Fit Dragon purchase of Nautilus commercial assets sends industry down the rabbit hole

Head-scratching, confusion, and countless web searches, emails and phone calls. The fitness industry has been sucked into a quagmire of curiosity since Nautilus announced that it was selling certain StairMaster and Schwinn Fitness assets to Fit Dragon International. The problem is, Fit Dragon remains a bit of a mystery.
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Head-scratching, confusion, and countless web searches, emails and phone calls. The fitness industry has been sucked into a quagmire of curiosity since Nautilus (NYSE: NLS) announced late in the day Dec. 9, 2009, that it was selling certain StairMaster and Schwinn Fitness assets to Fit Dragon International. The problem is, Fit Dragon remains a bit of a mystery.

Fit Dragon stated in its press release on Dec. 10, 2009 (click here to read), that it is based in the British Virgin Islands, but after countless Internet searches, SNEWS was unable to find more information on the company. So far, calls and an email to Nautilus have only returned promises, but no additional information. We have contacted numerous industry insiders -- including manufacturers, suppliers, investors and a few close to the deal -- who told us they not only didn’t know of a company called Fit Dragon, but also were unable to dig up any information themselves.

Odd for a company that, per its release, has operations in Asia, North America and Europe; employs approximately 3,000 people; and is a “recognized leader in the design, manufacture, and marketing of fitness and healthy lifestyle products throughout the world.”

Just as mysterious is Core Fitness LLC, the affiliate that, according to the Fit Dragon press release, will among other things market the StairMaster and Schwinn brands under the agreement with Nautilus. While our investigation turned up several companies named Core Fitness, we were not able to determine if any were actually the company associated with Fit Dragon. SNEWS found one Core Fitness LLC that had registered with the state of Delaware in January 2002 but that entity had cancelled its status in April 2003. Numerous calls to others by the name of Core Fitness in various states were in vain or went unanswered. Each attempt to discover details on the players in this whole deal has taken SNEWS deeper and deeper down the rabbit hole.

However, SNEWS has pieced together various SEC filings with the government and other press releases. Here is a summary of the deal to sell some Nautilus assets to Fit Dragon:

>> Terms and conditions for each brand are different because Nautilus will continue to sell in retail channels, including some of the same brands.

>> Fit Dragon will acquire a license for the indoor cycling products under the Schwinn Fitness brand for use in the commercial channel. The license will include rights to conduct Schwinn educational and training programs and to market Schwinn indoor cycling products to independent bicycle retailers and specialty fitness retailers.

>> Nautilus will receive royalties based on Fit Dragon’s post-closing sales of Schwinn commercial indoor cycling and StairMaster products. Nautilus will also retain the right to continue to market and sell Schwinn indoor cycling products in the retail and direct-to-consumer sales channels.

>> Core Fitness will market the StairMaster and Schwinn brands.

>> Fit Dragon will acquire all assets of the StairMaster brand, though it will provide Nautilus a license to sell in the direct channel StairMaster products built by Fit Dragon. For 18 months after the agreement, Nautilus will be able to sell StairMaster products in the retail channel.

>> The agreement between Nautilus and Fit Dragon is set to close on or before Dec. 30, 2009, according to the Nautilus release and a Form 8-K that Nautilus filed with the SEC on Dec. 10, 2009.

>> The Nautilus assets are being sold to Fit Dragon for $12.3 million. Nautilus will receive a net cash payment of $10.9 million, while Fit Dragon will assume about $1.4 million in liabilities. Nautilus will receive approximately $7.9 million cash at closing, $2 million within 60 days, and the remaining $1 million over the next three years.

>> During the transition, Nautilus will continue to provide administrative services for Core Fitness, and customers or anyone with questions about the change in ownership are encouraged to call whomever they have been dealing with at Nautilus.

So who will lead this new company with a portfolio that will include some of the best brand names in the industry? Reading between the lines of the Fit Dragon release and connecting a few dots, it may be some folks we already know.

Core Fitness will allegedly hire “a number of current and former Nautilus employees who were previously responsible for the Schwinn and StairMaster brands.”

In the press release announcing the agreement with Fit Dragon (click here to read), Nautilus announced that Sebastien Goulet, general manager of the Nautilus commercial business and senior vice president of manufacturing, was leaving the company “to pursue other opportunities.” In the SEC filing, it was stated that Goulet, who made $306,025 in 2008 in salary, stocks and other earnings, had resigned. According to a Forbes.com profile, Goulet joined Nautilus as senior vice president of operations in May 2008. His profile on Linked In notes he has global experience in business restructuring, profit-and-loss turnaround and “lean operations” and manufacturing.

“We are working closely with Nautilus to insure a seamless transition of ownership. This will help maintain a high degree of continuity with existing distributors and customers as we work to grow both legendary brands,” said Reed Brown, a Core Fitness general counsel, quoted in the release.

Nautilus stocks closed Dec. 16 at 1.85 on a volume of 91,286, still down from its 52-week high of 2.45 but significantly higher than its 52-week low of 0.45. The stock price has dropped slightly each day since the announcement.

SNEWS will continue to slide down the rabbit hole to see just how far it goes.

--Marcus Woolf and Therese Iknoian

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