NOTE 2 – Summary of significant accounting policies

Basis of presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities Exchange Commission (“SEC”).

Principles of Consolidation

The condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All intercompany transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation.

Use of estimates

The preparation of condensed 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information as of the date of the condensed consolidated financial statements and are adjusted to reflect actual experience when necessary. Actual results could differ from these estimates.

Commitments and contingencies

The Group follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Group but which will only be resolved when one or more future events occur or fail to occur. The Group assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Group or un-asserted claims that may result in such proceedings, the Group evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Group’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Group’s condensed consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Group’s business, financial position, and results of operations or cash flows. 

Revenue recognition

The Group sells Australian-branded nutrition, health, and wellness products and provides social media digital marketing and video production service to its customers. The Group has adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and all subsequent ASUs that modified ASC 606. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, the Group applies the following steps:

Product sales

The Group generates revenue through the product sale of Australian-branded nutrition, health, and wellness products to its customers and recognizes revenue when control is transferred to customers, in an amount that reflects the consideration the Group expects to be entitled to in exchange for the goods and is recorded net of value-added tax (“VAT”). For Australian-branded nutrition, health, and wellness products sales, the Group believes the single performance obligation is satisfied upon delivery of goods to customers which is considered at the point in time, and all the risks and benefits of the transaction has been passed to the customer and the Group does not have any further performance obligation. The revenue is therefore recognized at the point in time when goods are delivered to customers. The Group’s contracts with customers are primarily on a fixed-price basis. The Group recognizes the revenue from Australian-branded nutrition, health, and wellness products sales on a gross basis as the Group is acting as a principal in these transactions and is responsible for fulfilling the promise to provide the specified goods.

Service revenue

The Group also generates revenue through charging service fees on a fixed-price basis from customers for providing social media digital marketing and video production service, where the Group’s performance obligation is to provide social media digital marketing and video production service assisting its customers on marketing efforts. Service revenue is recognized at the point in time when the customers acknowledge and accept the service.

Contract balances

Accounts receivable represent revenue recognized when the Group has satisfied the Group’s performance obligation and has the unconditional rights to payment. Unearned revenue consists of payments received or awards to customers related to unsatisfied performance obligation at the end of the period, included in advance from customers in the Group’s condensed consolidated balance sheets with the balance of $Nil and $10,000 as of June 30, 2025 and December 31, 2024, respectively. For the three months ended June 30, 2025 and 2024, $Nil and $Nil of revenue recognized was included in the Group’s advance from customers’ balance as of December 31, 2024 and 2023. For the six months ended June 30, 2025 and 2024, $10,000 and $Nil of revenue recognized was included in the Group’s advance from customers’ balance as of December 31, 2024 and 2023.

Disaggregation of revenue

For three months and six months ended June 30, 2025 and 2024, the disaggregation of revenue by major revenue streams is as follows:

The company recognizes revenue based on the location of the customer at the time of sale or service delivery.

Cost of revenues

The Group’s product cost includes purchase price, shipping cost and warehousing cost for Australian-branded nutrition, health, and wellness products. The Group’s service cost includes salaries of staff providing social media digital marketing and video production service, as well as direct advertising expenses incurred to execute client campaigns.

Income Tax Provisions 

The Group accounts for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the condensed consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes have been incurred for the three months and six months ended June 30, 2025 and 2024.

Cash and cash equivalents

Cash and cash equivalents primarily consist of bank deposits, which includes deposits with original maturities of three months or less with commercial banks. The Group’s cash and cash equivalents are not subject to any restrictions.

Accounts Receivable

Accounts receivables include trade accounts due from customers. The Group maintains an allowance for credit losses which reflects its best estimate of amounts that potentially will not be collected. The Group determines the allowance for credit losses taking into consideration various factors including but not limited to historical collection experience and credit-worthiness of the debtors as well as the age of the individual receivables balance. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires the Group to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net income. The Group adopted this guidance effective January 1, 2023. The Group makes specific bad debt provisions based on management’s best estimates of specific losses on individual exposures, as well as a provision on historical trends of collections and future economic conditions (extend data and macroeconomic factors). Account balances are charged off against the allowance after all means of collection have been exhausted and the likelihood of collection is not probable. As of June 30, 2025 and December 31, 2024, the Group does not consider an allowance for doubtful accounts to be necessary.

Deposits, prepayments and other receivables

Deposits, prepayments and other receivables primarily consist of input GST tax, rental deposit and prepayments for services, which are presented net of allowance for doubtful accounts. Prepayment and other assets are classified as either current or non-current based on the terms of the respective agreements. The Group maintains a provision for doubtful accounts to state prepayments at their estimated realizable value based on a variety of factors, including the possibility of releasing the prepayments into service and historical experience. As of June 30, 2025 and December 31, 2024, no provision for doubtful accounts for deposits, prepayments and other receivables was made.

Fair Value of Financial Instruments

ASC 825-10 requires certain disclosures regarding the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Unless otherwise disclosed, the fair value of the Group’s financial instruments, including cash and cash equivalents, account receivable, net, deposits and other receivables, due from a related party, accounts payable, other payables, due to related parties, approximates their recorded values due to their short-term maturities.

Basic and diluted earnings (loss) per shares

The Group computes earnings per share, in accordance with ASC Topic 260, Earnings Per Share, which requires dual presentation of basic and diluted earnings per share. Basic earnings per share is computed by dividing net income or loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income or loss by the weighted average number of common shares outstanding, plus the issuance of common shares, if dilutive, that could result from the exercise of outstanding convertible shares stock options and warrants.

The Group incurred a net loss of $9,920 and $269 for the three months ended June 30, 2025 and 2024. Therefore, the effect of convertible preferred stock outstanding is anti-dilutive during the three months ended June 30, 2025 and 2024. As of both June 30, 2025 and June 30, 2024, the Company had 2,083,333 shares of convertible preferred stock outstanding. On June 30, 2025 and 2024 the potentially dilutive shares were excluded from diluted loss per share because of their anti-dilutive effect.

The Group incurred a net loss of $22,722 and a net profit of 3,117 for the six months ended June 30, 2025 and 2024. Therefore, the effect of convertible preferred stock outstanding is anti-dilutive during the six months ended June 30, 2025. As of both June 30, 2025 and June 30, 2024, the Company had 2,083,333 shares of convertible preferred stock outstanding. On June 30, 2025 the potentially dilutive shares were excluded from diluted loss per share because of their anti-dilutive effect.

The following is an analysis of the differences between basic and diluted earnings per common share. For the three months ended June 30, 2025 and 2024.

The following is an analysis of the differences between basic and diluted earnings per common share. For the six months ended June 30, 2025 and 2024.

Comprehensive income/(loss)

ASC Topic 220, Comprehensive Income, establishes standards for reporting comprehensive income and its components. Comprehensive income or loss is defined as the change in equity during a period from transactions and other events from non-owner sources. The component of comprehensive loss totalling $1,981 and comprehensive loss totalling $76 for the six months ended June 30, 2025 and 2024, respectively, related to foreign currency translation adjustment. The component of comprehensive loss totalling $1,827 and comprehensive income totalling $77 for the three months ended June 30, 2025 and 2024, respectively, related to foreign currency translation adjustment.

Segment reporting

The Group follows ASC 280, “Segment Reporting” The Group’s Chief Executive Officer or chief operating decision-maker reviews the condensed consolidated financial results when making decisions about allocating resources and assessing the performance of the Group as a whole and hence, the Group has only one reportable segment.

Foreign Currencies

The functional currencies of the Group are the local currency of the countries in which the subsidiaries operate. The Group’s condensed consolidated financial statements are reported using U.S. Dollars. The results of operations and the condensed consolidated statements of cash flows denominated in foreign currencies are translated at the average rates of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect on that date. The equity denominated in the functional currencies is translated at the historical rates of exchange at the time of capital contributions. Because cash flows are translated based on the average translation rates, amounts related to assets and liabilities reported on the condensed consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the condensed consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component in accumulated other comprehensive income included in condensed consolidated statements of changes in shareholders’ equity. Gains and losses from foreign currency transactions are included in the condensed consolidated statement of income and comprehensive income.

The Group operates primarily in Australia and Taiwan, with Taiwan functioning as a branch of Wombat Australia. The entire management team is primarily based in Australia. Accordingly, Wombat Australia’s functional currency is the Australian Dollar (“AUD”). The Group’s condensed consolidated financial statements have been translated into the reporting currency of U.S. Dollars (“US$”).

Rates that were used in creating the condensed consolidated financial statements:

Leases

The Group accounts for leases in accordance with ASC Topic 842, Lease. Operating lease right-of-use assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Group uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is presented on the condensed consolidated statements of operations.

As permitted under ASC Topic 842, the Group has made an accounting policy election not to apply the lease recognition provision to short term leases (leases with a lease term of 12 months or less that do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise); instead, the Group will recognize the lease payments for short term leases on a straight-line basis over the lease term.

Concentrations of risks

Assets that potentially subject the Group to a concentration of credit risk primarily consist of cash, accounts receivable and other current assets. The maximum exposure of such assets to credit risk is their carrying amounts as at the balance sheet dates. As of June 30, 2025 and December 31, 2024, the aggregate amount of cash of $6,792 and $17,409, respectively, was held at major financial institutions in Australia and Taiwan, where there are AUD 250,000 in Australia and TWD 3,000,000 in Taiwan deposit insurance limit for a legal entity’ balance at major financial institutions in Australia and Taiwan. To limit the exposure to credit risk relating to deposits, the Group primarily places cash deposits with large financial institutions. As a result, the amounts not covered by Australian Prudential Regulation Authority and Central Deposit Insurance Corporation were nil and nil as of June 30, 2025 and December 31, 2024. The Group conducts credit evaluations of its customers and suppliers, and generally does not require collateral or other security from them. The Group establishes an accounting policy to provide for allowance for doubtful accounts based on the individual customer’s and supplier’s financial condition, credit history, and the current economic conditions.

In the six months ended June 30, 2025, two third party customers accounted for 65% and 18% of the Company’s revenues, respectively. One related party customer accounted for 10% of the Company’s revenues. In the six months ended June 30, 2024, two related party customers accounted for 74% and 26% of the Company’s revenues, respectively. No other customer accounted for more than 10% of the Company’s revenues for the six months ended June 30, 2025 and 2024.

In the three months ended June 30, 2025, two third party customers accounted for 42% and 35% of the Company’s revenues, respectively. One related party customer accounted for 19% of the Company’s revenues. In the three months ended June 30, 2024, one related party customer accounted for 100% of the Company’s revenues.

In the six months ended June 30, 2025, one third-party supplier accounted for 100% of the Company’s purchases. In the six months ended June 30, 2024, one third-party supplier accounted for 100% of the Company’s purchases. No other suppliers accounted for more than 10% of the Company’s purchases for the six months ended June 30, 2025 and 2024.

In the three months ended June 30, 2025, one third-party supplier accounted for 100% of the Group’s purchases. In the three months ended June 30, 2024, the Company’s purchases is nil, respectively.

As of June 30, 2025, one third party customer accounted for 100% of the Group’s accounts receivable. As of December 31, 2024, one third party customer accounted for 100% of the Group’s accounts receivable.

As of June 30, 2025, one third party supplier accounted for 100% of the Group’s accounts payable. As of December 31, 2024, the Group's accounts payable balance is nil.

Foreign currency transaction gains and losses represent gains and losses resulting from transactions entered into in a currency other than the functional currency of the Group. These transaction gains and losses, if any, are included in results of operations.

Recent Accounting Pronouncements

The Group considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires the Group to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net income. In November 2018, April 2019 and May 2019, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments — Credit Losses,” “ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments — Credit Losses,” “Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” and “ASU No. 2019-05, Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief,” which provided additional implementation guidance on the previously issued ASU. The ASU is effective for fiscal years beginning after Dec. 15, 2019 for public business entities that meet the definition of an SEC filer, excluding entities eligible to be SRCs as defined by the SEC. All other entities, ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2022. The adoption of this guidance did not have a material impact on the Group’s condensed consolidated financial statements.

In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”). This ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The amendments are effective for the Group beginning after December 15, 2023, and are applied prospectively to business combinations that occur after the effective date. The adoption of this guidance did not have a material impact on the Group’s condensed consolidated financial statements.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment’s profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2023. The Group adopted ASU 2023-07 as of January 1, 2024. The adoption of this guidance did not have a material impact on the Group’s condensed consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures” which is intended to simplify various aspects related to accounting for income taxes. ASU 2023-09 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The amendments in ASU 2023-09 are effective for public business entities for fiscal years beginning after December 15, 2024, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Group is currently evaluating the adoption of this guidance whether or not a material impact on the Group’s condensed consolidated financial statements.

In March 2024, the FASB issued ASU 2024-01, “Compensation — Stock Compensation (Topic 718) — Scope Application of Profits Interest and Similar Awards” (“ASU 2024-01”), which intends to improve clarity and operability without changing the existing guidance. ASU 2024-01 provides an illustrative example intended to demonstrate how entities that account for profits interest and similar awards would determine whether a profits interest award should be accounted for in accordance with Topic 718. Entities can apply the guidance either retrospectively to all prior periods presented in the financial statements or prospectively to profits interest and similar awards granted or modified on or after the date of adoption. ASU 2024-01 is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Group is currently evaluating the adoption of this guidance whether or not a material impact on the Group’s condensed consolidated financial statements.

In March 2024, the FASB issued ASU 2024-02, “Codification Improvements — Amendments to Remove References to the Concept Statements” (“ASU 2024-02”). ASU 2024-02 contains amendments to the FASB Accounting Standards Codification that remove references to various FASB Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Statements to provide guidance in certain topical areas. ASU 2024-02 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Group is currently evaluating the adoption of this guidance whether or not a material impact on the Group’s condensed consolidated financial statements.

The Group does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Group’s condensed consolidated balance sheets, statements of operations and comprehensive (loss)/income and statements of cash flows.

Subsequent Events

In accordance with ASC Topic 855, Subsequent Events, the Companies evaluated subsequent events through the date the condensed consolidated financial statements were available for issue.