Perfect Moment Ltd

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2024 AND 2023

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 ecommerce, sales to wholesale accounts and through other sales partnerships.

Basis of presentation

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and present the consolidated financial position, income (loss), comprehensive income (loss), and cash flows of the Company and its wholly owned subsidiaries. The figures in the notes to the financials are presented in thousands, therefore the 000’s are removed.

Principles of consolidation

These 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”), Perfect Moment USA, Inc., (“PMUSA”) and Perfect Moment TM Sarl. All intercompany balances and transactions have been eliminated.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Going concern

The accompanying 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 March 31, 2024, the Company has funded its operations with proceeds from the sale of common stock from the initial public offering and the issuance of common stock, alongside existing trade, invoice and shareholder financing arrangements. The Company has incurred recurring losses, including a net loss of $8,722 for the year ended March 31, 2024 and used cash in operations of $4,453 during that period. As of March 31, 2024, the Company had an accumulated deficit of $48,977.

These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying Consolidated Financial Statements do not include any adjustments as a result of this uncertainty. 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 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.

During the year ended March 31, 2024, the Company generated net proceeds totaling $8,188 from the sale of our common stock and converted all outstanding convertible debt obligations to equity as part of our initial public offering (“IPO”).

Use of Estimates

The preparation of the 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 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 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; realization of deferred tax assets 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.

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 consist 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 March 31, 2024 and 2023, the returns provision was $346 and $366, 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.

Cost of goods sold

Cost of goods sold includes the cost of purchased merchandise, which includes:

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 March 31, 2024 and 2023, the Company had $558 and $341, respectively, in allowances for doubtful accounts. Accounts Receivable, net of allowances, as of March 31, 2024 and 2023 was $1,035 and $997, respectively.

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 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 March 31, 2024 were $557 and $98 in the U.K. and Hong Kong, respectively. As of March 31, 2023, total long-lived assets were $1,086 in the UK and $56 in Hong Kong.

Supplier concentration

For the years ended March 31, 2024 and 2023, the largest single supplier of manufactured goods, Everich Garments Group Ltd., produced 75% and 72%, respectively, of the Company’s products. For the years ended March 31, 2024 and 2023, the largest fabric supplier, Toray International Inc., supplied 79% and 70%, respectively, of the fabric used to manufacture the Company’s products.

Customer concentration

For the twelve months ended March 31, 2024, we had one customer that accounted for approximately 13% or $3,168 of total revenues individually and in aggregate. There wasno accounts receivable balance for this customer as of March 31, 2024. The Company has ended its wholesale relationship with this customer as part of a broader strategy to enhance our relationships with our entire customer base.

For the twelve months ended March 31, 2023, we had one customer that accounted for approximately 12% or $2,786 of total revenues individually and in aggregate. The related accounts receivable balance for this customer was approximately $41 as of March 31, 2023.

For the twelve months ended March 31, 2024, we had two customers that accounted for approximately 27% of total accounts receivable. For the twelve months ended March 31, 2023, we had one customer that accounted for approximately 18% of total accounts receivable.

Accounts payable

On March 31, 2024, the three largest accounts payable accounts to our vendors represented 15%,7% and 6%, respectively. On March 31, 2023, the three largest accounts payable accounts to our vendors represented 56%,5% and 3%, respectively.

Property and Equipment

Property, plant and equipment are recorded at cost less accumulated depreciation. Cost consists of purchase price, conversion cost and estimated cost of dismantling and restoration. Expenditure such as repairs and maintenance, overhaul costs and borrowing costs are normally charged to profit or loss when they are incurred. Expenditures resulting in increases in the future economic benefits of the property, plant and equipment are capitalized.

Software & Website Development costs are for applications and software with respect to operating our business. For such projects, planning cost and other costs related to the preliminary project stage, as well as costs incurred for post-implementation activities, are expensed as incurred. We capitalize costs incurred during the application development phase only when we believe it is probable the development will result in new or additional functionality. The types of costs capitalized during the application development phase include fees incurred with third parties for consulting, programming and other development activities performed to complete the software or website. We amortize the assets on a straight-line basis over an estimated useful life of three years. If we identify any software or website to be abandoned, the cost less the accumulated amortization, if any, is recorded as amortization expense.

The residual values and useful lives of the property, plant and equipment are reviewed when there are indications that the residual value or useful life of an asset has significantly changed following the end of the previous reporting period. If necessary, the residual value, depreciation method or useful life of that asset is amended prospectively to reflect the new expectation. The following estimated useful lives are used for the depreciation of property, plant and equipment:

Leases

At lease commencement, which is generally when the Company takes possession of the asset, the Company records a lease liability and corresponding right-of-use asset. Lease liabilities represent the present value of minimum lease payments over the expected lease term, which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. The present value of the lease liability is determined using the Company’s incremental borrowing rate as of lease commencement. Minimum lease payments include base rent, fixed escalation of rental payments, and rental payments that are adjusted periodically depending on a rate or index. Non-lease components are generally services that the lessor performs for the Company associated with the leased asset, such as common area maintenance.

Right-of-use assets represent the right to control the use of the leased asset during the lease and are initially recognized in an amount equal to the lease liability. In addition, prepaid rent, initial direct costs, and adjustments for lease incentives are components of the right-of-use asset. Over the lease term, the lease expense is amortized on a straight-line basis beginning on the lease commencement date. A right-of-use asset and lease liability are not recognized for leases with an initial term of 12 months or less, and the lease expense is recognized on a straight-line basis over the lease term. As of March 31, 2024 and March 31, 2023, the Company has four property leases, which are all accounted for as operating leases under ASC 842. Short-term leases are accounted for under the short-term lease practical expedient of ASC 842.

Long-Lived Assets

Long-lived assets held for use, including intangible assets with finite lives, right-of-use assets and property, plant and equipment, are evaluated for impairment when the occurrence of events or a change in circumstances indicates that the carrying value of the assets may not be recoverable as measured by comparing their carrying value to the estimated undiscounted future cash flows generated by their use and eventual disposition. Impaired assets are recorded at fair value, determined principally by discounting the future cash flows expected from their use and eventual disposition. Reductions in asset values resulting from impairment valuations are recognized in income in the period that the impairment is determined. No impairment of long-lived assets was required for the years ended March 31, 2024 and 2023.

Income Taxes

The Company follows the liability method with respect to accounting for income taxes. Deferred income tax assets and liabilities are determined based on the temporary differences between the carrying amounts and the tax bases of assets and liabilities, and for tax losses, tax credit carryforwards, and other tax attributes. Deferred income tax assets and liabilities are measured using enacted tax rates, for the appropriate tax jurisdiction, which are expected to be in effect when these differences are anticipated to reverse.

Deferred income tax assets are reduced by a valuation allowance, if based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The evaluation as to the likelihood of realizing the benefit of a deferred income tax asset is based on the timing of scheduled reversals of deferred tax liabilities, taxable income forecasts, and tax-planning strategies. The recognition of a deferred income tax asset is based upon several assumptions and forecasts, including current and anticipated taxable income, the utilization of previously unrealized non-operating loss carryforwards, and regulatory reviews of tax filings.

The Company evaluates its tax filing positions and recognizes tax benefits that are considered more likely than not to be sustained upon examination by the relevant taxing authorities based on the technical merits of the position. This determination requires the use of significant judgment. Income tax expense is adjusted in the period in which an uncertain tax position is effectively settled, the statute of limitations expires, facts or circumstances change, tax laws change, or new information becomes available. The Company’s policy is to recognize interest expense and penalties related to income tax matters separately as an income or expense item.

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, sales commissions, 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 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 stockholders’ equity (deficit).

Stock-based compensation

The Company accounts for equity based 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 for a portion of the periods covered by these financial statements and historically did 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 Company listing on NYSE American on February 8, 2024 and now uses the closing price on the day of grant to determine FMV and for the stock options issued in Q4 2024 the company used the average of five similar companies based by one or all the following factors to determine volatility: industry, revenue, market capitalization. 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 losses in the years ended March 31, 2024 and 2023, basic and diluted weighted-average shares are the same 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, respectively, 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 11).

Fair Value of Financial Instruments

The Company follows the guidance of FASB ASC 820 and ASC 825 for disclosure and measurement of the fair value of its financial instruments. FASB ASC 820 establishes a framework for measuring fair value under 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, and 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.

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 in one business segment, product sales.

Reclassifications

The Company has reclassified broker commission costs amounting to $687 previously classified as cost of sales for the year ended March 31, 2023 to selling, general and administrative expenses to conform to current year presentation.

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.

In March 2023, the Financial Accounting Standards Board (“FASB”) ) issued ASU 2024-01 to amend the guidance in Accounting Standards Codification (“ASC”) 718Compensation—Stock Compensation (Topic 718). Some entities compensate employees or other service providers by granting profits interest awards, which generally give the grantee an opportunity to participate in future profits and/or equity appreciation of the entity but do not give them rights to existing net assets of the entity*.*ASU 2024-01 adds an example showing how to apply the scope guidance in ASC 718 to determine whether profits interests and similar awards should be accounted for as share-based payment arrangements. The ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company does not currently anticipate that the guidance will have a material impact on its financial statements.

In November 2023, the FASB issued ASU 2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expense categories that are regularly provided to the chief operating decision maker and included in each reported measure of a segment’s profit or loss. The update also requires all annual disclosures about a reportable segment’s profit or loss and assets to be provided in interim periods and for entities with a single reportable segment to provide all the disclosures required by ASC 280,Segment Reporting, including the significant segment expense disclosures. This standard will be effective for the Company on January 1, 2024 and interim periods beginning in fiscal year 2025, with early adoption permitted. The updates required by this standard should be applied retrospectively to all periods presented in the financial statements. The Company does not expect this standard to have a material impact on its results of operations, financial position or cash flows.

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.

3. 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.

4. PREPAID AND OTHER CURRENT ASSETS

Amounts recorded in prepaid and other current assets are expected to be realized within one year. The following table describes the major items for the periods presented.

Prepaid marketing costs relate to the provision of marketing services to be provided over an 18-month service period by two non-employees.

5. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

Depreciation expense related to property, plant and equipment was $555 million and $547 million in the years ended March 31, 2024 and 2023, respectively.

6. LEASES

The Company has obligations under operating leases for its offices. As of March 31, 2024 and 2023, the lease terms of the various leases are less than 24 months. The majority of the Company’s leases include renewal options at the sole discretion of the Company. In general, it is not reasonably certain that lease renewals will be exercised at lease commencement and therefore lease renewals are not included in the lease term.

The following table details the Company’s net lease expense. The variable lease expenses disclosed below include contingent rent payments and other non-fixed lease related costs, including common area maintenance, property taxes, and landlord’s insurance.

7. ACCRUED EXPENSES

The returns provisions are comprised of returns due from both wholesale and partner customers and direct-to-consumer customers.

8. TRADE FINANCE FACILITY

The Company, through PMA, has a trade finance facility extended on goods for which letters of credit are issued to the Company’s suppliers by HSBC. As of March 31, 2024 and March 31, 2023, the outstanding balance under the trade finance facility was $0 and $26, respectively, and the Company had an available trade finance facility of $5.0 million. As of March 31, 2024, there were no outstanding pledged letters of credit by HSBC. 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 repayment is due. For drawings in Hong Kong dollars, the interest rate equals HIBOR plus 3.0%, and for drawings in U.S. dollars, the interest rate equals SOFR plus 3.3%. The trade finance facility was originally 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 of our board of directors, Max Gottschalk, and a $3,150 corporate guarantee from Perfect Moment (UK) Limited. The UBS standby documentary credit expired on April 30, 2023 and the facility was then secured by charge over cash deposits equal to the amount of the facility used at any given moment in time in addition to the aforementioned personal and corporate guarantees. On May 31, 2023, the UBS standby documentary credit was reinstated for $1.0 million, which standby documentary credit was secured by a guarantee from Joachim Gottschalk & Associates, Ltd. (“JGA”). The UBS standby documentary credit was extended on November 26, 2023 through January 26, 2024 at a 10% interest rate. The JGA guarantee is in addition to the $4.0 million personal guarantee of the trade finance facility by Mr. Gottschalk. The UBS standby documentary credit was not extended and the $3,150 corporate guarantee from Perfect Moment (UK) Limited was replaced with a $2,000 corporate guarantee from Perfect Moment, Limited. The JGA guarantee accrued interest between 8% and 10% per annum, payable by the Company. The Company utilized $1,847 of borrowings under the facility, all of which was repaid by March 31, 2024. The trade finance facility is also secured by a guarantee by Perfect Moment Ltd. in the amount of $2.0 million.

The interest paid on the JGA personal guarantee for the years ended March 31, 2024 and 2023 was $56 and $33, respectively.

9. 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 were amortized over the life of the convertible debt. The Company’s convertible debt obligations are secured by a security interest over the assets of Perfect Moment Ltd. and its subsidiaries.

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. 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.

As of March 31, 2023, the convertible debt obligations comprised gross proceeds of 10,002 and accrued interest of $1,260. 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 10).

The unamortized debt discount is the related arrangement fees that are being amortized against the convertible debt obligations on the consolidated balance sheets. As of March 31, 2023, the balance of unamortized debt discount was $492. Upon closing of the IPO in February 2024, the unamortized balance of debt discount of $492 was charged to interest expense.

10. COMMON STOCK

Common stock

The following were Common Stock transactions during the year ended March 31, 2024:

Sale of common stock from private placement

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. 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.

Shares and Warrants Issued as Part of the Company’s Underwritten 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 $6,009, 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.

The following were Common Stock transactions during the year ended March 31, 2023:

Shares issued for services

During 2021, the Company engaged several consultants to provide services relating to the IPO who were compensated with common stock awards. The shares subject to clawback provisions remain unvested until the related performance condition is met. If clawback features are triggered, the unvested shares will be returned to the Company.

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, 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 year ending March 31, 2023, 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 year ending 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.

The Company issued a total 1,075,000 and charged APIC $3,795 related to services rendered during the year ended March 31, 2023.

11. PREFERRED STOCK

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 stockholders’ 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

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 11).

12. RESTRICTED STOCK UNITS

Restricted Stock Units

A summary of restricted stock unit activity for the years ended March 31, 2024 and 2023 are presented below.

During the year ended March 31, 2024, the Company granted 300,000 shares of its restricted stock to an employee. The Restricted Stock Units vest equally over four years, starting on the contractual start date of November 7, 2022. 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 $1,230,000, which is being amortized as stock compensation expense over its vesting term. During the year ended March 31, 2024,75,000 shares with a fair value of $429 vested during the period.

13. STOCK OPTIONS

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 2,527,944 shares available to issue from the 2021 plan as of March 31, 2024. 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.

A summary of option activity for the years ended March 31, 2024 and 2023 are presented below:

During the year ended March 31, 2023, the Company granted stock options to an employee to purchase 136,344 shares of Common Stock for services rendered. The options have an exercise price of $0.01 per share, expire infive years, vesting 20% on July 1, 2022 and then equally over four years from July 1, 2022. The total fair value of these options at grant date was approximately $200 using a third-party valuation.

During the year ended March 31, 2024, the Company granted stock options to employees and the Board of Directors to purchase a total 808,400 shares of Common Stock for services rendered. The options have an exercise price of $4.10 per share, expire between fiveandten years, vesting equally over four years from various dates. The total fair value of these options at grant date was approximately $3,039 using the Black-Scholes Option Pricing model.

The total stock compensation expense recognized related to vesting of stock options for the years ended March 31, 2024 and March 31, 2023 amounted to $310 and $241, respectively. As of March 31, 2024 the total unrecognized stock-based compensation was $2,527, which is expected to be recognized as part of operating expense through January 2028.

At March 31, 2024, the intrinsic value of the outstanding options under the 2021 Plan was $595.

The fair value of the share option awards was estimated using the Black-Scholes method and probability-weighted expected return method (PWERM) based on the following weighted-average assumptions:

14. STOCK WARRANTS

A summary of warrant activity for the years ended March 31, 2024 and 2023 are presented below:

On February 12, 2024, the Company granted warrants to purchase a total of 66,700 shares of Common Stock as part of a public offering, which remain outstanding as of March 31, 2024. The warrants are exercisable at an average price of $7.50 per share and will expire on February 12, 2029. See Note 11,*Common Stock,*for additional information.

As of March 31, 2024 the outstanding warrants hadno intrinsic value.

15. INCOME TAXES

Income tax (benefit) expense

Components of income tax (benefit) expense were as follows:

Reconciliation

The reconciliation of income taxes computed at the U.S. federal statutory tax rate to our income tax (benefit) expense is as follows:

The Company’s effective tax rate for the years ended March 31, 2024 and 2023 differed from the applicable federal statutory rate of 21.0% primarily due to the impact of the valuation allowance on the Company’s deferred tax assets, as disclosed below.

Deferred tax assets and liabilities

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities were as follows:

Income tax payments and refunds

During the year ended March 31, 2023, the Company received a tax repayment of $121, in respect to research and development tax credits. During the years ended March 31, 2024 and 2023, the Company did not make any income tax payments.

Valuation allowance

During the years ended March 31, 2024 and 2023, the Company recorded an increase in the valuation allowance of $1,449 and $1,935, respectively, related to federal deferred tax assets. Deferred tax assets are recorded related to net operating losses and temporary differences between the book and tax bases of assets and liabilities expected to produce tax deductions in future periods. The realization of these assets depends on recognition of sufficient future taxable income in specific tax jurisdictions in which those temporary differences or net operating losses are deductible. In assessing the need for a valuation allowance on deferred tax assets, we consider whether it is more likely than not that some portion or all of them will not be realized.

Throughout the year ended March 31, 2024, the Company has been assessing the realizability of its deferred tax assets by considering positive factors such as the next three years’ profit projection making it more likely than not that the Company will be able to recognize a deferred tax asset on losses. Based upon historical performance of the Company, a valuation allowance of 100% was recorded as there is currently no significant evidence to indicate realizability of deferred tax assets. During 2024, the Company recorded a valuation allowance of 100% of UK and Hong Kong losses. As of March 31, 2024 and 2023, the Company’s valuation allowance was $7,897 and $6,448, respectively.

16. FOREIGN CURRENCY TRANSLATION

We report all currency amounts in USD. The Company’s subsidiaries in UK, 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 Stockholders’ equity (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:

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

Our cash primarily 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 $250,000. At times, the cash balances may exceed the FDIC-insured limit. As of March 31, 2024, 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 FDIC insured amount and cash held by third party payment platforms are short term timing balances.

17. 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. Although the results of such litigation matters and claims cannot be predicted with certainty, we believe that the final outcome of such ordinary, routine litigation will not have a material adverse impact on our financial position, liquidity, or results of operations.

Capital commitments - The Company hadno purchase obligations as of March 31, 2024, 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 consolidated balance sheets.

18. RELATED PARTY TRANSACTIONS

Consulting Agreements with Directors

Certain directors of the Company and its subsidiaries, provided consulting and advisory services for the Company which are included in the selling, general and administrative expenses in the accompanying consolidated statement of operations for the years then ended. As of March 31, 2024 and 2023, $0 and $22 was unpaid, respectively, which was included in accrued expenses as of the years then ended. Below are the directors of the Company that provided the consulting and advisory services:

Other

The Company has engaged Deliberate Software Limited (“Deliberate”) as a supplier for IT services amounting to $383 and $321 for the years ended March 31, 2024 and 2023, respectively, recognized within selling, general and administrative expenses. As of March 31, 2024 and 2023, $90 and $14 were unpaid and included in trade payables, respectively. A director of Deliberate is an immediate family member of Negin Yeganegy, the former Chief Executive Officer and director of PML during the year ended March 31, 2023. As of March 31, 2023, Deliberate held 100,351 shares of Series A preferred stock which were converted into 100,351 shares of common stock in connection with the closing of the initial public offering on February 12, 2024.

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 year ended March 31, 2023 was $22. A director of Sprk Capital Limited, Simon Nicholas Champ, is a shareholder of the Company. As of March 31, 2023, Simon Nicholas Champ held 19,570 shares of Series A preferred stock which were converted into 19,570 shares of common stock in connection with the closing of the initial public offering on February 12, 2024.

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 year ended March 31, 2024 was $56. 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.

19. SUBSEQUENT EVENTS

Employee Stock Plans

On June 18, 2024, the Company granted stock options to employees to purchase a total of 508,194 shares of Common Stock for services rendered and to be rendered. The options have an exercise price of $2.40 per share, expire in ten years, vesting in equal installments over four years from grant date, employment date, or the date the award was originally approved, but not granted. All the options were approved previously, but not issued to ensure compliance with UK statutory law. Our board re-approved the grants on June 18, 2024.

INDEX TO EXHIBITS

The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q, or are incorporated herein by reference, in each case as indicated below.

• Filed herewith

**Furnished herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.