Going concern and management’s plan

As of June 30, 2023, the Company had an accumulated deficit of British pound sterling (“GBP”) 6,152,977 and a working capital deficit of GBP9,014,983 (US$11,394,939), and its net cash used in operating activities for the year ended June 30, 2023 was GBP629,591 (US$795,803). These circumstances gave rise to substantial doubt that the Company would continue as a going concern subsequent to June 30, 2023.

As of June 30, 2024, the Company had an accumulated deficit of GBP7,261,982 (US$9,179,601) and a working capital deficit of GBP5,074,436 (US$6,414,069), and its net cash used in operating activities for the year ended June 30, 2024 was GBP1,433,326 (US$1,811,724). Accordingly, as of the date of these consolidated financial statements, there is still substantial doubt that the Company will continue as a going concern. Management plans to continue to focus on improving operational efficiency and cost reductions. Additionally, the Company plans to raise capital via private placement or public offering in the event that the Company does not have adequate liquidity to meet its current obligations.

The accompanying audited consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These audited consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

Use of estimates and assumptions

Use of estimates and assumptions

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could vary from the estimates and assumptions that were used.

Convenience translation

Convenience translation

Translations of the consolidated balance sheets, consolidated statements of loss and comprehensive loss, and consolidated statements of cash flows from GBP into US$ as of and for the year ended June 30, 2024 are solely for the convenience of the reader and were calculated at the rate of US$1 = GBP0.7911, as published in the H.10 statistical release of the United States Federal Reserve Board. No representation is made that the GBP amounts could have been, or could be, converted, realized or settled into US$ at such a rate.

Revenue recognition

Revenue recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, and subsequently-issued additional related Accounting Standards Updates (collectively, “ASC 606”). The Company derives revenue principally from the provision of end-to-end customized solutions and services involving the retrofitting of existing infrastructure to reduce CO2 emissions and reduce costs for the customer, and the sale of energy-saving products such as lighting products and fixtures. The Company enters into agreements with customers that create enforceable rights and obligations and for which it is probable that the Company will collect the consideration to which it will be entitled as services are transferred to the customer. It is a customary practice for the Company to have written agreements with its customers, and revenue from oral or implied arrangements is generally not recognized. The Company recognizes revenue based on the considerations specified in the applicable agreement.

Revenue from contracts with customers is recognized using the following five steps:

	1.	identify the contract(s) with a customer;
	2.	identify the performance obligations in the contract;
	3.	determine the transaction price;
	4.	allocate the transaction price to the performance obligations in the contract; and
	5.	recognize revenue when (or as) the entity satisfies a performance obligation.

Generally, revenue is recognized when the Company has negotiated the terms of the transaction, which includes determining either the overall price, or the price for each performance obligation in the form of a service or a product, the service or product has been delivered to the customer, no obligation is outstanding regarding that service or product, and the Company is reasonably assured that funds have been or will be collected from the customer.

The Company currently generates its revenue from the below sources:

(a) Retrofit revenue

The Company generates revenue from retrofit projects. The Company typically sells its lighting systems as replacements for its customers’ existing lighting fixtures. This replacement process is referred to as “retrofit.” The business process entails: consultancy and advice to customer; site selection, survey and real-time audit; data collection, analysis and benchmarking; technical and financial proposals; project management and system design; produce procurement and installation; and measurement and verification. The Company’s customers include public and private organizations, including universities, schools, hospitals, and electrical distributors in the United Kingdom. The Company is typically contracted through an invitation to tender from or corporate negotiation with existing or potential customers in the United Kingdom. The Company recognizes revenue using the percentage-of-completion method, based primarily on contract costs incurred to date compared to total estimated contract costs. The percentage-of-completion method (an input method) is the most representative depiction of the Company’s performance because it directly measures the value of the services or products transferred to the customer. Direct materials and labor are included in revenues and cost of revenues when management believes that the Company is acting as a principal rather than an agent (e.g., the Company integrates the materials and labor into the deliverable promised to the customer or is otherwise primarily responsible for fulfillment and acceptability of the materials and labor). The performance obligation is the transfer of control of the completed products which is not divisible and separately identifiable; the Company provides value added services by integrating the goods and services into a single product for which the customer has contracted. As such, the Company’s contracts typically contain one single performance obligation to complete which is a defined retrofit project. The Company currently does not have any modifications to its existing contracts and the contracts currently do not include any variable consideration. The transaction price is clearly identifiable within sales contracts. Historically, any contract acquisition costs have been considered immaterial; in the event that such costs may arise, the Company will treat the costs incurred as periodic costs.

Recognition of revenue and cost of revenue for retrofit projects requires significant judgment by management, including, among other things, estimating total costs expected to be incurred to complete a project and measure progress toward completion. Management reviews contract estimates regularly to assess revisions of estimated costs to complete a project and measurement of progress toward completion. Management believes it maintains reasonable estimates based on prior experience; however, many factors contribute to changes in estimates of contract costs. Accordingly, estimates made with respect to uncompleted projects are subject to change as each project progresses and better estimates of contract costs become available. All contract costs are recorded as incurred, and revisions to estimated total costs are reflected as soon as the obligation to perform is determined. In the event that estimated losses on uncompleted contracts may occur based on evidence that indicates that the estimated total cost of a contract exceeds its estimated total revenue, regardless of the stage of completion, a provision for the loss of the full amount will be recognized as the result of operations. Contract costs consist of (i) direct costs on contracts, including labor, materials, and amounts payable to subcontractors and (ii) indirect costs.

The Company’s contracts set forth payment terms that require the customer to make payment within 30 days of billing which is triggered by the Company reaching the milestone to bill the customer. Management does not believe that its contracts include a significant financing component because the period between delivery of the contracting services to the customer and the time of payment does not typically exceed one year. The Company has elected to apply the practical expedient in paragraph ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

The Company generally provides limited warranties for work that has been performed under its engineering and construction management contracts; these warranty periods are known as the defect liabilities periods (“DLP”). The DLP typically extends for a duration of one year from the substantial completion of the project for the customer. Historically, warranty claims have not resulted in significant costs. Contracts will include a provision whereby the customer will withhold 2% to 5% of the total contract value until the end of the DLP at which point the customer will release the retention amounts to the Company.

The Company has no obligations for returns, refunds or similar obligations for its projects with customers. For the years ended June 30, 2023 and 2024, the Company is not aware of any material claims against the Company in relation to the retrofit services provided. As of June 30, 2023 and 2024, the provisions for warranty cost were GBP569 (US$719) and GBP909 (US$1,149), respectively, and included in the accruals and other payables of consolidated balance sheets.

(b) Product revenue

The Company also generates revenue from sales of lighting products and fixtures. The Company typically receives purchase orders from its customers which set forth the terms and conditions including the transaction price, products to be delivered, terms of delivery, and terms of payment. The terms serve as the basis of the performance obligations that the Company must fulfill to recognize revenue. The key performance obligation is the delivery of the finished product to the customer at its specified location at which point title to that asset passes to the customer. The completion of this earning process is evidenced by a written customer acceptance indicating receipt of the product. A typical payment term set forth is 30 days from the invoice date.

The Company has elected to apply the practical expedient to recognize the incremental costs of obtaining a contract as an expense if the amortization period of the asset would have been one year or less.

The Company has elected to treat shipping and handling costs undertaken by the Company after the customer has obtained control of the related goods as a fulfillment activities and present them as transportation costs in selling and marketing expenses.

The transaction price does not include variable considerations related to returns or refunds as the contracts do not include provisions that allow for sales refunds or returns of products. For the years ended June 30, 2023 and 2024, the Company is not aware of any material claims against the Company in relation to the sale of lighting products and fixtures. As of June 30, 2023 and 2024, the provisions for warranty cost were immaterial.

Contract related assets and liabilities are classified as current assets and current liabilities. Significant balance sheet accounts related to the revenue cycle are as follows:

Contract assets, net

Contract assets, net

Contract assets, net are recorded when the progress to completion of revenue earned on contracts exceeds amounts actually billed under the contract.

Retention receivables, net

Retention receivables, net

Part of the contract sum, or retention revenue, is to be withheld at the end of a project for the limited warranties of work performed under its engineering and construction management contracts to ensure that the Company meets the contract requirements. Once the DLP started, the Company recognized retention receivables. The retention receivables will be transferred to contract receivables once the DLP is ended and signed off by the customer.

Prepayments and other receivables, net

Prepayments and other receivables, net

Prepayments and other receivables consist of cash advanced to suppliers for purchasing goods or services that have not been received or provided to the Company and prepayments to professional parties for IPO. Cash advanced to suppliers is refundable and bears no interest. Prepayments are classified as either current or non-current based on the terms of the respective agreements. These advances are unsecured and reviewed periodically to determine whether their carrying value has become impaired.

Inventories, net

Inventories, net

Inventories mainly consist of merchandise available for sale. They are accounted for using the first in first out method and stated at the lower of cost and net realizable value. The Company evaluates the need for impairment associated with obsolete, slow-moving, and non-saleable inventories by reviewing net realizable values on a periodic basis but at least annually. Only defective products are eligible for return to the material suppliers.

Property and equipment, net

Property and equipment, net

Property and equipment are stated at cost net of accumulated depreciation and impairment losses. Depreciation is provided over the estimated useful lives of the assets using the straight-line method from the time the assets are placed in service. Estimated useful lives are as follows:

Classification		Estimated useful life
Leasehold property		30 years
Office equipment		2-5 years
Motor vehicle		1-3 years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated statements of loss and comprehensive loss. Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to earnings as incurred, while additions, renewals and betterments, which are expected to extend the useful life of assets, are capitalized.

Financial instruments

Financial instruments

The Company accounts for hybrid contracts that contain options in accordance with U.S. GAAP. ASC 815 “Derivatives and Hedging Activities,” (“ASC 815”) requires companies to bifurcate options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

The Company accounts for financial instruments (when the Company has determined that the embedded conversion options should be bifurcated from their host instruments) in accordance with ASC 815. Under ASC 815, a portion of the proceeds received upon the issuance of the hybrid contract are allocated to the fair value of the derivative. The derivative is subsequently marked to market at each reporting date based on the current fair value, with the changes in fair value reported in the consolidated statements of loss and comprehensive loss.

Leases

Leases

ROU assets represent the rights to use underlying assets for the lease terms and lease liabilities represent the obligation to make lease payments arising from the leases. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term, reduced by lease incentives received, plus any initial direct costs, using the discount rate for the lease at the commencement date. If the implicit rate is not readily determinable for the operating leases, the Company generally uses the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has elected not to separate non-lease components from lease components; therefore, it will account for lease component and the non-lease components as a single lease component when there is only one vendor in the lease contract for the office leases. Lease payments are fixed.

For operating leases, lease expense is recognized on a straight-line basis in operations over the lease term.

Any lease with a term of 12 months or less is considered short-term. As permitted by ASC 842, short-term leases are excluded from the ROU asset and lease liabilities on the consolidated balance sheets.

Accounts payable

Accounts payable

Accounts payable represent trade payables to vendors.

Employee benefit plan

Employee benefit plan

Payments to the Mandatory Provident Fund Scheme under the Hong Kong Mandatory Provident Fund Schemes Ordinance and state-managed retirement benefit schemes in other jurisdictions are recognized as an expense when employees have rendered service entitling them to the contributions.

Cost of revenues

Cost of revenues

Cost of revenues consists of subcontracting fees, staff costs, material costs, and other indirect costs. The subcontracting fee includes both subcontracting costs and other outside costs associated with performance under contracts with customers. Staff costs represent the portion of salaries and wages incurred in connection with the production of deliverables under contracts with customers. Performance under contracts does not involve significant machinery or other long-term depreciable assets.

General and administrative expenses

General and administrative expenses

General and administrative expenses primarily consist of personnel-related compensation expenses, including salaries and related social insurance costs for operations and supporting personnel, depreciation, professional services fees, utilities, office expenses, and expenses related to general operations.

Government subsidies

Government subsidies

Government subsidies are recognized as income in other income, net or as a reduction of specific costs and expenses for which the subsidies are intended to compensate. Such amounts are recognized in the consolidated statements of loss and comprehensive loss upon receipt and when all conditions attached to the grants, such as companies being required to stay at the same level of employment, are fulfilled. Such subsidies are presented under other income. During the years ended June 30, 2023 and 2024, the Company recognized government subsidies of GBP38,737 (US$48,964) and nil, respectively, as other income in its consolidated statements of loss and comprehensive loss.

VAT

VAT

The Company is subject to VAT and related surcharges on revenue generated from sales of products. The Group records revenue net of VAT. Entities that are VAT general taxpayers are allowed to offset qualified input VAT, paid to suppliers against their output VAT liabilities. The standard applicable rate of the United Kingdom VAT is 20% for the years ended June 30, 2023 and 2024.

Commitments and contingencies

Commitments and contingencies

In the normal course of business, the Company is subject to contingencies, including legal proceedings and claims arising out of the business that relate to a wide range of matters, such as government investigations and tax matters. The Company recognizes a liability for such contingency if it determines it is probable that a loss has occurred, and a reasonable estimate of the loss can be made. The Company may consider many factors in making these assessments including historical and the specific facts and circumstances of each matter.

Recently issued accounting pronouncements

Recently issued accounting pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The disclosures requirements included in ASU 2023-07 are required for all public entities, including those with a single reportable segment. ASU 2023-07 is effective for annual periods beginning after December 15, 2024, on a retrospective basis, and early adoption is permitted. The Company is currently evaluating the potential impact of ASU 2023-07 on its consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 720): Improvements to Income Tax Disclosures (“ASU 2023-09”), which prescribes standard categories for the components of the effective tax rate reconciliation and requires disclosure of additional information for reconciling items meeting certain quantitative thresholds, requires disclosure of disaggregated income taxes paid, and modifies certain other income tax-related disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 and allows for adoption on a prospective basis, with a retrospective option. The Company is currently evaluating the potential impact of the adoption of ASU 2023-09 on its consolidated financial statements.

Except for the above-mentioned pronouncements, there are no new recently issued accounting standards that will have a material impact on the consolidated balance sheets, statements of operations and comprehensive loss and cash flows.