Furthermore, Ernst & Young carried out an independent audit of Exceed and its subsidiaries during Hong Kong IPO process. Ernst & Young did not rely on the work from the PRC audit firms. It is a general procedure for the Big Four auditors or other overseas auditors to obtain the PRC audited report from the Company and make certain disclosures, as regulations require PRC companies to be audited by the PRC auditors once a year. However, it does not mean that the Big Four auditors or other overseas auditors would rely on the work from the PRC audit firm.
According to the Ernst & Young Accountants' report:
" For the purpose of this report, we have carried out independent audit procedures in accordance with Hong Kong Standards on Auditing ( '' HKSAs '' ) issued by the HKICPA on the management accounts of these companies which were prepared in accordance with International Financial Reporting Standards ( '' IFRSs '' ) issued by the International Accounting Standards Board (the '' IASB '' ). "
" In our opinion, on the basis of presentation set out in note 1 under Section II '' Notes to Financial Information '' below, the Financial Information gives, for the purpose of this report, a true and fair view of the combined state of affairs of the Group as at December 31, 2005, 2006 and 2007, and of the combined results and cash flows of the Group for the Relevant Periods. "It is common practice for Hong Kong IPO offerings to state the intended dividend policy in their prospectus as investors in Hong Kong prefer receiving dividends as there is no dividend tax in Hong Kong. As such, in our prospectus for the suspended HK IPO, we had included an indicative dividend payout. However, once we decided to list in the U.S., the management considered the US tax impact on dividend payments and our long-term capital expenditure requirements (as described above), and ultimately decided to revise our dividend policy. Finally, it is also not uncommon for companies to fall victim to rumors and speculation in the media during their IPO process in Hong Kong. We were not immune to this unfortunate practice; however it's important to note that there have not been any further negative rumors in the press following the suspension of our HK IPO. We understand that another major sportswear company was the victim of negative rumors in the press during their HK IPO process as well. Questions on Our Advertising and Promotional Activities and Expenses Our brand Xidelong is positioned as a middle-market brand targeting the "lifestyle" product category, which we view to be between the more functional/professional brands, such as Nike or 361º, and the more fashion oriented brands, such as Xtep or Kappa. In recent years we have used the "happy lifestyle" theme across our marketing and advertising activities, and as such we have chosen various marketing approaches which are not necessarily sports-related. For example, we engage By2, a popular Taiwan-based musical group, as a product spokesperson; have sponsored the "Fitness for All" nationwide campaign and events organized by PRC governmental Sports Council for two consecutive years since 2010; and have sponsored the "Inter-City" entertainment and sports TV weekly series on CCTV1 and CCTV 5, the most influential TV channels in China. Our marketing campaigns are geared towards a specific target market. And while we may conduct fewer overall advertising and promotional campaigns relative to some of our peers, we do not believe that the number of events in and of themselves can be used to justify the A&P expenditure of a company. Costs vary depending on the event or sponsorship. For example, CCTV is the most expensive but influential TV channel in China. In addition, given the scale and breadth of the "Fitness for All" campaign, the sponsorship cost is quite high as well. Questions on Our Visibility within the China Sportswear Market As a final point, a few investors have asked why Exceed and our China brand is not always named alongside our Hong Kong listed competitors in industry and analyst reports. Frankly, we do not know, because we can't speak on behalf of the authors of the industry and analyst reports cited by some investors. However, we would point out that in January, as we announced that we were named, alongside other leading sportswear brands Li Ning and ANTA, as one of China's "Top Ten Sport-footwear Enterprises" and among the "100 Most Valuable Brands of 2010 in the Footwear Industry" by the National Productivity Center of the Leather and Footwear Industry. A copy of the award can be found on our website. For another example, please see the Deutsche Bank research note on Anta, dated February 21, 2011, which clearly lists XD Long, our operating subsidiary, on page 4, Figure 2. There are a number of additional examples of Exceed and/or our operating subsidiaries being mentioned in analyst reports, independent industry research reports and in the press, but we do not feel it is necessary to list them all here. We hope the above details address your questions, and we remain committed to maintaining open and frequent communications with our investors in the future. We thank you for your continued support.