| 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. (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
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. (e)
Fair Value of Financial Instruments The
provisions of accounting guidance, FASB ASC Topic 820 that applies to the Company requires all entities to disclose the fair value
of financial instruments, both assets and liabilities recognized and not recognized on the balance sheets, for which it is practicable
to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged
in a current transaction between willing parties. (f)
Fair Value Measurements FASB
ASC Topic 820, “Fair Value Measurements and Disclosures,” clarifies the definition of fair value for financial reporting,
establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. Various
inputs are considered when determining the fair value of the Company’s debt. The inputs or methodologies used for valuing
securities are not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized
in the three broad levels listed below. Level
1 –observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets. Level
2 –other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.). Level
3 –significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments). The
carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial
assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs.
The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods.
Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial
statement is prepared. The Company had no financial assets or liabilities carried and measured on a recurring basis during the
reporting periods. The
availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including
the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For
many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted
by market participants, and the valuation does not require significant management discretion. For other financial instruments,
pricing inputs are less observable in the market and may require management judgment. (g)
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. (h)
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 years, there was no impairment loss. (i)
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 Hong Kong .and maintain bank accounts in the PRC. (j)
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. (k)
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 year-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:
2017 2016
Year
end HKD: USD exchange rate 7.8128 7.7565
Average
yearly HKD : USD exchange rate 7.7926 7.7622
2017 2016
Year
end RMB: USD exchange rate 6.5063 6.9557
Average
yearly RMB: USD exchange rate 6.7569 6.6433 The
RMB is not freely convertible into foreign currencies and all foreign exchange transactions in the PRC must be conducted through
authorized institutions. Accordingly, management cannot provide any assurance that the RMB underlying the consolidated financial
statement amounts could have been, or could be, converted into HKD or USD at the exchange 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. (l)
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. (m)
Recently implemented standards FASB
Clarifies the Definition of a Business. The
definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The
amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions
(or disposals) of assets or businesses. The amendments provide a more robust framework to use in determining when a set of assets
and activities is a business. They also provide more consistency in applying the guidance, reduce the costs of application, and
make the definition of a business more operable. For
public companies, the amendments are effective for annual periods beginning after December 15, 2017, including interim periods
within those periods. For all other companies and organizations, the amendments are effective for annual periods beginning after
December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The
FASB has issued Accounting Standards Update No. 2017-06, Plan Accounting: Defined Benefit Pension Plans (Topic 960); Defined
Contribution Pension Plans (Topic 962); Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting.
The
amendments are effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The amendments should
be applied retrospectively to each period for which financial statements are presented. The amendments apply to reporting entities
within the scope of Topic 960, Plan Accounting - Defined Benefit Pension Plans, Topic 962, Plan Accounting - Defined Contribution
Pension Plans, Plan Accounting - Health and Welfare Benefit Plans. Under
Topic 960, investments in master trusts are presented in a single line item in the statement of net assets available for benefits.
Similar guidance is not provided in Topic 962 or 965, which has resulted in diversity in practice. For each master trust in which
a plan holds an interest, the amendments require a plan’s interest in that master trust and any change in that interest
to be presented in separate line items in the statement of net assets available for benefits and in the statement of changes in
net assets available for benefits, respectively. Topics
960 and 962 require plans to disclose their percentage interest in the master trust and a list of the investments held by the
master trust, presented by general type, within the plan’s financial statements. The amendments remove the requirement to
disclose the percentage interest in the master trust for plans with divided interests and require that all plans disclose the
dollar amount of their interest in each of those general types of investments. Current
U.S. GAAP does not require disclosure by plans of the master trust’s other assets and liabilities. Examples of those balances
include amounts due from brokers for securities sold, amounts due to brokers for securities purchased, accrued interest and dividends,
and accrued expenses. The amendments require all plans to disclose: (a) their master trust’s other asset and liability balances;
and (b) the dollar amount of the plan’s interest in each of those balances. Lastly,
investment disclosures (e.g., those required by Topics 815 and 820) relating to 401(h) account assets are generally provided in
both the defined benefit pension plan financial statements and the health and welfare benefit plan financial statements. Stakeholders
noted that the disclosures are redundant. The amendments remove that redundancy and do not require that the investment disclosures
relating to the 401(h) account assets be provided in the health and welfare benefit plan’s financial statements. The amendments
will require the health and welfare benefit plan to disclose the name of the defined benefit pension plan in which those investment
disclosures are provided, so that participants can easily access those statements for information about the 401(h) account assets,
if needed. The
FASB has issued Accounting Standards Update (ASU) No. 2017-07, Compensation — Retirement Benefits (Topic 715): Improving
the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Compensation — Retirement Benefits. The
amendments require that an employer report the service cost component in the same line item or items as other compensation costs
arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required
to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations,
if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line
item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the
income statement to present the other components of net benefit cost must be disclosed. The
amendments also allow only the service cost component to be eligible for capitalization when applicable (e.g., as a cost of internally
manufactured inventory or a self-constructed asset). The
amendments are effective for public business entities for annual periods beginning after December 15, 2017, including interim
periods within those annual periods. For other entities, the amendments are effective for annual periods beginning after December
15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted as of the beginning
of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The
FASB has issued Accounting Standards Update (ASU) No. 2017-09, Compensation—Stock Compensation (Topic 718) — Scope
of Modification Accounting. The
FASB adopted ASU 2017-09 to provide clarity and reduce diversity in practice as well as cost and complexity when applying the
guidance in Topic 718, Compensation—Stock Compensation Diversity
in practice has arisen in part because some entities apply modification accounting under Topic 718 for modifications to terms
and conditions that they consider substantive, but do not when they conclude that particular modifications are not substantive.
Others apply modification accounting for any change to an award, except for changes that they consider purely administrative in
nature. Still others apply modification accounting when a change to an award changes the fair value, the vesting, or the classification
of the award. In practice, it appears that the evaluation of a change in fair value, vesting, or classification may be used to
evaluate whether a change is substantive. Although
the Master Glossary of the FASB Accounting Standards Codification™ currently defines the term modification as “a change
in any of the terms or conditions of a share-based payment award,” Topic 718 does not contain guidance on what changes are
substantive or purely administrative. The
amendments in ASU 2017-09 include guidance on determining which changes to the terms and conditions of share-based payment awards
require an entity to apply modification accounting under Topic 718. These
amendments require the entity to account for the effects of a modification unless all of the following conditions are met:
The
fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award
is the same as the fair value (or value using an alternative measurement method) of the original award immediately before
the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the
entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification;
The
vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the
original award is modified; and
The
classification of the modified award as an equity instrument or a liability instrument is the same as the classification of
the original award immediately before the original award is modified. The
amendments are effective for all entities for annual periods, and interim periods within those annual periods, beginning after
December 15, 2017. Early
adoption is permitted, including adoption in any interim period for: (a) public business entities for reporting periods for which
financial statements have not yet been issued, and (b) all other entities for reporting periods for which financial statements
have not yet been made available for issuance. The amendments should be applied prospectively to an award modified on or after
the adoption date. FASB
Amends SEC Paragraphs related to Revenue Recognition and Leases Standards for Public Business Entities Revenue From Contracts with Customers
Leases Revenue Recognition (Topic
605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs
Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer
Comments. ASU
2017-13 codifies portions of an SEC Staff Announcement made at the July 20, 2017 Emerging Issues Task Force (EITF) meeting essentially
delaying the effective date of the revenue recognition and leases standards for a subset of public entities . The SEC Observer
made the following SEC Staff Announcement, “Transition Related to Accounting Standards Updates No. 2014-09 and 2016-02,”
at the July 20, 2017 EITF meeting: The
SEC staff would not object to a public business entity that otherwise would not meet the definition of a public business entity
except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s
filing with the SEC adopting (1) ASC Topic 606, Revenue from Contracts with Customers Leases A
public business entity that otherwise would not meet the definition of a public business entity except for a requirement to include
or the inclusion of its financial statements or financial information in another entity’s filing with the SEC may still
elect to adopt ASC Topic 606 and ASC Topic 842 according to the public business entity effective dates. This
announcement is applicable only to public business entities that otherwise would not meet the definition of a public business
entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s
filing with the SEC. This announcement is not applicable to other public business entities. (n)
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 year 2017, there was an allowance of doubtful debts of
$70,649. 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. (o)
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. (p)
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. (q)
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. (r)
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 year ended
December 31, 2017 and December 31, 2016 were $57,984 and $70,845, respectively (s)
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. (t)
Advertising costs The
Company expensed all advertising costs as incurred. Advertising expenses, net of reimbursement from suppliers, amounted to $10,907
and $29,580 for the years ended December 31, 2017 and 2016 respectively. Advertising expense is included in selling expense and
general administrative expense in the accompanying consolidated statements of income. (u)
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. (v)
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 $41,384 and $39,039 for the years ended December 31, 2017 and
2016, respectively. (w)
Stock-based compensation Stock-based
compensation concerning stock options and common stock awards granted to employees and directors for services and are accounted
for in accordance with FASB ASC 718 “Compensation - Stock Compensation” and share-based compensation including warrants
and common stock awards granted to consultants and nonemployees are accounted for in accordance with FASB ASC 505-50 “Equity-Based
Payment to Non-employees. All
grants of common stock awards and stock options/warrants to employees and directors are recognized in the financial statements
based on their grant date fair values. Awards to consultants and nonemployees are recognized based upon their fair value as of
the earlier of a commitment date or completion of services. The
Company estimates fair value of common stock awards based the quoted price of the Company’s common stock on the date of
grant. The fair value of stock options and warrants is determined using the Black-Scholes option pricing model. (x)
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. (y)
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. (z)
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. |
