NOTE 9 – COMMITMENTS AND CONTINGENCIES

The Company has minimum commitments related to the Company’s license agreements and endorsement agreements with brand ambassadors, and also includes service agreements. The Company sources, distributes, advertises and sells watches and jewelry pursuant to its exclusive license agreements with unaffiliated licensors. Royalty amounts under the license agreements are generally based on a stipulated percentage of revenues, although most of these agreements contain provisions for the payment of minimum annual royalty amounts. The license agreements have various terms, and some have renewal options, provided that minimum sales levels are achieved. Additionally, the license agreements require the Company to pay minimum annual advertising amounts.

The Company believes that income tax reserves are adequate; however, amounts asserted by taxing authorities could be greater or less than amounts accrued and reflected in the Consolidated Balance Sheet. Accordingly, the Company could record adjustments to the amounts for federal, state, and foreign liabilities in the future as the Company revises estimates or settles or otherwise resolves the underlying matters. In the ordinary course of business, the Company may take new positions that could increase or decrease unrecognized tax benefits in future periods.

On April 28, 2025, the Company received a voluntary request from the Division of Enforcement of the Securities and Exchange Commission (the “SEC”) for documents and information relating to the restatement previously reported in fiscal year 2025. The Company is cooperating with the SEC in responding to those requests.

In fiscal year 2026, the United States imposed additional “reciprocal” and other tariffs under the International Emergency Economic Powers Act (“IEEPA”). These tariffs were invalidated by the Supreme Court in February 2026. The Company paid approximately $10.0 million in IEEPA tariffs between February 2025 and February 2026. During the second quarter of fiscal 2027, the Company received approximately $3.2 million of refunds of previously paid IEEPA tariffs, which was recognized as a benefit to cost of sales during the quarter. The Company continues to pursue potential recoveries of the remaining amounts following recent court rulings and U.S. Customs and Border Protection (“CBP”) guidance. The Company has elected to apply a gain contingency model in accordance with ASC 450-30, Gain Contingencies, to account for potential recoveries of previously paid IEEPA tariffs. Under this model, a gain contingency is not recognized in the Consolidated Financial Statements until the gain is realized or realizable, which is at the earlier of when CBP affirms the Company’s refund claim or the refund is received in cash.

The Company is involved in legal proceedings and claims from time to time, in the ordinary course of its business. Legal reserves are recorded in accordance with the accounting guidance for contingencies. Contingencies are inherently unpredictable and it is possible that results of operations, balance sheets or cash flows could be materially and adversely affected in any particular period by unfavorable developments in, or resolution or disposition of, such matters. For those legal proceedings and claims for which the Company believes that it is probable that a reasonably estimable loss may result, the Company records a reserve for the potential loss. For proceedings and claims where the Company believes it is reasonably possible that a loss may result that is materially in excess of amounts accrued for the matter, the Company either discloses an estimate of such possible loss or range of loss or includes a statement that such an estimate cannot be made. As of July 31, 2026, the Company is party to legal proceedings and contingencies, the resolution of which is not expected to materially affect its financial condition, future results of operations beyond the amounts accrued, or cash flows.