1.	Organization and summary of significant accounting policies

Organization and nature of operations:

American Smooth Wave Ventures, Inc. (the “Company”) and its subsidiaries and a variable interest entity (“VIE”) of which it is the primary beneficiary (collectively referred to in these unaudited condensed consolidated financial statements as the “Group”, “we”, “our” and “us”) specializes in the manufacture and sale of sportswear. All our business operations are located in the People’s Republic of China (“PRC”).

Basis of presentation:

Interim condensed consolidated financial statements

As permitted by the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America or US GAAP have been condensed or omitted, although we believe that the disclosures made are adequate to make the information reliable. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's report on Form 8-K/A filed on March 31, 2011.

In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments consisting only of normal recurring accruals considered necessary to make the financial statements not misleading. The results for the three and six months ended June 30, 2011 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2011.

Share exchange and consolidation of variable interest entity

Pursuant to a stock exchange agreement (“Stock Exchange Agreement”), the Company acquired Ailibao International Investment Limited, (“Ailibao International”) on January 21, 2011 (the “Closing Date”), of which the Company issued 317,409,000 shares of its common stock to stockholders of Ailibao International (“Ailibao International Shareholders”) and 6,826,000 shares of its common stock to an introducing party, in exchange for all outstanding shares of Ailibao International (the “Acquisition”). Ailibao International is a British Virgin Islands (“BVI”) company that was incorporated on June 8, 2010. Ailibao International acts as an investment holding company and its sole asset is the shares of Ailibao (Fujian) Marketing Management Company Limited (“Ailibao Marketing”), a wholly foreign-owned enterprise in the PRC. Ailibao Marketing has a series of control agreements with Fujian Jinjiang Chendai Ailibao Shoes & Clothes Co., Ltd., a PRC company (“Ailibao Shoes”) that was incorporated on June 16, 1998. Ailibao Shoes is principally engaged in the design, manufacture and sale of Ailibao-branded shoes and sportswear. As Ailibao Marketing has contractual control of Ailibao Shoes as well as all rights to the economic benefit (including any profits and dividends) of Ailibao Shoes, Ailibao Shoes is considered a VIE. Ailibao Marketing has determined that it is the primary beneficiary of Ailibao Shoes under applicable accounting principles; Ailibao Shoes is therefore consolidated into Ailibao Marketing and, by extension, the Company as a member of the Group.

On November 18, 2010, Ailibao Marketing entered into a series of contractual arrangements with Ailibao Shoes and their respective shareholders, which indirectly enable Ailibao Marketing to:

exercise effective control over the business management and shareholder voting rights of Ailibao Shoes;

receive substantially all of the economic benefits of Ailibao Shoes through service fees in consideration for the business consulting services provided by Ailibao Marketing; and

have an exclusive option to purchase all of the equity interests in Ailibao Shoes and when and to the extent permitted under PRC laws.

We do not have an equity interest in Ailibao Shoes. However, as a result of these contractual arrangements, we are considered as the primary beneficiary of Ailibao Shoes and we treat it as our consolidated affiliated entity under US GAAP.

The following is a summary of the currently effective contracts among our subsidiary Ailibao Marketing, our consolidated affiliated entities Ailibao Shoes and the respective shareholders of Ailibao Shoes.

Business operations agreement: Pursuant to the business operations agreement dated November 18, 2010 among Ailibao Marketing, Ailibao Shoes and the shareholders of Ailibao Shoes (the “Business Operations Agreement”), Ailibao Shoes must appoint persons designated by Ailibao Marketing to be its executive director or directors, general manager, chief financial officer and any other senior officers. Ailibao Shoes agrees to accept the proposals provided by Ailibao Marketing from time to time relating to employment decisions, daily business operations and financial management. Without Ailibao Marketing’s prior written consent, Ailibao Shoes shall not conduct any transaction which may materially affect its assets, obligations, rights or operations, including but not limited to, incurrence or assumption of any indebtedness, sale or purchase of any assets or rights exceeding RMB5 million, incurrence of any encumbrance on any of its assets or intellectual property rights in favor of a third party, or transfer of any rights or obligations under this agreements to a third party. The term of this agreement shall survive until Ailibao Marketing is dissolved according to the laws of the PRC. Ailibao Marketing may terminate the agreement at any time by providing 30 days’ advance written notice to Ailibao Shoes and to each of its shareholders. Neither Ailibao Shoes nor any of its shareholders may terminate this agreement.

Power of attorney: Pursuant to a power of attorney dated November 18, 2010 (the “Power of Attorney”), each of the shareholders of Ailibao Shoes, irrevocably appointed the person designated by Ailibao Marketing, as their attorney-in-fact to vote on their behalf on all matters of Ailibao Shoes requiring shareholders approval under PRC laws and regulations. The Power of Attorney is valid so long as the principals are shareholders of Ailibao Shoes.

Exclusive business and consulting services agreement: Pursuant to the exclusive business and consulting services agreement dated November 18, 2010 between Ailibao Marketing and Ailibao Shoes (the “Exclusive Business and Consulting Services Agreement”), Ailibao Marketing has exclusive right to provide consulting services relating to, among other things, marketing and brand building activities, business development strategy and financing strategy, and certain other business areas to Ailibao Shoes. Pursuant to the Exclusive Business and Consulting Services Agreement, Ailibao Shoes agreed to pay a service fee to Ailibao Marketing equal to 100% of the net profits of Ailibao Shoes, and Ailibao Marketing agreed not to engage any third party for any of the consulting services provided under this agreement. In addition, Ailibao Marketing exclusively owns all intellectual property rights resulting from the performance of this agreement. The initial term of this agreement is ten years and is extendable indefinitely by Ailibao Marketing. Ailibao Marketing can terminate the agreement at any time by providing 30 days’ prior written notice, while Ailibao Shoes is not permitted to unilaterally terminate the agreement unless Ailibao Marketing commits gross negligence or a fraudulent act against Ailibao Shoes.

Intellectual properties license agreement: Pursuant to the intellectual properties license agreement dated November 18, 2010 between Ailibao Marketing and Ailibao Shoes (the “Intellectual Properties License Agreement”), Ailibao Shoes grants Ailibao Marketing a royalty-free right to use its intellectual property. The term of the Intellectual Properties License Agreement is ten years with automatic renewal for another ten years, unless Ailibao Marketing gives three months’ prior written notice of non-renewal. Ailibao Marketing may terminate the agreement at any time by providing 30 days’ prior written notice.

Share pledge agreement: Pursuant to the share pledge agreement dated November 18, 2010 among Ailibao Marketing and the shareholders of Ailibao Shoes (the “Share Pledge Agreement”), the shareholders of Ailibao Shoes pledged all of their equity interest in Ailibao Shoes to Ailibao Marketing, to guarantee Ailibao Shoes and its shareholders’ performance of their obligations under, where applicable, the Exclusive Business and Consulting Services Agreement, the Business Operations Agreement, the Option Agreement (defined below) and the Intellectual Properties License Agreement. If Ailibao Shoes and/or any of its shareholders breach their contractual obligations under these agreements, Ailibao Marketing, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. Without Ailibao Marketing’s prior written consent, the shareholders of Ailibao Shoes may not transfer or assign the pledged equity interests, or create or allow any encumbrance that would prejudice Ailibao Marketing’s interests. During the term of the Share Pledge Agreement, Ailibao Marketing is entitled to receive all of the dividends and profits paid on the pledged equity interests. The equity interest pledge expires on the earlier of (i) the date on which Ailibao Shoes and its shareholders have fully performed their obligations under the Exclusive Business and Consulting Services Agreement, the Business Operations Agreement, the Option Agreement and Intellectual Properties License Agreement; or (ii) Ailibao Marketing enforces the pledge pursuant to the terms and conditions under this agreement, to fully satisfy its rights under such agreements.

Option agreement: Pursuant to the option agreement dated November 18, 2010 among Ailibao Marketing and the shareholders of Ailibao Shoes, the shareholders of Ailibao Shoes granted Ailibao Marketing or its designees an exclusive option to purchase, to the extent permitted under PRC law, all or part of their equity interest in Ailibao Shoes (the “Option Agreement”). Ailibao Marketing or its designees have sole discretion to decide when to exercise the option, either in part or in full, and they are entitled to exercise the option an unlimited number of times until all of the equity interests have been acquired, and can freely transfer the option, in whole or in part to any third party. Without Ailibao Marketing’s consent, the shareholders of Ailibao Shoes may not transfer, donate, pledge, or otherwise dispose of their equity interest in Ailibao Shoes. The Option Agreement will remain in full force and effect until the earlier of the date on which all of the equity interest in Ailibao Shoes has been acquired by Ailibao Marketing or its designated representatives.

China State Administration of Foreign Exchange, or the SAFE, issued a public notice in October 2005, or SAFE Circular No. 75, requiring PRC residents to register with the local SAFE branch before establishing or controlling any company outside of China for the purpose of capital financing with assets or equities of PRC companies, referred to in the notice as an “offshore special purpose company”. PRC residents that are shareholders of offshore special purpose companies established before November 1, 2005 were required to register with the local SAFE branch before March 31, 2006. In addition, any PRC resident that is a shareholder of an offshore special purpose company is required to amend its SAFE registration with respect to that offshore special purpose company in connection with any increase or decrease of capital, transfer of shares, merger, division, equity investment, creation of any security interest over any assets located in China or any other material change in share capital. In May 2007, SAFE issued relevant guidance to its local branches with respect to the operational process for SAFE registration, which standardized more specific and stringent supervision on the registration relating to SAFE Circular No. 75 and imposed obligations on onshore subsidiaries of offshore special purpose companies to coordinate with and supervise the beneficial owners of the offshore entity who are PRC residents to complete the SAFE registration process. We may not be fully informed of the identities of all our beneficial owners who are PRC residents. Moreover, we do not have control over our beneficial owners and cannot assure that all of our PRC resident beneficial owners will comply with SAFE Circular No. 75. The failure of our beneficial owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant to SAFE Circular No. 75 or the failure of future beneficial owners of our Group who are PRC residents to comply with the registration procedures set forth in SAFE Circular No. 75 may subject such beneficial owners or our PRC subsidiary to fines and legal sanctions and may also limit our ability to contribute additional capital to our PRC subsidiary, limit our PRC subsidiary’s ability to distribute dividends to our Company or otherwise materially and adversely affect our business.

Principles of consolidation:

The accompanying unaudited condensed financial statements include the accounts of the Company, its subsidiaries and VIE.

Upon the completion of the Acquisition, the Ailibao International Shareholders obtained a majority voting interest in the Company. US GAAP requires that the company whose stockholders retain the majority interest in a combined business be treated as the acquirer for accounting purposes. Consequently, the Acquisition has been accounted for as a recapitalization of the Company as Ailibao International acquired a controlling equity interest in the Company as of the Closing Date. The reverse acquisition process utilizes the capital structure of the Company and the assets and liabilities of Ailibao International are recorded at historical cost.

For the purpose of presenting the financial statements on a consistent basis, the accompanying unaudited condensed consolidated financial statements have been prepared as if Ailibao International, Ailibao Marketing and Ailibao Shoes had been in existence since establishment of the Company and throughout the whole periods covered by these financial statements; hence operations presented prior to the Closing Date are solely that of Ailibao International, Ailibao Marketing and Ailibao Shoes.

As discussed above, the financial position of Ailibao Shoes is consolidated in our unaudited condensed consolidated balance sheets as of June 30, 2011 and December 31, 2010, and its results of operations for the three and six months ended June 30, 2011 and 2010 are included in our unaudited condensed consolidated statements of operations and cash flows during such periods. As of June 30, 2011, approximately $57 million of our unaudited consolidated total assets related to Ailibao Shoes, however, certain of these assets, approximately $6.9 million, are pledged as security on bills payable and short term bank loans. As of December 31, 2010, approximately $45 million of our unaudited consolidated total assets related to Ailibao Shoes, however, certain of these assets, approximately $5.8 million, are pledged as security on bills payable and short term bank loans.

As of June 30, 2011, the Company had direct and indirect interests in the following entities:

Place of

Registered share

Percentage of holdings

Principal

Name of entities

incorporation

capital

Direct

Indirect

activities

Ailibao International

BVI

United States Dollars (“$” or “US$”) 50,000

100

Investment holding

Ailibao Marketing

PRC

Hong Kong Dollars 5,600,000

100

Investment holding

Ailibao Shoes*

PRC

Renminbi (“RMB”) 10,000,000

100

Manufacture and sale of sportswear

* A VIE on which the Company exerted 100% control through a set of commercial arrangements.

All inter-company balances and transactions are eliminated upon consolidation.

Use of estimates:

The preparation of financial statements in conformity with US GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including, but not limited to, those related to income taxes, litigation and settlement costs, the collectability of accounts receivable, the valuation of inventory on a lower of weighted average cost or market basis, expected future cash flows and useful lives of intangible assets and other long-lived assets. We base our estimates on historical experience and on other assumptions that we believe are reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities when those values are not readily apparent from other sources. Actual results may differ materially from our estimates.

Fair value of financial instruments:

For certain of our financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, other current assets, accounts and other payables and short term bank loans, the carrying amounts approximate their fair values due to the relatively short maturity of these instruments.

Cash and cash equivalents:

We consider all highly liquid debt instruments or deposits purchased with an original maturity of 90 days or less to be cash equivalents.

Accounts receivable:

We defer recognition of revenue and the related receivable when we cannot estimate whether collectability is reasonably assured at the time products are delivered to our customers. We also provide allowances for doubtful debt. In establishing the allowance for doubtful debt, we review the customer’s payment history and information regarding their credit worthiness. We make provision for doubtful debts of aged over one year.

Inventories:

Inventories are stated at the lower of weighted average cost or market. We evaluate our ending inventories for excess quantities and obsolescence on an annual basis. This evaluation includes analysis of historical and forecasted sales levels by product. A provision is recorded for inventories on hand in excess of forecasted demand. In addition, we write off inventories that are considered obsolete. Obsolescence is determined from several factors, including competitiveness of product offerings, market conditions and product life cycles. Increases to the allowance for excess and obsolete inventory are charged to cost of revenue.

Property, plant and equipment:

Property, plant and equipment are stated at cost, less accumulated depreciation and impairment losses. Depreciation is computed using the straight-line method based on the useful lives of the assets. Repairs and maintenance costs are expensed as incurred.

The estimated useful lives are as follows:

Buildings		20 years
Plant and machinery		10 years
Furniture and equipment		5-10 years

The gain or loss on disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets, if any, and is recognized in profit or loss.

Land use rights:

Land use rights are stated at cost, less accumulated amortization and impairment losses and are amortized over the lease terms from the date of acquisition (see note 9 below).

Revenue recognition:

We recognize revenue from product sales in accordance with Accounting Standards Codification, or ASC, 605, Revenue Recognition, under which revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or service has been rendered, the fee is fixed or determinable and collectability is reasonably assured.

Revenue from product sales is generally recognized upon shipment. Net sales of products represent the invoiced value of goods, net of value added taxes (“VAT”). The Group is subject to VAT which is levied on its products at the rate of 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Group in addition to the invoiced value of purchases to the extent not refunded for export sales.

Advertising and promotion:

Advertising and promotion costs are expensed as incurred. Total advertising and promotion expenses for the three months ended June 30, 2011 and 2010 were $500,018 and $407,476, respectively, while for the six months ended June 30, 2011 and 2010 amounted to $859,927 and $704,272, respectively.

Foreign currency:

The reporting currency of the Group is US$. Transactions denominated in currencies other than US$ are translated into US$ at the average rate for the period. Monetary assets and liabilities denominated in currencies other than US$ are translated into US$ at the rate of exchange ruling at the balance sheet date. Equity denominated in currencies other than US$ are translated into US$ at the rate ruling at the date of transactions. The resulting exchange differences are recorded in the other (expenses) income in the statement of operations and comprehensive income.

The financial records of the Group’s operating subsidiaries and VIE are maintained in their local currency, RMB, which is also functional currency. Assets and liabilities are translated at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates, and income and expenses items are translated using the average rate for the period. The translation adjustments are recorded in accumulated other comprehensive income under stockholders’ equity.

RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People’s Bank of China (“PBOC”) or other institutions authorized to buy and sell foreign monies. The exchange rates adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC. Translation of amounts from RMB into US$ has been made at the following exchange rates for the respective periods:

June 30, 2011
Balance sheet	RMB6.4635 to US$1.00
Statement of operations and comprehensive income	RMB6.5378 to US$1.00

December 31, 2010
Balance sheet	RMB6.5918 to US$1.00
Statement of operations and comprehensive income	RMB6.7696 to US$1.00

June 30, 2010
Statement of operations and comprehensive income	RMB6.8254 to US$1.00

No representation is made that RMB amounts have been, or would be, converted into US$ at the above rates. Although the PRC government regulations allow for conversion of RMB for current account translations, significant restrictions still remain. Hence such translations should not be construed a representation that the RMB could be converted into US$ at that rate or any other rate.

The value of RMB relative to US$ and other currencies may fluctuate and is affected by, among other things, changes in PRC’s political and economic conditions. Any significant revaluation of RMB may materially affect the Group’s financial condition in terms of US$ reporting.

Concentration of credit risk:

Financial instruments which potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash and accounts receivable. Our cash, cash equivalents and restricted cash are on deposit with major financial institutions. Such deposits may be in excess of insured limits. We believe that the financial institutions that hold our cash are financially sound and, accordingly, minimal credit risk exists with respect to these balances. We have not experienced any investment losses due to institutional failure or bankruptcy. We perform ongoing credit evaluations of our customers and generally do not require collateral for credit sales. We review our accounts receivable balances to determine if any receivables will potentially be uncollectible and include any amounts that are determined to be uncollectible in our allowance for doubtful debt account.

Income taxes:

Income taxes are accounted for under an asset and liability approach in accordance with ASC 740, Income Taxes. Deferred income taxes reflect the net tax effects of any temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts reported for income tax purposes, and any operating losses and tax credit carryforward. Deferred tax liabilities are recognized for future taxable amounts and deferred tax assets are recognized for future deductions, net of any valuation allowance, to reduce deferred tax assets to amounts that are considered more likely than not to be realized.

Under ASC 740, the impact of an uncertain income tax position on the income tax return must be recognized as the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The total amount of unrecognized tax benefits as of June 30, 2011 and December 31, 2010 were $Nil.

Long-lived assets:

We account for long-lived assets, in accordance with ASC 360, Property, Plant and Equipment. Long-lived assets are evaluated for impairment whenever events or changes in circumstances, such as a change in technology, indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposal is less than its carrying amount.

Segments:

The Group operates in two reportable segments. Segment disclosures are presented in note 19 “Segment information”.

Comprehensive income:

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes certain changes in equity that are excluded from results of operations. Foreign currency translation adjustments are included in accumulated other comprehensive income in the accompanying unaudited condensed consolidated balance sheets.

Income per share:

Basic income per common share is computed in accordance with ASC 260, Earnings Per Share, dividing the net income attributable to holders of common stock by the weighted average number of shares of common stock outstanding during the period. Diluted income per share is computed by dividing net income by the weighted average number of common shares including the dilutive effect of common share equivalents then outstanding. Common shares issued as a part of the Acquisition are shown as outstanding for all periods presented.

The diluted net income per share is the same as the basic net income per share for the three and six months ended June 30, 2011 and 2010, as all potential ordinary shares are anti-dilutive and are therefore excluded from the computation of diluted net income per share.

Recent accounting pronouncements:

In January 2010, the Financial Accounting Standards Board (the “FASB”) issued additional disclosure requirements for fair value measurements which the company included in its interim and annual financial statements in 2010. Certain disclosure requirements relating to fair value measurements using significant unobservable inputs (Level 3) were deferred until January 1, 2011. These new requirements did not have an impact on the consolidated financial results as they relate only to additional disclosures.

In December 2010, the FASB issued amended guidance to clarify the acquisition date that should be used for reporting pro-forma financial information for business combinations. If comparative financial statements are presented, the pro-forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been completed as of the beginning of the comparable prior annual reporting period. The amendments in this guidance became effective prospectively for business combinations for which the acquisition date is on or after January 1, 2011. There was no impact on the consolidated financial results as the amendments relate only to additional disclosures.

In December 2010, the FASB issued amendments to the guidance on goodwill impairment testing. The amendments modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In making that determination, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The amendments were effective January 1, 2011 and did not have a material impact on these financial statements.

In January 2011, the FASB temporarily deferred the disclosures regarding troubled debt restructurings which were included in the disclosure requirements about the credit quality of financing receivables and the allowance for credit losses which was issued in July 2010. In April 2011, the FASB issued additional guidance and clarifications to help creditors in determining whether a creditor has granted a concession, and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. The new guidance and the previously deferred disclosures are effective July 1, 2011 applied retrospectively to January 1, 2011. Prospective application is required for any new impairment identified as a result of this guidance. These changes are not expected to have a material impact on these financial statements.

In May 2011, FASB issued Accounting Standard Update, or ASU, No. 2011-05, Presentation of Comprehensive Income. This ASU amends the FASB ASC Topic 220 to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. These amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This update should be applied retrospectively. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. Management is currently evaluating the potential impact of ASU No. 2011-05 on the financial statements.

None of the above new pronouncements has current application to the Group, but may be applicable to the Group’s future financial reporting.