PMNT 10-K & 10-Q changes, risk factors and insider trading

For the fiscal years ended March 31, 20252026 and 2024,2025, our operating loss was $13,796,$5,240, and $7,675,$13,796, respectively. We intend to rely on debt and equity financing for working capital until positive cash flows from operations can be achieved, which may never occur. These matters raise substantial doubt about our ability to continue as a going concern. Based upon our current operating plan and assumptions, we expect that the net proceeds from the initial public offering and our existing cash balances and expected cash flows from operations, alongside the continuance of our existing financing arrangements, and the automatic conversion of the outstanding balance of the Notes upon the closing of the initial public offering will be sufficient to fund our operations for at least the next 12 months, excluding financing to support production (i.e. timing of working capital). However, our operating plan may change, and our assumptions may prove to be wrong, as a result of many factors currently unknown to us, and we could use our available capital resources sooner than we expect. We may need to seek additional funds sooner than planned, through public or private equity or debt financings or other third-party funding or a combination of these approaches. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or based upon specific strategic considerations.

The report of our independent registered public accounting firm that accompanies our audited consolidated financial statements for the fiscal years ended March 31, 20252026 and March 31, 20242025 contains a going concern explanatory paragraph in which such firm stated that there is substantial doubt about our ability to continue as a going concern. Our consolidated financial statements contained in this report do not include any adjustments that might result if we are unable to continue as a going concern. If we are unable to continue as a going concern, holders of our securities might lose their entire investment. Although based upon our current operating plan and assumptions, we expect that our existing cash balances and expected cash flows from operations, alongside the continuance of our existing financing arrangements will be sufficient to fund our operations for at least the next 12 months, excluding financing to support production (i.e. timing of working capital), the doubts raised relating to our ability to continue as a going concern may make our shares an unattractive investment for potential investors. These factors, among others, may make it difficult to raise any additional capital and may cause us to be unable to continue to operate our business.

We work with a group of approximately 1831 vendors that manufacture our products, 1724 of which produced products in the fiscal year ended March 31, 2025.2026. During the fiscal year ended March 31, 2025,2026, the largest single manufacturer,manufacturer produced approximately 39%31% of our products and substantially all of our products were manufactured in China.products. We work with a group of approximately 854 suppliers to provide the fabrics for our products. For the fiscal year ended March 31, 2025, the largest single supplier produced approximately 46% of the fabric for our products. During the fiscal year ended March 31, 2025, approximately 62% of our fabrics originated from China and 37% from Japan. We also source other raw materials which are used in our products, including items such as content labels, elastics, buttons, clasps and drawcords from suppliers located predominantly in the Asia Pacific region.

The price of raw materials depends on a wide variety of factors largely beyond the control of the Company. A shortage, delay or interruption of supply for any reason,reason could negatively impact our ability to fulfill orders and have an adverse impact on our financial results. In addition, while our suppliers, in turn, source from a number of sub-suppliers, we rely on a very small number of direct suppliers for certain raw materials. As a result, any disruption to these relationships could have an adverse effect on our business. Events that adversely affect our suppliers could impair our ability to obtain inventory in the quantities and at the quality that we require. Such events include difficulties or problems with our suppliers’ businesses, finances, labor relations, ability to import raw materials, costs, production, insurance and reputation, as well as natural disasters, public health emergencies or other catastrophic occurrences. A significant slowdown in the retail industry as a whole may also result in bankruptcies or permanent closures of some of our suppliers and third-party vendors. Furthermore, there can be no assurance that our suppliers will continue to provide fabrics and raw materials or provide products that are consistent with our standards. More generally, if we need to replace an existing supplier, additional supplies or additional manufacturing capacity may not be available when required on terms that are acceptable to us, or at all, and any new supplier may not meet our strict quality requirements. In the event we are required to find new sources of supply, we may encounter delays in production, inconsistencies in quality and added costs as a result of the time it takes to train our suppliers and manufacturers in our methods, products and quality control standards. Any delays, interruption or increased costs in the supply of our raw materials could have an adverse effect on our ability to meet customer demand for our products and result in lower revenue and profitability both in the short and long-term.

The functional currency of our foreign subsidiaries is generally the applicable local currency. Our consolidated financial statements are presented in U.S. dollars. Therefore, the net revenue, expenses, assets and liabilities of our foreign subsidiaries are translated from their functional currencies into U.S. dollars. Fluctuations in the value of the U.S. dollar affect the reported amounts of net revenue, expenses, assets and liabilities. Foreign exchange differences which arise on translation of our foreign subsidiaries’ balance sheets into U.S. dollars are recorded as a foreign currency translation adjustment in accumulated other comprehensive income or loss within stockholders’ (deficit) equity. We also have exposure to changes in foreign exchange rates associated with transactions which are undertaken by our subsidiaries in currencies other than their functional currency. Such transactions include intercompany transactions and inventory purchases denominated in currencies other than the functional currency of the purchasing entity. As a result, we have been impacted by changes in exchange rates and may be impacted for the foreseeable future. The potential impact of currency fluctuation increases as our international expansion increases. We are exposed to credit-related losses in the event of nonperformance by the counterparties to forward currency contracts used in our hedging strategies.

If we are unable to implement and maintain effective internal control over financial reportingreporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.

We will face increased legal, accounting, administrative and other costs and expenses as a public company that we did not incur as a private private company. The Sarbanes-Oxley Act, including the requirements of Section 404, as well as new rules and regulations subsequently implemented by the SEC and the Public Company Accounting Oversight Board impose additional reporting and other obligations on public companies. We expect that compliance with these public company requirements will increase our costs and make some activities more time-consuming. A number of those requirements will require us to carry out activities we have not done previously. For example, we will adopt new internal controls and disclosure controls and procedures. In addition, we will incur additional expense associated with our SEC reporting requirements. Furthermore, if we identify an issue in complying with those requirements (for example, if we or our accountants identify a material weakness or significant deficiency in our internal control over financial reporting), we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect us, our reputation or investor perceptions of us. We also expect that it will be difficult and expensive to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and train qualified people to serve on our board of directors or as executive officers. Advocacy efforts by stockholders and third parties may also prompt even more changes in corporate governance and reporting requirements. We expect that the additional reporting and other obligations imposed on us by these rules and regulations will increase our legal and financial compliance costs and administrative administrative fees significantly. These increased costs will require us to divert a significant amount of money that we could otherwise use to expand our business and achieve our strategic objectives.

Perfect Moment is a luxury lifestyle brand offering high-performance skiwearskiwear, swimwear and complementary apparel categories that merge technical functionality with fashion-led design. We develop collections for women, men, and children that reflect a combination of technical integrity, elevated aesthetics, and versatility across seasons and use cases.

We are focused on generating long-term, brand-right growth and improving profitability. During the fiscal year ended March 31, 2025,2026, we continued to scale our direct-to-consumer business, launched a new spring/summer capsule, and increased our annual style count from approximately 75 to over 200.capsule. We also implemented a tiered pricing architecture across key categories to support value perception and drive margin margin enhancement.

Adjusted EBITDA is a non-GAAP financial measure that displays our net loss from continuing operations, adjusted to eliminate the effect of certain items as described below. We define Adjusted EBITDA as net loss excluding interest expense, stock-based compensation expense, amortization of stock-based marketing services, depreciation and amortization, and income tax benefit (expense), depreciation andif amortization and stock-based compensation expense.any. Adjusted EBITDA is a measure that is not defined in US GAAP. We believe that it is useful to exclude these expenses because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations.

CostTotal of goods soldrevenue for the year ended March 31, 20252026 was $11,072$23,603 compared to $12,001$21,501 for the year ended March 31, 2024,2025, aan decreaseincrease of $929$2,102 or or 7.8%. The change in cost of goods sold is primarily attributed to strategic changes in ecommerce driven by less discounting and improvements in the supply chain.9.8%.

Our gross profit for the year ended March 31, 20252026 was $10,429$15,959 compared to $12,442$10,429 for the year ended March 31, 2024,2025, aan decreaseincrease of $2,013$5,530 or 16.2%.53.0%. Our gross margins were 67.6% compared to 48.5% achieved in the prior year.

Marketing and advertising expenses for the year ended March 31, 20252026 were $3,540$3,234 compared to $4,784$3,540 for the year ended March 31, 2024,2025, a decrease of $1,244$306 or 26.0%.8.6%. The decrease was primarily duereflects tothe reductionsimplementation of permanent cost-saving measures through optimized agency support, improved event planning, and a greater focus on in-house capabilities, resulting in agencya expensesmore efficient allocation of $920marketing and event costs of $400, partially offset by investments of $200 in brand awareness initiatives aimed at driving eCommerce revenue and sell-through, including advertising, photoshoots, and digital marketing.resources.

As of March 31, 2025,2026, we had cash and cash equivalents of $7,509, including restricted cash of $1,350$1,151 and an accumulated deficit of $64,916.$72,047. Historically, Perfectwe Momenthave hasgenerated generated negative cash flows from operations and hashave primarily financed itsour operations through private sales of equity securities, debt and working capital finance.finance facilities.

Our ability to fund inventory purchases, capital expenditures, and growth will depend on our ability to generate cash in the future. Our future ability to generate cash from operations is, to a certain extent, subject to general economic, financial, competitive, regulatory and other conditions. Based on our current level of operations, we believe our existing cash balances and expected cash flows from operations, alongside the continuance of our existing financing arrangements, will be sufficient to meet our operating requirements for at least the next 12 months, excluding financing to support production (i.e. timing of working capital). We may seek additional or alternative debt and equity financing to that set out above. If we raise equity financing, our shareholders may experience significant dilution of their ownership interests. If we conduct additional debt financing, the terms of such debt financing may be similar or more restrictive thatthan the terms of our current financing arrangementsarrangements, and we would have additional debt service obligations. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition and results of operations could be harmed. See the sections below titled “Risk Factors – Risks Related to Ownership of Our Common Stock – Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our 2021 Equity Incentive Plan, could result in additional dilution of the percentage ownership of our stockholders” and “Risk Factors – Risks Related to Our Business, Our Brand, Our Products and Our Industry – We have a history of losses, expect to continue to incur losses in the near term and may not achieve or sustain profitability in the future, and as a result, our management has identified and our auditors reported that there is a substantial doubt about our ability to continue as a going concern.”

During the year ended March 31, 2025, operating activities used $9,861 in cash and cash equivalents and restricted cash, primarily resulting from a net loss of $15,939, offset by non-cash chargesadjustments of $6,062$5,955 and a net cash inflow from changes in operating assets and liabilities of $123. Net cash used by changes in operating assets and liabilities was driven primarily by an increase in accrued expenses of $16.$1,536, an increase in prepaid expenses and other current assets of $1,493, an increase in trade payables of $1,010, an increase in inventories of $937. These outflows were partially offset by a decrease in unearned revenue of $155 and a decrease in accounts receivable of $160.

NetDuring cash obtained from financing activities during the year ended March 31, 20252025, wasfinancing $9,692,activities resultingprovided from $5,148$9,692 in cash and cash equivalents and restricted cash, primarily attributed to $5,792 of net proceeds from the issuanceshort term borrowings, $5,148 of preference shares, $2,000 in net proceeds from the issuance of apreference convertible note, $5,792 in net proceeds from short-term borrowingshares and warrants, $2,845 in of net proceeds from trade finance facilities, and $2,000 proceeds from a convertible note, offset by a $5,742 in repayment of short-termshort term borrowings and $351 in repayment of trade finance facilities.

As of March 31, 2025,2026, we had cash and cash equivalents of $1,151 compared to cash and cash equivalents of $6,159 and restricted cash of $1,350, compared to $7,910 and $nil $1,350 as of March 31, 2024.2025.

As of March 31, 2025,2026, we hadhas an available secured, committed revolving tradeline financeof facility,credit, which provides for borrowings up to $2,700. $10,000. We were in compliance with all associated covenants and there was an outstanding balance of $2,495$5,140 under the facilityrevolved as of March 31, 20252026 which was due Juneon 2025.March 30, 2028. Refer to Note 89 in Part II, Item 8 of this Form 10-K for further information regarding our trade finance facility.revolver.

Our expected short-term and long-term cash needs are primarily for working capital, including deposits with our suppliers. We expect to meet these short-term and long-term cash needs primarily with cash flows from operations and, if needed, borrowings from our existing creditrevolver. facilities. As of March 31, 2025,2026, we have $6,728$7,934 of minimum purchase obligations with our suppliers for our product lines that will be sold during the year ended March 31, 2026.2027.

We account for warrants as either equity- classified or liability classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing liabilities from equity (“ASC 480”), and ASC 815.815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own common shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of our control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance, modification, and as of each subsequent quarterly period end date while the warrants are outstanding.

The fair value of the stock awards issued to employees and nonemployees under the 2021 Plan prior to the IPO wasare estimated at each grant date using the Black-Scholes model which requires the input of the following subjective assumptions: (a) length of time grantees will retain their vested stock options before exercising them for employees and the contractual term of the option for nonemployees (“expected term”), (b) The volatility of our common stock price over the expected term, (c) expected dividends, (d) risk-free interest rate over the option’s expected term, and estimated forfeiture rate. A summary of our significant assumptions for the pre-IPO stock stock awards is as follows:

The fair value of our cash equivalents, held primarily in cash deposits, have not been significantly impacted by increases or decreases in interest rates to date, due to the short-term nature of these instruments. The interest expense associated with our letterrevolver of credit trade finance facility and debt factoring facilities are composed ofis a fixed spread over HIBOR or SOFR. The fee associated with revenue financing is fixed and the interest rate on our convertible bridge loan is accrued at a fixed rate also.rate. We are exposed to interest rate risk where the interest expense associated with our financing arrangements is depending upon HIBOR or SOFR, a floating reference rate, or in the event that the fixed interest rate associated with our financing arrangements is increased upon roll-over of the financing arrangement at its contractual maturity. Fluctuations in interest rates have not been significant to date. We do not expect that interest rates will have a material impact on our results of operations, owing to the size and short-term nature of the floating rate financing arrangements.operations.

Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described below and those described in “Part I, Item 1A. Risk Factors” in the Form 10-K and “Part II, Item 1A. Risk Factors” in the Form 10-Q for the quarter ended June 30, 2025.10-K. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, other than as set forth below, there were no material changes to the risks and uncertainties described in the section titled “Risk Factors” in Part I, Item 1A of the Form 10-K for our fiscal year ended March 31, 2025 and in Part II, Item 1A of the Form 10-Q for our quarters ended June 30, 2025 and September 30, 2025.2026.

We are focused on generating long-term, brand-right growth and improving profitability. During the ninethree months ended DecemberJune 31,30, 2025,2026, we we continued to scale our direct-to-consumer business, launched a new spring/summer capsule, opened a new European distribution hub in the Netherlands as part our global logistics transformation, and increased our annual style count from approximately 75 to over 200. We also implemented a tiered pricing architecture across key categories to support value perception and drive margin enhancement.

The following tablestable setsets forth our results of operations for the:

We analyze operational and financial data to evaluate our business, allocate our resources, and assess our performance. In addition to total net sales, net income (loss),loss, and other results under GAAP, the following information includes key operating metrics and non-GAAP financial measures measures that we use to evaluate our business. We believe that these measures are useful for period-to-period comparisons of the Company’s performance. We have included these non-GAAP financial measures in this Quarterly Report because they are key measures management uses to evaluate our operational performance, produce future strategies for our operations, and make strategic decisions, including those relating to operating expenses and the allocation of our resources. Accordingly, we believe that these measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors.

Adjusted EBITDA is a non-GAAP financial measure that displays our net income (loss) from continuing operations, adjusted to eliminate the effect of certain items as described below. We define Adjusted EBITDA as net income (loss) excluding interest expense, income tax benefit (expense), depreciation depreciation and amortization and stock-based compensation expense. Adjusted EBITDA is a measure that is not defined in US GAAP. We believe that it is useful to exclude these expenses because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations.

The $3,089$564 improvementdecrease in Adjusted EBITDA for the ninethree months ended DecemberJune 31,30, 2025,2026 compared to the same period in 2024,2025 was primarily driven by a $2,398$262 increasedecrease in gross profit, reflecting higherlower revenue and ana increasedecrease in gross margin from 53.6%60.3% to 62.7%.54.5%, along with higher legal and professional fees, payroll and related costs, and other operating expenses. The improvementmargin in gross margincontraction was mainly attributablelargely attributed to enhancementsa in the Company’s operating model and logistics execution, including more efficient supply chain and fulfillment processes and improved cost control. In addition, growthdecrease in partnership revenuerevenue, which contributedhad positivelybeen toin gross margin, with partnership revenue increasing to $375effect during the ninethree months ended DecemberJune 31,30, 2025, from $91 in the prior-year period, alongside a more favorable channel and product mix.2025.

Because of these limitations, you should consider the non-GAAP financial measures alongside other financial performance measures, including our net income (loss) and our other financial results presented in accordance with GAAP. You are encouraged to evaluate the above adjustments and and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Total revenue for the three months ended DecemberJune 31,30, 20252026 was $11,656, $1,150, compared to $11,658$1,472 for the same period in 2024,2025, a decrease of $2,$322, or 21.9%. 0.0%The and for the nine months ended December 31, 2025 was $17,891, compared to $16,466 for the same period in 2024, an increase of $1,425, or 8.7%. Growth for both periodsdecrease was primarily driven by contributions froma partnership revenues of $304 that were realized during the newthree partnershipmonths channel.ended June 30, 2025 that did not recur in the current period.

Cost of salesgoods sold

Cost of salesgoods sold for the three months ended DecemberJune 31,30, 20252026 was $4,148, $523, compared to $5,269$583 for the same period in 2024,2025, a decrease of $1,121,$60, or 21.3% and for the nine months ended December 31, 2025 was $6,674, compared to $7,647 for the same period in 2024, a decrease of $973, or 12.7%.10.3%. The decrease was primarily driven by improved inventory efficiency and disciplined cost management. The Company continues to focus on optimizing its supply chain and sourcing practices to support long-term margin expansion.

Gross profit for the ninethree months ended DecemberJune 31,30, 20252026 was $11,217,$627, compared to $8,819$889 for the same period in 2024,2025, ana increasedecrease of $2,398,$262, or 27.2%.29.5%. Gross margin decreased improved to 62.7%, up54.5% from 53.6%60.3% forin the sameprior-year periodperiod. The decrease was primarily attributable to a change in 2024.revenue mix, as the prior-year period benefited from higher-margin partnership revenue that did not recur in the current period. This increasewas reflectspartially offset by the favorable impact of channel mix, particularly growth inCompany’s higher-margin revenue channels, and our ongoingcontinued focus on disciplined pricingpricing, inventory management and supplysourcing chain reengineering.initiatives.

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

As of DecemberJune 31,30, 2025,2026, we had cash and cash equivalents of $1,567.$707, including an accumulated deficit of $75,580. Historically, we have generated negative cash flows from operations and have primarily financed our operations through sales of equity securities, issuance of debt instruments and working capital finance facilities.

Our ability to fund inventory purchases, capital expenditures, and growth will depend on our ability to generate cash in the future. Our future ability to generate cash from operations is, to a certain extent, subject to general economic, financial, competitive, regulatory and other conditions. Based on our current level of operations, we believe our existing cash balances and expected cash flows from operations, alongside the continuance of our existing financing arrangements, will be sufficient to meet our operating requirements for at least the next 12 months, excluding financing to support production (i.e. timing of working capital). We may seek additional or alternative debt and equity financing to that set out above. If we raise equity financing, our shareholders may experience significant dilution of their ownership interests. If we conduct additional debt financing, the terms of such debt financing may be similar or more restrictive thanthat the terms of our current financing arrangements and we would have additional debt service obligations. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition and results of operations could be harmed. See the sections included in our annual report filed on Form 10-K titled “Risk Factors – Risks Related to Ownership of Our Common Stock – Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our 2021 Equity Incentive Plan, could result in additional dilution of the percentage ownership of our shareholdersstockholders” and “Risk Factors – Risks Related to Our Business, Our Brand, Our Products and Our Industry – We have a history of losses, expect to continue to incur losses in the near term and may not achieve or sustain profitability in the future, and as a result, our management has identified and our auditors reported that there is a substantial doubt about our ability to continue as a going concern.”

During the ninethree months ended DecemberJune 31,30, 2024,2026, operating activities used $8,780 $3,246 in cash and cash equivalents and restricted cash,equivalents, primarily resulting from a net loss of $3,533, an adjustment to add back non-cash charges of $8,614, non-cash adjustments totaling $2,798$455 and a net cash outflow from changes in operating assets and liabilities of $2,964.$168. Net cash used by changes in operating assets and liabilities during the ninethree months ended DecemberJune 31,30, 20242026 consisted primarily of an increaseoutflow of cash from a decrease in inventorytrade payables of $2,039,$1,168 reflectingand higher stocka purchasesdecrease toin supportaccrued theexpenses upcomingof winter$619, season,partially asoffset well asby an inflow increaseof cash from a decrease in accounts receivable of $1,740, offset by$860, an increase in accrueddeferred expensesrevenue of $750.$378, a decrease in inventory of $141, a decrease in prepaid and other current assets of $98, and a decrease in other non-current assets of $74.

Cash Flows Provided by (Used in) Financing Activities

During the ninethree months ended DecemberJune 31,30, 2025,2026, financing activities provided $3,275$2,860 in cash and cash equivalents, primarily attributed to $2,000 $4,050 of net proceeds from the sale of our common stock,stock $1,330and $860 of net proceeds from shortour term borrowings, and $5,590line of net proceedscredit from the issuance of notes payable towith related parties, offset by a $4,725 repayment of short term borrowings, $2,495 repayment of trade finance facility, and $475 payment of dividends on our Series AA Convertible Preferred Stock.parties.

During the ninethree months ended DecemberJune 31,30, 2024,2025, financing activities providedused $5,321$466 in cash and cash equivalents and restricted cash,equivalents, primarily attributed to $4,604$2,538 of net proceeds from the sale of our common stock, $1,330 of net proceeds from short term borrowings, $2,849and $500 of net proceeds fromrelated tradeto the financeissuance facilities, and $2,000 proceeds fromof a convertiblenote note,payable to a related party, offset by a $3,846$2,241 repayment of short term borrowings, $139 payment of deferred offering costs and a $147$2,495 repayment of trade finance facilities, facilities.and $98 payment of dividends on our Series AA Convertible Preferred Stock.

As of June 30, 2026, our sales-related reserves were $0.2 million compared to $0.3 million as of March 31, 2026. The most significant variable affecting these reserve balances is sales levels. As a percentage of Net sales, the sales reserves balances were 16.8% as of June 30, 2026 compared to 1.4% as of March 31, 2026. The reserve for returns from customers is the component of our sales-related reserves most susceptible to estimation uncertainty. These estimates are based on 1) historical rates of product returns and claims; and 2) events and circumstances that indicate changes to such historical rates are warranted, such as our customers’ inventory positions and their anticipated sell-through rates. However, actual returns and claims in any future period are inherently uncertain and thus may differ from our estimates. As a result, we adjust our estimates of revenue at the earlier of when the most likely amount of consideration we expect to receive changes or when the amount of consideration becomes fixed. If actual or expected future returns and claims are significantly different than the sales reserves established, we record an adjustment to Net sales in the period in which such determination was made.

We account for warrants as either equityequity- classified or liability classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing liabilities from equity (“ASC 480”), and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own common shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of our control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance, modification, and as of each subsequent quarterly period end date while the warrants are outstanding.

For recent accounting pronouncements, see Note 2 of our audited consolidated financial statements included in this Quarterly Report and Note 2 of our unaudited condensed consolidated financial statements included in this Form 10-Q.