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EX-32.1 - CERTIFICATION - Sleepaid Holding Co.slee_ex321.htm
EX-31.2 - CERTIFICATION - Sleepaid Holding Co.slee_ex312.htm
EX-31.1 - CERTIFICATION - Sleepaid Holding Co.slee_ex311.htm

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2018

 

OR

 

¨ 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: 000-1643319

 

SLEEPAID HOLDING CO.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada

 

47-3785730

(State of Incorporation)

 

(IRS Employer Identification No.)

 

Rm 10, 1/F., Wellborne Commercial Centre,

8 Java Road, North Point Hong Kong

 

(Address of Principal Executive Offices)

 

(Zip Code)

 

(+852) 28062312

(Registrant’s Telephone Number, Including Country Code)

 

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) been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated file, non-accelerated filer, or a smaller reporting company.

 

Large accelerated filer

¨

Accelerated filed

¨

Non-accelerated filer

¨

Smaller reporting company

x

 

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

 

As of May 14, 2018, the Registrant had 13,713,322 shares of common stock issued and outstanding.

 

 
 
 
 

SLEEPAID HOLDING CO.

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Financial Statement (Unaudited)

 

3

 

 

Unaudited Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017

 

 

3

 

 

Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017

 

 

4

 

 

Unaudited Consolidated Statements of Cash Flows for the Three Months Ended, March 31, 2018 and 2017

 

 

5

 

 

Notes to Unaudited Consolidated Financial Statements

 

 

6

 

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

22

 

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risks

 

 

25

 

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

 

25

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

 

26

 

 

 

 

 

 

 

Item 1A.

Risk Factors

 

 

26

 

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity and Use of Proceeds

 

 

26

 

 

 

 

 

 

 

Item 3.

Default upon Senior Securities

 

 

26

 

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

 

26

 

 

 

 

 

 

 

Item 5.

Other Information

 

 

26

 

 

 

 

 

 

 

Item 6.

Exhibits

 

 

26

 

 

 

 

 

 

 

SIGNATURES

 

 

27

 

 

 
2
 
 

 

PART I. FINANCIAL INFORMATION

ITEM: 1 FINANCIAL STATEMENT

 

SLEEPAID HOLDING CO. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

Notes

 

 

March 31,

2018

 

 

December 31,

2017

 

 

 

 

 

(Unaudited)

 

 

(Audited)

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

$ 26,107

 

 

$ 67,321

 

Trade receivable, net of allowance for doubtful accounts of $73,187 for March 31, 2018 and $70,649 for Dec 31, 2017

 

 

 

 

 

191,692

 

 

 

205,434

 

Inventories, net

 

 

 

 

 

868,597

 

 

 

843,747

 

Advances to suppliers

 

 

 

 

 

46,684

 

 

 

47,915

 

Other receivables

 

 

7

 

 

 

75,680

 

 

 

66,975

 

Total current assets

 

 

 

 

 

 

1,208,760

 

 

 

1,231,392

 

Non-current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

4

 

 

 

16,261

 

 

 

16,679

 

Intangible assets

 

 

5

 

 

 

15,053

 

 

 

14,943

 

Restricted cash

 

 

 

 

 

 

56,893

 

 

 

50,871

 

Total non-current assets

 

 

 

 

 

 

88,207

 

 

 

82,493

 

TOTAL ASSETS

 

 

 

 

 

$ 1,296,967

 

 

$ 1,313,885

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

6

 

 

$ 786,026

 

 

$ 710,212

 

Accrued expense

 

 

 

 

 

 

181,718

 

 

 

159,172

 

Advances from customer

 

 

 

 

 

 

61,600

 

 

 

56,796

 

Loans from related parties

 

 

13

 

 

 

785,108

 

 

 

769,515

 

Income tax payables

 

 

 

 

 

 

16,797

 

 

 

17,506

 

Other payables

 

 

8

 

 

 

262,743

 

 

 

256,365

 

Other tax payables

 

 

 

 

 

 

-

 

 

 

1,874

 

Total current liabilities

 

 

 

 

 

 

2,093,992

 

 

 

1,971,440

 

TOTAL LIABILITIES

 

 

 

 

 

$ 2,093,992

 

 

$ 1,971,440

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 10,000,000 authorized; none issued and outstanding

 

 

 

 

 

 

-

 

 

 

-

 

Common stock, $0.001 par value, 65,000,000 authorized; 13,713,322 and 13,663,322 shares issued and outstanding, at March 31, 2018 and December 31, 2017 respectively

 

 

 

 

 

 

13,713

 

 

 

13,663

 

Additional paid-in capital

 

 

 

 

 

 

175,833

 

 

 

155,883

 

Accumulated other comprehensive (loss) income

 

 

 

 

 

 

(166,917 )

 

 

(165,757 )

(Accumulated loss)/ retained earnings

 

 

 

 

 

 

(819,654 )

 

 

(661,344 )

TOTAL STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

(797,025 )

 

 

(657,555 )

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

$ 1,296,967

 

 

$ 1,313,885

 

 

See accompanying notes to unaudited consolidated financial statements

 

 
3
 
Table of Contents

 

SLEEPAID HOLDING CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

(Unaudited)

 

 

 

Notes

 

 

Three Months Ended March 31,

 

 

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

 

 

 

$ 401,009

 

 

$ 580,387

 

Cost of sales

 

 

 

 

 

(338,468 )

 

 

(451,024 )

Gross profit

 

 

 

 

 

62,541

 

 

 

129,363

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling expenses

 

 

 

 

 

113,546

 

 

 

89,525

 

General and administrative expenses

 

 

 

 

 

103,139

 

 

 

181,620

 

Total operating loss

 

 

 

 

 

216,685

 

 

 

271,145

 

Income (Loss) from operations

 

 

 

 

 

(154,144 )

 

 

(141,782 )

 

 

 

 

 

 

 

 

 

 

 

 

Non-operating income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

26

 

 

 

571

 

Interest expenses

 

 

 

 

 

(3,932 )

 

 

-

 

Other income

 

 

 

 

 

-

 

 

 

9

 

Other expenses

 

 

 

 

 

(278 )

 

 

(455 )

Total non-operating income (expense)

 

 

 

 

 

(4,184 )

 

 

125

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) before income taxes

 

 

 

 

 

(158,328 )

 

 

(141,657 )

Income taxes

 

 

9

 

 

 

-

 

 

 

-

 

Net income (loss)

 

 

12

 

 

 

(158,328 )

 

 

(141,657 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income statement:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

(158,328 )

 

 

(141,657 )

Foreign currency translation adjustment

 

 

 

 

 

 

(1,160 )

 

 

92

 

Comprehensive Income (Loss)

 

 

 

 

 

$ (159,488 )

 

$ (141,565 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share of common stock

 

 

12

 

 

$ (0.012 )

 

$ (0.010 )

Diluted earnings (loss) per share

 

 

12

 

 

$ (0.012 )

 

$ (0.010 )

Weighted average shares used in calculating loss per common stock – basic

 

 

 

 

 

 

13,703,878

 

 

 

13,663,322

 

Weighted average shares used in calculating loss per common stock – diluted

 

 

 

 

 

 

13,703,878

 

 

 

13,663,322

 

 

See accompanying notes to unaudited consolidated financial statements

 

 
4
 
Table of Contents

 

SLEEPAID HOLDING CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 Notes

 

 

 

2018

 

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows provided by (used for) operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

12

 

 

$ (158,328 )

 

$ (141,657 )

Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and Amortization

 

 

 

 

 

 

1,807

 

 

 

2,451

 

Consultancy fee

 

 

 

 

 

 

3,324

 

 

 

4,463

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Trade receivable

 

 

 

 

 

 

20,865

 

 

 

536,135

 

Inventories

 

 

 

 

 

 

5,394

 

 

 

(158,544 )

Advances to suppliers

 

 

 

 

 

 

2,916

 

 

 

(190,410 )

Other receivables

 

 

 

 

 

 

(11,770 )

 

 

3,106

 

Prepaid expenses

 

 

 

 

 

 

16,304

 

 

 

(1,188 )

Restricted cash

 

 

 

 

 

 

(4,143 )

 

 

-

 

Accounts payable

 

 

 

 

 

 

49,687

 

 

 

(122,404 )

Other payables

 

 

 

 

 

 

(2,770 )

 

 

47,223

 

Advances from customer

 

 

 

 

 

 

2,730

 

 

 

28,196

 

Tax payables

 

 

 

 

 

 

(1,321 )

 

 

(14,331 )

Accrued liabilities

 

 

 

 

 

 

16,107

 

 

 

7,016

 

Net cash provided by (used for) operating activities

 

 

 

 

 

 

(59,198 )

 

 

56

 

Cash flows provided by (used for) investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

 

 

 

 

(442 )

 

 

-

 

Short-term Investments

 

 

 

 

 

 

-

 

 

 

14,516

 

Net cash provided by (used for) investing activities

 

 

 

 

 

 

(442 )

 

 

14,516

 

Cash flows provided by (used for) financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Loans from related parties

 

 

 

 

 

 

9,758

 

 

 

27,961

 

Issuance of common stock

 

 

 

 

 

 

-

 

 

 

-

 

Net cash provided by (used for) financing activities

 

 

 

 

 

 

9,758

 

 

 

27,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

 

 

 

 

(49,882 )

 

 

42,533

 

Effect of foreign currency translation

 

 

 

 

 

 

1,684

 

 

 

702

 

Cash – beginning of period

 

 

 

 

 

 

74,305

 

 

 

86,101

 

Cash – end of period

 

 

 

 

 

$ 26,107

 

 

$ 129,336

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid

 

 

 

 

 

$ (3,932 )

 

$ -

 

Issuance of 50,000 shares of common stock at $0.4 par value for acquisition of Nice Great International Ltd

 

 

 

 

 

$ 20,000

 

 

$ -

 

 

See accompanying notes to unaudited consolidated financial statements

 

 
5
 
Table of Contents

 

SLEEPAID HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1. ORGANIZATION AND PRINCIPAL ACTIVITY

 

Organization

 

Sleepaid Holding Co. (“Sleepaid”) and its subsidiaries are referred to herein collectively and on a consolidated basis as the “Company” or “we”, “us” or “our” or similar terminology.

 

Sleepaid, a Nevada Corporation, was incorporated under the laws of the State of Nevada on December 17, 2014. Yugosu Investment Limited (“Yugosu”) was incorporated in Hong Kong on March 28, 2007 and established a fiscal year end of December 31.

 

Guangzhou Smartfame Co., Ltd (“Guangzhou Smartfame”), the wholly owned subsidiary of the Yugosu, was incorporated under the laws of the PRC in Guangzhou, as a limited company on June 25, 2013. On May 11, 2016, Guangzhou Smartfame changed the name to Guangzhou Sleepaid Household Supplies Co., Ltd. (“Sleepaid Household”) and expanded the business activities to including the wholesale and manufacturing of household supplies and furniture.

 

Yuewin Trading Ltd (“Yuewin”), the wholly owned subsidiary of Sleepaid Household, was incorporated under the laws of the PRC as a limited company on March 24, 2008.

 

Nice Great International Limited (“Nice Great”) was established in June, 2016, a corporation formed under the laws of Hong Kong. On January 2018, Sleepaid acquired all the issued and outstanding share capital of Nice Great. Sleepaid issued an aggregate 50,000 shares of the common stock of Sleepaid (the “Sleepaid Shares”) to the shareholders of Nice Great (the “Nice Great Shareholders”), of which one of the Nice Great Shareholders holding 1% of Nice Great shareholdings is a manager of Yugosu. In return, the Nice Great Shareholders transferred all issued and outstanding shares of Nice Great to Sleepaid. After the completion, Nice Great is a wholly-owned subsidiary of Sleepaid. Nice Great focused on the design, development, and prototype making of mini electrical products, such as air purifiers, humidifiers, multi-function fans, heaters and other similar goods. Nice Great and Sleepaid foresee increased demand in the market for air purifiers, especially in the Asia Pacific region, due to heavy pollution.

 

The Company and its subsidiaries (hereinafter, collectively referred to as the “Group”) are engaged in operating mattress and bedroom products retail outlets.

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a) Method of Accounting

 

The Company maintains its general ledger and journals with the accrual method accounting for financial reporting purposes. The consolidated financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of consolidated financial statements.

 

 
6
 
Table of Contents

 

SLEEPAID HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(b) Principles of consolidation

 

The consolidated financial statements are presented in US Dollars and include the accounts of the Company and its subsidiary. All significant inter-company balances and transactions are eliminated in consolidation.

 

The following table depicts the identity of the subsidiary:

 

Name of Subsidiary

 

Place of

Incorporation

 

Attributable Equity Interest %

 

 

Registered

Capital

 

Yugosu Investment Limited (1)

 

Hong Kong

 

 

100

 

 

HKD 10,000

 

Nice Great International Limited (1)

 

Hong Kong

 

 

100

 

 

HKD 100

 

Guangzhou Sleepaid Household Supplies Co., Ltd (2)

 

PRC

 

 

100

 

 

RMB 3,000,000

 

Yuewin Trading Ltd (3)

 

PRC

 

 

100

 

 

RMB 500,000

 

____________

Note:

(1) Wholly owned subsidiary of Sleepaid Holding Company

 

(2) Wholly owned subsidiary of Yugosu Investment Limited

 

(3) Wholly owned subsidiary of Sleepaid Household

 

(c) Use of estimates

 

The preparation of consolidated financial statements that conform with generally accepted accounting principles in the United States of America 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 revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time, however, actual results could differ materially from those estimates.

 

(d) Economic and political risks

 

The Company’s operations are conducted in Hong Kong and China and a large number of customers are located in Southern China. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in Hong Kong and China, and by the general state of the economy in Hong Kong and China.

 

The Company’s operations and customers in Hong Kong and Southern China are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments, and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in Hong Kong and China, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

 

 
7
 
Table of Contents

 

SLEEPAID HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(e) Property, plant and equipment

 

Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method with 5% scrape value.

 

Estimated useful lives of the plant and equipment are as follows:

 

Furniture and fixtures

5 years

Office equipment

2 - 5 years

Motor vehicles

4 - 5 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 statement of operation.

 

(f) Accounting for the impairment of long-lived assets

 

The Company periodically evaluates the carrying value of long-lived assets to be held and used, including intangible assets subject to amortization, when events and circumstances warrant such a review, pursuant to the guidelines established in ASC No. 360. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose.

 

During the reporting periods, there was no impairment loss.

 

(g) Cash and concentration of risk

 

The Group considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Group maintains bank accounts in HK and the PRC.

 

(h) Income taxes

 

The Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future realization is uncertain.

 

 
8
 
Table of Contents

 

SLEEPAID HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(i) Foreign currency translation

 

The accompanying consolidated financial statements are presented in United States dollars (USD). The functional currencies of the Company’s operating business based in Hong Kong and PRC are the Hong Kong Dollar (HKD) and Renminbi (RMB) respectively. The consolidated financial statements are translated into USD from HKD and RMB at period-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

 

The exchange rates used to translate amounts in HK$ and RMB into USD for the purposes of preparing the consolidated financial statements were as follows:

 

For the three months and year ended, (Average Rate)

Mar. 31, 2018

Dec 31, 2017

Mar. 31, 2017

Chinese Renminbi (RMB)

RMB

 

 

6.35819

RMB

6.75690

RMB

6.88912

United States dollar ($)

 

 

$

1.00000

$

1.00000

$

1.00000

 

 

As of (Closing Rate)

Mar. 31, 2018

Dec 31, 2017

Mar. 31, 2017

Chinese Renminbi (RMB)

RMB

 

 

6.28068

RMB

6.50630

RMB

6.89116

United States dollar ($)

 

 

$

1.00000

$

1.00000

$

1.00000

 

 

For the three months and year ended, (Average Rate)

Mar. 31, 2018

Dec 31, 2017

Mar. 31, 2017

Hong Kong (HKD)

HKD

 

 

7.82750

HKD

7.79259

HKD

7.76056

United States dollar ($)

 

 

$

1.0000

$

1.00000

$

1.00000

 

 

 

 

 

 

 

 

As of (Closing Rate)

Mar. 31, 2018

Dec 31, 2017

Mar. 31, 2017

Hong Kong (HKD)

HKD

 

 

7.84906

HKD

7.81280

HKD

7.77069

United States dollar ($)

 

 

$

1.00000

$

1.00000

$

1.00000

 

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation. In addition, the current foreign exchange control policies applicable in PRC also restrict the transfer of assets or dividends outside the PRC.

 

(j) Comprehensive income

 

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other consolidated financial statements. The Company’s current component of comprehensive income is the net income and foreign currency translation adjustment.

 

 
9
 
Table of Contents

 

SLEEPAID HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(k) Recently issued accounting guidance

 

FASB Simplifies Adoption of New Leases Standard for Certain Land Easements. The FASB has issued Accounting Standards Update (ASU) No. 2018-01, Leases (Topic 842):Land Easement Practical Expedient for Transition to Topic 842, which clarifies the application of the new leases guidance to land easements and eases adoption efforts for some land easements.

 

ASU 2018-01 is expected to reduce the cost of adopting the new leases standard for certain land easements. It is also an attempt to help ensure that companies can make a successful transition to the standard without compromising the quality of information provided to investors about these transactions.

 

Land easements (also commonly referred to as rights of way) represent the right to use, access, or cross another entity’s land for a specified purpose. Land easements are used by utility and telecommunications companies, for example, when they need to take a small strip of land, or easement, to bury wires. Not all companies have historically accounted for them as leases.

 

Stakeholders pointed out that the requirement to evaluate all old and existing land easements, sometimes numbering in the tens of thousands, to determine if they meet the definition of a lease under the new standard could be very costly. They also noted there would be limited benefit to applying this requirement, as many of their land easements would not meet the definition of a lease, or even if they met that definition, many of their easements are prepaid and, therefore, already are recognized on the balance sheet.

 

The land easements ASU addresses this by:

 

 

· Providing an optional transition practical expedient that, if elected, would not require an organization to reconsider their accounting for existing land easements that are not currently accounted for under the old leases standard; and

 

 

 

 

· Clarifying that new or modified land easements should be evaluated under the new leases standard, once an entity has adopted the new standard.

 

The FASB issued an Accounting Standards Update (ASU) that helps organizations address certain stranded income tax effects in accumulated other comprehensive income (AOCI) resulting from the Tax Cuts and Jobs Act.

 

ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded.

 

The ASU requires financial statement preparers to disclose:

 

 

· A description of the accounting policy for releasing income tax effects from AOCI;

 

 

 

 

· Whether they elect to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act; and

 

 

 

 

· Information about the other income tax effects that are reclassified.

 

The amendments affect any organization that is required to apply the provisions of Topic 220, Income Statement—Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP.

 

The amendments are effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.

 

 
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SLEEPAID HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(k) Recently issued accounting guidance (continued)

 

FASB Issues Corrections and Improvements to Financial Instruments. The FASB has issued Accounting Standards Update (ASU) No. 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, that clarifies the guidance in ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10), as follows:

 

 

· Issue 1: Equity Securities without a Readily Determinable Fair Value— Discontinuation. The amendment clarifies that an entity measuring an equity security using the measurement alternative may change its measurement approach to a fair value method in accordance with Topic 820,Fair Value Measurement, through an irrevocable election that would apply to that security and all identical or similar investments of the same issuer. Once an entity makes this election, the entity should measure all future purchases of identical or similar investments of the same issuer using a fair value method in accordance with Topic 820.

 

 

 

 

· Issue 2: Equity Securities without a Readily Determinable Fair Value— Adjustments. The amendment clarifies that the adjustments made under the measurement alternative are intended to reflect the fair value of the security as of the date that the observable transaction for a similar security took place.

 

 

 

 

· Issue 3: Forward Contracts and Purchased Options. The amendment clarifies that remeasuring the entire value of forward contracts and purchased options is required when observable transactions occur on the underlying equity securities.

 

 

 

 

· Issue 4: Presentation Requirements for Certain Fair Value Option Liabilities. The amendment clarifies that when the fair value option is elected for a financial liability, the guidance in paragraph 825-10- 45-5 should be applied, regardless of whether the fair value option was elected under either Subtopic 815-15,Derivatives and Hedging— Embedded Derivatives, or 825-10, Financial Instruments— Overall.

 

 

 

 

· Issue 5: Fair Value Option Liabilities Denominated in a Foreign Currency. The amendments clarify that for financial liabilities for which the fair value option is elected, the amount of change in fair value that relates to the instrument-specific credit risk should first be measured in the currency of denomination when presented separately from the total change in fair value of the financial liability. Then, both components of the change in the fair value of the liability should be remeasured into the functional currency of the reporting entity using end-of-period spot rates.

 

 

 

 

· Issue 6: Transition Guidance for Equity Securities without a Readily Determinable Fair Value. The amendment clarifies that the prospective transition approach for equity securities without a readily determinable fair value in the amendments in ASU No. 2016-01 is meant only for instances in which the measurement alternative is applied. An insurance entity subject to the guidance in Topic 944,Financial Services— Insurance, should apply a prospective transition method when applying the amendments related to equity securities without readily determinable fair values. An insurance entity should apply the selected prospective transition method consistently to the entity’s entire population of equity securities for which the measurement alternative is elected.

 

For public business entities, ASU 2018-03 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. Public business entities with fiscal years beginning between December 15, 2017, and June 15, 2018, are not required to adopt ASU 2018-03 until the interim period beginning after June 15, 2018, and public business entities with fiscal years beginning between June 15, 2018, and December 15, 2018, are not required to adopt these amendments before adopting the amendments in ASU 2016-01. For all other entities, the effective date is the same as the effective date in ASU 2016-01.

 

 
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SLEEPAID HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(k) Recently issued accounting guidance (continued)

 

All entities may early adopt ASU 2018-03 for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, as long as they have adopted ASU 2016-01.

 

FASB Adds SEC Guidance to the Codification on the Tax Cuts and Jobs Act. The FASB has issued Accounting Standards Update (ASU) No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. ASU 2018-05 amends certain SEC material in Topic 740 for the income tax accounting implications of the recently issued Tax Cuts and Jobs Act (Act).

 

ASU 2018-05 adds the following guidance, among other things, to the FASB Accounting Standards Codification™ regarding the Act:

 

 

· Question 1:If the accounting for certain income tax effects of the Act is not completed by the time a company issues its financial statements that include the reporting period in which the Act was enacted, what amounts should a company include in its financial statements for those income tax effects for which the accounting under Topic 740 is incomplete?

 

 

 

 

· Answer 1:In a company’s financial statements that include the reporting period in which the Act was enacted, a company must first reflect the income tax effects of the Act in which the accounting under Topic 740 is complete. These completed amounts would not be provisional amounts. The company would then also report provisional amounts for those specific income tax effects of the Act for which the accounting under Topic 740 will be incomplete but a reasonable estimate can be determined. For any specific income tax effects of the Act for which a reasonable estimate cannot be determined, the company would not report provisional amounts and would continue to apply Topic 740 based on the provisions of the tax laws that were in effect immediately prior to the Act being enacted. For those income tax effects for which a company was not able to determine a reasonable estimate (such that no related provisional amount was reported for the reporting period in which the Act was enacted), the company would report provisional amounts in the first reporting period in which a reasonable estimate can be determined.

 

 

 

 

· Question 2: If an entity accounts for certain income tax effects of the Act under a measurement period approach, what disclosures should be provided?

 

 

 

 

· Answer 2: The staff believes an entity should include financial statement disclosures to provide information about the material financial reporting impacts of the Act for which the accounting under Topic 740 is incomplete, including:

 

 

a) Qualitative disclosures of the income tax effects of the Act for which the accounting is incomplete;

 

 

 

 

b) Disclosures of items reported as provisional amounts;

 

 

 

 

c) Disclosures of existing current or deferred tax amounts for which the income tax effects of the Act have not been completed;

 

 

 

 

d) The reason why the initial accounting is incomplete;

 

 

 

 

e) The additional information that is needed to be obtained, prepared, or analyzed in order to complete the accounting requirements under Topic 740;

 

 

 

 

f) The nature and amount of any measurement period adjustments recognized during the reporting period;

 

 

 

 

g) The effect of measurement period adjustments on the effective tax rate; and

 

 

 

 

h) When the accounting for the income tax effects of the Act has been completed.

 

ASU 2018-05 is effective upon inclusion in the FASB Codification.

 

 
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SLEEPAID HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(l) Account receivable

 

Accounts receivable is recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance for doubtful accounts is maintained for all customers based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience.

 

Management reviews and adjusts this allowance periodically based on historical experience and its evaluation of the collectability of outstanding accounts receivable. The Company evaluates the credit risk of its customers utilizing historical data and estimates of future performance. Bad debts are written off as incurred. During the reporting years, there were an bad debts of $73,187.

 

Outstanding accounts balances are reviewed individually for collectability. The Company does not charge any interest income on trade receivables. Accounts balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. To date, the Company has not charged off any balances as it has yet to exhaust all means of collection.

 

(m) Inventories

 

Inventories primarily consist of merchandise inventories and are stated at lower of cost or market and net realizable value. Cost of inventories is calculated on the weighted average basis which approximates cost.

 

Management regularly reviews inventories and records valuation reserves for damaged and defective returns, inventories with slow-moving or obsolescence exposure and inventories with carrying value that exceeds market value. Because of its product mix, the Company has not historically experienced significant occurrences of obsolescence.

 

Inventory shrinkage is accrued as a percentage of revenues based on historical inventory shrinkage trends. The Company performs physical inventory count of its stores once per quarter and cycle counts inventories at its distribution centers once per quarter throughout the year. The reserve for inventory shrinkage represents an estimate for inventory shrinkage for each store since the last physical inventory date through the reporting date.

 

These reserves are estimates, which could vary significantly, either favorably or unfavorably, from actual results if future economic conditions, consumer demand and competitive environments differ from expectations.

 

 
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SLEEPAID HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(n) Revenue recognition

 

The Company earns revenue by selling merchandise through self-managed retail stores inside shopping malls, franchise stores and wholesale agent.

 

Revenue from self-managed retail stores inside shopping malls is recognized when merchandise is purchased by and delivered to the customer, confirmed, fixed and reconciled with the shopping malls and collectability is reasonably assured.

 

Revenue from franchised stores is recognized after goods delivered and cash collected (normally cash on delivery) from the franchise retail stores.

 

Revenue from wholesale agent is recognized after goods delivered, amount fixed or determined and collectability is reasonably assured.

 

All revenues are shown net of estimated returns during the relevant period represented by estimated allowance for sales returns based upon historical experience.

 

The Company records sales tax collected from its customers on a net basis, and therefore excludes it from revenue as defined in ASC 605, Revenue Recognition.

 

(o) Cost of sales

 

Cost of sales includes the cost of merchandise, collecting and handling charges based on store sales deducted by landlord, related cost of packaging and shipping cost and the distribution center costs.

 

(p) Operating lease rental

 

The Company did not have a lease that met the criteria of a capital lease. Leases that do not qualify as a capital lease are classified as an operating lease. Operating lease rental expenses included in selling, general and administrative expenses for the three months ended March 31, 2018 and 2017 were $16,572 and $18,234, respectively

 

(q) Selling expenses

 

Selling expenses include store-related expense, other than store occupancy costs, as well as advertising, depreciation and amortization, and certain expenses associated with operating the Company’s corporate headquarters.

 

(r) Advertising costs

 

The Company expensed all advertising costs as incurred. Advertising expenses, net of reimbursement from suppliers, amounted to $8,107 and $7,544 for the three months ended March 31, 2018 and 2017 respectively. Advertising expense is included in selling expense in the accompanying consolidated statements of income.

 

 
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SLEEPAID HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(s) Concentration of Credit Risk

 

The Company maintains cash in bank deposit accounts in Hong Kong and PRC. The Company performs ongoing evaluations of this institution to limit its concentration risk exposure.

 

The Company operates retail stores located in the PRC. Because of this, the Company is subject to regional risks, such as the economy, regional financial conditions and unemployment, weather conditions, power outages, and other natural disasters specific to the region in which the Company operates.

 

(t) Retirement Benefit Plans

 

Full time employees of the Company in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require the Company to make contributions to the government for these benefits based on certain percentages of the employees’ salaries. The Company accounts the mandated defined contribution plan under the vested benefit obligations approach based on the guidance of ASC 715, Compensation—Retirement Benefits.

 

The total amounts for such employee benefits which were expensed were $7,455 and $8,845 for the three months ended March 31, 2018 and 2017, respectively.

 

(u) Segment reporting

 

In accordance with ASC 280-10, Segment Reporting (“ASC 280-10”), the Company’s chief operating decision makers rely upon consolidated results of operations when making decisions about allocating resources and assessing performance of the Company. As a result of the assessment made by the chief operating decision makers, the Company has only one single operating and geographic segment. The Company does not distinguish between markets or segments for the purpose of internal reporting

 

(v) Product warranty

 

The company is the legal obligor for the warranties of the products sold to customers but believed that the likelihood that we would not recover all warranty costs from the manufacturer to be remote based on our past operating history, manufacturers’ cooperation and their reputation and history of honoring all their warranty obligations. Since our inception to present, we have not incurred any direct warranty expenses and accordingly, the accrual and associated expenses recognized in the financial statements has been recorded as zero.

 

(w) Basic and diluted earnings (loss) per share

 

In accordance with ASC No. 260 (formerly SFAS No. 128), “Earnings Per Share,” the basic earnings (loss) per common share is computed by dividing net earnings (loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings (loss) per common share is computed similarly to basic earnings (loss) per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.

 

 
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

 

Financial instruments that potentially expose the company to concentrations of credit risk, consists of cash and accounts receivable as of March 31, 2018 and December 31, 2017. The Company performs ongoing evaluations of its cash position and credit evaluations to ensure sound collections and minimize credit losses exposure.

 

As of March 31, 2018 and December 31, 2017, the Company’s bank deposits conducted with banks in the PRC where there is currently no rule or regulation mandated on obligatory insurance of bank accounts.

 

For the three months ended March 31, 2018 and year ended December 31, 2017, all of the Company’s sales were generated from the PRC.

 

The maximum amount of loss exposure due to credit risk that the Company would bear if the counter parties of the financial instruments failed to perform represents the carrying amount of each financial asset on the balance sheet.

 

Normally, the Company does not require collateral from customers or debtors.

 

Accounts Receivable

 

Customer

 

As at March 31,

2018

 

As at December 31,

2017

A

 

$ 79,935

 

20 %

 

$ 233,246

 

12 %

B

 

 

44,166

 

11 %

 

 

175,093

 

9 %

C

 

 

43,796

 

11 %

 

 

157,489

 

8 %

D

 

 

39,776

 

10 %

 

 

154,072

 

8 %

Total

 

$ 207,673

 

52 %

 

$ 719,900

 

37 %

 

Accounts Payable

 

Supplier

 

As at March 31,

2018

 

As at December 31,

2017

A

 

$ 74,971

 

29 %

 

$ 407,433

 

23 %

B

 

 

71,487

 

28 %

 

 

384,994

 

22 %

C

 

 

38,162

 

15 %

 

 

163,542

 

9 %

D

 

 

35,760

 

14 %

 

 

126,489

 

7 %

E

 

 

11,434

 

4 %

 

 

87,043

 

5 %

Total

 

$ 231,814

 

90 %

 

$ 1,169,501

 

66 %

 

 
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SLEEPAID HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 4. PROPERTY, PLANT AND EQUIPMENT, NET

 

Details of property, plant and equipment are as follows:

 

 

 

March 31,

2018

 

 

December 31,

2017

 

At cost

 

 

 

 

 

 

Furniture and fixtures

 

$ 8,542

 

 

$ 8,246

 

Office equipments

 

 

22,893

 

 

 

21,709

 

Motor vehicles

 

 

26,271

 

 

 

25,360

 

 

 

 

57,706

 

 

 

55,315

 

Less: accumulated depreciation

 

 

(41,445 )

 

 

(38,636 )

 

 

$ 16,261

 

 

$ 16,679

 

 

Depreciation expense included in the general and administrative expenses for the three months ended March 31, 2018 and 2017 were $1,446 and $1,501 respectively.

 

NOTE 5. INTANGIBLE ASSETS

 

Intangible assets, net comprise the following:

 

 

 

March 31,

2018

 

 

December 31,

2017

 

At cost

 

 

 

 

 

 

Trademark

 

$ 1,529

 

 

$ 1,537

 

Computer software

 

 

21,930

 

 

 

21,170

 

 

 

 

23,459

 

 

 

22,707

 

Less: accumulated depreciation

 

 

(8,406 )

 

 

(7,764 )

 

 

$ 15,053

 

 

$ 14,943

 

 

Amortization expense included in the general and administrative expenses for the three months ended March 31, 2018 and 2017 were $361 and $950 respectively..

 

NOTE 6. ACCOUNT PAYABLES

 

Account payables were comprised of the following:

 

 

 

March 31,

2018

 

 

December 31,

2017

 

 

 

 

 

 

 

 

Trade payables

 

$ 786,026

 

 

$ 710,212

 

 

NOTE 7. OTHER RECEIVABLES

 

Other receivables were comprised of the following:

 

 

 

March 31,

2018

 

 

December 31,

2017

 

 

 

 

 

 

 

 

Disbursement and advances to employees

 

$ 27,972

 

 

$ 15,500

 

Research development project deposit *

 

 

14,690

 

 

 

 

 

Deposit paid

 

$ 33,018

 

 

$ 51,475

 

 

 

$ 75,680

 

 

$ 66,975

 

________

*

Research development project deposit from the acquisition of Nice Great International Limited, the project is still under process and the Company’s management considered to value the deposit at cost.

 

 
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 8. OTHER PAYABLES

 

Other payables were comprised of the following:

 

 

 

March 31,

2018

 

 

December 31,

2017

 

 

 

 

 

 

 

 

Loan advances from unrelated parties

 

$ 231,136

 

 

$ 223,232

 

Deposit received

 

 

9,553

 

 

 

9,222

 

Sundries

 

 

22,054

 

 

 

23,911

 

 

 

$ 262,743

 

 

$ 256,365

 

 

NOTE 9. INCOME TAXES

 

The Company is subject to the Federal Income tax rate of 34% and Hong Kong profits tax rate of 16.5%. No provision for income taxes in the United States and Hong Kong or elsewhere has been made as the Company had no taxable income for the quarter ended March 31, 2018 and year ended December 31, 2017.

 

A reconciliation of the provision for income taxes with amount determined by applying the statutory Federal income tax rate of 34% to income before income taxes is as follow:

 

 

 

March 31,

2018

 

 

December 31,

2017

 

Profit (Loss) before income tax

 

$ (6,324 )

 

$ (52,671 )

Temporary Difference

 

 

-

 

 

 

-

 

Permanent Difference

 

 

-

 

 

 

-

 

Taxable income

 

$ (6,324 )

 

$ (52,671 )

Federal Income Tax rate

 

 

34 %

 

 

34 %

Current tax credit

 

$ 2,151

 

 

$ 17,908

 

Less: Valuation allowance

 

 

(2,151 )

 

 

(17,908 )

Income tax expenses

 

$ -

 

 

$ -

 

 

A reconciliation of the provision for income taxes with amounts determined by applying the Hong Kong profit rate of 16.5% to income before income taxes is as follows:

 

 

 

March 31,

2018

 

 

December 31,

2017

 

Profit (Loss) before income tax

 

$ (121,776 )

 

$ (50,498 )

Temporary Difference

 

 

-

 

 

 

-

 

Permanent Difference

 

 

-

 

 

 

-

 

Taxable income

 

$ (121,776 )

 

$ (50,498 )

Hong Kong Profit Tax rate

 

 

16.5 %

 

 

16.5 %

Current tax credit

 

$ 20,093

 

 

$ 8,332

 

Less: Valuation allowance

 

 

(20,093 )

 

 

(8,332 )

Income tax expenses

 

$ -

 

 

$ -

 

 

Sleepaid Household and Yuewin were incorporated in the PRC and are subjected to income taxes under the current laws of the PRC. The EIT rate of PRC was 25% for the quarter and year ended March 31, 2018 and December 31, 2017.

 

 
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SLEEPAID HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 9. INCOME TAXES (CONTINUED)

 

Profit (Loss) before income tax of $(136,429) and $(502,952) for the quarter and year ended March 31, 2018 and December 31, 2017, respectively, were attributed to operations in China. The income tax expenses consisted of the following:

 

 

 

March 31,

2018

 

 

December 31,

2017

 

Profit (Loss) before income tax

 

$ (136,429 )

 

$ (502,952 )

Temporary Difference

 

 

-

 

 

 

503,057

 

Permanent Difference

 

 

-

 

 

 

-

 

Taxable income

 

$ (136,429 )

 

$ 105

 

China Enterprise Income Tax rate

 

 

25 %

 

 

25 %

Current tax expenses

 

$ 34,107

 

 

$ 26

 

Less: Valuation allowance

 

 

(34,107 )

 

 

-

 

Income tax expenses

 

$ -

 

 

$ 26

 

 

No deferred tax has been provided for the quarter and year ended March 31, 2018 and December 31, 2017.

 

NOTE 10. COMMITMENTS AND CONTINGENCIES

 

The Company has operating lease agreements for office premises, which expiring through March 31, 2018. Future minimum rental payments under agreements classified as operating leases with non-cancellable terms for the next one year and thereafter as follows:

 

Period ending March 31,

 

2018

 

 

2017

 

 

 

 

 

 

 

 

2018 and thereafter

 

 

26,445

 

 

 

30,048

 

 

 

$ 26,445

 

 

$ 30,048

 

 

Rental expense paid for the three months ended March 31, 2018 and 2017 were $10,852 and $18,234 respectively.

 

NOTE 11. SEGMENT INFORMATION

 

FASB Accounting Standard Codification Topic 280 (ASC 280) “Segment Reporting” establishes standards for reporting information about operating segments in financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

 

In 2018, the Company is regarded as a single operating segment, being engaged in the operating of mattress and bedroom products retail outlets. This principal activity and geographical market are substantially based in Hong Kong and the Mainland China, accordingly, no operating or geographical segment information are presented.

 

 
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 12. NET INCOME (LOSS) PER SHARE

 

A reconciliation of the numerator and denominator of basic and diluted net income (loss) per share (“EPS”) is provided as follows:

 

 

 

March 31,

2018

 

 

March 31,

2017

 

Numerator

 

 

 

 

 

 

Net (loss)/income

 

$ (158,328 )

 

$ (141,657 )

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

Weighted average shares – Basic EPS

 

 

13,703,878

 

 

 

13,663,322

 

Weighted average shares – Diluted EPS

 

 

13,703,878

 

 

 

13,663,322

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share – Basic and Diluted

 

 

 

 

 

 

 

 

EPS - basic and diluted

 

$ (0.0116 )

 

$ (0.0104 )

 

NOTE 13. RELATED PARTY TRANSACTIONS

 

Related party transactions comprised of loans from related parties and from director by director current account. As of March 31, 2018 and December 31, 2017, the loans from related parties were $795,484 and $769,515. All of these loans were provided for the Company’s working capital, did not have collateral, bear no interest and repayable on demand.

 

Detailed loans from related parties are listed as below:

 

 

 

March 31,

2018

 

 

December 31,

2017

 

 

 

 

 

 

 

 

Cheung, Kuen Harry (a)

 

$ 482,855

 

 

$ 467,925

 

Cheung, Hang Dennis (b)

 

 

52,542

 

 

 

50,720

 

Yugosu International Limited (c)

 

 

249,711

 

 

 

250,870

 

 

 

 

 

 

 

 

 

 

Total loans from related parties

 

$ 785,108

 

 

$ 769,515

 

 

(a) Major shareholders of Amax Deluxe Ltd (major shareholder of Sleepaid Holding Co.)
(b) Close family member of Cheung Kuen, Harry.
(c) With common shareholder Cheung Kuen, Harry

 

 
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SLEEPAID HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 14. GOING CONCERN

 

As of March 31, 2018, the Company has accumulated deficits of $819,654, and its current liabilities exceed its current assets resulting in negative working capital of $885,232. In view of the matters described above, recoverability of a major portion of the recorded asset amounts and realization of the portion of current liabilities into revenue shown in the accompanying balance sheets are dependent upon continued operations of the Company, which in turn are dependent upon the Company's ability to raise additional financing and to succeed in its future operations. The Company may need additional cash resources to operate during the upcoming 12 months, and the continuation of the Company may be dependent upon the continuing financial support of investors, directors and/or stockholders of the Company. However, there is no assurance that equity or debt offerings will be successful in raising sufficient funds to assure the eventual profitability of the Company. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. The Company is actively pursuing additional funding which would enhance capital employed and strategic partners which would increase revenue bases or reduce operation expenses. Management believes that the above actions will allow the Company to continue its operations throughout this fiscal year.

 

NOTE 15. SUBSEQUENT EVENTS

 

The Company has evaluated all other subsequent events through May 21, 2018, the date these financial statements were issued, and determined that the only subsequent events or transactions that require recognition or disclosures in the financial statements was as follow:

 

On March 6, 2018, Sleepaid Holding Company (“Sleepaid”) decided to sell its wholly owned subsidiary, Yugosu Investment Limited and its subsidiaries (collectively “Yugosu”), to ZZLL Information Technology, Inc. (“ZZLL”), an unrelated third party, in exchange for shares of ZZLL common stock. In accordance with the terms of the Share Exchange Agreement (“the Agreement”) between Sleepaid and ZZLL, ZZLL will issue an aggregate 12,000,000 shares of the common stock of ZZLL (“the ZZLL Shares”) to Sleepaid, which shall dividend those shares out to Sleepaid Shareholders of record (“Sleepaid Shareholders”). In return, Sleepaid will transfer all issued and outstanding shares of Yugosu Investment Limited and Yugosu’s subsidiaries to ZZLL’s wholly owned subsidiary Syndicore Asia Limited (“SAL”). Yugosu will be a wholly-owned subsidiary of SAL. Sleepaid Shareholders will continue to retain their current share position in Sleepaid, in addition to receiving the shares of ZZLL.

 

Subsequent the financial year ended December 31, 2017, the Company (“the defendant”) has a lawsuit with Zhangjiagang Coolist Life Technology Co., Ltd. (“the plaintiff”) regarding the unpaid amount for the goods purchased from the plaintiff. No provision has been made for any material loss that is probable from the lawsuit currently pending (Case No. (2017) 粵0113民初字683號). On January 2, 2018, the court made the decision that the defendant had to repay the plaintiff the amount of goods purchased USD 185,030 (RMB 1,162,115) in addition of interest for the amount of USD 11,052 (RMB 69,415). On January 24, 2018, the defendant decided to make the appeal and the application was accepted. The Company is awaiting notice for the appeal hearing from the Court.

 

 
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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERTIONS

 

This report contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. The Company’s actual results could differ materially from those set forth on the forward looking statements as a result of the risks set forth in our filings with the Securities and Exchange Commission, general economic conditions, and changes in the assumptions used in making such forward looking statements.

 

Unless indicated otherwise, or the context otherwise requires, references in this report to “Sleepaid Holdings,” the “Company,” “we,” “us” and “our” or similar terms are to Sleepaid Holding Co.

 

Overview

 

Our principle line of business is developing, producing and selling our mattress, pillow, and bedding products. In the three months ended March 31, 2018, the retail industry in China had not yet recovered and competition was furious. Traditional retail share has been eaten by E-commerce platform trading and O2O business. We are continuous in restructuring and modifying our business by rearrangement of our marketing resources to our brand and widen our products range and sourcing for new health enhancement products, and also involving more trading via the E-Commerce channel.

 

Adapting to the current market situation, our company changed the sales strategy, doing more promotion and kicked started to our O2O marketing channel, so that we can still control the decline of our sales volume. In the three months ended March 31, 2018, our total revenue was $401,009. Of this total revenue, the revenue generated by our self-managed store was $350,624, the revenue generated by the franchised stores totaled $Nil, and the revenue generated by direct sales was totaled $50,385. Our revenues by brand for the three months ended March 31, 2018 were as follows: Revenue of SleepAid was $365,248, and BEMCO was $47,926.

 

Result of the Three months ended March 31, 2018 and 2017

 

Net Revenue

In the three months ended March 31, 2018, our revenue was $401,009, compared to $580,387 the same period in 2017. In three months ended, the revenue decreased by 30.9% from the same period in 2017. The revenue generated by our self-managed store was $350,624, and by direct sales was totaled $50,385. Our revenues by brand for the three months ended March 31, 2018 were as follows: Revenue of SleepAid was $353,083, and BEMCO was $47,926.

 

Cost of Sales

In the three months ended March 31, 2018, the cost was $338,468 compared to the same period in 2017 decreased 25.0% from $451,024. The change of cost of sales reflects a decrease rate much lesser than that of the decrease rate in revenue. This was caused by the continuous slowed down of retail business in China, and resulted that the profit margin was further reduced with decreasing sales volume.

 

Selling expense

In the three months ended March 31, 2018 and 2017, the selling expense was $113,546 and $89,525 respectively. The increase of 26.8% which was resulted of the management increased in spending on using various trade platform and promotion activities to stimulate the sales volume.

 

General and administrative expense

General and administrative expense for the three months ended March 31, 2018 was $181,620 compared to the same period in 2017 decreased 43.2% from $181,620, the decrease was attributed to the decrease in salary and office expenses.

 

 
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Income Tax

During the three months ended March 31, 2018 and 2017, the company incurred no tax and its subsidiary has paid $Nil and $Nil tax respectively as a foreign corporation.

 

Net Income

The Company recorded a net loss of $158,328 for the three months ended March 31, 2018 compared to the net loss of $141,657 for the same period in 2017. The net loss further decreased $16,671 or by 11.8%. The cause of expanded losses was due to the decrease in net revenue.

 

Interest expenses

In the three months ended March 31, 2018 and 2017, the interest expenses was $3,932 and $Nil respectively.

 

Liquidity and Capital Resources

 

The Company’s liquidity and capital is dependent on the company continuing to increase its revenues and the capital it can raise to continue the Company’s development and expansion of its product lines. The Company estimates that its current and available capital resources are sufficient to fund its planned operations through the second quarter of 2018.

 

The operation had been financed by the current beneficiary shareholders through not only the injection of capital, but also by loans to the Company. The loans are unsecured, non-interest bearing and repayable at demand. Going forward, the current beneficiary shareholders will continue to finance the company’s operations by various means, including additional capital injection or conversion of debts to stock and we also plan to secure additional financing through private placements of equity and short-term borrowings from banks.

 

Working capital

 

At March 31, 2018, the Company had negative working capital of ($885,232) with current assets of $1,208,760 and current liabilities of $2,093,992. The current assets consisted cash and cash equivalents of $26,107, inventory of $868,597, trade receivables of $191,692, advance to supplies of $46,684, and other receivables of $75,680. The current liabilities of the Company as at March 31, 2018 were composed of accounts payable of $786,026, accrued expenses of $181,718, loans from related parties of $785,108, advances from customer of $61,600, tax payable of $16,797, and other payable of $262,743.

 

As at December 31, 2017, the company had negative working capital of ($740,048) with current assets of $1,231,392 and current liabilities of $1,971,440. The current assets consisted cash and cash equivalents of $67,321, inventory of $843,747, trade receivables of $205,434, advance to supplies of $47,915, and other receivables of $66,975. The current liabilities of the Company at December 31, 2017 are composed of loans from related parties of $769,515, accounts payable of $710,212, advances from customers of $56,796, accrued expenses of $159,172, tax payable of $17,506, accrued salaries of $1,874, and other payable of $256,365.

 

Our business generates revenue in the currency of the PRC, Renminbi (“RMB”). RMB is still not a freely exchangeable currency. Since 1998, the State Administration of Foreign Exchange of China has promulgated a series of circulars and rules in order to enhance verification of foreign exchange payments under a Chinese entity’s current account items, and has imposed strict requirements on borrowing and repayments of foreign exchange debts from and to foreign creditors under the capital account items and on the creation of foreign security in favor of foreign creditors.

 

 
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This may complicate foreign exchange payments to foreign creditors under the current account items and thus may affect the ability to borrow under international commercial loans, the creation of foreign security, and the borrowing of RMB under guarantees in foreign currencies. Moreover, the value of RMB may become subject to supply and demand, which could be largely impacted by international economic and political environments. Any fluctuations in the exchange rate of RMB could have an adverse effect on the operational and financial condition of the Company and its subsidiaries in China.

 

In an effort to eliminate concerns over the ability to transfer cash between entities, cross border and to U.S. investor, Guangzhou Sleepaid Household Suppliers Co., Ltd. (“Sleepaid Household”), our subsidiary and parent company to Yuewin Trading. (“Yuewin”), is incorporated in China as a wholly-owned foreign enterprise (“WOFE”). Because of such WOFE status, and profit (after tax) distribution received by Guangzhou Smartfame from Yuewin can be freely transferred back to YIL in Hong Kong Dollars, which is not subject and restriction on its conversion into any foreign currency.

 

Operating activities

Net cash used by operating activities during the three months period ended March 31, 2018, was $59,198 compared to net cash provided by operation of $568 for the same period in 2017. This represents an increase of $59,254.

 

During the three months period ended March 31, 2018, the cash used for operating activities of $59,198 was mainly resulted of cash used by net loss of $158,328, increased other receivables of $11,770 while offset against cash provided by decreased trade receivable of $20,865, decreased prepaid expenses of $16,304, increased accounts payables of $49,687, and increased accrued liabilities of $16,107.

 

During the three months period ended March 31, 2017, the $56 cash provided was mainly resulted of cash used by net loss of $141,657, increased inventories of $158,544, increased advances to suppliers of $190,410, and decreased accounts payable of $122,404 while offset against cash provided by decreased trade receivables of $536,135 and increased other payables of $47,223.

 

Investing Activities

Net cash used by investing activities was $442 for the three month period ended March 31, 2018 as compared to the cash provided by investing activities of $14,516 for the same period in 2017. Net cash used in investing activities decreased was the result of the purchase of property, plant and equipment in this quarter.

 

Financing Activities:

Net cash provided by financing activities was $9,758 for the three month period ended March 31, 2018 compared to net cash provided of $27,961 for the same period in 2017. This change was primarily comprised of the decrease in loans from related parties of $9,758 in the first quarter of 2018.

 

As of March 31, 2018, the Company had total assets of $1,296,967 and total liabilities of $2,093,992. Stockholder’s equity as of March 31, 2018 was negative $797,025 compared to a negative equity of $657,555 at December 31, 2017.

 

Off-Balance Sheet Arrangements and Contractual Obligations

 

As at March 31, 2018, our material off-balance sheet arrangements are operating lease obligations. We excluded these items from the balance sheet in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Operating lease commitments consist principally of leases for our office and warehouse. These leases frequently include options which permit us to extend the terms beyond the initial fixed lease term. With respect to most of those leases, we intend to renegotiate those leases as they expire.

.

 
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ITEM 3: QUANTITATIVE AND QUALITAIVE DISCLOSURE ABOUT MARKET RISK

 

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

 

ITEM 4: CONTROLS AND PROCEDURES

 

Under the supervision and the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation as of March 31, 2018 of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our CEO and our CFO concluded that our disclosure controls and procedures were not effective as of March 31, 2017. Such conclusion reflects the identification of material weakness as follows: (1) lack of accounting proficiency of our chief financial officer which has resulted in a reliance on part-time outside consultants to perform substantially all of our accounting functions, (2) a lack of adequate segregation of duties and necessary corporate accounting resources in our financial reporting process and accounting function, and (3) lack of control procedures that include multiple levels of review. Until we are able to remedy these material weaknesses, we have engaged third party consultants and accounting firm to assist with financial reporting.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 
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PART II – OTHER INFORMATION

 

ITEM 1: LEGAL PROCEEDINGS

 

None

 

ITEM 1A: RISK FACTORS

 

There have been no material changes to Sleepaid Holdings’ risk factors as previously disclosed in our most recent Form 10-K filing on April 17, 2018.

 

ITEM 2: SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None

 

ITEM 3: DEFAULTS UPON SENIOR SECURITIES.

 

None

 

ITEM 4: MINE SAFETY DISCLOSURES

 

None

 

ITEM 5: OTHER INFORMATION

 

None

 

ITEM 6: EXHIBITS

 

Exhibit No.

 

Description

 

31.1

 

Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2

 

Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

32.1

 

Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

101

 

Interactive data files pursuant to Rule 405 of Regulation S-T.

 

 
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SIGNATURE

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

SLEEPAID HOLDING CO.

       

Date: May 21, 2018

By: /s/ Tao Wang

 

 

Tao Wang

 
   

Chief Executive Officer

 
    and Chief Financial Officer  

 

 

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