UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 20-F



| |  ̈ | REGISTRATION STATEMENT
                                                                                                        PURSUANT TO SECTION 12(B)
                                                                                                        OR 12(G) OF THE SECURITIES
                                                                                                        EXCHANGE ACT OF 1934
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



or



| | þ | ANNUAL REPORT
                                                                                                          PURSUANT TO SECTION
                                                                                                          13 OR 15(D) OF THE SECURITIES
                                                                                                          EXCHANGE ACT OF 1934
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the year ended December 31, 2012



or



| |  ̈ | TRANSITION REPORT
                                                                                                        PURSUANT TO SECTION 13
                                                                                                        OR 15(D) OF THE SECURITIES
                                                                                                        EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  ̈ | SHELL COMPANY REPORT
                                                                                                        PURSUANT TO SECTION 13
                                                                                                        OR 15(D) OF THE SECURITIES
                                                                                                        EXCHANGE ACT OF 1934
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date of event requiring this shell company report



For the transition period from or



Commission
file number: 001-33799



EXCEED COMPANY LTD.

(Exact name of Registrant as specified
in its charter)



N/A

(Translation of Registrant’s name
into English)



British Virgin Islands

(Jurisdiction of incorporation or organization)



Unit F, 24/F, China Overseas Building

139 Hennessy Road, Wanchai

Hong Kong

(Address of principal
executive offices)



Tai Yau Ting

Unit F, 24/F, China Overseas Building

139 Hennessy Road, Wanchai

Hong Kong



Facsimile: 852 2153 2775

Tel: 852 2153 2771

(Name, Telephone, E-mail and/or Facsimile
Number and Address of Company Contact Person)



Securities registered or to be registered
pursuant to Section 12(b) of the Act:



|(Title of each class)                            | (Name of each exchange on which
    registered)
|------------------------------------------------ | -----------------------------------------------
|Ordinary shares of par value US$0.0001 per share | The NASDAQ Global Select Market                



Securities registered or to be registered
pursuant to Section 12(g) of the Act:

None



Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act:

None



Indicate the number of outstanding shares of each of the issuer’s
classes of capital or common stock as of the close of the period covered by the annual report: 33,022,665 ordinary shares,
par value US$0.0001 per share.



Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 ̈Yes þ No



If this report is an annual or transaction
report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.

 ̈Yes þ No



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) has been subject to such
filing requirements for the past 90 days.

þYes  ̈ No



Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Website, 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  ̈ No



Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

(check one):

 ̈  Large accelerated filer      ̈ Accelerated filer     þ Non-accelerated filer



Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing.

 ̈U.S. GAAP þ International Financial Reporting Standards as issued by the
International Accounting Standard Boards   ̈ Other



If “Other” has been checked
in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 ̈Item 17  ̈ Item 18



If this is an annual report, indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 ̈Yes þ No











TABLE OF CONTENTS



|PART I    |                                                                              |  | 4 
|--------- | ---------------------------------------------------------------------------- |  | --
|          |                                                                              |  |   
|Item 1.   | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                        |  | 4 
|Item 2.   | OFFER STATISTICS AND EXPECTED TIMETABLE                                      |  | 4 
|Item 3.   | KEY INFORMATION                                                              |  | 4 
|Item 4.   | INFORMATION ON THE COMPANY                                                   |  | 19
|Item 4A.  | UNRESOLVED STAFF COMMENTS                                                    |  | 35
|Item 5.   | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 |  | 35
|Item 6.   | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   |  | 54
|Item 7.   | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            |  | 58
|Item 8.   | FINANCIAL INFORMATION                                                        |  | 59
|Item 9.   | THE OFFER AND LISTING                                                        |  | 60
|Item 10.  | ADDITIONAL INFORMATION                                                       |  | 61
|Item 11.  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |  | 69
|Item 12.  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |  | 70
|          |                                                                              |  |   
|PART II   |                                                                              |  | 70
|          |                                                                              |  |   
|Item 13.  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |  | 70
|Item 14.  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 70
|Item 15.  | CONTROLS AND PROCEDURES                                                      |  | 70
|Item 16A. | AUDIT COMMITTEE FINANCIAL EXPERT                                             |  | 70
|Item 16B. | CODE OF ETHICS                                                               |  | 71
|Item 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                       |  | 71
|Item 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   |  | 71
|Item 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       |  | 71
|Item 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT                                 |  | 72
|Item 16G. | CORPORATE GOVERNANCE                                                         |  | 72
|          |                                                                              |  |   
|PART III  |                                                                              |  | 73
|          |                                                                              |  |   
|Item 17.  | FINANCIAL STATEMENTS                                                         |  | 73
|Item 18.  | FINANCIAL STATEMENTS                                                         |  | 73
|Item 19.  | EXHIBITS                                                                     |  | 73



2







CONVENTIONS WHICH APPLY TO THIS FORM



Except where the context otherwise requires
and for purposes of this form only:



| | · | “Acquisition”
                                                                                                             refers to the purchase
                                                                                                             by 2020 Chinacap
                                                                                                             Acquirco, Inc., or
                                                                                                             2020, and Exceed
                                                                                                             of all the issued
                                                                                                             and outstanding ordinary
                                                                                                             shares of Windrace
                                                                                                             pursuant to a sales
                                                                                                             and purchase agreement
                                                                                                             dated May 8, 2009;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “business
                                                                                                             combination”
                                                                                                             refers to the completion
                                                                                                             of the Acquisition,
                                                                                                             which was effective
                                                                                                             on October 21, 2009;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “China”
                                                                                                             or “PRC”
                                                                                                             refers to the People’s
                                                                                                             Republic of China;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “Elevatech”
                                                                                                             refers to Elevatech
                                                                                                             Limited;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “Exceed”
                                                                                                             refers to Exceed
                                                                                                             Company Ltd.;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “IFRS”
                                                                                                             refers to International
                                                                                                             Financial Reporting
                                                                                                             Standards;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “RichWise”
                                                                                                             refers to RichWise
                                                                                                             International Investment
                                                                                                             Group Limited;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “we”,
                                                                                                             “us”,
                                                                                                             “our Company”
                                                                                                             and “our”
                                                                                                             refer to Windrace
                                                                                                             and its consolidated
                                                                                                             subsidiaries prior
                                                                                                             to the Acquisition
                                                                                                             and Exceed and its
                                                                                                             consolidated subsidiaries
                                                                                                             following the Acquisition;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “Windrace”
                                                                                                             refers to Windrace
                                                                                                             International Company
                                                                                                             Limited;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “XDLong
                                                                                                             China” refers
                                                                                                             to Xidelong (China)
                                                                                                             Co. Ltd.;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “XDLong
                                                                                                             Fujian” refers
                                                                                                             to Fujian Xidelong
                                                                                                             Sports Goods Co.,
                                                                                                             Ltd.;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “XDLong
                                                                                                             Jiangxi” refers
                                                                                                             to Xidelong (Jiang
                                                                                                             Xi) Athletic Equipment
                                                                                                             Co., Ltd.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “XDLong
                                                                                                             HK” refers
                                                                                                             to Hei Dai Lung Group
                                                                                                             Company Limited;
                                                                                                             and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “XDLong
                                                                                                             Investment”
                                                                                                             refers to Windrace
                                                                                                             Investment Holding
                                                                                                             Limited.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



This annual report contains translations
of Renminbi amounts, or RMB, into U.S. dollars at specified rates solely for the convenience of the reader. Translation of amounts
in Renminbi into U.S. dollars was calculated at the rate of US$1.00 = RMB6.2301 unless otherwise specified herein solely for
the convenience of the reader. We make no representation that the Renminbi amounts referred to in this form could have been or
could be converted into U.S. dollars at any particular rate or at all. On March 22, 2013, the exchange rate was RMB 6.2120
to US$1.00.



3







PART
I



Item 1.     IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS



Not applicable.



Item 2.     OFFER
STATISTICS AND EXPECTED TIMETABLE



Not applicable.



Item 3.     KEY
INFORMATION



| | A. | SELECTED FINANCIAL DATA
| | -- | -----------------------



The following selected consolidated statements
of operations data for the years ended December 31, 2008, 2009, 2010, 2011 and 2012 and the consolidated balance sheets data as
of December 31, 2008, 2009, 2010, 2011 and 2012 have been derived from our consolidated financial statements. The report of Crowe
Horwath HK (CPA) Limited, an independent registered public accounting firm, for each of the years in the three year period
ended December 31, 2012 is included elsewhere in this annual report on Form 20-F. Our selected consolidated statements of operations
data for the years ended December 31, 2008 and 2009 and our consolidated balance sheets as of December 31, 2008, 2009
and 2010 have been derived from our audited consolidated financial statements, which are not included in this annual report on
Form 20-F. You should read the selected consolidated financial data in conjunction with those financial statements and the related
notes and Item 5. “Operating and Financial Review and Prospects” included elsewhere in this annual report on Form
20-F. Our consolidated financial statements are prepared and presented in accordance with IFRS as issued by the International
Accounting Standards Board. Our historical results do not necessarily indicate our results expected for any future periods.



|                                                                        |  | For
    the year ended December 31,          
|----------------------------------------------------------------------- |  | ---------------------------------------------
|                                                                        |  | 2008                                         
|                                                                        |  | (in thousands, except for per
    share data)
|                                                                        |  | RMB                                          
|Consolidated
    Statements of Operations and Comprehensive Income Data |  |                                              
|Revenues                                                                |  |                                              
|Cost of sales                                                           |  |                                              
|Gross profit                                                            |  |                                              
|Other income and gains                                                  |  |                                              
|Selling and distribution costs                                          |  |                                              
|Administrative expenses                                                 |  |                                              
|Aborted IPO expenses                                                    |  |                                              
|Research and development expenses                                       |  |                                              
|Finance costs                                                           |  |                                              
|Share of loss in jointly-controlled entity                              |  |                                              
|Gain from change in fair value of contingent
    share liability        |  |                                              
|Profit before tax                                                       |  |                                              
|Tax                                                                     |  |                                              
|Profit for the year                                                     |  |                                              
|Number of shares                                                        |  |                                              
|Basic                                                                   |  |                                              
|Diluted                                                                 |  |                                              
|Earnings per share (2)                                                  |  |                                              
|Basic                                                                   |  | RMB                                          
|Diluted                                                                 |  | RMB                                          



4







|                                  |  | As December 31, |        
|--------------------------------- |  | --------------- | -------
|                                  |  | 2008            |        
|                                  |  | (in thousands)  |        
|                                  |  | RMB             |        
|Consolidated Balance Sheets Data: |  |                 |        
|Cash and cash equivalents         |  |                 | 120,068
|Working capital (3)               |  |                 | 9,095  
|Total assets                      |  |                 | 815,387
|Total liabilities                 |  |                 | 489,549
|                                  |  |                 |        
|Total stockholders’ equity        |  |                 | 325,838








| | (1) | Translation of amounts in Renminbi into U.S. dollars was calculated
                                                            at the rate of RMB6.2301 to US$1.00, which was the daily exchange
                                                            rate on December 31, 2012 as set forth in the H.10 statistical release
                                                            of the Board of Governors of the Federal Reserve.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Calculated on the basis of the business combination completed
                                                            on October 21, 2009. See also note 11 of our consolidated financial
                                                            statements included elsewhere in this form.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Working capital represents total current assets less total current
                                                            liabilities.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------



Exchange Rate Information



This annual report contains translations
of Renminbi amounts into U.S. dollars at specific rates solely for the convenience of the reader. For all dates and periods through
December 31, 2008, exchange rates of Renminbi into U.S. dollars are based on the noon buying rate in The City of New York for
cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York. For January 1, 2009 and
all later dates and periods, the exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the
Board of Governors of the Federal Reserve. These rates are provided solely for your convenience and we make no representation
that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may
be, at any particular rate, the rates stated below, or at all.



The following table sets forth information
concerning the exchange rates in Renminbi and U.S. dollars for the periods indicated.



|     |  | Renminbi
                                                                                                   per U.S. Dollar (1) |       
|---- |  | ------------------------------------------------------------------------------------------------------------------------------- | ------
|     |  | Average
                                                                                                  (2)                   |       
|     |  |                                                                                                                                 |       
|2008 |  |                                                                                                                                 | 6.9193
|2009 |  |                                                                                                                                 | 6.8295
|2010 |  |                                                                                                                                 | 6.7603
|2011 |  |                                                                                                                                 | 6.4475
|2012 |  |                                                                                                                                 | 6.2990



|                                    |  | Renminbi per U.S. Dollar Exchange
    Rate |       
|----------------------------------- |  | ------------------------------------------ | ------
|                                    |  | High                                       |       
|October 2012                        |  |                                            | 6.2877
|November 2012                       |  |                                            | 6.2454
|December 2012                       |  |                                            | 6.2502
|January 2013                        |  |                                            | 6.2303
|February 2013                       |  |                                            | 6.2438
|March 2013 (through March 22, 2013) |  |                                            | 6.2246






| | (1) | For December 2008 and prior periods, the exchange rate refers
                                                            to the noon buying rate as reported by the Federal Reserve Bank of
                                                            New York. For January 2009 and later periods, the exchange rate refers
                                                            to the exchange rate as set forth in the H.10 statistical release
                                                            of the Federal Reserve Board.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Annual averages are calculated using the average of the exchange
                                                            rates on the last day of each month during the period.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On March 22, 2013, the daily exchange
rate was RMB 6.2120 to US$1.00.



| | B. | CAPITALIZATION AND INDEBTEDNESS
| | -- | -------------------------------



Not applicable.



| | C. | REASONS FOR THE OFFER AND USE OF PROCEEDS
| | -- | -----------------------------------------



Not applicable.



5







| | D. | RISK FACTORS
| | -- | ------------



Risks Relating to Our Business and Industry



Further deterioration of economic conditions and a resulting
decrease in consumer demand for our products could materially adversely affect our financial condition and results of operations.



Demand for our products is largely dependent
upon prevailing economic conditions. The recent financial crisis and economic downturn in global markets have impacted, and could
further impact, the purchase orders from our distributors. While the global economy has evidenced initial signs of a recovery,
the extent of any recovery remains uncertain. In the event the demand for consumer products declines in China as a result of adverse
economic conditions globally or in China, demand for our sports products could decrease, which could materially adversely affect
our business, financial condition and results of operations.



To maintain our competitive position and
pricing power, and to manage inventory levels and the efficiency of our distribution network, we have proactively engaged our
distributors and authorized third party retailers in an effort to prudently manage the level of wholesale orders placed with us
but not yet manufactured. In anticipation of weaker consumer demand in 2012, and to prevent a buildup of the level of inventory
among distributors, we maintained our strategy to trim production and reduce deliveries. Our key strategies remain intact, but
we have to continue to adjust operations as needed to stay focused on our priorities and to align with the changing market conditions.
We cannot predict the timing or the duration of any further downturn in the economy or the related effect on our results of operations
and financial condition. We continue to monitor the changing economic landscape and may modify our strategic direction based upon
the changing business environment. If we do not react quickly enough to the changes in market or economic conditions, this could
result in lost customers, decreased market share, and increased operating costs.



Our products face intense competition, and we may not
have the resources necessary to compete.



We are a sports and leisure footwear, apparel
and accessories company in the PRC. This industry is highly competitive, with market players consisting of international and domestic
companies. Some of our competitors may have greater financial, research and development and design, marketing, distribution, management
or other resources. Our results of operations could be affected by a number of competitive factors, including entry by new competitors
into our current markets, expansion by existing competitors, better marketing and advertising leading to stronger brand equity
for the competitors, and competition with other companies for the production capacity of contract manufacturers. Our results of
operations and market position may be adversely impacted by these competitive pressures.



We cannot assure you that our strategies
will remain competitive or that we will continue to be successful in the future. Increased competition could result in a loss
of our market share. In particular, if our competitors adopt aggressive pricing policies, we may be forced to adjust the pricing
of our products in response. This could adversely affect our business, financial condition and results of operations.



We distribute our products mainly through Xidelong retail
selling locations, which are operated by independent third-party distributors and retailers over which we have limited control.



We distribute our products mainly
through Xidelong retail selling locations. Xidelong retail selling locations are operated by our distributors and offer our
products exclusively pursuant to the terms of our distribution arrangements. Some of the Xidelong retail selling locations,
however, are operated by third-party retailers selected by our distributors. Because we do not have contractual relationships
with these third-party retailers, we have limited control over their operations. We cannot assure you that our current
distribution arrangements provide us with sufficient control to ensure the Xidelong retail selling locations sell our
products on an exclusive basis. In addition, if our distributors or third-party retailers fail to provide quality customer
service, our brand could become associated with poor customer service, which could damage our brand image and reputation and
could have a material adverse effect on our business, results of operations and financial condition. Finally, if our
distributors experience financial difficulties, they may unilaterally attempt to liquidate their inventory of our products
through discounts at their Xidelong retail selling locations without our approval, which could damage the image and the value
of our brand.



Fluctuations in purchase orders from our distributors
could materially adversely affect our financial condition and results of operations.



We
sell our products to distributors for subsequent resale to consumers. Our distributors generally do not have any
contractual obligation to purchase a minimum quantity of our products or at a minimum price. We may need to lower the selling
prices of our products at any time due to changing market conditions. Further, the quantities specified by our distributors
in their purchase orders may be subsequently adjusted upward or downward on short notice. For instance, due to decreased
consumer demand as a result of the global financial crisis, we agreed with certain distributors to reduce their orders in
recent years to prevent excess inventory buildup. If our distributors perform poorly or if we fail to maintain good
relationships with our distributors or retain them in our distribution network, our sales, financial condition and operating
results could be materially adversely affected.



6







We rely on our distributors for the expansion of our
retail sales network in different regions, but they may not be willing to accommodate the needs of our business plans.



Under our agreements with our distributors,
for each designated geographical area or region, we only appoint one distributor instead of multiple competing distributors. This
enables us to manage and monitor the distributor and the Xidelong retail selling locations in the designated region more effectively.
As of December 31, 2012, our distribution network consisted of 4,909 Xidelong retail selling locations covering 30 provinces and
municipalities in China. We rely on our existing and new distributors to assist us in exploring new markets for our products and
identifying potential locations for new stores. Some of our distributors, however, may also distribute other brands of sports
and leisurewear products, including brands of our competitors. Although these distributors are required to operate separate retail
selling locations for other brands’ products, we cannot assure you that they will always provide favorable retail store
locations and marketing resources to us. We cannot assure you that their expansion would be timely or sufficient in scope to satisfy
the needs of our business. Further, to the extent that any distributor for any particular region ceases to cooperate with us for
any reason and we are not able to find a suitable replacement distributor for that region in a timely manner, we could lose significant
business in that region.



We rely on several large distributors for a significant
portion of our sales.



We derive a significant portion of our
sales from several large distributors. For 2010, 2011 and 2012, sales to our top five distributors accounted for approximately
37.6%, 43.3% and 41.3%, respectively, of our total revenue. For 2010, 2011 and 2012, sales to our single largest distributor accounted
for approximately 8.7%, 12.6% and 12.1%, respectively, of our total revenue. As of December 31, 2011 and 2012, we have a certain
concentration of credit risk as 54.5% and 41.6%, respectively, of our total trade and other receivables that were due from our
five largest customers.We generally enter into distribution agreements with our distributors for a term of three years. Each of
our top five distributors has maintained their business relationships with us for more than three years. We cannot assure you
that our top distributors will renew their distribution agreements with us on commercially acceptable terms or at all.



Further, our top distributors are not obliged
to continue to place orders with us at the same levels as before or at all. We cannot assure you that we will be able to obtain
orders from other distributors to replace any such lost sales. Any substantial reduction in purchases from our top distributors,
or any failure to renew their agreements with us, may result in a significant loss of sales, and our business, financial condition
and results of operation could be materially adversely affected.



Sales of substandard products at discounted prices could
have a material adverse effect on our brand name.



Our distributors are required to sell our
products at our suggested retail prices. During the previous years, a number of distributors notified us of certain products with
minor deviation from their manufacturing specifications. Because the deviation was harmless and the quantities involved were immaterial,
we allowed the distributors and their authorized third-party retailers to sell these products at a discount without affecting
our selling prices to such distributors. The levels of discount were decided and approved by us on a case-by-case basis. Increased
sales of products with deviation from their manufacturing specifications at discounted prices could damage our brand image. If
there are products with more significant deviation from their manufacturing specifications, we could be required to reduce the
selling prices of our products to distributors, which would adversely affect our business, financial condition and results of
operations.



Consolidation of distributors or concentration of retail
market share among a few distributors could increase our credit risk and impair our ability to sell our products.



Our distributors place orders for our products
in sales fairs organized by us. The sports and leisure footwear, apparel, and accessories retail markets in the PRC are dominated
by a few large sports and leisure footwear, apparel, and accessories distributors with many stores. The dominant distributors
may increase their market share by expanding through acquisitions or through the establishment of additional stores.



We provide credit  to our distributors
based on our assessment of each distributor’s financial condition. The consolidation of distributors concentrates our credit
risk in a relatively small number of distributors and, if any of them were to experience a shortage of liquidity, it would increase
the risk of nonpayment of their outstanding payables to us. The loss of, or significant decrease in, sales to these distributors,
or their failure to pay us in a timely manner or at all, could materially adversely affect our business, financial condition and
results of operations.



In addition, any shifting
concentration of market share to a small number of distributors in a particular  province or region increases our operational
risks. If any one of them substantially reduces their purchases of our products, we could be unable to find a sufficient
number of other retail selling locations for our products to sustain the same level of sales and revenues. Further, the
consolidation of distributors could limit our ability to negotiate contract terms in our favor. For example, due to a small
number of distributors existing in the industry to whom we can sell our products, our ability to sell products at the price
level that we wish to could be adversely affected. If the selling prices to the distributors decrease, our profitability
could be adversely affected.



7







We may be unable to respond to changing market trends
and consumer preferences responsively.



Substantially all of our revenue is
derived from the sale of sports and leisure wear products, which are subject to rapidly changing consumer preferences. Our
sales and profits are sensitive to these changing preferences and our success depends on our ability to identify, originate
and define product and fashion trends as well as to anticipate, gauge and react to changing consumer demands in a timely
manner.



We sell our products only to distributors
and do not receive any reports on their resale of our products to consumers at Xidelong retail selling locations. We do not accept
returns of unsold products from distributors, nor do we track information on a real-time basis with respect to the inventory levels
and movements of our products at Xidelong retail selling locations. We rely on inventory reports submitted by our distributors
to identify whether selected products are gaining consumer acceptance. However, such reporting system requires the cooperation
of the distributors to report accurately and submit the relevant inventory data to us on a timely basis. If our distributors do
not provide accurate and timely inventory data, we are not able to assess accurately whether our sales to distributors track sales
of our products to consumers. Further, we are only able to obtain inventory data from the retail selling locations directly operated
by our distributors but not the authorized third-party retailers because we do not have contractual relationships with them. Therefore,
we rely on our distributors to monitor inventory levels and overall sales performance of the authorized third-party retailers.
If we are unable to track end-consumer sales accurately, we may not be able to assess market trends and preferences, which ultimately
could have a material adverse effect on our business, financial condition and results of operations.



Further, all of our products are subject
to changing consumer preferences that we cannot predict with certainty. Our new products may not receive consumer acceptance as
consumer preferences could shift rapidly to different types of performance or other sports footwear or apparel or away from these
types of products altogether, and our future success depends in part on our ability to anticipate and respond to these changes.
If we fail to anticipate accurately and respond to trends and shifts in consumer preferences by adjusting the mix of existing
product offerings, developing new products, designs and styles, or influencing sports and fitness preferences through vigorous
marketing, we could experience lower sales, excess inventories and lower profit margins, any of which could have an adverse effect
on our business, financial condition and results of operations.



Increases in labor, raw material and other production
costs in the PRC could materially adversely affect our profitability.



The sportswear manufacturing industry is
labor intensive. Labor costs in China have been increasing in recent years and our labor costs in the PRC could continue to increase
in the future. If labor costs in the PRC continue to increase, our production costs, including our own manufacturing and outsourcing
costs, will likely increase. This may in turn affect the selling prices of our products, which may then affect the demand for
such products and thereby adversely affect our sales, financial condition and results of operations. In order to retain our labor,
we have commenced the construction of a new staff quarters to improve the working and living environments of our employees at
our current facility which was partially completed in 2012 with two more buildings expected to be completed in 2013. It is uncertain
whether this project will help us retain our skilled labor or help us to reduce the pace of the increase of labor cost.



Increases in costs of raw materials and
components, such as cotton, natural and synthetic leather and semi-finished rubber soles; and increases in other production costs,
such as electricity costs, could have similar adverse effects, particularly if we are unable to identify and employ other appropriate
means to reduce our costs of production.



Our profitability could be materially adversely affected
by the expiration of tax exemption and reduction applicable to us in the past.





Our profit is affected by the income
tax that we pay and any preferential tax treatment that we receive. As a foreign-invested enterprise engaged in the
manufacturing business, XDLong China was entitled to the preferential tax treatments provided under the Foreign Enterprise
Income Tax Law. XDLong China was fully exempted from the enterprise income tax  in 2008 and 2009, and was entitled to its
first two profitable years, a 50% tax reduction in 2010, 2011, and 2012, the following next three years. This tax reduction
expired on December 31, 2012. As a result, XDLong China will be subject to 25% enterprise income tax in 2013, which will
negatively impact our profit in the future.



Interruptions in the supply of raw materials and components
could adversely affect our business, financial condition and results of operations.



Our manufacturing operations depend on
adequate supplies of raw materials and components. We purchase a large portion of our raw materials and components from a small
number of suppliers. For 2007 and 2008, our standard supply agreements were for one year. Starting from 2009, some agreements
have been extended to two years. Most of our raw materials suppliers are located in Quanzhou, which is adjacent to our production
facility in Jinjiang. Our contractual relationships with most of our suppliers have been in place since 2004. For 2010, 2011 and
2012, our top five raw material suppliers and contract manufacturers accounted for approximately 45.8%, 44.2% and 53.6% respectively,
of our total purchases from raw material suppliers and contract manufacturers. During the same periods, our single largest supplier
accounted for approximately 10.9%, 11.1% and 14.8%, respectively, of our total purchases. We cannot assure you that our top suppliers
will continue to deliver raw materials or components to us in a timely manner or at acceptable prices and quality, or at all.
Any disruption in supply of raw materials or components from our suppliers may adversely affect our business, financial condition
and results of operations.



8







We rely on third-party contract manufacturers for a portion
of our footwear production and all of our apparel and accessories production.



We manufacture a significant portion of
our footwear at our production facility in Jinjiang. We outsource the manufacturing of a portion of our footwear and all of our
apparel and accessories to contract manufacturers. Although we produce a portion of our footwear products in our own production
facility, we expect to continue to rely on contract manufacturers for the production of a portion of our footwear and all of our
apparel and accessories. Therefore, our ability to continue to increase our sales depends on the successful expansion of our footwear
production capacity at our production facility and the availability of contract manufacturers with sufficient production capacity
of their own. If we are unable to continue to increase our internal production capacity or engage suitable contract manufacturers,
our business, financial condition and operating results could be adversely affected.



For 2010, 2011 and 2012, our single largest
contract manufacturer of footwear accounted for approximately 37.5%, 35.6% and 50.3%, respectively, of our total purchases of
footwear. For 2010, 2011 and 2012, our single largest contract manufacturer for apparel and accessories accounted for approximately
14.7%, 12.2% and 15.2%, respectively, of our total purchases of apparel and accessories. For 2010, 2011 and 2012, our top five
contract manufacturers for apparel and accessories accounted for approximately 56.1%, 45.7% and 61.0%, respectively, of our total
purchases of apparel and accessories.



We do not have any long term contracts
with these contract manufacturers. As such, we may be unable to renew these contracts when they expire on commercially acceptable
terms, or at all. Contract manufacturers may unilaterally terminate our supply contracts or increase their prices. As a result,
we are not assured of an uninterrupted supply of footwear, apparel and accessories of acceptable quality or at acceptable prices
from our contract manufacturers. We may not be able to offset any interruption or decrease in supply of our products by increasing
production at our own production facilities due to capacity constraints, and we may not be able to substitute suitable alternative
contract manufacturers in a timely manner at commercially acceptable terms, or at all. Any disruption in our supply of products
from contract manufacturers may adversely affect our business and could result in loss of sales and increase in production costs,
which could adversely affect our business, financial condition and results of operations.



In order to reduce such reliance, we have
entered into an agreement with the municipal government of Ruichang City to acquire a parcel of land for the construction of sportswear
production facility. The first phase of the new production facility is expected to be completed by the end of 2013. It is uncertain
whether the completion of this project will help us avoid any future interruption in the supply of our products or whether this
investment is justified as a result of the recent slowdown of our sales.



Failure to optimize our manufacturing potential and cost
structure could materially increase our overhead, causing a decline in our margins and profitability.



We strive to utilize the manufacturing
capacity of our facilities fully and expand our manufacturing capacity to meet additional demands but may not do so on a consistent
basis. Our factory utilization is dependent on our success in, among other things:



| | · | accurately forecasting
                                                                                                             demand;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | · | predicting volatility;
| | - | ----------------------



| | · | timing volume
                                                                                                             sales to our customers;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



| | · | balancing our
                                                                                                             productive resources
                                                                                                             with product mix;
                                                                                                             and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | planning manufacturing
                                                                                                             services for new
                                                                                                             or other products
                                                                                                             that we intend to
                                                                                                             produce.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Demand for manufacturing of our products
may not be as high as we expect, and we may fail to realize the expected benefit from our investment in our manufacturing facilities.



Failure to effectively promote or maintain the Xidelong
brand could adversely affect our business and results of operations.



The image of the Xidelong brand is an important
factor in influencing consumer preferences and building brand loyalty. Promoting and maintaining the Xidelong brand is therefore
crucial to our success and growth within the PRC sportswear market. We have a branding and promotional department that deals mainly
with media arrangements, sponsorships, other endorsement activities and store image maintenance. For 2010, 2011 and 2012, we spent
approximately 11.7%, 10.7% and 13.8%, respectively, of our annual revenue on advertising and promotional activities.



We use a variety of media, such as television,
newspapers, magazines, the Internet and outdoor billboard displays to build both regional and national brand recognition. We have
incurred and expect to continue to incur significant costs and expenses arising out of our brand-building activities, including
store refurbishment and renovation, sponsorships and advertising in regional and national newspapers, magazines, the Internet,
television and billboard displays. These activities may not be successful in building the goodwill and profile of our brand.



9







We also collaborate with athletes, media
celebrities and industry experts on marketing and endorsement arrangements and they act as spokespersons for the Xidelong brand.
Our brand is therefore partly dependent on the public perception of these individuals, over which we have no control. In
2012, we continued to sponsor “Fitness for All” Sports Campaign and engage By2, a pop musical group as our product
spokesperson. Any negative publicity, whether in the PRC or abroad, in relation to our brand or our brand representatives could
have an adverse effect on the public’s perception of our brands. This negative publicity could arise from poor performance
by our endorsers in their fields, our failure to continue to identify correctly promising athletes and or celebrities to use and
endorse our products, or our failure to enter into endorsement arrangements with prominent athletes and sports organizations.



If we are unsuccessful in promoting our
Xidelong brand among its targeted consumer groups, the goodwill and consumer acceptance of our Xidelong brand may be eroded, and
our business, financial condition, results of operations and prospects could be adversely affected.



Our sales could be affected by seasonality, weather conditions
and a number of other factors.



All of our products are sold to distributors
for subsequent resale to consumers in the PRC. Generally, PRC consumers’ spending behavior varies seasonally, particularly
during the Chinese New Year in early spring, the Labor Day holiday in early May, the summer months and the National Day holiday
in early October.



We experience moderate fluctuations in
our aggregate sales volume during the year. Historically, revenues in the third and fourth fiscal quarters have slightly exceeded
those in the first and second fiscal quarters. However, sales of individual products could vary considerably from time to time
as a result of changes in seasonal and geographic demand for particular types of footwear, apparel and accessories. In addition,
unexpected and abnormal changes in climate could affect sales of our products that are timed for release during a particular season.
Fluctuations in our sales may also result from a number of other factors, including:



| | · | the timing of
                                                                                                             our competitors’
                                                                                                             launch of new products;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the timing of
                                                                                                             international and
                                                                                                             domestic sports events;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | consumer acceptance
                                                                                                             of our new and existing
                                                                                                             products;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the size of the
                                                                                                             overall sportswear
                                                                                                             industry;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | economic and
                                                                                                             demographic conditions
                                                                                                             that affect consumer
                                                                                                             spending and retail
                                                                                                             sales; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the timing and
                                                                                                             purchase decisions
                                                                                                             of our distributors.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As a result, we believe that comparisons
of our operating results between any interim periods may not be meaningful and that these comparisons may not be an accurate indicator
of our future performance.



Our operations could be disrupted for reasons beyond
our control, and our business, financial condition and results of operations could be adversely affected as a result.



Our manufacturing operations could be disrupted
for reasons beyond our control. The causes of disruptions may include extreme weather conditions, landslides, earthquakes, fires,
natural catastrophes, raw material supply disruptions, equipment and system failures, labor force shortages, energy shortages,
workforce actions or environmental issues. Any significant disruption to our operations could adversely affect our ability to
make and sell products, the productivity and profitability of our manufacturing facilities, our business, financial condition
and results of operations, and the operations of our distributors.



In May 2008, Wenchuan County of Sichuan
Province, a region that is approximately 360 kilometers away from Chongqing City, suffered an earthquake with an 8.0 magnitude
on the Richter Scale. As a result of the earthquake, 87 retail selling locations of our distributors were closed. We cannot assure
you that we will not suffer any further losses in the future as a result of similar events that are beyond our control.



Our historical
financial information may not be indicative of our future performance.



Our business began when XDLong Fujian was
established in September 2001. Our historical financial information may not
necessarily reflect our future results of operations. In particular, since the commencement of
our apparel business in 2003, we have outsourced all of our apparel production and a portion of footwear production to contract
manufacturers. We have a limited operating history in the sale and marketing of apparel. As a result, the historical operating
results of our apparel business may not provide a meaningful basis for evaluating the performance of our apparel business going
forward. There also may not be a sufficient basis to evaluate our future prospects.



10







We may not be able to resume our growth after the current
slow-down or manage our growth effectively.



Despite the recent slow down in 2012,
we have been expanding our business rapidly and intend to continue to do so either through organic growth or through
acquisitions and investments in related businesses as we deem appropriate. Such expansion may place a significant strain on
our managerial, operational and financial resources. Our expansion plans will require us to increase investments in, and
devote significant resources to, our brand promotion efforts, internal production capacities, research and design
capabilities and the Xidelong sales distribution network operated by our distributors. If we fail to implement our future
expansion plans, we may not achieve our growth target. Furthermore, our ability to obtain adequate funds to finance our
expansion plans depends on our financial condition and results of operations, as well as other factors that may be outside
our control, such as general market conditions, the performance of the PRC sportswear industry, and political and economic
conditions in China. If additional capital is unavailable, we could be forced to abandon some or all of our expansion plans,
as a result of which our business, financial condition and results of operations could be adversely affected.



We have no prior experience in engaging
in the management and operation of retail selling locations or retail business. We will need to manage our growth effectively,
which may entail devising and implementing business plans, training and managing our growing workforce, managing costs and implementing
adequate control and reporting systems in a timely manner. We have decided to establish a production facility in Ruichang City,
Jiangxi Province. We cannot assure you that our expansion plan will be successful or our personnel, procedures and controls will
be managed effectively to support our future growth adequately. Failure to manage our expansion effectively could affect our success
in executing our business plan and adversely affect our business, financial condition and results of operation. In addition, our
growth in percentage terms could slow in the future. Accordingly, you should not rely on our historic growth rate as an indicator
for our future growth rate.



Loss of any key executive personnel or any failure to
attract such personnel in the future could adversely impact our business and growth prospects.



Our future success will depend on the continued
service of our senior management. In particular, Mr. Lin Shuipan, chairman of the board and chief executive officer, has over
15 years’ experience in the sportswear industry and is responsible for our overall corporate strategies, planning and business
development. His experience and leadership is critical to our operations and financial performance. We do not maintain any “key-man”
insurance policy. If we lose the services of Mr. Lin or any of our key executive personnel and cannot replace them in a timely
manner, such loss may reduce our competitiveness, and may adversely affect our financial condition, operating results and future
prospects. In addition, our success depends significantly on other personnel and, in particular, our team of designers. Other
international and domestic competitors may be able to offer more favorable compensation packages to recruit personnel whom we
consider desirable. Our continued success will depend on our ability to attract and retain qualified personnel in order to manage
our existing operations as well as our future growth. We may not be able to attract, assimilate or retain the personnel whom we
need. Our staff expenses in relation thereto could increase significantly. This could adversely affect our ability to expand our
business effectively.



Failure to develop technically innovative products could
adversely affect our competitiveness.



While design and aesthetics of our products
are important factors for consumer acceptance of our products, technical innovation in the design of footwear, apparel, and accessories
is also essential to the commercial success of our products. Research and development plays a key role in technical innovation.
We rely upon specialists in the fields of biomechanics, exercise physiology, engineering, industrial design and related fields,
and other experts to develop cutting edge performance products. While we strive to produce products that help reduce injury, enhance
athletic performance and maximize comfort, our failure to introduce technical innovation in our products could result in a decline
in consumer demand for our products.



Our research and development capabilities may be adversely
affected if we are unable to renew the technology cooperation agreement with the China Institute of Sport Science.



One element of our growth strategy is to
continue to design and manufacture products through further investment in product design and research and development initiatives.
We primarily rely on the China Institute of Sport Science for such research and development initiatives. We renewed our technology
cooperation agreement with the China Institute of Sport Science in October 2011 for another five years. We cannot assure you that
the China Institute of Sport Science will agree to renew the agreement again when it expires on its terms in the future, nor can
we assure you that after renewal, the China Institute of Sport Science will comply with the terms and conditions of the agreement
and the renewal provisions. If we do not renew the agreement or if the China Institute of Sport Science does not honor the terms
of the agreement for any reason, our research and development capabilities may be adversely affected. This could in turn have
an indirect adverse effect on our business, financial condition and results of operations.



11







We could be involved in litigation on intellectual property
infringement or other litigation or regulatory proceedings, which could adversely affect our reputation, financial condition and
results of operations.



We may design products with elements that
could inadvertently infringe the copyright or other intellectual property rights of other parties, as a result of which they may
initiate litigation or other proceedings against us. Responding to and defending these proceedings may require substantial costs
and diversion of resources, and the result of these proceedings could be uncertain. Furthermore, our reputation could be adversely
affected.



We could be subject to other
lawsuits and regulatory actions relating to our business from time to time. Due to the inherent uncertainties of litigation
and other proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome
could have an adverse impact on our business, financial condition and results of operations. In addition, any significant
litigation in the future, regardless of its merits, could divert management’s attention from our operations and result
in substantial legal fees.



If we are unable to protect adequately our intellectual
property, we may be involved in legal proceedings, which could be expensive and time consuming, and consumers may shift their
preference away from our products.



We believe that our trademarks, patents,
and other intellectual property rights are important to our brand, success and competitive position. We consider the “”
(Xidelong) and “” trademarks to be among our most valuable assets, and we have registered these trademarks
in the PRC. In addition, we own other trademarks that we use in marketing our products. We periodically discover products that
we believe are counterfeit reproductions of our products or that otherwise infringe on our intellectual property rights. We may
pursue litigation in the future to enforce our intellectual property rights. Any such litigation could result in substantial costs
and a diversion of our resources. If we are unsuccessful in challenging a party’s products based on trademark or design
or utility patent infringement, continued sales of these products could adversely affect our sales and our brand and result in
the shift of consumer preference away from our products. The actions we take to establish and protect trademarks, patents, and
other intellectual property rights may not be adequate to prevent imitation of our products by others or to prevent others from
seeking to block sales of our products on grounds of violations of proprietary rights.



Because the construction of our production facility in
Jinjiang was not in full compliance with PRC laws and regulations, we could be subject to fines and other penalties.



Pursuant to the State-owned Land Use
Right Transfer Contract for the grant of land use rights for the production site in Jinjiang, XDLong Fujian was required to
commence construction by February 28, 2006. However, XDLong Fujian did not commence construction by such date because we
decided to construct production facilities on another larger parcel of land owned by XDLong China. Currently, we have planned
to construct additional facilities on the XDLong Fujian parcel of land. On May 14, 2008, XDLong Fujian applied to the
relevant local government agency for the approval to postpone construction on the land. On July 1, 2012, the Ministry of Land
and Resources issued the Measures on Disposing Idle Land. The new regulation emphasizes that the land authority shall
repossess the idle land without any compensation if the scheduled construction has not commenced for two years. The new
regulation also stipulates the procedures, results and other details regarding repossessing idle land. We do not believe that
the parcel of land held for use by XDLong Fujian met the definition of idle land in accordance with the new regulation. The
local government agency has verbally confirmed that the local government does not intend to repossess the parcel of land held
for use by XDLong Fujian, or otherwise cancel the underlying contract. Management based its conclusion on the fact that the
local government has been advised that we intend to commence construction on the parcel of land and that local
government officials have provided verbal assurances that they do not intend to take punitive action for our failure to
commence construction. Consistent with the objectives of the local government, the construction of the additional facilities
in the Jinjiang area will inject capital into the local economy and result in an expansion of our local workforce. As a
result, we have concluded that the possibility of incurring impairment in value or loss of land use is remote.



The land covers an area of
approximately 15,000 square meters and XDLong Fujian paid approximately RMB531,000 of land grant fees to the government. If
the local government repossesses the land, we  may lose our land use rights over the land and we will not be able to recover
the land grant fees previously paid to the government. In addition, we will not be able to construct additional facilities on
the land to implement our expansion plans.



Certain of our facilities are located on a parcel of
land for which we have not obtained the certificate of land use rights.



We are constructing staff quarters on a
parcel of land with an aggregate site area of approximate 22,160 square meters adjacent to our XDLong China production complex
in Jinjiang. Pursuant to four sales and purchase agreements XDLong China entered into with independent third parties on May 17,
2010, May 20, 2010, November 18, 2010 and January 3, 2011, respectively, we are in the process of applying for the certificate
of land use rights. Under the PRC laws, a certificate of land use rights is required for the construction and use of our facilities.
If we fail to obtain the certificate of land use rights for any reason, we may be fined or required to relocate our staff quarters,
which would adversely affect our business, results of operations and financial condition.



12







Changes in environmental laws and regulations in the
PRC could result in additional capital expenditures.



Our production facility is located in Jinjiang
and is subject to PRC environmental protection laws and regulations. These laws and regulations require enterprises engaged in
manufacturing that may generate industrial waste to adopt effective measures to control and properly dispose of such waste. The
relevant administrative department for environmental protection can levy fines for any violations of such environmental laws or
regulations. For material violations, the PRC government may suspend or close any or all of our operations. We cannot assure you
that the PRC government will not change the existing laws or regulations or impose additional or stricter laws or regulation.
Compliance with any of these additional or stricter laws or regulations may cause us to incur additional capital expenditure,
which we may be unable to pass on to customers through higher prices for our products.



We contract with third-party contract manufacturers
and raw material suppliers and do not exercise any control over the operations of our contract manufacturers or suppliers. We
are therefore not able to ensure their compliance with the applicable environmental laws. If our contract manufacturers or suppliers
violate any applicable laws, we may be named as a defendant in related legal proceedings and incur costs and resources in defending
ourselves. Any resulting negative publicity may also damage our brand and harm our brand building efforts. Our business, financial
condition and results of operations could be adversely affected as a result.



Our current insurance coverage may not be sufficient
to cover the risks related to our operations.



Our operations are subject to hazards and
risks normally associated with manufacturing operations, which may cause damage to persons or property. Currently, we maintain
insurance policies for damage to real property and for employer liability for personal injury of employees. We are not required
under PRC law to maintain, and we do not maintain, any product liability insurance. If we were found liable for any product liability
claim, we may be required to pay substantial damages. Even if we were successful in defending such a claim, we may incur substantial
financial and other resources in defending such a claim. Under such circumstances, our financial results could be adversely affected.
Depending on the outcome of any such claim, the reputation of our Xidelong brand could also be adversely affected. Further, we
do not maintain business interruption insurance or third-party liability insurance against claims for property damage, personal
injury and environmental liabilities. The occurrence of any of these events could result in interruption of our operations and
subject us to significant losses or liabilities. Any losses or liabilities that are not covered by our current insurance policies
could have a material adverse effect on our business, financial condition and results of operations.



Difficulties in obtaining new credit facilities or acceleration
of payments under existing credit facilities could have an adverse effect on our liquidity.



As a result of the global financial downturn
that began in 2008, banks and other financial institutions tightened lending to businesses. As a result, businesses experienced
difficulties in obtaining credit at commercially acceptable terms, or at all. We obtained new bank borrowings of RMB18.0 million
in 2010. We did not obtain any new bank borrowings in 2011 but obtained new bank borrowings of 30.0 million in 2012. We cannot
assure you that we will continue to be able to obtain additional funding when the need arises. If we are unable to obtain new
credit facilities and are unable to finance our liquidity or working capital requirements through cash flows from operating activities
or other sources, our business, financial condition and results of operations could be adversely affected.



Our risk management and internal control systems improvements
may not be adequate or effective, which could adversely affect our business, financial condition and results of operations.



We have established risk management and
internal control systems consisting of relevant organizational frameworks, policies, procedures and risk management methods that
we believe are appropriate for our business operations, and we seek to continue to improve such risk management and internal control
systems from time to time. However, due to the inherent limitations in the design and implementation of risk management and internal
control systems, we cannot assure you that our risk management and internal control systems will be sufficiently effective in
identifying and preventing all such risks.



In addition, as some of our risk management
and internal control policies and procedures are relatively new, we may need to establish and implement additional risk management
and internal control policies and procedures to further improve our systems from time to time. Our risk management and internal
control systems also depend on their implementation by our employees, and we cannot assure you that such implementation will not
involve any human errors or mistakes. If we fail to timely adapt and implement our risk management and internal control policies
and procedures, our business, results of operations and financial condition could be materially and adversely affected.



While we believe that we currently
have adequate internal control procedures in place, we are still exposed to potential risks from legislation requiring companies
to evaluate internal controls under Section 404 of the Sarbanes-Oxley Act of 2002.



We are subject to the reporting obligations
under the U.S. securities laws. The Securities and Exchange Commission, or the SEC, as required under Section 404 of the Sarbanes-Oxley
Act of 2002, has adopted rules requiring public companies to include a report of management on the effectiveness of such companies’
internal control over financial reporting in their respective annual reports. This annual report does not include an attestation
report of our registered public accounting firm regarding internal control over financial reporting because we exited the accelerated
filer status at the end of the fiscal year ended December 31, 2012 and now hold the status as a non-accelerated filer. Our management
conducted an evaluation of the effectiveness of our internal control over financial reporting and concluded that our internal
control over financial reporting was effective as of December 31, 2012.



13







If we fail to maintain the effectiveness
of our internal control over financial reporting, we may not be able to conclude on an ongoing basis that we have effective internal
control over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, effective internal control over financial
reporting is necessary for us to produce reliable financial reports. As a result, any failure to maintain effective internal control
over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which
in turn could negatively impact the trading price of our ordinary shares. Furthermore, we may need to incur additional costs and
use additional management and other resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act and other requirements
going forward.



If we become directly subject to
the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant
resources to investigate and resolve the matter which could harm our business operations, stock price and reputation and could
result in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably.



Recently, U.S. public
companies that have substantially all of their operations in China, particularly companies like us which have completed so-called
reverse merger transactions, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial
commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered around
financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate
corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny,
criticism and negative publicity, the publicly traded stocks of many U.S. listed Chinese companies have sharply decreased in value
and, in some cases, have become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement
actions, and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide
scrutiny, criticism and negative publicity will have on our Company, our business and our stock price. If we become the subject
of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources
to investigate such allegations and/or defend our company. This situation will be costly and time consuming and could distract
our management from growing our company. If such allegations are not proven to be groundless, our company and business operations
will be severely affected and your investment in our stock could be rendered worthless.



Risks Relating to the PRC



Our future performance is dependent on the PRC economy
and the PRC consumer market in particular.



We derive all of our
revenue from sales of our products in the PRC. The success of our business depends on the condition and growth of the PRC consumer
market, which in turn depends on macro-economic conditions and individual income levels in the PRC. We cannot assure you that
projected growth rates of the PRC economy and the PRC consumer market will be realized under the current economic situation. Any
future slowdowns or declines in the PRC economy or consumer spending could adversely affect our business, operating results and
financial condition. We believe that consumer spending habits could be adversely affected during a period of recession in the
economy or that uncertainties regarding future economic prospects could also affect consumer spending habits, all of which may
have an adverse effect on certain enterprises operating within the consumer and retail sectors, including us. The consumer and
retail market could be affected by the changing operating conditions in the PRC. With the accession of the PRC to the World Trade
Organization, or WTO, changes and developments in the consumer and retail market could be volatile and unpredictable. For instance,
the reduction in tariffs on foreign products after the liberalization of the PRC market and further entry of international brands
may intensify the competition in the PRC market. This could have a material adverse impact on our business, financial condition
and results of operations.



Political, economic and social policies of the PRC government
and PRC laws and regulations could affect our business, financial condition and results of operations and could result in our
inability to sustain our growth.



The economy of the PRC differs from the
economies of most developed countries in a number of respects, including:



| | · | its structure;
| | - | --------------



| | · | level of government
                                                                                                             involvement;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



| | · | level of development;
| | - | ---------------------



| | · | level of capital
                                                                                                             reinvestment;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | · | control of capital
                                                                                                             reinvestment;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



| | · | control of foreign
                                                                                                             exchange; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



| | · | allocation of
                                                                                                             resources.
| | - | -------------------------------------------------------------------------------------------------------------------------------------



14







Before the adoption of reforms and open
door policies beginning in 1978, China was primarily a planned economy. Since then, the PRC government has been reforming the
PRC’s economic system, and in recent years, has begun reforming the government structure. These reforms have resulted in
significant economic growth and social progress. Although the PRC government still owns a significant portion of the productive
assets in the PRC, economic reform policies since the late 1970s have emphasized autonomous enterprises and the utilization of
market mechanisms, especially where these policies apply to non-state-owned businesses such as our Company. Although we believe
these reforms will have a positive effect on our overall and long-term development, we cannot predict whether changes in the PRC’s
political, economic and social conditions, laws, regulations and policies will have an adverse impact on our current or future
business, financial condition and results of operations.



Among others, we are subject to PRC laws
and regulations on labor and employee benefits. In recent years, the PRC government has implemented policies to strengthen the
protection of employees and obligate employers to provide more benefits to their employees. In addition, an employment contract
law came into effect in China on January 1, 2008. The PRC employment contract law and related regulations require more benefits
to be provided to employees, such as increases in pay or compensation for termination of employment contracts. As a result, we
expect to incur higher labor costs, which could have an adverse impact on our current or future business, results of operations
or financial condition. Additional changes in the PRC’s political, economic and social conditions, laws, regulations and
policies could have an adverse effect on our business, financial condition and results of operations.



Failure to comply with the State Administration of Foreign
Exchange regulations relating to registration of interests before the establishment of offshore special purpose companies by our
beneficial owners could adversely affect our business, financial condition and results of operations.



On October 21, 2005, the State Administration
of Foreign Exchange, or SAFE, issued a public notice that became effective on November 1, 2005. The notice requires PRC residents
to register with the local State Administration of Foreign Exchange branch before establishing or controlling any company, referred
to in the notice as an “offshore special purpose company,” outside of the PRC for the purpose of capital financing
(the “No. 75 SAFE Initial Registration”). Besides that, an alteration registration shall be filed after completing
an investment in or acquisition of any operating subsidiaries in the PRC, which we refer to herein as a “round-trip investment,”
and any change of shareholding or any other material capital alteration in such offshore special purpose company involving a round-trip
investment shall also be filed within 30 days from the date of shareholding transfer or capital alteration. The registration conducted
under the above two situations is defined as the “No. 75 SAFE Alteration Registration.”



Our PRC beneficial owners must comply with
these requirements in connection with our future investments and financing activities. If our PRC beneficial owners fail to comply
with the relevant requirements, such failure could subject the beneficial owners to fines and legal sanctions, which could adversely
affect our business, financial condition and results of operations.



Our revenues are denominated in Renminbi, which is not
freely convertible for capital account transactions and could be subject to exchange rate volatility.



We are exposed to the risks associated
with foreign exchange controls and restrictions in China, as our revenues are denominated in Renminbi, which is currently not
freely exchangeable. The PRC government controls the convertibility of the Renminbi into foreign currencies. Under the rules promulgated
under the PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments
and operation-related expenditures, may be made in foreign currencies without prior approval but are subject to procedural requirements.
Strict foreign exchange control continues to apply to capital account transactions. These transactions must be approved by or
registered with the PRC State Administration of Foreign Exchange and repayment of loan principal, distribution of return on direct
capital investment and investments in negotiable instruments are also subject to restrictions. We cannot assure you that we will
be able to meet all of our foreign currency obligations or to remit profits out of China.



We rely principally on dividends paid by our subsidiaries
to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to pay dividends
to us could have a material adverse effect on our ability to conduct our business.



Exceed is a holding company incorporated
in the British Virgin Islands and relies principally on dividends paid by operating subsidiaries in the PRC for cash requirements,
including the funds necessary to service any debt we may incur. Applicable PRC laws, rules and regulations permit payment of dividends
by our PRC subsidiaries only out of their retained earnings, if any, determined in accordance with PRC accounting standards, which
differ in many aspects from generally accepted accounting principles in other jurisdictions. Based on PRC accounting standards,
our PRC subsidiaries are also required to set aside a certain percentage of their after-tax profit each year to their reserve
fund in accordance with the requirements of relevant laws and provisions in their respective articles of associations, which are
not available for distribution as cash dividends. As a result, our PRC subsidiaries are restricted in their ability to transfer
a portion of their net income to us, whether in the form of dividends, loans or advances. Further, if any of our subsidiaries
incurs debt in their own name in the future, the instruments governing the debt may restrict dividends or other distributions
on its equity interest to our Company. Any limitation on the ability of our subsidiaries to pay dividends could materially adversely
limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise
fund and conduct our business.



15







Any changes in PRC policies on enterprise income tax
could adversely affect our ability to pay dividends and our financial condition.



Our subsidiaries may trigger
withholding tax requirements in the future under the PRC Enterprise Income Tax Law and the Rules on the Implementation of
Enterprise Income Tax Law of the PRC, or Implementation Rules, depending on their classification as a PRC or non-PRC tax
resident enterprise. Under the PRC Enterprise Income Tax Law and Implementation Rules, dividend and profit distribution by a
“resident enterprise” to a “non-resident enterprise” will be subject a withholding tax rate of 5% if
the latter is a qualified Hong Kong company and a withholding tax rate of 10% if the latter is a British Virgin Islands
company. In contrast, qualified dividend and profit distribution from equity investment between “PRC tax resident
enterprises” are exempt from withholding tax and income tax. Among other things, “qualified dividend and profit
distribution” include investment income derived by a PRC tax resident enterprise from the direct investment in other
PRC tax resident enterprises, other than investment income from circulating stock issued publicly by PRC tax resident
enterprises and traded on stock exchanges where the holding period is less than 12 months.”



Under the PRC Enterprise Income Tax Law,
“non-resident enterprises” are enterprises that do not have an establishment or place of business in the PRC, or that
have establishment or place of business but the relevant income is not effectively connected with the establishment or place of
business. If an enterprise incorporated outside of the PRC has “de facto management organization” within the PRC,
it may be recognized as a “resident enterprise” and may be subject to a 25% enterprise income tax on its worldwide
income. According to the Implementation Rules, “de facto management organization” means the institution that materially
and comprehensively manages and controls the enterprise’s business, personnel, finance and assets. Given the short history
of the tax law and the Implementation Rules, the way for an enterprise to qualify for tax exemptions remains unclear. Our ability
to pay dividends and our financial condition may be adversely affected as a result of the new tax law and other changes in PRC
policies and regulations on dividend distributions, withholding tax, and enterprise income tax.



All of our management is currently substantially
based in the PRC and may remain in the PRC after the new tax law takes effect. Therefore, we may be treated as a PRC resident
enterprise for purposes of the new tax law. The tax consequences of such treatment are currently unclear as they will depend on
the implementation regulations and on how local tax authorities apply or enforce the new tax law or the Implementation Rules.



The levy and collection of enterprise income
tax in China are handled by various local governments, which in turn submit such tax revenues to their respective higher administrative
authorities. Each local government has its own administrative practice with regard to the manner and the amount of tax submitted
by the local government to its higher administrative authorities. PRC enterprises, including us, have no participation in or control
over such administrative practices. Any discrepancies in implementation among the local governments of such administrative practice
could result in uncertainties over the amount of tax for which a PRC enterprise is liable.



Fluctuations in the exchange rate could adversely affect
us.



Substantially all of our revenues and expenditures
are denominated in Renminbi. As a result, fluctuations in the exchange rate between the U.S. dollars and the Renminbi will affect
our financial results in U.S. dollar terms without affecting our business or results of operations. The Renminbi’s exchange
rate with the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic
conditions. The exchange rate for conversion of Renminbi into foreign currencies is heavily influenced by intervention in the
foreign exchange market by the People’s Bank of China. From 1995 until July 2005, the People’s Bank of China intervened
in the foreign exchange market to maintain an exchange rate of approximately 8.3 Renminbi per U.S. dollar. On July 21, 2005, the
PRC government changed this policy and began allowing modest appreciation of the Renminbi versus the U.S. dollar. However, the
Renminbi is restricted to a rise or fall of no more than 0.5% per day versus the U.S. dollar, and the People’s Bank of China
continues to intervene in the foreign exchange market to prevent significant short-term fluctuations in the Renminbi exchange
rate. Nevertheless, under China’s current exchange rate regime, the Renminbi may appreciate or depreciate significantly
in value against the U.S. dollar in the medium to long term.



Any significant revaluation of the Renminbi
may have a material adverse effect on our revenues and financial condition as well as on the value of, and any dividends payable
on, our ordinary shares in foreign currency terms. For instance, a decline in the value of Renminbi against the U.S. dollar could
reduce the U.S. dollar equivalent amounts of our financial results, the value of your investment in us and the dividends we may
pay in the future, if any.



There remains significant international
pressure on the PRC government to liberalize further its currency policy, which could result in a further and more significant
appreciation in the value of the Renminbi against the U.S. dollar. The Renminbi could be revalued further against the U.S. dollar
or other currencies, or could be permitted to enter into a full or limited free float, which could result in an appreciation or
depreciation in the value of the Renminbi against the U.S. dollar or other currencies.



16







An outbreak of the H1N1 swine flu, H5N1 strain of bird
flu (Avian Flu), Severe Acute Respiratory Syndrome (SARS) or any other similar epidemic could, directly or indirectly, adversely
affect our business, financial condition and results of operations.



The outbreak of the H1N1 swine flu in North
America and Europe has caused governments to take measures to prevent the spread of the virus. In addition, there have been reports
of swine flu cases in Asia. If the H1N1 virus further spreads in Asia, including China, epidemic could negatively affect the Asian
economy. Past occurrences of epidemics have caused different degrees of damage to the national and local economies in China. China
encountered epidemics such as SARS and incidents of the Avian Flu, which is spread through poultry populations, and is capable
in certain circumstances of being transmitted to humans, causing death. If any of our employees are identified as a possible source
of swine flu, the Avian Flu or any other similar epidemic, we may be required to quarantine employees that are suspected of being
infected, as well as others that have come into contact with those employees. We may also be required to disinfect our affected
premises, which could cause a temporary suspension of our manufacturing capacity, thus adversely affecting operations. An outbreak
of swine flu or a recurrence of an outbreak of SARS, Avian Flu or any other similar epidemic could restrict the level of economic
activities generally and/or slow down or disrupt our business activities, which could in turn adversely affect our business, financial
condition and results of operations.



Power shortages in the PRC could disrupt our business.



Our manufacturing processes consume substantial
amounts of electricity supplied by local power grids. Certain cities in the PRC have experienced power shortages in the past or
have been subjected to restrictions in electricity consumption. A power shortage could affect or delay our production schedule.
We maintain backup power generators to provide electricity to our machinery and equipment in case of electricity supply interruptions.
However, there is no assurance that we will always have an adequate supply of electricity to meet our production requirements
and our results of operations may be adversely affected in the event of any material interruption in electricity supply. An extended
interruption in the power supply could also affect the operations of the Xidelong retail selling locations and result in a decrease
in revenue.



We may be subject to fines and legal sanctions if we
or our employees who are PRC citizens fail to comply with the PRC regulations relating to employee share options granted by overseas
listed companies to PRC citizens.



In March 2007, SAFE issued the Application
Procedures for Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding Plans or Share
Option Plans of Overseas Listed Companies, or the Stock Option Rule. Under the Stock Option Rule, PRC individuals who participate
in an employee stock holding plan or share option plan of an overseas listed company are required, through a PRC domestic agent
or PRC subsidiary of the overseas listed company, to register with SAFE and complete certain other procedures. As we are an overseas
listed company, we and our PRC employees who have been granted share options and/or restricted share units under our equity incentive
plans are subject to the Stock Option Rule. On February 15, 2012, SAFE issued the Notices on Issues
concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed
Company, or the Stock Incentive Plan Rules, or the Updated Stock Option Rule, which replaced the Stock Option Rule issued by SAFE
in March 2007. We have issued restricted shares under our equity incentive plan and weand our employees intend to make
such application and complete all the requisite procedures in accordance with the Updated Stock Option Rule. However, there exist
significant uncertainties in practice with respect to the interpretation and implementation of the Updated Stock Option Rule,
and we cannot assure you that we can complete all the procedures in a timely manner. If SAFE or other PRC governmental authorities
determine that we or our PRC employees have failed to comply with the provisions of the Updated Stock Option Rule, we or they
could be subject to fines and legal sanctions, which could have a material adverse effect on the implementation of our equity
incentive plans and our business operations.



The audit report included in this annual report are prepared
by auditors who are not inspected by the Public Company Accounting Oversight Board and, as such, you are deprived of the benefits
of such inspection



Auditors of companies that are traded publicly
in the United States, including our independent registered public accounting firm, must be registered with the U.S. Public Company
Accounting Oversight Board (“the “PCAOB”) and are required by the laws of the United States to undergo regular
inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards.



Because we have substantial operations within
China and the PCAOB is currently unable to conduct inspections of the work of our auditors without the approval of the Chinese
authorities, our auditors are not currently inspected fully by the PCAOB.  This lack of PCAOB inspections in China prevents
the PCAOB from regularly evaluating our auditor's audits and its quality control procedures.  As a result, investors may
be deprived of the benefits of PCAOB inspections.



The inability of the PCAOB to conduct full
inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures
or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose
confidence in our reported financial information and procedures and the quality of our financial statements.



Risks Related to Investment in our Ordinary
Shares



The market price for our ordinary shares could be volatile.



The trading price of our ordinary
shares may be subject to fluctuations. During the period from October 13, 2009, the first day on which our ordinary shares
were listed on the NASDAQ Capital Market, and were transferred and being traded on the NASDAQ Global Market and NASDAQ Global
Select Market on June 28, 2010 and January 3, 2011, respectively. Until March 26, 2013, the trading prices of our ordinary
shares ranged from  US$1.18 to US$13.69 per ordinary share and the closing sale price on March 26, 2013 was  US$1.35 per
ordinary share. The market price for our ordinary shares could continue to be volatile and subject to fluctuations in
response to factors including the following:



17







| | · | recent scrutiny,
                                                                                                             criticism and negative
                                                                                                             publicity involving
                                                                                                             U.S.-listed Chinese
                                                                                                             companies;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | regulatory developments
                                                                                                             in our target markets
                                                                                                             affecting us, our
                                                                                                             customers or our
                                                                                                             competitors;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | actual or anticipated
                                                                                                             fluctuations in our
                                                                                                             quarterly operating
                                                                                                             results;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | changes in financial
                                                                                                             estimates by securities
                                                                                                             research analysts;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | changes in the
                                                                                                             economic performance
                                                                                                             or market valuations
                                                                                                             of other sportswear
                                                                                                             companies;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | additions or
                                                                                                             departures of our
                                                                                                             directors, executive
                                                                                                             officers and key
                                                                                                             research personnel;
                                                                                                             and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | release or expiry
                                                                                                             of lock-up or other
                                                                                                             transfer restrictions
                                                                                                             on our outstanding
                                                                                                             ordinary shares.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, securities markets may from
time to time experience significant price and volume fluctuations that are not related to the operating performance of particular
companies. These market fluctuations may have a material adverse effect on the market price of our ordinary shares. In addition,
the performance and fluctuation of the market prices of other companies with business operations located mainly in China that
have listed their securities in the United States may affect the volatility in the price and trading volumes for our ordinary
shares. Some of these companies have experienced significant volatility. The trading performances of these companies’ securities
at the time of or after their offerings could affect the overall investor sentiment towards PRC companies listed in the United
States and consequently could impact the trading performance of our ordinary shares.



Substantial future sales or perceived sales of our ordinary
shares in the public market could cause the price of our ordinary shares to decline.



Sales of our ordinary shares in the public
market, or the perception that these sales could occur, could cause the market price of our ordinary shares to decline. Such sales
also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we
deem appropriate. If any existing shareholder or shareholders sell a substantial amount of our ordinary shares, the prevailing
market price for our ordinary shares could be adversely affected. In addition, we may issue additional ordinary shares for future
acquisitions. If we pay for our future acquisitions in whole or in part with additionally issued ordinary shares, your ownership
interests in our Company would be diluted and this, in turn, could have a material adverse effect on the price of our ordinary
shares.



Your right to participate in any future rights offerings
could be limited, which could cause dilution to your holdings.



We may from time to time distribute rights
to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United
States unless we register the rights and the securities to which the rights relate under the U.S. Securities Act of 1933, as amended,
or the Securities Act, or an exemption from the registration requirements is available. We are under no obligation to file a registration
statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective.
Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, in the event we
conduct any rights offerings in the future, you could be unable to participate in such offerings and could experience dilution
in your holdings.



Certain judgments obtained against us by our shareholders
may not be enforceable.



We are a company incorporated under the
laws of the British Virgin Islands. We conduct our operations in the PRC and substantially all of our assets are located in the
PRC. In addition, our directors and executive officers, and some of the experts named in this annual report, reside within the
PRC, and most of the assets of these persons are located within the PRC. As a result, it may be difficult or impossible for you
to bring an action against us or against any one of these individuals in the United States in the event that you believe that
your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an
action of this kind, the laws of the British Virgin Islands and of the PRC could render you unable to enforce a judgment against
our assets or the assets of our directors and officers.



Since we are a British Virgin Islands company, the rights
of our shareholders could be more limited than those of shareholders of a company organized in the United States.



Under the laws of some jurisdictions in
the United States, majority and controlling shareholders generally have certain fiduciary responsibilities to the minority shareholders.
Shareholder action must be taken in good faith, and actions by controlling shareholders that are obviously unreasonable may be
declared null and void. There are common law rights for the protection of shareholders that may be invoked, largely dependent
on English company law, since the common law of the British Virgin Islands for business companies is limited. Under the general
rule pursuant to English company law known as the rule in Foss v. Harbottle, a court will generally refuse to interfere with the
management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the
company's affairs by the majority or the board of directors. However, every shareholder is entitled to have the affairs of the
company conducted properly according to law and the constituent documents of the corporation. As such, if those who control the
company have persistently disregarded the requirements of company law or the provisions of the company's memorandum and articles
of association, then the courts will grant relief. Generally, the areas in which the courts will intervene are the following:
(1) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by
the majority; (2) acts that constitute fraud on the minority where the wrongdoers control the company; (3) acts that infringe
on the personal rights of the shareholders, such as the right to vote; and (4) where the company has not complied with provisions
requiring approval of a special or extraordinary majority of shareholders.



18







The principal protection under statutory
law is that shareholders may bring an action to enforce the constituent documents of the corporation, our Memorandum and Articles
of association. Shareholders are entitled to have the affairs of us conducted in accordance with the general law and the memorandum
and articles.



Wemay
become a passive foreign investment company, or PFIC, which could result in adverse U.S. tax consequences to U.S. investors.



A non-U.S. corporation is deemed
a PFIC for any taxable year if either (i) at least 75% of its gross income for such year is passive income or (ii) at
least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable
to assets that produce passive income or are held for the production of passive income. We operate an active business of manufacturing
and sales of sports and leisure footwear, apparel and accessories in China. Based on our use of cash for our business operations
and on the projected composition of our income and valuation of our assets, including goodwill, we do not believe that we were
considered to be a passive foreign investment company, or a PFIC, for U.S. federal income tax purposes for our taxable year ending
December 31, 2012, and we do not expect to become a PFIC for our taxable year ending December 31, 2013 or thereafter. 
The determination of whether a non-U.S. corporation is a PFIC is made on an annual basis after the close of each taxable year.
We cannot assure you that we were not a PFIC for our taxable year ended December 31, 2012 or that we will not become a PFIC
for any future taxable year. The most consequential factor affecting the outcome of annual PFIC determination in 2013 and future
taxable years will be our use of cash in our active business. Because items of working capital are generally treated as passive
assets for PFIC purposes, accumulating cash, cash equivalents and other assets that are readily convertible into cash increases
the risk that we will be classified as a PFIC for U.S. federal income tax purposes. A determination that we are a PFIC could result
in adverse U.S. tax consequences to you if you are a U.S. investor, in the form of increased tax liabilities and burdensome reporting
requirements. For example, if we were a PFIC, you would generally be taxed at the higher ordinary income tax rates, rather than
the lower capital gain tax rates, if you dispose of ordinary shares at a gain in a later year, even if we are not a PFIC in that
year. In addition, a portion of the tax imposed on your gain would be increased by an interest charge. Also, if we were classified
as a PFIC in any taxable year, you would not be able to benefit from any preferential tax rate with respect to any dividend distribution
that you may receive from us in that year or in the following year. Since our business and assets may evolve over time in ways
that are different from what we currently anticipate, we cannot assure you that we will not be a PFIC for any future taxable year.
For more information on the tax consequences to you if we were treated as a PFIC, see Item 10. “Additional Information—Taxation—United
States Federal Income Taxation— Passive Foreign Investment Company Rules.”



Item 4.              INFORMATION
ON THE COMPANY



| | A. | HISTORY AND DEVELOPMENT OF THE COMPANY
| | -- | --------------------------------------



The legal and commercial name of our Company
is Exceed Company Ltd. We began our operation when we established in China as XDLong Fujian in September 2001. In January 2002,
we began designing, manufacturing and selling footwear under the “” (“Xidelong”) brand name in
a rented production facility in Jinjiang. In 2003, we began designing and selling Xidelong apparel and accessories. Our products
are designed for consumers interested in performance sportswear and lifestyle leisurewear products.



In March 2007, we established our own production
facility in Jinjiang. The facility currently has nine production lines, each with a designed production capacity of approximately
one million pairs of footwear per year. In 2010, 2011 and 2012, we manufactured 7.9 million, 7.1 million and 6.3 million pairs
of footwear, respectively, at our production facility. As of December 31, 2012, we had 22 distributors who operated 4,909 Xidelong
retail selling locations located in 30 provinces and municipalities in China.



Exceed was incorporated in the British
Virgin Islands on April 21, 2009 as a wholly-owned subsidiary of 2020, a blank check company formed in Delaware for the purpose
of acquiring, through a merger, stock exchange, asset acquisition or other similar business combination, an operating business
that either: (1) was located in China, (2) had its principal operations located in China, or, (3) in 2020’s
view, would benefit from establishing operations in China.



On October
20, 2009, 2020 merged with and into Exceed, with Exceed being the surviving entity. On October 21, 2009, Exceed acquired all of
the outstanding securities of Windrace, the parent company of our PRC subsidiaries, from its shareholders, resulting in Windrace
becoming a wholly-owned subsidiary of Exceed. The merger of 2020 with and into Exceed resulted
in the redomestication of 2020 to the British Virgin Islands on October 21, 2009 and Exceed, the surviving entity following the
merger, became a foreign private issuer. Prior to the business combination with Windrace,
neither 2020 nor Exceed had an operating business.



In late July 2011, the
footwear business of XDLong Fujian was transferred to XDLong China. After the said transfer, XDLong Fujian has been primarily
holding the land use rights used by our Company.



19







We
incurred capital expenditures of RMB65.6 million, RMB38.7 million and RMB8.4 million in the fiscal years ended December 31, 2012,
2011 and 2010, respectively. The amount of capital expenditures in the fiscal year ended December 31, 2012 related primarily to
our expenditures on the construction of a new staff quartersin
Jinjiang, PRC and on the construction of our new production facilities in Ruichang City, PRC. These capital expenditures were
funded from our operating cash flow. For additional information on our capital expenditures, see Item 5.B. “Operating and
Financial Review and Prospects – Liquidity and Capital Resources – Capital Expenditures.”



The registrant has exited the accelerated
filer status at the end of the fiscal year ended December 31, 2012 and now holds the status as a non-accelerated filer.



Our principal executive offices are located
at Unit F, 24/F, China Overseas Building, 139 Hennessy Road, Wanchai, Hong Kong. Our telephone number is (852) 2153 2771. Our
agent for U.S federal securities laws purpose is Puglish & Associates whose address is 850 Library Avenue, Suite 204, Newark,
Delaware, 10711.



20







| | B. | BUSINESS OVERVIEW
| | -- | -----------------



We design, develop and wholesale footwear,
apparel and accessories under the “” (“Xidelong”) brand name and the “” trademark.
We have three principal categories of products: (i) footwear, which mainly comprises running, leisure, basketball, skateboarding,
canvas, tennis and outdoor footwear, (ii) apparel, which mainly comprises sports tops, pants, jackets, track suits and coats,
and (iii) accessories, which mainly comprise bags, socks, hats and caps. Our footwear, apparel and accessories represented 48.0%,
50.3% and 1.7% respectively, of our total revenue in 2012. The composition was 46.0%, 52.7% and 1.3% in 2011 and 46.9%, 52.0%
and 1.1% in 2010. Our primary footwear styles are sports and leisure footwear. Skateboarding and leisure footwear represented
an aggregate of 23.2% of our total revenue in 2012. We believe the market for sportswear products similar to ours has been growing
rapidly in China due to the increasing demand for lifestyle and leisure products and heightened interest in health consciousness
among Chinese customers.



We focus primarily on second and third-tier
cities in China characterized by increasing urbanization and strong economic development, which we believe present the best opportunity
for retail sales growth. Our target customers are between 15 to 35 years old. We plan to increase our penetration in those areas
using a middle-market pricing strategy. We also aim to expand our geographical presentation and establish regional leadership,
particularly in Southwest China and Southern China.



The table below sets out the percentage
of sales to distributors by region for the periods indicated:



|                    |  | As of December 31, |      
|------------------- |  | ------------------ | -----
|                    |  | 2010               |      
|Northern Region     |  |                    | 13.8 
|Northeastern Region |  |                    | 8.9  
|Northwestern Region |  |                    | 10.7 
|Eastern Region      |  |                    | 15.0 
|Southern Region     |  |                    | 18.3 
|Southwestern Region |  |                    | 33.3 
|                    |  |                    | 100.0



We place great emphasis on the comfort
and functionality of our products. We tailor our sports and leisure footwear, especially running footwear, to the needs of Chinese
consumers. The China Institute of Sport Science, which is the research center established by the General Administration of Sport
of China and China’s first government agency engaging in research of sport science, has selected us exclusively to collaborate
on research and development efforts in China. Under our agreement with the China Institute of Sport Science, we are required to
pay an annual fee to the China Institute of Sport Science for its assistance in the research and development of technologies for
our sports footwear and apparel and its promotion of the technology content of our products. In addition, we have the exclusive
right to use the endorsement, “The Strategic Partner of the China Institute of Sport Science”, on our products
and the first right to use the know-how developed through our collaboration with the China Institute of Sport Science. As its
exclusive partner, we allow the China Institute of Sport Science to use our research and development facilities in Jinjiang. We
believe that combined with our current strengths and market position, our footwear, especially running footwear, presents the
largest growth potential in the sports and leisure footwear sector in China. Our commitment to the comfort and quality of our
footwear for each individual is represented by our slogans used in our promotional campaigns such as “The Foot Knows
Comfort”, “Run Freely” “Freedom comes first” and “Respect Yourself”.



We distribute our products mainly through
Xidelong retail selling locations, including Xidelong retail stores, which sell our products exclusively, department store concessionary
counters, and stores-within-stores. We derive all of our revenue from
sales to our distributors that operate, either directly or indirectly through third parties, the Xidelong retail selling locations
that sell our products. These distributors may also engage authorized third-party retailers to operate Xidelong retail selling
locations. We have contractual relationships only with our distributors, not any authorized third-party retailers. We believe
that the sale of our products through distributors has enabled us to grow by leveraging on their regional retail expertise and
economies of scale. We provide our distributors with retail policies and guidelines, training, advertising and marketing support
to assist them to manage and expand the Xidelong retail sales network. The number of the Xidelong retail selling locations grew
from 3,694 as of December 31, 2009 to 4,909 as of December 31, 2012, representing a CAGR of 9.9%.



We manufacture some of our products in
our production facility in Jinjiang, and the remaining through third-party contract manufacturers. Our production facility has
a gross floor area of approximately 66,102 square meters. We have nine production lines with an aggregate annual production capacity
of approximately nine million pairs of footwear. During 2010, 2011 and 2012, we outsourced a portion of our footwear production
and all of our apparel and accessories production to third-party contract manufacturers. All of our products, whether manufactured
in-house or outsourced to third-party contract manufacturers, undergo testing by our stringent quality control system before being
distributed for retail sale. For 2010, 2011 and 2012, approximately 55.2%, 64.5% and 57.0%, respectively, of our footwear in terms
of sales volume were produced through outsourced manufacturing. The outsource proportion decreased in 2012 mainly attributed to
the decrease in sales. Such percentages increased in 2011 primarily due to the limited production capacity in our existing production
facility. In December 2011, we entered into a contract with the municipal government of Ruichang City for the investment and construction
of a sportswear manufacturing facility on a parcel of land in Ruichang City. Pursuant to this contact, we would purchase several
parcels of land with an aggregate site area of 400,000 square meters in Ruichang City, Jiangxi Province, PRC, which we plan to
use for the construction of a new production facility. The first phase of the new production facility is expected to be completed
by the end of 2013. On December 1, 2012, a sales and purchase agreement was entered into for the formal transfer of the right
of the aforesaid parcel of land of 193,333 square meters. The land purchase proposal for the remaining parcel of land of 206,667
square meters has not been finalized and is subject to municipal and administrative approvals. Upon completion of the construction
of our new production facility in Ruichang City, we expect our annual production capacity for our footwear products to increase
to approximately 30.0 million pairs as well as gaining certain internal apparel production capabilities. We believe increased
in-house production capacities will give us more control over production process and allow us to reduce costs. Ultimately, the
expansion of in-house production capacity will help increase gross profit margins, as we can reduce the reliance on outsourced
manufacturing. It is an important part of our long-term strategy to gain better control on production, increase economies of scale,
enhance profitability and capture a greater market share.



21







Brand and Products



Xidelong brand



We market our products under the “”
(“Xidelong”) brand name and the “”trademark. We use the Chinese promotional slogan “Respect
Yourself” to market our products, which is designed to symbolize our emphasis on individualism.



In June 2006, our “Xidelong”
brand name was recognized as “China’s Well-Known Trademark” by the Hubei Province Jingzhou City Intermediate
People’s Court.



To achieve consistency in our brand image,
we set management and operational guidelines for all distributors to follow at the Xidelong retail selling locations. Those guidelines
include inventory control, pricing and sales procedures, product and window display requirements and customer service standards.



Products



We have three principal products: (i) footwear,
(ii) apparel and (iii) accessories.



The table below sets forth our current
main products under each product category:



|Footwear            |  | Apparel               |  | Accessories
|------------------- |  | --------------------- |  | -----------
|·     Skateboarding |  | ·     Sports
    tops |  | ·     Bags 
|·     Leisure       |  | ·     Pants           |  | ·     Socks
|·     Running       |  | ·     Jackets         |  | ·     Hats 
|·     Basketball    |  | ·     Track
    suits |  | ·     Caps 
|·     Canvas        |  | ·     Coats           |  |            
|·     Tennis        |  |                       |  |            
|·     Outdoor       |  |                       |  |            



22







Business Model



The diagram below illustrates our business
model:







23







|Product design, research and development |  | Our design team at the research and development center formulates new
    designs for footwear, apparel and accessories, and tests prototype designs. We carry out other research and development activities
    at our research and development center.                          
|---------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                         |  |                                                                                                                                                                                                                                                                                   
|Sales fairs                              |  | We display samples of our new products at sales fairs held three times each year and take
    orders for our new products.                                                                                                                                                        
|                                         |  |                                                                                                                                                                                                                                                                                   
|Purchase orders from distributors        |  | At the sales fairs, distributors place purchase orders for new products.                                                                                                                                                                                                          
|                                         |  |                                                                                                                                                                                                                                                                                   
|Raw materials and components procurement |  | Based on the purchase orders received at the sales fairs, our purchasing team procures the
    requisite quantity of raw materials and components. Raw materials and components undergo our quality control.                                                                      
|                                         |  |                                                                                                                                                                                                                                                                                   
|Production                               |  | The footwear production department carries out the production plan.                                                                                                                                                                                                               
|                                         |  |                                                                                                                                                                                                                                                                                   
|Outsourcing                              |  | We outsource some of our footwear and all of our apparel and accessories production to contract
    manufacturers.                                                                                                                                                                
|                                         |  |                                                                                                                                                                                                                                                                                   
|Quality control                          |  | We sample and check finished goods against our quality and performance standards at the
    science and technology laboratory located in the research and development center.                                                                                                     
|                                         |  |                                                                                                                                                                                                                                                                                   
|Distribution management                  |  | We deliver our products to distributors. We then monitor and oversee their operation of
    the Xidelong retail selling locations. We work with them to renovate the Xidelong retail selling locations, achieve performance
    targets and expand the sales distribution network.



Production



Our production facility focuses on the
production of higher-priced running and basketball footwear, which incorporates our proprietary intellectual property and technology.
Located in Jinjiang, the production facility consists nine production lines with an annual production capacity of approximately
nine million pairs of footwear, has an aggregate gross floor area of approximately 66,000 square meters and was established in
March 2007. Prior to that, we carried out our production activities in a rented production facility in the same region. As of
December 31, 2012, our production facility had 1,602 full time production staff.



Our production capacity has been increasing steadily. For
the year ended December 31, 2005, we operated five production lines occupying an aggregate gross floor area of 6,000 square meters,
with a production capacity of approximately five million pairs.After the establishment of our current facility in March
2007, we increased our production lines to seven production lines with an annual production capacity of approximately seven million
pairs. In June 2008, we expanded to nine production lines with an annual production capacity of approximately nine million pairs.
The utilization rates of our production facility for 2010, 2011 and 2012 were approximately 88%, 79%, and 70% respectively. In
December 2011, we entered into a contract with the municipal government of Ruichang City for the investment and construction of
a sportswear manufacturing base on a parcel of land in Ruichang City. Pursuant to this contract, we would purchase a parcel of
land with an aggregate site area of 400,000 square meters in Ruichang City, Jiangxi Province, PRC, which we plan to use for the
construction of a new production facility. The first phase of the new production facility is expected to be completed by the end
of 2013. On December 1, 2012, a sales and purchase agreement was entered into for the transfer of the right of the aforesaid parcel
of land of 193,333 square meters. The land purchase proposal for remaining parcel of land of 206,667 square meters has not been
finalized and is subject to municipal and administrative approvals. Upon completion of the construction of our new production
facility in Ruichang City, we expect our annual production capacity for our footwear products to increase to approximately 30.0
million pairs as well as gaining certain internal apparel production capabilities. We believe increased in-house production capacities
will give us more control over production process and allow us to reduce costs. Ultimately, the expansion of in-house production
capacity will help to increase gross profit margins, as we can reduce the reliance on outsourced manufacturing. It is an important
part of our long-term strategy to gain better control on production, increase economies of scale, enhance profitability and capture
a greater market share.



24







Production process



Footwear



The following diagram illustrates the production
process for our footwear:







|Raw materials procurement                   |  | We procure raw materials such as natural and synthetic
    leather, nylon, canvas, rubber and plastics for our manufacturing requirements. We also recommend raw materials suppliers
    to our contract manufacturers for their production of our outsourced footwear and to component subcontractors for their production
    of our footwear components.
|------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                            |  |                                                                                                                                                                                                                                                                                                                                                            
|Preparation and processing of raw materials |  | Our quality control department inspects and tests raw materials for processing. Our quality
    control department also inspects and tests components supplied by component subcontractors.                                                                                                                                                                
|                                            |  |                                                                                                                                                                                                                                                                                                                                                            
|Sewing and stitching                        |  | Our footwear production department sews and stitches individual parts created from raw materials
    and components sourced from component subcontractors.                                                                                                                                                                                                 
|                                            |  |                                                                                                                                                                                                                                                                                                                                                            
|Shaping and assembly of soles               |  | Our footwear production department manufactures the upper soles and midsoles of the footwear
    and assembles them together.                                                                                                                                                                                                                              
|                                            |  |                                                                                                                                                                                                                                                                                                                                                            
|Assembly                                    |  | Our footwear production department assembles all unfinished parts. The assembly process
    includes gluing the soles to the body of the shoe and pressing and drying the products.                                                                                                                                                                        
|                                            |  |                                                                                                                                                                                                                                                                                                                                                            
|Quality control                             |  | Finished footwear undergoes our quality control tests.                                                                                                                                                                                                                                                                                                     
|                                            |  |                                                                                                                                                                                                                                                                                                                                                            
|Packaging                                   |  | We package our finished products according to customer orders.                                                                                                                                                                                                                                                                                             



25







Apparel and accessories



We outsource the production of all our
apparel and accessories to contract manufacturers in the PRC. See “Outsourcing.”



Our apparel business department handles
matters relating to outsourcing such as the selection and appointment of contract manufacturers and the contracts with contract
manufacturers.



Outsourcing



In 2010, 2011 and 2012, we outsourced production
of a portion of our footwear, generally products with lower technology content, and all of our production of apparel and accessories
to third-party contract manufacturers. We will continue our efforts to balance the mix between in-house production and outsourced
manufacturing moving forward, to enhance profitability.



Contract manufacturers only carry out production
activities and do not conduct product design for us. We provide our contract manufacturers with the designs and specifications
of our products. We actively protect our intellectual property rights from unauthorized use by our contract manufacturers. Our
trademarks are registered, and we engage the appropriate legal services and assistance to ensure that our trademarks are effectively
protected and enforced against any unauthorized use.



We select and evaluate our contract manufacturers
carefully. We assess contract manufacturers on an annual basis based on factors such as their product quality and ability to meet
production orders on a timely basis. All of our contract manufacturers are independent third parties and almost all of them are
located in Fujian province. We have not terminated our contractual relationships with any of our contract manufacturers of footwear
during the term of the agreements. However, there have been some incidents of contract termination with our contract manufacturers
of apparel and accessories. When this occurs, we have been able to appoint replacement contract manufacturers readily due to the
large number of replacement contract manufacturers from which we can select. See “Risk Factors — We rely
on third-party contract manufacturers for the production of a portion of our footwear and all of our apparel and accessories.”



We require our contract manufacturers to
comply with our manufacturing standards and specifications. We do not allow contract manufacturers to sub-contract our production
orders without prior consent. We subject outsourced products to our quality control procedures. We return defective components
or unused components to the relevant contract manufacturers.



We do not oversee the manufacturing operations
of our contract manufacturers except to ensure their compliance with our order specifications and quality control. Therefore,
we believe that we will not be liable for any violations of applicable laws, rules or regulations with respect to their manufacturing
operations.



Procurement



We procure raw materials for our footwear
production at our production facility in Jinjiang. The major raw materials used in the production of our footwear products include
natural and synthetic leather, nylon, canvas, rubber and plastics. Our raw material suppliers are primarily located in Quanzhou,
which is adjacent to Jinjiang. We select raw material suppliers based on our selection criteria, which include product quality,
reliability, price, and speed of delivery. We also recommend raw material suppliers to our contract manufacturers for their production
of our outsourced footwear. We place orders for raw material requirements only after we receive sales orders at our sales fairs.



We procure semi-finished rubber soles,
a key part of our footwear, and other components from component subcontractors. Other than these semi-finished rubber soles and
other components, we do not purchase other finished products from component subcontractors. Component subcontractors manufacture
semi-finished rubber soles to our specifications. We also recommend raw material suppliers to component subcontractors for their
production of our footwear components. We select component subcontractors based on location, product quality, reliability, price,
and speed of delivery. Similar to our raw materials suppliers, our component subcontractors are primarily located in Quanzhou.
We pay our component subcontractors a subcontracting fee. The subcontracting fees for 2010, 2011 and 2012 were approximately RMB14.4
million, RMB10.4 million and RMB9.2 million (US$1.5 million), respectively. The major raw materials used in the production of
our products included cotton, rubber and plastics. We are exposed to fluctuation in the prices of these raw materials which are
influenced by global as well as regional supply and demand conditions. We plan to ease inflationary pressures through collaboration
with our suppliers in efforts such as the collective procurement of materials.



For 2010, 2011 and 2012, our top five raw
material suppliers and contract manufacturers accounted for approximately 45.8%, 44.2%, and 53.6% respectively, of total purchases
from raw material suppliers and contract manufacturers. Our single largest supplier accounted for approximately 10.9%, 11.1% and
14.8%, respectively, of our total purchases during the same periods.



26







Inventory Control and Management



Our inventory consists of raw materials
for our footwear production, footwear components and finished products. We keep generally low inventory levels of raw materials
and components because we commence production only after receiving confirmed sales orders from our distributors. We have established
an inventory management system to monitor inventory levels.



Our policy is to review regularly obsolete
inventories based on the age and the expected future salability of a product. In addition, we carry out our physical inventory
inspection on a timely basis to identify any obsolete or damaged inventories. We make specific provisions for a damaged item or
an item of inventory that has a carrying amount lower than its net realizable value. During 2010, 2011 and 2012, we did not make
any provisions for obsolete inventories.



We maintain our finished goods inventory
in two warehouses, one for storage of footwear and the other for storage of apparel and accessories. We generally store finished
goods according to types of footwear in our warehouses. For 2010, 2011 and 2012, our average inventory turnover were 10, 6 and
5 days, respectively, while our inventory balances at December 31, 2010, 2011 and 2012 accounted for approximately 2.6%,
1.5% and 0.5%, respectively, of our total assets.



Quality Control



We manufacture our products in accordance
with our strict quality control system and quality standards. From selecting raw materials to packaging finished products, each
stage of the production process is subject to our quality control procedures. We conduct regular inspections of the production
facilities of our contract manufacturers and require the facilities and outsourced products to meet both our internal quality
control standards and all applicable national and industry quality standards. We test our new products at the science and technology
laboratory in our research and development center in Jinjiang to help ensure the products conform to quality and performance standards.



Raw materials and components quality control



We implement stringent selection criteria
for raw material suppliers and component subcontractors as the first step towards maintaining the quality of our products. We
randomly test samples of raw materials and components from suppliers and return any goods that do not meet our specifications
or standards.



Design prototypes quality control



Before commencing mass production, we test
prototype designs for any design or functional issues and the suitability of materials used. We implement test production runs
in order to identify and isolate any potential production issues or defects.



Production process quality control



We employ on-site quality control staff
to inspect each stage of the production process. Our quality control staff members inspect semi-finished products at two stages,
the first being the sewing and stitching stage, where we sew and stitch individual parts together, and the second being the final
assembly stage of our footwear where we glue soles to the footwear, and press and dry the footwear. We also require our quality
control staff to inspect individual components and semi-finished products to monitor compliance with our internal quality control
over the production process standards and measures. These inspection checks provide us with a degree of control whereby we can
detect defects during the production process, and take steps to rectify these defects, where appropriate.



Finished products quality control



We randomly select products from our finished
product runs to undergo various quality control sampling tests before these products are shipped for delivery or stored at warehouses.
We customize these tests for each product type and include, for example, for footwear, shoe bending tests, abrasion resistance
tests, waterproofing tests, adhesive application tests, temperature tolerance tests, and various other tests.



In December 2005, the General Administration
of Quality Supervision, Inspection and Quarantine of the PRC designated our Xidelong footwear and apparel as “State-designated
Products Exempted from Quality Inspection.” The products which are named as “Exempted from Inspection” is defined
as excellent in quality, and can enhance the consumers’ trusts and confidence. The enterprise who obtains the “Exemption
from Inspection” is perceived to be outperforming in the profession. To obtain the remarkable results, these enterprises
use advanced science and technology to improve the product quality, using an unremitting effort to strengthen the satisfaction
of consumers.



In 2008, we obtained ISO 9001 certification
for the design, development and production of our footwear, and the design, development and production management of our apparel.



27







Sales and Distribution



Our sales operations are managed and coordinated
from our headquarters at Jinjiang. As of December 31, 2012, our sales and marketing center comprised a team of 137 staff. The
sales department devises and implements policies for our distributors to assist them in operating the Xidelong retail selling
locations, which include policies relating to marketing and promotion, sales management, pricing, recording of sales and human
resources.



Sales network



We sell all of our products to distributors
for subsequent resale to consumers through Xidelong retail selling locations. We do not sell products directly to consumers. As
of December 31, 2012, our 22 distributors operated 4,909 Xidelong retail selling locations.



We categorize the Xidelong retail selling
locations as either department store concessions or stand-alone shops. Department store concessions are designated sections of
department stores that sell our products. Stand-alone shops are retail shops, usually on the street level. Xidelong retail selling
locations are operated directly by our distributors or indirectly through third parties. Distributors place wholesale orders (which
include purchase orders that the distributors secure from authorized third-party retailers) for our products at our sales fairs
for retail sale at the Xidelong retail selling locations. Our top five distributors accounted for approximately 41.3% of our total
revenue for 2012.



The following chart illustrates the structure
of the sales network for our products:







28







We have sales teams comprising regional
managers, account managers and account representatives who manage our sales in the various regions. Our sales teams are responsible
for monitoring and managing the performance of the distributors and the Xidelong retail selling locations within their respective
regions, as well as managing the distributors’ compliance with our retail policies. These regional sales teams report to
our headquarters.



Selection of distributors



We select distributors based on a range
of criteria that we consider important for the operation of the Xidelong distribution sales network of sportswear retail selling
locations. We do not require our distributors to have any minimum number of years of relevant experience. We assess the suitability
of a candidate to be a distributor based on, but not limited to, the following:



| | · | its relevant
                                                                                                             experience in the
                                                                                                             management and operation
                                                                                                             of sportswear retail
                                                                                                             selling locations;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | its creditworthiness;
| | - | ---------------------



| | · | its ability to
                                                                                                             develop and operate
                                                                                                             a network of retail
                                                                                                             selling locations
                                                                                                             in its designated
                                                                                                             sales region;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | its ability to
                                                                                                             meet our sales targets;
                                                                                                             and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the suitability
                                                                                                             of its store location
                                                                                                             and size.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We set guidelines for our distributors
in respect of the location, store layout and product display of their Xidelong retail selling locations. Distributors or third-party
retailers require our prior approval before opening new Xidelong retail selling locations. We typically visit potential locations
for new Xidelong retail selling locations with distributors and consider the suitability of such locations before approving a
new Xidelong retail selling location. As an incentive to our distributors
to expand the number of Xidelong retail selling locations and to create
a uniform high-quality store image across Xidelong retail selling locations nationwide, we provide certain renovation subsidies
in the form of standardized promotional materials and display equipment to qualified Xidelong retail selling locations.



We also allow our distributors to operate
the Xidelong retail selling locations through third parties. Distributors must obtain our approval before appointing such retail
store operators. We do not have direct contractual relationships with the authorized third-party retailers and thus we require
our distributors to implement, monitor compliance with and enforce our retail store guidelines on the authorized third-party retailers.



For 2010, 2011 and 2012, sales to our top
five distributors accounted for approximately 37.6%, 43.3% and 41.3%, respectively, of our total revenue. During the same periods,
sales to our single largest distributor accounted for approximately 8.7%, 12.6% and 12.1%, respectively, of our total revenue.



Ordering of our products



Our distributors place orders for our products
in sales fairs organized by us. Prior to 2008, we organized two major sales fairs each year, usually in March to introduce the
autumn/winter collections and in September to introduce spring/summer collections. Beginning in 2008, we organized three sales
fairs each year, usually in the first quarter to introduce the autumn collection, in the second quarter to introduce the winter
collection and in the third quarter to introduce the spring/summer collections.



We usually introduce our new collections
four to six months before the introduction of a new season’s products to consumers. We use the orders collected at the sales
fairs to determine production schedules for each season and to plan future sales targets. We then manufacture our products in
our production facility or through third-party contract manufacturers. After completion of production, the products are delivered
to distributors, which in turn sell the products either directly to consumers or to their respective third-party retailers for
eventual sales to consumers. We believe that our streamlined order, production and sales process allows us to manage our raw material
procurement and credit exposure, minimize inventory exposure and increase sales.



Seasonality



Our results of operations have fluctuated
from season to season and are likely to remain seasonal. Historically, revenues in the third and fourth quarters have slightly
exceeded those in the first and second quarters. The seasonality of our results of operations is primarily attributable to the
seasonal nature of our footwear and apparel products and the fact that our autumn and winter collections generally command higher
selling prices than our spring and summer collections. In addition, other factors such as weather conditions, holiday seasons,
the timing of the launch of our new products and the timing of delivery of our products also affect our sales from season to season.
Due to the seasonal fluctuations of our business, comparisons of sales and results of operations between different periods within
a financial year, or between different periods in different financial years, are not necessarily meaningful and cannot be relied
on as accurate indicators of our future performance.



29







Return policy



We do not have a formal return policy with
our distributors. We only accept returns of defective products. However, instead of returning defective products to us, distributors
generally choose to sell any defective products at a discount to end customers. Since distributors are required to comply with
our pricing policy, distributors must obtain our prior written consent before they can sell any products at a discount to the
suggested retail price. We determine the amount of discounts on a case-by-case basis. We do not provide any compensation to distributors
for defective products. To date, the number and value of defective products have been nominal.



In addition, we do not have any obsolete
stock arrangements with our distributors. Therefore, we do not have any arrangements with distributors to accept returns of out-of
season stock.



Promotion and Marketing



Our marketing department handles media
arrangements, sponsorships, other endorsement activities and store image maintenance. We use a variety of media, such as television,
newspapers, magazines, the Internet and outdoor billboard displays to build both regional and nationwide brand recognition. We
collaborate with athletes, media celebrities and industry experts on marketing and endorsement arrangements and they act as spokespersons
for the Xidelong brand. We also invest resources in maintaining store image and organizing renovation activities to build our
brand recognition to enhance our brand awareness.



For 2010, 2011 and 2012, advertising and
promotional expenses constituted approximately 11.7%, 10.7% and 13.8% of our total revenue, respectively.



Spokespersons



We actively seek reputable spokespersons
to promote our brand. In 2010, we engaged Singaporean twin sisters Miko Bai Wei-Fan and Yumi Bai Wei-Ling of By2, a popular Taiwan-based
musical group, to act as the Company's official product series spokespersons. By2 exemplifies the convergence of fashion and sports
and we believe that their innovative talent, dynamic personalities and high-energy performances embody our core values of energy
and happiness. As part of the agreement, in 2010, By2 completed an advertisement campaign for our upcoming apparel line and filmed
a television commercial to build awareness of the Xidelong brand, and participated in a variety of promotional activities. Our
first television commercial featuring By2 was launched on China Central Television Channel 5 (CCTV-5) in July 2010. Furthermore,
in 2011, we engaged an advertising company, which is a member of the American Association of Advertising Agencies, to plan and
produce television commercials for our spokespersons, By2, and to design and print advertisement for our products. We believe
these commercials and advertisements have successfully promoted Xidelong as a sportswear brand emphasizing a cheerful lifestyle
and exemplified the core value of our products represented by our slogan of “Freedom Comes First”.



Sponsorship and endorsement



We actively seek and are also invited to
sponsor various sporting or festive events related to our products.



In 2010, we sponsored the “Inter-City”
television program, a popular entertainment show featuring athletic challenges aired on channels CCTV-1 and 5. In addition, in
2009, the State Council of the People's Republic of China implemented regulations on physical fitness, and named August 8 as the
annual “Fitness for All” Day in order to enhance the public's enthusiasm for fitness and sporting events. Following
the release of the regulations, the Nationwide “Fitness for All” Sports Campaign, a charitable, social initiative
to promote the development of the sports and fitness industry and the concept of fitness and sporting events organized by the
Human Resources Development Center of the General Administration of Sport of China, or the Center, and China Sports Publishing
Group, began in June 2010 in Beijing and expanded to hundreds of colleges and universities in China. XDLong China sponsored and
was named the first official partner of the Nationwide “Fitness for All” Sports Campaign in 2010.



In 2011, we were named as one of the “Top
Ten Sport-footwear Enterprises of 2010” in China and were selected as one of the “100 Most Valuable Brands of 2010
in the Footwear Industry” by the National Productivity Center of the Leather and Footwear Industry. Furthermore, we received
the Outstanding Contribution Award from the General Administration of Sport of China for our sponsorship of the “Fitness
for All Campaign – Walking to 100 Universities” program. In addition, we have continued to sponsor the “Inter-City”
television program, a popular entertainment show featuring athletic challenges that airs on channels CCTV 1 and 5, starting from
the second quarter of 2011. To support our advertising and promotional initiatives, we have also engaged Genedigi, one of the
largest and longest standing China-based marketing and public relations firms. This engagement, together with our ongoing marketing
initiatives including our sponsorship of the “Fitness for All Campaign – Walking to 100 Universities” program,
has enhanced our brand significantly. Furthermore, we have engaged a new advertising company, a member of the American Association
of Advertising Agencies, for the planning and production of television commercials for our spokespersons, By2, a Singapore-born,
Taiwan-centric female pop music group and print advertisements for our products. The commercials are intended to position Xidelong
as a sports brand that emphasizes a “happy lifestyle”.



30







In 2012, we were selected for the third
consecutive year as the official partner of the Nationwide "Fitness for All" Campaign. The "Fitness for All"
Campaign has been highly successful since inception in raising awareness of the benefits of sport and an active lifestyle, drawing
participants from 39 cities, 210 colleges and universities and 16 enterprises, reaching almost 50 million people nationwide. Furthermore,
we were named as one of the “2011 - 2012Top Ten Sport-footwear Enterprises” in China. In addition, we have continued
to engage By2 as our spokespersons to promote Xidelong as a sports brand that emphasizes a “happy lifestyle”.



Pricing



We determine the prices of our products
based on a variety of factors, including the costs of raw materials and production, market conditions (including the spending
power of consumers) and the prices of competitors’ products.



We have adopted a suggested retail price
system that is applied nationwide to all retail selling locations operated by our distributors or third-party retailers to maintain
brand image and avoid price competition among distributors and third-party retailers. In addition, our distributors must obtain
our prior written approval before carrying out any promotional events or selling our products (including newly launched products)
at a discount. On a case-by-case basis, we permit sales of our products that deviate from their manufacturing specifications at
a discount to suggested retail prices to end customers.



Competition



The sports and leisure industry is highly
competitive in China. We compete with an increasing number of international and domestic sports and leisure footwear companies,
sports and leisure apparel companies, sports accessories companies, and large companies with diversified lines of sports and leisure
shoes, apparel and accessories. We expect competition to further intensify due to the entry of new foreign and domestic sports
and leisurewear retailers in China and, as a result, we may be required to adjust our prices in response to competitors’
pricing policies. Our ability to maintain or further increase our profitability will primarily depend on our ability to compete
effectively by leveraging the following to differentiate us from our competitors: our leading market position in China; our brand
recognition and product portfolio; our distributors’ extensive retail distribution network; our experienced management team
and our product designs.



Performance style and quality of footwear,
apparel and accessories, new product development, price, product identity through marketing and promotion, and support to distributors
and customer service are important aspects of competition in the sports footwear, apparel and accessories business. We believe
that we are competitive in all these areas particularly as a result of, what we believe is, our brand name, product quality and
research and development.



Insurance



We believe that we maintain insurance in
line with industry standards. Our insurance coverage primarily relates to property insurance.



We maintain property insurance policies
covering our equipment and facilities for losses due to fire, earthquake, flood and a wide range of other natural disasters. Insurance
coverage for our property, plant and equipment other than land and inventory amounted to approximately RMB230.4 million (US$37.0
million) as of December 31, 2012. We also maintain insurance for inventory of raw materials, work-in-progress and finished
goods, covering RMB250.0 million (US$40.1 million).



We do not maintain general product liability
insurance for any of our products. Nevertheless, we believe that our practice is in line with the general industry practice in
China, as product liability insurance is not required under PRC law. In 2010, 2011 and 2012, we did not receive any material claims
from customers or consumers relating to our products.



Regulation



Corporate laws relating to foreign investment



The establishment, operation and management
of corporate entities in China are governed by the Company Law of the PRC, or the Company Law, effective in 1994, as amended in
1999, 2004 and 2005, respectively. The Company Law is applicable to our PRC subsidiaries XDLong Fujian, XDLong China and XDLong
Jiangxi, except where the PRC laws on foreign investment have stipulated otherwise.



The establishment, approval, registered
capital requirement and day-to-day operational matters of wholly foreign-owned enterprises, such as PRC subsidiaries XDLong Fujian,
XDLong China and XDLong Jiangxi, are regulated by the Wholly Foreign-owned Enterprise Law of the PRC effective in 1986, as amended
in 2000, and the Implementation Rules of the Wholly Foreign-owned Enterprise Law of the PRC effective in 1990, as amended in 2001.



Foreign Currency Exchange



Pursuant to the Foreign Currency Administration
Rules promulgated in 1996 and amended in 1997 and 2008 and various regulations issued by SAFE and other relevant PRC government
authorities, the Renminbi is freely convertible only to the extent of current account items, such as trade-related receipts and
payments, interests and dividends. An enterprise can choose to either keep or sell its foreign exchange income under current account
to financial institutions authorized to engage in foreign exchange settlement or sales business. Capital account items, such as
direct equity investments, loans and repatriation of investment, require the prior approval from SAFE or its local counterpart
for conversion of Renminbi into a foreign currency, such as U.S. dollars, and remittance of the foreign currency outside the PRC.
Payments for transactions that take place within the PRC must be made in Renminbi.



31







Regulations on Dividend Distribution



The principal PRC laws and regulations
governing distribution of dividends of wholly foreign-owned enterprise include the Wholly Foreign-owned Enterprise Law promulgated
by the Standing Committee of the National People’s Congress, as amended on October 31, 2000, and the Implementation Rules
of the Wholly Foreign-owned Enterprise Law issued by the State Council, as amended on April 12, 2001.



Under these laws and regulations, wholly
foreign-owned enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with
PRC accounting standards and regulations. In addition, wholly foreign-owned enterprises in China are required to allocate at least
10% of their respective accumulated profits each year, if any, to fund certain statutory reserves unless these reserves have reached
50% of the registered capital of the wholly foreign-owned enterprises. These statutory reserves are not distributable as cash
dividends.



Employee Stock Options



In December 2006, the People’s
Bank of China promulgated the Administrative Measures of Foreign Exchange Matters for Individuals, or the PBOC Regulation, setting
forth the respective requirements for foreign exchange transactions by PRC individuals under either the current account or the
capital account. In January 2007, SAFE issued implementing rules for the PBOC Regulation, which, among other things, specified
approval requirements for certain capital account transactions such as a PRC citizen’s participation in the equity incentive
plan of an overseas publicly listed company. On March 28, 2007, SAFE issued the Stock Option Rule. On February 15, 2012,
SAFE issued the Updated Stock Option Rule, which replaced the Stock Option Rule issued by SAFE in March 2007. The purpose of the
Updated Stock Option Rule is to regulate foreign exchange administration of PRC citizens who participate in equity incentive plans
of overseas-listed companies.



According to the Updated Stock Option
Rule, if a PRC citizen participates in any equity incentive plan of an overseas-listed company, a PRC domestic agent or the PRC
related company of such overseas listed company (such as the overseas-listed company itself, its parent company or its subsidiaries
or branches in China) must, among others things, file an application with SAFE on behalf of such individual to obtain approval
for an annual quota with respect to the purchase of foreign exchange in connection with stock holding or stock option exercises.
This is because PRC citizens may not directly use overseas funds to purchase stock or exercise stock options. Concurrent with
the filing of such application with SAFE, the PRC domestic agent or the PRC-related company must obtain approval from SAFE to
open a special foreign exchange account at a PRC domestic bank to hold the funds required in connection with the stock purchase
or option exercise, any returned principal or profits upon sales of stock, any dividends issued upon the stock and any other income
or expenditures approved by SAFE. The PRC domestic agent also is required to obtain approval from SAFE to open an overseas special
foreign exchange account at an overseas bank as trustee to hold overseas funds used in connection with any stock purchase.



All proceeds obtained by PRC citizens
from dividends acquired from the overseas-listed company through an employee stock holding plan or stock option plans or sales
of the overseas-listed company’s stock acquired through other methods must be fully remitted back to China after deducting
the relevant overseas expenses. The foreign exchange proceeds from these sales can be converted into Renminbi or transferred to
the PRC citizen’s foreign exchange savings account after the proceeds have been remitted back to the special foreign exchange
account opened at the PRC domestic bank. If stock options are exercised in a cashless transaction, the PRC option holder is required
to remit the proceeds to the special foreign exchange account.



We and our employees who are PRC citizens
and individual beneficiary owners of restricted shares granted under our equity incentive plan are subject to the Updated Stock
Option Rule.



In addition, the State Administration
for Taxation has issued circulars concerning employee stock options. Under these circulars, our employees working in the PRC who
exercise stock options will be subject to PRC individual income tax. Our PRC subsidiary has obligations to file documents related
to restricted shares with relevant tax authorities and to withhold individual income taxes of those employees who dispose of any
vested shares. If our employees fail to pay their income taxes, or we fail to withhold them, we may face sanctions imposed by
the tax authorities or other PRC government authorities. As of the date of this annual report on Form 20-F, we have granted 541,318
restricted shares to our non-executive directors, senior management and certain employees.



Environmental Protection



Our manufacturing operations are subject
to PRC environmental laws and regulations on air emission, solid waste emission, sewage and waste water, discharge of waste and
pollutants, and noise pollution. These laws and regulations include Law of the PRC on Environmental Protection, Law of the PRC
on the Prevention and Control of Water Pollution, Law of the PRC on the Prevention and Control of Atmospheric Pollution, Law of
the PRC on the Prevention and Control of Pollution from Environmental Noise and Law of the PRC on the Prevention and Control of
Environmental Pollution of Solid Waste. We are also subject to periodic monitoring by relevant local government environmental
protection authorities.



32







According to these environmental laws and
regulations, all business operations that may cause environmental pollution and other public hazards are required to incorporate
environmental protection measures into their operations and establish a reliable system for environmental protection. Such a system
must adopt effective measures to prevent and control pollution levels and harm caused to the environment in the form of waste
gas, waste water and solid waste, dust, malodorous gas, radioactive substance, noise, vibration and electromagnetic radiation
generated in the course of production, construction or other activities.



Companies in the PRC are also required
to carry out an environment impact assessment before commencing construction of production facilities and the installation of
pollution treatment facilities that meet the relevant environmental standards and treat pollutants before discharge. We carried
out the required environment impact assessment before commencing construction of our production facilities and have obtained all
the required permits and environmental approvals for our production facilities. Under PRC law, a company must apply to the environmental
protection authority in the PRC for an environmental protection examination and acceptance after completion of a construction
project.



Our production facility in Jinjiang received
ISO 14001 certification in 2007, which certifies that our environmental management system in respect of the design, development,
production and service of our products conforms to the environmental management standards.



The main environmental impact from our
operations is the generation of wastewater and noise pollution from the operation of production machinery. In order to comply
with the relevant environmental protection laws and regulations, we have implemented an environmental protection system to ensure
the emissions from production operations meet the pollution indicators. In addition, our production plant is located in an open
area, away from residential areas and equipped with an appropriate convection and ventilation system. In order to reduce the impact
on the environment, we have enhanced the convection and ventilation system at our production facilities to improve air quality
and adopted various measures to prevent and minimize the noise pollution from our production operations.



Health and Safety Matters



We are required to maintain working conditions
of various national and industrial safety standards pursuant to the PRC Production Safety Law and other applicable PRC laws and
regulations. We are required to offer education and training programs to our employees regarding production safety. The design,
manufacture, installation, use and maintenance of our safety equipment are required to conform with applicable national and industrial
standards. In addition, we are required to provide employees with safety and protective equipment that meet national and industrial
standards and to supervise and educate them to wear or use such equipment according to the prescribed rules.



We consider the safety of our employees
to be a priority. We have implemented internal health and safety policies in the workplace, which are available through our handbook
on production safety and security procedures and that incorporate safety laws and regulations in the PRC. We have implemented
safety guidelines on production procedures for the safe operation of production equipment and machinery during each stage of the
production process. We require our employees to attend occupational safety education training courses on our safety policies and
procedures to enhance their awareness of safety issues. We provide and require our employees to wear suitable protective devices
to ensure their safety. We also provide employees with free annual medical check-ups.



As required under the Regulation of Insurance
for Labor Injury, Provisional Insurance Measures for Maternity of Employees, Interim Regulation on the Collection and Payment
of Social Insurance Premiums and Interim Provisions on Registration of Social Insurance, we provide our employees in the PRC with
welfare schemes covering pension insurance, unemployment insurance, maternity insurance, injury insurance and medical insurance.



We believe that we are in compliance with
all applicable labor and safety laws and regulations in all material respects and have implemented internal safety guidelines
and operating procedures. We do not expect the new PRC Labor Contract Law, which became effective in 2008, will have any impact
on our business and operations. Since the commencement of our business, none of our employees has been involved in any major accident
in the course of their employment and we have never been subject to disciplinary actions with respect to the labor protection
issues.



In September 2011, we received from Jinjiang
Municipal People’s Government an award for our successful maintenance of the safety production and operation.



Regulations on Labor Contracts



On June 29, 2007, the Standing Committee
of the PRC National People’s Congress enacted the PRC Labor Contract Law, or the Labor Contract Law, which became effective
on January 1, 2008. The Implementation Regulation for the PRC Labor Contract Law, or the Implementation Regulation, was promulgated
by the State Council and took effect on September 18, 2008. The Labor Contract Law and the Implementation Regulation formalize,
among others, workers’ rights concerning overtime hours, pensions and layoffs, the execution, performance, modification
and termination of labor contracts, the clauses of labor contracts and the role of trade unions. In particular, they provide for
specific standards and procedures for entering into non-fixed-term labor contracts as some of our sales professionals and staff
do. Either the employer or the applicable sales professional or staff is entitled to terminate the labor contract in circumstances
as prescribed in the Labor Contract Law and the Implementation Regulation or if certain preconditions are fulfilled, and in certain
cases, the employer is required to pay a statutory severance upon the termination of a labor contract pursuant to the standards
provided by the Labor Contract Law.



33







| | C. | ORGANIZATIONAL STRUCTURE
| | -- | ------------------------



Exceed is our investment
holding company incorporated in the British Virgin Islands and we conduct our operations through our PRC subsidiaries, which are
our indirect wholly owned subsidiaries. The following diagram illustrates our significant direct and indirect subsidiaries as
of February 28, 2013:







Subsidiaries



In November 2011, we dissolved Exceed Brand
Management (BVI) Co. Ltd. as it had remained dormant since its incorporation on December 3, 2009.



The following table sets forth information
relating to our direct and indirect subsidiaries as of February 28, 2013:



|                                                |  | Beneficial OwnershipPercentage |      |  | Jurisdiction of Incorporation
|----------------------------------------------- |  | ------------------------------ | ---- |  | -----------------------------
|Windrace International Company Limited          |  |                                | 100% |  |                              
|Windrace Investment Holding Limited             |  |                                | 100% |  |                              
|Hei Dai Lung Group Company Limited              |  |                                | 100% |  |                              
|Fujian Xidelong Sports Goods Co., Ltd.          |  |                                | 100% |  |                              
|Xidelong (China) Co. Ltd.                       |  |                                | 100% |  |                              
|Xidelong (Jiang Xi) Athletic Equipment Co. Ltd. |  |                                | 100% |  |                              



| | D. | PROPERTY, PLANTS AND EQUIPMENT
| | -- | ------------------------------



XDLong China owns and occupies a parcel
of land in Jinjiang, Fujian with an aggregate site area of 38,784 square meters and the buildings have an aggregate gross floor
area of 99,024 square meters was constructed upon this parcel of land. The buildings consist of a production facility, with nine
production lines with an annual production capacity of approximately nine million pairs of footwear, a research and development
center, office space, staff quarters, a recreation center and various sports facilities. We have obtained the land use rights
certificate in relation to the land and the property ownership certificates for the buildings. The land use rights were granted
for industrial use for a term of 50 years beginning on December 25, 2006. The utilization rates of the production facility for
2010, 2011 and 2012 were approximately 88%, 79%, and 70% respectively.



34







XDLong Fujian owns a parcel of land
located within the Group's production complex in Jinjiang, which has an aggregate site area of approximately 15,277 square
meters. Pursuant to the State-owned Land Use Right Transfer Contract, construction on this land was required to commence by
February 28, 2006. However, XDLong Fujian did not commence construction by such date because the Group decided to construct
its production facilities on another larger parcel of land owned by XDLong China. On May 14, 2008, XDLong Fujian applied to
the relevant local government agency for the approval to postpone construction on the land. On July 1, 2012, the Ministry of
Land and Resources issued the Measures on Disposing Idle Land. The new regulation emphasizes that the land authority shall
repossess the idle land without any compensation if the scheduled construction has not commenced for two years. The new
regulation also stipulates the procedures, results and other details regarding repossessing idle land. We do not believe that
the parcel of land held for use by XDLong Fujian met the definition of Idle Land in accordance with the new regulation. The
local government agency has verbally confirmed that it does not intend to repossess the parcel of land held for use by XDLong
Fujian, or otherwise cancel the underlying contract. Consistent with the objectives of the local government, the construction
of the Group in the Jinjiang area has injected capital into the local economy and resulted in an expansion of the Group's
local workforce.



Management based its conclusion on the
fact that local government officials have provided verbal assurances that they do not intend to take punitive action for our failure
to commence construction, management has concluded that the possibility of incurring an impairment in value or loss of land use
is remote.



As of December 31, 2012, the deposit of
RMB26.2 million (US$4.2 million) (2011: RMB26.2 million) was fully paid for land use rights over a parcel of land in Jinjiang,
Fujian Province. Pursuant to four sales and purchase agreements XDLong China entered into with independent third parties on May
17, 2010, May 20, 2010, November 18, 2010 and January 3, 2011, respectively, we agreed to purchase a parcel of land adjacent to
our XDLong China production complex in Jinjiang, with an aggregate site area of approximate 22,160 square meters, for which we
are in the process of applying for the certificate of land use rights. We are currently constructing staff quarters on this parcel
of land, which are expected to be completed in 2013. Under the PRC law, a company does not have the title to a parcel of land
until it obtains the relevant certificate of land use rights although it may have contractual remedies under the land purchase
agreements. Therefore, XDLong China does not have the title to the land parcel at this point.



Increased in-house production gives us more control over production
process and allows us to reduce costs. We believe the addition of a new factory campus will increase our internal manufacturing
capacity and expand our control over the entire product development process. In December 2011, we entered into a contract with
the municipal government of Ruichang City for the investment and construction of a sportswear manufacturing facility on a parcel
of land in Ruichang City. Pursuant to this contact, we would purchase a parcel of land with an aggregate site area of 400,000
square meters in Ruichang City, Jiangxi Province, PRC, which we plan to use for the construction of a new production facility.
The first phase of the new production facility is expected to be completed by the end of 2013. On December 1, 2012, a sales and
purchase agreement was entered into for the transfer of the right of the aforesaid parcel of land of 193,333 square meters. The
land purchase proposal for remaining parcel of land of 206,667 square meters has not been finalized and is subject to municipal
and administrative approvals. Upon completion of the construction of our new production facility in Ruichang City, we expect our
annual production capacity for our footwear products to increase to approximately 30.0 million pairs as well as gaining certain
internal apparel production capabilities. We believe increased in-house production capacities will give us more control over production
process and allow us to reduce costs. Ultimately, the expansion of in-house production capacity will help to increase gross profit
margins, as we can reduce the reliance on outsourced manufacturing. It is an important part of the long-term strategy to gain
better control of production, increase economies of scale, enhance profitability and capture a greater market share. The total
consideration for the land parcel will amount to RMB198 million (approximately US$31.8 million), of which a deposit of RMB46.8
million (US$7.5 million) has been paid as a performance bond. On December 27, 2012, an additional premium of RMB73.1 million (US$11.7
million) was paid. The outstanding amount of RMB78.1 million (US$12.5 million) is disclosed as a capital commitment in Item 5.F.
“Contractual Obligations and Commercial Commitments.” We will pay the remaining purchase price of RMB78.1 million
(US$12.5 million) in cash. The Company has financed the deposit from its working capital and intends to finance the remaining
purchase price from its working capital.



Item 4A.                UNRESOLVED STAFF COMMENTS



None.



Item 5.                   OPERATING AND FINANCIAL REVIEW
AND PROSPECTS



You should read the following discussion
and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements
and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking
statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of various factors, including those set forth
under “Item 3. Key Information—D. Risk Factors” or in other parts of this annual report on Form 20-F.



35







Overview



We design, develop and wholesale footwear,
apparel and accessories under the “” (“Xidelong”) brand name and the “” trademark.
We have three principal categories of products: (i) footwear, which mainly comprises running, leisure, basketball, skateboarding,
canvas, tennis and outdoor footwear, (ii) apparel, which mainly comprises sports tops, pants, jackets, track suits and coats,
and (iii) accessories, which mainly comprise bags, socks, hats and caps. Our footwear, apparel and accessories represented 48.0%,
50.3% and 1.7%, respectively, of our total revenue in 2012. Our most popular footwear styles are sports and leisure footwear.
Skateboarding and leisure footwear represented an aggregate of 23.2% of our total revenue in 2012 We believe the market for sportswear
products similar to ours has been growing rapidly in China due to the increasing demand for lifestyle and leisure products and
heightened interest in health consciousness among Chinese customers.



We focus primarily on second and third-tier
cities in China characterized by increasing urbanization and strong economic development, which we believe present the best opportunity
for retail sales growth. Our target customers are between 15 to 35 years old. We plan to increase our penetration in those areas
using a middle-market pricing strategy. We also aim to expand our geographical presentation and establish regional leadership,
particularly in Southwest China and Northwest China.



We place great emphasis on the comfort
and functionality of our products. We tailor our sports and leisure footwear, especially running footwear, to the needs of Chinese
consumers. The China Institute of Sport Science, which is the research center established by the General Administration of Sport
of China and China’s first government agency engaging in research of sport science, has selected us exclusively to collaborate
on research and development efforts in China. Under our agreement with the China Institute of Sport Science, we are required to
pay an annual fee to the China Institute of Sport Science for its assistance in the research and development of technologies for
our sports footwear and apparel and its promotion of the technology content of our products. In addition, we have the exclusive
right to use the endorsement, “The Strategic Partner of the China Institute of Sport Science,” on our products
and the first right to use the know-how developed through our collaboration with the China Institute of Sport Science. As its
exclusive partner, we allow the China Institute of Sport Science to use our research and development facilities in Jinjiang. We
believe that combined with our current strengths and market position, our footwear, especially running footwear, presents the
largest growth potential in the sports and leisure footwear sector in China. Our commitment to the comfort and quality of our
footwear for each individual is represented by our slogans used in our promotional campaigns such as “The Foot Knows
Comfort”, “Run Freely” “Freedom comes first” and “Respect Yourself”.



We distribute our products mainly through
Xidelong retail selling locations, including Xidelong retail stores, which sell our products exclusively, department store concessionary
counters and stores-within-stores. We derive all of our revenue
from sales to our distributors, which operate Xidelong retail selling locations themselves or engage authorized third-party retailers
to operate Xidelong retail selling locations. We have contractual relationship only with our distributors, not any authorized
third-party retailers. We believe that the sale of our products through distributors has enabled us to grow by leveraging their
regional retail expertise and economies of scale. We provide our distributors retail policies and guidelines, training, advertising
and marketing support to assist them to manage and expand the Xidelong retail sales network. The number of the Xidelong retail
selling locations grew from 3,694 as of December 31, 2009 to 4,909 as of December 31, 2012, representing a CAGR of 9.9%.



We manufacture some of our products in
our production facility in Jinjiang, and the remaining through third-party contract manufacturers. Our production facility has
a gross floor area of 66,102 square meters. We have nine production lines with an aggregate annual production capacity of approximately
nine million pairs of footwear. During 2010, 2011 and 2012, we outsourced a portion of our footwear production and all of our
apparel and accessories production to third-party contract manufacturers. All of our products, whether manufactured in house or
outsourced to third-party contract manufacturers, undergo testing by our stringent quality control system before being distributed
for retail sale. For 2010, 2011 and 2012, approximately 55.2%, 64.5% and 57.0%, respectively, of our footwear in terms of sales
volume were produced through outsourced manufacturing. The outsource proportion decreased in 2012 mainly attributed to the decrease
in sales. We will continue our efforts to balance the mix between in-house production and outsourced manufacturing. Increased
in-house production gives us more control over production process and allows us to reduce costs, while outsourced manufacturing
allows us to avoid shortage or excessive labor if the demand fluctuates.



Our revenue increased from RMB2,698.9
million in 2010, to RMB3,288.6 million in 2011, and then decreased to RMB2,383.5 million (US$382.6 million) in 2012. Such increase
in 2011 was primarily attributable to our business expansion and the increased demand for our products. The decrease in 2012 was
mainly attributable to an industry-wide inventory level correction and unstable economic conditions which adversely affected the
demand for sportswear products in 2012.



Factors Affecting Our Results of Operations and Financial
Condition



Our financial condition and results of
operations have been and will continue to be affected by a number of factors, including those set forth below.



36







Macroeconomic conditions in China and our target markets



All of our revenue was derived from sales
in China. Our financial condition and results of operations have been dependent upon macroeconomic conditions in China. The global
macroeconomic slowdown such as the weakness of U.S. economy and the debt crisis of several European nations continued to impact
China’s economy by the weakening of both domestic and overseas demand in 2012. Furthermore, China is going through a once-every-five-year
leadership changeover in 2012. This has created uncertainties in its long-term policies regarding economic development and development
in different sectors and further hurt confidence in both consumption and investment expenditure in 2012. According to the National
Bureau of Statistics of China, the PRC economy grew by 9.8% from 2011 to 2012. Such
growth rate was down by 8.0 percentage points as compared with the same period last year. Due to uncertain global macroeconomic
environment continued to adversely impact the domestic Chinese economy, total retail sales of consumer products, the primary gauge
of consumer spending in China, increased less significantly in 2012, by 14.3% from 2011 to 2012, representing a 3.0 percentage
points lower than the same period last year.



We focus primarily on second and third-tier
cities in China, particularly in Southwest China and Southern China, the regions that we believe present the best opportunity
for retail sales growth due to rapid urbanization and economic development despite the economic slow-down in China overall. Urban
consumption is expected to continue to be the primary contributor to consumer consumption in China. According to the National
Bureau of Statistics of China, urban retail sales accounted for nearly 86.6% of total retail sales in 2012. We believe that we
will be able to continue to capture the retail sales growth opportunities in our target markets.



Sportswear market in China



Sportswear brands have been suffering from excessive inventory,
deep discounting, over-expansion of stores and intense competition in distribution channels in China in recent years. Most sportswear
brands, including us, have taken cautious approach to reduce future orders, close less efficient stores, and improve efficiency
of existing stores. Depending on the amount of inventory, the time required for the inventory returning to a normal level may
vary among different brands. Despite such negative conditions, we expect that the adjustment of sportswear industry will lead
to some positive developments which include lower rentals, market consolidation, decreased cost of raw materials and stabilized
cost of labor. We believe that these developments are not only promoting a recovery but also preparing for sustainable growth
of the sportswear industry in near future.



Consumer demand for sportswear in China



Consumer demand for sportswear in China
is one of the key drivers of our revenue. Our success depends on the growth in such demand and the overall growth in the consumer
market in China. Statistics published by the General Administration of Sport of China suggest that there is a general correlation
between disposable income and sports participation in China. According to the National Bureau of Statistics of China, the PRC
per capita annual disposable income of urban households grew at a CAGR of 11.6% from 1999 to 2012. Consumer Confidence Index in
China reported by National Bureau of Statistics of China decreased to 103.70 in December of 2012 from 105.10 in November of 2012.
Historically, from 1991 until 2012, China Consumer Confidence Index averaged 110.31 reaching an all-time high of 124.60 in August
of 1993 and a record low of 97 in November of 2011. Under the unstable economy condition in 2012, people have tended to save up
a higher portion of their income. However, according to the research report from McKinsey & Company, the average urban household
spending could rise from RMB39,000 in 2012 to RMB112,000 in 2030. In addition, urbanization is expected to continue for another
two decades, to reach 70%. As the general living standards in China continue to improve, we expect that the consumer demand in
China will shift increasingly towards lifestyle-enhancing products, such as sportswear. We believe such trend will benefit our
sales.



Ability to maintain an attractive product portfolio at
competitive prices



We believe that our success depends to
a large extent on our ability to maintain an attractive product portfolio at competitive prices. We have a diversified product
portfolio. Xidelong retail selling locations carry a broad range of merchandise. We monitor market response to our different products
and adjust our product mix from time to time. For instance, we introduced vintage design and cross-training footwear as new categories
starting from June 2011. In order to increase our average selling prices, revenue and gross profit margins, we intend to continue
to monitor the changing consumer demand and adjust our product mix as we deem necessary.



To target different segments within the
mid-range market, we price our products at different price points. Stronger industry players are generally believed to be able
to stay competitive and to achieve long term growth by leveraging their core strengths, including comprehensive advertising and
promotion strategies, effective management of their distribution networks, cost-efficient operational systems, as well as better
innovation and product offerings. In order to maintain our price competitiveness and sales volume, we review our pricing strategy
regularly and make adjustments based on various factors, including the market response to existing recommended retail prices,
the level of sales, the expected product margin on individual products, the prices of our competitors’ products and the
anticipated market trends and expected demand from customers.



In addition, we believe that brand recognition
is crucial to the consumers’ purchasing decisions, which may have a direct impact on our ability to maintain an attractive
product portfolio at competitive prices. We position our Xidelong brand as a high-quality sports and leisurewear brand in China.
We place great emphasis on brand building and promote Xidelong products through advertisements in the media, sponsorship of PRC
sports events and various other promotional activities. For 2010, 2011 and 2012, our advertising and promotion expenses accounted
for approximately 11.7%, 10.7% and 13.8%, respectively, of our total revenue. We intend to increase our marketing budgets for
promotional activities in the future so as to further enhance our brand recognition and strengthen our market position.



37







Ability to strengthen and expand our distribution network



We distribute our products mainly through
Xidelong retail selling locations, including Xidelong retail stores, which sell our products exclusively, department concessionary
counters, and stores-within-stores. As of December 31, 2012, a network of 4,909 Xidelong retail selling locations was located
in 30 provinces and municipalities in China. The number of Xidelong retail selling locations increased from 4,844 as of December
31, 2011 to 4,909 as of December 31, 2012. Our focus in 2012 was not to open more new retail selling locations but improve the
efficiency of our existing ones. We believe that our success depends on our ability to strengthen and expand our distribution
network, which in turn depends to a large extent on the performance of our distributors.



Ability to manage production costs and product quality



To meet production requirements and to
remain profitable, we must obtain sufficient quantities of good quality raw materials from our suppliers in a timely manner and
at commercially reasonable prices. The major raw materials used in the production of our footwear products are natural and synthetic
leather, nylon, canvas, rubber and plastics. In addition, we use crude oil and electricity in our production. Therefore, increases
in crude oil prices and electricity costs would increase our production costs. We believe that we will be able to offset a portion
of any such increased costs by raising our production efficiency and leveraging our economies of scale. Historically, we have
been successful in reducing the costs of raw materials as a percentage of our total cost of sales. We seek to capitalize on our
purchasing and bargaining power to continue to obtain favorable prices from our major suppliers. We believe that effective cost
management will enable us to sustain our profitability.



We outsource a portion of our footwear
production to contract manufacturers and all of our apparel and accessories production to third-party contract manufacturers.
Since 2009, we have extended the term of our agreements with contract manufacturers from one year to two years. We have not terminated
our contractual relationship with any of our contract manufacturers of our footwear during the term of the agreements. Due to
a larger pool of contract manufacturers of apparel and accessories available for selection, we have been using such contract manufacturers
that are capable of supplying goods with better quality at more competitive prices. We believe that long-term contracts with contract
manufacturers as well as the relationship we have established with them over the years will enable us to procure quality contract
manufacturers to meet our production and product quality requirements at commercially reasonable terms.



Seasonality



Our results of operations have fluctuated
from season to season and are likely to remain seasonal. Historically, revenues in the third and fourth quarters have slightly
exceeded those in the first and second quarters. The seasonality of our results of operations is primarily attributable to the
seasonal nature of our footwear and apparel products and the fact that our autumn and winter collections generally command higher
selling prices than our spring and summer collections. In addition, other factors such as weather conditions, holiday seasons,
the timing of the launch of our new products and the timing of delivery of our products also affect our sales from season to season.
Due to the seasonal fluctuations of our business, comparisons of sales and results of operations between different periods within
a financial year, or between different periods in different financial years, are not necessarily meaningful and cannot be relied
on as accurate indicators of our future performance.



Income tax rates and preferential tax treatment



Our profit is affected by the income tax
that we pay and any preferential tax treatment that we receive. As a foreign-invested enterprise engaged in the manufacturing
business, XDLong China was entitled to the preferential tax treatments provided under the Foreign Enterprise Income Tax Law. XDLong
China is subject to an enterprise income tax rate of 25%. However, it was fully exempted from the enterprise income tax during
its first two profitable years in 2008 and 2009, followed by a 50% tax reduction for the next three years. Such tax treatment
had a significant positive effect on our profit after taxation for 2010, 2011 and 2012. This tax reduction expired on December
31, 2012 and we will be subject to 25% enterprise income tax in 2013 which will negatively impact our profit.



| | A. | OPERATING RESULTS
| | -- | -----------------



Basis of Presentation



The following discussion and analysis of
our financial condition and results of operations is based on the selected financial information as of and for the years ended
December 31, 2010, 2011 and 2012 and has been prepared based on the financial statements of the companies that comprised Exceed
and its consolidated subsidiaries, after elimination of inter-company transactions. This information should be read in conjunction
with the consolidated financial statements and notes thereto included elsewhere in this Form 20-F.



Critical Accounting Policies and Estimates



We prepare our financial information in
accordance with IFRS. The preparation of our financial information in accordance with IFRS requires management to make estimates,
judgments and assumptions that affect the reported amounts of assets, liabilities, contingent liabilities, revenue and expenses.
The following sets forth the principal accounting policies applied in preparing our financial statements that management believes
are critical not only because they are important to the portrayal of our financial condition and results of operations, but also
because the application and interpretation of these policies require both judgments and estimates of matters that are inherently
uncertain and unknown. As a result, actual results may differ materially from our estimates.



38







Revenue recognition



We recognize revenue when it is probable
that the economic benefits will flow to us and when the revenue can be reliably measured, on the following basis, depending on
the source of such revenue: (i) from the sale of goods, when the significant risks and rewards of ownership have been transferred
to the buyer, provided that we maintain neither managerial involvement to the degree usually associated with the ownership, nor
effective control over the goods sold; which usually occurs when the product is sold and delivered to the distributors with all
transportation and handling costs for delivery of products borne and paid directly by the distributors, and (ii) interest income
on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts
through the expected life of the financial instruments to the net carrying amount of the financial assets.



In addition, we utilize preliminary purchase
orders received from consultations with distributors at sales fairs to prepare sales estimates and formulate production schedules
for upcoming seasons. Once a purchase order is finalized, we re-confirm the delivery schedule of sales orders with each distributor
before shipment. Distributors are invoiced and we recognize sales only at the time, and by the amount of, the products ultimately
delivered to distributors.



Although our policy is to recognize product
returns as a reduction of revenue, we have not deemed it necessary to accrue for returns at the time when sales are recorded because
historically we have not had any significant product returns or similar claims. Our management periodically reviews this matter
and will consider making such accruals when there are indications of significant sales returns or similar claims in future periods.



Although we accept returns of defective
products, distributors generally choose to sell any defective products at a discount to end customers instead of returning defective
products to us. Since distributors are required to comply with our pricing policy, distributors must obtain our prior written
consent before they can sell any products at a discount to the suggested retail price. We determine the amount of discounts on
a case-by-case basis. We do not provide any compensation to distributors for defective products. To date, the number and value
of defective products have been nominal.



We do not have any arrangements with distributors
to accept returns of out-of-season stock. When in-season new products arrive, the current products on shelves become out-of-season
stock. In addition, we do not provide volume-based discount programs or discounts for early payment.



We encourage distributors to clear their
out-of-season inventory levels. An authorized retailer with excess inventory at the end of a season may attempt to sell such excess
inventory through regular and special end-of-season sales. Since distributors must strictly comply with our suggested retail pricing
policy, they must obtain prior written consent from us before conducting any promotional events or selling any products to consumers
at a discount to the suggested retail price. The distributors bear the costs of any sales discounts and we are not required to
provide credits or subsidies to distributors for their seasonal clearance activities.



To facilitate the operation and development
of our business and to promote and enhance our brand recognition nationwide, we provide after-sales assistance and guidance to
distributors. Such after-sale assistance and guidance generally include training of distributors’ employees and provision
of promotional equipment and marketing brochures. Distributors are required to sell our products on an exclusive basis to be eligible
for such assistance and guidance.



Impairment allowances for trade and other receivables



We estimate the impairment allowances for
trade and other receivables by assessing the collectability of the receivables based on the related customers’ credit history
and prevailing market conditions. Allowances are applied to trade and other receivables where events or changes in circumstances
indicate that the balances may not be collectible. Where the expectation is different from the initial estimate, the difference
is recognized as an impairment loss in the period in which such estimate is changed. We reassess the impairment allowances at
each balance sheet date.



Historically, we have no experience of
bad debts. All the customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable
balances are monitored on an ongoing basis and we have the sole discretion to cease business with customers who fail to pay within
the credit period.



39







Inventory



Inventories are stated at the lower of
cost and net realizable value after making due allowances for obsolete or slow moving items. Cost is calculated using the weighted
average cost formula and comprises all costs incurred in bringing the inventories to their present location and condition. When
inventories are sold, the carrying amount of those inventories is recognized as cost of sales in the period in which the related
revenue is recognized. Net realizable value is based on the estimated selling prices less any estimated costs to be incurred for
completion of the production process and disposal upon delivery of finished goods to distributors. If net realizable value is
less than cost at the balance sheet date, the carrying amount is reduced to the realizable value, and the difference is recognized
as a loss on valuation of inventories. Write-down of inventories to net realizable value is made based on the estimated net realizable
value of the inventories. The assessment of the write-down amounts and the timing of such write-downs require estimates and management’s
judgment. Where the actual outcome or expectation in future periods is different from management’s estimates, such differences
may have a material impact on the carrying amounts of our inventories and any write-down amounts and write-back amounts in the
period in which such estimate has been changed. No inventory amounts were stated at net realizable value in each of the years
in 2010, 2011 and 2012 and we did not make any provisions for inventories during the same periods.



Useful lives and impairment of assets



Property, plant and equipment



Property, plant and equipment (other than
construction-in-progress) are recorded at cost less accumulated depreciation and any impairment losses, and are depreciated over
the estimated useful lives of the related assets using the straight-line method. Where parts of an item of property, plant and
equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part
is depreciated separately, where practicable. Residual values, useful lives and depreciation method are reviewed and adjusted,
if appropriate, at each balance sheet date. Depreciation is recognized as an expense in the consolidated statements of comprehensive
income when an asset is available for use, that is, when it is in the location and condition necessary for it to be capable of
operating in the manner intended by management.



Buildings are depreciated over the shorter
of the relevant lease term or a 20-year period and manufacturing equipment, such as plant and machinery, is depreciated over a
five to ten-year period. Furniture, fixtures, motor vehicles and office equipment, consisting of computers, office equipment,
machinery and software, are depreciated over a five-year period. Leasehold improvements are also depreciated over the shorter
of the relevant lease term or a five-year period. Construction-in-progress represents costs incurred for the design and construction
of the production facility. Our management determines the estimated useful lives and related depreciation charges for our property,
plant and equipment and such estimates are based on historical experience of the actual useful lives of such property, plant and
equipment, and where no historical experience is available, based on such property, plant and equipment used for similar nature
and functions. Management will increase the depreciation charge where useful lives are less than previously stated amounts based
on the estimated life of such property, plant and equipment or will take write-offs or declare as obsolete or non-strategic assets
that have been abandoned or sold. Impairment reviews are conducted as events or changes in circumstances indicating that the carrying
amount may not be recoverable. The recoverable amounts of property, plant and equipment have been determined based on value-in-use
calculations, which requires the use of judgment and estimates.



Financial assets



Financial assets within the scope of IAS
39 “Financial Instruments: Recognition and Measurements” are classified as loans and receivables. When such financial
assets are recognized initially, they are measured at fair value. We assess whether a financial asset contains an embedded derivative
when we first become a party to it and assess whether the embedded derivatives are required to be recognized separately from their
financial asset contract when the analysis shows that the economic characteristics and risks of the embedded derivatives are not
closely related to those of the host contract. Reassessment only occurs if there is a change in the terms of the financial asset
that significantly modifies the cash flows that would otherwise be required under the financial asset. We determine that the classification
of our financial assets upon the initial recognition and, where allowed and appropriate, re-evaluate the classification at the
end of each reporting period. All regular way purchases and sales of financial assets are recognized on the trade date, that is,
the dates when we commit to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets
that require delivery of assets within the period generally established by regulation or convention in the marketplace.



Loans and receivables are non-derivative
financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are subsequently carried
at amortized cost using the effective interest method less any allowance for impairment. Amortized cost is calculated taking into
account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and
transaction costs. Gains and losses are recognized in the consolidated statements of comprehensive income when the loans and receivables
are derecognized or impaired, as well as through the amortization process.



We assess at the end of each reporting
period whether there is any objective evidence that a financial asset or a group of financial assets is impaired. If there is
objective evidence that an impairment loss on loans and receivable carried at amortized cost has been incurred, the amount of
the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash
flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective
interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced
either directly or through the recognition of an allowance account. The amount of impairment loss is recognized in our consolidated
statements of comprehensive income. In relation to trade receivables, an impairment allowance is made when there is objective
evidence, such as the probability of insolvency or significant difficulties of the debtor, that we will not be able to collect
all of the amounts due under the original term of an invoice. The carrying amount of the receivables is reduced through the use
of an allowance account, and impaired receivables derecognized when they are assessed as uncollectible. The identification of
impairment allowances of financial instruments and trade and other receivables requires management judgment and estimates.



40







If, in a subsequent period, the amount
of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized,
the previously recognized impairment loss is reversed by adjusting the allowance account. Any subsequent reversal of an impairment
loss is recognized in the consolidated statements of comprehensive income, to the extent that the carrying value of the asset
does not exceed its amortized cost at the reversal date.



Non-financial assets



Where an indication of impairment exists,
or when annual impairment testing for an asset is required (other than inventories, deferred tax assets and financial assets),
we make an estimation of the asset's recoverable amount. An asset's recoverable amount is the higher of the asset's or cash-generating
unit's value in use and its fair value less costs to sell. We determine such recoverable amount for an individual asset, unless
the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which
case we determine the recoverable amount for the cash-generating unit to which the asset belongs.



We recognize an impairment loss only if
the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, we discount the estimated future cash
flows to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specific to the asset. An impairment loss is charged to the consolidated statements of comprehensive income in the
period in which it arises.



We make an assessment at each reporting
date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased.
If such an indication exists, the recoverable amount is estimated. A previously recognized impairment loss of an asset is reversed
only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount
higher than the carrying amount that would have been determined (net of any depreciation/amortization) had no impairment loss
been recognized for the asset in prior periods. A reversal of such an impairment loss is credited to the consolidated statements
of comprehensive income in the period in which it arises.



Earn-out obligation



Pursuant to the terms of the
Acquisition, we released shares from the escrow account to the former shareholders of Windrace for each of the fiscal years
2009, 2010 and 2011. In addition, upon the achievement of certain earnings targets we were required to issue
additional shares to the former shareholders of Windrace as earn-out shares. The details with respect to the contingent share
obligation are discussed in Note 24(a)(i) to our consolidated financial statements included in this Annual Report on Form
20-F.



We release the shares, which are held in
the escrow account, and issue the new ordinary shares, in respect of the earn-out provision, when the audited result of our financial
results each year are released if the financial results fulfill the condition in the Purchase Agreement. The contingent shares
issuable are accounted for as a financial instrument liability that is adjusted to fair value at each reporting date, with changes
in fair value being recognized currently in the consolidated statements of comprehensive income. Once a measurement period for
the issuance of such contingent shares ends, the contingent share liability related to that period is no longer conditional, and
the obligation is reclassified from a liability to equity, if the shares have been earned, based on the fair value of the obligation
at the end of the measurement period.



Consolidated Income Statements



The following table sets forth our results
for the periods indicated:



|                                                             |  | Year ended December 31, |           
|------------------------------------------------------------ |  | ----------------------- | ----------
|                                                             |  | 2010                    |           
|                                                             |  | (RMB in thousands)      |           
|Revenue                                                      |  |                         | 2,698,891 
|Cost of sales                                                |  |                         | (1,857,251
|Gross profit                                                 |  |                         | 841,640   
|Other income and gains                                       |  |                         | 6,416     
|Selling and distribution costs                               |  |                         | (339,637  
|Administrative expenses                                      |  |                         | (57,814   
|Research and development expenses                            |  |                         | (40,783   
|Finance costs                                                |  |                         | (1,893    
|Share of loss in jointly-controlled entity                   |  |                         | (17       
|Gain from change in fair value of contingent share liability |  |                         | 1,604     
|Profit before tax                                            |  |                         | 409,516   
|Tax                                                          |  |                         | (56,274   
|Profit for the year                                          |  |                         | 353,242   



41







Description of Selected Income Statement Items



Revenue



We generate revenue from sales of footwear,
apparel and accessories. The following table sets forth a breakdown of our revenue for the periods indicated:



|            |  | Year ended December 31,          |          
|----------- |  | -------------------------------- | ---------
|            |  | 2010                             |          
|            |  | Revenue                          |          
|            |  | (RMB in thousands, except for %) |          
|Footwear    |  |                                  | 1,266,378
|Apparel     |  |                                  | 1,403,708
|Accessories |  |                                  | 28,805   
|Total       |  |                                  | 2,698,891



Our revenue is derived primarily from sales
of the following products:



| | · | Footwear.Footwear
                                                                                                             accounted for approximately
                                                                                                             48.0% of revenue
                                                                                                             in 2012 and includes
                                                                                                             mainly nine categories
                                                                                                             of footwear: running
                                                                                                             footwear, leisure
                                                                                                             footwear, basketball
                                                                                                             footwear, skateboarding
                                                                                                             footwear, canvas
                                                                                                             footwear, tennis
                                                                                                             footwear, outdoor
                                                                                                             footwear, vintage
                                                                                                             design footwear and
                                                                                                             cross-training footwear.
                                                                                                             A portion of our
                                                                                                             footwear production
                                                                                                             is outsourced.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Apparel.Sports apparel
                                                                                                             accounted for approximately
                                                                                                             50.3% of revenue
                                                                                                             in 2012 and includes
                                                                                                             mainly sports tops,
                                                                                                             sports pants, jackets
                                                                                                             and track suits.
                                                                                                             All of our apparel
                                                                                                             production is outsourced.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Accessories.Accessories
                                                                                                             accounted for approximately
                                                                                                             1.7% of revenue in
                                                                                                             2012 and include
                                                                                                             mainly bags, socks,
                                                                                                             hats and caps. All
                                                                                                             of our accessories
                                                                                                             production is outsourced.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Cost of sales



The following table sets forth our cost
of sales and gross profit as percentages of our net sales for each of the periods indicated.



|              |  | Year ended December 31, |          
|------------- |  | ----------------------- | ---------
|              |  | 2010                    |          
|              |  | (RMB in thousands)      |          
|Sales         |  |                         | 2,698,891
|Cost of sales |  |                         | 1,857,251
|Gross profit  |  |                         | 841,640  



Our cost of sales consists of:



| | · | Depreciation: Depreciation
                                                                                                           relates to depreciation
                                                                                                           expenses arising from
                                                                                                           our production facilities.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Direct labor cost:
                                                                                                           Direct labor cost represents
                                                                                                           salaries of production
                                                                                                           workers.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Indirect labor
                                                                                                             costs: Indirect labor
                                                                                                             costs consist primarily
                                                                                                             of salaries, social
                                                                                                             insurance and benefit
                                                                                                             expenses for our
                                                                                                             production supervisors.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Purchase
                                                                                                              of raw materials:
                                                                                                              Purchases of raw
                                                                                                              materials consist
                                                                                                              primarily of purchases
                                                                                                              of natural and synthetic
                                                                                                              leather, nylon,
                                                                                                              canvas, rubber,
                                                                                                              plastics and components
                                                                                                              that we use to manufacture
                                                                                                              our footwear.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Purchase
                                                                                                              of finished goods:
                                                                                                              Purchases of finished
                                                                                                              goods are the purchases
                                                                                                              of finished products
                                                                                                              including footwear,
                                                                                                              apparel and accessories
                                                                                                              that we outsource
                                                                                                              to contract manufacturers.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Manufacturing
                                                                                                              overhead: Other
                                                                                                              variable costs primarily
                                                                                                              consist of packaging
                                                                                                              materials and other
                                                                                                              consumables, utility
                                                                                                              expenses and subcontracting
                                                                                                              fees, which are
                                                                                                              paid to component
                                                                                                              subcontractors who
                                                                                                              manufacture footwear
                                                                                                              components for our
                                                                                                              production.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



42







Gross profit



We have a diverse product portfolio comprising
a range of products across our three key segments: footwear, apparel and accessories. During the years ended December 31,
2010, 2011 and 2012, our gross profit were RMB841.6million, RMB992.3million and 675.7 million (US$108.5 million), respectively,
and our overall gross profit margin were 31.2%, 30.2% and 28.3%, respectively.



Other income and gains



Other
income and gains primarily consist of income from bank interest, and award from the PRC governmentfor technological innovation
and business development. Other income and gains represented 0.2%, 0.4%
and 0.7% of our revenue for the years ended December 31, 2010, 2011 and 2012, respectively.



Operating expenses



Our operating expenses consist primarily
of selling and distribution costs, administrative expenses, research and development expenses and finance costs. The following
table sets forth a breakdown of our operating expenses for the periods indicated:



|                                                             |  | Year ended December 31, |        
|------------------------------------------------------------ |  | ----------------------- | -------
|                                                             |  | 2010                    |        
|                                                             |  | (RMB in thousands)      |        
|Selling and distribution costs                               |  |                         | 339,637
|Administrative expenses                                      |  |                         | 57,814 
|Research and development expenses                            |  |                         | 40,783 
|Finance costs                                                |  |                         | 1,893  
|Share of loss in jointly-controlled entity                   |  |                         | 17     
|Gain from change in fair value of contingent share liability |  |                         | 1,604  



Selling and distribution costs



Our selling and distribution costs consist
primarily of advertising and promotional expenses and sales fair expenses. In 2010, 2011 and 2012, selling and distribution costs
represented approximately 12.6%, 11.4% and 14.6%, respectively, of our revenue. Advertising and promotional expenses consist primarily
of fees for advertising on television and other mass media, advertisement production costs, sponsorship fees for sporting events
and television programs, store refurbishment and renovation activities, rental and marketing subsidies, and fees for brand spokespersons.
Sales fair expenses consist primarily of accommodation, travelling and meals provided to our distributors and third-party retailers
for the attendance at our sales fairs.



Administrative expenses



Our administrative expenses consist primarily
of salaries of administrative staff, depreciation, professional fees, share-based compensation, and miscellaneous taxes and duties.
In 2010, 2011 and 2012, administrative expenses represented approximately 2.1%, 2.3% and 2.9%, respectively, of our revenue. Salaries
of administrative staff consist primarily of salaries and benefit expenses for our administrative staff. Depreciation consists
primarily of depreciation expenses of our office building and equipment at our production facility in Jinjiang. Miscellaneous
taxes and duties consist primarily of stamp duties, Urban Maintenance and Construction Tax (“UMC Tax”) and Educational
Surcharge. Others under administrative expenses consist primarily of social insurance and other employee expenses for our administrative
staff, amortization of prepaid land lease payments, donations, entertainment expenses, office expenses, rental expenses, utility
expenses and professional fees.



We incurred
additional legal and consulting fees and other professional fees following our NASDAQ listing. In 2012, 2011 and 2010, share based
compensation expense of RMB5.9 million(US$1.0 million), RMB7.9 million and RMB7.3 million was
included in administrative expenses.



Research and development expenses



In 2010, 2011 and 2012, research and development
expenses represented approximately 1.5%, 1.6% and 1.9%, respectively, of our revenue. Research and development expenses consist
primarily of salaries paid to our research and development center staff, materials consumed for our product research and development
projects and expenses incurred for our cooperation with the China Institute of Sport Science.



Finance costs



Finance costs are our interest expenses
on short-term bank loans and preferred shares. In 2010, 2011 and 2012, finance costs represented approximately 0.10%, 0.10% and
0.1%, respectively, of our revenue.



43







Gain from change in fair value of contingent share liability



The gain from the change in contingent
share liability was RMB1.6 million and RMB38.6 million in 2010 and 2011, respectively, reflecting the decrease in the fair value
of the conditional obligation to release and issue shares to the former shareholders of Windrace as part of the reverse recapitalization
transaction effective on October 21, 2009. No such item was charged in 2012 as all the escrow and earn-out shares were released
to the former shareholders of Windrace.



Tax



Pursuant to the relevant rules and regulations
of BVI and the Cayman Islands, the Group is not subject to any income tax in such jurisdictions. No tax provision for Hong Kong
profits has been made as the Group did not generate any assessable profits arising in Hong Kong during the reporting periods.
Taxes on profits assessable in the PRC have been calculated at the prevailing rates, based on existing legislation, interpretations
and practices in respect thereof.



The increase in PRC taxes paid was primarily
due to the increase in assessable profits of our subsidiaries in the PRC as a result of business expansion and growth in revenue.



Under the new PRC Corporate Income Tax
Law (the ''New Corporate Income Tax Law'') and its Implementation Rules (effective on January 1, 2008), the PRC corporate income
tax rate for domestic-invested and foreign-invested enterprises is unified to 25%. Accordingly, the applicable tax rate for XDLong
Fujian is 25% in 2009, 2010 and 2011.



According to the Income Tax Law of the
PRC for Foreign Investment Enterprises and Foreign Enterprises and as approved by relevant PRC tax authorities, XDLong China,
a foreign-invested enterprise, is exempt from the PRC corporate income tax for its first two profitable years, commencing from
January 1, 2008. Thereafter, it is entitled to a 50% reduction in the PRC corporate income tax for the subsequent three years
from January 1, 2010 to December 31, 2012 (the “Tax Holidays”). Pursuant to the new PRC Corporate Income Tax
Law and its Implementation Rules effective from January 1, 2008, the PRC corporate income tax rate for foreign-invested enterprises
such as XDLong China is 25%. Existing foreign-invested enterprise, such as XDLong China, however, are entitled to continue to
enjoy the Tax Holidays until December 31, 2012. The tax rate applied to XDLong China pre-tax profit is 12.5% in 2010, 2011 and
2012.



The following table sets forth the reconciliation
of the tax expense applicable to profit before tax using the applicable statutory rates in the PRC to the tax expense at our effective
tax rates for the periods indicated:



|                                                            |  | Year ended December 31, |        
|----------------------------------------------------------- |  | ----------------------- | -------
|                                                            |  | 2010                    |        
|                                                            |  | (RMB in thousands)      |        
|Profit before tax                                           |  |                         | 409,516
|Tax at the applicable rates (Note)                          |  |                         | 104,019
|Lower tax due to tax holidays                               |  |                         | (50,930
|Tax effect of expenses not deductible for taxation purposes |  |                         | 3,427  
|Income not subject to tax                                   |  |                         | (242   
|Tax charge at our effective rate                            |  |                         | 56,274 



Note: The applicable tax rates for entities
operating in China and Hong Kong were 25% and 16.5%, respectively.



According to the Corporate Income Tax Law
and its implementation rules, dividends receivable by non-PRC corporate residents from PRC enterprises are subject to withholding
tax at a rate of 10%, unless reduced by tax treaties or arrangements, for profits earned since January 1, 2008. In addition, under
the Sino Hong Kong Double Tax Arrangement and its relevant regulations, a qualified Hong Kong tax resident will be liable for
withholding tax at the rate of 5% for dividend income derived from the PRC if the Hong Kong tax resident is the “beneficial
owner” and holds 25% or more of the equity interests of the PRC company.



As of December 31, 2012, we had not recorded
any withholding tax on the retained earnings of our foreign invested enterprises in the PRC, since we intend to reinvest our earnings
to further expand our businesses in mainland China, and our foreign invested enterprises do not intend to declare dividends to
their immediate foreign holding companies.





44









Results of Operations



Year ended December 31, 2012 compared to the year
ended December 31, 2011



Revenue.The
global macroeconomic environment had remained uncertain throughout 2012, which had an adverse impact on the domestic Chinese
economy and sportswear industry. In addition, initial forecasts for sports product demand for 2012 proved to be overly
optimistic, leading to an industry-wide build-up of inventory levels. In response, most sportswear brands aggressively
cleared their excessive inventory during the period. In light of the impact that the market downturn has had on the Chinese
sportswear industry and Exceed specifically  in 2012, and in an effort to maintain our competitive position, pricing power
and to manage inventory levels and the efficiency of our distribution network, we enacted a number of strategic initiatives
throughout the year. Among others, we  actively engaged our distributors and authorized third party retailers to manage the
level of wholesale orders placed with us but not yet manufactured.



In anticipation of weaker consumer demand
in 2012, and to prevent a buildup of inventory at distributors, we trimmed our production and delivery activities, resulting in
a 27.5% decrease in revenue from RMB3,288.6 million for the year ended December 31, 2011 to RMB2,383.5 million (US$382.6 million)
for the year ended December 31, 2012.



| | · | Revenue from footwear decreased by 24.4%, from RMB1,514.1 million for the year ended December 31, 2011 to RMB1,144.8 million
(US$183.8 million) for the year ended December 31, 2012, primarily due to a 27.0% decrease in sales volume, which was partially
offset by a 3.6% increase in the average selling price (“ASP”). The increase in ASP was mainly attributable to the
improvement of the design and quality of certain of our footwear products lines to better align with consumer demand. Furthermore,
our continuous marketing and brand promotion efforts also contributed to the increase in the ASP of our footwear products.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Revenue from apparel decreased by 30.8%, from RMB1,731.5 million for the year ended December 31, 2011 to RMB1,198.2 million
(US$192.3 million) for the year ended December 31, 2012. This decrease was primarily due to a 26.3% decrease in sales volume and
a 6.1% decrease in ASP. The decrease in ASP was mainly due to the increase in thesales
of lower priced spring/summer collection apparel as a percentage of total apparel sales. For 2012, lower priced spring/summer collection
apparel accounted for 51.3% of the total apparel sales, compared with 43.8% for 2011. To a lesser extent, the decrease in ASP was
also attributable to the introduction of a range of popular priced apparel products to target the mass market and to better align
with customer preferences.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Revenue from accessories decreased by 5.8%, from RMB43.0 million for the year ended December 31, 2011 to RMB40.5 million (US$6.5
million) for the year ended December 31, 2012. This decrease was primarily caused by the decline in
overall sales of the other main products.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Cost of sales. Cost of sales decreased
by 25.6% from RMB2,296.3 million in 2011 to RMB1,707.8 million (US$274.1 million) in 2012. The decrease in cost of sales was primarily
due to a decrease of purchases of raw materials and finished products by RMB586.0 million (US$94.1 million) from contract manufacturers
because of our decline in sales.



Gross profit.
Our gross profit decreased by 31.9% from RMB992.3 million in 2011 to RMB675.7 million (US$108.5 million) in 2012 primarily as a
result of the decrease in revenue. Our overall gross profit margin decreased from 30.2% in 2011 to 28.3% in 2012, primarily as
a result of the increase in outsourcing cost, which was largely attributable to the increasing costs of raw materials and labor
of upstream manufacturers. We will continue our efforts to maintain our gross margin by balancing product pricing and production
cost moving forward.



Other income and gains. Other income
and gains increased by 7.4% from RMB14.8 million in 2011 to RMB15.9 million (US$2.6 million) in 2012. Other income and gains in
2012 included a governmental award of RMB0.8 million (US$0.1 million) for technological innovation and business development, and
interest income of RMB15.1 million (US$2.4 million). The increase in other income and gains for 2012 was mainly attributable
to an increase in interest income, which was derived from short-term time deposits with an average outstanding balance of RMB400.0
million (US$63.6 million) in 2012, bearing interest ranging from 2.85% to 3.10% per annum. The increase was primarily due to the
increase in the average interest rate for our short-term time deposits.



Selling and distribution costs. Selling
and distribution costs decreased by 8.0% from RMB377.9 million in 2011 to RMB347.7 million (US$55.8 million) in 2012 primarily
due to a decrease in advertising and promotional expenses, salary, travelling and entertainment. Advertising and promotional expenses
decreased from RMB352.4 million for 2011 to RMB328.4 million (US$52.7 million) for 2012, primarily because fewer Xidelong retail
selling locations were opened during 2012. During 2012, 188 new Xidelong retail selling locations were opened and over 900 existing
Xidelong retail selling locations were renovated either by our distributors or by third-party retailers, some of which received
renovation subsidies from us in the form of standardized promotional materials and store displays. In contrast, in 2011, 585 new
Xidelong retail selling locations were opened and over 400 existing Xidelong retail selling locations were renovated. We continued
to invest resources in marketing and advertising to build our brand recognition, enhance market penetration, and maintain unique
store images. In 2012, our advertising and promotional activities continued to focus on events relating to the Nationwide “Fitness
for All” Sports Campaign organized by China’s General Administration of Sport, the government agency responsible for
sports activities in China, and we continued our engagement of By2 as our official product spokespersons. Furthermore, the decrease
in salaries of marketing personnel was primarily due to the decrease in the number of staff in 2012. The decrease in selling and
distribution costs reflects the effect of the Company’s cost-cutting initiatives, which resulted in a decrease in travelling
and entertainment expenses.



45







Administrative expenses. Administrative
expenses decreased by 11.9% from RMB77.1 million in 2011 to RMB67.9 million (US$10.9 million) in 2012 primarily due to the
decreases in Urban Maintenance and Construction (“UMC Tax”), Educational Surcharge, Local Educational Surcharge, salaries
of administrative staff, rental expenses and employee share-based payment. Such decreases, however, were partially offset by an
increase in professional fees and consultancy fees. Other taxes, including UMC Tax, Educational Surcharge, Local Educational Surcharge,
etc., decreased from RMB23.1 million for the year ended December 31, 2011 to RMB16.9 million (US$2.7 million) for the year ended
December 31, 2012, primarily because of the decline in revenue. Rental expenses decreased from RMB3.7 million for the year ended
December 31, 2011 to RMB1.3 million (US$0.2 million) for the year ended December 31, 2012 mainly due to the reduction in size of
our Beijing branch office.



Research and development expenses.
Research and development expenses decreased by 18.0% from RMB53.9 million in 2011 to RMB44.2 million (US$7.1 million) in 2012 primarily
due to improved efforts to increase the efficiency of our research and development activities and practices and the effect of our
cost-cutting initiatives.



Finance costs. Finance costs decreased
by 33.3% from RMB0.9 million in 2011 to RMB0.6 million (US$0.1 million) in 2012 primarily due to the decrease in the average outstanding
balance of our short-term bank borrowings for 2012 and the decrease in the average interest rate for our short-term bank borrowings.



Gain from change in fair value of contingent
share liability. No such item was charged in 2012 as all the escrow and earn-out shares were released to the former shareholders
of Windrace. The gain from the change in the fair value of contingent share liability was RMB38.6 million in 2011. This reflected
the decrease in the fair value of the conditional obligation to release and issue shares to the former shareholders of Windrace
as part of the reverse recapitalization transaction effective on October 21, 2009.



Profit before tax. As a result of
the foregoing, our profit before tax decreased by 56.9% from RMB536.0 million in 2011 to RM231.2 million (US$37.1 million)
in 2012.



Tax. Tax decreased by 51.1% from
RMB65.9 million in 2011 to RMB32.2 million (US$5.2 million) in 2012 primarily due to the decrease in profit before tax by 56.9%
from RMB536.0 million in 2011 to RMB231.2 million (US$37.1 million) in 2012. Xidelong (China) Co. Ltd. is entitled to a 50% reduction
in the PRC corporate income tax until December 31, 2012, after which it will be subject to the standard tax rate of 25%. The effective
tax rate for 2011 and 2012 were 12.3% and 13.9%, respectively.



Profit for the year. As a result
of the foregoing, our profit for 2012 was RMB198.9 million (US$31.9 million), a decrease of 57.7% from RMB470.1 million for 2011.



Year ended December 31, 2011 compared to the year
ended December 31, 2010



Revenue.Revenue increased by 21.8%
from RMB2,698.9 million for the year ended December 31, 2010 to RMB3,288.6 million (US$522.5 million) for the year ended December
31, 2011.



In 2011, we engaged one of the largest and
longest standing China-based marketing and public relations firms to further enhance our advertising and promotional initiatives.
This engagement, together with our ongoing marketing initiatives including production of television commercials for our spokespersons,
By2, our sponsorship of the “Fitness for All Campaign – Walking to 100 Universities” program, and “Inter-City”
television program, have enhanced our brand significantly. Furthermore, we have engaged a new advertising company, a member of
the American Association of Advertising Agencies, for the planning and production of television commercials for our spokespersons,
By2, and print advertisements for our products. The commercials are intended to position Xidelong as a sports brand that emphasizes
a “happy lifestyle”. Meanwhile, strong demand from end customers encouraged the expansion of the Xidelong retail network
by our distributors and third-party retailers. The number of the Xidelong retail selling locations increased by 511, from 4,333
as of December 31, 2010 to 4,844 as of December 31, 2011.



| | · | Revenue from footwear increased by 19.6%, from RMB1,266.4 million for the year ended December 31, 2010 to RMB1,514.1 million
(US$240.6 million) for the year ended December 31, 2011, primarily due to a 4.7% increase in the average selling price (“ASP”)
and a 14.2% increase in sales volume. Such increases were mainly attributable to the introduction of our new vintage design footwear
and cross-training footwear product lines in June 2011. As a result of our continuous marketing and brand promotion efforts, the
footwear ASP increased, leading to an increase in our overall footwear revenue.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Revenue from apparel increased by 23.4%, from RMB1,403.7 million for the year ended December 31, 2010 to RMB1,731.5 million
(US$275.1 million) for the year ended December 31, 2011. This increase was primarily due to a 4.5% increase in sales volume and
an 18.0% increase in ASP. Such increases were mainly attributable to the improvement of the design and quality of our apparel products
and the introduction of certain new products, particularly the new lifestyle apparel products, which have created strong demand
from end customers. In addition, the increase in the average size of the Xidelong retail selling locations, which typically now
have larger display areas for apparel, has attracted more customer traffic. The increased consumer recognition of our Xidelong
brand as a result of our continuous marketing and brand promotion efforts also contributed to the increase in ASP of the apparel
products.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



46







| | · | Revenue from accessories increased by 49.2%, from RMB28.8 million for the year ended December 31, 2010 to RMB43.0 million (US$6.8
million) for the year ended December 31, 2011. This increase was primarily driven by an increase in
product varieties.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Cost of sales. Cost of sales increased
by 23.6% from RMB1,857.3 million in 2010 to RMB2,296.3 million (US$364.8 million) in 2011. The increase in cost of sales was primarily
due to an increase of purchases of finished products by RMB428.1 million (US$68.0 million) from contract manufacturers to meet
the increase in orders resulting from increased demand for our products. The increase in cost of sales was also attributable to
increased purchase of raw materials by RMB9.4 million (US$1.5 million) for our own production of footwear products.



Gross profit. Our gross profit increased
by 17.9% from RMB841.6 million in 2010 to RMB992.3 million (US$157.7 million) in 2011 primarily as a result of an increase in sales.
Our overall gross profit margin decreased from 31.2% in 2010 to 30.2% in 2011, primarily as a result of the decrease in proportion
of footwear produced in-house relative to overall footwear production as a result of the limited production capacity within our
existing production facility. We have formulated a new operational plan in response to these production capacity restraints. Please
refer to Item 4. “Information of the Company – Production” in this annual report. Furthermore, rising inflation
in China resulted in an increase in raw material and wage costs, leading to an increase in the manufacturing cost. We will continue
our efforts to balance the mix between in-house production and outsourced manufacturing in the future.



Other income and gains. Other income
and gains increased by 131.3% from RMB6.4 million in 2010 to RMB14.8 million (US$2.4 million) in 2011. Other income and gains
in 2011 included a governmental award of RMB2.4 million (US$0.4 million) for technological innovation and business development,
and interest income of RMB11.9 million (US$1.9 million). The increase in other income and gains in 2011 was mainly attributable
to an increase in interest income, derived from a short term time deposits of RMB400.0 million (US$63.6 million), which carried
an interest rate ranging from 1.7% to 3.1% per annum.



Selling and distribution costs. Selling
and distribution costs increased by 11.3% from RMB339.6 million in 2010 to RMB377.9 million (US$60.0 million) in 2011. This increase
in selling and distribution costs was primarily due to increases in advertising and promotional expenses. Advertising and promotional
expenses increased by 11.2% from RMB316.8 million in 2010 to RMB352.4 million (US$56.0 million) in 2011, primarily attributable
to the additional resources we invested in marketing, advertising, and store image and renovation activities to build our brand
recognition and achieve further market penetration. In 2011, over 500 new Xidelong retail selling locations were opened by our
distributors and third-party retailers. During the same period, over 450 of the existing Xidelong retail locations were renovated
by our distributors or authorized third-party retailers, certain of which received our renovation
subsidies in the form of standardized promotional materials and display equipment.In 2011, our advertising and promotional
activities continued to focus on the events relating to the Nationwide “Fitness for All” Sports Campaign and the continued
engagement of By2 as our official product series spokesperson. We have also engaged Genedigi, one of the largest and longest standing
China-based marketing and public relations firms to support our advertising and promotional initiatives in conjunction with the
our sponsorship of the “Fitness for All” Sports Campaign in 2011 and its general public relations and marketing initiatives
in mainland China. In addition, we have continued to sponsor the “Inter-City” television program, a popular entertainment
show featuring athletic challenges that airs on channels CCTV 1 and 5, starting from the second quarter of 2011.



Administrative expenses. Administrative
expenses increased by 33.4% from RMB57.8 million in 2010 to RMB77.1 million (US$12.4 million) in 2011 primarily due to the
increase in UMC Tax, Educational Surcharge, salaries of administrative staff and rental expenses. Commencing from December 1, 2010,
foreign enterprises, foreign funded enterprises and foreign individuals have been required to pay UMC Tax and Educational Surcharge.
UMC Tax and Educational Surcharge increased by 780.0% from RMB1.5 million in 2010 to RMB13.2 million (US$2.1 million) in 2011.
Salaries of administrative staff increased by 15.9% from RMB11.3 million in 2010 to RMB13.1 million (US$2.1 million) in 2011
primarily due to an increase in the number of administrative staff and a general increase in average wages. Office rental expenses
increased by 236.4% from RMB1.1 million in 2010 to RMB3.7 million (US$0.6 million) in 2011 due to the business expansion of the
Company. Administrative expenses as a percentage of revenue increased from 2.1% in 2010 to 2.3% in 2011.



Research and development expenses.
Research and development expenses increased by 32.1% from RMB40.8 million in 2010 to RMB53.9 million (US$8.6 million) in 2011 primarily
due to the continued investment in the design of new products and components to improve our product offering, as well as our research
and development efforts with a PRC sports institute.



Finance costs. Finance costs decreased
by 52.6% from RMB1.9 million in 2010 to RMB0.9 million (US$0.1 million) in 2011 primarily due to a decrease in the average balance
of our short-term bank borrowings.



Gain from change in fair value of contingent
share liability. The gain from the change in fair value of contingent share liability was RMB1.6 million and RMB38.6 million
in 2010 and 2011, respectively, reflecting the decrease in the fair value of the conditional obligation to release and issue shares
to the former shareholders of Windrace as part of the reverse recapitalization transaction effective on October 21, 2009.



Profit before tax. As a result of
the foregoing, our profit before tax increased by 30.9% from RMB409.5 million in 2010 to RMB536.0 million (US$85.2 million)
in 2011.



47







Tax. Tax increased by 17.1% from
RMB56.3 million in 2010 to RMB65.9 million (US$10.5 million) in 2011 primarily due to the increase in operating profit. The full
exemption period of Xidelong (China) Co. Ltd., our principal PRC subsidiary, from PRC corporate income tax expired on December
31, 2009. Xidelong (China) Co. Ltd. is entitled to a 50% reduction in the PRC corporate income tax until December 31, 2012, after
which it will be subject to the standard tax rate of 25%. The effective tax rate for 2010 and 2011 were 13.7 % and 12.3%, respectively.



Profit for the year. As a result
of the foregoing, our profit for 2011 was RMB470.1 million (US$74.7 million), an increase of 33.1% from RMB353.2 million for 2010.



| | B. | LIQUIDITY AND CAPITAL RESOURCES
| | -- | -------------------------------



The following table sets forth a summary
of our consolidated cash flows for the periods indicated:



|                                                    |  | Year ended December 31, |        
|--------------------------------------------------- |  | ----------------------- | -------
|                                                    |  | 2010                    |        
|                                                    |  | (RMB in thousands)      |        
|Net cash inflow/(outflow) from operating activities |  |                         | 523,516
|Net cash outflow from investing activities          |  |                         | (3,676 
|Net cash inflow/(outflow) from financing activities |  |                         | (16,633



We have historically financed our liquidity
requirements primarily through operating cash flow, short-term bank loans and issuance of preferred shares. All of the preferred
shares were redeemed on October 21, 2009 and cancelled thereafter. Going forward, we believe our liquidity requirements will be
satisfied using a combination of bank loans and our cash flows from operations.



The market performance downturns in 2012
could adversely affect our liquidity position. While the global and the Chinese economy have been improving, the full scope of
any recovery is not yet known. If such economies do not continue to improve, our cash from operations could be adversely affected
by decreased consumer spending or longer collection periods of trade receivables from our distributors whose liquidity positions
may be negatively impacted by worsening financial and economic conditions. Additional financing from investors, banks or the capital
market may be limited as a result of the tight credit market and volatile capital market that might result if economic conditions
deteriorate. As of December 31, 2012, we had cash and cash equivalents totaling approximately RMB637.2 million (US$102.3 million).
We believe that our liquidity position exceeds the minimum required to sustain our business adequately and our working capital
is sufficient for our present requirements. We also believe that additional sources of liquidity are available to us, if they are
needed, through bank facilities.



Cash outflows from operating activities



For 2012, our net cash outflow from operating
activities was RMB229.3 million (US$36.8 million) and was primarily attributable to an increase in trade receivables of RMB384.6
million (US$61.7 million), a decrease in trade payables of RMB51.1 million (US$8.2 million) and PRC tax paid of RMB41.0 million
(US$6.6 million) which was partially offset by profit before tax of RMB231.2 million (US$37.1 million), and an addback of non-cash
expenses in the amount of RMB24.9 million (US$4.0 million), including depreciation of property, plant and equipment, amortization
of intangible assets and expense recognized in respect of equity-settled share-based payments.



Cash outflows from investing activities



For 2012, our net cash outflow from investing
activities was RMB123.4 million (US$19.8 million) due to the purchase of property, plant and equipment of RMB65.6 million (US$10.5
million) and the deposit paid for acquisition of land use rights of RMB73.1 million (US$11.7 million), which was partially offset
by the interest received of RMB15.1 million (US$2.4 million) derived from the bank deposits.



Cash inflows from financing activities



For 2012, our net cash inflow from financing
activities was RMB25.7 million (US$4.1 million) due to new bank loans of RMB30.0 million (US$4.8 million), which was partially
offset by repurchase of our ordinary shares of RMB4.3 million (US$0.7 million).



48







Summary of Existing Borrowing and Financing Instruments



Our existing borrowing includes short-term bank borrowings.
The following table sets forth the details of our current bank loans:



|                                          |  | Interest rate   |  | Maturity date |  | RMB in thousands |       
|----------------------------------------- |  | --------------- |  | ------------- |  | ---------------- | ------
|                                          |  |                 |  |               |  |                  |       
|Current Bank Loans –secured and repayable |  | 6.56% per annum |  | Feb 12, 2013  |  |                  | 10,000
|                                          |  | 5.40% per annum |  | Dec 9, 2013   |  |                  | 20,000
|                                          |  |                 |  |               |  |                  |       
|                                          |  |                 |  |               |  |                  | 30,000



The above bank loans were denominated in
RMB. Because of the short maturity, the carrying amounts of current bank loans approximate to their fair values.



The bank loans of RMB10.0 million (US$1.6
million) and RMB20.0 million (US$3.2 million) as of December 31, 2012 were secured by (a) certain buildings of the Company situated
in China and (b) personal guarantees from Mr. Lin Shuipan, Ms. Chen Xiayu, the spouse of Mr. Lin Shuipan and Mr. Ding Dongdong,
the executive senior Vice President of the Company and the brother in-law of Mr. Lin Shuipan, at an aggregated amount of RMB635.0
million (US$101.9 million).



Capital Expenditures



Our capital expenditures principally include
expenditures on property, plant and equipment and construction in progress for our new factory buildings. We financed our capital
expenditure requirements primarily through cash flow from operations.



The following table sets forth our historical
capital expenditures for the periods indicated:



|                              |  | Year ended December 31, |      
|----------------------------- |  | ----------------------- | -----
|                              |  | 2010                    |      
|                              |  | (RMB in thousands)      |      
|Property, plant and equipment |  |                         | 8,269
|Construction in progress      |  |                         | 171  
|Total                         |  |                         | 8,440





For the details of our material commitments
for capital expenditures as of December 31, 2012, please refer to Item 5.F. “Contractual Obligations and Commercial Commitments.”



Restrictions
on our Liquidity



Substantially all of the revenue and operating
expenses of our businesses are generated by our subsidiaries in the PRC denominated in Renminbi. The Renminbi is currently convertible
to foreign currency with respect to “current account” transactions, but not with respect to “capital account”
transactions. Current account transactions include ordinary course import/export transactions, payments for services rendered and
payments of license fees, royalties, interest on loans and dividends. Capital account transactions include cross-border investments
and repayments of principal of loans. Currently, our PRC subsidiaries may purchase foreign exchange currencies for settlement of
“current account transactions,” including payment of dividends to us and payment of license fees to content licensors,
without the approval of the State Administration for Foreign Exchange, or SAFE. Our PRC subsidiaries may also retain foreign exchange
currencies in their current accounts, subject to a ceiling approved by SAFE, to satisfy foreign exchange liabilities or to pay
dividends. However, the relevant PRC governmental authorities may limit or eliminate the ability of our PRC subsidiaries to purchase
and retain foreign currencies in the future. Foreign exchange transactions under the capital account remain subject to limitations
and require approvals from or registration with SAFE. This could affect our PRC subsidiaries’ ability to obtain debt or equity
financing from outside the PRC, including by means of loans or capital contributions from us.



49





| | C. | RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
| | -- | ----------------------------------------------------



Design, Research and Development



We established our research and development
center in 2002. In 2005, we established a dedicated research and development facility adjacent to our production facility in Jinjiang.
The facility occupies a total gross floor area of approximately 3,000 square meters.



Product design



We carry out our product design at the research
and development center. We maintain a dedicated design team and engage external design firms in order to keep up with market trends
and changing consumer preferences. Our design team initiates various design themes for our products to appeal to different tastes
and preferences of consumers located in varying regions in the PRC. The design team refines and improves on its design themes by
taking into account other considerations such as the comfort and functionality of the products, as well as the technology used.



As of December 31, 2012, our research and
development department consisted of 123 employees. Our design team formulates new designs for products, tests prototype designs
by obtaining feedback from other internal departments and distributors, and assesses demand at sales fairs. When a prototype is
approved for production, the design team sends the design specifications to the production team. During the year ended December
31, 2012, we launched over 1,500 designs at the sales fair in 2012.



Our product design process consists of several
integrated design steps ranging from initial product concept design to production and testing of prototypes.



The diagram below illustrates the typical
design process for our Xidelong footwear and apparel:







|Initial market survey and product strategy formulation    |  | Our design team, with the assistance of third-party professionals, formulates new design concepts by analyzing information on global sportswear trends and market research.                                                             
|--------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                          |  |                                                                                                                                                                                                                                         
|Product design                                            |  | We design or engage external designers to design products.                                                                                                                                                                              
|                                                          |  |                                                                                                                                                                                                                                         
|Product development                                       |  | New designs from the product design stage are developed into product prototypes, which are tested against our quality and performance standards.                                                                                        
|                                                          |  |                                                                                                                                                                                                                                         
|Initial product review by distributors and marketing team |  | Our marketing team reviews the initial batch of prototypes together with distributors to assess whether they meet the target standards. Prototypes are refined based on evaluations carried out by athletes and our marketing personnel.



50







|Sales fairs |  | We then display samples of all our new products in a seasonal sales fair, at which we launch our new product collections and our distributors place sales orders.
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



Samples of the final products are then provided
to our production facilities and our contract manufacturers. Before mass production commences, we also perform pilot production
runs to identify, and subsequently rectify, potential problems in the production process.



Research and development



As a leading sports and leisurewear company
in China, we place great emphasis on the comfort and functionality of our products. In particular, our sports and leisure footwear
are designed to tailor to the needs of Chinese consumers. Our research and development is principally focused on (i) developing
new technologies to improve existing or to create new products, by using the latest technology and materials to enhance the comfort
and quality of our products, and (ii) testing and other quality control activities. We maintain a science and technology laboratory
in Jinjiang that tests potential new materials and products. We believe our research capabilities and the development of new products
that incorporate the latest technology is an important element of our growth strategy.



China Institute of Sport Science



The General Administration of Sport of China,
a PRC government agency, established the China Institute of Sport Science in 1958 as China’s first governmental agency engaging
in research in the field of sport science. The functions of the China Institute of Sport Science include strengthening public fitness
and enhancing the performance of Chinese athletes through research and development. The China Institute of Sport Science has six
research centers focusing on four main areas of research: (i) developing Chinese athletes; (ii) monitoring and developing public
fitness levels; (iii) studying sports sociology; and (iv) improving sports equipment.



On October
20, 2011, we renewed the exclusive five-year technology cooperation agreement with the China Institute of Sport Science.
Under the cooperation agreement, the China Institute of Sport Science will assist us with the research
and development of technology for our sports footwear and apparel. While the China Institute of Sport Science owns the know-how
developed under the cooperation agreement, we have the first right of refusal to use such know-how. In addition, we pay an annual
fee of RMB0.5 million to the China Institute of Sport Science pursuant to the cooperation agreement for their assistance in the
research and development of our products. Other than such annual fees, we do not pay any other fees, including usage fees, to the
China Institute of Sport Science.



Our current collaborative projects with
the China Institute of Sport Science include research initiatives to establish a national database of different foot shapes and
characteristics of the PRC population. In April 2007, we launched a nationwide foot measurement campaign where we collected foot
measurement data from consumers across China, using the foot shape measurement equipment developed in conjunction with the China
Institute of Sport Science, which helped analyze the data in the foot shape database, and which we subsequently incorporated into
the design and development of footwear insoles and soles.



Key recent achievements



The following are our recent key research
and development achievements in footwear technologies:



Arch support pad



Arch support pads are commonly used in footwear
to provide underside support to the feet in order to reduce foot or heel pain. Our research and development activities with the
China Institute of Sport Science resulted in the development of a foot shape database and testing system for foot pressure distribution,
providing shock absorption functions, which are specifically tailored to consumers in the PRC.



Silicone rubber materials



Our research and development activities
with the China Institute of Sport Science resulted in the development of silicone rubber materials that have higher levels of color-fading
resistance and have a higher overall durability compared to conventional rubber materials. We have used these materials in the
production of specially designed midsoles for shock absorption and balancing functions.



Nano-silver photocatalyst



We have developed footwear materials that
contain nano-silver photocatalysts. Nano-silver photocatalysts in footwear materials absorb odors and have an antibacterial effect.
We are currently using nano-silver photocatalyst technology in our footwear.



For 2010, 2011 and 2012, our total expenditure
on research and development amounted to RMB40.8 million, RMB53.9 million and RMB44.2 million (US$7.1 million), respectively, representing
1.5% , 1.6% and 1.9% of our total revenue during the same periods, respectively.



51







Intellectual Property Rights



As of
December 31, 2012, we have registered 23 trademarks, including  and , with the Trademark Office of the State
Administration for Industry and Commerce in the PRC. As of December 31, 2012, we had 10 pending applications for the
registration of trademarks in the PRC. In addition, we have registered four domain names.



We recognize
the importance of protecting and enforcing our intellectual property rights. We safeguard our intellectual property rights through
the registration of trademarks, and may include the relevant protective provisions in contracts with third parties. Our employees
and contract manufacturers are subject to confidentiality agreements but there has been no action taken against any employee or
contract manufacturers for a breach of such confidentiality. In addition, we plan to apply for intellectual property rights to
any new technologies developed together with scientific and educational institutions. We mitigate the risks of infringement by
others through obtaining the appropriate legal services and advice to ensure that our trademarks are adequately protected. For
example, in December 2005, Liu Dingyi registered the Chinese domain name “.com” on the China Internet Network Information
Center (CNNIC) and used the website to promote and sell travel products and services. On June 8, 2006, we obtained an injunction
from the Hubei Province Jingzhou City Intermediate People’s Court restraining Liu Dingyi from infringing on our trademark
and ordered the termination of the domain name registration. In addition, the court awarded us RMB5,000 in damages.



| | D. | TREND INFORMATION
| | -- | -----------------



Other than as disclosed elsewhere in this
annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2012
to December 31, 2012 that are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity
or capital resources, or that caused the disclosed financial information to not be indicative of future operating results or financial
conditions.



| | E. | OFF-BALANCE SHEET ARRANGEMENTS
| | -- | ------------------------------



We do not have any outstanding off-balance
sheet guarantees, interest rate swap transactions or foreign currency forward contracts. We do not engage in trading activities
involving non-exchange traded contracts. In our ongoing business, we do not enter into transactions involving, or otherwise form
relationships with, unconsolidated entities or financials partnerships that are established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purposes.



| | F. | CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
| | -- | --------------------------------------------------



Our contractual obligations primarily consist
of capital contribution commitment, short-term debt obligations, operating lease obligations and purchase obligations. The following
table sets forth a breakdown of our contractual obligations as of December 31, 2012 and their maturity profile:



|                                                            |  | Payment Due by Period |        
|----------------------------------------------------------- |  | --------------------- | -------
|                                                            |  | Total                 |        
|                                                            |  | (RMB in thousands)    |        
|Capital contribution                                        |  |                       |        
|XDLong Jiangxi                                              |  |                       | 321,520
|Acquisition of land in Jiangxi Province                     |  |                       | 78,120 
|Construction of new staff quarter in Fujian Province        |  |                       | 7,239  
|Construction of new production facility in Jiangxi Province |  |                       | 163,629
|Operating lease obligations (1)                             |  |                       | 447    
|Purchase obligations (2)                                    |  |                       | 2,032  
|Annual fee for research and development assistance
    (3)  |  |                       | 1,875  
|Total                                                       |  |                       | 574,862








| | (1) | Lease obligations for our office premises.
| | --- | ------------------------------------------



| | (2) | Includes advertising and promotional expenses.
| | --- | ----------------------------------------------



| | (3) | Under the agreement with the China Institute of Sport Science, we have committed to pay predetermined annual fees of RMB0.5
million to the China Institute of Sport Science annually from October 2011 to October 2016 for their assistance with the research
and development of technology for sports footwear and apparel, and the promotion of the technology content of our products.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of December 31, 2012, we had cash and
cash equivalents totaling approximately RMB637.2 million (US$102.3 million). We believe that our liquidity position exceeds the
minimum required to sustain our business adequately and our working capital is sufficient for our present requirements. We also
believe that additional sources of liquidity are available to us, if they are needed, through bank facilities.



52







| | G. | SAFE HARBOR
| | -- | -----------



This annual report contains forward-looking
statements that are based on our current expectations, assumptions, estimates and projections about us and our industry. All statements
other than statements of historical fact in this form are forward-looking statements. These forward-looking statements can be identified
by words or phrases such as “may,” “will,” “expect,” “anticipate,” “estimate,”
“plan,” “believe,” “is/are likely to” or other similar expressions. The forward-looking statements
included in this form relate to, among others:



| | · | our goals and strategies;
| | - | -------------------------



| | · | our future business development, financial condition and results of operations;
| | - | -------------------------------------------------------------------------------



| | · | our projected revenues, earnings, profits and other estimated financial information;
| | - | ------------------------------------------------------------------------------------



| | · | expected changes in our margins and certain costs or expenditures;
| | - | ------------------------------------------------------------------



| | · | our plans to expand and diversify the sources of our revenues and our production;
| | - | ---------------------------------------------------------------------------------



| | · | our plans for staffing, research and development and regional focus;
| | - | --------------------------------------------------------------------



| | · | our plans to launch new products or investment in distributors;
| | - | ---------------------------------------------------------------



| | · | competition in the sportswear industry in China;
| | - | ------------------------------------------------



| | · | the outcome of ongoing, or any future, litigation or arbitration;
| | - | -----------------------------------------------------------------



| | · | changes in PRC governmental preferential tax treatment and financial incentives we currently qualify for and expect to qualify
for; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| | · | PRC governmental policies relating to the sportswear manufacturing industry.
| | - | ----------------------------------------------------------------------------



These forward-looking statements involve
various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable,
we cannot assure you that our expectations will turn out to be correct. Our actual results could be materially different from and
worse than our expectations. Important risks and factors that could cause our actual results to be materially different from our
expectations are generally set forth in the “Risk Factors” section of Item 3. and elsewhere in this annual report.
The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements
are made in this annual report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances
after the date on which the statements are made or to reflect the occurrence of unanticipated events.



53







Item 6.	DIRECTORS, SENIOR
MANAGEMENT AND EMPLOYEES



| | A. | DIRECTORS AND SENIOR MANAGEMENT
| | -- | -------------------------------



The following table sets forth certain information
relating to our directors as of February 28, 2013. The business address of each of our directors and executive officers Unit F,
24/F, China Overseas Building, 139 Hennessy Road, Wanchai, Hong Kong.



|Name          |  | Age |  | Position                                                   
|------------- |  | --- |  | -----------------------------------------------------------
|Lin Shuipan   |  | 44  |  | Director, Chairman of the Board and Chief Executive Officer
|Jin Jichun    |  | 71  |  | Director                                                   
|Yea-Mow Chen  |  | 60  |  | Director                                                   
|Tai Yau Ting  |  | 33  |  | Chief Financial Officer and Company Secretary              
|Yu Shulong    |  | 50  |  | Deputy Financial Officer                                   
|Ding Dongdong |  | 31  |  | Vice President                                             



Directors



Mr. Lin Shuipan is our founder, executive
Director, the chairman of the board and chief executive officer. He is responsible for our overall corporate strategies, planning
and business development. Mr. Lin has over 16 years of experience in the sportswear industry. From 1993 to 1997, he was the technical
engineer and factory manager of Huatingkou Footwear Manufacturing Factory in Chendai Town, Jinjiang. From 1997 to 2000, he was
the general manager of Jiuzhou Footwear Business Company Limited in Chendai Town, Jinjiang. In 2001, Mr. Lin founded XDLong Fujian
and was its vice-chairman from 2001 to September 2007 and has been its chairman since September 2007. He has been the general manager
of XDLong Fujian since its establishment. Mr. Lin has also been the chairman and general manager of XDLong China since its establishment
in April 2004. In 2003, he was named as one of the 100 Outstanding Persons in China’s Economy. In 2003, he was appointed
as a representative of the 14thJinjiang People’s Congress and the executive director of Jinjiang Chendai Chamber
of Commerce. In 2004, Mr. Lin was appointed as vice president of Jinjiang Footwear Manufacturing Association. In 2005, he was appointed
as a member of the standing committee of Quanzhou Foreign Invested Enterprises Association and, in 2007, as vice president of Jinjiang
Youth Chamber of Commerce. In 2006, he was appointed as a representative of the 14th Quanzhou People’s Congress.
He was also appointed as a representative of the 14th,15thand 16th Jinjiang People’s Congress
in 2003, 2006 and 2011, respectively. In 2010, Mr. Lin was appointed as the first Executive Vice President of Jinjiang Federation
of Enterprise & Entrepreneur.



Mr. Jin Jichun is an independent
non-executive director. Mr. Jin is a professor of sports biomechanics at the Beijing Sports University. Mr. Jin received a bachelor’s
degree in gymnastics and obtained a degree in kinesiology at the Shanghai Sports College in 1958 and 1966, respectively. From 1982
to 1984, he was a visiting scholar at the University of Delaware, specializing in biomechanics. He served as a member of the editorial
staff of the International Journal of Sport Biomechanics for a total period of four years between 1985 and 1989. Since 1987, he
has been a council member of the International Council of Sport Science and Physical Education, and was appointed its regional
coordinator of Asia in 2001.



Mr.Yea-Mow Chenhas been a member of our board of directors
since February, 2012. Mr. Chen is a professor of finance at the San Francisco University. Mr. Chen is also the chairman and chief
executive officer of Intelliwise Financial Engineering Advisory Corp. Ltd., a financial advisory firm at Taipei, and an advisor
of Taiwan Securities Association. Mr. Chen received a B.A from the National Taiwan University in 1976, a M.A in Economics from
the Ohio State University in 1980, and a Ph.D in Economics from the Ohio State University in 1984.



Senior Management



Ms. Tai Yau Ting is our Chief Financial
Officer and Company Secretary and is a qualified accountant. Ms. Tai was appointed as our Chief Financial Officer in August 2011.
Prior to her appointment as our Chief Financial Officer, Ms. Tai served as our Vice President of Finance. Ms. Tai joined us in
February 2008 and is primarily responsible for our financial management, internal control, risk management and corporate secretarial
matters. Ms. Tai graduated from the University of Toronto with a bachelor’s degree in applied science in 2002 and a master’s
degree in applied science in 2004. Ms. Tai is also a member of the American Institute of Certified Public Accountants and a member
of CPA Australia. Prior to joining us, she worked for Ernst & Young and has over four years’ auditing, accounting and
financing experience, mainly focused on auditing Hong Kong listed companies and Hong Kong initial public offering projects.



Mr. Yu Shulong is our deputy financial
officer. Mr. Yu joined us in August 2009. From 1983 to 1993, he worked for Anhui Sugong County Salt Co. Ltd. and was responsible
for accounting, finance and distribution related matters. From 1993 to 2005, he worked as the financial manager for Fujian Fengzhu
Group Co. Ltd. From 2006 to 2009, he worked as the chief financial officer for Fujian Jinjiang San Li Motor Co. Ltd. Mr. Yu obtained
a diploma in finance and accounting from Anhui Anqing Commercial College.



54







Mr. Ding Dongdongis our Vice President.
He is primarily responsible for the design, research and development of footwear and apparel. Mr. Ding joined us in September 2001.
He was the development manager of the apparel department of XDLong Fujian from 2002 to 2003, and was promoted to the position of
manager in 2003. He is responsible for data collection, apparel design, processing and production, quality control and after-sales
of the apparel department. Mr. Ding obtained a diploma in apparel design from the Guangdong Apparel Institute in July 2002. Mr.
Ding is the brother-in-law of Mr. Lin Shuipan, an executive Director.



| | B. | COMPENSATION
| | -- | ------------



We offer our directors and executive officers
competitive remuneration packages to attract and retain management talent. The principal component of our compensation for directors
and executives are their basic salaries. In addition, we make statutory contributions to the social insurance scheme for our executive
officers.



In 2012, the aggregate cash compensation
we paid to our directors and executive officers was approximately RMB1.2 million (US$0.2 million) and the total social
insurance contributions made for our executive officers was approximately RMB9,000 (US$1,000).



In 2012, we did not grant any restricted
shares to our non-executive directors and senior management. Share-based compensation expense of RMB5.9 million (US$1.0 million)
was recognized in the consolidated statement of comprehensive income for the year ended December 31, 2012 in relation to the vesting
of restricted shares granted under our Equity Incentive Plan (see Item 6.E for the details of the Equity Incentive Plan) in 2010
and 2011.



The compensation of our directors and executive
officers is determined by reference to our operating results as a whole, market environment, salary trends, tasks and responsibilities
of the director and executive officer, and compensation packages offered by companies in the same industry in the PRC. The compensation
of directors and executive officers was subject to performance reviews on an annual basis.



The primary goal of our remuneration policy
is to enable us to retain and motivate management by offering them compensation commensurate with their performance.



Determination of Compensation



We have a compensation committee that makes
all compensation decisions regarding our named executive officers. Compensation decisions with respect to our named executive officers
have focused on attracting and retaining individuals who could help us meet and exceed our financial and operational goals. Our
compensation committee considers our growth, individual performance and market trends when setting individual compensation levels.



| | C. | BOARD PRACTICES
| | -- | ---------------



Independence of Directors



We apply the standards of NASDAQ in determining
whether a director is independent. Under the relevant standards, an independent director means a person other than an executive
officer or employee of the company, and no director qualifies as independent unless the issuer’s board of directors affirmatively
determines that the director does not have a relationship that would interfere with the exercise of independent judgment in carrying
out the responsibilities of a director. NASDAQ requires that a majority of the board of directors of a company be independent.
We have determined that Messrs. Chen and Jin are independent.



With respect to our Audit Committee, Compensation
Committee and Nominations Committee, pursuant to exemptions available to foreign private issuers, we have relied on home country
corporate governance requirements and have only two independent directors. As a result, each of these committees is comprised of
two independent directors.



Audit Committee



We have established an audit committee.
Messrs. Chen (chair) and Jin are members of the audit committee. Messrs. Chen and Jin have an understanding of generally accepted
accounting principles and financial statements, the ability to assess the general application of such principles in connection
with our financial statements, including estimates, accruals and reserves, experience in analyzing or evaluating financial statements
of similar breadth and complexity as the Company’s financial statements, an understanding of internal controls and procedures
for financial reporting and an understanding of audit committee functions.



Audit Committee Financial Expert



The board of directors has identified Mr.
Chen as an “audit committee financial expert” within the meaning of all applicable rules.



55







Audit Committee Pre-Approval Policies and Procedures



In accordance with Section 10A(i) of the
Securities Exchange Act of 1934, before the Company engages its independent accountant to render audit or permitted non-audit services,
the engagement will be approved by the audit committee.



Code of Conduct



We have adopted a code of conduct that applies
to all directors, officers and employees. The code of conduct codifies the business and ethical principles that govern all aspects
of our business.



Compensation Committee



We have established a compensation committee.
The purpose of the compensation committee is to administer our equity incentive plan, including authority to make and modify awards
under such plan. Messrs. Jin (chair) and Chen are members of the compensation committee.



Nominations Committee



We have formed a nominating and corporate
governance committee. The nominations committee is responsible for overseeing the selection of persons to be nominated to serve
on our board of directors. The nominations committee will consider persons identified by our members, management, stockholders,
investment bankers and others. Messrs. Jin (chair) and Chen are members of the nominating and corporate governance committee.



Employment Agreement with Executive Director



Neither our Company nor any of its subsidiaries
has entered into any service contracts with any of our directors that contain any provisions for benefits upon termination of employment
(“golden parachute” or “handshake” or similar arrangements)



Terms of Directors and Officers



Our officers are elected by and serve at
the discretion of our shareholders and the board of directors in accordance with our memorandum and articles of association. Our
directors are not subject to a term of office and hold office until such time as they are removed from office by resolution of
the majority of the directors or a resolution by the shareholders holding a majority of the voting rights. A director holds office
until (i) his death; (ii) his resignation; (iii) the effective date of his removal by Resolution of Directors or Resolution of
Members; or (iv) his disqualification to act as a director under section 111 of the BVI Business Companies Act (on which his office
as director shall be automatically terminated if he has not resigned in accordance with section 115(2) of the BVI Business Companies
Act).



| | D. | EMPLOYEES
| | -- | ---------



Employees



As of December 31, 2012, we had a total
of 2,093 full-time employees. The following sets forth the number of employees as of December 31, 2012:



|                                |  | Number of employees |      
|------------------------------- |  | ------------------- | -----
|Footwear production department  |  |                     | 1,602
|Research and development center |  |                     | 123  
|Quality control department      |  |                     | 56   
|Sales and marketing center      |  |                     | 133  
|Administration department       |  |                     | 107  
|Apparel business department     |  |                     | 16   
|Finance department              |  |                     | 35   
|Brand and promotion department  |  |                     | 4    
|Senior management               |  |                     | 12   
|Human resources department      |  |                     | 5    
|Total                           |  |                     | 2,093



As of December 31, 2012, there were 2,091
full-time employees and 2 full-time employees located in the PRC and Hong Kong, respectively.



We have made contributions in relation to
the retirement of our employees in accordance with applicable laws and regulations in the PRC, which require contribution by both
employees and the company at a fixed percentage of the salaries of such employees. For 2010, 2011 and 2012, the employee social
insurance (including our retirement contribution) paid by us amounted to approximately RMB16.6 million, RMB20.1 million and RMB21.7
million (US$3.5 million), respectively, which represented 17.4%, 19.6% and 23.6% of the total salaries of our employees during
the same periods, respectively.



56







For the year ended December 31, 2010, we
paid year-end bonuses of RMB7.7 million to 957 employees meeting performance targets in that year. For the year ended December
31, 2011, we paid year-end bonuses of RMB7.1 million to 645 employees meeting performance targets in that year. For the year ended
December 31, 2012, we paid year-end bonuses of RMB8.6 million (US$1.4 million) to 460 employees meeting performance targets in
that year.



We believe we are in material compliance
with all applicable labor and safety laws and regulations in the PRC, including the PRC Labor Contract Law, the PRC Production
Safety Law, the PRC Regulation for Insurance for Labor Injury, the PRC Unemployment Insurance Law, the PRC Provisional Insurance
Measures for Maternity of Employees, PRC Interim Provisions on Registration of Social Insurance, PRC Interim Regulation on the
Collection and Payment of Social Insurance Premiums and other related regulations, rules and provisions issued by the relevant
governmental authorities from time to time, for our operations in the PRC.



According to the PRC Labor Contract Law,
we are required to enter into labor contracts with our employees. We are required to pay no less than local minimum wages to our
employees. We are also required to provide employees with labor safety and sanitation conditions meeting PRC government laws and
regulations and carry out regular health examinations of our employees engaged in hazardous occupations.



None of our employees is currently represented
by a union and/or collective bargaining agreements. We believe that we have good relations with our employees and we have had no
history of work stoppages or union organizing campaigns.



| | E. | SHARE OWNERSHIP
| | -- | ---------------



Please see Item 7.A. for share ownership
held by our directors and senior management.



Equity Incentive Plan



The Company’s Plan was adopted by
the board of directors on June 3, 2010 and approved by a majority of our shareholders voting at the Annual General Meeting held
on June 30, 2010. The Plan was adopted to attract and retain directors, officers, other employees and consultants of the Company
and its Subsidiaries and to provide to such persons incentives and rewards for superior performance.



Under the Plan, the Company may issue or
transfer 1,000,000 shares of ordinary shares plus, during each calendar year of the Company during which this Plan is in effect,
an additional number of shares equal to the lesser of (1) 1,000,000 shares of ordinary shares, (2) ten percent (10%) of the number
of shares of all classes of ordinary shares of the Company outstanding on the first business day of the Company’s fiscal
year, and (3) such lesser number as may be determined by the Committee, in the aggregate not to exceed 10,000,000 Shares of ordinary
shares plus, in each case, any shares of ordinary shares relating to awards that expire or are forfeited or cancelled under this
Plan. Such ordinary shares may be shares of original issuance or treasury shares or a combination of the foregoing. Each grant
will specify an option price per share, which may not be less than the market value per share on the date of grant. No option
right will be exercisable more than ten (10) years from the date of grant; provided that no incentive stock option right granted
to a ten percent participant will be exercisable more than five (5) years from the date of grant.



As of the date
of this annual report on Form 20-F, we have granted 541,318 restricted shares to our non-executive directors, senior management
and certain employees, of which 50,086 restricted shares were granted outright to the non-executive
directors and certain employees, 151,150 restricted shares will be vested 25%, 30% and 45% after the first year, second year and
third year, respectively, and the remaining granted restricted shares will be generally vested in equal installments over three
years.



57







Item 7.	MAJOR SHAREHOLDERS
AND RELATED PARTY TRANSACTIONS



| | A. | MAJOR SHAREHOLDERS
| | -- | ------------------



The following table sets forth information
with respect to the beneficial ownership, within the meaning of Rule 13d-3 of the U.S. the Exchange Act, of our ordinary shares,
as of February 28, 2013:



| | · | each person known to us to own beneficially more than 5% of our ordinary shares; and
| | - | ------------------------------------------------------------------------------------



| | · | each of our directors and executive officers who beneficially own ordinary shares within the meaning of Rule 13d-3 of the Exchange
Act.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



Beneficial ownership
includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable community
property laws, the persons named in the table have sole voting and investment power with respect to all ordinary shares shown as
beneficially owned by them. Percentage of beneficial ownership is based on 33,033,499 ordinary shares outstanding as of February
28, 2013.



|Beneficial Owner                                                |  | Ordinary Shares Beneficially Owned |            |  | Percentage of Ordinary Shares
    Beneficially Owned | 
|--------------------------------------------------------------- |  | ---------------------------------- | ---------- |  | ---------------------------------------------------- | 
|Directors and executive officers                                |  |                                    |            |  |                                                      | 
|Lin Shuipan(1)                                                  |  |                                    | 12,822,986 |  |                                                      | 
|Tai Yau Ting                                                    |  |                                    | 39,765     |  |                                                      | 
|Jin Jichun                                                      |  |                                    | 6,000      |  |                                                      | 
|Yea-Mow Chen                                                    |  |                                    | -          |  |                                                      | 
|All directors and executive officers as a group
    (4 persons) |  |                                    | 12,868,751 |  |                                                      | 
|Major shareholders                                              |  |                                    |            |  |                                                      | 
|Windtech Holdings
    Limited(2)                                |  |                                    | 3,957,784  |  |                                                      | 
|Tiancheng Int’l
    Investment Group Limited(3)                 |  |                                    | 2,037,053  |  |                                                      | 



The percentages shown in the table are based
on 33,033,499 ordinary shares outstanding on February 28, 2013. None of our existing shareholders has different voting rights from
other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.



| | * | Percentage of ownership is less than 1% of the outstanding ordinary shares of the combined company.
| | - | ---------------------------------------------------------------------------------------------------



| | (1) | Represents 7,730,354 shares held by Mr. Lin Shuipan and the remaining 5,092,632 ordinary shares held on trust for the benefit
of Ms. Chen Xiayu, the spouse of Mr. Lin Shuipan. The business address of Mr. Lin Shuipan
and Ms. Chen Xiayu is No. 103, Qiancanggong Road, Huatingkou Village, Chendai Town, Jinjiang City, Fujian Province, the PRC.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | (2) | Represents 1,583,114 ordinary shares owned by Wisetech and 2,374,670 ordinary shares owned by Windtech. Each of Wisetech and
Windtech is controlled by its sole director Yuk Mei Tsui, an employee of New Horizon Capital Advisors Ltd. Yuk Mei Tsui disclaims
beneficial ownership of shares of Exceed held or to be held by Wisetech and Windtech except to the extent of her pecuniary interest
therein. Wisetech and Windtech operate as a group with respect to their interests in us within the meaning of the United States
federal securities laws.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | As of February 28, 2013, Tiancheng Int’l Investment
Group Limited (“Tiancheng”) held 2,037,053 ordinary shares of Exceed, representing 6.2% shareholding of Exceed. Ms.
Chen Shuli, the mother of Mr. Lin Shuipan, is the beneficial owner of Tiancheng.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | B. | RELATED PARTY TRANSACTIONS
| | -- | --------------------------



As of December 31, 2012, the Company does
not have any direct liability to related parties.



Financial assistance



Mr. Lin Shuipan and his spouse and relatives
have been providing financial assistance to support our operations from time to time, and such financial assistance is generally
in the forms of interim financing and personal guarantee.



A credit facility agreement with a credit
up to RMB60 million from November 10, 2008 to November 9, 2010 was secured by the personal guarantees from Mr. Lin Shuipan and
Ms. Chen Xiayu, Mr. Lin Shuipan’s spouse. The personal guarantees were released in June 2010. As of December 31, 2012, Mr.
Lin Shuipan, Ms. Chen Xiayu, and Mr. Ding Dongdong, our executive senior Vice President and the brother in-law of Mr. Lin Shuipan,
have guaranteed certain bank loans made available to us for up to RMB635.0 million (US$101.9 million).



Investment by Elevatech



On April 30, 2008, Windrace issued and allotted
2,500 preferred shares representing 2.5% of the issued share capital of Windrace to Elevatech, an indirect wholly-owned subsidiary
of The Goldman Sachs Group, Inc., pursuant to a subscription agreement dated March 28, 2008 and last amended on June 2, 2008. In
addition, Mr. Lin Shuipan, our chairman, and RichWise transferred an aggregate of 5,500 preferred shares representing 5.5% of the
issued share capital of Windrace to Elevatech pursuant to a share transfer agreement dated March 28, 2008 and last amended on June
2, 2008.



58







Pursuant to a letter agreement dated May
8, 2009 among Windrace, Elevatech, Mr. Lin Shuipan and RichWise, all of the preferred shares were redeemed by Windrace in exchange
for payment by Windrace of HK$306.2 million (RMB272.5 million) and an additional premium of US$1.0 million (RMB 6.9 million) paid
on June 30, 2010. The Company, as the successor of Windrace, paid the initial payment of HK$306.2 million to Elevatech.



| | C. | INTERESTS OF EXPERTS AND COUNSEL
| | -- | --------------------------------



Not applicable.



Item 8.	FINANCIAL INFORMATION



| | A. | CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
| | -- | -------------------------------------------------------



Consolidated Financial Statements



Please see Item 18 “Financial Statements”
for our audited consolidated financial statements filed as a part of this annual report.



Legal Proceedings



We are not involved in any legal proceedings
or arbitration proceedings that management believes will have a material adverse effect on the Company’s financial position
or profitability.



Dividend Policy



The payment of dividends by us in the future
will be contingent upon revenues and earnings, if any, capital requirements and our general financial condition. The payment of
any dividends is within the discretion of the board of directors and subject to the limitations imposed by British Virgin Islands
law and the Memorandum and Articles of Association of the Company. It is the present intention of the board of directors to retain
all earnings, if any, for use in business operations and, accordingly.



Our Company is a holding company incorporated
in the British Virgin Islands and relies principally on dividends paid by operating subsidiaries in the PRC for cash requirements,
including the funds necessary to service any debt we may incur. PRC subsidiaries are restricted in their ability to transfer a
portion of their net income to us, whether in the form of dividends, loans or advances. Further, if any of our subsidiaries incurs
debt in their own name in the future, the instruments governing the debt may restrict dividends or other distributions on its equity
interest to our Company. Any limitation on the ability of our subsidiaries to pay dividends could materially adversely limit our
ability to pay dividends to our shareholders.



| | B. | SIGNIFICANT CHANGES
| | -- | -------------------



Except as disclosed elsewhere in this annual
report, we have not experienced any significant changes since the date of our audited consolidated financial statements included
in this annual report.



59







Item 9.	THE OFFER AND LISTING



| | A. | OFFER AND LISTING DETAILS
| | -- | -------------------------



Price Range of Our Ordinary Shares, Warrants and Units



The following table sets forth the high
and low closing sale prices for our ordinary shares, warrants and units as reported on the market on which the securities were
trading during the period.



|                                    |  | Ordinary Shares |       |  | Warrants(1) |   |      | Units(1) | 
|----------------------------------- |  | --------------- | ----- |  | ----------- | - | ---- | -------- | 
|                                    |  | High            |       |  | Low         |   |      | High     | 
|Yearly Highs and Lows               |  |                 |       |  |             |   |      |          | 
|Year 2012                           |  | $               | 4.98  |  |             | $ | 1.18 |          | 
|Year 2011                           |  | $               | 8.58  |  |             | $ | 2.83 |          | 
|Year 2010                           |  | $               | 10.30 |  |             | $ | 6.21 |          | 
|Year 2009                           |  | $               | 13.69 |  |             | $ | 7.25 |          | 
|Year 2008                           |  | $               | 7.60  |  |             | $ | 6.60 |          | 
|Quarterly Highs and Lows            |  |                 |       |  |             |   |      |          | 
|Fourth Quarter of 2012              |  | $               | 1.83  |  |             | $ | 1.18 |          | 
|Third Quarter of 2012               |  | $               | 2.35  |  |             | $ | 1.60 |          | 
|Second Quarter of 2012              |  | $               | 3.65  |  |             | $ | 1.81 |          | 
|First Quarter of 2012               |  | $               | 4.98  |  |             | $ | 2.98 |          | 
|Fourth Quarter of 2011              |  | $               | 5.45  |  |             | $ | 3.20 |          | 
|Third Quarter of 2011               |  | $               | 5.70  |  |             | $ | 2.83 |          | 
|Second Quarter of 2011              |  | $               | 7.63  |  |             | $ | 4.46 |          | 
|First Quarter of 2011               |  | $               | 8.58  |  |             | $ | 5.88 |          | 
|                                    |  |                 |       |  |             |   |      |          | 
|Monthly Highs and Lows              |  |                 |       |  |             |   |      |          | 
|March 2013 (through March 22, 2013) |  | $               | 1.45  |  |             | $ | 1.35 |          | 
|February 2013                       |  | $               | 1.50  |  |             | $ | 1.38 |          | 
|January 2013                        |  | $               | 1.55  |  |             | $ | 1.32 |          | 
|December 2012                       |  | $               | 1.55  |  |             | $ | 1.25 |          | 
|November 2012                       |  | $               | 1.60  |  |             | $ | 1.18 |          | 
|October 2012                        |  | $               | 1.76  |  |             | $ | 1.53 |          | 



| | (1) | Both Warrants and Units expired on November 8, 2011.
| | --- | ----------------------------------------------------



The closing price of our ordinary shares
on March 26, 2013 was US$1.35.



As of February 28, 2013, we had approximately
7 holders of record of our ordinary shares. Such number does not include beneficial owners holding shares through nominee names.



| | B. | PLAN OF DISTRIBUTION
| | -- | --------------------



Not applicable.



| | C. | MARKETS
| | -- | -------



Our ordinary shares are traded on NADAQ
Global Market as of the date of this report. Our ordinary shares, warrants and units began being traded on the NASDAQ Capital Market
on October 13, 2009 and were transferred and being traded on the NASDAQ Global Market on June 28, 2010. Prior to such date, the
securities had been traded on the NYSE Amex.



Our ordinary shares are traded under the
symbols “EDS” on NADAQ Global Market, and our warrants and units were traded under the symbols “EDSWW”
and “EDSUU” respectively on NASDAQ Global Market prior to November 8, 2011 when they were withdrawn from listing due
to expiration of their terms. These securities were traded on the NYSE Amex under the symbols “TTY,” “TTYWW”
and “TTYUU,” respectively. In addition, from October 13, 2009 through October 19, 2009, when the symbols were switched
to their current symbols, these securities were traded under the symbols “TTY,” “TTYWW” and “TTYUU”.



60







Each of our units consisted of one ordinary
share and one warrant. Each of our warrants was exercisable into one ordinary share. Our units commenced trading on November 9,
2007. Our ordinary shares and warrants commenced trading separately from our units on December 3, 2007. Our warrants expired on
November 8, 2011.



| | D. | SELLING SHAREHOLDERS
| | -- | --------------------



Not applicable.



| | E. | DILUTION
| | -- | --------



Not applicable.



| | F. | EXPENSES OF THE ISSUE
| | -- | ---------------------



Not applicable.



Item 10.	ADDITIONAL INFORMATION



| | A. | SHARE CAPITAL
| | -- | -------------



Not applicable.



| | B. | MEMORANDUM AND ARTICLES OF ASSOCIATION
| | -- | --------------------------------------



We adopted Amended and Restated Memorandum
and Articles of Association on September 24, 2009.



The following are summaries of material
terms and provisions of our Amended and Restated Memorandum and Articles of Association, and the BVI Business Companies Act, 2004
(the "BVI Act").



Incorporation



We were incorporated in the British Virgin
Islands as a business company on April 21, 2009, with company number 1529518. Clause 5 of our Amended and Restated Memorandum of
Association (the "Memorandum") provides that the objects for which we are established are unrestricted and we shall have
full power and authority to carry out any object not prohibited by the BVI Act or any other law of the British Virgin Islands.



Board of Directors



Article 15.9 of our Amended and Restated
Articles of Association (the "Articles") provides that a director who is interested in a transaction entered into or
to be entered into by us may (a) vote on a matter relating to the transaction; (b) attend a meeting of directors at which a matter
relating to the transaction arises and be included among the directors present at the meeting for the purposes of a quorum; and
(c) sign a document on behalf of us, or do any other thing in his capacity as a director, that relates to the transaction.



Article 13.8 provides that the remuneration
of directors (whether by way of salary, commission, participation in profits or otherwise) in respect of services rendered or to
be rendered in any capacity shall be fixed by a resolution of directors or a resolution of our shareholders. There is no provision
under the Memorandum and Articles or the BVI Act that the remuneration of directors be approved by independent directors.



Article 16.1 provides that the business
of our Company shall be managed by the directors, who may exercise all such powers of our Company necessary for managing and for
directing and supervising, the business and affairs of our Company as are not required by the BVI Act or by the Memorandum or the
Articles required to be exercised by our shareholders.



There is no provision in the Articles requiring
the retirement of directors. Article 13.7 provides that a director shall not require a share qualification.



Shares



Under the Memorandum we are authorized to
issue a maximum of 60,000,000 shares with a par value of US$0.0001 each, divided into (a) 55,000,000 ordinary shares and (b) 5,000,000
preferred shares. Our directors may, by amending the Memorandum and the Articles, determine the designations, powers, preferences,
participation, optional and other rights, if any, and the qualifications, limitations and restrictions, if any, including, without
limitation, dividend rights, conversion rights, redemption privileges, voting powers and liquidation preferences that any Preferred
Shares confers on the holder.



61







Our Company is a company limited by shares
and the liability of each shareholder is limited to (a) the amount unpaid on that shareholder's shares; and (b) any liability to
repay a distribution which is made when our Company is insolvent.



Each of our ordinary shares confers on the
holder:

(a)	the right to one vote on any resolution
of our shareholders;

(b)	the right to an equal share in any
dividend paid by us in accordance with the BVI Act; and

(c)	the right to an equal share in the
distribution of our surplus assets on a liquidation.



There is no provision in our Articles imposing
a limitation to the right to own our shares. There is no provision in the Memorandum and Articles or under the BVI Act governing
the ownership threshold above which shareholder ownership must be disclosed.



Redemption and Repurchase of Shares



Under our Articles, our directors may, on
our behalf, purchase, redeem or otherwise acquire any of our shares for such consideration as our directors consider fit, and either
cancel or hold such shares as treasury shares, provided that immediately after such purchase, redemption or other acquisition,
(a) the value of our assets exceeds our liabilities; and (b) we are able to pay our debts as they fall due.



Modification of Rights



As permitted by the BVI Act and our Memorandum
and Articles, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may
be varied only with the consent in writing of the holders of not less than three-fourths of the issued shares of that class and
the holders of not less than three-fourths of the issued shares of any other class of shares which may be affected by such variation.
The creation or issue of shares ranking pari passu with a class of shares shall not be deemed to be a variation of that
class of shares.



Shareholders Meetings



Under our Articles, the directors may convene
meetings of our shareholders at such times and in such manner and places as the directors consider necessary or desirable, and
they shall convene such a meeting upon the written request of the shareholders entitled to exercise at least thirty percent of
the voting rights in respect of the matter for which the meeting is requested. Shareholders meetings shall take place at least
annually.



A meeting may be called by not less than
seven days' notice in writing. Notice of every shareholders meeting shall be given to all of our shareholders.



A meeting called by shorter notice will
still be valid if the shareholders holding a ninety percent majority of the total voting rights on all the matters to be considered
at the meeting have waived notice of the meeting and, for this purpose, the presence of a shareholder at the meeting shall constitute
waiver on his part.



A shareholders meeting is duly constituted
if there are present in person or by proxy shareholders entitled to exercise at least fifty percent of the voting rights of the
shares entitled to vote at the meeting.



Anti-Takeover Provisions



Clause 9 of the Memorandum provides that
our Memorandum and Articles may be amended by a resolution of directors or resolution of shareholders. Our board of directors may
therefore amendment our Memorandum and Articles without shareholder approval, and this ability could have the effect of delaying,
deferring or preventing a change in control of our company.



A copy of our Memorandum and Articles, as
amended, was filed as an exhibit to our annual report on Form 20-F (File No. 001-33799-10735637) filed
with the Securities and Exchange Commission on April 7, 2010.



| | C. | MATERIAL CONTRACTS
| | -- | ------------------



We have not
entered into any material contracts other than in the ordinary course of business or other than those described below and in Item
4. “Information on the Company”, Item 5. “Operating and Financial Review
and Prospects” and elsewhere in this annual report.



On October
20, 2011, we renewed the technology cooperation agreement with the China Institute of Sport Science for a term of five years, pursuant
to which China Institution of Sport Science agrees to select us as its exclusive strategic collaboration partner. For more information
of this agreement, see Item 5. “Operating and Financial Review and Prospects—Research and Development, Patents and
Licenses, etc.— China Institute of Sport Science.”



62







On December 20, 2011, we entered into a
contract with the municipal government of Ruichang City for the investment and construction of a sportswear manufacturing base
on a parcel of land in Ruichang City. Pursuant to this contract, we would purchase a parcel of land of 400,000 square meters in
Ruichang City, Jiangxi Province, PRC, for a total consideration of RMB198 million (US$31.8 million). We have made a deposit of
RMB46.8 million (US$7.5 million) as a performance bond. This parcel of land will be used for the construction of our new production
facility. The first phase of the new production facility is expected to be completed by the end of 2013. On December 1, 2012, a
sales and purchase agreement was entered into for the transfer of the right of the aforesaid parcel of land of 193,333 square meters.
The land purchase proposal for remaining parcel of land of 206,667 square meters has not been finalized and is subject to municipal
and administrative approvals. On December 27, 2012, an additional amount of RMB73.1 million (US$11.7 million) was paid. The outstanding
amount of RMB78.1 million (US$12.5 million) is disclosed as a capital commitment in Item 5F. “Contractual Obligations and
Commercial Commitments.”



| | D. | EXCHANGE CONTROLS
| | -- | -----------------



All of our revenues are denominated in Renminbi,
while a portion of our expenditures are denominated in foreign currencies, primarily the U.S. dollar. Fluctuations in exchange
rates, particularly those involving the U.S. dollar may affect our costs and operating margins. In addition, these fluctuations
could result in exchange losses and increased costs in Renminbi terms. Where our operations conducted in Renminbi are reported
in dollars, such fluctuations could result in changes in reported results which do not reflect changes in the underlying operations.
Since January 1, 1994, the PRC government has used a unitary managed floating rate system. Under that system, the People’s
Bank of China, or PBOC, publishes a daily-base exchange rate with reference primarily to the supply and demand of the Renminbi
against the U.S. dollar and other foreign currencies in the market during the previous day. Authorized banks and financial institutions
are allowed to quote buy and sell rates for Renminbi within a specified bank around the central bank’s daily exchange rate.
On July 21, 2005, PBOC announced an adjustment of the exchange rate of the U.S. dollar to Renminbi from 1:8.27 to 1:8.11 and modified
the system by which the exchange rates are determined. While the international reaction to the Renminbi revaluation has generally
been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy,
which could result in a further revaluation and a significant fluctuation of the exchange rate of the Renminbi against the U.S.
dollar, including possible devaluations. As substantially all of our revenues are denominated in Renminbi, such a potential future
devaluation of the Renminbi against the U.S. dollar could negatively impact our results of operations.



In October 2005, SAFE promulgated regulations
that require registration with local SAFE in connection with direct or indirect offshore investment by PRC residents, including
PRC individual residents and PRC corporate entities. These regulations apply to our shareholders who are PRC residents and also
apply to our prior and future offshore acquisitions.



The SAFE regulations retroactively require
registration by March 31, 2006 of direct or indirect investments previously made by PRC residents in offshore companies. If a PRC
resident with a direct or indirect stake in an offshore parent company fails to make the required SAFE registration, the PRC subsidiaries
of such offshore parent company may be prohibited from making distributions of profit to the offshore parent and from paying the
offshore parent proceeds from any reduction in capital, share transfer or liquidation with respect to the PRC subsidiaries. Further,
failure to comply with various SAFE registration requirements described above could result in liability under PRC law for foreign
exchange evasion.



Renminbi is currently convertible to foreign
currency with respect to “current account” transactions, but not with respect to “capital account” transactions.
Current account transactions include ordinary course import/export transactions, payments for services rendered and payments of
license fees, royalties, interest on loans and dividends. Capital account transactions include cross-border investments and repayments
of principal of loans. Currently, our PRC subsidiaries may purchase foreign exchange currencies for settlement of “current
account transactions,” including payment of dividends to us and payment of license fees to content licensors, without the
approval of the State Administration for Foreign Exchange, or SAFE. Our PRC subsidiaries may also retain foreign exchange currencies
in their current accounts, subject to a ceiling approved by SAFE, to satisfy foreign exchange liabilities or to pay dividends.
However, the relevant PRC governmental authorities may limit or eliminate the ability of our PRC subsidiaries to purchase and retain
foreign currencies in the future. Foreign exchange transactions under the capital account remain subject to limitations and require
approvals from or registration with SAFE. This could affect our PRC subsidiaries’ ability to obtain debt or equity financing
from outside the PRC, including by means of loans or capital contributions from us.



For more information about foreign exchange
control and other foreign exchange regulations in China, see “Risk Factors” in Item 3. “Key Information.”



| | E. | TAXATION
| | -- | --------



The following is a general summary of
the material British Virgin Islands, U.S. federal and People’s Republic of China income tax consequences relevant to an investment
in our ordinary shares. The discussion is not intended to be, nor should it be construed as, legal or tax advice to any particular
prospective holder of our ordinary shares. The discussion is based on laws and relevant interpretations thereof in
effect as of the date hereof, all of which are subject to change or different interpretations, possibly with retroactive
effect. The discussion does not address United States state or local tax laws, or tax laws of jurisdictions other than
British Virgin Islands, the People’s Republic of China and the United States.



63







British Virgin Islands Taxation



Under British Virgin Islands law as currently
in effect, a holder of ordinary shares who is not a resident of the British Virgin Islands is exempt from British Virgin Islands
income tax on dividends paid with respect to the ordinary shares and all holders of ordinary shares are not liable to the British
Virgin Islands for income tax on gains realized during that year on sale or disposal of such shares. The British Virgin Islands
does not impose a withholding tax on dividends paid by a company incorporated in the British Virgin Islands. There is no tax treaty
currently in effect between the United States and the British Virgin Islands or between People’s Republic of China and the
British Virgin Islands. However, the British Virgin Islands had entered into tax information exchange treaties with People’s
Republic of China and the United States respectively.



People’s Republic of China Taxation



Under the current Enterprise Income Tax
Law and Implementing Rules of the People’s Republic of China, we may be deemed as a “resident enterprise,” which,
if applied to us, would impose a 10% withholding tax on dividends payable to our non-PRC enterprise shareholders and with respect
to gains derived by our non-PRC enterprise shareholders from disposition of our shares. The current law and its implementing rules
are unclear as to how to determine a PRC “resident enterprise” status for non-Chinese enterprise or enterprise group
controlled entities. See Item 3.D. “Key Information — Risk Factors — Any changes in PRC policies on enterprise
income tax could adversely affect our ability to pay dividends and our financial condition.”



If we are not deemed as a resident enterprise,
then dividends payable to our non-PRC shareholders and gains from disposition of our shares by our non-PRC shareholders will not
be subject to PRC income tax withholding.



United States Federal Income Taxation



General



The following is a summary of the material
U.S. federal income tax consequences of the acquisition, ownership and disposition of our ordinary shares, which are sometimes
referred to collectively as our securities. The discussion below of the U.S. federal income tax consequences to “U.S.
Holders” will apply to a beneficial owner of our securities that is for U.S. federal income tax purposes:



| | · | an individual citizen or resident of the United States;
| | - | -------------------------------------------------------



| | · | a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) that is created or organized
(or treated as created or organized) in or under the laws of the United States, any state thereof or the District of Columbia;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source; or
| | - | ----------------------------------------------------------------------------------------------------------------------



| | · | a trust if (i) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons
are authorized to control all substantial decisions of the trust, or (ii) it has a valid election in effect under applicable U.S.
Treasury regulations to be treated as a U.S. person.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If a beneficial owner of our securities
is not described as a U.S. Holder and is not an entity treated as a partnership or other pass- through entity for U.S. federal
income tax purposes, such owner will be considered a “Non-U.S. Holder.” The U.S. federal income tax consequences applicable
specifically to Non-U.S. Holders are described below under the heading “Non-U.S. Holders.”



This summary is based on the Internal Revenue
Code of 1986, as amended, or the “Code”, its legislative history, existing, proposed and temporary United States Treasury
Regulations and judicial and administrative interpretations thereof, in each case as in effect and available on the date hereof.
All of the foregoing are subject to change, which change could apply retroactively and could affect the tax consequences described
below. There can be no assurances that the U.S. Internal Revenue Service will not take a different position concerning the tax
consequences of the acquisition, ownership and disposition of our ordinary shares or that such a position could not be sustained.



This discussion does not address all aspects
of U.S. federal income taxation that may be relevant to any particular holder based on such holder’s individual circumstances. In
particular, this discussion considers only holders that own our securities as capital assets within the meaning of Section
1221 of the Code, and does not address the potential application of the alternative minimum tax or the U.S. federal income tax
consequences to holders that are subject to special rules, including:



| | · | financial institutions or financial services entities;
| | - | ------------------------------------------------------



| | · | broker-dealers;
| | - | ---------------



| | · | taxpayers who have elected mark-to-market accounting;
| | - | -----------------------------------------------------



64







| | · | tax-exempt entities or organizations, including an “individual retirement account” or “Roth IRA” as
defined in Section 408 or 408A of the Code, respectively;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | governments or agencies or instrumentalities thereof;
| | - | -----------------------------------------------------



| | · | insurance companies;
| | - | --------------------



| | · | partnerships or other entities treated as partnerships or other pass-through entities for U.S. federal income tax purposes
or persons holding ordinary shares through any such entities;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | regulated investment companies;
| | - | -------------------------------



| | · | real estate investment trusts;
| | - | ------------------------------



| | · | certain expatriates or former long-term residents of the United States;
| | - | -----------------------------------------------------------------------



| | · | persons that actually or constructively own 10% or more of our voting shares;
| | - | -----------------------------------------------------------------------------



| | · | persons that acquired our securities pursuant to an exercise of employee stock options, in connection with employee stock incentive
plans or otherwise as compensation;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | persons that hold our securities as part of a straddle, constructive sale, hedging, conversion or other integrated transaction;
or
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | · | persons liable for alternative minimum tax; or
| | - | ----------------------------------------------



| | · | persons whose functional currency is not the U.S. dollar.
| | - | ---------------------------------------------------------



This discussion does not address any aspect
of U.S. federal non-income tax laws, such as gift or estate tax laws, or state, local or non-U.S. tax laws. Additionally,
the discussion does not consider the tax treatment of partnerships or other pass-through entities or persons who hold our securities through
such entities. If a partnership (or other entity or arrangement classified as a partnership for U.S. federal income tax purposes)
is the beneficial owner of our securities, the U.S. federal income tax treatment of a partner in the partnership will generally
depend on the status of the partner and the activities of the partnership.



We have not sought, and will not seek, a
ruling from the Internal Revenue Service, or IRS, or an opinion of counsel as to any U.S. federal income tax consequence described
herein. The IRS may disagree with the consequences described herein, and its determination may be upheld by a court. Moreover,
we cannot assure you that future legislation, regulations, administrative rulings or court decisions will not adversely affect
the accuracy of the statements in this discussion.



BECAUSE OF THE COMPLEXITY OF THE TAX
LAWS AND BECAUSE THE TAX CONSEQUENCES TO ANY PARTICULAR HOLDER OF OUR SECURITIES MAY BE AFFECTED BY MATTERS NOT DISCUSSED HEREIN,
EACH HOLDER OF OUR SECURITIES IS URGED TO CONSULT WITH ITS TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE ACQUISITION,
OWNERSHIP AND DISPOSITION OF OUR SECURITIES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS, AS WELL
AS U.S. FEDERAL TAX LAWS.



Tax Consequences to U.S. Holders of Ordinary Shares



Taxation of Distributions Paid on Ordinary Shares



Subject to the passive foreign investment
company, or PFIC, rules discussed below, the U.S. dollar amount of distributions on our ordinary shares (including the amount of
PRC tax withheld, if any), other than certain pro rata distributions of our ordinary shares, generally will be includable in a
U.S. Holder’s gross income as ordinary dividend income when actually or constructively received to the extent the distribution
is paid out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). Such dividend
will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received
from other U.S. corporations. Distributions in excess of such earnings and profits will be applied against and reduce the U.S.
Holder’s basis in its ordinary shares and, to the extent in excess of such basis, will be treated as gain from the sale or
exchange of such ordinary shares. We may not, however, calculate earnings and profits in accordance with U.S. tax principles. In
this case, all distributions by us to U.S. Holders generally will be treated as dividends.



Non-corporate U.S. Holders may qualify for
the lower rates of taxation with respect to dividends on ordinary shares applicable to long-term capital gains (i.e., gains from
the sale of capital assets held for more than one year) (see “— Taxation on the Disposition of Ordinary Shares”
below) provided that (1) our ordinary shares are readily tradable on an established securities market in the United States, (2)
we are not a PFIC, as discussed below, for either the taxable year in which the dividend was paid or the preceding taxable year,
and (3) certain holding period requirements are met. Under published IRS authority, shares are considered for purposes of clause
(1) above to be readily tradable on an established securities market in the United States only if they are listed on certain exchanges,
which include the NASDAQ Stock Market. Although our ordinary shares are currently traded on the NASDAQ Stock Market, U.S. Holders
nevertheless should consult their own tax advisors regarding the availability of this lower rate for any dividends paid with respect
to our ordinary shares.



65







If PRC taxes apply to dividends paid to
a U.S. Holder on our ordinary shares, such taxes may be treated as foreign taxes eligible for credit against such holder’s
U.S. federal income tax liability (subject to certain limitations), and, if we are deemed to be a PRC “resident enterprise”
under PRC tax law (see “Risk Factors – Risks Relating to the PRC – Any changes in PRC policies on enterprise
income tax could adversely affect our ability to pay dividends and our financial condition.”), a U.S. Holder may be entitled
to certain benefits under the income tax treaty between the United States and the PRC. U.S. Holders should consult their own tax
advisors regarding the creditability of any such PRC tax and their eligibility for the benefits of the income tax treaty between
the United States and the PRC.



Taxation on the Disposition of Ordinary Shares



Upon a sale or other taxable disposition
of our ordinary shares, and subject to the PFIC rules discussed below, a U.S. Holder generally will recognize capital gain or loss
in an amount equal to the difference between the amount realized and the U.S. Holder’s adjusted tax basis in the ordinary
shares, both determined in U.S. dollars.



The adjusted tax basis in an ordinary share
generally will be equal to the cost of such ordinary share.



In the case of a non-corporate U.S. Holder,
capital gain from the sale, exchange or other disposition of ordinary shares is generally eligible for a preferential rate of taxation
applicable to capital gains, if the U.S. Holder’s holding period for such ordinary shares exceeds one year (i.e., such gain
is long-term capital gain). The deductibility of capital losses for United States federal income tax purposes is subject to limitations
under the Code. Any such gain or loss that a U.S. Holder recognizes generally will be treated as U.S. source income or loss for
foreign tax credit limitation purposes.



If PRC taxes apply to any gain from the
disposition of our ordinary shares by a U.S. Holder and if we are deemed to be a PRC, “resident enterprise” under PRC
tax law (see“Risk Factors – Risks Relating to the PRC – Any changes in PRC policies on enterprise income
tax may adversely affect our ability to pay dividends and our financial condition”), a U.S. Holder should consult its own
tax advisor regarding the creditability of any such PRC tax and their eligibility for the benefits of the income tax treaty between
the United States and the PRC.



Passive Foreign Investment Company Rules



A foreign corporation will be a passive
foreign investment company, or PFIC, if at least 75% of its gross income in a taxable year of the foreign corporation, including
its pro rata share of the gross income of any company in which it is considered to own at least 25% of the shares by value, is
passive income. Alternatively, a foreign corporation will be a PFIC if at least 50% of its assets in a taxable year of the
foreign corporation, ordinarily determined based on fair market value and averaged quarterly over the year, including its pro rata
share of the assets of any company in which it is considered to own at least 25% of the shares by value, are held for the production
of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties (other than certain
rents or royalties derived from the active conduct of a trade or business), and gains from the disposition of passive assets.



We do not believe that we were a PFIC for
the 2012 taxable year. Our actual PFIC status for the 2013 taxable year or any subsequent taxable year will not be determinable
until after the end of each such taxable year. The PFIC determination is dependent on a number of factors, some of which are beyond
our control, including the amount of our operating income and the market valuation of our assets, including goodwill, and certain
aspects of the PFIC rules are not entirely certain. Accordingly, we cannot assure you with respect to our status as a PFIC for
the 2012 taxable year or any future taxable year. See “—Risk Factors— We may become a passive foreign investment
company, or PFIC, which could result in adverse U.S. tax consequences to U.S. investors.”



If we qualified as a PFIC and
a U.S. Holder did not make either a timely qualified electing fund, or QEF election, for our first taxable year as a PFIC in which
the U.S. Holder held (or was deemed to hold) ordinary shares, or a mark-to-market election, as described below, such holder
generally will be subject to special rules with respect to:



| | · | any gain recognized by the U.S. Holder on the sale or other disposition of its ordinary shares; and
| | - | ---------------------------------------------------------------------------------------------------



| | · | any “excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable
year of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect
of the ordinary shares during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder’s holding
period for the ordinary shares).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under these rules,



| | · | the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for
the ordinary shares;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



66







| | · | the amount allocated to the taxable year of the U.S. Holder in which the U.S. Holder recognized the gain or received the excess
distribution, or allocated to the period in the U.S. Holder’s holding period before the first day of our first taxable year
in which we qualified as a PFIC, will be taxed as ordinary income;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will
be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each
such other taxable year of the U.S. Holder.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



In general, a U.S. Holder may avoid the
PFIC tax consequences described above in respect of our ordinary shares if the U.S. Holder is able to make a timely QEF
election to include in income its pro rata share of our net capital gains (as long-term capital gain) and other earnings and profits
(as ordinary income), on a current basis, in each case whether or not distributed, in the taxable year of the U.S. Holder in which
or with which our taxable year ends. A U.S. Holder may make a separate election to defer the payment of taxes on undistributed
income inclusions under the QEF rules, but if deferred, any such taxes will be subject to an interest charge.



In order to comply with the requirements
to make a QEF election, a U.S. Holder must receive certain information from us. Upon request from a U.S. Holder, we will endeavor
to provide to the U.S. Holder no later than 90 days after the request such information as the IRS may require, including a PFIC
annual information statement, in order to enable the U.S. Holder to make and maintain a QEF election. However, there is no
assurance that we will have timely knowledge of our status as a PFIC in the future or of the required information to be provided.



The QEF election is made on a shareholder-by-shareholder
basis and, once made, can be revoked only with the consent of the IRS. A U.S. Holder generally makes a QEF election by attaching
a completed IRS Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund), including
the information provided in a PFIC annual information statement, to a timely filed U.S. federal income tax return for the tax year
to which the election relates. Retroactive QEF elections generally may be made only by filing a protective statement with
such return and if certain other conditions are met or with the consent of the IRS.



If a U.S. Holder has elected the application
of the QEF rules to our ordinary shares, and the special tax and interest charge rules do not apply to such shares (because of
a timely QEF election for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) such shares
or a purge of the PFIC taint pursuant to a purging election), any gain recognized on the appreciation of our ordinary shares generally
will be taxable as capital gain and no interest charge will be imposed. As discussed above, U.S. Holders of a QEF are currently
taxed on their pro rata shares of its earnings and profits, whether or not distributed. In such case, a subsequent distribution
of such earnings and profits that were previously included in income generally will not be taxable as a dividend. The tax
basis of a U.S. Holder’s shares in a QEF will be increased by amounts that are included in income, and decreased by amounts
distributed but not taxed as dividends, under the above rules. Similar basis adjustments apply to property if by reason of
holding such property the U.S. Holder is treated under the applicable attribution rules as owning shares in a QEF.



Although a determination as to our PFIC
status will be made annually, an initial determination that our Company is a PFIC will generally apply for subsequent years to
a U.S. Holder who held ordinary shares while we were a PFIC, whether or not we meet the test for PFIC status in those subsequent
years. A U.S. Holder who makes the QEF election discussed above for our first taxable year as a PFIC in which the U.S. Holder
holds (or is deemed to hold) ordinary shares, however, will not be subject to the PFIC tax and interest charge rules discussed
above in respect of such shares. In addition, such U.S. Holder will not be subject to the QEF inclusion regime with respect
to such shares for any of our taxable years that ends within or with a taxable year of the U.S. holder and in which we are not
a PFIC. On the other hand, if the QEF election is not effective for each of our taxable years in which we are a PFIC and during
which the U.S. Holder holds (or is deemed to hold) ordinary shares, the PFIC rules discussed above will continue to apply to such
shares unless the holder makes a purging election and pays the tax and interest charge with respect to the gain inherent in such shares attributable
to the pre-QEF election period.



Alternatively, if a U.S. Holder, at the
close of its taxable year, owns ordinary shares in a PFIC that is treated as marketable stock, the U.S. Holder may make a mark-to-market
election with respect to such shares for such taxable year. If the U.S. Holder makes a valid mark-to-market election for the
first tax year in which the U.S. Holder holds (or is deemed to hold) our ordinary shares and for which we are determined
to be a PFIC, such holder generally will not be subject to the PFIC rules described above in respect of its ordinary shares. Instead,
in general, the U.S. Holder will include as ordinary income each year the excess, if any, of the fair market value of its ordinary
shares at the end of its taxable year over the adjusted basis in its ordinary shares. The U.S. Holder also will be allowed
to take an ordinary loss in respect of the excess, if any, of the adjusted basis of its ordinary shares over the fair market value
of its ordinary shares at the end of its taxable year (but only to the extent of the net amount of previously included income as
a result of the mark-to-market election). The U.S. Holder’s basis in its ordinary shares will be adjusted to reflect
any such income or loss amounts, and any further gain recognized on a sale or other taxable disposition of the ordinary shares
will be treated as ordinary income.



The mark-to-market election is available
only for shares that are regularly traded on a national securities exchange that is registered with the Securities and Exchange
Commission, including the NASDAQ Stock Market, or on a foreign exchange or market that the IRS determines has rules sufficient
to ensure that the market price represents a legitimate and sound fair market value. Although our ordinary shares currently
trade on the NASDAQ Stock Market, U.S. Holders nevertheless should consult their own tax advisors regarding the availability and
tax consequences of a mark-to-market election in respect of our ordinary shares under their particular circumstances.



67







If we are a PFIC and, at any time, have
a non-U.S. subsidiary that is classified as a PFIC, U.S. Holders generally would be deemed to own a portion of the shares of such
lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described above if we receive a distribution
from, or dispose of all or part of our interest in, the lower-tier PFIC. Upon request, we will endeavor to cause any lower-tier
PFIC to provide to a U.S. Holder no later than 90 days after the request the information that may be required to make or maintain
a QEF election with respect to the lower-tier PFIC. However, there is no assurance that we will be able to cause a lower-tier
PFIC to provide such information to a U.S. Holder. U.S. Holders are urged to consult their own tax advisors regarding the
tax issues raised by lower-tier PFICs.



If a U.S. Holder owns (or is deemed to own)
shares during any year in which we are a PFIC and the U.S. Holder recognizes gain on a disposition of our ordinary shares or receives
distributions with respect to our ordinary shares, the U.S. Holder generally will be required to file an IRS Form 8621 with respect
to the Company, generally with the U.S. Holder’s federal income tax return for that year. Additionally, recently enacted
legislation creates an additional annual filing requirement for U.S. persons who are shareholders of a PFIC. However, pursuant
to recently issued guidance, this additional filing obligation is suspended until the IRS releases the relevant final form. If
our company were a PFIC for a given taxable year, then each U.S. Holder is urged to consult its tax advisor concerning the applicable
annual filing requirements.



The rules dealing with PFICs and with the
QEF and mark-to-market elections are very complex and are affected by various factors in addition to those described above. Accordingly,
U.S. Holders of our ordinary shares should consult their own tax advisors concerning the application of the PFIC rules to our ordinary
shares under their particular circumstances.



Tax Consequences to Non-U.S. Holders of Ordinary Shares



Dividends paid to a Non-U.S. Holder in respect
of its ordinary shares generally will not be subject to U.S. federal income tax, unless the dividends are effectively connected
with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income
tax treaty, are attributable to a permanent establishment or fixed base that such holder maintains in the United States).



In addition, a Non-U.S. Holder generally
will not be subject to U.S. federal income tax on any gain attributable to a sale or other disposition of our ordinary shares unless
such gain is effectively connected with its conduct of a trade or business in the United States (and, if required by an applicable
income tax treaty, is attributable to a permanent establishment or fixed base that such holder maintains in the United States)
or the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of sale or
other disposition and certain other conditions are met (in which case, such gain from United States sources generally is subject
to tax at a 30% rate or a lower applicable tax treaty rate).



Dividends and gains that are effectively
connected with the Non-U.S. Holder’s conduct of a trade or business in the United States (and, if required by an applicable
income tax treaty, are attributable to a permanent establishment or fixed base in the United States) generally will be subject
to tax (but not the Medicare contribution tax described below) in the same manner as for a U.S. Holder and, in the case of a Non-U.S.
Holder that is a corporation for U.S. federal income tax purposes, may also be subject to an additional branch profits tax at a
30% rate or a lower applicable tax treaty rate.



Backup Withholding and Information Reporting



In general, information reporting for U.S.
federal income tax purposes will apply to distributions made on our ordinary shares within the United States to a non-corporate
U.S. Holder and to the proceeds from sales and other dispositions of our ordinary shares by a non-corporate U.S. Holder to or through
a U.S. office of a broker. Payments made (and sales and other dispositions effected at an office) outside the United States
will be subject to information reporting in limited circumstances.



In addition, a payor will be required to
withhold backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, ordinary shares
within the United States, or by a U.S. payor or U.S. middleman, to a holder, other than an exempt recipient, if such holder fails
to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such backup
withholding tax requirements.



A Non-U.S. Holder generally may eliminate
the requirement for information reporting and backup withholding by providing certification of its foreign status, under penalties
of perjury, on a duly executed applicable IRS Form W-8 or by otherwise establishing an exemption.



Backup withholding is not an additional
tax. Rather, the amount of any backup withholding will be allowed as a credit against a U.S. Holder’s or a Non-U.S.
Holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information
is timely furnished to the IRS.



68







Foreign Asset Reporting



Certain U.S. Holders who are individuals
are required to report information relating to an interest in our ordinary shares, subject to certain exceptions (including an
exception for shares held in accounts maintained by financial institutions). U.S. Holders are urged to consult their tax advisors
regarding their information reporting obligations, if any, with respect to their ownership and disposition of our ordinary shares.



Medicare Tax



Certain U.S. Holders that are individuals,
estates or trusts are subject to a 3.8% tax on all or a portion of their “net investment income,” which may include
all or a portion of their dividend income and net gains from the disposition of ordinary shares. Each U.S. Holder that is an individual,
estate or trust is urged to consult its tax advisors regarding the applicability of the Medicare tax to its income and gains in
respect of its investment in our ordinary shares.



| | F. | DIVIDENDS AND PAYING AGENTS
| | -- | ---------------------------



Not applicable.



| | G. | STATEMENTS BY EXPERTS
| | -- | ---------------------



Not applicable.



| | H. | DOCUMENTS ON DISPLAY
| | -- | --------------------



We are subject to the periodic reporting
and other informational requirements of the Exchange Act, and are required to file reports and other information with the Securities
and Exchange Commission. Specifically, we are required to file annually a Form 20-F no later than six months after the close of
each fiscal year, which is December 31. Copies of reports and other information, when so filed, may be inspected without charge
and may be obtained at prescribed rates at the public reference facilities maintained by the Securities and Exchange Commission
at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C.
Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission
also maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding
registrants that make electronic filings with the Securities and Exchange Commission using its EDGAR system. As a foreign private
issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy
statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act.



| | I. | SUBSIDIARY INFORMATION
| | -- | ----------------------



Not applicable.



Item 11.	QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Foreign currency risk



We mainly operate in Mainland China with
most of the transactions settled in RMB. Our assets and liabilities, and transactions arising from its operations are mainly denominated
in RMB, and therefore the overall foreign currency risk was considered minimal. We have not used any forward contracts, currency
borrowings or other means to hedge our foreign exchange exposure. Nevertheless, the management will continue to monitor the foreign
exchange exposure and adopt prudent measures as appropriate.



Credit risk



We trade only with recognized and creditworthy
customers. It is our policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In
addition, receivable balances are monitored on an ongoing basis and our exposure to bad debts is not significant.



We offer revolving credit to domestic distributors.
This revolving credit provides for a maximum credit limit that may be outstanding at any one time based on, among others, credit
history, market conditions, prior year's purchases and estimated purchases for the coming year. In considering the amount of revolving
credit, we also take into account the funding needs of the distributors in expanding their retail network. We generally evaluate
the credit limits granted to distributors upon renewal of the relevant distribution agreements.



The credit risk of our other financial assets,
which comprise deposits, other receivables, pledged bank deposits and cash and bank balances, arises from default of the counterparty,
with a maximum exposure equal to the carrying amounts of these instruments.



69







Our exposure to credit risk is influenced
mainly by the individual characteristics of each customer. The default risk of the industry in which our customers operate
also has an influence on credit risk but only to a lesser extent. At the balance sheet date, we have a certain concentration
of credit risk as 54.5% and 41.6%, respectively, of our total trade and other receivables that were due from our five largest customers
as of December 31, 2011 and 2012.



The maximum exposure to credit risk, without
taking collateral into account, is represented by the carrying amount of each financial asset. We do not provide any guarantees
which would expose us to credit risk. We have been closely monitoring trade receivable balances that are overdue by 30 days or
more by taking into account, among others, the ability and intent of the distributor to settle the balance. We, however, will not
make any provision for the overdue balance if (1) we have ongoing trading with the distributor; (2) we receive payments on other
invoices from the distributor; and (3) we have no dispute on the amount overdue with the distributor.



Interest rate risk



Our interest rate risk arises primarily
from cash and deposits at bank and bank loans. We do not have any significant exposure to risk of changes in market interest rates
as our cash and deposit and debt obligations were all with fixed interest rates.



Commodity price risk



The major raw materials used in the production
of our products include cotton, natural and synthetic leather, nylon, canvas, rubber and plastics. We are exposed to fluctuation
in the prices of these raw materials, which are influenced by global as well as regional supply and demand conditions. Fluctuations
in the prices of raw materials could adversely affect our financial performance. We historically have not entered into any
commodity derivative instruments to hedge the potential commodity price changes.



Liquidity risk



We monitor our risk to a shortage of funds
by considering the maturity of both our financial assets and projected cash flows from operations. Our objective is to maintain
a balance between continuity of funding and flexibility through use of bank borrowings and other borrowings to meet our working
capital requirements. See “ — Liquidity and Capital Resources.”



Item 12.	DESCRIPTION OF SECURITIES
OTHER THAN EQUITY SECURITIES



Not applicable.



PART
II



Item 13.	DEFAULTS, DIVIDEND
ARREARAGES AND DELINQUENCIES



Not applicable.



Item 14.	MATERIAL MODIFICATIONS
TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS



None.



Item 15.	CONTROLS AND PROCEDURES



Evaluation of Disclosure Controls and Procedures



As of the end of the period covered by this
annual report, our chief executive officer and chief financial officer have performed an evaluation of the effectiveness of our
disclosure controls and procedures as defined and required under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of
1934, as amended. Based upon that evaluation, they have concluded that our disclosure controls and procedures were effective in
ensuring that the information required to be disclosed by us in the reports that we file and furnish under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in by the Securities
and Exchange Commission’s rules and regulations.



Management’s Report on Internal Control over Financial
Reporting



Our management is responsible for establishing
and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America. Our internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorizations of management; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect
on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



This Annual Report does not include an attestation
report of our registered public accounting firm regarding internal control over financial reporting. Our management’s report
was not subject to attestation by our registered public accounting firm pursuant to the rules of the SEC that permit us to provide
only management’s report in this Annual Report.



Changes in Internal Control over Financial Reporting



During the year ended December 31, 2012,
there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.





Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT



Our board of directors has determined that
Mr. Yea-Mow Chen qualifies as an Audit Committee Financial Expert as defined by the applicable rules of the Securities and Exchange
Commission and is independent as defined by Rule 5605(a)(2) of the NASDAQ Listing Rules -3.



Our board of directors has determined that
Mr. Jin Jichun, who is the other member of the Audit Committee is independent as such term is defined by Rule 5605(a)(2) of the NASDAQ
Listing Rules.



70







Item 16B. CODE OF ETHICS



Our board of directors has adopted a
code of ethics, which is applicable to our senior executive and financial officers. In addition, our board of directors has
adopted a code of conduct, which is applicable to all of our directors, officers and employees. Our code of ethics sets forth
and summarizes certain policies of the Company related to legal compliance and ethical business practices. Essentially, each
officer, employee and member of the Board of Directors of the Company is expected, and required, to comply with the law and
to conduct the business of the Company in an ethical manner. This code is intended to comply with the standards set forth in
Section 406 of the Sarbanes-Oxley Act of 2002. The full text of our code of ethics has been filed and posted on our
internet website, www.ir.xdlong.cn.



Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES



The following table sets forth the aggregate
fees by categories specified below in connection with certain professional services rendered by Crowe Horwath (HK) CPA Limited
and Crowe Horwath LLP for the periods indicated. We did not pay any other fees to our principal external auditors during the periods
indicated below.



|                                                     |  | For the year ended December 31, |      
|---------------------------------------------------- |  | ------------------------------- | -----
|                                                     |  | 2011                            |      
|                                                     |  | RMB                             |      
|                                                     |  | (in thousands)                  |      
|Audit fees – Crowe Horwath (HK) CPA Limited (“CHHK”) |  |                                 | 1,825
|Audit fees – Crowe Horwath LLP                       |  |                                 | 1,573
|Audit-related fees – CHHK                            |  |                                 | -    
|Audit-related fees – Crowe Horwath LLP               |  |                                 | 1,360
|Total                                                |  |                                 | 4,758










Audit Fees



CHHK audit fees for 2012 consisted of fees in relation to the
audit of our financial statements for 2012. CHHK audit fees for 2011 consisted of fees in relation to the audit of our financial
statements for the three years ended December 31, 2011, and the fees in relation to the 2011 report on internal control over financial
reporting.



Crowe Horwath LLP audit fees for 2011 consisted of fees in relation
to the audit of our financial statements for the year ended December 31, 2011.



Audit-related Fees



CHHK audit-related fees for 2012 included the fees for the reviews
of our interim financial statements included in our Form 6-K filings for 2012.



Crowe Horwath LLP audit-related fees for 2011 included the fees
for the reviews of our interim financial statements included in our Form 6-K filings for 2011, and the service rendered in relation
to our registration statement on Form S-8 filed in 2010.



Pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation
S-X, the engagement of audit or non-audit service is approved by our audit committee before we engaged the accountant to render
such service.



Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES



We have not been granted an exemption from
the applicable listing standards for the audit committee of our board of directors.



Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
AFFILIATED PURCHASERS



|Period                              |  | (a) Total Number ofShares Purchased |  | (b) Average Price Paid per Shares(1) |      |  | (c) Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orProgram |                | (d) Maximum Number(or Approximate DollarValue) of Shares theMay Yet Be PurchasedUnder the Plans orPrograms | 
|----------------------------------- |  | ----------------------------------- |  | ------------------------------------ | ---- |  | ------------------------------------------------------------------------------- | -------------- | ---------------------------------------------------------------------------------------------------------- | 
|                                    |  |                                     |  | US$                                  |      |  |                                                                                 |                | US$                                                                                                        | 
|August 15, 2011 – December 31, 2011 |  | 415,751 shares                      |  |                                      | 4.34 |  |                                                                                 | 415,751 shares |                                                                                                            | 
|                                    |  |                                     |  |                                      |      |  |                                                                                 |                |                                                                                                            | 
|January 1, 2012 – August 14, 2012   |  | 196,213 shares                      |  |                                      | 3.48 |  |                                                                                 | 196,213 shares |                                                                                                            | 



In accordance with our share repurchase program announced on
August 15, 2011, we are authorized to repurchase up to US$10 million of our ordinary shares within six months starting from August
15, 2011 using existing cash reserves. As of December 31, 2011, we had purchased 415,751 of our ordinary shares, at an average
price of US$4.34 per share, for a total purchase price of approximately US$1.8 million (approximately RMB11.5 million). On
February 13, 2012, our board of directors extended the date of expiration of the existing US$10 million share repurchase program
from February 14, 2012 to August 14, 2012. We have purchased 196,213 of our ordinary shares, at an average price of US$3.48 per
share, from January 1, 2012 to August 14, 2012, at an aggregate cost of approximately US$0.7 million (approximately RMB4.3 million).



71







For the purpose of this annual report only,
all of the repurchased ordinary shares are not included in the number of our ordinary shares that were issued and outstanding as
of a specified date.



Our share repurchase program will be reviewed
from time to time and may be adjusted or terminated at any time without prior notice. Stock repurchases under this program may
be made through open market purchases, in privately negotiated transactions, in block trades, pursuant to a 10b5-1 plan, or otherwise.
The timing and actual number of shares repurchased will depend on market conditions, trading price of the ordinary shares and other
factors and be subject to the restrictions relating to volume, price and timing under applicable laws.



|Period                                |  | Total number ofsharespurchased |         |  | Average price paid per share(1) |  |      | Total number ofshares purchased aspart of publiclyannounced program |  |  | Approximate dollar value of sharesthat may yet be purchased underthe program | 
|------------------------------------- |  | ------------------------------ | ------- |  | ------------------------------- |  | ---- | ------------------------------------------------------------------- |  |  | ---------------------------------------------------------------------------- | 
|                                      |  |                                |         |  | US$                             |  |      | RMB(2)                                                              |  |  |                                                                              | 
|August 2011                           |  |                                | 14,955  |  |                                 |  | 3.63 |                                                                     |  |  | 22.62                                                                        | 
|September 2011                        |  |                                | 108,752 |  |                                 |  | 4.00 |                                                                     |  |  | 24.92                                                                        | 
|October 2011                          |  |                                | 89,658  |  |                                 |  | 3.81 |                                                                     |  |  | 23.74                                                                        | 
|November 2011                         |  |                                | 103,848 |  |                                 |  | 4.97 |                                                                     |  |  | 30.96                                                                        | 
|December 2011                         |  |                                | 98,538  |  |                                 |  | 4.65 |                                                                     |  |  | 28.97                                                                        | 
|January 2012                          |  |                                | 69,491  |  |                                 |  | 4.48 |                                                                     |  |  | 27.91                                                                        | 
|February 2012                         |  |                                | 17,182  |  |                                 |  | 3.69 |                                                                     |  |  | 22.99                                                                        | 
|March 2012                            |  |                                | 61,940  |  |                                 |  | 3.38 |                                                                     |  |  | 21.06                                                                        | 
|April 2012                            |  |                                | -       |  |                                 |  | -    |                                                                     |  |  | -                                                                            | 
|May 2012                              |  |                                | -       |  |                                 |  | -    |                                                                     |  |  | -                                                                            | 
|June 2012                             |  |                                | 13,900  |  |                                 |  | 1.91 |                                                                     |  |  | 11.90                                                                        | 
|July 2012                             |  |                                | 27,400  |  |                                 |  | 2.20 |                                                                     |  |  | 13.71                                                                        | 
|August 2012 (expired August 14, 2012) |  |                                | 6,300   |  |                                 |  | 2.06 |                                                                     |  |  | 12.83                                                                        | 










| | (1) | The average price paid per share is calculated using the execution price for each repurchase excluding commissions paid to
brokers.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------



| | (2) | The translations of U.S. dollar amounts into Renminbi amounts have been made at the exchange rate in effect on December 31,
2012, which was US$1.00 to RMB6.2301. See “Part I.—Item 3. Key Information—Selected Financial Data—Exchange
Rate Information.”
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Item 16F.  CHANGE IN REGISTRANT’S CERTIFYING
ACCOUNTANT



Not
Applicable



Item 16G.  CORPORATE GOVERNANCE



We are incorporated under the laws of British
Virgin Islands. Our ordinary shares is currently listed on the NASDAQ Global Select Market and, for so long as our securities continue
to be listed, we will remain subject to the rules and regulations established by NASDAQ as being applicable to listed companies.
NASDAQ has adopted its Rule 5600 Series to impose various corporate governance requirements on listed securities. Rule 5615 provides
that foreign private issuers such as our Company are required to comply with certain specific requirements of the Rule 5600 Series,
but, as to the balance of the Rule 5600 Series, foreign private issuers are not required to comply if the laws of their home country
do not otherwise require compliance.



We currently comply with the specifically
mandated provisions of the Rule 5600 Series. In addition, we have elected to voluntarily comply with certain other requirements
of the Rule 5600 Series, notwithstanding that our home country does not mandate compliance; although we may in the future determine
to cease voluntary compliance with those provisions of the Rule 5600 Series. However, we have determined not to comply with the
following provisions of the Rule 5600 Series since the laws of the British Virgin Islands do not require compliance:



| | · | NASDAQ Rule 5605(c)(2)(A) requires that each company must have an audit committee of at least three members and such audit
committee must be comprised only of Independent Directors as defined in the NASDAQ Rule 5605 (a)(2). Under the laws of the British
Virgin Islands, we are not required to have an audit committee of at least three members. Our audit committee is comprised of two
members, both of whom are Independent Directors as defined in the NASDAQ Rule 5605 (a)(2).
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | NASDAQ Rule 5605(d) requires Independent Director involvement in the determination of executive compensation. In particular,
NASDAQ 5605(d)(B) requires that the chief executive officer may not be present during voting or deliberations of the compensation
committee. Our chief executive officer, however, can be invited to attend our compensation committee meetings.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | NASDAQ Rule 5610 requires that each company shall adopt a code of conduct applicable to all directors, officers and employees,
which shall be publicly available. A code of conduct satisfying this rule must comply with the definition of a "code of ethics"
set out in Section 406(c) of the Sarbanes-Oxley Act of 2002 and any regulations promulgated thereunder by the Commission. In addition,
the code must provide for an enforcement mechanism. Any waivers of the code for directors or executive officers must be approved
by the board. Our ethics administrator, who is the chairman of our audit committee, has the authority to grant a specific limited
waiver of any provision of our ethics code.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



72







PART
III



Item 17.	 FINANCIAL STATEMENTS



We have elected to provide financial statements
pursuant to Item 18 (see below).



Item 18.	 FINANCIAL STATEMENTS



Our consolidated financial statements
and the audit report of our independent registered public accounting firm are included  starting from page F-1 of this Form
20-F.



Item 19.	 EXHIBITS



|Exhibit No. |  | Description                                                                                                                                                                                                          
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                      
|1.1†        |  | Amended and Restated Memorandum and Articles of Association of the Registrant                                                                                                                                        
|            |  |                                                                                                                                                                                                                      
|2.1††       |  | Specimen Stock Certificate                                                                                                                                                                                           
|            |  |                                                                                                                                                                                                                      
|4.1††       |  | Exceed Company Ltd. 2010 Equity Incentive Plan                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                      
|4.2†††      |  | Translation of the Technology Cooperation Agreement with China Institute of Sports Science of the General Administration
    of Sport of China dated October 20, 2011                                                
|            |  |                                                                                                                                                                                                                      
|4.3†††      |  | Translation of the Contract for the Investment Project Regarding Setting up a Sportswear Manufacturing Base in Ruichang City with the municipal government of Ruichang City, Jiangxi Province dated December 20, 2011
|            |  |                                                                                                                                                                                                                      
|8.1         |  | List of Subsidiaries                                                                                                                                                                                                 
|            |  |                                                                                                                                                                                                                      
|12.1        |  | Certification of the Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                               
|            |  |                                                                                                                                                                                                                      
|12.2        |  | Certification of the Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                               
|            |  |                                                                                                                                                                                                                      
|13.1        |  | Certification of the Chief Executive Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                        
|            |  |                                                                                                                                                                                                                      
|13.2        |  | Certification of the Chief Financial Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                        
|            |  |                                                                                                                                                                                                                      
|15.1        |  | Consent of Crowe Horwath (HK) CPA Limited, dated March 27, 2013                                                                                                                                                      



| | † | Incorporated by reference to the Registrant’s Annual Report on Form 20-F filed with the Commission on April 7, 2010 (File
No. 001-33799).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

| | †† | Incorporated by reference to the Registrant’s Registration Statement on Form S-8 filed with the Commission on December
20, 2010 (File No. 333-171280).
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | ††† | Incorporated
by reference to the Registrant’s Annual Report on Form 20-F filed with the Commission on April 30, 2011 (File No. 001-33799).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------



73







SIGNATURE



The registrant hereby certifies that it
meets all of the requirements for filing its annual report on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.



| | EXCEED COMPANY LTD.
        (Registrant) |                          
| | ---------------------------------------- | -------------------------
| |                                          |                          
| | By:                                      | /s/ Lin Shuipan          
| |                                          | Name: Lin Shuipan        
| |                                          | Title: Chairman and Chief
| |                                          | Executive Officer        



Date: March 27, 2013





74







Audited Financial Statements



EXCEED COMPANY LTD. AND ITS SUBSIDIARIES

(Incorporated in the British Virgin Islands with limited liability)



December 31, 2012











EXCEED COMPANY LTD. AND SUBSIDIARIES



CONTENTS



|                                                        |  | Pages      
|------------------------------------------------------- |  | -----------
|                                                        |  |            
|                                                        |  |            
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |  | F-1        
|                                                        |  |            
|AUDITED FINANCIAL STATEMENTS                            |  |            
|                                                        |  |            
|Consolidated:                                           |  |            
|                                                        |  |            
|Statements of comprehensive income                      |  | F-2        
|                                                        |  |            
|Statements of financial position                        |  | F-3        
|                                                        |  |            
|Statements of changes in equity                         |  | F-4 – F-7  
|                                                        |  |            
|Statements of cash flows                                |  | F-8 – F-9  
|                                                        |  |            
|Notes to consolidated financial statements              |  | F-10 – F-59











Report of Independent Registered Public Accounting Firm



To the Board of Directors and Stockholders of

Exceed Company Ltd.



We have audited the accompanying consolidated statements of
financial position of Exceed Company Ltd. and its Subsidiaries (the “Company”) as of December 31, 2012 and 2011, and
the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-year
period ended December 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial position of the Company and its Subsidiaries as of
December 31, 2012 and 2011, and the consolidated results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2012, in conformity with International Financial Reporting Standards as issued by the International
Accounting Standards Board.



/s/ Crowe Horwath (HK) CPA Limited

Hong Kong, China

March 27, 2013



F-1







EXCEED COMPANY LTD. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



Year ended December 31, 2012



|                                                                                      |  | Notes |    |  | 2012                                               |     |            | 2012    |  |     | 2011       |   |  | 2010    |           
|------------------------------------------------------------------------------------- |  | ----- | -- |  | -------------------------------------------------- | --- | ---------- | ------- |  | --- | ---------- | - |  | ------- | ----------
|                                                                                      |  |       |    |  | (in thousands except for share and per share data) |    
|                                                                                      |  |       |    |  | USD'000                                            |     |            | RMB'000 |  |     | RMB'000    |   |  | RMB'000 |           
|                                                                                      |  |       |    |  |                                                    |     |            |         |  |     |            |   |  |         |           
|REVENUE                                                                               |  |       | 6  |  |                                                    |     | 382,581    |         |  |     | 2,383,516  |   |  |         | 3,288,561 
|                                                                                      |  |       |    |  |                                                    |     |            |         |  |     |            |   |  |         |           
|Cost of sales                                                                         |  |       |    |  |                                                    |     | (274,121   | )       |  |     | (1,707,801 | ) |  |         | (2,296,298
|                                                                                      |  |       |    |  |                                                    |     |            |         |  |     |            |   |  |         |           
|Gross profit                                                                          |  |       |    |  |                                                    |     | 108,460    |         |  |     | 675,715    |   |  |         | 992,263   
|                                                                                      |  |       |    |  |                                                    |     |            |         |  |     |            |   |  |         |           
|Other income and gains                                                                |  |       | 6  |  |                                                    |     | 2,555      |         |  |     | 15,917     |   |  |         | 14,791    
|Selling and distribution expenses                                                     |  |       |    |  |                                                    |     | (55,807    | )       |  |     | (347,680   | ) |  |         | (377,903  
|Administrative expenses                                                               |  |       |    |  |                                                    |     | (10,904    | )       |  |     | (67,932    | ) |  |         | (77,073   
|Research and development expenses                                                     |  |       |    |  |                                                    |     | (7,099     | )       |  |     | (44,227    | ) |  |         | (53,863   
|OPERATING PROFIT                                                                      |  |       |    |  |                                                    |     | 37,205     |         |  |     | 231,793    |   |  |         | 498,215   
|                                                                                      |  |       |    |  |                                                    |     |            |         |  |     |            |   |  |         |           
|Finance costs                                                                         |  |       | 7  |  |                                                    |     | (102       | )       |  |     | (638       | ) |  |         | (856      
|Share of loss in jointly-controlled entity                                            |  |       |    |  |                                                    |     | -          |         |  |     | -          |   |  |         | -         
|Gain from change in fair value of contingent share liability                          |  |       | 6  |  |                                                    |     | -          |         |  |     | -          |   |  |         | 38,645    
|                                                                                      |  |       |    |  |                                                    |     |            |         |  |     |            |   |  |         |           
|PROFIT BEFORE TAX                                                                     |  |       | 8  |  |                                                    |     | 37,103     |         |  |     | 231,155    |   |  |         | 536,004   
|                                                                                      |  |       |    |  |                                                    |     |            |         |  |     |            |   |  |         |           
|Tax                                                                                   |  |       | 10 |  |                                                    |     | (5,171     | )       |  |     | (32,213    | ) |  |         | (65,922   
|                                                                                      |  |       |    |  |                                                    |     |            |         |  |     |            |   |  |         |           
|PROFIT FOR THE YEAR                                                                   |  |       |    |  |                                                    |     | 31,932     |         |  |     | 198,942    |   |  |         | 470,082   
|                                                                                      |  |       |    |  |                                                    |     |            |         |  |     |            |   |  |         |           
|Other comprehensive income for the year, net of tax:                                  |  |       |    |  |                                                    |     |            |         |  |     |            |   |  |         |           
|Exchange differences on translation of financial statements of overseas subsidiaries  |  |       |    |  |                                                    |     | (8         | )       |  |     | (49        | ) |  |         | 4,042     
|                                                                                      |  |       |    |  |                                                    |     |            |         |  |     |            |   |  |         |           
|Total comprehensive income for the year attributable to equity holders of the Company |  |       |    |  |                                                    |     | 31,924     |         |  |     | 198,893    |   |  |         | 474,124   
|                                                                                      |  |       |    |  |                                                    |     |            |         |  |     |            |   |  |         |           
|EARNINGS PER SHARE                                                                    |  |       | 11 |  |                                                    |     |            |         |  |     |            |   |  |         |           
|Net profit per share                                                                  |  |       |    |  |                                                    |     |            |         |  |     |            |   |  |         |           
|Basic                                                                                 |  |       |    |  |                                                    | USD | 0.97       |         |  | RMB | 6.03       |   |  | RMB     | 15.83     
|Diluted                                                                               |  |       |    |  |                                                    | USD | 0.97       |         |  | RMB | 6.03       |   |  | RMB     | 13.72     
|Weighted average number of shares outstanding                                         |  |       | 11 |  |                                                    |     |            |         |  |     |            |   |  |         |           
|Basic                                                                                 |  |       |    |  |                                                    |     | 32,997,441 |         |  |     | 32,997,441 |   |  |         | 29,700,010
|Diluted                                                                               |  |       |    |  |                                                    |     | 32,997,441 |         |  |     | 32,997,441 |   |  |         | 34,273,028



The shares which are held in escrow are regarded as issued
and not outstanding.

The accompanying notes are an integral part of these consolidated
financial statements.



F-2







EXCEED COMPANY LTD. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF FINANCIAL POSITION



December 31, 2012



|                                                                                                                                                                                                                                    |  | Notes |    |  | 2012    |  |         | 2012    |  |  | 2011      |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- | -- |  | ------- |  | ------- | ------- |  |  | --------- | -
|                                                                                                                                                                                                                                    |  |       |    |  | USD'000 |  |         | RMB'000 |  |  | RMB'000   |  
|                                                                                                                                                                                                                                    |  |       |    |  |         |  |         |         |  |  |           |  
|NON-CURRENT ASSETS                                                                                                                                                                                                                  |  |       |    |  |         |  |         |         |  |  |           |  
|Property, plant and equipment                                                                                                                                                                                                       |  |       | 13 |  |         |  | 53,115  |         |  |  | 330,914   |  
|Prepaid land lease payments                                                                                                                                                                                                         |  |       | 14 |  |         |  | 4,350   |         |  |  | 27,103    |  
|Deposit paid for acquisition of land use rights                                                                                                                                                                                     |  |       | 15 |  |         |  | 24,074  |         |  |  | 149,986   |  
|Total non-current assets                                                                                                                                                                                                            |  |       |    |  |         |  | 81,539  |         |  |  | 508,003   |  
|                                                                                                                                                                                                                                    |  |       |    |  |         |  |         |         |  |  |           |  
|CURRENT ASSETS                                                                                                                                                                                                                      |  |       |    |  |         |  |         |         |  |  |           |  
|Inventories                                                                                                                                                                                                                         |  |       | 16 |  |         |  | 1,871   |         |  |  | 11,655    |  
|Trade receivables                                                                                                                                                                                                                   |  |       | 17 |  |         |  | 174,080 |         |  |  | 1,084,535 |  
|Prepayments, deposits and other receivables                                                                                                                                                                                         |  |       | 18 |  |         |  | 3,915   |         |  |  | 24,396    |  
|Cash and cash equivalents                                                                                                                                                                                                           |  |       | 19 |  |         |  | 102,275 |         |  |  | 637,184   |  
|Total current assets                                                                                                                                                                                                                |  |       |    |  |         |  | 282,141 |         |  |  | 1,757,770 |  
|                                                                                                                                                                                                                                    |  |       |    |  |         |  |         |         |  |  |           |  
|CURRENT LIABILITIES                                                                                                                                                                                                                 |  |       |    |  |         |  |         |         |  |  |           |  
|Trade payables                                                                                                                                                                                                                      |  |       | 20 |  |         |  | 1,417   |         |  |  | 8,831     |  
|Deposits received, other payables and accruals                                                                                                                                                                                      |  |       | 21 |  |         |  | 9,900   |         |  |  | 61,681    |  
|Interest-bearing bank borrowings                                                                                                                                                                                                    |  |       | 22 |  |         |  | 4,815   |         |  |  | 30,000    |  
|Tax payable                                                                                                                                                                                                                         |  |       |    |  |         |  | 378     |         |  |  | 2,357     |  
|Total current liabilities                                                                                                                                                                                                           |  |       |    |  |         |  | 16,510  |         |  |  | 102,869   |  
|                                                                                                                                                                                                                                    |  |       |    |  |         |  |         |         |  |  |           |  
|NET CURRENT ASSETS                                                                                                                                                                                                                  |  |       |    |  |         |  | 265,631 |         |  |  | 1,654,901 |  
|                                                                                                                                                                                                                                    |  |       |    |  |         |  |         |         |  |  |           |  
|Net assets                                                                                                                                                                                                                          |  |       |    |  |         |  | 347,170 |         |  |  | 2,162,904 |  
|                                                                                                                                                                                                                                    |  |       |    |  |         |  |         |         |  |  |           |  
|STOCKHOLDERS' EQUITY                                                                                                                                                                                                                |  |       |    |  |         |  |         |         |  |  |           |  
|Preferred stock – par value of USD0.0001 per share; 5,000,000 shares authorized; nil issued and outstanding                                                                                                                         |  |       |    |  |         |  | -       |         |  |  | -         |  
|Common stock – par value of USD0.0001 per share; 55,000,000 shares authorized; 33,634,629 shares issued and 33,022,665 outstanding (2011: 55,000,000 shares authorized; 31,288,507 shares issued and 29,436,060 shares outstanding) |  |       | 24 |  |         |  | 4       |         |  |  | 23        |  
|Treasury shares                                                                                                                                                                                                                     |  |       | 24 |  |         |  | (2,552  | )       |  |  | (15,898   | )
|Retained profits                                                                                                                                                                                                                    |  |       |    |  |         |  | 269,485 |         |  |  | 1,678,920 |  
|Reserves                                                                                                                                                                                                                            |  |       | 24 |  |         |  | 80,233  |         |  |  | 499,859   |  
|Total equity                                                                                                                                                                                                                        |  |       |    |  |         |  | 347,170 |         |  |  | 2,162,904 |  



The accompanying notes are an integral part of these consolidated
financial statements.



F-3







EXCEED COMPANY LTD. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY



Year ended December 31, 2012



|                                                                |  |              |            |  |          |  |    |             |  |  |              |   |  |            |          |   | Employee     |  |        |             |  |  |            |  |  |          |      
|--------------------------------------------------------------- |  | ------------ | ---------- |  | -------- |  | -- | ----------- |  |  | ------------ | - |  | ---------- | -------- | - | ------------ |  | ------ | ----------- |  |  | ---------- |  |  | -------- | -----
|                                                                |  | Outstanding  |            |  |          |  |    |             |  |  | Statutory    |   |  |            |          |   | share-based  |  |        |             |  |  | Contingent |  |  |          |      
|                                                                |  | common stock |            |  | Capital  |  |    | Other       |  |  | surplus      |   |  | Exchange   |          |   | payment      |  |        | Retained    |  |  | shares     |  |  | Total    |      
|                                                                |  | Shares       |            |  | Amount   |  |    | reserve (i) |  |  | reserve (ii) |   |  | fund (iii) |          |   | reserve (iv) |  |        | reserve (v) |  |  | profits    |  |  | issuable |      
|                                                                |  |              |            |  | RMB '000 |  |    | RMB '000    |  |  | RMB '000     |   |  | RMB '000   |          |   | RMB '000     |  |        | RMB '000    |  |  | RMB '000   |  |  | RMB '000 |      
|                                                                |  |              |            |  |          |  |    |             |  |  |              |   |  |            |          |   |              |  |        |             |  |  |            |  |  |          |      
|At January 1, 2010                                              |  |              | 18,856,168 |  |          |  | 13 |             |  |  | (118,736     | ) |  |            | (148,443 | ) |              |  | 56,483 |             |  |  | 7,180      |  |  |          | -    
|                                                                |  |              |            |  |          |  |    |             |  |  |              |   |  |            |          |   |              |  |        |             |  |  |            |  |  |          |      
|Profit for the year                                             |  |              | -          |  |          |  | -  |             |  |  | -            |   |  |            | -        |   |              |  | -      |             |  |  | -          |  |  |          | -    
|                                                                |  |              |            |  |          |  |    |             |  |  |              |   |  |            |          |   |              |  |        |             |  |  |            |  |  |          |      
|Other comprehensive income: Exchange difference                 |  |              | -          |  |          |  | -  |             |  |  | -            |   |  |            | -        |   |              |  | -      |             |  |  | 9,383      |  |  |          | -    
|                                                                |  |              |            |  |          |  |    |             |  |  |              |   |  |            |          |   |              |  |        |             |  |  |            |  |  |          |      
|Recognition of equity-settled share-based payments              |  |              | 50,086     |  |          |  | -  |             |  |  | -            |   |  |            | -        |   |              |  | -      |             |  |  | -          |  |  |          | 7,319
|                                                                |  |              |            |  |          |  |    |             |  |  |              |   |  |            |          |   |              |  |        |             |  |  |            |  |  |          |      
|Transfer to statutory surplus                                   |  |              | -          |  |          |  | -  |             |  |  | -            |   |  |            | -        |   |              |  | 37,103 |             |  |  | -          |  |  |          | -    
|                                                                |  |              |            |  |          |  |    |             |  |  |              |   |  |            |          |   |              |  |        |             |  |  |            |  |  |          |      
|Exercise of warrants (Note 24(c))                               |  |              | 879,372    |  |          |  | 1  |             |  |  | 31,508       |   |  |            | -        |   |              |  | -      |             |  |  | -          |  |  |          | -    
|                                                                |  |              |            |  |          |  |    |             |  |  |              |   |  |            |          |   |              |  |        |             |  |  |            |  |  |          |      
|Warrant exchange in relation to tender offer
    (Note 24(c))   |  |              | 8,223      |  |          |  | -  |             |  |  | -            |   |  |            | -        |   |              |  | -      |             |  |  | -          |  |  |          | -    
|                                                                |  |              |            |  |          |  |    |             |  |  |              |   |  |            |          |   |              |  |        |             |  |  |            |  |  |          |      
|Contingent shares issuable                                      |  |              | -          |  |          |  | -  |             |  |  | -            |   |  |            | -        |   |              |  | -      |             |  |  | -          |  |  |          | -    
|                                                                |  |              |            |  |          |  |    |             |  |  |              |   |  |            |          |   |              |  |        |             |  |  |            |  |  |          |      
|Escrow shares released in
    relation to 2009 profit (Note 24) |  |              | 5,563,714  |  |          |  | 3  |             |  |  | 240,992      |   |  |            | -        |   |              |  | -      |             |  |  | -          |  |  |          | -    
|                                                                |  |              |            |  |          |  |    |             |  |  |              |   |  |            |          |   |              |  |        |             |  |  |            |  |  |          |      
|At December 31, 2010 and January 1, 2011                        |  |              | 25,357,563 |  |          |  | 17 |             |  |  | 153,764      |   |  |            | (148,443 | ) |              |  | 93,586 |             |  |  | 16,563     |  |  |          | 7,319



continued/...



F-4







EXCEED COMPANY LTD. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (continued)



Year ended December 31, 2012



|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         | Employee     |  |  |             |  |  |            |        |  |          | 
|--------------------------------------------------------------------- |  | ------------ | ---------- | - | -------- |  | -- | ----------- |  |  | ------------ |  |  | --------- | -------- | - | ---------- |  | ------- | ------------ |  |  | ----------- |  |  | ---------- | ------ |  | -------- | 
|                                                                      |  | Outstanding  |            |   |          |  |    |             |  |  |              |  |  | Statutory |          |   |            |  |         | share-based  |  |  |             |  |  | Contingent |        |  |          | 
|                                                                      |  | common stock |            |   | Capital  |  |    | Other       |  |  | Treasury     |  |  | surplus   |          |   | Exchange   |  |         | payment      |  |  | Retained    |  |  | shares     |        |  | Total    | 
|                                                                      |  | Shares       |            |   | Amount   |  |    | reserve (i) |  |  | reserve (ii) |  |  | shares    |          |   | fund (iii) |  |         | reserve (iv) |  |  | reserve (v) |  |  | profits    |        |  | Issuable | 
|                                                                      |  |              |            |   | RMB '000 |  |    | RMB '000    |  |  | RMB '000     |  |  | RMB '000  |          |   | RMB '000   |  |         | RMB '000     |  |  | RMB '000    |  |  | RMB '000   |        |  | RMB '000 | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |  |          | 
|At December 31, 2010 and January 1, 2011                              |  |              | 25,357,563 |   |          |  | 17 |             |  |  | 153,764      |  |  |           | (148,443 | ) |            |  | -       |              |  |  | 93,586      |  |  |            | 16,563 |  |          | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |  |          | 
|Profit for the year                                                   |  |              | -          |   |          |  | -  |             |  |  | -            |  |  |           | -        |   |            |  | -       |              |  |  | -           |  |  |            | -      |  |          | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |  |          | 
|Other comprehensive income: Exchange difference                       |  |              | -          |   |          |  | -  |             |  |  | -            |  |  |           | -        |   |            |  | -       |              |  |  | -           |  |  |            | 4,042  |  |          | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |  |          | 
|Recognition of equity-settled share-based payments                    |  |              | 205,665    |   |          |  | -  |             |  |  | -            |  |  |           | -        |   |            |  | -       |              |  |  | -           |  |  |            | -      |  |          | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |  |          | 
|Transfer to statutory surplus                                         |  |              | -          |   |          |  | -  |             |  |  | -            |  |  |           | -        |   |            |  | -       |              |  |  | 44,997      |  |  |            | -      |  |          | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |  |          | 
|Repurchase of treasury shares (Note 24(b))                            |  |              | (415,751   | ) |          |  | -  |             |  |  | -            |  |  |           | -        |   |            |  | (11,549 | )            |  |  | -           |  |  |            | -      |  |          | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |  |          | 
|Exercise of warrants (Note 24(c))                                     |  |              | 10,993     |   |          |  | -  |             |  |  | 371          |  |  |           | -        |   |            |  | -       |              |  |  | -           |  |  |            | -      |  |          | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |  |          | 
|Contingent shares issuable                                            |  |              | -          |   |          |  | -  |             |  |  | -            |  |  |           | -        |   |            |  | -       |              |  |  | -           |  |  |            | -      |  |          | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |  |          | 
|Escrow shares released in
    relation to 2010 profit (Note 24(a)(i)) |  |              | 4,277,590  |   |          |  | 3  |             |  |  | 197,416      |  |  |           | -        |   |            |  | -       |              |  |  | -           |  |  |            | -      |  |          | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |  |          | 
|At December 31, 2011 and January 1, 2012                              |  |              | 29,436,060 |   |          |  | 20 |             |  |  | 351,551      |  |  |           | (148,443 | ) |            |  | (11,549 | )            |  |  | 138,583     |  |  |            | 20,605 |  |          | 



continued/...



F-5







EXCEED COMPANY LTD. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (continued)



Year ended December 31, 2012



|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         | Employee     |  |  |             |  |  |            |        |   |          | 
|--------------------------------------------------------------------- |  | ------------ | ---------- | - | -------- |  | -- | ----------- |  |  | ------------ |  |  | --------- | -------- | - | ---------- |  | ------- | ------------ |  |  | ----------- |  |  | ---------- | ------ | - | -------- | 
|                                                                      |  | Outstanding  |            |   |          |  |    |             |  |  |              |  |  | Statutory |          |   |            |  |         | share-based  |  |  |             |  |  | Contingent |        |   |          | 
|                                                                      |  | common stock |            |   | Capital  |  |    | Other       |  |  | Treasury     |  |  | surplus   |          |   | Exchange   |  |         | payment      |  |  | Retained    |  |  | shares     |        |   | Total    | 
|                                                                      |  | Shares       |            |   | Amount   |  |    | reserve (i) |  |  | reserve (ii) |  |  | shares    |          |   | fund (iii) |  |         | reserve (iv) |  |  | reserve (v) |  |  | profits    |        |   | Issuable | 
|                                                                      |  |              |            |   | RMB '000 |  |    | RMB '000    |  |  | RMB '000     |  |  | RMB '000  |          |   | RMB '000   |  |         | RMB '000     |  |  | RMB '000    |  |  | RMB '000   |        |   | RMB '000 | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |   |          | 
|At December 31, 2011 and January 1, 2012                              |  |              | 29,436,060 |   |          |  | 20 |             |  |  | 351,551      |  |  |           | (148,443 | ) |            |  | (11,549 | )            |  |  | 138,583     |  |  |            | 20,605 |   |          | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |   |          | 
|Profit for the year                                                   |  |              | -          |   |          |  | -  |             |  |  | -            |  |  |           | -        |   |            |  | -       |              |  |  | -           |  |  |            | -      |   |          | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |   |          | 
|Other comprehensive income: Exchange difference                       |  |              | -          |   |          |  | -  |             |  |  | -            |  |  |           | -        |   |            |  | -       |              |  |  | -           |  |  |            | (49    | ) |          | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |   |          | 
|Recognition of equity-settled share-based payments                    |  |              | 144,166    |   |          |  | -  |             |  |  | -            |  |  |           | -        |   |            |  | -       |              |  |  | -           |  |  |            | -      |   |          | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |   |          | 
|Transfer to statutory surplus                                         |  |              | -          |   |          |  | -  |             |  |  | -            |  |  |           | -        |   |            |  | -       |              |  |  | 22,420      |  |  |            | -      |   |          | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |   |          | 
|Repurchase of treasury shares (Note 24(b))                            |  |              | (196,213   | ) |          |  | -  |             |  |  | -            |  |  |           | -        |   |            |  | (4,349  | )            |  |  | -           |  |  |            | -      |   |          | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |   |          | 
|Escrow shares released in
    relation to 2011 profit (Note 24(a)(i)) |  |              | 3,638,652  |   |          |  | 3  |             |  |  | 94,066       |  |  |           | -        |   |            |  | -       |              |  |  | -           |  |  |            | -      |   |          | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |   |          | 
|At December 31, 2012                                                  |  |              | 33,022,665 |   |          |  | 23 |             |  |  | 445,617      |  |  |           | (148,443 | ) |            |  | (15,898 | )            |  |  | 161,003     |  |  |            | 20,556 |   |          | 
|                                                                      |  |              |            |   |          |  |    |             |  |  |              |  |  |           |          |   |            |  |         |              |  |  |             |  |  |            |        |   |          | 
|At December 31, 2012 (USD'000)                                        |  |              |            |   |          |  | 4  |             |  |  | 71,527       |  |  |           | (23,827  | ) |            |  | (2,552  | )            |  |  | 25,843      |  |  |            | 3,299  |   |          | 



The accompanying notes are an integral part of these consolidated
financial statements.



F-6







EXCEED COMPANY LTD. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (continued)



Year ended December 31, 2012



Notes:



| | (i) | Pursuant to a group reorganization effective on April 28, 2008 (the "Group Reorganization"), Windrace International
Company Limited (formerly known as Xdlong International Company Limited) became the holding company of certain subsidiaries. The
founders, Mr. Lin Shuipan and Ms. Chen Xiayu continue to govern the financial and operating policies and activities of such entities
following partial ownership interest held by third parties since March 2008. Accordingly, such entities were under the common control
of Mr. Lin Shuipan and Ms. Chen Xiayu for all periods presented herein.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The capital reserve at January 1, 2010 primarily
included (a) RMB83,597,000 being the excess of the consideration received from the equity holder of a subsidiary over the nominal
value of the issued capital of a subsidiary pursuant to Group Reorganization; (b) RMB28,400,000 being a contribution from an equity
holder of the Company in 2008 pursuant to an agreement dated March 28, 2008 whereby the equity holder agreed to pay the contribution
if the Group achieved certain profit target for 2007; (c) RMB326,117,000 being the excess of the consideration received (net) from
the equity holders of 2020 for the issuance of 10,500,000 shares of the Company’s common stock and the redemption of 1,343,082
of 2020 common stock (Note 1), and was retroactively adjusted for the Business Combination with Windrace International Company
Limited on October 21, 2009; and (d) RMB204,997,000 being the excess of the consideration received from the equity holders of Windrace
International Company Limited pursuant to the investment agreement on July 27, 2009 (as described in Note 24(a)(ii)); offset by
RMB761,854,000 being the deemed dividend for the fair value of the contingently issuable shares (as described in Note 24 (a)(i)).



| | (ii) | The other reserve represented distribution to certain holders of the Company of RMB189,504,000 pursuant to a share purchase
agreement on March 28, 2008 (Note 23), offset by RMB41,061,000 being write off of accrued interest on preferred shares (Note 23).
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | In accordance with the relevant regulations applicable in the PRC, subsidiaries established in the PRC are required to transfer
a certain percentage of their statutory annual profits after tax (after offsetting any prior years' losses), if any, to the statutory
surplus fund until the balance of the fund reaches 50% of their respective registered capital. Subject to certain restrictions
as set out in the relevant PRC regulations, the statutory surplus fund may be used to offset against accumulated losses of the
respective PRC subsidiaries. The amount of the transfer is subject to the approval of the board of directors of the respective
PRC subsidiaries.
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Exchange fluctuation reserve comprises all foreign exchange differences arising from the translation of the financial statements
of foreign operations. This reserve is presented in accordance with the accounting policy in Note 2.2.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | Share-based compensation reserve represents the value of employee services in respect of restricted shares granted to directors
and employees of the Group.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



F-7







EXCEED COMPANY LTD. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



Year ended December 31, 2012



|                                                                       |  | Notes |          |  | 2012    |  |         | 2012    |  |  | 2011     |   |  | 2010    |        
|---------------------------------------------------------------------- |  | ----- | -------- |  | ------- |  | ------- | ------- |  |  | -------- | - |  | ------- | -------
|                                                                       |  |       |          |  | USD'000 |  |         | RMB'000 |  |  | RMB'000  |   |  | RMB'000 |        
|                                                                       |  |       |          |  |         |  |         |         |  |  |          |   |  |         |        
|CASH FLOWS FROM OPERATING ACTIVITIES                                   |  |       |          |  |         |  |         |         |  |  |          |   |  |         |        
|Profit before tax                                                      |  |       |          |  |         |  | 37,103  |         |  |  | 231,155  |   |  |         | 536,004
|Non-cash adjustments for:                                              |  |       |          |  |         |  |         |         |  |  |          |   |  |         |        
|Interest income                                                        |  |       | 6,8      |  |         |  | (2,428  | )       |  |  | (15,122  | ) |  |         | (11,858
|Finance costs                                                          |  |       | 7        |  |         |  | 102     |         |  |  | 638      |   |  |         | 856    
|Share of loss of a jointly-controlled entity                           |  |       |          |  |         |  | -       |         |  |  | -        |   |  |         | -      
|(Gain)/loss on disposal of items of property, plant and equipment, net |  |       | 6,8      |  |         |  | 99      |         |  |  | 619      |   |  |         | (56    
|Depreciation                                                           |  |       | 13       |  |         |  | 2,923   |         |  |  | 18,213   |   |  |         | 18,248 
|Amortization of prepaid land lease payments                            |  |       | 8,14     |  |         |  | 120     |         |  |  | 748      |   |  |         | 748    
|Expense recognized in respect of equity-settled share-based payment    |  |       | 25       |  |         |  | 955     |         |  |  | 5,946    |   |  |         | 7,860  
|Impairment of an advance of loan to a jointly-controlled entity        |  |       |          |  |         |  | -       |         |  |  | -        |   |  |         | -      
|Gain from change in fair value of contingent shares liability          |  |       | 24(a)(i) |  |         |  | -       |         |  |  | -        |   |  |         | (38,645
|Operating cash flow before working capital changes                     |  |       |          |  |         |  | 38,874  |         |  |  | 242,197  |   |  |         | 513,157
|                                                                       |  |       |          |  |         |  |         |         |  |  |          |   |  |         |        
|Decrease in inventories                                                |  |       |          |  |         |  | 3,200   |         |  |  | 19,934   |   |  |         | 13,158 
|(Increase)/decrease in trade receivables                               |  |       |          |  |         |  | (61,740 | )       |  |  | (384,644 | ) |  |         | (88,230
|(Increase)/decrease in prepayments, deposits and other receivables     |  |       |          |  |         |  | (3,153  | )       |  |  | (19,645  | ) |  |         | 14,967 
|Decrease in trade payables                                             |  |       |          |  |         |  | (8,204  | )       |  |  | (51,110  | ) |  |         | (51,060
|Increase/(decrease) in deposits received, other payables and accruals  |  |       |          |  |         |  | 890     |         |  |  | 5,542    |   |  |         | (13,018
|                                                                       |  |       |          |  |         |  |         |         |  |  |          |   |  |         |        
|Cash generated from/(used in) operations                               |  |       |          |  |         |  | (30,133 | )       |  |  | (187,726 | ) |  |         | 388,974
|                                                                       |  |       |          |  |         |  |         |         |  |  |          |   |  |         |        
|Interest paid                                                          |  |       |          |  |         |  | (102    | )       |  |  | (638     | ) |  |         | (856   
|PRC taxes paid                                                         |  |       |          |  |         |  | (6,574  | )       |  |  | (40,955  | ) |  |         | (67,683
|                                                                       |  |       |          |  |         |  |         |         |  |  |          |   |  |         |        
|Net cash inflow/(outflow) from operating activities                    |  |       |          |  |         |  | (36,809 | )       |  |  | (229,319 | ) |  |         | 320,435



continued/...



F-8







EXCEED COMPANY LTD. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)



Year ended December 31, 2012



|                                                                  |  | Notes |       |  | 2012    |  |         | 2012    |  |  | 2011     |   |  | 2010    |        
|----------------------------------------------------------------- |  | ----- | ----- |  | ------- |  | ------- | ------- |  |  | -------- | - |  | ------- | -------
|                                                                  |  |       |       |  | USD'000 |  |         | RMB'000 |  |  | RMB'000  |   |  | RMB'000 |        
|                                                                  |  |       |       |  |         |  |         |         |  |  |          |   |  |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES                              |  |       |       |  |         |  |         |         |  |  |          |   |  |         |        
|Purchases of items of property, plant and equipment               |  |       | 13    |  |         |  | (10,522 | )       |  |  | (65,551  | ) |  |         | (38,721
|Deposit paid for acquisition of land use rights                   |  |       | 15    |  |         |  | (11,730 | )       |  |  | (73,080  | ) |  |         | (60,430
|Proceeds from disposal of items of property, plant and equipment  |  |       |       |  |         |  | 19      |         |  |  | 118      |   |  |         | 173    
|Decrease in pledged deposits                                      |  |       |       |  |         |  | -       |         |  |  | -        |   |  |         | -      
|Interest received                                                 |  |       | 6,8   |  |         |  | 2,428   |         |  |  | 15,122   |   |  |         | 11,858 
|                                                                  |  |       |       |  |         |  |         |         |  |  |          |   |  |         |        
|Net cash outflow from investing activities                        |  |       |       |  |         |  | (19,805 | )       |  |  | (123,391 | ) |  |         | (87,120
|                                                                  |  |       |       |  |         |  |         |         |  |  |          |   |  |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES                              |  |       |       |  |         |  |         |         |  |  |          |   |  |         |        
|Exercise of warrants                                              |  |       |       |  |         |  | -       |         |  |  | -        |   |  |         | 372    
|Repayment of additional premium of redemption of preferred shares |  |       | 23    |  |         |  | -       |         |  |  | -        |   |  |         | -      
|Repurchase of ordinary shares                                     |  |       | 24(b) |  |         |  | (698    | )       |  |  | (4,349   | ) |  |         | (11,549
|New bank loans                                                    |  |       |       |  |         |  | 4,815   |         |  |  | 30,000   |   |  |         | -      
|Repayment of bank loans                                           |  |       |       |  |         |  | -       |         |  |  | -        |   |  |         | (18,000
|Decrease in amount due to a director                              |  |       |       |  |         |  | -       |         |  |  | -        |   |  |         | -      
|Decrease in amount due from a shareholder                         |  |       |       |  |         |  | -       |         |  |  | -        |   |  |         | -      
|Exchange realignment                                              |  |       |       |  |         |  | 9       |         |  |  | 56       |   |  |         | 98     
|                                                                  |  |       |       |  |         |  |         |         |  |  |          |   |  |         |        
|Net cash inflow/(outflow) from financing activities               |  |       |       |  |         |  | 4,126   |         |  |  | 25,707   |   |  |         | (29,079
|                                                                  |  |       |       |  |         |  |         |         |  |  |          |   |  |         |        
|NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS              |  |       |       |  |         |  | (52,488 | )       |  |  | (327,003 | ) |  |         | 204,236
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                    |  |       |       |  |         |  | 154,784 |         |  |  | 964,317  |   |  |         | 762,798
|Effect of foreign exchange rate changes                           |  |       |       |  |         |  | (21     | )       |  |  | (130     | ) |  |         | (2,717 
|                                                                  |  |       |       |  |         |  |         |         |  |  |          |   |  |         |        
|CASH AND CASH EQUIVALENTS AT END OF YEAR                          |  |       |       |  |         |  | 102,275 |         |  |  | 637,184  |   |  |         | 964,317



The accompanying notes are an integral part of these consolidated
financial statements.



F-9







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 1. | CORPORATE INFORMATION
| | -- | ---------------------



Exceed Company Ltd. ("the Company") is a
limited liability company incorporated in the British Virgin Islands ("BVI") on April 21, 2009, as a wholly-owned subsidiary
of 2020 ChinaCap Acquirco, Inc. ("2020"), a blank check company formed in Delaware for the purpose of acquiring, through
a merger, stock exchange, asset acquisition or other similar business combination, an operating business that either: (1) was
located in China, (2) had its principal operations located in China, or, (3) in 2020's view, would benefit from establishing
operations in China.



On May 8, 2009, the Company entered into a sales and
purchase agreement (the "Purchase Agreement") among 2020, Windrace International Company Limited ("Windrace")
and the selling shareholders party thereto (the "Sellers"), which owned 100% of the issued and outstanding equity securities
of Windrace (the "Acquisition").



On October 5, 2009, the board of directors of 2020
unanimously approved the simultaneous reincorporation of 2020 from the State of Delaware to the BVI through a redomestication merger
(the "Redomestication") with and into the Company. In the Redomestication, the Company issued its securities in exchange
for the issued and outstanding securities of 2020 (being 10,500,000 shares of common stock) on a one-to-one basis, and redeemed
1,343,082 shares of 2020 common stock at USD7.92 per share.



On October 21, 2009, the Company completed its Acquisition
of Windrace through its acquisition of the issued and outstanding shares of Windrace under the Purchase Agreement, as supplemented
by a supplemental purchase agreement dated July 27, 2009 and a letter agreement dated September 9, 2009, among Windrace and the
Sellers on the one hand, and 2020 and the Company on the other hand. The Acquisition and Redomestication ("Business Combination")
was accounted for as a reverse recapitalization, whereby the Company was the surviving and continuing entity for financial reporting
purposes and was deemed to be the acquirer of 2020.



The Business Combination was
accounted for as a reverse recapitalization because (i) after the Business Combination the Sellers together with the Investors
(as defined in Note 24 – Shareholders' Equity – Common Stock) held approximately 51% of the issued and outstanding
ordinary shares of Exceed (not including the escrowed shares, the additional 2,212,789 shares issuable to the Sellers if certain
earnings targets in 2011 are met, and the additional shares issuable to the Investors as described in this Note 24 – Shareholders'
Equity – Common Stock) and 2020's directors resigned and were replaced by Mr. Lin Shuipan, the CEO of the Company immediately
prior to the Acquisition, and Professor Jin Jichun, a designee of the Sellers who is considered an independent director under applicable
regulatory rules and thus independent of both 2020 and the Investors, and (ii) 2020 has no prior operations and was formed for
the purpose of effecting this business combination.



F-10







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 1. | CORPORATE INFORMATION (continued)
| | -- | ---------------------------------



In accordance with the applicable
accounting guidance for accounting for the Business Combination as a reverse recapitalization, initially the Company was deemed
to have undergone a recapitalization, whereby its issued and outstanding ordinary shares were converted into 17,008,633 ordinary
shares of the Company. Immediately thereafter, the Company, as the parent company of the Group, which is the continuing accounting
entity, was deemed to have acquired the assets and assumed the liabilities of 2020 in exchange for the issuance of the Company
securities identical in number and terms to the outstanding securities of 2020. The Company, as the parent company of the Group,
was deemed to have acquired 2020 in accordance with the applicable accounting guidance for accounting for the Acquisition and the
Redomestication as a reverse recapitalization, and 2020's assets and liabilities were recorded at their historical carrying amounts, with
no step-up in basis or other intangible assets or goodwill recorded. All direct costs of the Acquisition and the Redomestication
were charged to operations in the period that such costs were incurred.



Windrace, the owner and operator of "Xidelong"
brand — one of the leading domestic sportswear brands in China, is engaged in the design, develop and wholesale of sporting
goods, including footwear, apparel and accessories, under its own brand, Xidelong, in China.



During
the year ended December 31, 2012, the Company had direct or indirect equity interests in the following subsidiaries, the particulars
of which are set out below, as a result of which the Company had the ability to direct the financial and operating policies of
each of the entities, and thus had effective control over such entities:



F-11







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 1. | CORPORATE INFORMATION (continued)
| | -- | ---------------------------------



|                                                                                                                      |  | Place and                              |  | Nominal value   |             |                     |        |     |           
|--------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------- |  | --------------- | ----------- | ------------------- | ------ | --- | ----------
|                                                                                                                      |  | date of                                |  | of issued       |             | Percentage          |        |     |           
|                                                                                                                      |  | incorporation or                       |  | ordinary share/ |             | of equity           |        |     |           
|                                                                                                                      |  | establishment/                         |  | registered      |             | attributable
    to |        |     | Principal 
|Name                                                                                                                  |  | operation                              |  | capital         |             | the Company         |        |     | activities
|                                                                                                                      |  |                                        |  |                 |             |                     | Direct |     |           
|                                                                                                                      |  |                                        |  |                 |             |                     |        |     |           
|Windrace International
    Company Limited (Formerly known as Xdlong International Company Limited)                   |  | Cayman Islands March 25, 2008          |  | HKD             | 9,200       |                     |        | 100 |           
|                                                                                                                      |  |                                        |  |                 |             |                     |        |     |           
|Windrace Investment Holding
    Limited ("Windrace Investment") (Formerly known as Xdlong Investment Holding Limited) |  | British Virgin Islands August 17, 2007 |  | USD             | 100         |                     |        | -   |           
|                                                                                                                      |  |                                        |  |                 |             |                     |        |     |           
|Hei Dai Lung Group Company
    Limited ("XDLong HK")                                                                  |  | Hong Kong November 5, 2003             |  | HKD             | 10,000      |                     |        | -   |           
|                                                                                                                      |  |                                        |  |                 |             |                     |        |     |           
|Xidelong (China) Co.,
    Ltd. ("XDLong China") (Note (i) and (ii))                                                   |  | PRC April 13, 2004                     |  | HKD             | 390,000,000 |                     |        | -   |           
|                                                                                                                      |  |                                        |  |                 |             |                     |        |     |           
|Fujian Xidelong Sports
    Goods Co., Ltd. ("XDLong Fujian") (Note (i) and (iii))                                     |  | PRC September 26, 2001                 |  | HKD             | 25,000,000  |                     |        | -   |           
|                                                                                                                      |  |                                        |  |                 |             |                     |        |     |           
|Xidelong (Jiang Xi) Athletic
    Equipment Co., Ltd. ("XDLong Jiangxi") (Note (i) and (iv))                           |  | PRC September 10, 2012                 |  | HKD             | 400,000,000 |                     |        | -   |           



Notes:



| | (i) | These entities are wholly foreign-owned enterprises and limited liability companies established in the PRC.
| | --- | -----------------------------------------------------------------------------------------------------------



| | (ii) | The registered capital of XDLong China is HKD390,000,000 and was fully paid as of October 26, 2009.
| | ---- | ---------------------------------------------------------------------------------------------------



| | (iii) | The registered capital of XDLong Fujian is HKD25,000,000 and was fully paid as of June 13, 2008.
| | ----- | ------------------------------------------------------------------------------------------------



| | (iv) | The registered capital of XDLong Jiangxi is HKD400,000,000. The unpaid registered capital as of year end was set out in Note
28(a) of the financial statements
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | The functional and reporting currency of XDLong China, XDLong Fujian and XDLong Jiangxi, the operating subsidiaries of the
Group, is RMB.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------



F-12







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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 2.1. | BASIS OF PRESENTATION AND PREPARATION
| | ---- | -------------------------------------



Basis of presentation

The consolidated financial statements of the Group
have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as issued by the International
Accounting Standards Board ("IASB"). They have been prepared under the historical cost convention. These financial statements
are presented in Renminbi ("RMB") and all amounts are rounded to the nearest thousand except where otherwise indicated.



All income, expenses and unrealized gains and losses
resulting from intercompany transactions and balances within the Group are eliminated on consolidation in full.



Investments in non-consolidated subsidiaries, typically
representing an ownership interest in the voting stock of the subsidiaries of between 20% and 50%, are stated at cost of acquisition
plus the Company's equity in undistributed net income or proportionate share of net losses since acquisition.



Translations of amounts from RMB into USD are solely
for the convenience of the reader and were calculated at the rate of USD1.00 = RMB6.2301. The exchange rate refers to the exchange
rate as set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve, on December 31, 2012. This
convenience translation is not intended to imply that the RMB amounts could have been, or could be, converted, realized or settled
into U.S. dollars at that rate on December 31, 2012, or at any other rate.



The preparation of these financial statements in
conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and
reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the
basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.



The estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision
affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.



Judgments made by management in the application of
IFRS that have significant effect on the financial statements and major sources of estimation uncertainty are discussed in Note
4.



F-13







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 2.2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
| | ---- | ------------------------------------------



Subsidiaries

A subsidiary is an entity whose financial and operating
policies the Company controls, directly or indirectly, so as to obtain benefits from its activities.



Related parties

A party is considered to be related to the Group if:



| | (a) | the party is a person or a close member of that person's family and that person
| | --- | -------------------------------------------------------------------------------



| |  | 
| |  | 

| | (i) | has control or joint control over the Group;
| | --- | --------------------------------------------



| | (ii) | has significant influence over the Group; or
| | ---- | --------------------------------------------



| | (iii) | is a member of the key management personnel of the Group or of a parent of the Group;
| | ----- | -------------------------------------------------------------------------------------



or



| | (b) | the party is an entity where any of the following conditions applies:
| | --- | ---------------------------------------------------------------------



| | (i) | the entity and the Group are members of the same group;
| | --- | -------------------------------------------------------



| | (ii) | one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other
entity);
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | the entity and the Group are joint ventures of the same third party;
| | ----- | --------------------------------------------------------------------



| | (iv) | one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
| | ---- | ---------------------------------------------------------------------------------------------------------



| | (v) | the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;
| | --- | --------------------------------------------------------------------------------------------------------------------------------



| | (vi) | the entity is controlled or jointly controlled by a person identified in (a); and
| | ---- | ---------------------------------------------------------------------------------



| | (vii) | a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the
entity (or of a parent of the entity).
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-14







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 2.2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | ---- | ------------------------------------------------------



Impairment of non-financial assets

Where an indication of impairment exists, or when
annual impairment testing for an asset is required (other than inventories, deferred tax assets and financial assets), the asset's
recoverable amount is estimated. An asset's recoverable amount is the higher of the asset's or cash-generating unit's value in
use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows
that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined
for the cash-generating unit to which the asset belongs.



An impairment loss is recognized only if the carrying
amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset. An impairment loss is charged to the consolidated statements of comprehensive income in the period in which
it arises.



An assessment is made at each reporting date as to
whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such
an indication exists, the recoverable amount is estimated. A previously recognized impairment loss of an asset is reversed only
if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher
than the carrying amount that would have been determined (net of any depreciation/amortization) had no impairment loss been recognized
for the asset in prior periods. A reversal of such an impairment loss is credited to the consolidated statements of comprehensive
income in the period in which it arises.



F-15







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 2.2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | ---- | ------------------------------------------------------



Property, plant and equipment and depreciation

Property, plant and equipment, other than construction
in progress, are stated at cost less accumulated depreciation and any impairment losses.



The cost of an item of property, plant and equipment
comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for
its intended use. Expenditures incurred after the items of property, plant and equipment have been put into operation, such as
repairs and maintenance, is normally charged to the consolidated statements of comprehensive income in the period in which it is
incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic
benefits expected to be obtained from the use of an item of property, plant and equipment, and where the cost of the item can be
measured reliably, the expenditure is capitalized as an additional cost of that asset or as a replacement.



Depreciation is calculated on the straight-line basis
to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The estimated
useful lives used for this purpose are as follows:



|Buildings                                | Over the shorter of lease terms or 20 years
|---------------------------------------- | -------------------------------------------
|Leasehold improvements                   | Over the shorter of lease terms or 5 years 
|Plant and machinery                      | 5 to 10 years                              
|Motor vehicles                           | 5 years                                    
|Furniture, fixtures and office equipment | 5 years                                    



Where parts of an item of property, plant and equipment
have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated
separately.



Residual values, useful lives and the depreciation
method are reviewed, and adjusted if appropriate, at the end of each reporting period.



An item of property, plant and equipment is derecognized
upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement
recognized in the consolidated statements of comprehensive income in the year the asset is derecognized is the difference between
the net sales proceeds and the carrying amount of the relevant asset.



F-16







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 2.2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | ---- | ------------------------------------------------------



Property, plant and equipment and depreciation
(continued)

Construction in progress represents a building under
construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction
during the period of construction and includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance
with the Group’ accounting policy. Construction in progress is reclassified to the appropriate category of property, plant
and equipment or investment properties when completed and ready for use. Depreciation of these assets, on the same basis as other
property assets, commences when the assets are ready for their intended use.



Research and development costs

All research costs are charged to the consolidated
statements of comprehensive income as incurred.



Expenditures incurred on projects to develop new products
are capitalized and deferred only when the Group can demonstrate the technical feasibility of completing the product so that it
will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate
future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditures
during the development. Product development expenditures which do not meet these criteria are expensed when incurred.



Financial assets

Financial assets in the scope of IAS 39 "Financial
Instruments: Recognition and Measurements" are classified as loans and receivables. When financial assets are recognized initially,
they are measured at fair value. The Group assesses whether a contract contains an embedded derivative when the Group first becomes
a party to it and assesses whether an embedded derivatives is required to be separated from the host contract when the analysis
shows that the economic characteristics and risks of the embedded derivatives are not closely related to those of the host contract.
Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would
otherwise be required under the contract.



The Group determines the classification of its financial
assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the end of each reporting
period.



All regular way purchases and sales of financial assets
are recognized on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases
or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by
regulation or convention in the marketplace.



Loans and receivables

Loans and receivables are non-derivative financial
assets with fixed or determinable payments that are not quoted in an active market. Such assets are subsequently carried at amortized
cost using the effective interest method less any allowance for impairment. Amortized cost is calculated taking into account any
discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs.
Gains and losses are recognized in the consolidated statements of comprehensive income when the loans and receivables are derecognized
or impaired, as well as through the amortization process.



F-17







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 2.2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | ---- | ------------------------------------------------------



Impairment of financial assets

The Group assesses at the end of each reporting period
whether there is any objective evidence that a financial asset or a group of financial assets is impaired.



Assets carried at amortized cost

If there is objective evidence that an impairment
loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference
between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have
not been incurred) discounted at the financial asset's original effective interest rate (i.e., the effective interest rate computed
at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account.
The amount of the impairment loss is recognized in the consolidated statements of comprehensive income. Loan and receivables together
with any associated allowances are written off when there is no realistic prospect of future recovery.



If, in a subsequent period, the amount of the impairment
loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognized
in the consolidated statements of comprehensive income, to the extent that the carrying value of the asset does not exceed its
amortized cost at the reversal date.



In relation to trade receivables, an impairment allowance
is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor)
that the Group will not be able to collect all of the amounts due under the original terms of an invoice. The carrying amount of
the receivables is reduced through the use of an allowance account. Impaired debts are derecognized when they are assessed as uncollectible.



Derecognition of financial assets

A financial asset (or, where applicable, a part of
a financial asset or part of a group of similar financial assets) is derecognized where:

| | Ÿ | the rights to receive cash flows from the asset have expired;
| | - | -------------------------------------------------------------

| | Ÿ | the Group retains the rights to receive cash flows from the asset,
but has assumed an obligation to pay them in full without material delay to a third party under a "pass-through" arrangement;
or
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Ÿ | the Group has transferred its rights to receive cash flows from the
asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained
substantially all the risks and rewards of the asset, but has transferred control of the asset.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Where the Group has transferred its rights to receive
cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred
control of the asset, the asset is recognized to the extent of the Group's continuing involvement in the asset. Continuing involvement
that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset
and the maximum amount of consideration that the Group could be required to repay.



F-18







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 2.2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | ---- | ------------------------------------------------------



Financial liabilities

Initial recognition and measurement

Financial liabilities within the scope of IAS 39
are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated
as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities
at initial recognition.



All financial liabilities are recognized initially
at fair value and in the case of loans and borrowings, plus directly attributable transaction costs.



The Group's financial liabilities include trade
and other payables and interest-bearing bank and other borrowings.



Derecognition of financial liabilities

A financial liability is derecognized when the obligation
under the liability is discharged or cancelled, or expires.



When an existing financial liability is replaced by
another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified,
such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability,
and the difference between the respective carrying amounts is recognized in the consolidated statements of comprehensive income.



Earn-out obligation

Pursuant to an earn-out provision
of the Purchase Agreement and the Escrow Agreement (as defined in Note 24(a)(i)), the Company has been required annually to release
shares from the escrow account to the former shareholders of Windrace for the fiscal years 2009, 2010 and 2011. In addition, upon
the achievement of certain earnings targets in 2011, 2,212,789 additional new shares of Exceed are required to be issued to the
former shareholders of Windrace as earn-out shares. The details with respect to the contingent share obligation are discussed in
Note 24(a)(i).



The Company releases the shares, which are held in
the escrow account, and issues the new ordinary shares, in respect of the earn-out provision when the audited result of the Company's
financial results each year are released if the financial results fulfill the condition in the Purchase Agreement. The Earn-out
obligation is a derivative financial instrument liability that is adjusted to its fair value each reporting date with changes in
fair value being recognized currently in the consolidated statements of comprehensive income. Once a measurement period for the
issuance of shares ends, the Earn-out obligation related to that period is no longer conditional and the obligation is reclassified
from a liability to equity based on the fair value of the obligation at the end of the measurement period.



Treasury shares

Equity instruments which are reacquired (treasury
shares) are recognized at cost and deducted from equity until the shares are cancelled or reissued. No gain or loss is recognized
in the consolidated statements of comprehensive income on the purchase, sale, issue or cancellation of the Group's own equity instruments.
Any difference between the carrying amount and the consideration is recognized in equity.



F-19







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 2.2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | ---- | ------------------------------------------------------



Inventories

Inventories are stated at the lower of cost and net
realizable value after making due allowances for obsolete or slow moving items. Cost is calculated using the weighted average cost
method and comprises all costs incurred in bringing the inventories to their present location and condition.



Net realizable value is based on the estimated selling
prices less any estimated costs to be incurred for completion of the production process and disposal upon delivery of finished
goods to distributors.



When inventories are sold, the carrying amount of
those inventories is recognized as cost of sales in the period in which the related sales are recognized.



Leases

Leases where substantially all the rewards and risks
of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessee, rentals payable
under the operating leases are charged to the consolidated statements of comprehensive income on the straight-line basis over the
lease terms.



Prepaid land lease payments

Prepaid land lease payments under PRC land use right
arrangements are initially stated at cost and subsequently amortized on the straight-line basis over the lease terms.



Cash and cash equivalents

For the purpose of the consolidated cash flow statements,
cash and cash equivalents comprise cash on hand and demand deposits, and short-term, highly liquid investments that are readily
convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of
generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the
Group's cash management.



For the purpose of the consolidated statements of
financial position, cash and bank balances comprise cash on hand and at banks, including term deposits, which are not restricted
as to use.



Provisions

A provision is recognized when a present obligation
(legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required
to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.



When the effect of discounting is material, the amount
recognized for a provision is the present value at the end of each reporting period of the future expenditures expected to be required
to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance
costs in the consolidated statements of comprehensive income.



F-20







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 2.2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | ---- | ------------------------------------------------------



Income tax

Income tax comprises current and deferred tax. Income
tax is recognized in the consolidated statements of comprehensive income, or in equity if it relates to items that are recognized
in the same or a different period directly in equity.



Current tax assets and liabilities for the current
and prior periods are measured at the amount expected to be recovered from or paid to the taxation authority.



Deferred tax is provided, using the liability method,
on all temporary differences at the end of each reporting period between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes.



Deferred tax liabilities are recognized for all taxable
temporary differences, except:



| | • | where the deferred tax liability arises from goodwill or from the initial recognition of an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit
or loss; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of
the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable
future.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Deferred tax assets are recognized for all deductible
temporary differences, carryforward of unused tax credits and tax losses, to the extent that it is probable that future taxable
profit will be available against which the deductible temporary differences, and the unused tax credits and unused tax losses can
be utilized, except:



| | • | where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset
or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting
profit nor taxable profit or loss; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognized
to the extent that it is probable that the temporary differences will reverse in the foreseeable future and future taxable profit
will be available against which the temporary differences can be utilized.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The carrying amount of deferred tax assets is reviewed
at the end of each reporting period and, where appropriate, reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Conversely, previously unrecognized
deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it is probable that
sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized.



F-21







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 2.2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | ---- | ------------------------------------------------------



Income tax (continued)

Deferred tax assets and liabilities are measured at
the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. The expected rates
are projected based on tax rates (and tax laws) that have been enacted or substantively enacted at the end of each reporting period.



Deferred tax assets and liabilities are offset when
the Group has a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax
assets and liabilities relate to income taxes levied by the same taxation authority and the Group intends to settle its current
tax assets and liabilities on a net basis.



Revenue recognition

Revenue is measured at the fair value of the consideration
received or receivable. Revenue is recognized when there are probable economic benefits to the Group and when the revenue can be
measured reliably, on the following bases:



| | (a) | from sale of goods, when the significant risks and rewards of ownership have been transferred
to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership,
nor effective control over the goods sold; which usually occurs when the product is sold and delivered to the distributors with
all transportation and handling costs for delivery of products borne and paid directly by the distributors, and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | interest income, on an accrual basis using the effective interest method by applying the rate
that discounts the estimated future cash receipts through the expected life of the financial instruments to their net carrying
amount.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, the Group utilizes preliminary purchase
orders received from consultations with customers at sales fairs to prepare sales estimates and formulate production schedules
for upcoming seasons. Once a purchase order is finalized, the Group re-confirms the delivery schedule of sales orders with each
distributor before shipment. Distributors are invoiced and sales are recognized by the Group only at the time that products are
ultimately delivered to distributors.



Although the Group's policy is to recognize product
returns as a reduction of revenue, the Group has not deemed it necessary to accrue for returns at the time when sales are recorded,
as the Group has not had any significant product returns or similar claims. Management periodically reviews this matter and will
consider making such accruals, when there are indications of significant sales returns or similar claims in future periods.



Although the Group accepts returns of defective
products from distributors, distributors generally choose to sell any defective products at a discount rather than to return such
defective products to the Group. Since distributors are required to comply with the Group's pricing policy, prior written consent
must be obtained from the Group before any products are sold at a discount to the suggested retail price, which is determined on
a case-by-case basis. The Group does not provide any compensation to distributors for defective products. To date, the number and
value of defective products has been nominal.



F-22







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 2.2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | ---- | ------------------------------------------------------



Revenue recognition (continued)

The Group does not have any arrangements with distributors
to accept returns of out-of-season stock. When in-season new products arrive, the current products on shelves become out-of-season
stock. The Group does not provide volume-based discount programs or discounts for early payment.



The Group encourages distributors to clear their
out-of-season inventory levels. An authorized retailer with excess inventory at the end of a season may attempt to sell such excess
inventory through regular and special end-of-season sales. Since distributors must strictly comply with the Group's suggested retail
pricing policy, prior written consent must be obtained from the Group before a distributor may conduct any promotional events or
sell any of the Group's products to consumers at a discount to the suggested retail price. The distributors bear the costs of any
sales discounts and the Group is not required to provide credits or subsidies to distributors for their seasonal clearance activities.



In order to facilitate the operation and development
of its business, including promoting brand recognition and building a nationwide brand image, the Group provides selective industry-standard
post-sales assistance and guidance to distributors, including training of distributors’ employees and promotional equipment
and marketing brochures. Distributors are required to sell the Group's products on an exclusive basis to be eligible for such assistance
and guidance.



Borrowing costs

Borrowing costs directly attributable to the acquisition,
construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or
sale are capitalized as part of the cost of the respective assets. During the three years ended December 31, 2012, no interest
has been capitalized. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and
other costs that an entity incurs in connection with the borrowing of funds.



Government grants

Government grants are recognized at their fair value
where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the
grant relates to an expense item, it is recognized as income over the periods necessary to match the grant on a systematic basis
to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is deducted from the carrying
amount of the asset and released to the consolidated statements of comprehensive income by way of a reduced depreciation charge.



Contracts for services

Contract revenue on the rendering of services comprises
the agreed contract amount. Costs of rendering services are comprised of labour and other costs of personnel directly engaged in
providing the services and attributable overhead costs.



F-23







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 2.2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | ---- | ------------------------------------------------------



Employee benefits

Share-based payment transactions

The Company operates an equity
incentive plan for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the
Group's operations. Employees of the Group receive remuneration in the form of share-based payment transactions, whereby employees
render services as consideration for equity instruments ("equity-settled transactions").



The cost of equity-settled
transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value of
the restricted shares is determined by an external valuer using a prepaid forward contract and based on the income approach by
discounting the expected value of the shares according to its expected vesting schedule to the date of valuation, taking into account
the terms and conditions upon which the restricted shares were granted. The fair value is essentially equal to the share price
of the Company as of the date of grant.



The cost of equity-settled transactions is recognized,
together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled.
The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting date reflects
the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will
ultimately vest. The charge or credit to the consolidated statements of comprehensive income for a period represents the movement
in the cumulative expense recognized as of the beginning and end of that period.



The expense is recognized and charged to the consolidated
statements of comprehensive income on the straight-line basis over the performance period.



No expense is recognized for
awards that do not ultimately vest, except for equity-settled transactions where vesting is conditional upon a market or non-vesting
condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided
that all other performance and/or service conditions are satisfied.



Where the terms of an equity-settled
award are modified, as a minimum the expense recognized is the expense as if the terms had not been modified, if the original terms
of the award are met . In addition, an expense is recognized for any modification that increases the total fair value of the share-based
payment transaction, or is otherwise beneficial to the employee as measured at the date of modification.



F-24







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 2.2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | ---- | ------------------------------------------------------



Employee benefits (continued)

Share-based payment transactions(continued)

Where an equity-settled award
is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognized for the award is
recognized immediately. This includes any award where non-vesting conditions within the control of either the Group or the employee
are not met. However, if a new award is substituted for the cancelled award, and is designated as a replacement award on the date
that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described
in the previous paragraph. All cancellations of equity-settled transaction awards are treated equally.



The dilutive effect of outstanding
restricted shares is reflected as additional share dilution in the computation of earnings per share.



Pension schemes

The Group operates a defined contribution Mandatory
Provident Fund retirement benefit scheme (the "MPF Scheme") under the Mandatory Provident Fund Schemes Ordinance, for
those employees who are eligible to participate in the MPF Scheme. Contributions are made based on a percentage of the employees'
basic salaries and are charged to the consolidated statements of comprehensive income as they become payable in accordance with
the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered
fund. The Group's employer contributions vest fully with the employees when contributed into the MPF Scheme. The Group has no further
payment obligations once the contributions have been paid.



The employees of the Group's subsidiaries which operate
in Mainland China are required to participate in central pension schemes operated by the local municipal government. The subsidiaries
are required to contribute certain percentages of their payroll costs to the central pension schemes. The contributions are charged
to the consolidated statements of comprehensive income as they become payable in accordance with the rules of the central pension
schemes. The Group has no further payment obligations once the contributions have been paid.



Other benefits

The Group contributes on a monthly basis to defined
contribution housing, medical and other benefit plans organized by the PRC government. The PRC government assumes the obligations
to all existing and retired employees under these plans. Contributions to these plans by the Group are expensed as incurred. The
Group has no further obligations beyond the required contributions under these plans.



F-25







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 2.2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | ---- | ------------------------------------------------------



Foreign currencies

These financial statements are presented in RMB. Each
entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured
using that functional currency. Foreign currency transactions are initially recorded using the functional currency rates ruling
at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional
currency rates of exchange ruling at the end of each reporting period. All differences are taken to the consolidated statements
of comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated
using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency
are translated using the exchange rates at the date when the fair value was determined.



The functional currencies of certain overseas subsidiaries
are currencies other than RMB. As of the end of each reporting period, the assets and liabilities of these entities are translated
into the presentation currency of the Group at exchange rates ruling at the end of each reporting period and, their consolidated
statements of comprehensive income are translated into RMB at the weighted average exchange rates for the year. The resulting exchange
differences are included in a separate component of equity, the exchange fluctuation reserve. On disposal of a foreign entity,
the deferred cumulative amount recognized in equity relating to that particular foreign operation is recognized in the consolidated
statements of comprehensive income.



For the purpose of the consolidated cash flow statements,
the cash flows of foreign subsidiaries are translated into RMB at the exchange rates prevailing at the dates of the cash flows.
Frequently recurring cash flows of overseas subsidiaries which arise throughout the period are translated into RMB at the weighted
average exchange rates for the period.



| | 3.1. | IMPACT OF NEW AND REVISED INTERNATIONAL FINANCIAL
REPORTING STANDARDS
| | ---- | ---------------------------------------------------------------------



The Group has adopted the following relevant new
interpretations and amendments to IFRSs for the first time for the current year's financial statements.



|IFRS 7 Amendments | Amendments to IFRS 7Financial Instruments:                   
|----------------- | -------------------------------------------------------------
|                  | Disclosures – Transfers of Financial Assets                  
|IAS 12 Amendments | Amendments to IAS 12 Income Taxes – Deferred Tax: Recovery of
|                  | Underlying Assets                                            



The adoption of the new and revised IFRSs has had
no significant financial effect on these financial statements.



F-26







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 3.2. | ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL
REPORTING STANDARDS
| | ---- | ------------------------------------------------------------------------



The Group has not applied the following new and revised
IFRSs, that have been issued but are not yet effective, in these financial statements.



|IFRS 7 Amendments    | Amendments to IFRS 7Financial Instruments:                           
|-------------------- | ---------------------------------------------------------------------
|                     | Disclosures – Offsetting Financial Assets and Financial Liabilities2 
|IFRS 9               | Financial Instruments4                                               
|IFRS 10              | Consolidated Financial Statements2                                   
|IFRS 12              | Disclosure of Interests in Other Entities2                           
|IFRS 10, IFRS 11 and | Amendments to IFRS 10, IFRS 11 and IFRS 12 – Transition              
|IFRS 12 Amendments   | Guidance2                                                            
|IFRS 10, IFRS 12 and | Amendments to IFRS 10, IFRS 12 and IAS 27 (2011)                     
|IAS 27 (2011)        | – Investment Entities3                                               
|Amendments           |                                                                      
|IFRS 13              | Fair Value Measurement2                                              
|IAS 1 Amendments     | Amendments to IAS 1 Presentation of Financial Statements             
|                     | – Presentation of Items of Other Comprehensive Income1               
|IAS 19 (2011)        | Employee Benefits2                                                   
|IAS 27 (2011)        | Separate Financial Statements2                                       
|IAS 32 Amendments    | Amendments to IAS 32 Financial Instruments:                          
|                     | Presentation – Offsetting Financial Assets and Financial Liabilities3
|Annual Improvements  | Amendments to a number of IFRSs issued in June 20122                 
|2009-2011 Cycle      |                                                                      



| | 1 | Effective for annual periods beginning on or after
July 1, 2012
| | - | ---------------------------------------------------------------

| | 2 | Effective for annual periods beginning on or after
January 1, 2013
| | - | ------------------------------------------------------------------

| | 3 | Effective for annual periods beginning on or after
January 1, 2014
| | - | ------------------------------------------------------------------

| | 4 | Effective for annual periods beginning on or after January 1, 2015
| | - | ------------------------------------------------------------------



The Group is in the process of making an assessment
of the impact of these new and revised IFRSs upon initial application. Other than as further explained below, these new and revised
IFRSs are unlikely to have a significant impact on the Group’s financial results and financial position.



The IFRS 7 Amendments require an entity to disclose
information about rights to set-off and related arrangements (e.g., collateral agreements). The disclosures would provide users
with information that is useful in evaluating the effect of netting arrangements on an entity’s financial position. The new
disclosures are required for all recognized financial instruments that are set off in accordance with IAS 32 Financial Instruments:
Presentation. The disclosures also apply to recognized financial instruments that are subject to an enforceable master netting
arrangement or similar agreement, irrespective of whether they are set off in accordance with IAS 32. The Group expects to adopt
the amendments from January 1, 2013.



F-27







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 3.2. | ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL
REPORTING STANDARDS (continued)
| | ---- | ------------------------------------------------------------------------------------



IFRS 9 issued in November 2009 is the first part of
phase 1 of a comprehensive project to entirely replace IAS 39 Financial Instruments: Recognition and Measurement. This phase focuses
on the classification and measurement of financial assets. Instead of classifying financial assets into four categories, an entity
shall classify financial assets as subsequently measured at either amortized cost or fair value, on the basis of both the entity’s
business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. This aims
to improve and simplify the approach for the classification and measurement of financial assets compared with the requirements
of IAS 39.



In November 2010, the IASB issued additions to IFRS
9 to address financial liabilities (the "Additions") and incorporated in IFRS 9 the current derecognition principles
of financial instruments of IAS 39. Most of the Additions were carried forward unchanged from IAS 39, while changes were made to
the measurement of financial liabilities designated at fair value through profit or loss using the fair value option ("FVO").
For these FVO liabilities, the amount of change in the fair value of a liability that is attributable to changes in credit risk
must be presented in other comprehensive income ("OCI"). The remainder of the change in fair value is presented in profit
or loss, unless presentation of the fair value change in respect of the liability’s credit risk in OCI would create or enlarge
an accounting mismatch in profit or loss. However, loan commitments and financial guarantee contracts which have been designated
under the FVO are scoped out of the Additions.



IAS 39 is aimed to be replaced by IFRS 9 in its entirety.
Before this entire replacement, the guidance in IAS 39 on hedge accounting and impairment of financial assets continues to apply.
The Group expects to adopt IFRS 9 from January 1, 2015. The Group will quantify the effect in conjunction with other phases, when
the final standard including all phases is issued.



IFRS 12 includes the disclosure requirements for subsidiaries,
joint arrangements, associates and structured entities previously included in IAS 27 Consolidated and Separate Financial Statements,
IAS 31 Interests in Joint Ventures and IAS 28 Investments in Associates. It also introduces a number of new disclosure
requirements for these entities.



The IAS 1 Amendments change the grouping of items
presented in OCI. Items that could be reclassified (or recycled) to profit or loss at a future point in time (for example, net
gain on hedge of a net investment, exchange differences on translation of foreign operations, net movement on cash flow hedges
and net loss or gain on available-for-sale financial assets) would be presented separately from items which will never be reclassified
(for example, actuarial gains and losses on defined benefit plans and revaluation of land and buildings). The amendments will affect
presentation only and have no impact on the financial position or performance. The Group expects to adopt the amendments from January
1, 2013.



F-28







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 3.2. | ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL
REPORTING STANDARDS (continued)
| | ---- | ------------------------------------------------------------------------------------



The Annual Improvements to IFRSs 2009-2011 Cycle
issued in June 2012 sets out amendments to a number of IFRSs. The Group expects to adopt the amendments from January 1, 2013. There
are separate transitional provisions for each standard. While the adoption of some of the amendments may result in changes in accounting
policies, none of these amendments are expected to have a significant financial impact on the Group. Those amendments that are
expected to have a significant impact on the Group’s policies are as follows:



| | (a) | IAS 1 Presentation of Financial Statements: Clarifies the difference between voluntary additional comparative information
and the minimum required comparative information. Generally, the minimum required comparative period is the previous period. An
entity must include comparative information in the related notes to the financial statements when it voluntarily provides comparative
information beyond the previous period. The additional comparative information does not need to contain a complete set of financial
statements.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In addition, the amendment clarifies that the opening statement of financial position as of the beginning of the preceding
period must be presented when an entity changes its accounting policies; makes retrospective restatements or makes reclassifications,
and that change has a material effect on the statement of financial position. However, the related notes to the opening statement
of financial position as of the beginning of the preceding period are not required to be presented.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | IAS 32 Financial Instruments: Presentation: Clarifies that income taxes arising from distributions to equity holders
are accounted for in accordance with IAS 12 Income Taxes. The amendment removes existing income tax requirements from IAS
32 and requires entities to apply the requirements in IAS 12 to any income tax arising from distributions to equity holders.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-29







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 4. | SIGNIFICANT ACCOUNTING ESTIMATES
| | -- | --------------------------------



In the process of applying the Group's accounting
policies, management has made estimates and assumptions in determining certain amounts recognized in the financial statements,
some of the estimates and assumptions are based on expected outcomes of future events. These estimates may not necessarily be indicative
of the actual outcome. The significant estimates and assumptions are discussed below.



Useful lives of property, plant and equipment

The Group determines the estimated useful lives and
related depreciation charges for its property, plant and equipment based on the historical experience of the actual useful lives
of property, plant and equipment of similar nature and functions. Management will revise the depreciation period where actual useful
lives are different from those previously estimated, and it will write off or write down the value of obsolete or non-strategic
assets that have been abandoned.





Prepaid land lease payments and deposit paid for acquisition
of land use rights

At the end of reporting period, construction on the parcel
of land owned by XDLong Fujian within the Group’s production complex in Jinjiang, Fujian Province, has not commenced. For
reasons stated in Note 14 to the financial statements, management has estimated that the possibility of incurring an impairment
in value of loss of this land use is remote. Also at the end of reporting period, the Group has not yet completed the land acquisitions
for two parcels of land located in Jinjiang, Fujian Province, and Ruichang, Jiangxi Province. The classification and the carrying
amounts of the deposits paid are based on the Group’s estimates on completion of the land acquisition process and finally
obtaining land use rights of these parcels of land. Any changes in the abovementioned estimates could have a significant impact
on the classification and carrying amounts of prepaid land lease payments and deposit paid for acquisition of land use rights.
The carrying amounts of these balances as of December 31, 2012 are RMB5,216,000 and RMB149,986,000, respectively.





Net realizable value of inventories

Net realizable value of inventories is the estimated
selling price in the ordinary course of business less estimated selling expenses. The net realizable value is estimated based on
the current market conditions and historical experience of selling merchandise of similar nature. The estimates can change significantly
as a result of changes in customer taste or competitor actions. The Group reassesses these estimates at the end of each reporting
period.



Impairment allowances for trade and other receivables

The Group estimates the impairment allowances for
trade and other receivables by assessing the collectability of the receivables based on the related customers' credit history and
prevailing market conditions. Allowances are applied to trade and other receivables where events or changes in circumstances indicate
that the balances may not be collectible. Where the expectation is different from the initial estimate, the difference is recognized
as an impairment loss in the period in which such estimate is changed. The Group reassesses the impairment allowances at the end
of each reporting period.



Historically, the Group has no experience of bad debts.
All the customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances
are monitored on an ongoing basis and the Group has the sole discretion to cease business with customers who fail to pay within
the credit period.



The Group will not make any provision of the overdue
balance if (1) the Group has continuous trading with the distributor; (2) the Group receives continuous repayment from the distributor;
and (3) the Group has no dispute on the overdue balance with the distributor.



The Group will make full provision on such balances
if they are considered not recoverable by the Group.



Share-based payment transactions

The Group measures the cost of equity-settled transactions
with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair
value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the
terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including
the expected life of the share option, volatility and dividend yield and making assumptions about them.



F-30







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 4. | SIGNIFICANT ACCOUNTING ESTIMATES (continued)
| | -- | --------------------------------------------



Contingent share liability

As stated in Note 24 to the consolidated financial
statements, the number of shares of the Company to be released and issued to the former shareholders of Windrace as part of the
reverse capitalization transaction effective on October 21, 2009 is subject to the results of adjusted net earnings of the Company.
Estimating fair value for contingent share liability requires determining the most appropriate valuation model. This estimate also
requires determining the most appropriate inputs to the valuation model including volatility, market discount and dividend yield
and making assumptions about them. Any changes to the assumptions can materially affect the determination of the fair value of
contingent share liability.



| | 5. | SEGMENT INFORMATION
| | -- | -------------------



The Group determines its operating segments based
on the reports reviewed by the chief operating decision-makers that are used to make strategic decisions.



The Group operates one business segment, which is
the manufacture and sale of sportswear, including footwear, apparel and accessories. The Group's most senior executive management
consider the major product lines (being footwear, apparel and accessories) as one business segment for assessment of segment performance
as they exhibit similar long term financial performance and they are similar in terms of product nature, production process, customer
type and class, and distribution method. As such, no further business segment analysis is presented.



In addition, the Group's revenue, expenses, assets
and liabilities and capital expenditures are predominantly attributable to a single geographical region, which is the PRC. Therefore,
no analysis of business or geographical segment is presented.



| | 6. | REVENUE, OTHER INCOME AND GAINS
| | -- | -------------------------------



Revenue, which is also the Group's turnover, represents
the net invoiced value of goods sold during the year.



An analysis of revenue, other income and gains is
as follows:



|                                    |  | 2012    |         |  | 2012    |  |           | 2011    |  |  | 2010      | 
|----------------------------------- |  | ------- | ------- |  | ------- |  | --------- | ------- |  |  | --------- | 
|                                    |  | USD'000 |         |  | RMB'000 |  |           | RMB'000 |  |  | RMB'000   | 
|                                    |  |         |         |  |         |  |           |         |  |  |           | 
|Revenue                             |  |         |         |  |         |  |           |         |  |  |           | 
|Manufacture and sale of sportswear: |  |         |         |  |         |  |           |         |  |  |           | 
|Footwear                            |  |         | 183,760 |  |         |  | 1,144,843 |         |  |  | 1,514,096 | 
|Apparel                             |  |         | 192,322 |  |         |  | 1,198,186 |         |  |  | 1,731,482 | 
|Accessories                         |  |         | 6,499   |  |         |  | 40,487    |         |  |  | 42,983    | 
|                                    |  |         |         |  |         |  |           |         |  |  |           | 
|                                    |  |         | 382,581 |  |         |  | 2,383,516 |         |  |  | 3,288,561 | 



F-31







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 6. | REVENUE, OTHER INCOME AND GAINS (continued)
| | -- | -------------------------------------------



|                                                             |  | 2012    |       |  | 2012    |  |        | 2011    |  |  | 2010    | 
|------------------------------------------------------------ |  | ------- | ----- |  | ------- |  | ------ | ------- |  |  | ------- | 
|                                                             |  | USD'000 |       |  | RMB'000 |  |        | RMB'000 |  |  | RMB'000 | 
|                                                             |  |         |       |  |         |  |        |         |  |  |         | 
|Other income and gains                                       |  |         |       |  |         |  |        |         |  |  |         | 
|Bank interest income                                         |  |         | 2,428 |  |         |  | 15,122 |         |  |  | 11,858  | 
|Gain on disposal of property, plant and equipment            |  |         | -     |  |         |  | -      |         |  |  | 63      | 
|Award from the PRC government*                               |  |         | 125   |  |         |  | 780    |         |  |  | 2,390   | 
|Other income                                                 |  |         | 2     |  |         |  | 15     |         |  |  | 480     | 
|                                                             |  |         |       |  |         |  |        |         |  |  |         | 
|                                                             |  |         | 2,555 |  |         |  | 15,917 |         |  |  | 14,791  | 
|                                                             |  |         |       |  |         |  |        |         |  |  |         | 
|Gain from change in fair value of contingent share liability |  |         | -     |  |         |  | -      |         |  |  | 38,645  | 



*	There are no unfulfilled conditions or contingencies
relating to these subsidies.



| | 7. | FINANCE COSTS
| | -- | -------------



|                                                        |  | 2012    |     |  | 2012    |  |     | 2011    |  |  | 2010    | 
|------------------------------------------------------- |  | ------- | --- |  | ------- |  | --- | ------- |  |  | ------- | 
|                                                        |  | USD'000 |     |  | RMB'000 |  |     | RMB'000 |  |  | RMB'000 | 
|                                                        |  |         |     |  |         |  |     |         |  |  |         | 
|Interest on bank loans wholly repayable within one year |  |         | 102 |  |         |  | 638 |         |  |  | 856     | 



F-32







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 8. | PROFIT BEFORE TAX
| | -- | -----------------



The Group's profit before tax is arrived at after
charging/(crediting):



|                                                                                          |  | Note |    |  | 2012    |  |         | 2012    |  |  | 2011      |  |  | 2010    |          
|----------------------------------------------------------------------------------------- |  | ---- | -- |  | ------- |  | ------- | ------- |  |  | --------- |  |  | ------- | ---------
|                                                                                          |  |      |    |  | USD'000 |  |         | RMB'000 |  |  | RMB'000   |  |  | RMB'000 |          
|                                                                                          |  |      |    |  |         |  |         |         |  |  |           |  |  |         |          
|Included in cost of sales                                                                 |  |      |    |  |         |  |         |         |  |  |           |  |  |         |          
|Cost of inventories sold*                                                                 |  |      |    |  |         |  | 274,121 |         |  |  | 1,707,801 |  |  |         | 2,296,298
|                                                                                          |  |      |    |  |         |  |         |         |  |  |           |  |  |         |          
|Included in selling and distribution expenses                                             |  |      |    |  |         |  |         |         |  |  |           |  |  |         |          
|Advertising and promotional expenses                                                      |  |      |    |  |         |  | 52,708  |         |  |  | 328,375   |  |  |         | 352,436  
|Depreciation of property, plant and equipment                                             |  |      |    |  |         |  | 56      |         |  |  | 348       |  |  |         | 338      
|Employee benefits expenses:                                                               |  |      |    |  |         |  |         |         |  |  |           |  |  |         |          
|Wages and salaries                                                                        |  |      |    |  |         |  | 1,880   |         |  |  | 11,714    |  |  |         | 13,752   
|Pension scheme contributions**                                                            |  |      |    |  |         |  | 312     |         |  |  | 1,941     |  |  |         | 1,995    
|                                                                                          |  |      |    |  |         |  | 2,192   |         |  |  | 13,655    |  |  |         | 15,747   
|                                                                                          |  |      |    |  |         |  |         |         |  |  |           |  |  |         |          
|Included in administrative expenses                                                       |  |      |    |  |         |  |         |         |  |  |           |  |  |         |          
|Depreciation of property, plant and equipment                                             |  |      |    |  |         |  | 1,015   |         |  |  | 6,325     |  |  |         | 6,831    
|Employee benefits expenses (including directors' remuneration - Note 9):                  |  |      |    |  |         |  |         |         |  |  |           |  |  |         |          
|Wages and salaries                                                                        |  |      |    |  |         |  | 1,916   |         |  |  | 11,940    |  |  |         | 13,057   
|Share-based compensation expense                                                          |  |      |    |  |         |  | 955     |         |  |  | 5,946     |  |  |         | 7,860    
|Pension scheme contributions**                                                            |  |      |    |  |         |  | 216     |         |  |  | 1,348     |  |  |         | 1,329    
|                                                                                          |  |      |    |  |         |  | 3,087   |         |  |  | 19,234    |  |  |         | 22,246   
|Minimum lease payments under operating leases in respect of office premises and warehouse |  |      |    |  |         |  | 207     |         |  |  | 1,290     |  |  |         | 3,714    
|Auditors' remuneration                                                                    |  |      |    |  |         |  | 418     |         |  |  | 2,604     |  |  |         | 3,753    
|Amortization of prepaid land lease payments                                               |  |      | 14 |  |         |  | 120     |         |  |  | 748       |  |  |         | 748      
|Loss on disposal of items of property, plant and equipment                                |  |      |    |  |         |  | 99      |         |  |  | 619       |  |  |         | 7        



F-33







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 8. | PROFIT BEFORE TAX (continued)
| | -- | -----------------------------



|                                              |  | 2012    |        |   | 2012    |  |         | 2011    |  |  | 2010    |  
|--------------------------------------------- |  | ------- | ------ | - | ------- |  | ------- | ------- |  |  | ------- | -
|                                              |  | USD'000 |        |   | RMB'000 |  |         | RMB'000 |  |  | RMB'000 |  
|Included in research and development expenses |  |         |        |   |         |  |         |         |  |  |         |  
|Depreciation of property, plant and equipment |  |         | 147    |   |         |  | 918     |         |  |  | 683     |  
|Employee benefits expenses:                   |  |         |        |   |         |  |         |         |  |  |         |  
|Wages and salaries                            |  |         | 1,164  |   |         |  | 7,249   |         |  |  | 9,750   |  
|Pension scheme contributions**                |  |         | 232    |   |         |  | 1,447   |         |  |  | 1,698   |  
|                                              |  |         | 1,396  |   |         |  | 8,696   |         |  |  | 11,448  |  
|                                              |  |         |        |   |         |  |         |         |  |  |         |  
|Included in other income and gains            |  |         |        |   |         |  |         |         |  |  |         |  
|Interest income                               |  |         | (2,428 | ) |         |  | (15,122 | )       |  |  | (11,858 | )



| | * | The cost of inventories sold includes approximately RMB53,162,000 (2011: RMB54,803,000; 2010: RMB53,630,000) relating to direct
staff cost and RMB10,623,000 (2011: RMB10,396,000; 2010: RMB10,207,000) depreciation of the manufacturing facilities.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ** | As of December 31, 2012 and 2011, the Group had no forfeited contributions available to reduce its contributions to the pension
schemes in future years.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | 9. | DIRECTORS' REMUNERATION
| | -- | -----------------------



Details of directors' remuneration are as follows:



|                                                   |  | 2012    |     |  | 2012    |  |       | 2011    |  |  | 2010    | 
|-------------------------------------------------- |  | ------- | --- |  | ------- |  | ----- | ------- |  |  | ------- | 
|                                                   |  | USD'000 |     |  | RMB'000 |  |       | RMB'000 |  |  | RMB'000 | 
|                                                   |  |         |     |  |         |  |       |         |  |  |         | 
|Other emoluments:                                  |  |         |     |  |         |  |       |         |  |  |         | 
|Salaries, bonuses, allowances and benefits in kind |  |         | 197 |  |         |  | 1,228 |         |  |  | 941     | 
|Share-based compensation expense                   |  |         | -   |  |         |  | -     |         |  |  | -       | 
|Pension scheme contributions                       |  |         | 1   |  |         |  | 9     |         |  |  | 8       | 
|                                                   |  |         |     |  |         |  |       |         |  |  |         | 
|                                                   |  |         | 198 |  |         |  | 1,237 |         |  |  | 949     | 



F-34







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 9. | DIRECTORS' REMUNERATION (continued)
| | -- | -----------------------------------



| |  | There was no arrangement under which a director waived or agreed to waive any remuneration during the years ended December
31, 2012, 2011 and 2010.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  | No remuneration was paid by the Group to any of the directors of the Group as an inducement to join or upon joining the Group
or as compensation for loss of office for the years ended December 31, 2012, 2011 and 2010.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the year ended December
31, 2010, certain directors were granted restricted shares in respect of their services to the Group, under the equity incentive
plan of the Company, further details of which are set out in Note 25 to the financial statements. The fair value of such restricted
shares which have been recognized in the consolidated statements of comprehensive income over the vesting period, was determined
as of the date of grant and the amount included in the financial statements for the current year is included in the above directors'
remuneration disclosures.



| | 10. | TAX
| | --- | ---



Pursuant to the rules and regulations of the BVI and
the Cayman Islands, the Group is not subject to any income tax in BVI and the Cayman Islands. No tax provision for Hong Kong profits
has been made as the Group did not generate any assessable profits arising in Hong Kong during the reporting periods. Taxes on
profits assessable in the PRC have been calculated at the prevailing rates, based on existing legislation, interpretations and
practices in respect thereof.



|                             |  | 2012    |       |  | 2012    |  |        | 2011    |  |  | 2010    | 
|---------------------------- |  | ------- | ----- |  | ------- |  | ------ | ------- |  |  | ------- | 
|                             |  | USD'000 |       |  | RMB'000 |  |        | RMB'000 |  |  | RMB'000 | 
|                             |  |         |       |  |         |  |        |         |  |  |         | 
|Current tax - Mainland China |  |         |       |  |         |  |        |         |  |  |         | 
|Charge for the year          |  |         | 5,171 |  |         |  | 32,213 |         |  |  | 65,922  | 



Pursuant to the income tax rules and regulations of
the PRC, provision for PRC corporate income tax is calculated based on the statutory rate of 25% of the assessable profits of the
PRC subsidiaries comprising the Group.



Under the new PRC Corporate Income Tax Law (the ''New
Corporate Income Tax Law'') and its Implementation Rules (effective on January 1, 2008), the PRC corporate income tax rate for
domestic-invested and foreign-invested enterprises is unified to 25%. Accordingly, the applicable tax rate for XDLong Fujian is
25% in 2012, 2011 and 2010.



XDLong China, a foreign-invested enterprise established
before the New Corporate Income Tax Law, can continue to enjoy the existing tax holiday whereby it is exempted from the PRC corporate
income tax for its first two profitable years, commencing from January 1, 2008, and thereafter is entitled to a 50% reduction in
the PRC corporate income tax for the subsequent three years from January 1, 2010 to December 31, 2012. The tax rate applied to
XDLong China pre-tax profits is 12.5% in 2012, 2011 and 2010.



F-35







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 10. | TAX (continued)
| | --- | ---------------



A reconciliation of the tax expense applicable to
profit before tax using the applicable statutory rates for the jurisdictions in which the Company and the majority of its subsidiaries
operated to the tax expense at the effective tax rates are as follows:



|                                                            |  | 2012    |        |   | 2012    |  |         | 2011    |  |  | 2010    |  
|----------------------------------------------------------- |  | ------- | ------ | - | ------- |  | ------- | ------- |  |  | ------- | -
|                                                            |  | USD'000 |        |   | RMB'000 |  |         | RMB'000 |  |  | RMB'000 |  
|                                                            |  |         |        |   |         |  |         |         |  |  |         |  
|Profit before tax                                           |  |         | 37,103 |   |         |  | 231,155 |         |  |  | 536,004 |  
|                                                            |  |         |        |   |         |  |         |         |  |  |         |  
|Tax at the applicable rates (Note)                          |  |         | 9,615  |   |         |  | 59,905  |         |  |  | 132,618 |  
|Tax exemption due to tax holidays                           |  |         | (5,118 | ) |         |  | (31,890 | )       |  |  | (64,041 | )
|Tax effect of expenses not deductible for taxation purposes |  |         | 674    |   |         |  | 4,198   |         |  |  | 3,721   |  
|Income not subject to tax                                   |  |         | -      |   |         |  | -       |         |  |  | (6,376  | )
|                                                            |  |         |        |   |         |  |         |         |  |  |         |  
|Tax charge at the Group's effective rate                    |  |         | 5,171  |   |         |  | 32,213  |         |  |  | 65,922  |  



| | Note: | The applicable tax rates from January 1, 2010 were a mix of 25% and 16.5% for entities operating in China and Hong Kong, respectively.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------



According to the New Corporate Income Tax Law and
its implementation rules, dividends receivable by non-PRC corporate residents from PRC enterprises are subject to withholding tax
at a rate of 10%, unless reduced by tax treaties or arrangements, for profits earned since January 1, 2008. In addition, under
the Sino Hong Kong Double Tax Arrangement and its relevant regulations, a qualified Hong Kong tax resident will be liable for withholding
tax at the rate of 5% for dividend income derived from the PRC if the Hong Kong tax resident is the "beneficial owner"
and holds 25% or more of the equity interests of the PRC company.



As of December 31, 2012 and 2011, the Company had
not recorded any withholding tax on the retained earnings of its foreign invested enterprises in the PRC, since the Company intends
to reinvest its earnings to further expand its businesses in mainland China, and its foreign invested enterprises do not intend
to declare dividends to their immediate foreign holding companies.



F-36







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 11. | EARNINGS PER SHARE
| | --- | ------------------



| |  | The calculation of the basic and diluted earnings per share attributable to the ordinary equity holders of the Company is based
on the following data:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                          |  | December 31 |           
|----------------------------------------------------------------------------------------- |  | ----------- | ----------
|                                                                                          |  | 2012        |           
|                                                                                          |  | USD'000     |           
|                                                                                          |  |             |           
|Earnings                                                                                  |  |             |           
|Earnings for the purposes of basic earnings per share and diluted earning per share       |  |             | 31,932    
|                                                                                          |  |             |           
|Number of shares                                                                          |  |             |           
|Weighted average number of ordinary shares for the purposes of basic earnings per share   |  |             | 32,997,441
|Effect of dilutive potential ordinary shares                                              |  |             |           
|Escrow shares                                                                             |  |             | -         
|Earn-out shares                                                                           |  |             | -         
|Warrants                                                                                  |  |             | -         
|Restricted shares                                                                         |  |             | -         
|                                                                                          |  |             |           
|Weighted average number of ordinary shares for the purposes of diluted earnings per share |  |             | 32,997,441
|                                                                                          |  |             |           
|Earnings per share                                                                        |  |             |           
|Basic                                                                                     |  | USD         | 0.97      
|Diluted                                                                                   |  | USD         | 0.97      



| | 12. | RELATED PARTY TRANSACTIONS
| | --- | --------------------------



The Group had the following material transactions
with related parties:



| | (a) | Mr. Lin Shuipan, a director of the Company, Ms. Chen
Xiayu, the spouse of Mr. Lin Shuipan, and Mr. Ding Dongdong, the executive senior Vice President of the Company and the brother
in-law of Mr. Lin Shuipan, have guaranteed certain bank loans made available to the Group up to RMB635,000,000 as of December
31, 2012.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Details of remuneration to the directors of the Group
are disclosed in Note 9 to the financial statements.
| | --- | ----------------------------------------------------------------------------------------------------------



F-37







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 13. | PROPERTY, PLANT AND EQUIPMENT
| | --- | -----------------------------



|                                                |  |           |         |  |              |  |         |           |  |  |          |   |  | Furniture, |         |   |              |  |         |         | 
|----------------------------------------------- |  | --------- | ------- |  | ------------ |  | ------- | --------- |  |  | -------- | - |  | ---------- | ------- | - | ------------ |  | ------- | ------- | 
|                                                |  |           |         |  |              |  |         |           |  |  |          |   |  | fixtures   |         |   |              |  |         |         | 
|                                                |  |           |         |  | Leasehold    |  |         | Plant and |  |  | Motor    |   |  | and office |         |   | Construction |  |         |         | 
|                                                |  | Buildings |         |  | improvements |  |         | machinery |  |  | vehicles |   |  | equipment  |         |   | in progress  |  |         | Total   | 
|                                                |  | RMB'000   |         |  | RMB'000      |  |         | RMB'000   |  |  | RMB'000  |   |  | RMB'000    |         |   | RMB'000      |  |         | RMB'000 | 
|                                                |  |           |         |  |              |  |         |           |  |  |          |   |  |            |         |   |              |  |         |         | 
|Cost:                                           |  |           |         |  |              |  |         |           |  |  |          |   |  |            |         |   |              |  |         |         | 
|As of January 1, 2011                           |  |           | 285,987 |  |              |  | 1,886   |           |  |  | 28,839   |   |  |            | 5,886   |   |              |  | 3,585   |         | 
|Additions                                       |  |           | -       |  |              |  | 1,353   |           |  |  | 5,894    |   |  |            | 535     |   |              |  | 751     |         | 
|Disposals                                       |  |           | -       |  |              |  | (12     | )         |  |  | (4       | ) |  |            | (608    | ) |              |  | (15     | )       | 
|Exchange
    realignment                        |  |           | -       |  |              |  | -       |           |  |  | -        |   |  |            | -       |   |              |  | (1      | )       | 
|                                                |  |           |         |  |              |  |         |           |  |  |          |   |  |            |         |   |              |  |         |         | 
|As of December 31, 2011 and January 1, 2012     |  |           | 285,987 |  |              |  | 3,227   |           |  |  | 34,729   |   |  |            | 5,813   |   |              |  | 4,320   |         | 
|Additions                                       |  |           | -       |  |              |  | -       |           |  |  | 366      |   |  |            | 134     |   |              |  | 207     |         | 
|Disposals                                       |  |           | -       |  |              |  | (1,436  | )         |  |  | -        |   |  |            | (398    | ) |              |  | (14     | )       | 
|Exchange
    realignment                        |  |           | -       |  |              |  | -       |           |  |  | -        |   |  |            | -       |   |              |  | (1      | )       | 
|As of December 31,
    2012                     |  |           | 285,987 |  |              |  | 1,791   |           |  |  | 35,095   |   |  |            | 5,549   |   |              |  | 4,512   |         | 
|                                                |  |           |         |  |              |  |         |           |  |  |          |   |  |            |         |   |              |  |         |         | 
|Accumulated depreciation:                       |  |           |         |  |              |  |         |           |  |  |          |   |  |            |         |   |              |  |         |         | 
|As of and January 1, 2011                       |  |           | 47,650  |  |              |  | 216     |           |  |  | 10,391   |   |  |            | 2,971   |   |              |  | 1,168   |         | 
|Provided during the year                        |  |           | 12,870  |  |              |  | 865     |           |  |  | 3,126    |   |  |            | 734     |   |              |  | 653     |         | 
|Written
    off                                 |  |           | -       |  |              |  | -       |           |  |  | -        |   |  |            | (513    | ) |              |  | (10     | )       | 
|                                                |  |           |         |  |              |  |         |           |  |  |          |   |  |            |         |   |              |  |         |         | 
|As of December 31, 2011 and January 1,
    2012 |  |           | 60,520  |  |              |  | 1,081   |           |  |  | 13,517   |   |  |            | 3,192   |   |              |  | 1,811   |         | 
|Provided during the year                        |  |           | 12,870  |  |              |  | 722     |           |  |  | 3,197    |   |  |            | 702     |   |              |  | 722     |         | 
|Written
    off                                 |  |           | -       |  |              |  | (779    | )         |  |  | -        |   |  |            | (336    | ) |              |  | (6      | )       | 
|                                                |  |           |         |  |              |  |         |           |  |  |          |   |  |            |         |   |              |  |         |         | 
|As of December 31,
    2012                     |  |           | 73,390  |  |              |  | 1,024   |           |  |  | 16,714   |   |  |            | 3,558   |   |              |  | 2,527   |         | 
|                                                |  |           |         |  |              |  |         |           |  |  |          |   |  |            |         |   |              |  |         |         | 
|Carrying amount:                                |  |           |         |  |              |  |         |           |  |  |          |   |  |            |         |   |              |  |         |         | 
|As of December 31,
    2011                     |  |           | 225,467 |  |              |  | 2,146   |           |  |  | 21,212   |   |  |            | 2,621   |   |              |  | 2,509   |         | 
|                                                |  |           |         |  |              |  |         |           |  |  |          |   |  |            |         |   |              |  |         |         | 
|As of December 31,
    2012                     |  |           | 212,597 |  |              |  | 767     |           |  |  | 18,381   |   |  |            | 1,991   |   |              |  | 1,985   |         | 
|                                                |  |           |         |  |              |  |         |           |  |  |          |   |  |            |         |   |              |  |         |         | 
|                                                |  |           | USD'000 |  |              |  | USD'000 |           |  |  | USD'000  |   |  |            | USD'000 |   |              |  | USD'000 |         | 
|As of December 31,
    2012                     |  |           | 34,124  |  |              |  | 123     |           |  |  | 2,950    |   |  |            | 320     |   |              |  | 319     |         | 



The Group's buildings are situated in Mainland China
and are held on land under medium term leases (lease with a term less than 50 years). The leases of the said land expire in 2056.



As of December 31, 2012, certain Group's buildings
with carrying amount of approximately RMB212,597,000 (2011: Nil) were pledged to secure general banking facilities granted to the
Group (Note 22).



F-38







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 14. | PREPAID LAND LEASE PAYMENTS
| | --- | ---------------------------



|                                                                                  |  | 2012    |       |   | 2012    |  |        | 2011    | 
|--------------------------------------------------------------------------------- |  | ------- | ----- | - | ------- |  | ------ | ------- | 
|                                                                                  |  | USD'000 |       |   | RMB'000 |  |        | RMB'000 | 
|                                                                                  |  |         |       |   |         |  |        |         | 
|Carrying amount at January 1                                                      |  |         | 4,574 |   |         |  | 28,499 |         | 
|Recognized during the year                                                        |  |         | (120  | ) |         |  | (748   | )       | 
|                                                                                  |  |         |       |   |         |  |        |         | 
|Carrying amount at December 31                                                    |  |         | 4,454 |   |         |  | 27,751 |         | 
|Current portion included in prepayments, deposits and other receivables (Note 18) |  |         | (104  | ) |         |  | (648   | )       | 
|                                                                                  |  |         |       |   |         |  |        |         | 
|Non-current portion                                                               |  |         | 4,350 |   |         |  | 27,103 |         | 



The Group's prepayment of land use rights is for medium
term land located in Mainland China. The leases expire between 2055 and 2056.



As of December 31, 2012 and 2011, no land use right
was pledged to secure general banking facilities granted to the Group.



XDLong China owns and occupies a parcel of land with
an aggregate site area of approximately 38,784 square meters together with buildings on such land. The buildings consist of the
Group's production facility, a research and development center, an office facility, staff quarters, and a recreation center and
sports facility, with an aggregate gross floor area of approximately 99,024 square meters. The Group has obtained the land use
rights certificate in relation to the land and the property ownership certificates for the buildings. The land use rights were
granted for industrial use for a term of 50 years from December 25, 2006.



XDLong Fujian owns a parcel of land located within
the Group's production complex in Jinjiang, which has an aggregate site area of approximately 15,277 square meters. Pursuant to
the State-owned Land Use Right Transfer Contract, construction on this land was required to commence by February 28, 2006. However,
XDLong Fujian did not commence construction by such date because the Group decided to construct its production facilities on another
larger parcel of land owned by XDLong China. On May 14, 2008, XDLong Fujian applied to the relevant local government agency for
the approval to postpone construction on the land. On July 1, 2012, the Ministry of Land and Resources issued the Measures on Disposing
Idle Land. The new regulation emphasizes that the land authority shall repossess the idle land without any compensation if the
scheduled construction has not commenced for two years. The new regulation also stipulates the procedures, results and other details
regarding repossessing idle land. The Group does not believe that the parcel of land held for use by XDLong Fujian met the definition
of Idle Land in accordance with the new regulation.



The local government agency has verbally confirmed
that it does not intend to repossess the parcel of land held for use by XDLong Fujian, or otherwise cancel the underlying contract.
Consistent with the objectives of the local government, the construction of the Group in the Jinjiang area has injected capital
into the local economy and resulted in an expansion of the Group's local workforce.



F-39







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 14. | PREPAID LAND LEASE PAYMENTS (continued)
| | --- | ---------------------------------------



Management based its conclusion on the fact that local
government officials have provided verbal assurances that they do not intend to take punitive action for the Group's failure to
commence construction, management has concluded that the possibility of incurring an impairment in value or loss of land use is
remote.



As of December 31, 2012, the carrying amount of this
piece of land was RMB5,216,000 (2011: RMB5,339,000).



| | 15. | Deposit paid
for acquisition of land use rights
| | --- | -----------------------------------------------



|                               |  | 2012    |        |  | 2012    |  |         | 2011    | 
|------------------------------ |  | ------- | ------ |  | ------- |  | ------- | ------- | 
|                               |  | USD'000 |        |  | RMB'000 |  |         | RMB'000 | 
|                               |  |         |        |  |         |  |         |         | 
|Carrying amount at January 1   |  |         | 11,722 |  |         |  | 73,030  |         | 
|Additions                      |  |         | 12,352 |  |         |  | 76,956  |         | 
|                               |  |         |        |  |         |  |         |         | 
|Carrying amount at December 31 |  |         | 24,074 |  |         |  | 149,986 |         | 



As of December 31, 2012, a total deposit of RMB149,986,000
was paid for land use rights over two parcels of land located in Fujian Province and Jiangxi Province.



As of December 31, 2012, the deposit of RMB26,230,000
(2011: RMB26,230,000) was fully paid for land use rights over a parcel of land in Jinjiang, Fujian Province, the PRC. On May 17,
2010, May 20, 2010, November 18, 2010 and January 3, 2011, four sales and purchase agreements were entered into between the Group
and the independent third parties for the transfer of the right arising from the aforesaid deposit paid at a consideration of RMB5,400,000,
RMB7,640,000, RMB600,000 and RMB7,590,000, respectively. RMB5,000,000 was paid to the Jinjiang Municipal Bureau of Land and Resources
for the application of the land use right. The Group plans to use this parcel of land for the construction of new staff quarters,
which is expected to be completed in 2013. The Group is in the process of obtaining the relevant State-owned Land Use Rights Certificate
as of December 31, 2012.



As of December 31, 2012, the deposit of RMB123,756,000
(2011: RMB46,800,000) was paid and payable for the land use rights over a parcel of land in Ruichang, Jiangxi Province, the PRC.



F-40







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 15. | Deposit paid
for acquisition of land use rights (continued)
| | --- | -----------------------------------------------------------



On December 1, 2012, a sales and purchase agreement
was entered into for the transfer of the right of the aforesaid parcel of land of 193,333 square meters. The land purchase proposal
for remaining parcel of land of 206,667 square meters has not been finalized and is subject to municipal and administrative approvals.
Upon completion of the construction of our new production facility in Ruichang City, the Group expects its annual production capacity
for our footwear products to increase to approximately 30.0 million pairs as well as gaining certain internal apparel production
capabilities. The Group believes increased in-house production capacities will give more control over production process and allow
it to reduce costs. Ultimately, the expansion of in-house production capacity will help to increase gross profit margins, as the
Group can reduce the reliance on outsourced manufacturing. It is an important part of the long-term strategy of Exceed to gain
better control on production, increase economies of scale, enhance profitability and capture a greater market share.



The Group plans to use this parcel of land for the
construction of a new production facility. The first phase of the new production facility is expected to be completed by the end
of 2013. The outstanding amount of RMB78,120,000 as of December 31, 2012 is disclosed as a capital commitment in Note 28(a).



The Group is in the process of obtaining the relevant
State-owned Land Use Rights Certificate of the aforesaid parcel of land of 193,333 square meters as of December 31, 2012.



The deposits will be reclassified to the respective
account under the non-current assets upon the transfers of legal title.



| | 16. | INVENTORIES
| | --- | -----------



|                 |  | 2012    |       |  | 2012    |  |        | 2011    | 
|---------------- |  | ------- | ----- |  | ------- |  | ------ | ------- | 
|                 |  | USD'000 |       |  | RMB'000 |  |        | RMB'000 | 
|                 |  |         |       |  |         |  |        |         | 
|Raw materials    |  |         | 636   |  |         |  | 3,963  |         | 
|Work in progress |  |         | 347   |  |         |  | 2,159  |         | 
|Finished goods   |  |         | 888   |  |         |  | 5,533  |         | 
|                 |  |         |       |  |         |  |        |         | 
|                 |  |         | 1,871 |  |         |  | 11,655 |         | 



F-41







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 17. | TRADE RECEIVABLES
| | --- | -----------------



|                  |  | 2012    |         |  | 2012    |  |           | 2011    | 
|----------------- |  | ------- | ------- |  | ------- |  | --------- | ------- | 
|                  |  | USD'000 |         |  | RMB'000 |  |           | RMB'000 | 
|                  |  |         |         |  |         |  |           |         | 
|Trade receivables |  |         | 174,080 |  |         |  | 1,084,535 |         | 
|Impairment        |  |         | -       |  |         |  | -         |         | 
|                  |  |         |         |  |         |  |           |         | 
|                  |  |         | 174,080 |  |         |  | 1,084,535 |         | 



The Group's trading terms with its customers (independent
distributors) are mainly on credit. The credit period is generally for a period of six months (2011: four months). The Group monitors
and controls the outstanding amounts due from the distributors on an on-going basis and requires the distributors to make continuous
payment before getting new products.



All of the trade receivables are expected to be recovered
within one year. An aging analysis of the Group's trade receivables as of December 31, 2012 and 2011, based on the invoice date,
is as follows:



|                |  | 2012    |         |  | 2012    |  |           | 2011    | 
|--------------- |  | ------- | ------- |  | ------- |  | --------- | ------- | 
|                |  | USD'000 |         |  | RMB'000 |  |           | RMB'000 | 
|                |  |         |         |  |         |  |           |         | 
|Within 60 days  |  |         | 43,618  |  |         |  | 271,743   |         | 
|61 to 90 days   |  |         | 26,569  |  |         |  | 165,530   |         | 
|91 to 180 days  |  |         | 103,893 |  |         |  | 647,262   |         | 
|181 to 360 days |  |         | -       |  |         |  | -         |         | 
|                |  |         |         |  |         |  |           |         | 
|                |  |         | 174,080 |  |         |  | 1,084,535 |         | 



F-42







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 17. | TRADE RECEIVABLES (continued)
| | --- | -----------------------------



An aging of trade receivables that were neither past
due nor impaired or past due but not impaired, is as follows:



|                  |  |              |           |  | Past due but
    not impaired |  |         |          | 
|----------------- |  | ------------ | --------- |  | ----------------------------- |  | ------- | -------- | 
|                  |  | Neither past |           |  |                               |  |         |          | 
|                  |  | due nor      |           |  | Less than                     |  |         | 31 to    | 
|                  |  | impaired     |           |  | 30 days                       |  |         | 120 days | 
|                  |  | RMB'000      |           |  | RMB'000                       |  |         | RMB'000  | 
|                  |  |              |           |  |                               |  |         |          | 
|December 31, 2011 |  | 699,891      |           |  | -                             |  |         | -        | 
|December 31, 2012 |  |              | 1,084,535 |  |                               |  | -       |          | 
|                  |  |              |           |  |                               |  |         |          | 
|                  |  |              | USD'000   |  |                               |  | USD'000 |          | 
|                  |  |              |           |  |                               |  |         |          | 
|December 31, 2012 |  |              | 174,080   |  |                               |  | -       |          | 



Receivables that were neither past due nor impaired
relate to customers with no recent history of default.



The carrying amounts of trade receivables approximate
to their fair values.



| | 18. | PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES
| | --- | -------------------------------------------



|                            |  | 2012    |       |  | 2012    |  |        | 2011    | 
|--------------------------- |  | ------- | ----- |  | ------- |  | ------ | ------- | 
|                            |  | USD'000 |       |  | RMB'000 |  |        | RMB'000 | 
|                            |  |         |       |  |         |  |        |         | 
|Deposits to suppliers       |  |         | 3,210 |  |         |  | 19,997 |         | 
|Prepaid advertising         |  |         | 237   |  |         |  | 1,478  |         | 
|Prepaid expenses            |  |         | 161   |  |         |  | 1,004  |         | 
|Prepaid land-lease payments |  |         | 104   |  |         |  | 648    |         | 
|Rental deposits             |  |         | 98    |  |         |  | 610    |         | 
|Other receivables           |  |         | 105   |  |         |  | 659    |         | 
|                            |  |         |       |  |         |  |        |         | 
|                            |  |         | 3,915 |  |         |  | 24,396 |         | 



All of the other receivables
are expected to be recovered or recognized as expense within one year. Staff advances included in other receivables are
considered as financial assets in the scope of IAS 39.



The carrying amount of prepayments, deposits and
other receivables approximate to their fair value.



F-43







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 19. | CASH AND CASH EQUIVALENTS
| | --- | -------------------------



|                          |  | 2012    |         |  | 2012    |  |         | 2011    | 
|------------------------- |  | ------- | ------- |  | ------- |  | ------- | ------- | 
|                          |  | USD'000 |         |  | RMB'000 |  |         | RMB'000 | 
|                          |  |         |         |  |         |  |         |         | 
|Time deposits             |  |         | 64,204  |  |         |  | 400,000 |         | 
|Cash and bank balances    |  |         | 38,071  |  |         |  | 237,184 |         | 
|                          |  |         |         |  |         |  |         |         | 
|Cash and cash equivalents |  |         | 102,275 |  |         |  | 637,184 |         | 



At the end of the reporting period, the cash and cash
equivalents of the Group denominated in RMB amounted to RMB622,631,000 (2011: RMB927,470,000). RMB is not freely convertible into
other currencies, however, under Mainland China's Foreign Exchange Control Regulations and Administration of Settlement, Sale and
Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorized to
conduct foreign exchange business.



Cash at banks earns interest at floating rates based
on daily bank deposit rates. Short term time deposits are made for three months depending on the immediate cash requirements of
the Group, and earn interest at the respective short term deposit rates. The bank balances and time deposits are deposited with
creditworthy banks with no recent history of default. The carrying amounts of cash and bank balances approximate to their fair
values.



| | 20. | TRADE PAYABLES
| | --- | --------------



An aging analysis of the Group's trade payables, based
on the invoice date, is as follows:



|                                |  | 2012    |       |  | 2012    |  |       | 2011    | 
|------------------------------- |  | ------- | ----- |  | ------- |  | ----- | ------- | 
|                                |  | USD'000 |       |  | RMB'000 |  |       | RMB'000 | 
|                                |  |         |       |  |         |  |       |         | 
|Trade payables - Within 90 days |  |         | 1,417 |  |         |  | 8,831 |         | 



The trade payables are non-interest-bearing and are
normally settled on 30- to 90-day terms. All of the trade payables are expected to be settled within one year.



The carrying amounts of trade payables approximate
to their fair values.



F-44







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 21. | DEPOSITS RECEIVED, OTHER PAYABLES AND ACCRUALS
| | --- | ----------------------------------------------



|                         |  | 2012    |       |  | 2012    |  |        | 2011    | 
|------------------------ |  | ------- | ----- |  | ------- |  | ------ | ------- | 
|                         |  | USD'000 |       |  | RMB'000 |  |        | RMB'000 | 
|                         |  |         |       |  |         |  |        |         | 
|Accrued liabilities      |  |         | 5,757 |  |         |  | 35,870 |         | 
|Value added tax payables |  |         | 1,892 |  |         |  | 11,790 |         | 
|Deposits received        |  |         | 1,766 |  |         |  | 11,000 |         | 
|Accrued IPO expenses     |  |         | 485   |  |         |  | 3,021  |         | 
|                         |  |         |       |  |         |  |        |         | 
|                         |  |         | 9,900 |  |         |  | 61,681 |         | 



Deposits received primarily
relate to deposits made by distributors in accordance with the distributorship agreements. Each distributor must pay the Group
a fixed sum of RMB500,000 as security for the performance of their obligations under the distributorship agreement. The Group has
the right not to refund the deposit to the distributors if they do not comply with the terms stipulated in the distributorship
agreements. The Group will refund the deposit to a distributor upon the expiration of the distributorship agreement should either
party decide not to renew the agreement.During the term of the distribution agreement, the Group has the right to terminate
the distribution agreement, at its sole discretion and at anytime, if the distributions cannot meet certain sales target and payment
requirements. Accordingly, management considers it appropriate to classify the deposits from the Group’s distributors as
a current liability.



The carrying amount of deposits received, other
payables and accruals approximate to their fair value.



| | 22. | INTEREST-BEARING BANK BORROWINGS
| | --- | --------------------------------



|                                                   |  | 2012    |       |  | 2012    |  |        | 2011    | 
|-------------------------------------------------- |  | ------- | ----- |  | ------- |  | ------ | ------- | 
|                                                   |  | USD'000 |       |  | RMB'000 |  |        | RMB'000 | 
|                                                   |  |         |       |  |         |  |        |         | 
|Current                                            |  |         |       |  |         |  |        |         | 
|Bank loans - secured and repayable within one year |  |         | 4,815 |  |         |  | 30,000 |         | 



| |  | Included in the above bank loans were:-
| |  | ---------------------------------------



| | (a) | A bank loan of RMB10,000,000 which is interest bearing at an annual rate of 6.56%, secured by mortgages over certain buildings
of the Group situated in Mainland China (Note 13) to the extent of RMB79,530,000, and due for payment on February 12, 2013. The
loan was repaid in February 2013; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | A bank loan of RMB20,000,000 which is interest bearing at an annual rate of 5.40%, secured by personal guarantees from Mr.
Lin Shuipan, Ms. Chen Xiayu, the spouse of Mr. Lin Shuipan, and Mr. Ding Dongdong, the executive senior Vice President of the Company
and the brother in-law of Mr. Lin Shuipan, to the extent of RMB635,000,000 (Note 12(a)), and due for payment on December 19, 2013.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The above bank loans were denominated
in RMB. Because of the short maturity, the carrying amounts of the bank loans approximate to their fair values.



F-45







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 23. | PREFERRED SHARES
| | --- | ----------------



On March 28, 2008, Windrace, Mr. Lin Shuipan and
Elevatech Limited (the "GS Investor") entered into a subscription agreement (the "Subscription Agreement")
under which GS Investor agreed to subscribe for 2,500 preferred shares representing 2.5% of the total issued share capital of Windrace
after the issue and allotment of preferred shares under the Subscription Agreement (the "Subscription"). The consideration
for the Subscription was HKD95.71 million (equivalent to RMB85,135,000).



On March 28, 2008, Mr. Lin Shuipan, RichWise
International Investment Group Limited ("RichWise"), Mr. Shi Jinlei (the sole beneficial owner of RichWise),
Windrace and GS Investor entered into a share purchase agreement (the "SPA") under which Mr. Lin Shuipan and
RichWise agreed to transfer 2,000 and 3,500 preferred shares (the "sale shares") representing 2.0% and 3.5%,
respectively, of the issued share capital of Windrace as enlarged by the Subscription by GS Investor. The consideration for
the acquisition of the sale shares under the SPA amounting to HKD210.56 million (equivalent to RMB189,504,000), was made to
Mr. Lin Shuipan and Richwise.



GS Investor shall have the right to require Windrace
to redeem any part or all of the preferred shares in cash for an amount equal to the consideration as stated in the Subscription
Agreement. In addition, pursuant to the SPA, upon the redemption of the preferred shares, the Selling Parties will make a payment
to GS Investor in respect of the sum of the issue price for each preferred share, plus 12% of internal rate of return ("IRR")
from the initial issuance date until redemption date of the preferred shares.



A letter agreement and a redemption agreement were
signed on May 8, 2009 and July 27, 2009, respectively, in which all of the outstanding preferred shares of Windrace were to be
redeemed simultaneously with the Acquisition (as defined in Note 1).



As consideration for the redemption
of the preferred shares, the sole preferred shareholder, Elevatech, were received a promissory note from Windrace providing for
(i) the payment of HKD306.2 million (RMB272.5 million) on the earlier of the fifth business day following the date of issue of
the promissory note and October 31, 2009 and (ii) an additional payment of USD1.0 million (equivalent to RMB 6.9 million) on June
30, 2010.



On
October 23, 2009, the initial valuation of the preferred shares of HKD306.27 million (equivalent to RMB269,960,000) was
fully repaid to the GS investors. As the accrued interest of RMB41,061,000 has been waived, the amount was treated as a gain to
Windrace and was charged to the stockholders' equity by crediting "other reserve" account.



On June 30, 2010, the additional payment of USD1.0
million (equivalent to RMB 6.9 million) was paid to the GS investors according to the letter agreement and the redemption agreement.



F-46







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 24. | SHAREHOLDERS' EQUITY
| | --- | --------------------



| | (a). | Common Stock
| | ---- | ------------

On October 21, 2009, the Company acquired 100% equity
interest of Windrace by issuing an aggregate of 17,008,633 new ordinary shares (the "Additional Shares") to the Sellers.



| | (a)(i). | Common Stock – Escrow Agreement
| | ------- | -------------------------------

Subject to an escrow agreement (the "Escrow Agreement")
to be entered into among 2020, Windrace, the Company, the Sellers and the escrow agent and the Purchase Agreement, a portion of
the Additional Shares were to be held in escrow and released by installment subject to Adjusted Net Earnings of Exceed. The Company
defines adjusted profit after tax (the "Adjusted Net Earnings") according to the interpretation of 2010 Adjusted Earnings
in the Purchase Agreement. The Adjusted Net Earnings is defined as the profit for the year in the financial statements excluding:
(i) the impact, positive or negative, of any fair value assessment or accounting impact attributable to the escrow agreement for
the release of escrowed shares; (ii) the expenses relating to the completion of the transactions contemplated by the Purchase Agreement;
(iii) the expenses, including interest expenses and other related expenses, related to the repurchase of the preferred shares held
by the GS Investor; and (iv) the expenses relating to the grant of options under share option plans that may be implemented in
the future.



If the 2009 Adjusted Net Earnings are not less than
USD38,067,350, an aggregate of 5,563,714 Additional Shares would be released to the Sellers . If the 2010 Adjusted Net Earnings
are not less than USD49,487,555, an aggregate of 4,277,590 Additional Shares would be released to the Sellers. If the 2011 Adjusted
Net Earnings are not less than USD64,333,821, an aggregate of 1,425,863 Additional Shares would be released to the Sellers. If
the Company achieves Adjusted Net Earnings of USD64,333,821 in 2011, 2,212,789 additional new ordinary shares of Exceed shall be
issued to the Sellers as earn-out shares.



The Company exceeded the Adjusted Net Earnings for
the years ended December 31, 2011, 2010 and 2009. The shares described above became issuable in each of the years based on the
Adjusted Net Earnings, and were released or issued in the subsequent year.



The contingent shares issuable under the escrow and
the additional earn-out shares are accounted for as a financial instrument liability that is adjusted to fair value at each reporting
date, with changes in fair value being recognized currently in the consolidated statements of comprehensive income. Once a measurement
period for the issuance of such contingent shares ends, the contingent share liability related to that period is no longer conditional,
and the obligation is reclassified from liability to equity, if the shares have been earned, based on the fair value of the obligation
at the end of the measurement period. The activities in the contingent share liability during 2010, 2011 and 2012 were as follows:



F-47







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 24. | SHAREHOLDERS' EQUITY (continued)
| | --- | --------------------------------



| | (a). | Common Stock (continued)
| | ---- | ------------------------

| | (a)(i). | Common Stock – Escrow Agreement (continued)
| | ------- | -------------------------------------------





|                                                                                                                              |  | RMB'000 |         
|----------------------------------------------------------------------------------------------------------------------------- |  | ------- | --------
|Deemed dividend for the fair value of the contingently issuable shares at October 21, 2009 with a charge to retained earnings |  |         | 761,854 
|Change in fair value during 2009 with a charge to the consolidated statement of comprehensive income                          |  |         | (170,948
|Reclassification of 2009 contingent share liability at December 31, 2009 from liability to equity                             |  |         | (240,995
|Exchange rate effect                                                                                                          |  |         | (145    
|Contingent share liability as of January 1, 2010                                                                              |  |         | 349,766 
|Change in fair value during 2010 with a charge to the consolidated statement of comprehensive income                          |  |         | (1,604  
|Reclassification of 2010 contingent share liability at December 31, 2010 from a liability to equity                           |  |         | (197,419
|Exchange rate effect                                                                                                          |  |         | (11,575 
|Contingent share liability as of December 31, 2010 and January 1, 2011                                                        |  |         | 139,168 
|Change in fair value during 2011 with a charge to the consolidated statement of comprehensive income                          |  |         | (38,645 
|Reclassification of 2011 contingent share liability at December 31, 2011 from a liability to equity                           |  |         | (94,069 
|Exchange rate effect                                                                                                          |  |         | (6,454  
|Contingent share liability as of December 31, 2011 and 2012                                                                   |  |         | -       





|                                                                                |  | Number of Shares |           
|------------------------------------------------------------------------------- |  | ---------------- | ----------
|                                                                                |  |                  |           
|Contingent shares issuable at October 21, 2009                                  |  |                  | 13,479,956
|Contingent shares earned in 2009, released from escrow in 2010                  |  |                  | (5,563,714
|Contingent shares issuable as of January 1, 2010                                |  |                  | 7,916,242 
|Contingent shares earned in 2010, released from escrow in 2011                  |  |                  | (4,277,590
|Contingent shares issuable as of December 31, 2010 and January 1, 2011          |  |                  | 3,638,652 
|Contingent shares earned in 2011, to be released from escrow and issued in 2012 |  |                  | (3,638,652
|Contingent share issuable as of December 31, 2011 and 2012                      |  |                  | -         



F-48







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 24. | SHAREHOLDERS' EQUITY (continued)
| | --- | --------------------------------



| | (a). | Common Stock (continued)
| | ---- | ------------------------

| | (a)(i). | Common Stock – Escrow Agreement (continued)
| | ------- | -------------------------------------------



METHODOLOGY — VALUATION OF CONTINGENT
CONSIDERATION



When estimating the fair value of the financial liabilities
that arise from release or issuance of Escrow Shares and Earn-out Shares which constitute the contingent consideration, management
relied on the probabilistic scenario model which is commonly adopted to value a contingency driven by future non-market-related
events. The Company consulted with an international independent valuation firm to assist it in developing the model and determining
the fair value of the Escrow Shares and Earn-out Shares at each reporting period end. The following major factors were considered
when estimating the valuation-date fair value of contingent consideration under this model:



| | 1. | Expected or scenario-based projection of earning estimates
| | -- | ----------------------------------------------------------

The earnings estimates adopted under different scenarios
were referenced to the following sources:



| | (i) | Historical performance of the Company as of different
valuation dates
| | --- | ---------------------------------------------------------------------

| | (ii) | Internal profit forecasts prepared by the management
as of different valuation dates
| | ---- | ------------------------------------------------------------------------------------

| | (iii) | Research reports on the Company issued by third-party
analysts
| | ----- | --------------------------------------------------------------

| | (iv) | Industry earning growth rates implied by the consensus earnings estimates from Bloomberg
| | ---- | ----------------------------------------------------------------------------------------



| | 2. | Likelihood of various possible outcomes
| | -- | ---------------------------------------

The probabilities of achieving specified earnings
estimates were management representation and based on their best estimate of the likelihood of different earning scenarios as of
different valuation dates.



| | 3. | Expected quantities of issuable Escrow Shares and Earn-out Shares
| | -- | -----------------------------------------------------------------

The number of shares issuable for a particular year
under each scenario was calculated according to the release schedules stated in the Agreement for Sale and Purchase dated May 8,
2009 and the expected numbers of issuable Escrow Shares and Earn-out Shares as of different valuation dates are probability-weighted
figures calculated using the probabilities estimated by the management and number of issuable shares.



| | 4. | Fair value per share
| | -- | --------------------

The fair value per share is based on the prevailing
market price as of each valuation date.



| | 5. | Marketability discount on issuable shares
| | -- | -----------------------------------------

As the sale or transfer of Escrow Shares and Earn-out
Shares is prohibited during a certain lock-up period after they are released or issued, marketability discounts were applied on
the fair value of the contingent consideration to reflect this restriction from the release date or issue date to the expiry date
of the lock-up restriction. An option-pricing method was used to estimate the discount for lack of marketability ("DLOM").
Under an option-pricing method, the cost of a put option, which can hedge the price change before the privately held share can
be sold, was considered as a basis to determine the lack of marketability discount. This option-pricing method is one of the methods
commonly used in estimating DLOM, as it can take into consideration factors like timing of liquidity event (expiry of lock-up period
in this case) and estimated volatility of the Company or shares of peer companies.



F-49







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 24. | SHAREHOLDERS' EQUITY (continued)
| | --- | --------------------------------



| | (a). | Common Stock (continued)
| | ---- | ------------------------

| | (a)(i). | Common Stock – Escrow Agreement (continued)
| | ------- | -------------------------------------------



METHODOLOGY — VALUATION OF FINALIZED
CONSIDERATION



The fair value of the finalized considerations as
of December 31, 2009, 2010 and 2011 were calculated through multiplication of the actual quantities of the issuable Escrow Shares
and Earn-out Shares by both the prevailing market price as of valuation date and the appropriate marketability discount.



After determining all the key parameters, the fair
value of the contingent liabilities and finalized considerations as of each valuation date was then calculated through multiplication
of the expected quantities of the issuable Escrow Shares and Earn-out Shares by both the prevailing market price as of the valuation
date and the appropriate marketability discount. Below are some of the key assumptions:



|                       |  | October 21, 2009 |         |   | December 31, 2009 |  |        | December 31, 2010 |  |  | December 31, 2011 |  
|---------------------- |  | ---------------- | ------- | - | ----------------- |  | ------ | ----------------- |  |  | ----------------- | -
|                       |  |                  |         |   |                   |  |        |                   |  |  |                   |  
|Volatility             |  |                  | 51%-61  | % |                   |  | 44%-56 | %                 |  |  | 39%-45            | %
|Marketability discount |  |                  | 11%-37  | % |                   |  | 10%-33 | %                 |  |  | 11%-23            | %
|Current stock price    |  |                  | USD12.1 |   |                   |  | USD8.5 |                   |  |  | USD8.26           |  
|Dividend yield         |  |                  | 0.0     | % |                   |  | 0.0    | %                 |  |  | 0.0               | %



| | (a)(ii). | Common Stock – Investment Agreement
| | -------- | -----------------------------------



On July 27, 2009, Windrace entered into an Investment
Agreement (the "Investment Agreement") and the Escrow Agreement with Wisetech Holdings Limited ("Wisetech"),
Windtech Holdings Limited ("Windtech" and, collectively with Wisetech, the "Investors") and Mr. Lin Shuipan,
and as amended by a supplemental agreement dated on November 30, 2009, the Investors invested an aggregate of USD30,000,000 in
Windrace in two installments. Upon the completion of the Business Combination, the Company issued 3,627,968 new ordinary shares
to the Investors (equal to USD27,500,000 divided by USD7.58 per share). On November 30, 2009, the Company issued 329,816 new ordinary
shares to the Investors (equal to USD2,500,000 divided by USD7.58 per share).



| | (b). | Treasury shares
| | ---- | ---------------

In accordance with its share repurchase program announced
on August 15, 2011, the Company has purchased 415,751 of its ordinary shares from the period of August 15, 2011 to December 31,
2011, at an average price of USD4.34 per share, for a total purchase price of approximately USD1.8 million (approximately
RMB11.5 million). The Company is authorized to repurchase up to USD10 million of its ordinary shares within 6 months of August
15, 2011 using existing cash reserves.



The Company has extended the
date of expiration of Exceed's existing USD10 million share repurchase program from February 14, 2012 to August 14, 2012. The Company
has purchased 196,213 of its ordinary shares from January 1, 2012 to August 14, 2012, at an average price of USD3.48 per share,
for an aggregate cost of approximately USD0.7 million (approximately RMB4.3 million), with a balance of approximately USD7.5 million
available for further repurchases under the share repurchase program. The share repurchase program expired on August 14, 2012.



F-50







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 24. | SHAREHOLDERS' EQUITY (continued)
| | --- | --------------------------------



| | (c). | Common stock warrants
| | ---- | ---------------------

2020 issued common stock warrants in November 2007
as part of its initial public offering. Each warrant entitled the holder to purchase from 2020 one share of common stock at an
exercise price of USD5.25 commencing on the later of (i) November 8, 2008 or (ii) the completion of the Business Combination with
a target business, and expires on November 8, 2011. The warrants would be redeemable, at a price of USD0.01 per warrant upon 30
days prior notice after the warrants become exercisable, only in the event that the last sale price of the common stock was at
least USD11.50 per share for any 20 trading days within a 30 trading day period ending on the third day prior to the date on which
notice of redemption is given.



In 2010, the Company implemented a program for early
cashless exercise of warrants through ordinary share exchange, which offered the holders of all 10,890,000 outstanding warrants
(the "Warrants"), including Warrants held as part of the Company's units, the opportunity, for a limited time, to acquire
ordinary shares of the Company (the "Ordinary Shares") by exchanging the Warrants for Ordinary Shares. A total of 32,550
Warrants (approximately 0.3% of the outstanding Warrants) were exchanged for a total of 8,223 Ordinary Shares in this tender offer.
Besides the tender offer, a total of 10,993 warrants and 879,372 warrants were exercised into shares in 2011 and 2010, respectively.



The Company's publicly traded warrants expired in
accordance with their terms on November 8, 2011. 922,915 warrants were exercised during the period from October 21, 2009 to November
8, 2011, generating USD4,674,000 in cash for the Company. As of December 31, 2012 and 2011, the Company had no warrants outstanding.
The common stock warrants were treated as equity instruments according to IAS 32 paragraph 22.



| | (d). | Reserves
| | ---- | --------

The amounts of the Group's reserves and the movements
therein for the current and prior years are presented in the consolidated statements of changes in equity.



| | 25. | EQUITY INCENTIVE PLAN
| | --- | ---------------------



The Company operates a 2010 Equity
Incentive Plan (the "Plan") for the purpose of providing incentives and rewards to eligible participants who contribute
to the success of the Group's operations. Eligible participants of the Scheme include the Company's directors, including independent
non-executive directors, other employees of the Group, consultants of the Company, and its Subsidiaries. The Plan was approved
by the shareholders and became effective on June 30, 2010 and, unless otherwise cancelled or amended, will remain in force for
10 years from that date.



F-51







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 25. | EQUITY INCENTIVE PLAN (continued)
| | --- | ---------------------------------



The number of ordinary shares of USD0.0001 each in
the share capital of the Company, that may be issued or transferred (A) upon the exercise of option rights or appreciation rights,
(B) in payment of restricted stock and released from substantial risks of forfeiture thereof, (C) in payment of restricted stock
units, (D) in payment of performance shares or performance units that have been earned, (E) as awards to non-employee directors,
(F) as other awards, or (G) in payment of dividend equivalents paid with respect to awards made under the Plan, shall be 1,000,000
shares of common stock plus, during each calendar year of the Company during which this Plan is in effect, an additional number
of shares equal to the lesser of (1) 1,000,000 shares of common stock, (2) ten percent (10%) of the number of shares of all classes
of common stock of the Company outstanding on the first business day of the Company's fiscal year, and (3) such lesser number as
may be determined by the Compensation Committee, in the aggregate not to exceed 10,000,000 shares of common stock plus, in each
case, any shares of common stock relating to awards that expire or are forfeited or cancelled under this Plan. Such common stock
may be shares of original issuance or treasury shares or a combination of the foregoing.



In 2011, the Company granted 338,000 (2010: 404,086)
restricted shares to its non-executive directors, senior management and certain employees. Restricted shares of 50,086 were granted
outright to the non-executive directors and certain employees in 2010. 163,000 (2010: nil) restricted shares granted in 2011 will
be vested 25%, 30% and 45% after the first year, second year and third year, respectively. The remaining granted restricted shares
will be generally vested in equal installments over three years. No restricted shares were granted in 2012.



Share-based compensation expense related to the restricted
shares under the Plan of RMB5.9 million (USD1.0 million), RMB7.9 million and RMB7.3 million was recognized in the consolidated
statements of comprehensive income in 2012, 2011 and 2010, respectively.



The following restricted shares were outstanding
under the Plan during the years:



|                                         |  |           |          |   | Weighted   | 
|---------------------------------------- |  | --------- | -------- | - | ---------- | 
|                                         |  |           |          |   | Average    | 
|                                         |  |           |          |   | Grant-date | 
|                                         |  | Number    |          |   | Fair Value | 
|Unvested Restricted Shares               |  | of Shares |          |   | USD        | 
|At January 1, 2010                       |  |           | -        |   |            | 
|Granted during the year                  |  |           | 404,086  |   |            | 
|Vested during the year                   |  |           | (50,086  | ) |            | 
|                                         |  |           |          |   |            | 
|At December 31, 2010 and January 1, 2011 |  |           | 354,000  |   |            | 
|Granted during the year                  |  |           | 338,000  |   |            | 
|Vested during the year                   |  |           | (205,665 | ) |            | 
|Forfeited during the year                |  |           | (145,918 | ) |            | 
|                                         |  |           |          |   |            | 
|At December 31, 2011 and January 1, 2012 |  |           | 340,417  |   |            | 
|Vested during the year                   |  |           | (144,166 | ) |            | 
|Forfeited during the year                |  |           | (54,850  | ) |            | 
|                                         |  |           |          |   |            | 
|At December 31, 2012                     |  |           | 141,401  |   |            | 



F-52







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 26. | CONTINGENT LIABILITIES
| | --- | ----------------------



At December 31, 2012, the Group is not aware of any
significant contingent liabilities (2011: Nil).



| | 27. | OPERATING LEASE ARRANGEMENTS
| | --- | ----------------------------



The Group leases certain of its office premises under
operating lease arrangements. Leases for these properties are negotiated for terms ranging from 1 to 3 years.



As of the end of each reporting period, the Group
had total future minimum lease payments under non-cancellable operating leases falling due as follows:



|                                        |  | 2012    |    |  | 2012    |  |     | 2011    | 
|--------------------------------------- |  | ------- | -- |  | ------- |  | --- | ------- | 
|                                        |  | USD'000 |    |  | RMB'000 |  |     | RMB'000 | 
|                                        |  |         |    |  |         |  |     |         | 
|Within one year                         |  |         | 72 |  |         |  | 447 |         | 
|In the second to fifth years, inclusive |  |         | -  |  |         |  | -   |         | 
|                                        |  |         |    |  |         |  |     |         | 
|                                        |  |         | 72 |  |         |  | 447 |         | 



F-53







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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 28. | COMMITMENTS
| | --- | -----------



| | (a) | Capital commitments
| | --- | -------------------



Total commitments under these arrangements at the
end of each reporting period were as follows:



|                                                                                                                        |  | 2012    |        |  | 2012    |  |         | 2011    | 
|----------------------------------------------------------------------------------------------------------------------- |  | ------- | ------ |  | ------- |  | ------- | ------- | 
|                                                                                                                        |  | USD'000 |        |  | RMB'000 |  |         | RMB'000 | 
|Contracted for capital commitment in respect of capital contribution to its wholly foreign owned subsidiary in the PRC: |  |         |        |  |         |  |         |         | 
|- XDLong Jiangxi                                                                                                        |  |         | 51,608 |  |         |  | 321,520 |         | 
|                                                                                                                        |  |         |        |  |         |  |         |         | 
|Contract for commitment in respect of                                                                                   |  |         |        |  |         |  |         |         | 
|- acquisition of land                                                                                                   |  |         | 12,539 |  |         |  | 78,120  |         | 
|- construction of new staff quarters in Jinjiang                                                                        |  |         | 1,162  |  |         |  | 7,239   |         | 
|- construction of new production facility in Ruichang                                                                   |  |         | 26,264 |  |         |  | 163,629 |         | 
|                                                                                                                        |  |         |        |  |         |  |         |         | 
|                                                                                                                        |  |         | 91,573 |  |         |  | 570,508 |         | 



| | (b) | Other commitments
| | --- | -----------------



Other commitments at the end of each reporting period
were as follows:



|                                     |  | 2012    |     |  | 2012    |  |       | 2011    | 
|------------------------------------ |  | ------- | --- |  | ------- |  | ----- | ------- | 
|                                     |  | USD'000 |     |  | RMB'000 |  |       | RMB'000 | 
|                                     |  |         |     |  |         |  |       |         | 
|Advertising and promotional expenses |  |         |     |  |         |  |       |         | 
|2012                                 |  |         | -   |  |         |  | -     |         | 
|2013                                 |  |         | 326 |  |         |  | 2,032 |         | 
|                                     |  |         | 326 |  |         |  | 2,032 |         | 
|                                     |  |         |     |  |         |  |       |         | 
|Research and development (Note (i))  |  |         |     |  |         |  |       |         | 
|2012                                 |  |         | -   |  |         |  | -     |         | 
|2013                                 |  |         | 80  |  |         |  | 500   |         | 
|2014                                 |  |         | 80  |  |         |  | 500   |         | 
|2015                                 |  |         | 80  |  |         |  | 500   |         | 
|2016                                 |  |         | 60  |  |         |  | 375   |         | 
|                                     |  |         | 300 |  |         |  | 1,875 |         | 
|                                     |  |         |     |  |         |  |       |         | 
|                                     |  |         | 626 |  |         |  | 3,907 |         | 



| | Note (i): | The agreement with the China Institute of Sport Science
was renewed in October 2011. The Group has committed to pay predetermined annual fees of RMB500,000 to the China Institute of
Sport Science for each of the years in the period from October 2011 to October 2016 for their assistance with the research and
development of technology for its sports footwear and apparel, and the promotion of the technology content of its products.
| | --------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 29. | FINANCIAL INSTRUMENTS BY CATEGORY
| | --- | ---------------------------------



The carrying amounts of each of the categories of
financial instruments as of the end of each reporting period are as follows:



Financial assets – Loans and receivables
(including cash and cash equivalents)



|                          |  | 2012    |         |  | 2012    |  |           | 2011    | 
|------------------------- |  | ------- | ------- |  | ------- |  | --------- | ------- | 
|                          |  | USD'000 |         |  | RMB'000 |  |           | RMB'000 | 
|                          |  |         |         |  |         |  |           |         | 
|Trade receivables         |  |         | 174,080 |  |         |  | 1,084,535 |         | 
|Other receivables         |  |         | 25      |  |         |  | 158       |         | 
|Cash and cash equivalents |  |         | 102,275 |  |         |  | 637,184   |         | 
|                          |  |         |         |  |         |  |           |         | 
|                          |  |         | 276,380 |  |         |  | 1,721,877 |         | 



|Financial liabilities                          |  |         |        |  |         |  |        |         | 
|---------------------------------------------- |  | ------- | ------ |  | ------- |  | ------ | ------- | 
|                                               |  | 2012    |        |  | 2012    |  |        | 2011    | 
|                                               |  | USD'000 |        |  | RMB'000 |  |        | RMB'000 | 
|                                               |  |         |        |  |         |  |        |         | 
|Other financial liabilities at amortized costs |  |         |        |  |         |  |        |         | 
|Trade payables                                 |  |         | 1,417  |  |         |  | 8,831  |         | 
|Other payables                                 |  |         | 5,851  |  |         |  | 36,454 |         | 
|Interest-bearing bank borrowings               |  |         | 4,815  |  |         |  | 30,000 |         | 
|                                               |  |         |        |  |         |  |        |         | 
|                                               |  |         | 12,083 |  |         |  | 75,285 |         | 



| | 30. | FINANCIAL RISK MANAGEMENT AND FAIR VALUES
| | --- | -----------------------------------------



The Group's principal financial instruments comprise
bank borrowings, cash and cash equivalents. The main purpose of these financial instruments is to fund the Group's operations.
The Group has various financial assets and liabilities such as trade receivables and trade payables, which arise directly from
its operations.



It is, and has been, throughout the reporting periods,
the Group's policy that no trading in financial instruments shall be undertaken.



The main risks arising from the Group's financial
instruments are foreign currency risk, credit risk, interest rate risk, commodity price risk, business risk and liquidity risk.
The board of directors reviews and agrees policies for managing each of these risks and they are summarized below:



F-55







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 30. | FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)
| | --- | -----------------------------------------------------



| |  | Foreign currency risk
| |  | ---------------------



The Group mainly operates in Mainland China with
most of the transactions settled in RMB. The Group's assets and liabilities, and transactions arising from its operations are mainly
denominated in RMB, and therefore the overall foreign currency risk was considered minimal. The Group has not used any forward
contracts, currency borrowings or other means to hedge our foreign exchange exposure. Nevertheless, the management will continue
to monitor the foreign exchange exposure and adopt prudent measures as appropriate.



Credit risk



The credit risk of the Group is primarily attributable
to trade receivables and deposits with banks.



Cash and cash equivalents



The Group maintains its cash and cash equivalents
primarily with various PRC State-owned banks and Hong Kong-based financial institutions, which management believes are of high
credit quality. The Group performs periodic evaluations of the relative credit standing of those financial institutions.



Trade receivables



The Group trades only with recognized and creditworthy
customers. It is the Group's policy that all customers who wish to trade on credit terms are subject to credit verification procedures.
In addition, receivable balances are monitored on an on-going basis and the Group's exposure to bad debts is not significant. The
Group offers revolving credit to domestic distributors. This revolving credit provides for a maximum credit limit that may be outstanding
at any one time based on, among others, credit history, market conditions, prior year's purchases and estimated purchases for the
coming year. In considering the amount of revolving credit, the Group also takes into account the funding needs of the distributors
in expanding their retail network. The Group generally evaluates the credit limits granted to distributors upon renewal of the
relevant distribution agreements. Normally, the Group does not obtain collateral from their distributors.



At the end of reporting period, the Group is exposed
to certain credit risks as 11.8% and 41.6% (2011: 20.6% and 54.5%) of the total trade receivables were due from the Group's largest
and the five largest customers, respectively.



During the year ended December 31, 2012, one customer
accounted for 12.1% of consolidated net sales of the Company. During the year ended December 31, 2011, two customers accounted
for 12.6% and 11.0% of consolidated net sales of the Company, respectively. During the year ended December 31, 2010, no customer
accounted for more than 10% of consolidated net sales of the Company.



Further quantitative disclosures in respect of the
Group's exposure to credit risk arising from trade receivables are set out in Note 17.



The maximum exposure to credit risk is represented
by the carrying amount of each financial asset. The Group does not provide any guarantees which would expose the Group or the Company
to credit risk.



F-56







| |  | EXCEED COMPANY LTD. AND SUBSIDIARIES
| |  | ------------------------------------



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 30. | FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)
| | --- | -----------------------------------------------------



Interest rate risk



The Group is exposed to fair value interest rate risk
in relation to fixed-rate bank borrowings.  The Group did not have any variable-rate bank borrowings as of December 31, 2012
and 2011.



Commodity price risk



The major raw materials used in the production of
the Group's products included cotton, rubber and plastics. The Group is exposed to fluctuation in the prices of these raw materials
which are influenced by global as well as regional supply and demand conditions. Fluctuations in the prices of raw materials could
adversely affect the Group's financial performance. The Group historically has not entered into any commodity derivative instruments
to hedge the potential commodity price changes.



Business risk



The Group's primary business
is the design, manufacture and distribution of branded sports products including footwear, apparel and accessories. The Group's
financial results are influenced by the rapidity of its designs to be copied by competitors and reproduced at much lower prices,
as well as by the Group's ability to continue to create new designs that appeal to consumers, maintain an extensive distribution
network, manufacture sufficient quantities to meet customer demand, and dispose of excess inventories without excessive losses.
Based on these factors, the Group may experience significant fluctuations in its future financial results.



F-57







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 30. | FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)
| | --- | -----------------------------------------------------



Liquidity risk



The Group monitors risk of a shortage of funds by
considering the maturity of both its financial assets and projected cash flows from operations. The Group's objective is to maintain
a balance between continuity of funding and flexibility through use of bank borrowings and other borrowings to meet its working
capital requirements.



The table below summarizes the maturity profile of
the Group's financial liabilities as of the end of reporting period based on contractual undiscounted cash flow:



|December 31, 2012                    |  | On demand |        |  | Less than 3 months |  |        | 3 to 12 months |  |  | Total   |  |  | Carrying amount |       
|------------------------------------ |  | --------- | ------ |  | ------------------ |  | ------ | -------------- |  |  | ------- |  |  | --------------- | ------
|                                     |  | RMB'000   |        |  | RMB'000            |  |        | RMB'000        |  |  | RMB'000 |  |  | USD'000         |       
|                                     |  |           |        |  |                    |  |        |                |  |  |         |  |  |                 |       
|Interest-bearing
    bank borrowings |  |           | -      |  |                    |  | 10,082 |                |  |  | 20,990  |  |  |                 | 31,072
|Other financial liabilities          |  |           | 11,000 |  |                    |  | 25,454 |                |  |  | -       |  |  |                 | 36,454
|Trade
    payables                   |  |           | -      |  |                    |  | 8,831  |                |  |  | -       |  |  |                 | 8,831 
|                                     |  |           |        |  |                    |  |        |                |  |  |         |  |  |                 |       
|                                     |  |           | 11,000 |  |                    |  | 44,367 |                |  |  | 20,990  |  |  |                 | 76,357



|                            |  | On      |        |  | Less than |  |        | 3 to 12 |  |  |         |  |  | Carrying |       
|--------------------------- |  | ------- | ------ |  | --------- |  | ------ | ------- |  |  | ------- |  |  | -------- | ------
|December 31, 2011           |  | demand  |        |  | 3 months  |  |        | months  |  |  | Total   |  |  | amount   |       
|                            |  | RMB'000 |        |  | RMB'000   |  |        | RMB'000 |  |  | RMB'000 |  |  | RMB'000  |       
|                            |  |         |        |  |           |  |        |         |  |  |         |  |  |          |       
|Other financial liabilities |  |         | 11,000 |  |           |  | 24,223 |         |  |  | -       |  |  |          | 35,223
|Trade payables              |  |         | -      |  |           |  | 59,941 |         |  |  | -       |  |  |          | 59,941
|                            |  |         |        |  |           |  |        |         |  |  |         |  |  |          |       
|                            |  |         | 11,000 |  |           |  | 84,164 |         |  |  | -       |  |  |          | 95,164



F-58







EXCEED COMPANY LTD. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



December 31, 2012



| | 30. | FINANCIAL RISK MANAGEMENT AND FAIR VALUES (continued)
| | --- | -----------------------------------------------------



Capital Management



The primary objective of the Group's capital management
is to ensure that it maintains a capital ratio in order to support its business. The Group manages its capital structure and makes
adjustment to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to
maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
shareholders, or issue new shares. No changes were made in the objectives or policies during the reporting periods.



The
Group is not subject to any externally imposed capital requirements.



The Group monitors capital on the basis of debt-to-adjusted
capital ratio, which is calculated as the net debt divided by adjusted capital. The debt-to-adjusted capital ratios as of the end
of reporting period were as follows:



|                                 |  | 2012    |          |   | 2012    |  |           | 2011    | 
|-------------------------------- |  | ------- | -------- | - | ------- |  | --------- | ------- | 
|                                 |  | USD'000 |          |   | RMB'000 |  |           | RMB'000 | 
|                                 |  |         |          |   |         |  |           |         | 
|Interest-bearing bank borrowings |  |         | 4,815    |   |         |  | 30,000    |         | 
|Trade payables                   |  |         | 1,417    |   |         |  | 8,831     |         | 
|Less: Cash and cash equivalents  |  |         | (102,275 | ) |         |  | (637,184  | )       | 
|                                 |  |         |          |   |         |  |           |         | 
|Net cash                         |  |         | (96,043  | ) |         |  | (598,353  | )       | 
|                                 |  |         |          |   |         |  |           |         | 
|Total equity                     |  |         | 347,170  |   |         |  | 2,162,904 |         | 
|                                 |  |         |          |   |         |  |           |         | 
|Adjusted capital                 |  |         | 347,170  |   |         |  | 2,162,904 |         | 
|                                 |  |         |          |   |         |  |           |         | 
|Debt-to-adjusted capital ratio   |  |         | N/A      |   |         |  | N/A       |         | 



Fair values



No disclosure of fair value is required as all of
the Group’s financial assets and liabilities are carried at amounts not materially different from their fair values at December
31, 2012 and 2011.



| | 31. | APPROVAL OF FINANCIAL STATEMENTS
| | --- | --------------------------------



The financial statements were approved and authorized
for issue by the board of directors on March 27, 2013.





F-59