iRobot 2005 Annual Report Download - page 29

products has required, and will require, that we expend significant financial and management resources. We
have incurred, and expect to continue to incur, significant research and development expenses in connection
with our efforts to expand our product offerings. If we are unable to devote adequate resources to develop new
products or cannot otherwise successfully develop new products or enhancements that meet customer
requirements on a timely basis, our products could lose market share, our revenue and profits could decline, or
we could experience operating losses. Moreover, if we are unable to offset our product development costs
through sales of existing or new products or product enhancements, our operating results and gross margins
would be negatively impacted.
If we are unable to attract and retain additional skilled personnel, we may be unable to grow our
business.
To execute our growth plan, we must attract and retain additional highly-qualified personnel. Competi-
tion for hiring these employees is intense, especially with regard to engineers with high levels of experience in
designing, developing and integrating robots. Many of the companies with which we compete for hiring
experienced employees have greater resources than we have. In addition, in making employment decisions,
particularly in the high-technology industries, job candidates often consider the value of the equity they are to
receive in connection with their employment. Therefore, significant volatility in the price of our stock may
adversely affect our ability to attract or retain technical personnel. Furthermore, changes to accounting
principles generally accepted in the United States relating to the expensing of stock options may discourage us
from granting the sizes or types of stock options that job candidates may require to accept our offer of
employment. If we fail to attract new technical personnel or fail to retain and motivate our current employees,
our business and future growth prospects could be severely harmed.
We may be sued by third parties for alleged infringement of their proprietary rights, which could be
costly, time-consuming and limit our ability to use certain technologies in the future.
If the size of our markets increases, we would be more likely to be subject to claims that our technologies
infringe upon the intellectual property or other proprietary rights of third parties. In addition, the vendors from
which we license technology used in our products could become subject to similar infringement claims. Our
vendors or we may not be able to withstand third-party infringement claims. Any claims, with or without
merit, could be time-consuming and expensive, and could divert our management's attention away from the
execution of our business plan. Moreover, any settlement or adverse judgment resulting from the claim could
require us to pay substantial amounts or obtain a license to continue to use the technology that is the subject of
the claim, or otherwise restrict or prohibit our use of the technology. There can be no assurance that we would
be able to obtain a license from the third party asserting the claim on commercially reasonable terms, if at all,
that we would be able to develop alternative technology on a timely basis, if at all, or that we would be able to
obtain a license to use a suitable alternative technology to permit us to continue offering, and our customers to
continue using, our affected product. In addition, we may be required to indemnify our retail and distribution
partners for third-party intellectual property infringement claims, which would increase the cost to us of an
adverse ruling in such a claim. An adverse determination could also prevent us from offering our products to
others. Infringement claims asserted against us or our vendors may have a material adverse effect on our
business, results of operations or financial condition.
If we fail to maintain or increase our consumer robot sales through our primary distribution channels,
which include third-party retailers, our product sales and results of operations would be negatively
impacted.
Chain stores and other national retailers are the primary distribution channels for our consumer robots
and accounted for approximately 47.8% and 57.9% of our total revenue for the years ended December 31, 2005
and 2004, respectively. We do not have long-term contracts regarding purchase volumes with any of our
distributors. As a result, purchases generally occur on an order-by-order basis, and the relationships, as well as
particular orders, can generally be terminated or otherwise materially changed at any time by our distributors.
A decision by a major retail distributor, whether motivated by competitive considerations, financial difficul-
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