NOTE 14. COMMITMENTS, CONTINGENCIES AND LEGAL MATTERS

As a consumer goods manufacturer and distributor, the Company faces the risk of product liability and related lawsuits involving claims for substantial money damages, product recall actions and higher than anticipated rates of warranty returns or other returns of goods. The Company is therefore vulnerable to various personal injury and property damage lawsuits relating to its products and incidental to its business.

The Company is involved in various legal disputes and other legal proceedings that arise from time to time in the ordinary course of business. Anticipated costs related to litigation matters are accrued when it is both probable that a liability has been incurred and the amount can be reasonably estimated. Based on currently available information, the Company does not believe that it is reasonably possible that the disposition of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial position, results of operations or cash flows. There is a possibility of loss from contingencies in excess of the amounts accrued by the Company in the accompanying condensed consolidated balance sheets; however, the actual amounts of such possible losses cannot currently be reasonably estimated by the Company. It is possible that, as additional information becomes available, the Company may subsequently determine that it may incur losses from such contingencies materially in excess of the amounts initially accrued by the Company which could have a material adverse effect on the Company’s liquidity, stock price, consolidated financial position, results of operations and/or cash flows. See Part II, Item 1. “Legal Proceedings.”

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Legal expenses incurred in the ordinary course of business are included in selling, general, and administrative expenses in the consolidated statements of comprehensive income (loss) except as described below.

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U.S. Consumer Product Safety Commission

In January 2021, Black Diamond Equipment, Ltd. (“BDEL”) filed a Section 15(b) report with the U.S. Consumer Product Safety Commission (“CPSC”) outlining its new cradle solution for certain models of its avalanche beacon transceivers to prevent such transceivers from switching unexpectedly out of “send” mode. The proposed new cradle solution was designed to improve transceiver safety by locking the transceiver into “send” mode prior to use so that it would not switch unexpectedly out of “send” mode. BDEL also requested approval for the CPSC Fast-Track Program for a voluntary product recall to implement this cradle solution. The CPSC approved the recall and entered into a Corrective Action Plan agreement with BDEL in March 2021. BDEL received a letter from the CPSC, dated October 28, 2021, stating that the CPSC is investigating whether BDEL has timely complied with the reporting requirements of Section 15(b) of the Consumer Product Safety Act and related regulations regarding certain models of avalanche transceivers switching unexpectedly out of “send” mode.

Separately, on April 21, 2022, BDEL filed a Section 15(b) report and applied for Fast-Track consideration for a voluntary recall, consisting of free repair or replacement of such malfunctioning models of avalanche transceivers, which would not switch from “send” mode to “search” mode due to an electronic malfunction in the reed switch or foil. The CPSC approved the recall and entered into a Corrective Action Plan agreement with BDEL in August 2022. BDEL received a letter from the CPSC, dated January 17, 2023, stating that the CPSC is investigating whether BDEL has timely complied with the reporting requirements of Section 15(b) of the Consumer Product Safety Act and related regulations regarding the malfunction in the reed switch or foil in certain models of avalanche transceivers switching out of “search” mode. BDEL responded to the CPSC’s investigation by letter dated March 31, 2023, accompanied with documents responsive to the CPSC’s requests. The CPSC asked for further clarification and documents, and BDEL sent a responsive letter accompanied by additional documents on June 23, 2023. On September 6, 2023, the CPSC requested further clarification and information regarding the reed switch issue, to which BDEL responded on October 6, 2023 and October 13, 2023.

By letter dated October 12, 2023, the CPSC staff advised BDEL that it will recommend that the CPSC impose civil penalties of $16,025 for allegedly failing to timely report the alleged defect in certain models of avalanche transceivers switching unexpectedly out of “send” mode, and a $110 fine for an alleged material misrepresentation. By letter dated December 18, 2023, the CPSC staff advised BDEL that it will recommend that the CPSC impose a civil penalty of $9,000 for allegedly failing to timely report the alleged defect in certain models of avalanche transceivers switching unexpectedly out of “search” mode due to an electronic malfunction in the reed switch or foil laminate.

On November 20, 2023 and February 8, 2024, respectively, BDEL submitted opposition statements disputing the CPSC staff’s conclusions, including the amount of any potential penalties. The CPSC ultimately disagreed with our position and the agency voted to refer the matter to the U.S. Department of Justice for further proceedings. To the extent the civil penalty matters remain pending, the Company and BDEL intend to vigorously defend against any claims which may be asserted against them by the Department of Justice or the CPSC. Any potential loss contingency for BDEL relating to either of these matters is not determinable or reasonably estimable.

John C. Walbrecht, the former President of BDEL and the Company, received a letter from the CPSC dated June 25, 2024, alleging that in his personal capacity he knowingly violated the Consumer Product Safety Act by failing to timely report that the beacons in question contained a defect. The staff of the CPSC recommended a $5,000 fine against Mr. Walbrecht personally. Pursuant to the Company’s by-laws, the Company has agreed to indemnify Mr. Walbrecht and advance his legal fees, and he has provided an undertaking to repay those expenses if it is ultimately determined that he was not entitled to indemnification. On August 26, 2024, Mr. Walbrecht’s independent counsel denied the allegations and rejected the proposed penalty.

On January 23, 2025, in connection with a criminal investigation, the Company and BDEL were each served with grand jury subpoenas from the United States Department of Justice requiring the production of documents relating to avalanche transmitters distributed by BDEL. The Company and BDEL cooperated with the investigation and produced all relevant

documents. The DOJ had sent letters to Mr. Walbrecht and Rick Vance (BDEL’s former Director of Quality) advising them that they are targets in its investigation of possible criminal conduct. The DOJ also had served two subpoenas upon a current and former employee of BDEL for grand jury testimony, as well as grand jury subpoenas for documents to an advisory entity and to the Company’s former public relations firm and asked to speak with the successor to Mr. Vance’s position. With respect to current and former employees, the Company’s Board of Directors has authorized indemnity to the same extent permitted by the Company’s by-laws for officers and directors, including payment of legal fees for independent counsel.

On June 4, 2026, the Company received a letter from the DOJ advising that based on information presently known to the government and the principles of federal prosecution, the DOJ has closed this investigation as to the Company and BDEL.  On the same date, Messrs. Walbrecht and Vance received similar letters from the DOJ advising each of them that the DOJ had closed the investigation as to them. By letters dated November 3, 2026, the CPSC advised the Company that it was removing a number of recalls from active monitoring status. The Company will continue to implement any Corrective Action Plan in place for recalled products and maintain toll-free numbers for consumers to call for information.

On March 13, 2025, the Company received a letter from the CPSC requesting various categories of documents and information in connection with an investigation into whether BDEL sold products that were subject to a recall. The Company has cooperated with that investigation, substantially completed document production, and delivered a narrative explanatory letter to the CPSC on June 18, 2025. On January 28, 2026, the CPSC concluded this investigation without finding any wrongdoing on the part of the Company.

During the three months ended September 30, 2026 and 2025, the Company incurred legal (benefits) expenses of ($20) and $322, respectively, and during the nine months ended September 30, 2026 and 2025, the Company incurred legal expenses of $1,886 and $2,050, respectively, in connection with the above investigation. During the nine months ended September 30, 2026, the Company reversed its previously accrued liability of $2,500 for the CPSC regulatory matter. These legal expenses and the reversal are included in legal and regulatory matter costs in the consolidated statements of comprehensive income (loss).

Clarus Corporation v. HAP Trading, LLC and Harsh A. Padia

On September 23, 2022, the Company filed a lawsuit in the United States District Court for the Southern District of New York against HAP Trading, LLC and Harsh A. Padia (“HAP Trading”), seeking disgorgement of profits from transactions in the Company’s common stock and related derivative securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended.

On March 14, 2025, the Court issued an Opinion and Order granting the defendants’ motion for summary judgment on the ground that they qualified for the market making exemption under Section 16(d) of the Exchange Act. On April 11, 2025, the Company filed a timely Notice of Appeal and the appeal was argued before the United States Court of Appeals for the Second Circuit on February 12, 2026. The Court of Appeals has invited the Securities and Exchange Commission (“SEC”) to submit an amicus curiae brief, but the SEC declined to do so. We are currently waiting for the Court of Appeals to issue its decision.

During the three months ended September 30, 2026 and 2025, the Company incurred legal expenses of $83 and $679, respectively, and during the nine months ended September 30, 2026 and 2025, the Company incurred legal expenses of $757 and $1,413, respectively, in connection with the various legal proceedings. These legal expenses are included in legal and regulatory matter costs in the consolidated statements of comprehensive income (loss).

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