UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number: 001-41930

Perfect Moment Ltd.

(Exact name of registrant as specified in its charter)

Delaware

86-1437114

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

307 Canalot Studios

222 Kensal Road

London, United Kingdom

W10 5BN

(Address of principal executive offices)

+44 (0)204 558 8849

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001		PMNT		NYSE American LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No

As of August 9, 2024 there were 15,713,690 shares of common stock, $0.0001 par value per share, outstanding.

PERFECT MOMENT LTD.

TABLE OF CONTENTS

		Page Number

Special Note Regarding Forward-Looking Statements		ii
PART I - FINANCIAL INFORMATION		2
Item 1. Condensed Financial Statements (Unaudited)		2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3. Quantitative and Qualitative Disclosures About Market Risk		33
Item 4. Controls and Procedures		33
PART II - OTHER INFORMATION		34
Item 1. Legal Proceedings		34
Item 1A. Risk Factors		34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		34
Item 3. Defaults Upon Senior Securities		34
Item 4. Mine Safety Disclosures		34
Item 5. Other Information		34
Item 6. Exhibits		35
Signatures		36

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy, and plans and objectives of management for future operations are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “toward,” “will,” or “would,” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

	●	our expectations regarding our revenue, expenses, profitability and other operating results;

	●	the growth rates of the markets in which we compete;

	●	the costs and effectiveness of our marketing efforts, as well as our ability to promote our brand;

	●	our ability to provide quality products that are acceptable to our customers;

	●	our reliance on key personnel and our ability to identify, recruit, and retain skilled personnel;

	●	our ability to effectively manage our growth, including offering new product categories and any international expansion;

	●	our ability to maintain the security and availability of our software;

	●	our ability to protect our intellectual property rights and avoid disputes in connection with the use of intellectual property rights of others;

	●	our ability to protect our users’ information and comply with growing and evolving data privacy laws and regulations;

	●	future investments in our business, our anticipated capital expenditures, and our estimates regarding our capital requirements;

	●	our ability to compete effectively with existing competitors and new market entrants; and

	●	our success at managing the risks involved in the foregoing.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and results of operations. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and our other filings with the SEC. Moreover, we operate in a very competitive environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information, actual results, revised expectations or the occurrence of unanticipated events, except as required by law.

In this Quarterly Report on Form 10-Q, references to “Perfect Moment,” “we,” “us,” “our,” and the “Company” refer to Perfect Moment Ltd. and its subsidiaries, unless the context indicates otherwise.

iii

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

PERFECT MOMENT LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

	June 30, 2024			March 31, 2024
	unaudited
Assets
Current assets:
Cash and cash equivalents	$	1,102		$	7,910
Restricted cash		2,850			-
Accounts receivable, net		307			1,035
Inventories, net		2,018			2,230
Prepaid and other current assets		2,386			742
Total current assets		8,663			11,917
Non-current assets:
Property and equipment, net		461			502
Operating lease right-of-use asset		119			143
Other non-current assets		46			47
Total non-current assets		626			692
Total Assets	$	9,289		$	12,609

Liabilities and Shareholders’ Equity
Current liabilities:
Trade payables	$	1,567		$	1,584
Accrued expenses		1,839			2,697
Operating lease obligations, current portion		93			101
Unearned revenue		1,031			420
Total current liabilities		4,530			4,802
Non-current liabilities:
Operating lease obligations, long-term portion		28			44
Total non-current liabilities		28			44
Total Liabilities		4,558			4,846

Shareholders’ equity:
Common stock; $0.0001 par value; 100,000,000 shares authorized; 15,653,449 shares issued and outstanding as of June 30, 2024 and March 31, 2024, respectively		1			1
Additional paid-in capital		57,194			56,824
Accumulated other comprehensive loss		(99	)		(85	)
Accumulated deficit		(52,365	)		(48,977	)
Total shareholders’ equity		4,731			7,763
Total Liabilities and Shareholders’ Equity	$	9,289		$	12,609

The accompanying notes are an integral part of these condensed consolidated financial statements

PERFECT MOMENT LTD AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Amounts in thousands, except share and per share data)

(Unaudited)

	Three Months Ended June 30, 2024			Three Months Ended June 30, 2023

Revenues:
Wholesale	$	52		$	31
Ecommerce		922			957
Total Revenue		974			988
Cost of goods sold		618			506
Gross Profit		356			482
Operating Expenses:
Selling, general and administrative expenses		3,298			2,482
Marketing and advertising expenses		453			709
Total operating expenses		3,751			3,191
Loss from operations		(3,395	)		(2,709	)

Other income (expense), net
Interest expense		(5	)		(374	)
Foreign currency transaction gains		12			410
Total other income (expense), net		7			36

Net loss		(3,388	)		(2,673	)

Other comprehensive gains/(losses)
Foreign currency translation (losses)/gains		(14	)		(388	)

Comprehensive loss	$	(3,402	)	$	(3,061	)

Net loss per share to common stockholders - basic and diluted	$	(0.22	)	$	(0.55	)
Weighted average number of common shares outstanding – basic and diluted		15,653,449			4,854,061

The accompanying notes are an integral part of these condensed consolidated financial statements

PERFECT MOMENT LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

THREE MONTHS ENDED JUNE 30, 2024 AND 2023

(Amounts in thousands, except share data)

(Unaudited)

	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Income (Loss)			Deficit			(Deficit)
	Preference Shares														Accumulated						Total
	Series A Convertible				Series B Convertible				Common Shares				Additional Paid-in		Other Comprehensive			Accumulated			Shareholders’ Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Income (Loss)			Deficit			(Deficit)
Balance - March 31, 2023		5,323,782	$	1		1,189,998	$	-		4,824,352	$	-	$	35,910	$	203		$	(40,255	)	$	(4,141	)
Stock compensation expense for employee vested options		-		-		-		-		-		-		10		-			-			10
Issuance of common stock for cash		-		-		-		-		154,186		-		818		-			-			818
Foreign currency translation adjustment		-		-		-		-		-		-		-		(388	)		-			(388	)
Net loss		-		-		-		-		-		-		-		-			(2,673	)		(2,673	)
Balance - June 30, 2023		5,323,782	$	1		1,189,998	$	-		4,978,538	$	-	$	36,738	$	(185	)	$	(42,928	)	$	(6,374	)

Balance - March 31, 2024		-	$	-		-	$	-		15,653,449	$	1	$	56,824	$	(85	)	$	(48,977	)	$	7,763
Balance		-	$	-		-	$	-		15,653,449	$	1	$	56,824	$	(85	)	$	(48,977	)	$	7,763
Stock compensation expense for employee vested options and restricted stock units		-		-		-		-		-		-		370		-			-			370
Foreign currency translation adjustment		-		-		-		-		-		-		-		(14	)		-			(14	)
Net loss		-		-		-		-		-		-		-		-			(3,388	)		(3,388	)
Balance - June 30, 2024		-	$	-		-	$	-		15,653,449	$	1	$	57,194	$	(99	)	$	(52,365	)	$	4,731
Balance		-	$	-		-	$	-		15,653,449	$	1	$	57,194	$	(99	)	$	(52,365	)	$	4,731

The accompanying notes are an integral part of these condensed consolidated financial statements

PERFECT MOMENT LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	June 30, 2024			June 30, 2023
	Three Months Ended
	June 30, 2024			June 30, 2023

Cash flows from operating activities:
Net loss	$	(3,388	)	$	(2,673	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		106			141
Bad debt expense		85			93
Inventory reserve		(163	)		-
Unrealized foreign exchange loss		-			(496	)
Stock based compensation cost – employees		370			10
Amortization of stock-based marketing services		-			185
Amortization of convertible debt finance costs		-			174
Accrued interest		-			200
Changes in operating assets and liabilities:
Accounts receivable		642			352
Inventories		375			6
Prepaid and other current assets		(1,645	)		(526	)
Operating lease right of use asset		24			98
Other non-current assets		1			-
Operating lease liability		(24	)		(98	)
Trade payables		(17	)		(304	)
Accrued expenses		(857	)		(220	)
Unearned revenue		611			2,255
Net cash used in operating activities		(3,880	)		(803	)

Cash flows from investing activities:
Purchases of property and equipment		(64	)		(29	)
Net cash used in investing activities		(64	)		(29	)

Cash flows from financing activities:
Repayment of trade finance facilities, net		-			(28	)
Proceeds from issuance of common shares, net		-			818
Advances for stock subscription		-			452
Net cash provided by financing activities		-			1,242

Effect of Exchange Rate Changes on Cash		(14	)		85
Net Change in Cash and Cash Equivalents and Restricted Cash		(3,958	)		495
Cash and Cash Equivalents and Restricted Cash – beginning of the period		7,910			4,712
Cash and Cash Equivalents and Restricted Cash – end of the period	$	3,952		$	5,207

The accompanying notes are an integral part of these condensed consolidated financial statements

PERFECT MOMENT LTD AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the three months ended June 30, 2024 and 2023

(Amounts in thousands, except share and per share data)

(Unaudited)

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 June 30, 2024, results of operations for the three months ended June 30, 2024 and 2023, consolidated statements of shareholders’ equity (deficit) for the three months ended June 30, 2024 and 2023, and cash flows for the three months ended June 30, 2024 and 2023. The Company’s results for the three months ended June 30, 2024 are not necessarily indicative of the results expected for the full year. You should read these statements in conjunction with our audited consolidated financial statements and management’s discussion and analysis and results of operations included in our Annual Report on Form 10-K (the “Form 10-K”) for the fiscal year ended March 31, 2024. The terms “fiscal 2025” and “fiscal 2024” refer to the Company’s fiscal year ending March 31, 2025 and fiscal year ended March 31, 2024, 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”), Perfect Moment USA, Inc., (“PMUSA”) 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 June 30, 2024, the Company has funded its operations with proceeds from the sale of common stock from the initial public offering, the issuance of common stock, convertible debt, and preferred stock, alongside existing trade, invoice and shareholder financing arrangements. The Company has incurred recurring losses, including a net loss of $3,388 for the three months ended June 30, 2024 and used cash in operations of $3,880 during the period. As of June 30, 2024, the Company had an accumulated deficit of $52,365.

These factors raise substantial doubt about the Company’s ability to continue as a going concern.

In addition, the Company’s independent registered public accounting firm, in its report on the Company’s consolidated financial statements for the year ended March 31, 2024, expressed substantial doubt about the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments that might result from this uncertainty.

Management’s plans to alleviate the conditions that raise substantial doubt include:

●

Taking out short-term loans, purchase order financing and debt factoring to assist with working capital shortfalls

	●	Exploring sources of long-term funding in the private markets and additional equity financing

	●	Closely monitoring the collection of debts

	●	Strategies and plans in place to deliver improved margins in the next financial year

The Company’s ability to continue as a going concern for 12 months from the date of 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.

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; 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 June 30, 2024 and March 31, 2024, the returns provision was $67 and $346, 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:

SCHEDULE OF REVENUE SPLIT

	June 30, 2024		June 30, 2023
	Three Months Ended
	June 30, 2024		June 30, 2023

Wholesale revenues	$	52	$	31
Ecommerce revenues		922		957
Total Revenues	$	974	$	988

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. 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:

- acquisition and production costs including raw material and labor as applicable;

- the cost incurred to deliver inventory to the Company’s third-party distribution centers including freight, non-refundable taxes, duty, and other landing costs;

- outbound duties; and

- reserves for inventory.

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 June 30, 2024 and March 31, 2024, the Company had $645 and $558, respectively, in allowances for doubtful accounts. Accounts Receivable, net of allowances, as of June 30, 2024 and March 31, 2024 was $307 and $1,035, 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 in one 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:

	June 30, 2024				June 30, 2023
	Three Months Ended
	June 30, 2024				June 30, 2023

Europe (excluding United Kingdom)	$	175	18	%	$	176	18	%
United States		367	38	%		306	31	%
United Kingdom		247	25	%		412	42	%
Rest of the World		185	19	%		94	9	%
Total Revenues	$	974			$	988

Long-lived assets

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 June 30, 2024 were $504 and $85 in the U.K. and Hong Kong, respectively. As of March 31, 2024, total long-lived assets were $557 and $98 in the U.K. and Hong Kong, respectively.

Supplier concentration

For the three months ended June 30, 2024 and 2023, the largest fabric supplier, Toray International Inc., supplied 52% and 79%, respectively, of the fabric used to manufacture the Company’s products.

Customer concentration

No single customer accounted for more than 10% of total revenue or accounts receivable for the three months ended June 30, 2024.

For the three months ended June 30, 2023, we had one major customer, which accounted for approximately 14% or $134 of total revenues individually and in aggregate. The related accounts receivable balance for this customer was approximately $190 as of June 30, 2023, and $219 as of March 31, 2023.

Selling, general and administrative expenses (“SG&A”)

SG&A 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, the service fees of the Company’s third-party fulfillment and distribution centers, 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 accounts for equity based awards according to 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 up until February 8, 2024. 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 Q1 2025 the company used the average of a peer group of 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 of zero.

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 for the three months ended June 30, 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.

	June 30, 2024		June 30, 2023
Options to acquire common stock		1,616,550		299,957
Restricted stock units to acquire stock		225,000		-
Warrants to acquire common stock		66,700		-
Series A convertible preferred stock		-		5,323,782
Series B convertible preferred stock		-		1,189,998
Convertible debt financing		-		2,387,894
Antidilutive securities		1,908,250		9,201,631

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 due on convertible debt plus accrued interest in the amount of $1,985 automatically converted into Company common stock, into an aggregate of 2,497,267 shares of common stock.

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:

	Level 1:	Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
	Level 2:	Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
	Level 3:	Pricing inputs that are generally observable inputs and not corroborated by market data.

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.

Reclassifications

The Company has reclassified certain costs totaling $377 previously classified as cost of sales for the three months ended June 30, 2023 to selling, general and administrative expenses to conform to the 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 ended 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”) 718 Compensation—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

NOTE 3. CASH

Cash consisted of the following as of June 30, 2024 and March 31, 2024.

SCHEDULE OF CASH

	June 30, 2024		March 31, 2024
		*$’000*		*$’000*
Cash and cash equivalents	$	1,102	$	7,910
Restricted cash		2,850		-
Total Cash	$	3,952	$	7,910

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 June 30, 2024, we have $2,850 of letters of credit issued to suppliers (see Note 6).

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.

SCHEDULE OF INVENTORY

	June 30, 2024			March 31, 2024
	*$’000*			*$’000*
Finished goods	$	2,304		$	2,680
Raw materials		716			721
Goods in transit		21			14
Finished goods on consignment		203			205
Total inventories		3,244			3,620
Inventory reserve		(1,226	)		(1,390	)
Total inventories, net	$	2,018		$	2,230

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 June 30, 2024 and March 31, 2024.

SCHEDULE OF PROPERTY AND EQUIPMENT

	June 30, 2024			March 31, 2024
	*$’000*			*$’000*
Furniture and fixtures	$	177		$	177
Office equipment		57			57
Leasehold improvements		29			29
Software and website development		1,948			1,886
Computer equipment		126			121
Total property and equipment		2,337			2,270
Accumulated depreciation		(1,876	)		(1,768	)
Total property and equipment, net	$	461		$	502

Depreciation expense related to property and equipment was $105 and $139 for the three months ended June 30, 2024 and 2023, respectively.

NOTE 6. 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 June 30, 2024 and March 31, 2024, the outstanding balance under the trade finance facility was $0, respectively, and the Company had an available trade finance facility of $5.0 million. As of June 30, 2024 and March 31, 2024, there was $2,850 and $0, respectively, in 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 has not utilized any borrowing under the facility as of June 30, 2024. The trade finance facility is also secured by a guarantee by Perfect Moment Ltd. in the amount of $2.0 million.

NOTE 7. COMMON STOCK

Common stock

There were no common stock transactions during the three months ended June 30, 2024.

During the three months ended June 30, 2023, the Company issued 154,186 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 $818, net of broker fees and expenses of $107. The holder 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 8. RESTRICTED STOCK UNITS

Restricted Stock Units

A summary of restricted stock unit activity for the three months ended June 30, 2024 is presented below.

						Weighted-
						Average
						Grant Date
	Shares		Fair Value			Fair Value

Non-vested at March 31, 2024		225,000	$	801		$	4.10
Granted		-		-			-
Vested/deemed vested		-		(77	)		-
Forfeited		-		-			-
Non-vested at June 30, 2024		225,000	$	724		$	4.10

The total fair value of restricted stock units that vested or deemed vested during the three months ended June 30, 2024 was $77 and is included in selling, general and administrative expenses in the accompanying statements of operations. As of June 30, 2024, the amount of unvested compensation related to issuances of restricted stock award was $724 which will be recognized as an expense in future periods as the shares vest.

NOTE 9. 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 periods ended June 20, 2024 and March 31, 2024 are presented below:

SCHEDULE OF STOCK OPTION ACTIVITY

					Weighted-
			Weighted-		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Options		Price		Life (Years)		Value

Outstanding at March 31, 2024		1,108,356		3.42		3.45		595
Granted		508,194		2.40		-		-
Forfeited		-		-		-		-
Exercised		-		-		-		-
Outstanding at June 30, 2024		1,615,550	$	3.10		3.30	$	350

Vested June 30, 2024		519,234	$	2.42			$	350

Exercisable at June 30, 2024		302,688	$	1.50			$	350

During the three months ended June 30, 2024, the Company granted stock options to employees to purchase 508,194 shares of common stock for services rendered. The options have an exercise price of $2.40 per share, expire in ten years, vesting equally over four years from June 18, 2024. The total fair value of these options at the grant date was approximately $1,188 using the Black-Scholes Option Pricing Model.

The total stock compensation expense recognized related to vesting of stock options for the three months ended June 30, 2024 and June 30, 2023 amounted to $293 and $10, respectively. As of June 30, 2024 the total unrecognized stock-based compensation was $2,657, which is expected to be recognized as part of operating expense through June 2028.

At June 30, 2024, the intrinsic value of the outstanding options under the 2021 Plan was $350.

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:

	Three Months Ended			Three Months Ended
	June 30, 2024			June 30, 2023

Expected life in years		10.0			-
Stock price volatility		138.4	%		0	%
Risk free interest rate		2.09	%		0	%
Expected dividends		0	%		0	%
Forfeiture rate		19	%		0	%

SEC Form 10-Q filed by Perfect Moment Ltd.