Perfect Moment Ltd

For the three and nine months ended December 31, 2023 and 2022

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of operations

Perfect Moment Ltd., a Delaware corporation (“Perfect Moment” or “PML” and, together with its subsidiaries unless the context otherwise requires, the “Company”), is an owner and operator of a luxury fashion brand that offers ski, surf, and activewear collections under the brand name Perfect Moment. The Company’s collections are sold directly to customers through e-commerce, sales to wholesale accounts and through other sales partnerships.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete consolidated financial statements. In the opinion of our management, these condensed consolidated financial statements contain all normal recurring adjustments considered necessary for a fair presentation of the Company’s financial position at December 31, 2023, results of operations for the three and nine months ended December 31, 2023 and 2022, consolidated statements of shareholders’ deficit for the three and nine months ended December 31, 2023 and 2022, and cash flows for the nine months ended December 31, 2023 and 2022. The Company’s results for the three and nine months ended December 31, 2023 are not necessarily indicative of the results expected for the full year. You should read our unaudited condensed consolidated interim financial statements and footnotes in conjunction with our audited consolidated financial statements and footnotes for the fiscal year ended March 31, 2023, included in the Company’s final prospectus for its initial public offering (“IPO”) dated February 7, 2024 and filed with the Securities and Exchange Commission (the “SEC”) on February 9, 2024. The terms “fiscal 2024” and “fiscal 2023” refer to the Company’s fiscal year ending March 31, 2024 and fiscal year ended March 31, 2023, respectively. The figures in the notes to the financials are presented in thousands, therefore the 000’s are removed.

Principles of consolidation

These unaudited condensed consolidated financial statements include the accounts of Perfect Moment Ltd. and its wholly owned subsidiaries; Perfect Moment Asia Limited (“PMA”), Perfect Moment (UK) Limited (“PMUK”) and Perfect Moment TM Sarl. These unaudited condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments which are, in the opinion of management, necessary for the fair statement of the financial information for the interim periods presented. All intercompany balances and transactions have been eliminated.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Going concern

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business.

Through December 31, 2023, the Company has funded its operations with proceeds from the issuance of convertible debt, preferred stock and common stock, alongside existing trade, invoice and shareholder financing arrangements. The Company incurred recurring losses, including a net loss of $2,980 for the nine months ended December 31, 2023 and used cash in operations of $3,078. As of December 31, 2023, the Company had a shareholders’ deficit of $5,331.

These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans to alleviate the conditions that raise substantial doubt include:

The Company’s ability to continue as a going concern for 12 months from the date these unaudited condensed Consolidated Financial Statements were available to be issued is dependent upon its ability to generate sufficient cash flows from operations to meet its obligations, which it has not been able to accomplish to date, and to obtain additional capital financing. No assurance can be given that the Company will be successful in these efforts mentioned above. Our independent registered public accounting firm, in its report on our consolidated financial statements for the fiscal year ended March 31, 2023, has also expressed substantial doubt about our ability to continue as a going concern. The accompanying Condensed Consolidated Financial Statements do not include any adjustments as a result of this uncertainty.

Subsequent to December 31, 2023, the Company generated net proceeds totaling $6,426 from the sale of our common stock and converted all outstanding convertible debt obligations to equity as part of our initial public offering (“IPO”). The company’s pro forma cash position after the completion of its IPO was $9,796 and its proforma working capital was $11,347.

Use of estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments in applying the Company’s accounting policies that affect the reported amounts and disclosures made in the condensed consolidated financial statements and accompanying notes. Management continually evaluates the estimates and judgments it uses. These estimates and judgments have been applied in a manner consistent with prior periods and there are no known trends, commitments, events or uncertainties that management believe will materially affect the methodology or assumptions utilized in making these estimates and judgments in these financial statements. Significant estimates inherent in the preparation of the condensed consolidated financial statements include reserves for uncollectible accounts receivables, realizability of inventory; customer returns; useful lives and impairments of long-lived tangible and intangible assets; accounting for income taxes and related uncertain tax positions; and the valuation of stock-based compensation awards. Actual results may differ from these judgements and estimates under different assumptions or conditions and any such differences may be material.

***Accounts receivable ***

Accounts receivable primarily arise out of sales to wholesale accounts and ecommerce partners. The allowance for doubtful accounts represents management’s best estimate of probable credit losses in accounts receivable using the incurred loss methodology. Receivables are written off against the allowance when management believes that it is probable the amount receivable will not be recovered. Additionally, the Company records higher allowances in the first and third quarters following its peak sales seasons after the Company determines it to be probable that it will not collect the related receivables. As of December 31, 2023 and March 31, 2023, the Company had $512 and $341, respectively, in allowances for doubtful accounts. Accounts Receivable, net of allowances, as of December 31, 2023 and March 31, 2023 was $3,487 and $997, respectively.

***Segment reporting ***

Accounting Standards Codification (“ASC”) Topic 280, “Disclosures about Segments of an Enterprise and Related Information” establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to stockholders. Management has determined that the Company operates inone business segment, product sales.

***Geographic concentration ***

Although the Company is organized fundamentally as one business segment, the Company’s revenues are primarily split between three geographic areas: the U.S., Europe and the United Kingdom (the “U.K.”). Customers in these regions are served by our leadership, production and operations teams in the U.K. and Hong Kong.

The table below reflects total net revenues attributed to Europe (excluding the United Kingdom), United States, United Kingdom, and the rest of the world:

The change in United States revenue as a percentage of total revenue is primarily due to a significant amount of wholesale revenue in the second quarter related to early shipments of our fall and winter collections.

The long-lived assets of the Company primarily relate to property and equipment, intangible assets and operating lease right-of-use assets in the U.K. and Hong Kong. Total long-lived assets as of December 31, 2023 were $642 and $20 in the U.K. and Hong Kong, respectively.

Supplier concentration

For the three months ended December 31, 2023 and 2022, the largest single supplier of manufactured goods, Everich Garments Group Ltd., produced 92% and 83%, respectively, of the Company’s products. For the three months ended December 31, 2023 and 2022, there were no fabric purchases.

For the nine months ended December 31, 2023 and 2022, the largest single supplier of manufactured goods, Everich Garments Group Ltd., produced 75% and 72%, respectively, of the Company’s products. For the nine months ended December 31, 2023 and 2022, the largest fabric supplier, Toray International Inc., supplied 63% and 54%, respectively, of the fabric used to manufacture the Company’s products.

***Customer concentration ***

No single customer accounted for more than 10% of total revenue for the three months ended December 31, 2023. For the nine months ended December 31, 2023, we had one major customer, which accounted for approximately 16% or $3,168 of total revenue. The related accounts receivable balance for this customer was $0 as of December 31, 2023, and $41 as of March 31, 2023.

For the three and nine months ended December 31, 2022, we had one major customer, which accounted for approximately 17% or $2,786 of total revenue and 14% or $2,786 of total revenue, respectively. The related accounts receivable balance for this customer was approximately $41 as of December 31, 2022, and $0 as of March 31, 2022.

Revenue recognition

The majority of the Company’s revenue is recognized at a point in time based on the transfer of control. In addition, the majority of the Company’s contracts do not contain variable consideration and contract modifications are minimal. The majority of the Company’s revenue arrangements generally consists of a single performance obligation to transfer promised goods. Revenue is reported net of markdowns, discounts and sales taxes collected from customers on behalf of taxing authorities. Revenue is also presented net of an allowance for expected returns where contracts include the right of return.

The Company estimates returns on an ongoing basis to estimate the consideration from the customer that the Company expects to ultimately receive. Consideration in determining the Company’s estimates for returns may include agreements with customers, the Company’s return policy and historical and current trends. The Company records the returns as a reduction to net sales in its consolidated statements of operations and the recognition of a provision for returns within accrued expenses in its consolidated balance sheets and the estimated value of inventory expected to be returned as an adjustment to inventories, net. As of December 31, 2023 and March 31, 2023, the returns provision was $523 and $370, respectively.

Revenue is comprised of direct-to-consumer ecommerce revenue through the Company’s website and revenue related to wholesalers. The following table details the revenue split:

Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods to the Company’s customers. Control transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from, the product. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. For direct-to-consumer ecommerce revenue, the Company receives payment before the customer receives the promised goods. Revenue is only recognized once the goods have been delivered to the customer. Sales to wholesale customers are recognized when the customer has control which will depend on the agreed upon International Commercial Terms (“inco-terms”). For inventories sold on consignment to wholesalers, the Company records revenue when the inventory is sold to the third-party customer by the wholesaler. The Company may issue merchant credits, which are essentially refund credits. The merchant credits are initially deferred and subsequently recognized as revenue when tendered for payment.

The Company’s business is significantly affected by the pattern of seasonality common to most retail apparel businesses. Historically, the Company has recognized a significant portion of its revenue in the third and fourth fiscal quarters of each year as a result of increased net revenue during the ski season. For the nine months ended December 31, 2023, we recognized a significant amount of wholesale revenue in the second quarter related to early shipments of our fall and winter collections that was recognized in the third quarter last year. For the six months ended September 30, 2023, our wholesale revenue was up $3,009 or 165% versus the six months ended September 30, 2022. In addition to timing of shipment and revenue recognition, our wholesale accounts had significantly higher purchases in fiscal year 2022 due to the post Covid rebound.

***Selling, general and administrative expenses ***

Selling, general and administrative expenses consist of all operating costs not otherwise included in cost of goods sold or marketing and advertising expenses. The Company’s selling, general and administrative expenses include personnel costs, recruitment fees, legal and professional fees, information technology, accounting, travel and lodging, occupancy costs and depreciation and amortization.

Foreign currency

Foreign currency transactions denominated in a currency other than an entity’s functional currency are remeasured into the functional currency using the spot rate at the date of the transaction with any resulting gains and losses recognized in operating expenses except for gains and losses arising on intercompany foreign currency transactions that are of a long-term investment nature, which are recorded as a foreign currency translation adjustment in other comprehensive income or loss.

The functional currency for each entity included in these condensed consolidated financial statements that is domiciled outside of the United States is generally the applicable local currency. Assets and liabilities of each foreign entity are translated into U.S. dollars at the exchange rate in effect on the balance sheet date. Revenue and expenses are translated on a monthly basis using the average rate for that month as a close approximation. Unrealized translation gains and losses are recorded as a foreign currency translation adjustment, which is included in other comprehensive income or loss, which is a component of accumulated other comprehensive income or loss included in shareholders’ deficit.

Stock-based compensation

The Company maintains the 2021 Equity Incentive Plan (the “2021 Plan”), which provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock units and performance units and performance shares to employees, directors and consultants of the Company or any parent or subsidiary of the Company. The purpose of the 2021 Plan is to enable the Company to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, directors and consultants of the Company or any parent or subsidiary of the Company, and to promote the success of the Company’s business. The Company has historically granted stock options to non-employees in exchange for the provision of services, both under the 2021 Plan and outside of the 2021 Plan (see Note 9).

The Company accounts for such awards based on ASC 505 and 718, whereby the value of the award is measured on the date of grant and recognized as compensation expense on a straight-line basis over the vesting period.

The Company measures fair value as of the grant date for options and warrants using the Black Scholes option pricing model and for common share awards using a weighted average of the Black Scholes method and probability-weighted expected return method (PWERM).

The inputs into the Black Scholes option pricing model are subjective and generally require significant judgment. The fair value of the shares of common and preferred stock has historically been determined by the Company’s management with the assistance of third-party specialists as there was no public market for the common stock. The fair value is obtained by considering a number of objective and subjective factors, including the valuation of comparable companies, sales of preferred stock to unrelated third parties, projected operating and financial performance, the lack of liquidity of common and preferred stock and general and industry specific economic outlook, amongst other factors. The expected term represents the period that the Company’s stock options are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term) as the Company’s stock option exercise history does not provide a reasonable basis upon which to estimate expected term. Because the Company was privately held during the periods covered by these financial statements and does not have an active trading market for its common and preferred stock for a sufficient period of time, the expected volatility was estimated based on the average volatility for comparable publicly traded companies, over a period equal to the expected term of the stock option grants. The risk-free rate assumption is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option. The Company has never paid dividends on its common stock and does not anticipate paying dividends on common stock in the foreseeable future. Therefore, the Company uses an expected dividend yield ofzero.

Income / loss per share of common stock

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share is computed by dividing the net income applicable to common stockholders by the weighted average number of shares of common stock outstanding plus the number of additional shares of common stock that would have been outstanding if all dilutive potential shares of common stock had been issued using the treasury stock method. Potential shares of common stock are excluded from the computation when their effect is antidilutive. The dilutive effect of potentially dilutive securities is reflected in diluted net income per share if the exercise prices were lower than the average fair market value of common stock during the reporting period.

Potentially dilutive stock options and securities as presented in the table below were excluded from the computation of diluted net income (loss) per share, because the effect would be anti-dilutive. As the Company incurred income for the three months ended December 31, 2023 and 2022, while incurring losses in the nine months ended December 31, 2023 and 2022, the treasury stock method and basic and diluted weighted-average shares are different in the loss per share calculation, in accordance with ASC 260-10-45-20.

On February 12, 2024, all outstanding shares of our Series A and Series B convertible preferred stock were automatically converted into 5,323,782 and 1,189,998 shares of common stock in connection with the closing of the initial public offering. The $10,002 in principal amount plus accrued interest in the amount of $1,985 automatically converted into Company common stock, at 80% of the initial public offering price into an aggregate of 2,497,267 shares of common stock (see note 13).

Fair Value of Financial Instruments

The Company follows the guidance of ASC 820 and ASC 825 for disclosure and measurement of the fair value of its financial instruments. ASC 820 establishes a framework for measuring fair value under U.S. GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

The three (3) levels of fair value hierarchy defined by ASC 820 are described below:

The carrying amount of the Company’s financial assets and liabilities, such as cash and cash equivalents, prepaid expenses, accounts payable and accrued expenses approximate their fair value due to their short-term nature. The carrying values of capital lease obligations and debt obligations approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.

Recently issued accounting pronouncements

In September 2022, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2022-04, “Disclosure of Supplier Finance Program Obligations” (“ASU 2022-04”). ASU 2022-04 requires entities to disclose the key terms of supplier finance programs they use in connection with the purchase of goods and services, along with the amount of obligations outstanding at the end of each period and an annual roll forward of such obligations. This standard does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations. ASU 2022-04 is effective for the Company for the year ending March 31, 2024 and is to be applied retrospectively to all periods in which a balance sheet is presented. The annual roll forward disclosure is not required to be made until the year ending March 31, 2025 and is to be applied prospectively. The Company doesn’t believe the adoption will have a material effect on the financial statements. Other than the new disclosure requirements, ASU 2022-04 will not have an impact on the Company’s consolidated financial statements.

ASUs recently issued but not listed above were assessed and determined to be either not applicable or are expected to have minimal impact on the consolidated financial position or results of operations.

NOTE 3. CASH

Cash consisted of the following as of December 31, 2023 and March 31, 2023.

Restricted cash represents amounts pledged as collateral against the trade finance facility that is currently limited to the issuance of letters of credit to suppliers. As of December 31, 2023, there was one pledged letter of credit amounting to $173, which was secured by restricted cash.

Subsequent to December 31, 2023, the Company generated net proceeds totaling $6,426 from the sale of our common stock as part of our initial public offering. The company’s pro forma cash position after the completion of IPO was $9,796.

NOTE 4. INVENTORIES

Inventories are initially measured at cost and subsequently measured at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. The following table details the primary categories for the periods presented.

Third-party services are used to warehouse and distribute inventory. Per the terms of one third-party service contract, a lien may be placed on the Company’s inventory if the Company fails to make a payment for services within 30 days from the date the third-party supplier notifies the Company of an outstanding payment.

**NOTE 5.**PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of December 31, 2023 and March 31, 2023.

Depreciation expense related to property and equipment was $158 and $134 for the three months ended December 31, 2023 and 2022, respectively. Depreciation expense related to property and equipment was $432 and $398 for the nine months ended December 31, 2023 and 2022, respectively.

NOTE 6. TRADE FINANCE FACILITY

The Company has a trade finance facility extended on goods for which letters of credit are issued to the Company’s suppliers by HSBC. As of December 31, 2023 and March 31, 2023, the outstanding balance under the trade finance facility was $999 and $26, respectively, and the Company had an available trade finance facility of $5.0 million. As of December 31, 2023, there was one outstanding pledged letters of credit by HSBC amounting to $173 (see Note 3), however, the trade finance facility does not become the Company’s responsibility until the Company receives the manufactured clothing goods from suppliers. Once drawn, the company has 120 days credit on the loan before payment is due. For drawings in Hong Kong dollars (“HKD”), the interest rate equals the Hong Kong Interbank Offered Rate (“HIBOR”) plus 3.0%, and for drawings in USD, the interest rate equals the Secured Overnight Financing Rate (“SOFR”) plus 3.3%. The trade finance facility was secured by a standby documentary credit for $1.0 million from UBS Switzerland AG and a personal guarantee to the value of $4.0 million from the Chairman and Director of the Company. The UBS documentary credit expired on April 30, 2023, and the facility from that date, was subsequently secured by a charge over cash deposits equal to the amount of the facility used at any given moment in time in addition to the aforementioned personal guarantee. On June 26, 2023, the UBS standby documentary credit was reinstated for $1.0 million, secured by a personal guarantee from Joachim Gottschalk & Associates, Ltd. (“JGA”) that expired on November 26, 2023. The UBS standby documentary credit was renewed through January 26, 2024. Upon renewal, the interest accrual increased to 10% per annum. The JGA personal guarantee accrues interest of between 8% and 10% per annum, payable by the Company. During the nine-month period ending December 31, 2023, the Company utilized $1,847 of borrowings under the facility, of which $874 was repaid by December 31, 2023.

NOTE 7. CONVERTIBLE DEBT OBLIGATIONS

In March 2021, the Company entered into an arrangement whereby the Company completed convertible debt financing (“2021 Debt Financing”), from 47 investors, for gross proceeds of $6,000, less $841 of debt issuance costs, at an 8% interest rate to provide working capital for its operations. Between April and July 2022, the Company received further convertible debt financing (“2022 Debt Financing”) from 47 investors with gross proceeds of $4,000, less $531 of debt issuance costs, that rank pari passu to the 2021 Debt Financing at an 8% interest rate. The debt issuance costs are amortized over the remaining life of the convertible debt.

The 2021 Debt Financing had a maturity date of December 15, 2023. In December 2023 and January 2024, the maturity date of all convertible promissory notes was extended to February 14, 2024. Upon the closing of an IPO, prior to the redemption date, the convertible debt was convertible into the Company’s common stock at a conversion price equal to 80% of the public offering price of the Company’s common stock in the IPO. Management considered the accounting effect of the conversion feature and determined the convertible debt to be accounted for as share-settled debt and accreted the value of the convertible debt to their expected conversion into equity at redemption date.

As of December 31, 2023, the convertible debt obligations comprised of $10,002 in principal and accrued interest of $1,860. As of March 31, 2023, the convertible debt obligations comprised gross proceeds of 10,002 and accrued interest of $1,260. The Company’s convertible debt obligations are secured by a security interest over the assets of Perfect Moment Ltd. and its subsidiaries. The convertible debt obligations are junior to any bank debt.

The unamortized debt discount is the related arrangement fees that are being amortized against the convertible debt obligations on the consolidated balance sheets. During the nine months ended December 31, 2023 and 2022, aggregate debt and related issuance costs of $0 and $1,168 respectively, were incurred and recorded as debt discount, of which $492 and $767, respectively, was amortized during the same periods.

In connection with the 2021 Debt Financing and 2022 Debt Financing, we have covenants that limit the amount of indebtedness we may incur and assets we may pledge. As of December 31, 2023, we were in compliance with such covenants.

On February 12, 2024, $10,002 in principal amount plus accrued interest in the amount of $1,985 automatically converted into the Company’s common stock, at 80% of the initial public offering price into an aggregate of 2,497,267 shares of common stock (see note 13).

NOTE 8. EQUITY

Series A Preferred Stock

On March 15, 2021, PMA, the former parent entity, engaged in a share for share exchange with the Company, thereby creating the Company as the ultimate parent company. As part of the share for share exchange, existing PMA shareholders’ equity was exchanged for an equivalent amount of share capital in the Company in the form of common stock and preferred stock. As a result of the transaction,5,323,782 shares of Series A Convertible Preferred Stock (“Series A Stock”) with a $0.0001 par value were issued to existing PMA shareholders for nil consideration. The Series A Stock could be voluntarily converted into shares of common stock at the request of the Series A stockholder by providing written notice. The Series A Stock was also subject to mandatory conversion into common stock upon either an IPO or by vote or written consent of at least 66 2/3% holders of the outstanding shares of the Series A Stock. The conversion was at a rate of one share of Series A Stock for one share of common stock without payment of additional consideration. The holders of Series A Stock were entitled to receive dividends as if the conversion to common stock had taken place, if and when dividends are declared. Such dividends take preference to dividends paid on shares of common stock and are non-cumulative. The holders of the Series A Stock were entitled to vote based on the equal number of whole shares of common stock into which the shares of Series A Stock are convertible as of the date of the vote. The Series A Stock with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company or deemed liquidation event ranked senior to both the common stock and any other class of stock which specifically ranks junior to the Series A Stock.

On February 12, 2024, all outstanding shares of our Series A convertible preferred stock were automatically converted into 5,323,782 shares of common stock in connection with the closing of the initial public offering (see note 13).

Series B Preferred Stock

On September 23, 2022, the Company authorized the issuance and sale of up to 1,200,000 shares of Series B Convertible Preferred Stock (“Series B Stock”), with a par value of $0.0001 per share and a purchase price of $5.00 per share. A total of 1,189,998 shares of Series B Stock was issued between September 2022 and November 2022, for net proceeds of $5,200, net of broker fees of $750. The Series B Stock could be voluntarily converted into shares of common stock at the request of the Series B stockholder by providing written notice. The Series B Stock was also subject to mandatory conversion into common stock upon either an IPO or by vote or written consent of at least 66 2/3% holders of the outstanding shares of the Series B Stock without payment of additional consideration. The conversion was determined by dividing the original issue price by the conversion price in effect at the time of conversion. The initial conversion price was set at $5.00 per share. The holders of Series B Stock were entitled to receive dividends as if the conversion to common stock had taken place, if and when dividends are declared. Such dividends took preference to dividends paid on shares of common stock and are non-cumulative. The holders of the Series B Stock were entitled to vote based on the equal number of whole shares of common stock into which the shares of Series B Stock were convertible as of the date of the vote. The Series B Stock, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company or deemed liquidation event, ranked pari passu with the Series A Stock.

On February 12, 2024, all outstanding shares of our Series B convertible preferred stock were automatically converted into 1,189,998 shares of common stock in connection with the closing of the initial public offering (see note 13).

Common stock

During May to August 2023, the Company issued 409,050 shares of common stock at a par value of $0.0001 and a purchase price of $6.00 per share. The total net proceeds were $2,179, net of broker fees and expenses of $275. The holders of the common stock shall be entitled to cast one vote for each share held at all stockholder meetings and have no right to subscribe to or purchase any new or additional issue of shares.

NOTE 9. STOCK-BASED COMPENSATION

The Company grants equity-based awards (typically stock options) under the 2021 Plan and occasionally outside of the 2021 Plan to employees, directors and consultants in non-capital raising transactions for services and for financing costs. The Company accounts for such grants issued and vesting based on ASC 718, Compensation – Stock Compensation whereby the value of the award is measured on the date of grant and recognized for employees as compensation expense on the straight-line basis over the vesting period.

Employee stock awards

A summary of option activity under the 2021 Plan for the nine months ended December 31, 2023 is presented below:

At December 31, 2023, the intrinsic value of the outstanding options under the 2021 Plan was $504.

A summary of option activity outside of the 2021 Plan for the nine months ended December 31, 2023 is presented below.

At December 31, 2023, the intrinsic value of the outstanding options outside of the 2021 Plan was $817.

During the nine months ended December 31, 2023, the Company did not grant any stock options to employees. The total stock compensation expense recognized relating to the vesting of stock options for the nine months ended December 31, 2023 and 2022 amounted to $18 and $95, respectively. As of December 31, 2023, the total unrecognized stock-based compensation expense was $27, which is expected to be recognized as part of operating expense through July 2025.

Non-employee stock awards

Common shares issued to consultants

During 2021, the Company engaged several consultants to provide services relating to the IPO who were compensated with common stock awards. These consultant stock awards were recorded in accordance with ASC 718. Compensation expense is recorded for these stock awards based on the amortization of the fair market value and common stock issued over the agreed service or vesting period, taking into account clawback provisions. The fair value of the shares is based on the enterprise valuation as outlined in ASC 718-10-55-10 through ASC 718-10-55-12. The shares subject to clawback provisions remain unvested until the related performance condition is met in line with ASC 718-10. If clawback features are triggered, the unvested shares will be returned to the Company in line with ASC 718-10.

In January and March 2021,2,000,000 shares of common stock with a total fair value of $7,000 were issued to certain non-employees in exchange for consulting and advisory services to be performed relating to the 2021 share exchange and the 2021 convertible debt financing (see Note 7), of which 50% were subject to clawback contingent upon an IPO. As services were relating to, and contingent upon execution of an IPO, no expense was recognized for the shares subject to clawback, until occurrence of an IPO. During the nine months ended December 30, 2022, the consultants performed additional services and the Company agreed to remove the clawback provision and the $3,500 fair value for the remaining 1,000,000 shares of common stock was recognized within selling, general and administrative expenses in the consolidated statements of operations and comprehensive loss during the three months then ended. As of December 31, 2023 and March 31, 2023, no further shares were issuable under these agreements.

In October 2021,75,000 shares of common stock with a total fair value of $295 were issued to a consultant in exchange for legal services to be performed relating to an IPO subject to a 100% clawback provision in the event that an IPO is not achieved. As services were relating to and contingent upon execution of an IPO, no expense was recognized until occurrence of an IPO. During the nine months ended December 31, 2022, the Company entered into an agreement to remove the clawback provision and the fair value of $295 was recognized within selling, general and administrative expenses in the consolidated statements of operations and comprehensive loss during the three months then ended. As of December 31, 2023 and March 31, 2023, no further shares were issuable under this agreement.

In relation to the above consulting and advisory services, the Company had granted rights to six holders of our common stock, to be issued additional shares of our common stock if the IPO price per share was less than $5.00, as adjusted for any stock split or combination prior to the IPO, or if we sold our equity securities before the closing of the IPO at the purchase price per share or conversion price per share that is less than $5.00, as adjusted for any stock split or combination prior to the IPO. Since the IPO price was greater than $5.00, this provision was not triggered

NOTE 10. FOREIGN CURRENCY TRANSLATION

We report all currency amounts in USD. The Company’s subsidiaries in the U.K., Hong Kong and Switzerland maintain their books and records in their functional currencies, which are GBP, HKD and CHF, respectively.

When consolidating the subsidiaries with non-USD functional currencies, we translate the amounts of assets and liabilities into USD using the exchange rate on the balance sheet date, and the amounts of revenue and expense are translated at the average exchange rate prevailing during the period. The gains and losses resulting from translation of financial statement amounts into USD are recorded as a separate component of accumulated other comprehensive loss within shareholders’ deficit.

We used the exchange rates in the following table to translate amounts denominated in non-USD currencies as of and for the periods noted:

Period end exchange rate:

Average exchange rate:

The following table, reported in USD, disaggregates our cash balances by currency denomination:

Cash denominated in:

Our cash primarily consists of funds held in bank accounts and third party payment platforms.

With the exception of petty cash, all our cash consists of funds held in bank accounts and third-party payment platforms. The Company maintains the majority of cash at HSBC where the balances are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250. At times, the cash balances may exceed the FDIC-insured limit. As of December 31, 2023, we do not believe we have any significant concentrations of credit risk due to the strong credit rating of HSBC and the cash balance is expected to be utilized within 6 months to fund working capital requirements. The cash held by other banks is within the$250 FDIC insured amount and cash held by third party payment platforms are short term timing balances.

Subsequent to December 31, 2023 the Company closed its initial public offering netting proceeds of $6,426 that was deposited into JPMorgan Chase.

11. COMMITMENTS AND CONTINGENCIES

*Legal proceedings -*The Company is, from time to time, involved in routine legal matters, and audits and inspections by governmental agencies and other third parties which are incidental to the conduct of its business. This includes legal matters such as initiation and defense of proceedings to protect intellectual property rights, liability claims, employment claims, and similar matters. The Company believes the ultimate resolution of any such legal proceedings, audits, and inspections will not have a material adverse effect on its consolidated balance sheets, results of operations or cash flows.

On December 20, 2023, Aspen Skiing Company, LLC filed a complaint against the Company in the United States District Court for the District of Colorado, alleging, among other things, trademark infringement, false association, false endorsement, unfair competition and deceptive trade practices by the Company. Management has determined, after the advice of legal counsel, that the claims and actions related to such complaint are not expected to have a material adverse effect on our financial condition because management believes that the lawsuit will not succeed on the merits and the risk of any material loss is remote. The claims relate to the Company’s social media posts of models and influencers in ski gondolas on the mountain owned by Aspen Skiing Company and now discontinued limited edition clothing sold by the Company that included images, which were licensed by the Company from a photographer, of a skier’s rest area in Aspen that Aspen Skiing Company calls the “AspenX Beach Club.” The complaint seeks injunctive relief, but no motion for injunctive relief has been filed in the suit. The complaint also seeks delivery of all infringing material to Aspen Skiing Company and an award of the Company’s profits and Aspen Skiing Company’s damages in an amount to be determined at trial, costs incurred by Aspen Skiing Company in the action, their attorney’s fees and treble damages.

Capital commitments - The Company hadzero purchase obligations as of December 31, 2023, related to purchase orders to factories for the manufacture of finished goods. All future obligations are to be financed by HSBC letters of credit and comprise the balance held as restricted cash on the condensed consolidated balance sheets.

NOTE 12. RELATED PARTY TRANSACTIONS

Certain directors of the Company and its subsidiaries, provided consulting and advisory services, as non-employees, totaling $55 and $44 for the three months ended December 31, 2023 and 2022, respectively, and totaling $292 and $197 for the nine months ended December 31, 2023 and 2022, respectively, recognized in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations. As of December 31, 2023, $15 was unpaid and was included in trade payables. As of March 31, 2023, $22 was unpaid and included in accrued expenses.

Below are the directors of the Company and its subsidiaries, that provided consulting and advisory services.

The Company has engaged Deliberate Software Limited (“Deliberate”) as a supplier for IT services amounting to $154 and $108 for the three months ended December 31, 2023 and 2022, respectively, and $293 and $349 for the nine months ended December 31, 2023 and 2022, respectively, recognized within selling, general and administrative expenses. As of December 31, 2023 and March 31, 2023, $117 and $14, respectively, were unpaid and included in trade payables. A director of Deliberate is an immediate family member of Negin Yeganegy, the former Chief Executive Officer and director of PML, up to November 2022. As of December 31, 2023 and March 31, 2023, Deliberate held 100,351 shares of Series A preferred stock which are convertible to 100,351 shares of common stock immediately prior to an IPO.

On March 15, 2021, PML entered into a convertible debt obligation agreement with 47 investors including JGA (see Note 7), which is deemed to be a related party of Max Gottschalk, the Chairman and director of the Company. The portion of the convertible debt obligation (outstanding principal and accrued interest) repayable to JGA amounted to $245 and $233 as of December 31, 2023 and March 31, 2023, respectively. Upon the closing of an IPO prior to the redemption date, the debt financing shall be convertible into shares of the Company’s common stock at a conversion price equal to 80% of the public offering price of the Company’s common stock in the IPO.

On November 15, 2021, the Company entered into services agreements with each of Purple Pebble America LLC, an entity controlled by Priyanka Chopra, and NJJ Ventures, LLC, an entity controlled by Nicholas Jonas, to provide advertising and publicity services to the Company in exchange for 377,428 shares of our common stock each, plus product samples and reimbursement of costs and expenses related to the services provided. The shares of common stock were subject to a forfeiture schedule based on service milestones. All such shares of common stock have ceased to be subject to forfeiture on May 15, 2023. The original term of each services agreement expired on May 15, 2023, but was extended to May 15, 2024. Ms. Chopra and Mr. Jonas are married; neither has any interest in or control over the entity indicated as controlled by the other. Ms. Chopra disclaims any beneficial ownership of the shares of common stock owned by NJJ Ventures, LLC and Mr. Jonas disclaims any beneficial ownership of the shares of common stock owned by Purple Pebble America LLC.

On June 29, 2022, the Company entered into a short-term loan of $202 from Sprk Capital Limited at an interest rate of 16% that was repayable by December 31, 2022. The principal loan plus interest was repaid in February 2023. Interest expense during the three and nine months ended December 31, 2022 was $16 and $24, respectively. A director of Sprk Capital Limited, Simon Nicholas Champ, is a shareholder of the Company. As of December 31, 2023 and March 31, 2023, Simon Nicholas Champ held 19,570 shares of Series A preferred stock which are convertible to 19,570 shares of common stock immediately prior to an IPO.

We, through PMA, are party to a consulting agreement with Max Gottschalk, dated May 15, 2019, which continues until terminated in accordance with its terms, during which Mr. Gottschalk is entitled to receive fees for services rendered amounting to £8,000 per month from April 2021 to November 2022 and £12,000 per month since December 2022. These amounts are in lieu of any other cash payments or equity awards Mr. Gottschalk may otherwise have been entitled to receive as a member of our board of directors.

We, through PMA, were party to a consulting agreement with Jane Gottschalk, dated April 30, 2018, pursuant to which Ms. Gottschalk was entitled to receive £8,000 per month since April 1, 2019, for services rendered. These amounts are in lieu of any other cash payments or equity awards Ms. Gottschalk may otherwise have been entitled to receive as a member of our board of directors. The consulting agreement was terminated effective September 1, 2022, after which Ms. Gottschalk became an employee of PMUK.

We were party to a consulting agreement with Tracy Barwin, dated November 18, 2022, pursuant to which Ms. Barwin was entitled to receive £1,500 per day for services rendered with a minimum commitment of two days per month. These amounts were in lieu of any other cash payments or equity awards Ms. Barwin may otherwise have been entitled to receive as a member of our board of directors. The consulting agreement with Ms. Barwin was terminated in October 2023 and replaced by an independent director agreement.

We, through PMA, were party to a consulting agreement with Arnhem Consulting Limited (“Arnhem”), a company controlled by Andre Keijsers, dated February 28, 2017, pursuant to which Arnhem was entitled to receive £1,200 per month for services rendered. The consulting agreement was terminated in October 2023 as a result of Mr. Keijsers becoming a director of the Company.

On June 26, 2023, our HSBC trade finance facility became secured by a standby documentary credit for $1,000 from UBS Switzerland AG, which standby documentary credit is secured by a guarantee from JGA. The JGA guarantee accrues interest of 8% per annum, payable by the Company. The UBS standby documentary credit expired on November 26, 2023 and was renewed through January 26, 2024. Upon renewal, the interest accrual increased to 10% per annum. The interest charged for the three and nine months ended December 31, 2023 was $20 and $53, respectively . Such JGA guarantee is in addition to the $4,000 personal guarantee of the trade finance facility by Mr. Gottschalk, described below.

The Chairman of our board of directors, Max Gottschalk, has provided a $4,000 personal guarantee for all monies, obligations and liabilities owing by PMA to HSBC, the Company’s principal banking facility provider. The guarantee is a pay-on-demand guarantee securing the Company’s obligations under the HSBC facility, including interest and bank costs, fees and expenses, up to $4,000.

13. SUBSEQUENT EVENTS

Initial Public Offering

On February 7, 2024, the company entered into an underwriting agreement with ThinkEquity LLC, as representative (the “Representative”) of the several underwriters identified therein, relating to the Company’s initial public offering (the “IPO”) of 1,334,000 shares of the Company’s common stock, par value $0.0001 per share. The Company previously filed the form of underwriting agreement as an exhibit to the Company’s registration statement on Form S-1, as amended from time to time (File No. 333-274913), which was declared effective by the Securities and Exchange Commission on February 7, 2024. The price per share to the public was $6.00 generating gross proceeds of $8,004. The Company also granted the Underwriters a 45-day option to purchase up to 200,100 additional shares of Common Stock on the same terms and conditions for the purpose of covering any over-allotments in connection with the IPO.

The number of shares of common stock outstanding after this offering was 15,578,449 as of February 7, 2024, that included the previously issued and outstanding of 5,233,402, the 1,334,000 shares issued as part of this offering plus (i) the automatic conversion of all outstanding shares of our Series A convertible preferred stock into 5,323,782 shares of common stock, (ii) the automatic conversion of all outstanding shares of our Series B convertible preferred stock into 1,189,998 shares of common stock and (iii) the automatic conversion, in connection with the closing of this offering (closing on February 12, 2024), of $10,002 in principal amount plus accrued interest in the amount of $1,985 under our 8% senior subordinated secured convertible promissory notes (the “2021 Notes”) and our 8% senior subordinated secured convertible promissory notes (the “2022 Notes” and, together with the 2021 Notes, the “Notes”), at 80% of the initial public offering price into an aggregate of 2,497,267 shares of common stock.

On February 12, 2024, the Company consummated the IPO and issued 1,334,000 shares of Common Stock for aggregate net proceeds of approximately $6,426, after deducting underwriting discounts and commissions and estimated offering expenses. The Company intends to use the proceeds for general corporate purposes, including working capital, sales and marketing activities and general and administrative matters. Concurrently with the closing of the IPO, the Company also issued warrants to purchase up to 66,700 shares of Common Stock to the Representative and its designees, at an exercise price of $7.50 per share (the “Underwriter Warrants”). The Underwriter Warrants are exercisable beginning on August 5, 2024, and expire on February 7, 2029.

On January 25, 2024, the Company amended it’s 2021 Incentive Plan, with stockholder approval, to increase the number of shares of common stock available for issuance under the 2021 Incentive Plan to 3,799,957 shares, and to provide for automatic annual increases of the shares available for issuance under the 2021 Incentive Plan on the first day of each fiscal year beginning with the fiscal year ending March 31, 2025 and ending on (and including) the fiscal year ending March 31, 2031, in an amount equal to the lesser of (i)500,000 shares of commons stock, or (ii) such number of shares determined by the plan administrator no later than the last day of the immediately preceding fiscal year.

Pro Forma Balance Sheet Information

At December 31, 2023

Unaudited

The pro forma information gives effect to (i) the automatic conversion, in connection with the closing of the IPO, of all of our outstanding shares of Series A convertible preferred stock into 5,323,782 shares of common stock, (ii) the automatic conversion, in connection with the IPO, of all outstanding shares of our Series B convertible preferred stock into 1,189,998 shares of common stock, (iii) the automatic conversion, in connection with the IPO, of $10,002 in principal amount plus accrued interest in the amount of $1,985 under the Notes into an aggregate of 2,497,267 shares of common stock, at 80% of the initial public offering price at $6.00 per share, (iv) the issuance and sale of 1,334,000 shares of our common stock from the IPO, at $6.00 per share resulting in net proceeds to the Company of $6,426.

Pro Forma Balance Sheet Information

At December 31, 2023****

Employee Stock Plans

On March 5, 2024, the Company granted 300,000 shares of its restricted stock to an officer in accordance with their employment agreement dated November 7, 2022. The Restricted Stock Units vest in four equal installments, starting on the officer’s start date. These Restricted Stock Units were valued based on market value of the Company’s stock price at the respective date of grant and had aggregate fair value of $1,230, which will be amortized as stock compensation expense over its vesting term.

On March 5, 2024, the Company granted stock options to directors, officers, and employees to purchase a total of 1,406,593 shares of Common Stock for services rendered and to be rendered. The options have an exercise price of $4.10 per share, expire between five andten years, vesting in equal installments over four years from their date of employment or the date the award was originally approved, but not granted.