iRobot 2008 Annual Report Download - page 69

In addition, we are subject to audits by the U.S. federal government as part of routine audits of government
contracts. As part of an audit, these agencies may review our performance on contracts, cost structures and
compliance with applicable laws, regulations and standards. If any of our costs are found to be allocated improperly
to a specific contract, the costs may not be reimbursed and any costs already reimbursed for such contract may have
to be refunded. Accordingly, an audit could result in a material adjustment to our revenue and results of operations.
Moreover, if an audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and
administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and
suspension or debarment from doing business with the government.
If any of the foregoing were to occur, or if the U.S. federal government otherwise ceased doing business with us
or decreased the amount of business with us, our business and operating results could be materially harmed and the
value of your investment in our common stock could be impaired.
Some of our contracts with the U.S. federal government allow it to use inventions developed under the
contracts and to disclose technical data to third parties, which could harm our ability to compete.
Some of our contracts allow the U.S. federal government rights to use, or have others use, patented inventions
developed under those contracts on behalf of the government. Some of the contracts allow the federal government to
disclose technical data without constraining the recipient in how that data is used. The ability of third parties to use
patents and technical data for government purposes creates the possibility that the government could attempt to
establish additional sources for the products we provide that stem from these contracts. It may also allow the
government the ability to negotiate with us to reduce our prices for products we provide to it. The potential that the
government may release some of the technical data without constraint creates the possibility that third parties may
be able to use this data to compete with us in the commercial sector.
Government contracts are subject to a competitive bidding process that can consume significant resources
without generating any revenue.
Government contracts are frequently awarded only after formal competitive bidding processes, which are
protracted. In many cases, unsuccessful bidders for government agency contracts are provided the opportunity to
protest certain contract awards through various agency, administrative and judicial channels. If any of the
government contracts awarded to us are protested, we may be required to expend substantial time, effort and
financial resources without realizing any revenue with respect to the potential contract. The protest process may
substantially delay our contract performance, distract management and result in cancellation of the contract award
entirely.
We depend on single source manufacturers, and our reputation and results of operations would be
harmed if these manufacturers fail to meet our requirements.
We currently depend on one contract manufacturer, Jetta Company Limited, to manufacture our Roomba 400
series and Scooba series of home robot products at a single plant in China, and one contract manufacturer, Kin Yat
Industrial Co Limited, to manufacture our Roomba 500 series of home robot products at a single plant in China.
Moreover, we rely on one contract manufacturer, Gem City Engineering and Manufacturing, to manufacture our
PackBot products at a single plant in the United States. In 2009, we will manufacture our Negotiator products at a
single plant in India. We do not have a long-term contract with Jetta Company Limited and the manufacture of our
consumer products is provided on a purchase-order basis. These manufacturers supply substantially all of the raw
materials and provide all facilities and labor required to manufacture our products. If these companies were to
terminate their arrangements with us or fail to provide the required capacity and quality on a timely basis, we would
be unable to manufacture our products until replacement contract manufacturing services could be obtained. To
qualify a new contract manufacturer, familiarize it with our products, quality standards and other requirements, and
commence volume production is a costly and time-consuming process. We cannot assure you that we would be able
to establish alternative manufacturing relationships on acceptable terms.
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Form 10-K