Nautilus 2013 Annual Report Download - page 14

marketplace for our products. We cannot be sure that these rights, if obtained, will not be invalidated, circumvented or challenged in the future.
If we do not, or are unable to, adequately protect our intellectual property, then we may face difficulty in differentiating our products from those
of our competitors and our business, operating results and financial condition may be adversely affected.
Trademark infringement or other intellectual property claims relating to our products could increase our costs.
Our industry is susceptible to litigation regarding trademark and patent infringement and other intellectual property rights. We could become a
plaintiff or defendant in litigation involving trademark or patent infringement claims or claims of breach of license. The prosecution or defense
of intellectual property litigation is both costly and disruptive of the time and resources of our management, regardless of the claim's merit. We
could also be required to pay substantial damages or settlement costs to resolve intellectual property litigation or related matters.
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.
Future impairments of intangible assets could negatively impact our operating results.
We had goodwill of $2.7 million and other intangible assets of $12.6 million as of December 31, 2013. Any future impairment charges, if
significant, could materially and adversely affect our operating results. An unexpected decline in revenue, changes in market conditions, changes
in competitive products or technologies or a change in management's intentions regarding utilization of intangible assets could lead to future
impairment charges.
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 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. 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 and the planned implementation
of new systems for critical business functions heightens the risk of disruption.
Our business is 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, suppliers and customers. In addition, we use
information systems to maintain our accounting records, assist in trade receivables 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; ineffective implementation of new systems or systems upgrades;
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
10