Sleepaid Holding (SLPA) 10-Q 2018 Q2 Quarterly report

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 June 30, 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 August 21, 2019, 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 June 30, 2018 and December 31, 2017		3
	Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017		4
	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended, June 30, 2018 and 2017		6
	Notes to Unaudited Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3.	Quantitative and Qualitative Disclosures About Market Risks		26
Item 4.	Controls and Procedures		26
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings		27
Item 1A.	Risk Factors		27
Item 2.	Unregistered Sales of Equity and Use of Proceeds		27
Item 3.	Default upon Senior Securities		27
Item 4.	Mine Safety Disclosures		27
Item 5.	Other Information		27
Item 6.	Exhibits		27
SIGNATURES			28

2

PART I. FINANCIAL INFORMATION

ITEM: 1 FINANCIAL STATEMENT 

SLEEPAID HOLDING CO. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	Notes	June 30,  2018			December 31, 2017
ASSETS		(Unaudited)			(Audited)
Current assets:
Cash and cash equivalents		$	11,912		$	67,321
Trade receivable, net of allowance for doubtful accounts of $69,438 for June 30, 2018 and $70,649 for Dec 31, 2017			203,426			205,434
Inventories, net			845,302			843,747
Advances to suppliers			38,934			47,915
Other receivables	7		75,184			66,975
Total current assets			1,174,758			1,231,392
Non-current assets:
Property, plant and equipment, net	4		13,934			16,679
Intangible assets	5		12,626			14,943
Restricted cash			53,978			50,871
Total non-current assets			80,538			82,493
TOTAL ASSETS		$	1,255,296		$	1,313,885
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	6	$	803,407		$	710,212
Accrued expense			180,998			159,172
Advances from customer			79,632			56,796
Loans from related parties	13		806,440			769,515
Income tax payables			16,934			17,506
Other payables	8		257,460			256,365
Accrued salaries			1,609			1,874
Total current liabilities			2,146,480			1,971,440
TOTAL LIABILITIES		$	2,146,480		$	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 June 30, 2018 and December 31, 2017 respectively			13,713			13,663
Additional paid-in capital			175,833			155,883
Accumulated other comprehensive (loss) income			(152,751	)		(165,757	)
(Accumulated loss)/ retained earnings			(927,979	))		(661,344	)
TOTAL STOCKHOLDERS’ EQUITY			(891,184	)		(657,555	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,255,296		$	1,313,885

See accompanying notes to unaudited consolidated financial statements

3

SLEEPAID HOLDING CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

		(Unaudited)
		Three Months Ended June 30,
	Notes	2018			2017
Net revenue		$	414,685		$	468,813
Cost of sales			(291,376	)		(372,286	)
Gross profit			123,309			96,527
Operating expenses:
Selling expenses			61,052			67,368
General and administrative expenses			168,261			137,643
Total operating expenses			229,313			205,011
(Loss) Income from operations			(106,004	)		(108,484	)
Non-operating income (expense):
Interest income			9			107
Interest expenses			(2,156	)		(8,295	)
Other income			18			-
Other expenses			(174	)		(276	)
Total non-operating income (expense)			(2,303	)		(8,464	)
(Loss) Income before income taxes			(108,307	)		(116,948	)
Income taxes			-			-
Net (loss) income			(108,307	)		(116,948	)
Comprehensive income statement:
Net (loss) income			(108,307	)		(116,948	)
Foreign currency translation adjustment			14,166			11,504
Comprehensive (Loss) Income		$	(94,141	)	$	(105,444	)
Basic (loss) earnings per share of common stock		$	(0.0079	)	$	(0.0086	)
Diluted (loss) earnings per share		$	(0.0079	)	$	(0.0086	)
Weighted average shares used in calculating loss per common stock – basic			13,713,322			13,663,322
Weighted average shares used in calculating loss per common stock – diluted			13,713,322			13,663,322

 

See accompanying notes to unaudited consolidated financial statements

4

 SLEEPAID HOLDING CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

		(Unaudited)
		Six Months Ended June 30,
	Notes	2018			2017
Net revenue		$	815,694		$	1,049,200
Cost of sales			(629,844	)		(823,310	)
Gross profit			185,850			225,890
Operating expenses:
Selling expenses			174,598			156,893
General and administrative expenses			271,400			319,263
Total operating expenses			445,998			476,156
(Loss) Income from operations			(260,148	)		(250,266	)
Non-operating income (expense):
Interest income			35			678
Interest expenses			(6,088	)		(8,295	)
Other income			18			9
Other expenses			(452	)		(731	)
Total non-operating income (expense)			(6,487	)		(8,339	)
(Loss) Income before income taxes			(266,635	)		(258,605	)
Income taxes	9		-			-
Net (loss) income			(266,635	)		(258,605	)
Comprehensive income statement:
Net (loss) income			(266,635	)		(258,605	)
Foreign currency translation adjustment			13,006			11,596
Comprehensive (Loss) Income		$	(253,629	)	$	(247,009	)
Basic (loss) earnings per share of common stock	12	$	(0.0195	)	$	(0.0189	)
Diluted (loss) earnings per share	12	$	(0.0195	)	$	(0.0189	)
Weighted average shares used in calculating loss per common stock – basic			13,708,626			13,663,322
Weighted average shares used in calculating loss per common stock – diluted			13,708,626			13,663,322

See accompanying notes to unaudited consolidated financial statements

5

SLEEPAID HOLDING CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

		(Unaudited)
		Six Months Ended June 30,
	Notes	2018			2017
Cash flows provided by (used for) operating activities:
Net (loss) income	12	$	(266,635	)	$	(258,605	)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation			2,998			2,841
Consultancy fee			6,648			8,199
Accumulated amortization of intangible assets			2,163			1,903
Profit on Disposal of Assets			-			-
Changes in operating assets and liabilities:
Trade receivable			(1,574	)		486,941
Inventories			(16,654	)		(105,675	)
Advances to suppliers			8,482			(65,273	)
Other receivables			(9,725	)		(683	)
Prepaid expenses			8,599			(5,069	)
Restricted cash			(4,136	)		-
Accounts payable			109,537			(161,758	)
Other payables			5,277			51,744
Advances from customer			24,751			2,744
Tax payables			(283	)		(8,413	)
Accrued liabilities			22,906			10,796
Net cash (used for) provided by operating activities			(107,646	)		(40,308	)
Cash flows used for investing activities:
Purchases of property, plant and equipment			(441	)		-
Proceeds from sale of PPE			-			-
Short-term investments			-			14,545
Net cash used for investing activities			(441	)		14,545
Cash flows provided by (used for) financing activities:
Loans from related parties			44,564			25,524
Issuance of common stock			6,983			-
Net cash provided by (used for) financing activities			51,547			25,524
Net (decrease) increase in cash			(56,540	)		(239	)
Effect of foreign currency translation			1,131			2,113
Cash – beginning of period			67,321			86,101
Cash – end of period		$	11,912		$	87,975
Supplemental disclosures of cash flow information:
Interest paid		$	(6,088	)	$	(8,295	)
Issuance of 50,000 shares of common stock at $0.001 par value		$	20,000		$	-

 

See accompanying notes to unaudited consolidated financial statements

6

 

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.

(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.

7

SLEEPAID HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(b) Principles of consolidation (continued)

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.

(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.

8

 

SLEEPAID HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(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.

(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 six months and year ended, (Average Rate)	June. 30, 2018			Dec 31, 2017			June. 30, 2017
Chinese Renminbi (RMB)	RMB		6.36810	RMB		6.75690	RMB		6.87523
United States dollar ($)		$	1.00000		$	1.00000		$	1.00000
As of (Closing Rate)	June. 30, 2018			Dec 31, 2017			June. 30, 2017
Chinese Renminbi (RMB)	RMB		6.61980	RMB		6.50630	RMB		6.77742
United States dollar ($)		$	1.00000		$	1.00000		$	1.00000
For the six months and year ended, (Average Rate)	June. 30, 2018			Dec 31, 2017			June. 30, 2017
Hong Kong (HKD)	HKD		7.83779	HKD		7.79259	HKD		7.77343
United States dollar ($)		$	1.0000		$	1.00000		$	1.00000
As of (Closing Rate)	June. 30, 2018			Dec 31, 2017			June. 30, 2017
Hong Kong (HKD)	HKD		7.84633	HKD		7.81280	HKD		7.80588
United States dollar ($)		$	1.00000		$	1.00000		$	1.00000

9

SLEEPAID HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(i) Foreign currency translation (continued)

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.

(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.

10

 

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)

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.

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.

 

11

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)

· 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.

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?

 

12

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)

· 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.

(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 periods, there was a bad debt of $69,438.

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.

13

SLEEPAID HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(m) Inventories (continued)

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.

(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 six months ended June 30, 2018 and 2017 were $21,671 and $35,777, 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 $11,455 and $8,663 for the six months ended June 30, 2018 and 2017 respectively. Advertising expense is included in selling expense in the accompanying consolidated statements of income.

(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.

14

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 $12,877 and $14,747 for the six months ended June 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.

15

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 June 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 June 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 six months ended June 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 June 30, 2018				As at December 31, 2017
A	$	161,388	20	%	$	233,246	12	%
B		89,824	11	%		175,093	9	%
C		84,254	10	%		157,489	8	%
D		77,279	9	%		154,072	8	%
Total	$	412,745	50	%	$	719,900	37	%

 Accounts Payable：

Supplier	As at June 30, 2018				As at December 31, 2017
A	$	126,287	26	%	$	407,433	23	%
B		102,761	21	%		384,994	22	%
C		86,120	17	%		163,542	9	%
D		79,768	16	%		126,489	7	%
E		24,377	5	%		87,043	5	%
Total	$	419,313	85	%	$	1,169,501	66	%

NOTE 4. PROPERTY, PLANT AND EQUIPMENT, NET

Details of property, plant and equipment are as follows:

	June 30, 2018			December 31, 2017
At cost
Furniture and fixtures	$	8,105		$	8,246
Office equipments		21,775			21,709
Motor vehicles		24,925			25,360
		54,805			55,315
Less: accumulated depreciation		(40,871	)		(38,636	)
	$	13,934		$	16,679

Depreciation expense included in the general and administrative expenses for the six months ended June 30, 2018 and 2017 were $2,998 and $2,841 respectively.

Depreciation expense for the three months ended June 30, 2018 and 2017 were $1,442 and $1,340 respectively.

16

SLEEPAID HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5. INTANGIBLE ASSETS

Intangible assets, net comprise the following:

	June 30, 2018			December 31, 2017
At cost
Trademark	$	1,529		$	1,537
Computer software		20,807			21,170
		22,336			22,707
Less: accumulated amortization		(9,710	)		(7,764	)
	$	12,626		$	14,943

Amortization expense included in the general and administrative expenses for the six months ended June 30, 2018 and 2017 were $2,163 and $1,903 respectively.

Amortization expense included in the general and administrative expenses for the three months ended June 30, 2018 and 2017 were $1,802 and $953 respectively.

NOTE 6. ACCOUNT PAYABLES

Account payables were comprised of the following:

	June 30, 2018		December 31, 2017
Trade payables	$	803,407	$	710,212

NOTE 7. OTHER RECEIVABLES

Other receivables were comprised of the following:

	June 30, 2018		December 31, 2017
Disbursement and advances to employees	$	24,589	$	15,500
Research development project deposit *		14,695		-
Deposit paid		35,900		51,475
	$	75,184	$	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:

	June 30, 2018		December 31, 2017
Loan advances from unrelated parties	$	219,295	$	223,232
Deposit received		9,064		9,222
Sundries		29,101		23,911
	$	257,460	$	256,365

    

17

 

 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 six-months ended June 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:

	June 30, 2018			December 31, 2017
(Loss) Profit before income tax	$	(9,648	)	$	(52,671	)
Temporary Difference		-			-
Permanent Difference		-			-
Taxable income	$	(9,648	)	$	(52,671	)
Federal Income Tax rate		34	%		34	%
Current tax credit	$	3,280		$	17,908
Less: Valuation allowance		(3,280	)		(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:

	June 30, 2018			December 31, 2017
Profit (Loss) before income tax	$	(31,985	)	$	(50,498	)
Temporary Difference		-			-
Permanent Difference		-			-
Taxable income	$	(31,985	)	$	(50,498	)
Hong Kong Profit Tax rate		16.5	%		16.5	%
Current tax credit	$	5,278		$	8,332
Less: Valuation allowance		(5,278	)		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 six-months and year ended June 30, 2018 and December 31, 2017.

Profit (loss) before income tax of $(225,002) and $(502,952) for the six-months and year ended June 30, 2018 and December 31, 2017, respectively, were attributed to operations in China. The income tax expenses consisted of the following:

	June 30, 2018			December 31, 2017
Profit (Loss) before income tax	$	(225,002	)	$	(502,952	)
Temporary Difference		-			503,057
Permanent Difference		-			-
Taxable income	$	(225,002	)	$	105
China Enterprise Income Tax rate		25	%		25	%
Current tax credit	$	56,251		$	26
Less: Valuation allowance		(56,251	)		-
Income tax expenses	$	-		$	26

18

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 six-months and year ended June 30, 2018 and December 31, 2017.

NOTE 10. COMMITMENTS AND CONTINGENCIES

The Company has operating lease agreements for office premises, which expiring through June 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 June 30,	2018		2017
2018 and thereafter		21,671		10,181
	$	21,671	$	10,181

Rental expense for the six-months ended June 30, 2018 and 2017 were $21,671 and $35,777 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:

	June 30, 2018			June 30, 2017
Numerator
Net (loss)/income	$	(266,635	)	$	(258,605	)
Denominator
Weighted average shares – Basic EPS		13,708,626			13,663,322
Weighted average shares – Diluted EPS		13,708,626			13,663,322
Net income (loss) per share – Basic and Diluted
EPS - basic and diluted	$	(0.020	)	$	(0.019	)

19

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 June 30, 2018 and December 31, 2017, the loans from related parties were $806,440 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:

	June 30, 2018		December 31, 2017
Cheung, Kuen Harry (a)	$	506,791	$	467,925
Cheung, Hang Dennis (b)		49,850		50,720
Yugosu International Limited (c)		249,799		250,870
Total loans from related parties	$	806,440	$	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 June 30, 2018, the Company has accumulated deficits of $927,979, and its current liabilities exceed its current assets resulting in negative working capital of $971,722. 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.

20

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 USD 185,030 (RMB 1,162,115), and interest revised to $13,062.

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.

21

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 six months ended June 30, 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 six months ended June 30, 2018, our total revenue was $815,694. Of this total revenue, the revenue generated by our self-managed store was $735,041, the revenue generated by the franchised stores totaled $Nil, and the revenue generated by direct sales was totaled $80,653. Our revenues by brand for the six months ended June 30, 2018 were as follows: Revenue of SleepAid was $730,507, and BEMCO was $85,187.

Result of the Three months ended June 30, 2018 and 2017

Net Revenue

In the three months ended June 30, 2018, our revenue was $414,685, compared to $468,813 the same period in 2017. In three months ended, the revenue decreased by 11.55% from the same period in 2017. The revenue generated by our self-managed store was $384,417, and by direct sales was totaled $30,268. Our revenues by brand for the three months ended June 30, 2018 were as follows: Revenue of SleepAid was $377,424, and BEMCO was $37,261.

Cost of Sales

In the three months ended June 30, 2018, the cost was $291,376 compared to the same period in 2017 decreased 21.73% from $372,286. The change of cost of sales reflects a decreasing rate more than that of the decrease rate in revenue. This was caused by the effective cost control activities executed during the period.

Selling expense

In the three months ended June 30, 2018 and 2017, the selling expense was $61,052 and $67,368 respectively. The decrease of 9.38% which reflected that spending ratio to sales volume was decreasing coordinate with the decrease in revenue.

General and administrative expense

General and administrative expense for the three months ended June 30, 2018 was $168,261 compared to the same period in 2017 increase 22.24% from $137,643, the increase was attributed to the increase in research and development expenses.

22

Income Tax

During the three months ended June 30, 2018 and 2017, the company incurred no tax and its subsidiary has paid $Nil and $Nil tax respectively as a foreign corporation.

Net Loss

The Company recorded a net loss of $108,307 for the three months ended June 30, 2018 compared to the net loss of $116,948 for the same period in 2017. The net loss decreased by 7.39%. The changes of net loss were mainly due to the slight improvement in cost of sales as mentioned above.

Interest expenses

In the three months ended June 30, 2018 and 2017, the interest expenses were $2,156 and $8,295 respectively. The decreased of interest expenses were result of the amount paid to Yugosu International Limited in this quarter.

Result of the Six months ended June 30, 2018 and 2017

Net Revenue

In the six months ended June 30, 2018, our revenue was $815,694, compared to $1,049,200 the same period in 2017. In six months ended, the revenue decreased by 22.26% from the same period in 2017. The revenue generated by our self-managed store was $735,041, and by the direct sales was $80,653. Our revenues by brand for the six months ended June 30, 2018 were as follows: Revenue of SleepAid was $730,507 and BEMCO was $85,187. The decrease of revenue was resulted of the continuous recline in the retail business.

Cost of Sales

In the six months ended June 30, 2018, the cost was $629,844 compared to the same period in 2017 decreased 23.5% from $823,310. The change of cost of sales reflects a decreasing rate slightly more than that of the decrease rate in revenue. This was caused by the effective cost control activities executed during the period with the slowed down retail business.

Selling expense

In the six months ended June 30, 2018 and 2017, the selling expense was $174,598 and $156,893 respectively. The increase of 11.28% which reflected that spending ratio to sales volume was increasing in order to defend against the slow economy.

General and administrative expense

General and administrative expense for the six months ended June 30, 2018 was $271,400 compared to the same period in 2017 decrease 9.73% from $319,263, the decrease was attributed to our management continuous to work hard in controlling the general and administration expenses.

Income Tax

During the six months ended June 30, 2018 and 2017, the company incurred no tax and its subsidiary has paid $Nil and $Nil tax respectively as a foreign corporation.

Net Loss

The Company recorded a net loss of $266,635 for the six months ended June 30, 2018 compared to the net loss of $258,605 for the same period in 2017. The net loss increased by 3.11%. This continuous decline was due to the slowdown of retail market with resulted of slightly decrease in gross profit with the increase in selling expenses.

Interest expenses

In the six months ended June 30, 2018 and 2017, the interest expenses were $6,088 and $8,295 respectively. The decreased of interest expenses were result of the amount paid to Yugosu International Limited in this quarter in the half year.

23

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 third 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, and we also plan to secure additional financing through private placements of equity and short-term borrowings from banks.

Working capital

At June 30, 2018, the Company had negative working capital of ($971,722) with current assets of $1,174,758 and current liabilities of $2,146,480. The current assets consisted cash and cash equivalents of $11,912, inventory of $845,302, trade receivables of $203,426, advance to supplies of $38,934, and other receivables of $75,184. The current liabilities of the Company as at June 30, 2018 were composed of accounts payable of $803,407, accrued expenses of $180,998, loans from related parties of $806,440, advances from customer of $79,632, tax payable of $16,934, and other payable of $257,460.

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.

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.

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Operating activities

Net cash used by operating activities during the six months period ended June 30, 2018, was $107,646 compared to net cash used by operation of $40,308 for the same period in 2017. This represents a decrease of $67,338.

During the six months period ended June 30, 2018, the $107,646 cash used was mainly resulted of cash used by net loss of $266,635, decreased inventories of $16,654, decreased other receivables of $9,725, and decreased restricted cash of $4,136 while offset against cash provided by increased advances to suppliers of $8,482, increased accounts payables of $109,537, increased other advances from customers of $24,751 and increased accrued liabilities of $22,906.

During the six months period ended June 30, 2017, the $40,308 cash used was mainly resulted of cash used by net loss of $258,605, decreased inventories of $105,675, decreased advances to suppliers of $65,273, and decreased accounts payable of $161,758 while offset against cash provided by increased trade receivables of $486,941 and increased other payables of $51,744.

Investing Activities

Net cash used by investing activities was $441 for the six month period ended June 30, 2018 as compared to the cash provided by investing activities of $14,545 for the same period in 2017. Net cash used in investing activities decreased was the result of purchase of property, plant and equipment in the comparative period

Financing Activities:

Net cash provided by financing activities was $51,547 for the six month period ended June 30, 2018 compared to net cash provided of $25,524 for the same period in 2017. This change was primarily comprised of the increase in loans from related parties and director, and the fund from issuance of common stock in the half year of 2018.

As of June 30, 2018, the Company had total assets of $1,255,296 and total liabilities of $2,146,480. Stockholder’s equity as of June 30, 2018 was negative $891,184 compared to a negative equity of $657,555 at December 31, 2017.

Off-Balance Sheet Arrangements and Contractual Obligations

As at June 30, 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 June 30, 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 June 30, 2018. 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 six months ended June 30, 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

To the best knowledge of the Company’s directors and officers, the Company is currently not a party to any material pending legal proceeding.

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

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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: August 21, 2019	By:	/s/ Tao Wang
		Tao Wang
		Chief Executive Officer and Chief Financial Officer

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