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)
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Method of Accounting
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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.
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(b)
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Principles of consolidation
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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.
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SLEEPAID HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b)
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Principles of consolidation (continued)
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The following table depicts the identity of the subsidiary:
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Name of Subsidiary
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Place of
Incorporation
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Attributable Equity
Interest %
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Registered
Capital
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Yugosu Investment Limited (1)
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Hong Kong
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100
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HKD 10,000
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Nice Great International Limited (1)
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Hong Kong
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100
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HKD 100
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Guangzhou Sleepaid Household Supplies Co., Ltd. (2)
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PRC
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100
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RMB 3,000,000
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Yuewin Trading Ltd (3)
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PRC
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100
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RMB 500,000
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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)
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Use of estimates
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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.
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(d)
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Economic and political risks
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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.
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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.
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(e)
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Property, plant and equipment
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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.
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Estimated useful lives of the plant and equipment are as follows:
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Furniture and fixtures
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5 years
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Office equipment
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2 - 5 years
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Motor vehicles
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4 - 5 years
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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.
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SLEEPAID HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f)
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Accounting for the impairment of long-lived assets
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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.
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During the reporting periods, there was no impairment loss.
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(g)
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Cash and concentration of risk
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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.
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(h)
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Income taxes
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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.
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(i)
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Foreign currency translation
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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..
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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:
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For the nine months and year ended, (Average Rate)
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Sept.30, 2018
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Dec31, 2017
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Sept.30, 2017
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Chinese Renminbi (RMB)
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RMB
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6.51528
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RMB
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6.75690
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RMB
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6.80732
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United States dollar ($)
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$
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1.00000
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$
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1.00000
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$
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1.00000
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As of (Closing Rate)
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Sept. 30, 2018
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Dec 31, 2017
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Sept. 30, 2017
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Chinese Renminbi (RMB)
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RMB
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6.86832
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RMB
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6.50630
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RMB
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6.65490
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United States dollar ($)
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$
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1.00000
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$
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1.00000
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$
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1.00000
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For the nine months and year ended, (Average Rate)
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Sept. 30, 2018
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Dec 31, 2017
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Sept. 30, 2017
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Hong Kong (HKD)
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HKD
|
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7.84023
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HKD
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7.79259
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HKD
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7.78721
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United States dollar ($)
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$
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1.0000
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$
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1.00000
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$
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1.00000
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As of (Closing Rate)
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Sept. 30, 2018
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Dec 31, 2017
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Sept. 30, 2017
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Hong Kong (HKD)
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HKD
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|
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7.82866
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HKD
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|
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7.81280
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HKD
|
|
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7.81164
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United States dollar ($)
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|
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$
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1.00000
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$
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1.00000
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|
|
|
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$
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1.00000
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SLEEPAID HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i)
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Foreign currency translation (continued)
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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.
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(j)
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Comprehensive income
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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.
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(k)
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Recently issued accounting guidance
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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.
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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:
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·
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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
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·
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Clarifying that new or modified land easements should be evaluated under the new leases standard, once an entity has adopted the new standard.
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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.
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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.
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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)
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The ASU requires financial statement preparers to disclose:
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·
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A description of the accounting policy for releasing income tax effects from AOCI;
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·
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Whether they elect to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act; and
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·
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Information about the other income tax effects that are reclassified.
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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.
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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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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:
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·
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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.
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·
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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.
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·
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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.
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·
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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.
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·
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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.
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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)
|
|
·
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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.
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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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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.
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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).
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ASU 2018-05 adds the following guidance, among other things, to the FASB Accounting Standards Codification™ regarding the Act:
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·
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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?
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·
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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.
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·
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Question 2: If an entity accounts for certain income tax effects of the Act under a measurement period approach, what disclosures should be provided?
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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)
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|
·
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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:
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a)
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Qualitative disclosures of the income tax effects of the Act for which the accounting is incomplete;
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b)
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Disclosures of items reported as provisional amounts;
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c)
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Disclosures of existing current or deferred tax amounts for which the income tax effects of the Act have not been completed;
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d)
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The reason why the initial accounting is incomplete;
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e)
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The additional information that is needed to be obtained, prepared, or analyzed in order to complete the accounting requirements under Topic 740;
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f)
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The nature and amount of any measurement period adjustments recognized during the reporting period;
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g)
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The effect of measurement period adjustments on the effective tax rate; and
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h)
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When the accounting for the income tax effects of the Act has been completed.
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ASU 2018-05 is effective upon inclusion in the FASB Codification.
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(l)
|
Account receivable
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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.
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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 periods, there was a bad debt of $66,925.
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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.
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(m)
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Inventories
|
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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.
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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.
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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.
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SLEEPAID HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(m)
|
Inventories (continued)
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|
|
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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(n)
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Revenue recognition
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The Company earns revenue by selling merchandise through self-managed retail stores inside shopping malls, franchise stores and wholesale agent.
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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.
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Revenue from franchised stores is recognized after goods delivered and cash collected (normally cash on delivery) from the franchise retail stores.
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Revenue from wholesale agent is recognized after goods delivered, amount fixed or determined and collectability is reasonably assured.
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All revenues are shown net of estimated returns during the relevant period represented by estimated allowance for sales returns based upon historical experience.
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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.
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(o)
|
Cost of sales
|
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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.
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(p)
|
Operating lease rental
|
|
|
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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 nine months ended September 30, 2018 and 2017 were $31,771 and $50,571, respectively.
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(q)
|
Selling expenses
|
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|
|
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.
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(r)
|
Advertising costs
|
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|
|
The Company expensed all advertising costs as incurred. Advertising expenses, net of reimbursement from suppliers, amounted to $11,329 and $8,749 for the nine months ended September 30, 2018 and 2017 respectively. Advertising expense is included in selling expense in the accompanying consolidated statements of income.
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(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.
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|
|
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.
|
SLEEPAID HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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 $20,120 and $122,351 for the nine months ended September 30, 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.
|
SLEEPAID HOLDING CO. AND SUBSIDIARIES
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 September 30, 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 September 30, 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 nine months ended September 30, 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
September 30, 2018
|
|
|
As at
December 31, 2017
|
|
A
|
|
$
|
247,121
|
|
|
|
22
|
%
|
|
$
|
233,246
|
|
|
|
12
|
%
|
B
|
|
|
122,054
|
|
|
|
11
|
%
|
|
|
175,093
|
|
|
|
9
|
%
|
C
|
|
|
115,047
|
|
|
|
10
|
%
|
|
|
157,489
|
|
|
|
8
|
%
|
D
|
|
|
108,155
|
|
|
|
9
|
%
|
|
|
154,072
|
|
|
|
8
|
%
|
Total
|
|
$
|
592,377
|
|
|
|
52
|
%
|
|
$
|
719,900
|
|
|
|
37
|
%
|
Accounts Payable:
|
|
|
|
|
|
|
|
|
|
Supplier
|
|
As at
September 30, 2018
|
|
|
As at
December 31, 2017
|
|
A
|
|
$
|
185,353
|
|
|
|
27
|
%
|
|
$
|
407,433
|
|
|
|
23
|
%
|
B
|
|
|
145,353
|
|
|
|
21
|
%
|
|
|
384,994
|
|
|
|
22
|
%
|
C
|
|
|
123,274
|
|
|
|
18
|
%
|
|
|
163,542
|
|
|
|
9
|
%
|
D
|
|
|
86,389
|
|
|
|
13
|
%
|
|
|
126,489
|
|
|
|
7
|
%
|
E
|
|
|
32,554
|
|
|
|
5
|
%
|
|
|
87,043
|
|
|
|
5
|
%
|
Total
|
|
$
|
572,913
|
|
|
|
84
|
%
|
|
$
|
1,169,501
|
|
|
|
66
|
%
|
NOTE 4. PROPERTY, PLANT AND EQUIPMENT, NET
Details of property, plant and equipment are as follows:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
At cost
|
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
7,812
|
|
|
$
|
8,246
|
|
Office equipments
|
|
|
21,029
|
|
|
|
21,709
|
|
Motor vehicles
|
|
|
24,023
|
|
|
|
25,360
|
|
|
|
|
52,864
|
|
|
|
55,315
|
|
Less: accumulated depreciation
|
|
|
(40,820
|
)
|
|
|
(38,636
|
)
|
|
|
$
|
12,044
|
|
|
$
|
16,679
|
|
Depreciation expense included in the general and administrative expenses for the nine months ended September 30, 2018 and 2017 were $4,394 and $6,914 respectively.
Depreciation expense for the three months ended September 30, 2018 and 2017 were $1,291 and $2,149 respectively.
SLEEPAID HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INTANGIBLE ASSETS
Intangible assets, net comprise the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
At cost
|
|
|
|
|
|
|
Trademark
|
|
$
|
1,533
|
|
|
$
|
1,537
|
|
Computer software
|
|
|
20,054
|
|
|
|
21,170
|
|
|
|
|
21,587
|
|
|
|
22,707
|
|
Less: accumulated amortization
|
|
|
(10,361
|
)
|
|
|
(7,764
|
)
|
|
|
$
|
11,226
|
|
|
$
|
14,943
|
|
Amortization expense included in the general and administrative expenses for the nine months ended September 30, 2018 and 2017 were $3,171 and $2,883 respectively.
Amortization expense included in the general and administrative expenses for the three months ended September 30, 2018 and 2017 were $1,008 and $980 respectively.
NOTE 6. ACCOUNT PAYABLES
Account payables were comprised of the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$
|
862,872
|
|
|
$
|
710,212
|
|
NOTE 7. OTHER RECEIVABLES
Other receivables were comprised of the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Disbursement and advances to employees
|
|
$
|
23,331
|
|
|
$
|
15,500
|
|
Research development project deposit *
|
|
|
14,728
|
|
|
|
-
|
|
Deposit paid
|
|
|
21,783
|
|
|
|
51,475
|
|
|
|
$
|
59,842
|
|
|
$
|
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.
NOTE 8. OTHER PAYABLES
Other payables were comprised of the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Loan advances from unrelated parties
|
|
$
|
211,360
|
|
|
$
|
223,232
|
|
Deposit received
|
|
|
8,736
|
|
|
|
9,222
|
|
Sundries
|
|
|
36,207
|
|
|
|
23,911
|
|
|
|
$
|
256,303
|
|
|
$
|
256,365
|
|
SLEEPAID HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 nine-months ended September 30, 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:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
(Loss) Profit before income tax
|
|
$
|
(12,972
|
)
|
|
$
|
(52,671
|
)
|
Temporary Difference
|
|
|
-
|
|
|
|
-
|
|
Permanent Difference
|
|
|
-
|
|
|
|
-
|
|
Taxable income
|
|
$
|
(12,972
|
)
|
|
$
|
(52,671
|
)
|
Federal Income Tax rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Current tax credit
|
|
$
|
4,410
|
|
|
$
|
17,908
|
|
Less: Valuation allowance
|
|
|
(4,410
|
)
|
|
|
(117,908
|
)
|
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:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Profit (Loss) before income tax
|
|
$
|
(59,842
|
)
|
|
$
|
(50,498
|
)
|
Temporary Difference
|
|
|
-
|
|
|
|
-
|
|
Permanent Difference
|
|
|
-
|
|
|
|
-
|
|
Taxable income
|
|
$
|
(59,842
|
)
|
|
$
|
(50,498
|
)
|
Hong Kong Profit Tax rate
|
|
|
16.5
|
%
|
|
|
16.5
|
%
|
Current tax credit
|
|
$
|
9,874
|
|
|
$
|
8,332
|
|
Less: Valuation allowance
|
|
|
(9,874
|
)
|
|
|
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 nine-months and year ended September 30, 2018 and December 31, 2017.
Profit (loss) before income tax of $(276,136) and $(502,952) for the nine-months and year ended September 30, 2018 and December 31, 2017, respectively, were attributed to operations in China. The income tax expenses consisted of the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Profit (Loss) before income tax
|
|
$
|
(276,136
|
)
|
|
$
|
(502,952
|
)
|
Temporary Difference
|
|
|
-
|
|
|
|
503,057
|
|
Permanent Difference
|
|
|
-
|
|
|
|
-
|
|
Taxable income
|
|
$
|
(276,136
|
)
|
|
$
|
105
|
|
China Enterprise Income Tax rate
|
|
|
25
|
%
|
|
|
25
|
%
|
Current tax credit
|
|
$
|
69,034
|
|
|
$
|
26
|
|
Less: Valuation allowance
|
|
|
(69,034
|
)
|
|
|
-
|
|
Income tax expenses
|
|
$
|
-
|
|
|
$
|
26
|
|
SLEEPAID HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. INCOME TAXES (CONTINUED)
No deferred tax has been provided as there are no material temporary differences arising during the nine-months and year ended September 30, 2018 and December 31, 2017.
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company has operating lease agreements for office premises, which expiring through September 30, 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 September 30,
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
2018 and thereafter
|
|
|
10,590
|
|
|
|
10,181
|
|
|
|
$
|
10,590
|
|
|
$
|
10,181
|
|
Rental expense for the nine-months ended September 30, 2018 and 2017 were $31,771 and $21,671 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.
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:
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
Numerator
|
|
|
|
|
|
|
Net (loss)/income
|
|
$
|
(321,976
|
)
|
|
$
|
(411,869
|
)
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average shares – Basic EPS
|
|
|
13,710,208
|
|
|
|
13,663,322
|
|
Weighted average shares – Diluted EPS
|
|
|
13,710,208
|
|
|
|
13,663,322
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share – Basic and Diluted
|
|
|
|
|
|
|
|
|
EPS - basic and diluted
|
|
$
|
(2.35cents
|
)
|
|
$
|
(3.01cents
|
)
|
SLEEPAID HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. RELATED PARTY TRANSACTIONS
Related party transactions comprised of loans from related parties and from director by director current account. As of September 30, 2018 and December 31, 2017, the loans from related parties were $785,076 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:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Cheung, Kuen Harry (a)
|
|
$
|
486,667
|
|
|
$
|
467,925
|
|
Cheung, Hang Dennis (b)
|
|
|
48,047
|
|
|
|
50,720
|
|
Yugosu International Limited (c)
|
|
|
250,362
|
|
|
|
250,870
|
|
|
|
|
|
|
|
|
|
|
Total loans from related parties
|
|
$
|
785,076
|
|
|
$
|
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
NOTE 14. GOING CONCERN
As of September 30, 2018, the Company has accumulated deficits of $983,320, and its current liabilities exceed its current assets resulting in negative working capital of $1,006,514. 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.
SLEEPAID HOLDING CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. SUBSEQUENT EVENTS
The Company has evaluated all other subsequent events through August 21, 2019, 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 August 6, 2018, the Board of Directors the Company has unanimously approved the engagement with Zia Masood Kiani & Co. (the “ZMK”) as the Company’s independent registered public accounting firm for the Company’s fiscal year ended December 31, 2018 starting from the 2nd quarter of 2018, effective immediately, and accepted the resignation of Centurion ZD CPA Ltd. as the Company’s independent registered public accounting firm.
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. On August 24, 2018, the Intermediate Court of People in Guangzhou, Guangdong Province, made the decision that the appeal was not justified and the Company need to paid the account payable, interest and cost of appeal, and expenses of $15,645.
On September 10, 2018, the Company and ZZLL Information Technology, Inc. (“ZZLL”), have mutually agreed to terminate the Share Exchange Agreement (“the Agreement”) between the Company and ZZLL, for all issued and outstanding shares of Yugosu Investment Limited and Yugosu’s subsidiaries to ZZLL’s wholly owned subsidiary Syndicore Asia Limited (“SAL”) for issuance of an aggregate 12,000,000 shares of the common stock of ZZLL. The parties have entered into a Mutual Termination Agreement. This termination is effective immediately, and as a result thereof the parties shall have no further rights or obligations under the Agreement.
On January 3, 2019 the Company completed an offering of 500,000 shares of its common stock to one shareholder, pursuant to an exemption from registration provided by Section 4(2) of the Securities Act of 1933, for total consideration of $5,000.00 at $0.01 per share.
On January 18, 2019, a subsidiary of the Company entered into a Shares Trading Agreement (the “Agreement”) whereby the subsidiary, Yugosu Investment Limited (“Yugosu”), agreed to sell its two subsidiaries, Guangzhou Sleepaid Household Supplies Co., Ltd. (“Household”) and Guangzhou Yuewin Trading Co., Ltd. (“Yuewin”) to two unrelated third parties, Baitao Wang (“Wang”) and Guangzhou Pulosi Investment Consulting Co., Ltd. (“GPICC”). GPICC acquired 99% of Household and Yuewin and Wang acquired one percent (1%) of Household and Yuewin. As a result of this Agreement, the Company no longer owns its subsidiaries, Household and Yuewin. Yugosu received total consideration of 10,000 RMB. On January 31, 2019, the Agreement was completed, and ownership transferred to the new owners.
On March 1, 2019 the Company completed an offering of 20,000,000 shares of its common stock to four independent investors, of which a major offering of 15,252,000 shares sold to Mr. Zheng Huihe, pursuant to an exemption from registration provided by Section 4(2) of the Securities Act of 1933, for total consideration of $5,000.00 at $0.01 per share.
On March 28, 2019, the Company received the resignation of a director and its Chairman of the Board, Wong, Yumyim for personal reasons. On March 29, 2919, the Company appointed Zheng Huihe as a director of the Company.
On May 9, 2019, the Company appointed Lowell Howell as a director of the Company.