of his family members.
(7)	Includes 252,000 shares held in a trust for the benefit of certain of his family members. Also includes 204,090 shares held by Robotic Ventures Fund I, L.P., of which Dr. Brooks is a General Partner. Dr. Brooks disclaims beneficial ownership of such shares except to the extent of his pecuniary interest, if any.
(8)	Includes 123,560 shares held by Geoffrey P. Clear and Marjorie P. Clear (JTWROS), over which Mr. Clear and Mrs. Clear share voting and investment power.
(9)	Includes 148,249 shares issuable to Mr. Dyer upon exercise of stock options.

(10)	Includes 8,505 shares issuable to Mr. White upon exercise of stock options. Includes 86,539 shares held by Gregory F. White and Dana B. White (JTWROS), over which Mr. White and Mrs. White share voting and investment power and also includes 199,720 shares held by Vision 2005 Investment Partners L.P., of which Mr. White and Mrs. White are General Partners.
(11)	Consists of shares issuable to Dr. Gansler upon exercise of stock options.

83

---

Table of Contents

(12)	Includes 94,658 shares held by FA Technology Ventures, L.P. and 3,495 shares held by FA Technology Managers, LLC. Mr. McNamee is a Partner of the General Partner of FA Technology Ventures, L.P. and may be deemed to share voting and investment power with respect to all shares held thereby. Mr. McNamee is a Manager of FA Technology Managers, LLC and may be deemed to share voting and investment power with respect to all shares held thereby. Mr. McNamee disclaims beneficial ownership of the shares held by FA Technology Ventures, L.P. and FA Technology Managers, LLC except to the extent of his pecuniary interest, if any.
(13)	Includes an aggregate of 563,131 shares issuable upon exercise of stock options held by five executive officers and directors.
(14)	Includes 35,700 shares issuable to Mr. Allard upon exercise of stock options.
(15)	Consists of 23,500 shares issuable to Mr. Bassett upon exercise of stock options. The 1,129 shares offered for sale by Mr. Bassett are being issued upon the exercise of stock options, at an exercise price of $1.87 per share, in connection with this offering.
(16)	Includes 23,300 shares issuable to Mr. Chiappetta upon exercise of stock options. The 1,201 shares offered for sale by Mr. Chiappetta are being issued upon the exercise of stock options, at an exercise price of $0.24 per share, in connection with this offering.
(17)	Consists of 66,820 shares issuable to Mr. Church upon exercise of stock options. The 32,104 shares offered for sale by Mr. Church are being issued upon the exercise of stock options, at an exercise price of $0.24 per share, in connection with this offering.
(18)	Consists of 25,000 shares issuable to Mr. Ciholas upon exercise of stock options. The 12,011 shares offered for sale by Mr. Ciholas are being issued upon the exercise of stock options, at an exercise price of $0.24 per share, in connection with this offering.
(19)	Includes 1,218,336 shares held by First Albany Companies Inc., 22,844 shares held by First Albany Private Fund 1999, LLC, 64,378 shares held by First Albany Private Fund 2003, LLC, 94,658 shares held by FA Technology Ventures, L.P. and 17,949 shares held by First Albany Private Fund 2004, LLC. Through a Special Committee of its Board of Directors, consisting of Mr. Fiederowicz and Alan Goldberg, First Albany Companies Inc. exercises sole voting and investment power with respect to all shares held by First Albany Companies Inc., First Albany Private Fund 1999, LLC, First Albany Private Fund 2003, LLC and First Albany Private Fund 2004, LLC. Mr. Fiederowicz disclaims beneficial ownership of such shares except to the extent of his pecuniary interest, if any. Mr. Fiederowicz is an affiliate of First Albany Capital Inc., a broker-dealer and subsidiary of First Albany Companies Inc.
(20)	Includes 1,218,336 shares held by First Albany Companies Inc., 22,844 shares held by First Albany Private Fund 1999, LLC, 64,378 shares held by First Albany Private Fund 2003, LLC, 94,658 shares held by FA Technology Ventures, L.P. and 17,949 shares held by First Albany Private Fund 2004, LLC. Through a Special Committee of its Board of Directors, consisting of Mr. Goldberg and Walter Fiederowicz, First Albany Companies Inc. exercises sole voting and investment power with respect to all shares held by First Albany Companies Inc., First Albany Private Fund 1999, LLC, First Albany Private Fund 2003, LLC and First Albany Private Fund 2004, LLC. Mr. Goldberg disclaims beneficial ownership of such shares except to the extent of his pecuniary interest, if any. Mr. Goldberg is an affiliate of First Albany Capital, Inc., a broker-dealer and subsidiary of First Albany Companies Inc. Also includes shares held by FCC as Custodian Alan Goldberg Keough M/P/P.

(21)	Mr. Johnson is a director of First Albany Companies Inc. and an affiliate of First Albany Capital Inc., a broker-dealer.

(22)	Includes 1,900 shares issuable to Mr. Jones upon exercise of stock options.
(23)	Includes 44,000 shares issuable to Mr. Miller upon exercise of stock options.
(24)	Includes 17,700 shares issuable to Mr. Ohm upon exercise of stock options.
(25)	Includes 15,000 shares issuable to Mr. Palma upon exercise of stock options. The 2,162 shares offered for sale by Mr. Palma are being issued upon the exercise of stock options, at an exercise price of $2.78 per share, in connection with this offering.
(26)	Includes 25,000 shares held by Polly K. Pook and Barbara S. Pook (JTWROS), over which Polly K. Pook and Barbara S. Pook share voting and investment power.
(27)	Includes 2,500 shares issuable to Mr. Rudakevych upon exercise of stock options.
(28)	Includes 12,000 shares issuable to Mr. Tavalone upon exercise of stock options.
(29)	Includes 16,000 shares held by Glen Weinstein and Elisa D’Andrea (JTWROS), over which Mr. Weinstein and Ms. D’Andrea share voting and investment power, and 42,000 shares issuable to Mr. Weinstein upon exercise of stock options.
(30)	If the underwriters’ overallotment option is exercised in full, the additional shares sold would be allocated among the selling stockholders as follows:

		Shares Subject to the
		Overallotment
Selling Stockholders		Option
Acer Technology Ventures			80,969
M. David Adler and Bella G. Adler (JTWROS)			12,905
James R. Allard			1,710
Colin Angle			62,195
David S. Barrett and Ann. H. Barrett (JTWROS)			1,555
Michael R. Bassett			731
Boeckh Capital Co. Ltd			21,250
Rodney Brooks, Ph.D.			67,966
Robert Campbell			3,110
Chris Casey and Giovanna Casey (JTWROS)			964
Mark Chiappetta			777
Dale W. Church			20,779

84

---

Table of Contents

		Shares Subject to the
		Overallotment
Selling Stockholders		Option
Mike Ciholas			7,774
Geoffrey P. Clear			2,332
Michael F. Cronin			3,110
FBF, LLLP			6,220
Fenway Partners			41,668
Walter Fiederowicz			1,444
First Albany Entities			44,102
Alan Goldberg			3,110
Helen Greiner			52,854
Hugh Johnson			10,219
Joseph L. Jones and Sue E. Stewart (JTWROS)			2,929
Daniel Kilmurray			4,665
Jonathan Tarter Klein and Ellen Elisabeth Petri (JTWROS)			6,220
Lindalee A. Lawrence			1,195
Michael R. Lindburg			6,220
Kenneth Mabbs			1,866
David P. Miller			4,511
Scott Nielsen Miller and Lisa Anne Cosimi (JTWROS)			2,615
Ullas J. Naik			2,218
Timothy R. Ohm			1,355
Painter Hill Venture Fund I, L.P			2,021
Matthew R. Palma and Kelly S. Palma (JTWROS)			1,399
Erik Pedersen			31,098
Polly K. Pook			5,131
Rosario and William Robert (JTWROS)			3,110
Pavlo Rudakevych			3,110
Beno Sternlicht			6,220
Paul J. Tavalone			1,866
Trident Capital			68,249
Glen Weinstein			632
Steve Weston			31,098
Gregory F. White			5,065
Stephen P. Wink			2,442
Chikyung Won and Laetitia G. Won (JTWROS)			2,021

	If the underwriters’ overallotment option is exercised in part, the additional shares sold would be allocated pro rata based upon the share amounts set forth in the preceding table.

85

---

Table of Contents

86

---

Table of Contents

87

---

Table of Contents

	•	the close of business of the tenth calendar day following the first public announcement that a person or group of affiliated or associated persons, referred to as an “acquiring person,” has acquired beneficial ownership of 15% or more of the outstanding shares of common stocks; or

88

---

Table of Contents

	•	the close of business on the tenth business day (or such later calendar day as our board of directors may determine) following the commencement of a tender offer or exchange offer by any person or group (other than certain exempt persons) that could result upon its completion in such person or group becoming the beneficial owner of 15% or more of the outstanding shares of common stock.

	•	before the stockholder became interested, the board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;
	•	upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans, in some instances; or
	•	at or after the time the stockholder became interested, the business combination was approved by the board of directors of the corporation and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.

89

---

Table of Contents

		Shares Eligible
Days After Date of this Prospectus		for Sale				Comment
Upon Effectiveness			4,300,000			Shares sold in the offering
Upon Effectiveness			260,840			Freely tradable shares saleable under Rule 144(k) that are not subject to the lock-up
90 Days			131,048			Shares saleable under Rules 144 and 701 that are not subject to a lock-up
180 Days			18,562,281			Lock-ups released, subject to extension; shares saleable under Rules 144 and 701
Thereafter			32,720			Restricted securities held for one year or less

	•	offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for common stock; or
	•	enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock,

90

---

Table of Contents

	•	1% of the number of shares of our common stock then outstanding, which will equal approximately 232,869 shares immediately after this offering; or
	•	the average weekly trading volume in our common stock on the NASDAQ National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

91

---

Table of Contents

Name			Number of Shares
Morgan Stanley & Co. Incorporated				1,634,000
J.P. Morgan Securities Inc.				1,376,000
First Albany Capital Inc.				473,000
Needham & Company, LLC				473,000
Adams Harkness, Inc.				258,000
ThinkEquity Partners LLC				86,000
	Total			4,300,000

	•	offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of,

92

---

Table of Contents

		directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for common stock; or
	•	enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock,

	•	the sale of shares to the underwriters;
	•	the issuance by us of shares of our common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing;
	•	transactions by anyone other than us relating to shares of common stock or other securities acquired in open market transactions after the completion of the offering of the shares;
	•	the grant of options to purchase common stock or shares of our common stock to our officers, directors, advisors or consultants pursuant to equity plans disclosed in this prospectus;
	•	the issuance by us of up to 2,000,000 shares of common stock, in connection with any acquisition, collaboration or other similar strategic transaction;
	•	transfers of shares or any security convertible into our common stock as a bona fide gift; or
	•	distributions by a selling stockholder of shares or any security convertible into our common stock to limited partners or stockholders of the selling stockholder,

	•	during the last 17 days of the 180-day period, we issue an earnings release or material news or a material event relating to us occurs; or
	•	prior to the expiration of the 180-day period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period,

		Paid by Us								Paid by Selling Stockholders								Total
		No Exercise				Full Exercise				No Exercise				Full Exercise				No Exercise				Full Exercise
Per share		$	1.68			$	1.68			$	1.68			$	1.68			$	1.68			$	1.68
Total		$	5,478,262			$	5,478,262			$	1,745,738			$	2,829,338			$	7,224,000			$	8,307,600

93

---

Table of Contents

94

---

Table of Contents

95

---

Table of Contents

96

---

Table of Contents

		Page
Report of Independent Registered Public Accounting Firm			F-2
Consolidated Balance Sheets			F-3
Consolidated Statements of Operations			F-4
Consolidated Statements of Stockholders’ Equity (Deficit)			F-5
Consolidated Statements of Cash Flows			F-6
Notes to Consolidated Financial Statements			F-7

F-1

---

Table of Contents

F-2

---

Table of Contents

				December 31,												October 1,
												October 1,				2005
				2003				2004				2005				(Pro Forma)
												(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$	4,619,937			$	19,440,843			$	9,217,294			$	9,217,294
	Accounts receivable, net of allowance of $247,921 at December 31, 2003, $50,000 at December 31, 2004 and $49,486 at October 1, 2005				8,137,517				13,259,478				27,796,420				27,796,420
	Unbilled revenue				1,142,784				774,025				961,139				961,139
	Inventory, net				11,419,611				7,668,934				14,321,756				14,321,756
	Other current assets				798,045				399,702				1,653,387				1,653,387
		Total current assets			26,117,894				41,542,982				53,949,996				53,949,996
Property and equipment, net					1,605,033				3,512,510				6,016,576				6,016,576
Other assets					103,719				82,000				—				—
		Total assets		$	27,826,646			$	45,137,492			$	59,966,572			$	59,966,572
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
	Accounts payable			$	6,781,412			$	19,581,065			$	28,390,762			$	28,390,762
	Revolving line of credit				1,338,980				—				—				—
	Accrued expenses				2,802,666				2,643,146				3,174,478				3,174,478
	Accrued compensation				2,032,299				3,150,761				4,149,635				4,149,635
	Provision for contract settlements				5,333,619				5,190,798				5,232,701				5,232,701
	Deferred revenue				7,201,339				1,287,935				2,341,949				2,341,949
		Total current liabilities			25,490,315				31,853,705				43,289,525				43,289,525
Long-term liabilities					133,200				66,600				—				—
Commitments and contingencies (Note 13):
Redeemable convertible preferred stock (Note 8)					27,561,869				37,506,236				37,506,236				—
Common stock, $0.01 par value, 18,500,000, 35,000,000 and 35,000,000 shares authorized and 9,360,750, 10,129,457, 10,420,166 and 19,977,412 shares issued and outstanding at December 31, 2003 and 2004, October 1, 2005 and pro forma, respectively					93,608				101,294				104,201				199,773
Additional paid-in capital					1,695,966				2,925,496				6,502,422				43,913,086
Note receivable from stockholder					(43,000	)			(43,000	)			—				—
Deferred compensation					—				(386,587	)			(3,144,730	)			(3,144,730	)
Accumulated deficit					(27,105,312	)			(26,886,252	)			(24,291,082	)			(24,291,082	)
		Total stockholders’ equity (deficit)			(25,358,738	)			(24,289,049	)			(20,829,189	)			16,677,047
		Total liabilities, redeemable convertible preferred stock and stockholders’ equity		$	27,826,646			$	45,137,492			$	59,966,572			$	59,966,572

F-3

---

Table of Contents

				Fiscal Year Ended												Nine Months Ended
				December 31,				December 31,				December 31,				September 30,				October 1,
				2002				2003				2004				2004				2005
																(unaudited)
Revenue:
Product revenue				$	6,955,215			$	45,896,313			$	82,147,080			$	48,589,066			$	83,039,064
Contract revenue					7,222,589				7,661,244				12,365,114				8,500,029				12,375,093
Royalty revenue					638,704				758,595				530,955				468,872				62,037
	Total revenue				14,816,508				54,316,152				95,043,149				57,557,967				95,476,194
Cost of revenue:
Cost of product revenue					4,896,025				31,193,513				59,321,238				35,031,556				55,319,975
Cost of contract revenue					11,860,610				6,143,347				8,370,487				5,446,402				8,924,460
	Total cost of revenue				16,756,635				37,336,860				67,691,725				40,477,958				64,244,435
Gross profit (loss)					(1,940,127	)			16,979,292				27,351,424				17,080,009				31,231,759
Operating expenses:
Research and development					1,735,831				3,848,010				5,504,321				3,769,329				8,275,308
Selling, general and administrative					7,128,105				20,521,298				21,404,106				13,326,556				20,328,112
Stock-based compensation(1)					—				—				—				—				212,226
	Total operating expenses				8,863,936				24,369,308				26,908,427				17,095,885				28,815,646
Operating income (loss)					(10,804,063	)			(7,390,016	)			442,997				(15,876	)			2,416,113
Other (expense) income, net					44,764				15,282				(79,762	)			(47,883	)			271,081
Income (loss) before income taxes					(10,759,299	)			(7,374,734	)			363,235				(63,759	)			2,687,194
Income tax expense					14,695				36,227				144,175				125,135				92,024
Net income (loss)				$	(10,773,994	)		$	(7,410,961	)		$	219,060			$	(188,894	)		$	2,595,170
Net income (loss) attributable to common stockholders				$	(10,773,994	)		$	(7,410,961	)		$	117,553			$	(188,894	)		$	1,332,113
Net income (loss) per share
		Basic		$	(2.00	)		$	(0.79	)		$	0.01			$	(0.02	)		$	0.13
		Diluted		$	(2.00	)		$	(0.79	)		$	0.01			$	(0.02	)		$	0.11
Number of shares used in per share calculations
		Basic			5,390,679				9,351,880				9,659,993				9,604,576				10,079,770
		Diluted			5,390,679				9,351,880				19,182,595				9,604,576				12,267,972

(1)	Stock-based compensation recorded in 2005 breaks down by expense classification as follows:

			Nine Months Ended
			October 1, 2005
			(unaudited)
Cost of product revenue			$	17,790
Cost of contract revenue				28,740
Research and development				59,401
Selling, general and administrative				106,295
	Total stock-based compensation		$	212,226

F-4

---

Table of Contents

														Note
		Common Stock								Additional				Receivable
										Paid-In				from				Deferred				Accumulated
		Shares				Value				Capital				Stockholder				Compensation				Deficit				Total
Balance at December 31, 2002			9,291,760			$	92,918			$	1,661,896			$	(43,000	)		$	—			$	(19,694,351	)		$	(17,982,537	)
Issuance of common stock warrants related to debt financing											22,312																22,312
Issuance of common stock for exercise of stock options			68,990				690				11,758																12,448
Net loss																							(7,410,961	)			(7,410,961	)
Balance at December 31, 2003			9,360,750				93,608				1,695,966				(43,000	)			—				(27,105,312	)			(25,358,738	)
Issuance of restricted stock			397,584				3,976				967,217								(669,912	)							301,281
Amortization of deferred compensation relating to restricted stock																			283,325								283,325
Issuance of common stock for exercise of stock options			371,123				3,710				262,313																266,023
Net income																							219,060				219,060
Balance at December 31, 2004			10,129,457				101,294				2,925,496				(43,000	)			(386,587	)			(26,886,252	)			(24,289,049	)
Amortization of deferred compensation relating to restricted stock																			150,511								150,511
Issuance of Common Stock for exercise of stock options			290,709				2,907				456,046																458,953
Repayment of note receivable from stockholder															43,000												43,000
Deferred compensation relating to issuance of stock options											3,120,880								(3,120,880	)							—
Amortization of deferred compensation relating to stock options																			212,226								212,226
Net income																							2,595,170				2,595,170
Balance at October 1, 2005 (unaudited)			10,420,166			$	104,201			$	6,502,422			$	—			$	(3,144,730	)		$	(24,291,082	)		$	(20,829,189	)

F-5

---

Table of Contents

				Fiscal Year Ended												Nine Months Ended
				December 31,				December 31,				December 31,				September 30,				October 1,
				2002				2003				2004				2004				2005
																(unaudited)
Cash flows from operating activities:
Net income (loss)				$	(10,773,994	)		$	(7,410,961	)		$	219,060			$	(188,894	)		$	2,595,170
Adjustments to reconcile net loss to net cash used in operating activities
	Depreciation and amortization				511,335				735,170				1,313,705				824,288				1,422,939
	Loss on disposal of fixed assets				—				29,384				1,265				—				—
	Interest expense relating to issuance of warrants				—				22,312				—				—				—
	Amortization of deferred compensation				—				—				283,325				221,842				362,737
	Changes in working capital—(use) source
		Accounts receivable and related party trade receivables			237,164				(7,481,472	)			(5,121,961	)			(10,933,180	)			(14,536,942	)
		Unbilled revenue			(325,371	)			(526,573	)			368,759				269,237				(187,114	)
		Inventory			(1,829,773	)			(8,795,412	)			3,750,677				3,620,268				(6,652,822	)
		Other current assets			(434,970	)			(146,481	)			420,061				551,163				(1,171,685	)
		Accounts payable			3,869,832				1,908,212				12,799,653				13,810,222				8,809,697
		Accrued expenses			219,778				2,582,888				(159,519	)			(1,136,653	)			531,332
		Accrued compensation			679,609				295,001				1,118,462				448,663				998,874
		Provision for contract settlement			2,361,055				1,377,835				(142,821	)			(89,863	)			41,903
		Deferred revenue			1,787,035				5,952,843				(5,913,405	)			(4,552,148	)			1,054,014
		Change in long-term liabilities			—				133,200				(66,600	)			(66,600	)			(66,600	)
Net cash provided by (used in) operating activities					(3,698,300	)			(11,324,054	)			8,870,661				2,778,345				(6,798,497	)
Cash flows from investing activities:
Purchase of property and equipment					(448,412	)			(1,329,913	)			(3,222,446	)			(2,259,513	)			(3,927,005	)
Cash flows from financing activities:
Principal payments on capital lease obligations					(51,009	)			(14,102	)			—				—				—
Borrowings under revolving line of credit, net					—				1,338,980				(1,338,980	)			606,930				—
Repayment of note receivable from stockholder					—				—				—				—				43,000
Proceeds from stock option exercises					32,894				12,448				266,024				258,405				458,953
Proceeds from issuance of restricted stock					—				—				301,281				301,281				—
Net proceeds from sale of preferred stock					—				12,922,735				9,944,366				(270	)			—
Net cash provided by financing activities					(18,115	)			14,260,061				9,172,691				1,166,346				501,953
Net increase in cash and cash equivalents					(4,164,827	)			1,606,094				14,820,906				1,685,178				(10,223,549	)
Cash and cash equivalents, at beginning of period					7,178,670				3,013,843				4,619,937				4,619,937				19,440,843
Cash and cash equivalents, at end of period				$	3,013,843			$	4,619,937			$	19,440,843			$	6,305,115			$	9,217,294
Supplemental disclosure of cash flow information
Cash paid for interest				$	8,621			$	28,572			$	142,367			$	85,350			$	9,412
Cash paid for income taxes					14,756				14,206				123,941				122,521				10,740
Supplemental disclosure of noncash investing and financing activities
During 2004, 2003 and 2002, the Company transferred $186,011, $16,960 and $115,595, respectively, of inventory to fixed assets.
During the first nine months of 2005 and 2004, the Company transferred $258,858 and $185,291, respectively, of inventory to fixed assets.

F-6

---

Table of Contents

1.	Nature of the Business

	Liquidity and Operations

2.	Summary of Significant Accounting Policies

	Unaudited Interim Financial Statements

	Unaudited Pro Forma Presentation

F-7

---

Table of Contents

	Fiscal Year-End

	Cash and Cash Equivalents

	Revenue Recognition

F-8

---

Table of Contents

	Allowance for Doubtful Accounts

Balance at December 31, 2001			$	—
	Provision			30,000
	Deduction
Balance at December 31, 2002				30,000
	Provision			237,329
	Deduction			(19,408	)
Balance at December 31, 2003				247,921
	Provision			(64,835	)
	Deduction			(133,086	)
Balance at December 31, 2004				50,000
	Provision			—
	Deduction			(514	)
Balance at October 1, 2005			$	49,486

F-9

---

Table of Contents

	Inventory

Balance at December 31, 2001			$	385,900
	Provision			174,686
	Deduction			(224,810	)
Balance at December 31, 2002				335,776
	Provision			2,214,656
	Deduction			(181,878	)
Balance at December 31, 2003				2,368,554
	Provision			—
	Deduction			(465,637	)
Balance at December 31, 2004				1,902,917
	Provision			60,472
	Deduction			(516,622	)
Balance at October 1, 2005			$	1,446,767

	Property and Equipment

		Estimated
		Useful Life
Computer and research equipment		3 years
Furniture		5
Machinery		2-5
Business applications software		5
Capital leases and leasehold improvements		Term of lease

	Impairment of Long-Lived Assets

F-10

---

Table of Contents

	Research and Development

	Internal Use Software

	Use of Estimates

	Reclassification

	Concentration of Credit Risk and Significant Customers

F-11

---

Table of Contents

	Investment in Affiliates

	Stock-Based Compensation

F-12

---

Table of Contents

			Fiscal Year Ended												Nine Months Ended
			December 31,				December 31,				December 31,				September 30,				October 1,
			2002				2003				2004				2004				2005
															(unaudited)
Net income (loss)
As reported			$	(10,773,994	)		$	(7,410,961	)		$	219,060			$	(188,894	)		$	2,595,170
Add back: Stock-based employee compensation expense reported in net income (loss)				—				—				283,325				221,842				362,737
Less: Stock-based employee compensation expense determined under fair-value method for all awards				(28,917	)			(52,863	)			(394,102	)			(296,325	)			(703,113	)
Pro forma income (loss)			$	(10,802,911	)		$	(7,463,824	)		$	108,283			$	(263,377	)		$	2,254,794
Pro forma income (loss) attributable to common stockholders			$	(10,802,911	)		$	(7,463,824	)		$	58,107			$	(263,377	)		$	1,157,396
Net income (loss) per share, as reported
	Basic			$(2.00	)			$(0.79	)			$0.01				$(0.02	)			$0.13
	Diluted			$(2.00	)			$(0.79	)			$0.01				$(0.02	)			$0.11
Pro forma net income (loss) per share
	Basic			$(2.00	)			$(0.80	)			$0.01				$(0.03	)			$0.11
	Diluted			$(2.00	)			$(0.80	)			$0.01				$(0.03	)			$0.09
Number of shares used in per share calculations
	Basic			5,390,679				9,351,880				9,659,993				9,604,576				10,079,770
	Diluted			5,390,679				9,351,880				19,182,595				9,604,576				12,267,972

		2002				2003				2004
Risk-free interest rate			2.8%				3.0%				3.4%
Expected dividend yield			—				—				—
Expected life			5 years				5  years				5  years
Expected volatility			—				—				—

	Earnings Per Share

F-13

---

Table of Contents

	Advertising Expense

	Income Taxes

	Lease Termination Costs

	Comprehensive Income (Loss)

	Recent Accounting Pronouncements

F-14

---

Table of Contents

3.	Inventory

		December 31,
										October 1,
		2003				2004				2005
										(unaudited)
Raw materials		$	1,510,995			$	427,181			$	968,551
Work in process			145,919				—				—
Finished goods			9,762,697				7,241,753				13,353,205
		$	11,419,611			$	7,668,934			$	14,321,756

4.	Property and Equipment

		December 31,
										October 1,
		2003				2004				2005
										(unaudited)
Computer and equipment		$	1,682,876			$	2,826,932			$	5,611,906
Furniture			59,954				160,942				429,628
Machinery			935,820				2,544,330				2,751,699
Leasehold improvements			194,700				272,107				713,362
Software purchased for internal use			630,323				919,636				1,144,356
Leased equipment			144,682				144,682				144,682
			3,648,355				6,868,629				10,795,633
Less: accumulated depreciation and amortization			2,043,322				3,356,119				4,779,057
		$	1,605,033			$	3,512,510			$	6,016,576

5.	Accrued Expenses

		December 31,
										October 1,
		2003				2004				2005
										(unaudited)
Accrued warranty		$	1,522,228			$	1,398,382			$	2,094,746
Accrued lease termination costs			326,324				37,879				—
Accrued rent			389,687				339,172				323,312
Accrued sales commissions			200,375				554,919				386,297
Accrued accounting fees			171,000				161,000				139,532
Accrued other			193,052				151,794				230,591
		$	2,802,666			$	2,643,146			$	3,174,478

F-15

---

Table of Contents

6.	Revolving Line of Credit

7.	Common Stock

8.	Redeemable Convertible Preferred Stock

		December 31,
		2003				2004
Series F; 1,412,430 shares authorized, issued and outstanding at December 31, 2004, net of issuance costs (liquidation preference $10,000,004)		$	—			$	9,944,637
Series E; 2,799,353 shares authorized, issued and outstanding at December 31, 2004 and 3,002,069 shares authorized, 2,799,353 issued and outstanding at December 31, 2003, net of issuance costs (liquidation preference $13,044,985)			12,922,735				12,922,465
Series D; 1,870,908 and 2,500,000 shares authorized, 1,870,908 issued and outstanding at December 31, 2004 and 2003, net of issuance costs (liquidation preference $7,000,002)			6,766,550				6,766,550
Series C; 1,470,000 shares authorized, issued and outstanding at December 31, 2004 and 2003, net of issuance costs (liquidation preference $5,500,005)			5,478,244				5,478,244
Series B; 668,185 shares authorized, issued and outstanding at December 31, 2004 and 2003, net of issuance costs (liquidation preference $1,000,006)			966,761				966,761
Series A; 1,336,370 shares authorized, issued and outstanding at December 31, 2004 and 2003, net of issuance costs (liquidation preference $1,550,189)			1,427,579				1,427,579
		$	27,561,869			$	37,506,236

F-16

---

Table of Contents

	Conversion Rights

	Redemption Rights

	Dividend Rights

	Voting Rights

	Liquidation Rights

F-17

---

Table of Contents

	Change in Control

9.	Note Receivable from Stockholder

10.	Stock Option Plan

F-18

---

Table of Contents

		Number of				Weighted Average
		Shares				Exercise Price
Outstanding at December 31, 2002			1,579,708			$	0.584
Granted			494,455				2.294
Exercised			(68,990	)			0.171
Canceled			(21,715	)			1.034
Outstanding at December 31, 2003			1,983,458				1.019
Granted			1,544,959				2.170
Exercised			(768,707	)			0.737
Canceled			(154,710	)			1.790
Outstanding at December 31, 2004			2,605,000				1.770
Weighted average fair value of options granted during 2004						$	0.416
Options available for future grant at December 31, 2004			290,973

F-19

---

Table of Contents

						Options
						Outstanding								Options Exercisable
						Weighted
						Average				Weighted								Weighted
						Remaining				Average								Average
		Number				Contractual				Exercise				Number				Exercise
Exercise Price		Outstanding				Life				Price				Exercisable				Price
$0.0002			378,710				2.52	years		$	0.0002				378,710			$	0.0002
0.24			191,380				4.25				0.24				191,380				0.24
0.50			7,940				4.93				0.50				7,940				0.50
0.55			247,038				7.97				0.55				58,018				0.55
1.87			219,028				5.96				1.87				166,278				1.87
2.33			901,654				8.96				2.33				201,333				2.33
2.78			614,675				9.55				2.78				2,050				2.78
4.60			44,575				9.92				4.60				—				—
$0.0002-$4.60			2,605,000				7.48			$	1.770				1,005,709			$	0.863

F-20

---

Table of Contents

F-21

---

Table of Contents

										Weighted				Weighted
										Average				Average								Deferred Stock
						# of Shares				Exercise				Reassessed				Intrinsic				Based
Grant Dates		Period				Granted				Price				Fair Value				Value				Compensation
7/1/04-9/30/04			Q3-04				306,675			$	2.7800	0		$	2.78000			$	0.00000			$	0
10/1/04-12/31/04			Q4-04				125,325			$	3.4273	3		$	3.42733			$	0.00000			$	0
1/1/05-3/31/05			Q1-05				555,625			$	4.8810	5		$	6.98110			$	2.10005			$	1,166,842
4/1/05-7/2/05			Q2-05				22,650			$	4.9754	5		$	10.09786			$	5.12241			$	116,023
7/3/05-10/1/05			Q3-05				295,475			$	10.6885	5		$	16.94882			$	6.26027			$	1,849,754
							1,305,750															$	3,132,619

11.	Warrants

F-22

---

Table of Contents

12.	Income Taxes

			2002				2003				2004
Current
	Federal		$	—			$	33,285			$	89,794
	State			14,695				2,942				54,381
			$	14,695			$	36,227			$	144,175

				2003				2004
Deferred tax asset
	Net operating loss carryforwards			$	4,997,578			$	5,184,200
	Tax credits				735,387				1,019,900
	Reserves and accruals				5,313,241				5,228,000
		Total deferred tax asset			11,046,206				11,432,100
Valuation allowance					(11,046,206	)			(11,432,100	)
		Net deferred tax asset		$	—			$	—

F-23

---

Table of Contents

		2002				2003				2004
Expected federal income tax		$	(3,770,898	)		$	(2,521,382	)		$	123,531
Permanent items			5,914				21,874				45,112
State taxes			(551,993	)			(411,920	)			(302,183	)
Credits			75,011				(165,387	)			(165,600	)
Other			—				—				57,488
Increase in valuation allowance			4,256,661				3,113,042				385,827
		$	14,695			$	36,227			$	144,175

13.	Commitments and Contingencies

	Legal

	Lease Obligations

			Operating Leases
2005			$	929,180
2006				771,989
2007				746,630
2008				766,394
2009				—
Thereafter				—
	Total minimum lease payments		$	3,214,193

F-24

---

Table of Contents

	Guarantees and Indemnification Obligations

	Warranty

Balance, December 31, 2002		$	8,063
Provisions			1,514,165
Warranty settlements			—
Balance, December 31, 2003			1,522,228
Provisions			1,277,811
Warranty settlements			(1,401,657	)
Balance, December 31, 2004			1,398,382
Provisions			2,992,915
Warranty settlements			(2,296,551	)
Balance, October 1, 2005 (unaudited)		$	2,094,746

	Restricted Cash

14.	Employee Benefits

F-25

---

Table of Contents

15.	Related Party Transactions

16.	Business Segment Information

	Consumer

	Government and Industrial

	Other

F-26

---

Table of Contents

				Fiscal Year Ended												Nine Months Ended
				December 31,				December 31,				December 31,				September 30,				October 1,
				2002				2003				2004				2004				2005
																(unaudited)
Revenue:
	Consumer			$	—			$	43,073,149			$	71,332,584			$	43,034,195			$	59,944,448
	Government & Industrial				—				11,243,003				23,231,496				14,106,786				35,469,709
	Other				14,816,508				—				479,069				416,986				62,037
		Total revenue			14,816,508				54,316,152				95,043,149				57,557,967				95,476,194
Cost of revenue:
	Consumer				—				27,386,629				48,281,833				28,755,704				36,986,833
	Government & Industrial				—				9,950,231				19,307,902				11,722,254				27,257,406
	Other				16,756,635				—				101,990				—				196
		Total cost of revenue			16,756,635				37,336,860				67,691,725				40,477,958				64,244,435
Gross profit (loss):
	Consumer				—				15,686,520				23,050,751				14,278,491				22,957,615
	Government & Industrial				—				1,292,772				3,923,594				2,384,532				8,212,303
	Other				(1,940,127	)			—				377,079				416,986				61,841
		Total gross profit			(1,940,127	)			16,979,292				27,351,424				17,080,009				31,231,759
Research and development
	Other				1,735,831				3,848,010				5,504,321				3,769,329				8,275,308
Selling, general and administrative
	Other				7,128,105				20,521,298				21,404,106				13,326,556				20,328,112
Stock-based compensation
	Other				—				—				—				—				212,226
Other (expense) income, net
	Other				44,764				15,282				(79,762	)			(47,883	)			271,081
Income (loss) before income taxes
	Other			$	(10,759,299	)		$	(7,374,734	)		$	363,235			$	(63,759	)		$	2,687,194

17.	Subsequent Event

F-27

---

Table of Contents

---

Table of Contents