iRobot 2005 Annual Report Download - page 25

‚ 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.
Any interruption in the manufacture of our products would be likely to result in delays in shipment, lost
sales and revenue and damage to our reputation in the market, all of which would harm our business and
results of operations. In addition, while our contract obligations with our contract manufacturer in China are
typically denominated in U.S. dollars, changes in currency exchange rates could impact our suppliers and
increase our prices. In particular, the Chinese government announced in 2005 that the Chinese yuan has
moved to a managed floating exchange rate regime, which could lead to our suppliers in China negotiating
increased pricing terms with us.
Any efforts to expand our product offerings beyond our current markets may not succeed, which could
negatively impact our operating results.
We have focused on selling our robots in the consumer and military markets. We plan to expand into
other markets. Efforts to expand our product offerings beyond the two markets that we currently serve,
however, may divert management resources from existing operations and require us to commit significant
financial resources to an unproven business, either of which could significantly impair our operating results.
Moreover, efforts to expand beyond our existing markets may never result in new products that achieve market
acceptance, create additional revenue or become profitable.
If we are unable to implement appropriate controls and procedures to manage our growth, we may not be
able to successfully implement our business plan.
Our headcount and operations are growing rapidly. This rapid growth has placed, and will continue to
place, a significant strain on our management, administrative, operational and financial infrastructure. From
December 31, 2004 to December 31, 2005, the number of our employees increased from 148 to 276. We
anticipate further growth will be required to address increases in our product offerings and the geographic
scope of our customer base. Our success will depend in part upon the ability of our senior management to
manage this growth effectively. To do so, we must continue to hire, train, manage and integrate a significant
number of qualified managers and engineers. If our new employees perform poorly, or if we are unsuccessful in
hiring, training, managing and integrating these new employees, or retaining these or our existing employees,
our business may suffer.
In addition, to manage the expected continued growth of our headcount and operations, we will need to
continue to improve our information technology infrastructure, operational, financial and management
controls and reporting systems and procedures, and manage expanded operations in geographically distributed
locations. Our expected additional headcount and capital investments will increase our costs, which will make
it more difficult for us to offset any future revenue shortfalls by offsetting expense reductions in the short term.
If we fail to successfully manage our growth we will be unable to successfully execute our business plan, which
could have a negative impact on our business, financial condition or results of operations.
If the consumer robot market does not experience significant growth or if our products do not achieve
broad acceptance, we will not be able to achieve our anticipated level of growth.
We derive a substantial portion of our revenue from sales of our consumer robots. For the year ended
December 31, 2005 and 2004, consumer robots accounted for 65.4% and 73.8% of total revenue respectively.
We cannot accurately predict the future growth rate or the size of the consumer robot market. Demand for
consumer robots may not increase, or may decrease, either generally or in specific geographic markets, for
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