iRobot 2005 Annual Report Download - page 50

In addition to our internal research and development activities discussed above, we incur research and
development expenses under funded development arrangements with both governments and industrial third
parties. For fiscal year 2005 these expenses amounted to $12.5 million compared to $8.4 million for the
comparable period in 2004. The increase in these expenses was primarily due to increased headcount in our
research and development function to 48 employees at December 31, 2005 from 18 employees at Decem-
ber 30, 2004. In accordance with generally accepted accounting principles, these expenses have been classified
as cost of revenue rather than research and development expense.
Selling and Marketing
Selling and marketing expenses increased 54.2% to $21.8 million (15.3% of revenue) in fiscal 2005 from
$14.1 million (14.8% of revenue) in fiscal 2004. The increase in selling and marketing expense was primarily
due to an increase in direct marketing and advertising programs and promotional expenses in support of the
Roomba product line, including our Roomba Scheduler robot, which was launched in the third quarter of
2005, as well as increased salaries and related personnel costs associated with the expansion of our selling and
marketing headcount to 24 employees from 13 employees. In fiscal 2006, we expect to accelerate our
investment in national advertising, consumer and trade shows, direct marketing and public relations to further
build brand awareness. Accordingly, we anticipate selling and marketing expenses will increase in absolute
dollars and as a percentage of total revenue.
General and Administrative
General and administrative expenses increased 62.9% to $11.9 million (8.4% of revenue) in fiscal 2005
from $7.3 million (7.7% of revenue) in fiscal 2004. The increase in general and administrative expenses was
primarily due to increased salaries and related personnel costs associated with the growth in headcount in our
general and administrative functions to 61 employees from 33 employees, primarily in the areas of accounting,
information technology, human resources, and legal, and the related expenses associated with our preparations
to become and operate as a public company during the fiscal year. In fiscal 2006, we anticipate that general
and administrative expenses will increase in absolute dollars and as a percentage of total revenue due to the
increased costs associated with being a public company, including costs associated with compliance with
Section 404 of the Sarbanes-Oxley Act.
Other Income (Expense), Net
Other income, net amounted to $0.7 million for fiscal 2005 compared to other expense, net of
approximately $0.1 million for fiscal 2004. The other income (expense), net was directly related to
$0.8 million of interest income earned offset partially by increased franchise taxes associated with our
increased capitalization after our initial public offering.
Income Tax Provision
The provision for income taxes of $0.2 million for fiscal 2005, compared with a provision of $0.1 million
for fiscal 2004, represents taxes due based on federal alternative minimum taxes.
Comparison of Years Ended December 31, 2004 and 2003
Revenue
Our revenue increased 75.0% to $95.0 million in fiscal 2004, from $54.3 million in fiscal 2003. Revenue
increased $28.3 million, or 65.6%, in our consumer business and $12.0 million, or 106.6%, in our government
and industrial business. The increase in revenue from our consumer products was driven by continued strong
demand for our Roomba floor vacuuming robot, originally introduced in late 2002, and in particular by the
introduction of the second generation of our Roomba floor vacuuming robots in the third fiscal quarter of fiscal
2004. In addition, during fiscal 2004, we added three retailers to our network, which accounted for
approximately 14% of our total revenue during the period and increased the total number of retailers offering
our products to 15. The increase in revenue from our government and industrial business was due primarily to
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