FALLBROOK, CA -- Med-Fit Systems will honor the warranties of previously sold Nautilus Inc. commercial equipment and will roll out at least four new products this year, according to Dean Sbragia, CEO of Med-Fit Systems, Fallbrook, CA.

On Feb. 19, Med-Fit Systems purchased a license to certain commercial fitness assets and trademarks of Nautilus Inc., Vancouver, WA, for $2.8 million. Med-Fit Systems is a 23-year-old physical therapy and senior care products provider.

“We’ve agreed to service the equipment per written warranty,” Sbragia says about the products his company purchased. “We will be providing the ongoing service for those parts and products.”

The Nautilus Web site will provide a link to the new site hosted by Med-Fit. The toll free numbers will remain the same, and Sbragia plans to do a mass mailing announcing the new entity.

The purchase included the company’s Nine Series cardio equipment (treadmills, ellipticals and bikes) and all the strength products, which include Nautilus One, Nitro, Nitro Plus, XPLoad Athletic and the free weight line, Sbragia says.

In January, Nautilus sold its Schwinn and StairMaster commercial lines for $10.9 million to Fit Dragon International.

Sbragia says the company will continue using the Nautilus name and adding to the commercial line, including at least four products planned for introduction this year.

The company has an expanded, affordable line that will be able to compete with the price of equipment from China, he says. The company also has an enhancement to the cardio line and a new patent pending technology for weight resistance.

“We have very ambitious engineering plans,” he says, adding that he has an engineering priority list of 12 items. “We’re close to some more patented technology in strength and cardio.”

Sbragia has chosen some former Nautilus employees to help him with those plans. Nautilus’ president will be Mark Meussner, who previously worked for Nautilus for three years, part of that time as senior vice president, global manufacturing and operations, according to Sbragia. In that role, Meussner was responsible for all domestic and international manufacturing and the global supply chain.

Matt Braswell will serve as executive vice president, sales and marketing. Braswell had been rehabilitation and senior accounts manager for Nautilus until he came to Med-Fit in early 2008. Mary Suhr will be director of marketing and trade shows. She also had worked for Nautilus and other fitness equipment manufacturers prior to coming to Med-Fit Systems.

During the five-month negotiation process to buy the company, Nautilus had some attrition in its workforce, and the market “softened” a bit for the company’s products, Sbragia says, but he expects that softening to be temporary.

“The Nautilus name has enough cache and following that we’ll fill the pipeline quickly,” Sbragia says.

Med-Fit paid $300,000 at closing for the Nautilus asset license. The remainder of the $2.8 million will be paid in installments through 2011.

Under the license agreement, Nautilus is entitled to royalties based on net sales of the licensed products by Med-Fit. Royalties are subject to minimum annual payments, ranging from $300,000 to $800,000, beginning in 2010 and subject to adjustment based on the consumer price index each year thereafter. The license agreement extends through Dec. 31, 2013, and is subject to a two-year extension term with respect to cardio products and a perpetual renewal term with respect to strength products.

The two companies also entered a lease agreement in which Med-Fit will lease Nautilus’ manufacturing and warehouse facility in Independence, VA. The lease extends through Dec. 31, 2012. Med-Fit has the option until Aug. 31 to purchase the facility for $2.2 million. If Med-Fit does not purchase the facility, the lease agreement requires that Med-Fit pay a monthly rental of $40,000 through the remainder of the term.