Nautilus 2010 Annual Report Download - page 14

Table of Contents
We are subject to periodic litigation, product liability risk and other regulatory proceedings which could result in unexpected expense of
time and resources.
From time to time, we may be a defendant in lawsuits and regulatory actions relating to our business or the former operations of our discontinued
commercial business segment. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the
ultimate outcome of any such proceedings. An unfavorable outcome could have a material adverse impact on our business, financial condition
and results of operations. In addition, any significant litigation in the future, regardless of its merits, could divert management's attention from
our operations and may result in substantial legal costs.
We also may not be able to successfully acquire intellectual property rights, protect existing rights, or potentially prevent others from claiming
that we have violated their proprietary rights when we launch new products. We could incur substantial costs in defending against such claims
even if they are without basis, and we could become subject to judgments or settlements requiring us to pay substantial damages, royalties or
other charges.
We are subject to warranty claims for our products which could result in unexpected expense.
Many of our products carry limited warranties for defects in quality and workmanship. Warranty costs in prior years primarily related to
products sold through our former commercial business segment, which is a discontinued operation. However, we are still liable for certain claims
on various products in foreign jurisdictions. In addition, we remain contingently liable for product warranty obligations which were transferred
to buyers of our commercial business product lines, if the buyer is unable to fulfill such obligations.
We may experience significant expense as the result of product quality issues, product recalls or product liability claims which may have a
material adverse effect on our business. We maintain a warranty reserve for estimated future warranty claims. However, the actual costs of
servicing future warranty claims may exceed the reserve and have a material adverse effect on our results of operations, financial condition and
cash flows. In addition, we remain contingently liable for product warranty obligations which were transferred to buyers of our commercial
business product lines, if the buyer is unable to fulfill such obligations.
Disruption to our information and communication systems could result in interruptions to our business.
Our business is increasingly reliant on information and communication technology, and a substantial portion of our revenues are generated with
the support of information and communication systems. The success of our direct business is heavily dependent on our ability to respond to
customer sales inquiries and process sales transactions using our call center communication systems, Internet websites and similar data
monitoring and communication systems provided and supported by third-parties. If such systems were to fail, or experience significant or
lengthy interruptions in availability or service, our revenues could be materially affected. We also rely on information systems in all stages of
our product cycle, from design to distribution, and we use such systems as a method of communication between employees, as well as our
customers. In addition, we use information systems to maintain our accounting records, assist in collection and customer service efforts, and
forecast operating results and cash flows.
System failures or service interruptions may occur as the result of a number of factors, including: computer viruses; hacking or other unlawful
activities by third parties; disasters; equipment, hardware or software failures; cable outages, extended power failures, or our inability or failure
to properly protect, repair or maintain our communication and information systems. To mitigate the risk of business interruption, we have in
place a disaster recovery program that targets our most critical operational systems. If our disaster recovery system is ineffective (in whole or in
part), or efforts conducted by us or third-parties to prevent or respond to system interruptions in a timely manner are ineffective, our ability to
conduct operations would be significantly affected. If we do not consider the potential impact of critical decisions related to systems or process
design and implementation, this could lead to operational challenges and increase costs. Any of the aforementioned factors could have a material
adverse affect on our operating results, financial position and cash flows.
We may need to raise additional financing if our financial results do not improve.
We have sustained significant operating losses each year since 2007. We returned to positive income from continuing operations in the fourth
quarter of 2010 and expect that we will have adequate financial resources and liquidity to meet our operating needs throughout 2011. However,
if we continue to experience significant operating losses, we will need to obtain additional debt or equity financing to continue operating. There
is no guarantee that we will be able to raise additional funds on favorable terms, if at all, or that any amount raised will be sufficient to meet our
cash requirements. If we are not able to raise
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