Sounds like you're doing pretty good, I don't know about the sleep, though. When you bend your knees, don't think about it as just bending the knees; you want to sink your spine straight down as if there were a vertical rod going through it straight to the ground, and don't let your knees go any farther than directly over your toes. You want to relax into it, your thigh muscles may hurt for a while in the beginning until you start using more of the internal muscles, and let your bones, tendons and ligaments take more of the weight. Another thing you want to do is keep your spine straight, tuck your tailbone, but don't pinch the cheeks. You can put a hand on your lower lumbar to check if your back is straight. Your back should eventually be truely perpendicular to the ground and it does feel pretty weird at first.
About breathing: This should feel natural. It's usually easiest to inhale as you do one motion, and exhale as you do another. You will eventually want to be capable of long, deep and flowing breaths, but don't push it too much. Give your body time to change.