Nautilus 2014 Annual Report Download - page 14

from these products. A significant decline in our sales of these products, without offsetting sales gains, would have a material adverse effect on
our operating results, financial position and cash flows.
Failure or inability to protect our intellectual property could significantly harm our competitive position.
Protecting our intellectual property is an essential factor in maintaining our competitive position in the health and fitness industry. Failure to
maximize or to successfully assert our intellectual property rights could impact our competitiveness. We rely on trademark, trade secret, patent
and copyright laws to protect our intellectual property rights. Many factors bear upon the exclusive ownership and right to exploit intellectual
properties, including, without limitation, prior rights of third parties and nonuse and/or nonenforcement by us and/or related entities. While we
make efforts to develop and protect our intellectual property, the validity, enforceability and commercial value of our intellectual property rights
may be reduced or eliminated. We cannot be sure that our intellectual
property rights will be maximized or that they can be successfully asserted.
There is a risk that we will not be able to obtain and perfect our own or, where appropriate, license intellectual property rights necessary to
compete successfully within the 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. 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 $2.5 million and other intangible assets of $10.6 million as of December 31, 2014
. 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.
Disruption to our information and communication systems could result in interruptions to our business and potential implementation of
new systems for critical business functions may heighten 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
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