Offer to Purchase for Cash

by

AQUASITION CORP.

of

Up to 4,995,000 Shares of Common Stock

at a Purchase Price of $10.30 Per Share

THIS OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P. M., NEW YORK CITY TIME, ON TUESDAY, JULY 29, 2014
UNLESS THE OFFER IS EXTENDED.

If you support our proposed Acquisition (as defined below), do not tender your Common Stock in this Offer.

Aquasition Corp. (“Aquasition,” the “Company,” “we,” “us” or “our”) hereby offers to purchase up to 4,995,000 of its shares of common stock, par value $0.0001 per share (the “Common Stock”), at a purchase price of $10.30 per share, net to the seller in cash, without interest (the “Purchase Price”), for an aggregate purchase price of up to $51,448,500, subject to certain conditions described in this Offer to Purchase and in the Letter of Transmittal (which, together with this Offer to Purchase as they may be amended or supplemented from time to time, constitute the “Offer”).

The Purchase Price is equal to the per share amount on deposit in our trust account as of the commencement of the Offer (excluding interest earned thereon), less taxes payable. See “The Offer — General; Purchase Price; No Proration.”

On March 24, 2014, a Share Exchange Agreement and Plan of Liquidation (the “Agreement”) was entered into by and among Aquasition, KBS International Holdings, Inc., a Nevada corporation (“KBS”), Hongri International Holdings Ltd., a company organized and existing under the laws of the British Virgin Islands and wholly owned subsidiary of KBS (“Hongri” or the “Target”), and Cheung So Wa and Chan Sun Keung, each an individual and shareholder of KBS (each, a “Principal Stockholder”). Upon the closing of the transactions contemplated in the Agreement, the Company will acquire 100% of the issued and outstanding equity interest in Target from KBS in exchange for the transaction consideration consisting of shares of Aquasition common stock (the “Acquisition”) and KBS will liquidate immediately thereafter. The number of shares comprising the transaction consideration will be calculated in accordance with the terms of the Agreement, and is estimated to be approximately 22,957,455 shares of Common Stock.

This Offer is being made in connection with the Acquisition pursuant to our organizational documents to provide our public stockholders with an opportunity to redeem their Common Stock for a pro-rata portion of our Trust Account (as defined below). The holders of Common Stock issued prior to our IPO, which consists of our officers and directors and their affiliates (the “founders”), have agreed not to tender their shares in this Offer.

THE OFFER IS CONDITIONED ON SATISFACTION OF THE ACQUISITION CONDITION (AS FURTHER DESCRIBED IN THIS OFFER TO PURCHASE), AND NO MORE THAN 4,995,000 SHARES OF COMMON STOCK BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN AND CERTAIN OTHER CONDITIONS. SEE “THE OFFER — CONDITIONS OF THE OFFER.”

Only Common Stock validly tendered, and not properly withdrawn, will be purchased pursuant to the Offer. Common Stock tendered pursuant to the Offer but not purchased in the Offer will be returned at our expense promptly following the expiration of the Offer. See “The Offer — Procedures for Tendering Common Stock.”

We will fund the purchase of Common Stock in the Offer with our cash resources and cash available to us from the Trust Account in the event the Acquisition is consummated on or prior to August 1, 2014. See “The Offer — Source and Amount of Funds.” The Offer is not conditioned on any minimum number of shares of Common Stock being tendered. The Offer is, however, subject to certain other conditions. See “The Offer — Purchase of Common Stock and Payment of Purchase Price” and “— Conditions of the Offer.”

The Common Stock is traded and listed on the Nasdaq Capital Market under the symbol “AQU.” The Common Stock may be delisted if we fail to maintain certain Nasdaq listing requirements. Aquasition received a letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC stating that Nasdaq’s staff had determined that Aquasition was not in compliance with Listing Rule 5550(a)(3), which rule requires that the Company maintain a minimum of 300 public holders for continued listing of its securities on Nasdaq. On May 5, 2014 the Company provided the Nasdaq with a plan to regain compliance. Aquasition included a description of the Acquisition and this tender offer as part of its plan to regain compliance. While the tender offer will reduce the number of currently public shares outstanding, Aquasition believes that the Acquisition will increase the total number of shares outstanding. Aquasition believes that, in addition to directly increasing the number of public shareholders by issuing shares at the closing, the Acquisition is an attractive business opportunity that will attract additional shareholders at or immediately after closing, and Aquasition is actively marketing the Acquisition to encourage shareholders to not tender their shares. On June 2, 2014, Aquasition received a letter from Nasdaq indicating that it had until August 15, 2014, to provide evidence to Nasdaq that it had a minimum of 300 round lot shareholders. There can be no assurance that Aquasition will be able to regain compliance with the Nasdaq continued listing requirements, including the minimum public holder requirement, or that its securities will continue to be listed on the Nasdaq Capital Market. See “Risk Factors — Nasdaq may delist our securities, which could limit investors’ ability to transact in our securities and subject us to additional trading restrictions.”

Aquasition anticipates issuing an aggregate of approximately 22,957,455 shares of Common Stock as consideration to the sellers of the Target in the Acquisition. These shares are being issued pursuant to the exemption from registration included in Section 4(a)(2), or Regulation S under of the Securities Act. Assuming all of these shares are issued, a total of 4,995,000 shares are tendered in this offer, and none of Aquasition’s warrants or options are exercised, Aquasition’s current shareholders will own approximately 9.1% of the post-Acquisition company.

On June 17, 2014, the last reported sale price of the Common Stock was $10.26 per share. Shareholders are urged to obtain current market quotations for the Common Stock before deciding whether to tender their Common Stock pursuant to the Offer. See “Market Price Information.”

Our board of directors has (i) approved our making the Offer, (ii) declared the advisability of the Acquisition, and (iii) determined that the Acquisition is in the best interests of Aquasition’s shareholders. If you tender your Common Stock in the Offer, you will not be a shareholder of the Company after the Acquisition and, therefore, our board of directors recommends that you do not accept the Offer with respect to your Common Stock. The Board took into consideration that Target has a solid track record of consistent and high revenues. However, you must make your own decision as to whether to tender your Common Stock and, if so, how many shares of Common Stock to tender. In doing so, you should read carefully the information in this Offer to Purchase and in the Letter of Transmittal, including the purposes and effects of the Offer. See “The Offer — Purpose of the Offer; Certain Effects of the Offer.” You should discuss whether to tender your Common Stock with your broker or other financial advisor, if any. See “Risk Factors” for a discussion of risks that you should consider before deciding whether to participate in this Offer, and “The Acquisition—Pro forma Book Value” for a comparison of the tender offer price, the current market price, the price per share paid by the our founding shareholders, and the pro forma book value per share.

Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this Offer. Any representation to the contrary is a criminal offense.

Questions and requests for assistance regarding the Offer may be directed to Advantage Proxy, as information agent (the “Information Agent”) for the Offer, at the telephone numbers and e-mail address set forth on the back cover of this Offer to Purchase. You may request additional copies of the Offer to Purchase, the Letter of Transmittal, and the other Offer documents from the Information Agent at the telephone numbers and e-mail address on the back cover of this Offer to Purchase. You may also contact your broker, dealer, commercial bank, trust company or nominee for copies of these documents.

IMPORTANT

If you desire to tender all or any portion of your Common Stock, you must do one of the following before the Offer expires:

To validly tender Common Stock pursuant to the Offer, other than Common Stock registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you must properly complete and duly execute the Letter of Transmittal.

We are not making the Offer to, and will not accept any tendered Common Stock from, shareholders in any jurisdiction where it would be illegal to do so. However, we may, at our discretion, take any actions necessary for us to comply with the applicable laws and regulations to make the Offer to shareholders in any such jurisdiction.

We have not authorized any person to make any recommendation on our behalf as to whether you should tender or refrain from tendering your Common Stock pursuant to the Offer. You should rely only on the information contained in this Offer to Purchase and in the related Letter of Transmittal or to which we have referred you. We have not authorized anyone to provide you with information or to make any representation in connection with the Offer other than those contained in this Offer to Purchase or in the related Letter of Transmittal. If anyone makes any recommendation or gives any information or representation regarding the Offer, you must not rely upon that recommendation, information or representation as having been authorized by us, our board of directors, the Depositary or the Information Agent for the Offer. You should not assume that the information provided in this Offer is accurate as of any date other than the date as of which it is shown, or if no date is otherwise indicated, the date of this Offer.

HOW TO OBTAIN ADDITIONAL INFORMATION

This Offer to Purchase incorporates important business and financial information about Aquasition that is not included or delivered herewith. If you would like to receive additional information or if you want additional copies of this document, the appendices or any other documents filed by Aquasition with the Securities and Exchange Commission, such information is available without charge upon written or oral request. Please contact the following:

Advantage Proxy
24925 13th Place South
Des Moines, WA 98198
Attention: Karen Smith
Telephone number: toll Free: 877-870-8565 or 206-870-8565
Email: ksmith@advantageproxy.com

If you would like to request documents, please do so no later than June 24, 2014 to ensure that you receive them prior to the closing of the Offer. Please be sure to include your complete name and address in your request. Please see “Where You Can Find Additional Information” to find out where you can find more information about Aquasition.

Table of Contents

SUMMARY TERM SHEET

This summary term sheet highlights important information regarding the Offer and the Acquisition. To understand the Offer and the Acquisition fully and for a more complete description of the terms of the Offer and the Acquisition, you should carefully read this entire Offer to Purchase, including the appendices and documents incorporated by reference, and the Letter of Transmittal. We have included references to the sections of this Offer to Purchase where you will find a more complete description of the topics addressed in this summary term sheet.

For further information regarding the Offer, see “The Offer” beginning on page 8.

QUESTIONS AND ANSWERS ABOUT THE OFFER

Q.           Who is offering to purchase the securities?

A:            Aquasition Corp. (“Aquasition”, the “Company,” “we,” “us” or “our”) is offering to purchase the Common Stock.

Q.           What securities are sought?

A.           We are offering to purchase (the “Offer”) up to 4,995,000 outstanding shares of Common Stock.

Q.           Why are we making the Offer?

A.           On March 24, 2014, the Agreement was entered into by and among Aquasition, KBS, the Target and the Principal Stockholders. Upon the closing of the transactions contemplated in the Agreement, the Company will acquire 100% of the issued and outstanding equity interest in Target from KBS in exchange for the transaction consideration consisting of shares of Aquasition common stock, which we refer to herein as the Acquisition, and KBS will liquidate immediately thereafter. The number of shares comprising the Transaction Consideration (as defined below) will be calculated in accordance with the terms of the Agreement, and is estimated to be approximately 22,957,455 shares of Common Stock.

This Offer is being made in connection with the Acquisition pursuant to our organizational documents to provide our public stockholders with an opportunity to redeem their Common Stock for a pro-rata portion of our Trust Account. The holders of Common Stock issued prior to our IPO, which consists of our officers and directors and their affiliates, have agreed not to tender their shares in this Offer.

Promptly following the scheduled Expiration Date, we will publicly announce whether the offer conditions have been satisfied or waived and whether the Offer has been extended, terminated or delayed. If such offer conditions are satisfied or waived, promptly after the Expiration Date and contemporaneous with the completion of the Acquisition, Aquasition shall purchase and pay the Purchase Price for each share of Common Stock validly tendered and not properly withdrawn. The Acquisition must be consummated pursuant to our Articles of Incorporation. See “The Acquisition.”

Q.           What is the background of Aquasition?

A.           We are a blank check company formed on January 26, 2012, pursuant to the laws of the Republic of the Marshall Islands for the purpose of acquiring through a merger, capital stock exchange, asset acquisition, stock purchase, or similar acquisition transaction, one or more operating businesses or assets. On November 1, 2012, our initial public offering of 5,000,000 units was consummated. Each unit issued in the IPO (the “Units”) consisted of one share of common stock and one warrant. Each warrant entitles the holder to purchase one share of common stock at a price of $11.50. Immediately prior to the consummation of the IPO, we completed a private placement of 337,750 Units to our founding stockholders (also referred to in this offer letter as our “founders” or the “Founders”) generating gross proceeds of $3,377,500. On November 7, 2012, the underwriters of the IPO exercised their over-allotment option in part, for a total of an additional 550,000 Units (over and above the 5,000,000 Units sold in the IPO). Our founding stockholders acquired an additional 30,250 Units at $10.00 per Unit, generating gross proceeds of $302,500, in accordance with the terms of the private placement agreement entered into immediately prior to the IPO to ensure that the amount of funds initially held in the trust account is equal to $10.30 per unit sold in the IPO. The 5,550,000 Units sold in the IPO, including the 550,000 Units subject to the over-allotment option, were sold at an offering price of $10.00 per Unit, generating gross proceeds of $55,500,000. A total of $57,165,000, which includes a portion of the $3,680,000 of proceeds from the private placement of Units to the founding stockholders, has been placed in trust (the “Trust Account”) pending completion by Aquasition of an initial business combination. On January 23, 2013, the common stock and warrants underlying the units sold in the IPO began to trade separately.

If Aquasition does not consummate its initial business combination by August 1, 2014, it must liquidate the Trust Account to the holders of Common Stock and dissolve in accordance with Aquasition’s Amended and Restated Articles of Incorporation. Aquasition anticipates such a dissolution and liquidation would be completed within 15 days; however, no assurance can be made that such dissolution and liquidation could be completed within that time period.

Q.           Is there a business combination agreement related to the Offer?

A.           Yes. On March 24, 2014, the Agreement was entered into by and among Aquasition, KBS, the Target and the Principal Stockholders. Upon the closing of the transactions contemplated in the Agreement, the Company will acquire 100% of the issued and outstanding equity interest in Target from KBS in exchange for the transaction consideration consisting of shares of Aquasition common stock, which we refer to herein as the Acquisition, and KBS will liquidate immediately thereafter. The number of shares comprising the Transaction Consideration will be calculated in accordance with the terms of the Agreement, and is estimated to be approximately 22,957,455 shares of Common Stock. See “The Acquisition.”

Q.           Are the Offer and the Acquisition conditioned on one another?

A.           Yes. Pursuant to the terms of the Acquisition, it is a condition to the consummation of the Acquisition that the Offer is conducted in accordance with the terms of the Acquisition and that Aquasition shall have accepted the Common Stock validly tendered and not properly withdrawn pursuant to the Offer and no more than 4,995,000 shares of Common Stock be validly tendered and not properly withdrawn through this Offer, and, the Offer is subject to the condition that the Acquisition Condition (as described below) is satisfied. Under no circumstances will the number of shares of Common Stock tendered be prorated. If the Acquisition Condition is not satisfied, we will terminate or extend the Offer. In the event the Offer is terminated, we will promptly return any Common Stock, at our expense, that were delivered pursuant to the Offer. See “The Acquisition.”

Q.           What are the most significant conditions to the Offer and the Closing?

A.           Our obligation to purchase Common Stock validly tendered and not properly withdrawn at the Expiration Date is conditioned upon, among other things:

In addition, the Agreement provides that Aquasition have no less than $10 million, after deducting liabilities, available for the use of the post transaction company. This condition is waivable by KBS. Aquasition hopes to meet its funding obligations by explaining to its shareholders the value of the transaction with KBS so that they do not exercise their redemption rights.

The Acquisition is conditioned on completion of the Offer and a number of other customary conditions. We refer to the conditions to the Offer, including the Acquisition Condition and the Maximum Tender Condition, as the “offer conditions.” See “The Offer — Conditions of the Offer” and “The Acquisition - Conditions to the Acquisition.”

Q.           How will Aquasition fund the payment for the Common Stock?

A.           We will use funds raised in connection with our IPO and the sale of units to our directors and officers which are currently held in the Trust Account for the benefit of our shareholders, a portion of which will become available to us upon consummation of the Acquisition, to purchase Common Stock tendered in the Offer. See “The Offer — Source and Amount of Funds.”

Q.           How long do I have to tender my Common Stock?

A.           You may tender your Common Stock pursuant to the Offer until the Offer expires on the Expiration Date. Consistent with the terms of the Offer, Aquasition may need to extend the Offer depending on the timing and process of the SEC’s staff review of the Offer to Purchase and related materials. The Offer will expire on Tuesday, July 29, 2014, at 5:00 p.m., New York City time, unless we extend or terminate the Offer. See “The Offer — General; Purchase Price; No Proration” and “— Extension of the Offer; Termination; Amendment.” If a broker, dealer, commercial bank, trust company or other nominee holds your Common Stock, it is likely the nominee has established an earlier deadline for you to act to instruct the nominee to accept the Offer on your behalf. We urge you to contact the broker, dealer, commercial bank, trust company or other nominee to find out the nominee’s deadline. See “The Offer — Procedures for Tendering Common Stock.”

Q.           Can the Offer be extended, amended or terminated and, if so, under what circumstances?

A.           We may extend or amend the Offer to the extent we determine such extension or amendment is necessary or is required by applicable law or regulation, subject to the restriction in our Articles of Incorporation that requires us to voluntarily wind-up and cease our corporate existence on August 1, 2014. Certain amendments to the Offer may require an extension of the Offer if deemed material. If we extend the Offer, we will delay the acceptance of any Common Stock that have been validly tendered and not properly withdrawn pursuant to the Offer. We can also terminate the Offer if any of the offer conditions listed in “The Offer — Conditions of the Offer” occur, or the occurrence thereof has not been waived. See “The Offer — Extension of the Offer; Termination; Amendment.”

Q.           How will I be notified if the Offer is extended or amended?

A.           If the Offer is extended, we will make a public announcement of the extension no later than 9:00 a.m., New York City time, on the first business day after the previously scheduled Expiration Date. We will announce any amendment to the Offer by making a public announcement of the amendment. See “The Offer — Extension of the Offer; Termination; Amendment.”

Q.           How do I tender my Common Stock?

A.           If you hold your Common Stock in your own name as a holder of record and decide to tender your Common Stock, you must deliver your Common Stock by mail or physical delivery and deliver a completed and signed Letter of Transmittal or an Agent’s Message (as defined in “The Offer — Procedures for Tendering Common Stock”) to American Stock Transfer & Trust Company (the “Depositary”) before 5:00 p.m., New York City time, on Tuesday, July 29, 2014, or such later time and date to which we may extend the Offer.

If you hold your Common Stock in a brokerage account or otherwise through a broker, dealer, commercial bank, trust company or other nominee (i.e., in “street name”), you must contact your broker or other nominee if you wish to tender your Common Stock. See “The Offer — Procedures for Tendering Common Stock” and the instructions to the Letter of Transmittal.

If you are an institution participating in The Depository Trust Company, you must tender your Common Stock, according to the procedure for book-entry transfer described in “The Offer — Procedures for Tendering Common Stock” of this Offer to Purchase.

You may contact Advantage Proxy (the “Information Agent”) or your broker for assistance. The telephone numbers and e-mail address for the Information Agent are set forth on the back cover of this Offer to Purchase. See “The Offer — Procedures for Tendering Common Stock” and the instructions to the Letter of Transmittal.

Q.           Until what time can I withdraw previously tendered Shares of Common Stock?

A.           You may withdraw your tendered share of Common Stock at any time prior 5:00 p.m., New York City time, on Tuesday, July 29, 2014, or such later time and date to which we may extend the Offer. In addition, unless we have already accepted your tendered Common Stock for payment, you may withdraw your tendered Aquasition Common Stock at any time after 5:00 p.m., New York City time, on Tuesday, July 29, 2014. See “The Offer — Withdrawal Rights.”

Q.           How do I properly withdraw Common Stock previously tendered?

A.           You must deliver, on a timely basis, a written notice of your withdrawal to the Depositary at the address appearing on the back cover page of this Offer in order to properly withdraw your Common Stock. Your notice of withdrawal must specify your name, the number of shares of Common Stock to be withdrawn and the name of the registered holder of such Common Stock. Certain additional requirements apply if the certificates for Common Stock to be withdrawn have been delivered to the Depositary or if your Common Stock have been tendered under the procedure for book-entry transfer set forth in “The Offer — Procedures for Tendering Common Stock.” See “The Offer — Withdrawal Rights.”

Q.           Has Aquasition or its board of directors adopted a position on the Offer?

A.           Our board of directors has (i) approved our making the Offer, (ii) declared the advisability of the Acquisition, and (iii) determined that the Acquisition is in the best interests of Aquasition’s shareholders. If you tender your Common Stock into the offer, you will not be a shareholder of Aquasition after the Acquisition, and therefore, our board of directors recommends that you do not accept the offer with respect to your Common Stock. The Board took into consideration that Target has a solid track record of consistent and high revenues. However, you must make your own decision as to whether to tender your Common Stock and, if so, how many, to tender. In doing so, you should read carefully the information in this Offer to Purchase and in the Letter of Transmittal, including the purpose and effects of the Offer.

Q.           When and how will Aquasition pay for the Common Stock I tender that are accepted for purchase?

A.           We will pay the Purchase Price in cash, without interest, for the Common Stock we purchase promptly after (i) the expiration of the Offer if the offer conditions are satisfied, and (ii) our acceptance of the Common Stock for payment. We will pay for the Common Stock accepted for purchase by depositing the aggregate Purchase Price with the Depositary promptly after the expiration of the Offer provided that the offer conditions are met. The Depositary will act as your agent and will transmit to you the payment for all of your Common Stock accepted for payment. See “The Offer — Purchase of Common Stock and Payment of Purchase Price.”

Q.           Will I have to pay brokerage fees and commissions if I tender my Common Stock?

A.           If you are a holder of record of your Common Stock and you tender your Common Stock directly to the Depositary, you will not incur any brokerage fees or commissions. If you hold your Common Stock in street name through a broker, bank or other nominee and your broker tenders Common Stock on your behalf, your broker may charge you a fee for doing so. You should consult your broker or nominee to determine whether any charges will apply. See “The Offer — Procedures for Tendering Common Stock.”

Q.           What are the U.S. federal income tax consequences if I tender my Common Stock?

A.           The receipt of cash for your tendered Common Stock will generally be treated for U.S. federal income tax purposes either as a sale or exchange transaction or as a distribution. See “Material U.S. Federal Income Tax Consequences,” below.

Q.           Will I have to pay stock transfer tax if I tender my Common Stock?

A.           We will not pay any stock transfer taxes in connection with this Offer. If you instruct the Depositary in the Letter of Transmittal to make the payment for the Common Stock to anyone other than the registered holder, you may incur domestic stock transfer tax. See “The Offer — Purchase of Common Stock and Payment of Purchase Price.”

Q.           Who do I contact if I have questions about the Offer?

A.           For additional information or assistance, you may contact the Information Agent at the telephone numbers and e-mail address set forth on the back cover of this Offer to Purchase. You may request additional copies of the Offer to Purchase, the Letter of Transmittal and other related documents from the Information Agent at 877-870-8565 or 206-870-8565.

Q.           How many shares of Common Stock is Aquasition offering to purchase?

A.           We are offering to purchase up to 4,995,000 shares of Common Stock validly tendered in the Offer. See “The Offer — General; Purchase Price; No Proration” and “— Purpose of the Offer; Certain Effects of the Offer.”

The Offer is not conditioned on any minimum number of shares of Common Stock being tendered by shareholders. However, the Offer is conditioned on no more than 4,995,000 shares of Common Stock being validly tendered and not properly withdrawn. See “The Offer — General; Purchase Price; No Proration.”

Q.           If more than 4,995,000 shares of Common Stock are validly tendered and not properly withdrawn, will Aquasition purchase the Common Stock tendered on a pro rata basis?

No. The Offer contains a Maximum Tender Condition that no more than 4,995,000 shares of Common Stock are validly tendered and not properly withdrawn prior to the Expiration Date. Accordingly, if more than 4,995,000 shares of Common Stock are validly tendered and not properly withdrawn we will terminate or extend the Offer. See “The Offer — General; Purchase Price; No Proration.”

Q.           What will be the purchase price for the Common Stock and what will be the form of payment?

A.           The Purchase Price for the Offer is $10.30 per share, which is equal to the per share amount held in the Trust Account as of the commencement of this Offer excluding interest earned on the Trust Account. All Common Stock we purchase will be purchased at the Purchase Price. See “The Offer — General; Purchase Price; No Proration.” If your Common Stock are purchased in the Offer, you will be paid the Purchase Price, in cash, without interest, promptly after the Expiration Date (as defined in “Introduction”).

Q.           How will the Offer affect the number of shares of Common Stock outstanding and the number of holders of Aquasition?

A.           As of June 20, 2014, we had 7,305,500 outstanding shares of Common Stock, of which 5,550,000 shares were issued in the IPO. In addition, we had outstanding warrants to acquire 5,918,000 shares of Common Stock at an exercise price of $11.50 per share. If 4,995,000 shares of Common Stock are purchased by us pursuant to the Offer, we will have approximately 2,310,500 shares of Common Stock outstanding following the purchase of Common Stock tendered and not validly withdrawn pursuant to the Offer (excluding Common Stock issuable upon exercise of outstanding warrants and the Transaction Consideration). Warrants are not subject to the Offer and therefore the number of warrants outstanding will not be affected by the Offer. See “The Offer — Purpose of the Offer; Certain Effects of the Offer” and “Beneficial Ownership of Aquasition Securities.”

To the extent any of our shareholders validly tender their Common Stock (without subsequently properly withdrawing such tendered Common Stock) and that tender is accepted, the number of our holders would be reduced. See “The Offer — Purpose of the Offer; Certain Effects of the Offer.”

Q.           What will happen if I do not te n der my Common Stock?

A.           Shareholders who choose not to tender their Common Stock will retain their Common Stock.

Continuing shareholders that do not tender their Common Stock will also be subject to several other risks including:

In addition, assuming the Acquisition closes, your beneficial interest in Aquasition would be significantly limited.

See “Risk Factors—Risk Factors Relating to Aquasition and the Target Business.”

Q.           If I object to the price being offered for my Common Stock, will I have appraisal rights?

A.           No appraisal rights will be available to you in connection with the Offer or the Acquisition. See “Appraisal Rights.”

Q:            What happens if the Acquisition is not consummated?

A:            If Aquasition does not consummate the Acquisition by August 1, 2014 then pursuant to its Articles of Incorporation, Aquasition will automatically dissolve as promptly as practicable and liquidate and release only to its holders of Common Stock, as part of its plan of distribution, the amount in the Trust Account, including the deferred underwriting discounts and commission and accrued but undistributed interest, net of (i) taxes payable, and (ii) interest income earned on the Trust Account previously released to us to fund Aquasition’s working capital and general corporate requirements (any amounts in the Trust Account in excess of $10.30 per public share). Aquasition anticipates such a dissolution and liquidation would be completed within 15 days; however, no assurance can be made that such dissolution and liquidation could be completed within that time period. Aquasition’s founders have agreed to waive their rights to participate in any liquidating distribution as part of its plan of distribution with respect to the founders’ shares, but not with respect to any public shares they acquire in the IPO or aftermarket. There will be no distribution from the Trust Account with respect to Aquasition’s warrants, and all rights of our warrants will terminate upon its liquidation.

Q:            What happens to the funds deposited in the Trust Account following the Acquisition?

A:            Following the consummation of the Acquisition, funds in the Trust Account will be released to Aquasition to pay the Purchase Price to Aquasition shareholders tendering their Common Stock in the Offer. The balance of the funds will be released to Aquasition to fund its working capital. The trust fund balance at closing is estimated to be approximately $57,165,000. Assuming the maximum 4,995,000 shares are tendered for redemption, the remaining balance will be reduced to approximately $5,716,500.

SUMMARY

This summary highlights selected information from this Offer to Purchase but may not contain all of the information that may be important to you. Accordingly, we encourage you to read carefully this entire Offer to Purchase, including the appendices and documents incorporated by reference, and the Letter of Transmittal. Please read these documents carefully as they are the legal documents that govern the Offer and Acquisition. Unless the context otherwise requires, references to “Aquasition,” “we,” “us” or “our” in this Offer to Purchase refers to Aquasition Corp., including its consolidated subsidiaries.

Background Information

Aquasition Corp. is a blank check company formed on January 26, 2012, pursuant to the laws of the Republic of the Marshall Islands for the purpose of acquiring through a merger, capital stock exchange, asset acquisition, stock purchase, or similar acquisition transaction, one or more operating businesses or assets. To date, our efforts have been limited to organizational activities and financing activities. The address of the Company’s principal executive office is c/o Seacrest Shipping Co. Ltd., 8-10 Paul Street, London EC2A 4JH, England.

On November 1, 2012, our initial public offering of 5,000,000 units was consummated. Each unit issued in the IPO (the “Units”) consisted of one share of common stock and one warrant. Each warrant entitles the holder to purchase one share of common stock at a price of $11.50. Immediately prior to the consummation of the IPO, we completed a private placement of 337,750 Units to our founding stockholders generating gross proceeds of $3,377,500. On November 7, 2012, the underwriters of the IPO exercised their over-allotment option in part, for a total of an additional 550,000 Units (over and above the 5,000,000 Units sold in the IPO). Our founding stockholders acquired an additional 30,250 Units at $10.00 per Unit, generating gross proceeds of $302,500, in accordance with the terms of the private placement agreement entered into immediately prior to the IPO to ensure that the amount of funds initially held in the trust account is equal to $10.30 per unit sold in the IPO. The 5,550,000 Units sold in the IPO, including the 550,000 Units subject to the over-allotment option, were sold at an offering price of $10.00 per Unit, generating gross proceeds of $55,500,000. A total of $57,165,000, which includes a portion of the $3,680,000 of proceeds from the private placement of Units to the founding stockholders, has been placed in trust (the “Trust Account”) pending completion by Aquasition of an initial business combination. On January 23, 2013, the common stock and warrants underlying the units sold in the IPO began to trade separately.

On March 24, 2014, a Share Exchange Agreement and Plan of Liquidation (the “Agreement”) was entered into by and among Aquasition, KBS International Holdings, Inc., a Nevada corporation (“KBS”), Hongri International Holdings Ltd., a company organized and existing under the laws of the British Virgin Islands and wholly owned subsidiary of KBS (“Hongri” or the “Target”); and Cheung So Wa and Chan Sun Keung, each an individual and shareholder of KBS (each, a “Principal Stockholder”). Upon the closing of the transactions contemplated in the Agreement, the Company will acquire 100% of the issued and outstanding equity interest in Target from KBS in exchange for the transaction consideration consisting of shares of Aquasition common stock (the “Acquisition”) and KBS will liquidate immediately thereafter. The number of shares comprising the transaction consideration will be calculated in accordance with the terms of the Agreement, and is estimated to be approximately 22,957,455 shares of Common Stock (the “Transaction Consideration”).

This Offer is being made in connection with the Acquisition pursuant to our organizational documents to provide our public stockholders with an opportunity to redeem their Common Stock for a pro-rata portion of our Trust Account. The holders of Common Stock issued prior to our IPO, which consists of our officers and directors and their affiliates, have agreed not to tender their shares in this Offer.

We will have until August 1, 2014 to consummate a business combination. If we are unable to consummate a business combination by such date, our Articles of Incorporation require us to dissolve as promptly as practicable and liquidate and release to our holders of Common Stock, as part of our plan of distribution, the amount in our trust account and any remaining net assets.

Share Exchange Agreement and Plan of Liquidation

Upon the closing of the transactions contemplated in the Agreement, the Company will acquire 100% of the issued and outstanding equity interest in Target from KBS in exchange for the transaction consideration consisting of shares of Company common stock (the “Acquisition”) and KBS will liquidate immediately thereafter. The number of shares comprising the transaction consideration will be calculated as follows: (a) (i) EBITDA multiplied by 5, less (ii) Long Term Debt, plus (iii) cash held by Target; divided by (b) $10.30 (the “Transaction Consideration”). The Agreement defines EBITDA as Target’s 2013 stand-alone and adjusted earnings before interest, taxes, depreciation and amortization, as calculated based upon the audited Target financial statements for the year ended December 31, 2013, and defines “Long Term Debt” as Target’s existing net long-term debt as of one business day before the closing date of the Acquisition. Upon consummation of the Acquisition, KBS will dissolve and distribute all its assets to its shareholders in liquidation.

The Agreement provides that immediately after closing, the Company’s board of directors will consist of seven directors, two of whom will be designated by the Principal Stockholders, and one of which will be designated by Aquasition Investments Corp., a company incorporated in the Republic of the Marshall Islands (“AQU Invest”) and controlled by Aquasition’s founders. The remaining four directors will be “independent” and have experience with public companies listed in the United States. Three of the independent directors will be designated by KBS, and the remaining independent director will be designated by AQU Invest. Concurrently with the closing, the Company, AQU Invest and the Principal Stockholders will enter into a voting agreement regarding the election of director designees following the closing, and the Company will purchase director’s and officer’s insurance.

See “The Acquisition” for a summary of the material terms of the Agreement.

Finder’s and Financial Services Agreements

On September 10, 2013, Aquasition entered into a Master Finder’s Fee Agreement (as amended from time to time, the “Finder’s Agreement”) with SNV Global Ltd. (“SNV”), pursuant to which SNV agreed to provide introductions to potential target companies to Aquasition, including KBS, among other services. Pursuant to an addendum to the Finder’s Agreement, dated February 26, 2014, the parties agreed that SNV would be entitled to a finder’s fee equal to 1.5% of the pre-closing equity value of Target to be paid in newly issued shares of the combined company, payable if, and only if, an acquisition transaction with an introduced target is completed.

On May 8, 2014, Aquasition entered into an agreement (the “STRH Agreement”) with SunTrust Robinson Humphery, Inc. (“STRH”), pursuant to which STRH will provide Aquasition certain financial advisory services in connection with the Acquisition. Pursuant to the STRH Agreement, STRH will be entitled to a cash fee equal to $1,250,000 upon completion of an acquisition transaction prior to August 1, 2014 or during the term of STRH’s engagement. If an acquisition transaction is not completed within such period, then for a period of 24 months thereafter, if Aquasition is entitled to a breakup fee related to an acquisition transaction, then STRH will be entitled to 10% of any such breakup fee. In addition, Aquasition will reimburse STRH its out-of-pocket expenses related to the STRH Agreement, up to a maximum of $50,000.

On May 12, 2014, Aquasition entered into an agreement (the “EBC Agreement”) with Early Bird Capital, Inc. (“EBC”), pursuant to which EBC will provide Aquasition certain financial advisory services in connection with the Acquisition. Pursuant to the EBC Agreement, EBC will be entitled to a cash fee equal to $200,000, equity fee in the amount of 35,000 newly issued shares of the combined company, and an additional fee equal to 4% of the amount of the gross proceeds held in the trust account at closing of the Acquisition (after the payment of tender offer consideration and excluding amounts attributable to Aquasition’s sponsors or investors introduced by such sponsors), all payable upon closing of the Acquisition. In addition, Aquasition will reimburse EBC its out-of-pocket expenses related to the EBC Agreement.

Reduction of Deferred Underwriting Discounts and Commissions

On May 30, 2014, Aquasition and the underwriter of its IPO agreed to reduce the amount of deferred underwriting discounts and commissions payable to the underwriter upon closing of the Acquisition from $1,387,500 to $350,000.

Description of Target’s Business

Target is engaged in the design, manufacturing, marketing, distribution and sale of casual menswear in China, including apparel and accessories, which it markets under the “KBS” brand. The KBS brand was developed in 2006.

Target’s apparel products include cotton and down jackets, sweaters, shirts, T-shirts, jeans and trousers. Accessories include shoes, bags, socks and caps. In 2013, the suggested retail prices of its products ranged from RMB 168 to RMB 1,699 (approximately $27.55 to $278.67) for its apparel products and RMB 15 to RMB 599 (approximately $2.46 to $98.25) for its accessory products. Since 2006, Target has launched 450 collections of new products, each year with a different theme to highlight the current trends in menswear for the season.

Target’s marketing concept is “French origin, Korean design and made for Chinese.” Its target customers are middle-class consumers in the 20-40 age range, primarily located in tier two and tier three cities in China. Tier two cities generally refer to major cities located in each province of China other than the capital city of such province. Tier three cities generally refer to county-level cities in China. The tier three cities that Target focuses on are the national top 100 county cities identified by the State Statistics Bureau each year. These cities are characterized by higher GDP, higher disposable income, better education and better infrastructure as compared with other county-level cities. Target has adopted “KBS” as a uniform brand name and image for all stores in its distribution network and on all products sold in those stores. It believes that the KBS brand has become a recognized brand name in the cities where its products are sold.

Target has established a nationwide distribution network covering 14 of China’s 32 provinces and centrally administered municipalities. As of December, 2013, this network was comprised of 18 corporate stores owned and operated by Target and 96 franchised stores operated by 23 third-party distributors or their sub-distributors. The number of stores has grown significantly in recent years, from 1 corporate store and 7 franchised stores as of December 31, 2006 to 18 corporate stores and 96 franchised stores as of December 31, 2013. In the years ended December 31, 2013 and 2012, sales through Target’s corporate stores accounted for 19.2% and 43.7% of its revenues, respectively, and sales through distributors accounted for 78.5% and 52.4% of its revenues, respectively. The increase in revenue from distribution sales and the decrease in revenue from corporate store sales reflects a shift in focus on the distribution business as a result of significant increase in rent expense associated with corporate stores in 2013. Target acts as an original design manufacturer, or ODM, upon request. Income from such services accounted for 2.3% and 3.9% of revenue for the years ended December 31, 2013 and 2012, respectively. By the end of 2015, it plans to increase its corporate stores and franchised stores to 48 and 196, respectively.

Relocated from Shishi City, Fujian, China in March 2011, Target’s production facility is currently located in Taihu City in Anhui Province, China. The facility has a production capacity of 2 million pieces per year and is on a year-on-year renewable lease basis. By relocating from the coastal area to Anhui Province, Target’s new facility takes advantage of lower labor costs and a more stable labor supply. Since Target’s original production team was not ready to produce the new style KBS products, Target has outsourced its product manufacturing to other established ODM manufacturers. As such, Target’s own production facility in Taihu mainly takes ODM orders from other sportswear companies, like Xtep. Target is acquiring land adjacent to its current facility consisting of 110,557 square meters to build a new facility. Target obtained a portion of such land use rights for two pieces of land of 7,405 square meters and 2,440 square meters on March 19, 2012 and May 28, 2012, respectively and is in the process of obtaining approval from the relevant government bureau for the remaining land use right transfer. Once completed, total production capacity of the facility is expected increase to 20 million pieces per year from the current capacity of 2 million pieces per year. Due to the local government’s need for additional time to conclude negotiations with local residents over appropriate resettlement terms, the timeline of the construction of the adjacent facility has been delayed. Target will schedule its construction plan once it acquires the land use right and expects the construction of new production facilities to be completed by 2018.

Target has experienced rapid growth in recent years. For the years ended December 31, 2009 through 2013, total net sales increased from $28.1 million to $99.6 million, and a net income increased from $9 million to $25.8 million. The compounded annual growth rate for total net sales and net income from 2009 to 2013 is 37.2% and 30.1%, respectively.

Tender Offer

In connection with the Acquisition, Aquasition is providing its shareholders with the opportunity to redeem Common Stock issued in Aquasition’s IPO for cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account set up to hold the net proceeds of Aquasition’s IPO pursuant to the Investment Management Trust Agreement, dated as of October 25, 2012, as amended, (the “Offer”). The redemption amount in the Offer is $10.30 per share. The Offer is an isolated transaction and is not made pursuant to a plan to periodically increase the proportionate interest of a shareholder in the assets or earnings and profits of the Company.

Pursuant to the terms of the Acquisition, it is a condition to the consummation of the Acquisition that the Offer is conducted in accordance with the terms of the Acquisition and that Aquasition shall have accepted the Common Stock validly tendered and not properly withdrawn pursuant to the Offer and no more than 4,995,000 shares of Common Stock be validly tendered and not properly withdrawn through this Offer, and, the Offer is subject to the condition that the Acquisition Condition (as described below) is satisfied. Under no circumstances will the number of shares of Common Stock tendered be prorated. If the Acquisition Condition is not satisfied, we will terminate or extend the Offer. In the event the Offer is terminated, we will promptly return any Common Stock, at our expense, that were delivered pursuant to the Offer.

Recommendations of the Boards of Directors and Reasons for the Acquisition and Offer

Our board of directors has (i) approved our making the Offer, (ii) declared the advisability of the Acquisition, and (iii) determined that the Acquisition is in the best interests of Aquasition’s shareholders. If you tender your Common Stock in the Offer, you will not be a shareholder of the Company after the Acquisition and therefore, our board of directors recommends that you do not accept the Offer with respect to your Common Stock. The Board took into consideration that Target has a solid track record of consistent and high revenues. However, you must make your own decision as to whether to tender your Common Stock and, if so, how many shares of Common Stock to tender. In doing so, you should read carefully the information in this Offer to Purchase and in the Letter of Transmittal, including the purposes and effects of the Offer. See “The Offer — Purpose of the Offer; Certain Effects of the Offer.” You should discuss whether to tender your Common Stock with your broker or other financial advisor, if any. See “Risk Factors” for a discussion of risks that you should consider before deciding whether to participate in this Offer, and “The Acquisition—Pro forma Book Value” for a comparison of the tender offer price, the current market price, the price per share paid by the Founders, and the pro forma book value per share.

Interests of Certain Persons in the Acquisition

When you consider the recommendations of the Company’s board of directors in favor of the Acquisition and against the Offer, you should keep in mind that the Company’s pre-IPO shareholders, directors and officers (“the Company Inside Shareholders”) have interests in the Acquisition and Offer that may be different from, or in addition to, your interests as a shareholder. See “The Acquisition—Pro forma Book Value” for a comparison of the tender offer price, the current market price, the price per share paid by the Founders, and the pro forma book value per share.

Common Stock Held by the Company Inside Shareholders

Immediately prior to the consummation of the IPO, we completed a private placement of 337,750 Units to our founding stockholders generating gross proceeds of $3,377,500. On November 7, 2012, the underwriters of the IPO exercised their over-allotment option in part, for a total of an additional 550,000 Units (over and above the 5,000,000 Units sold in the IPO). Our founding stockholders acquired an additional 30,250 Units at $10.00 per Unit, generating gross proceeds of $302,500, in accordance with the terms of the private placement agreement entered into immediately prior to the IPO to ensure that the amount of funds initially held in the trust account is equal to $10.30 per unit sold in the IPO. As a result, our officers and directors and certain of their affiliates own an aggregate of 1,387,500 founder shares and 368,000 units comprising 368,000 shares of Common Stock and 368,000 warrants, each to purchase one share of Common Stock, for an aggregate consideration of $3,680,000. We refer to the holders of our securities prior to our IPO as our founders, the units they hold as the founder units and the underlying Common Stock and warrants as the founder shares and founder warrants, respectively.

If the Acquisition is not consummated, the Company will be required to commence proceedings to dissolve and liquidate following distribution of the amounts in the Trust Account. There will be no distribution from the Trust Account with respect to the Company’s pre-IPO shareholders’ securities, which would expire worthless if the life of the Company is not extended. The holders of shares of Common Stock issued prior to the Company’s IPO, which consists of the Company’s officers and directors and their affiliates, have agreed not to tender their shares in this Offer. See “The Acquisition—Pro forma Book Value” for a comparison of the tender offer price, the current market price, the price per share paid by the Founders, and the pro forma book value per share.

Compensatory Arrangements for Board of Directors and Management

None of our directors or officers have received any cash compensation for services rendered to us during the years ended December 31, 2012 and 2013. We believe that because our officers and directors own an aggregate of 1,387,500 founders shares and 368,000 founders’ units, no compensation (other than reimbursement of out-of-pocket expenses) is necessary and such persons have agreed to serve in their respective role without compensation.

Immediately after the IPO, we began paying fees of $7,500 per month to Seacrest Shipping Co. Ltd., an agent of Remi Maritime Corp., an affiliate of our founders, and expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. Seacrest Shipping Co. Ltd. has agreed that after 4 months the monthly fee will begin to accrue and will only be payable thereafter upon completion of an acquisition transaction. This arrangement was agreed to by Seacrest Shipping Co. Ltd. for our benefit and is not intended to provide the founders compensation in lieu of a management fee or other remuneration because it is anticipated that the expenses to be paid by Seacrest Shipping Co. Ltd. will approximate the monthly reimbursement. As of May 30, 2014, we owed Seacrest Shipping Co. Ltd. an aggregate of $135,000 under this arrangement. We would not be able to repay this amount in the event that the Acquisition does not close.

Other than this $7,500 per month fee no compensation of any kind, including finder’s and consulting fees, will be paid to our officers, or directors, or any of their respective affiliates, for services rendered prior to or in connection with a business combination. However, our officers and directors and their respective affiliates will receive reimbursement for any reasonable out-of-pocket expenses incurred by them in connection with identifying, investigating and consummating a potential business combination with one of more target businesses. There are no limitations on the amount of expenses for which they can seek reimbursement, provided such expenses were incurred for our benefit. There will be no review of the reasonableness of the expenses by anyone other than our board of directors, which includes persons who may seek reimbursement, or a court of competent jurisdiction if such reimbursement is challenged. To the extent such out-of-pocket expenses exceed the available proceeds not deposited in the Trust Account, such out-of-pocket expenses would not be reimbursed by us unless we consummate our initial business combination. Since our IPO, our founders have, from time to time, advanced us funds to cover our operating expenses in exchange for promissory notes that are non-interest bearing and due upon the consummation of an acquisition transaction or our dissolution and liquidation. As of May 30, 2014, we had promissory notes due to our founders and their affiliates in the aggregate principal amount of $330,000. We would not be able to repay this amount in the event that the Acquisition does not close.

Officer and Director Liability

If we are unable to complete a business combination and are forced to dissolve and liquidate, our founders, by agreement, will jointly and severally indemnify us for all claims of contracted parties, to the extent we fail to obtain valid and enforceable waivers from such parties. Our board of directors has a fiduciary obligation to our shareholders to bring a claim against our founders to enforce their indemnification obligations.

Certain Other Interests in the Acquisition

In addition to the interests of our directors and officers in the Acquisition, you should keep in mind that certain individuals promoting the Acquisition have interests in the Acquisition that may be different from, or in addition to, your interests as a shareholder. The underwriters in the IPO agreed to defer payment of a portion of the underwriting discount equal to 2.5% of the gross proceeds, or $1,387,500. On May 30, 2014 the underwriters in the IPO agreed to reduce the deferred underwriting discount from $1,387,500 to $350,000. This amount will be held in trust and not released until the earlier to occur of (i) the completion of our initial business combination or (ii) our liquidation, in which case such proceeds will be distributed to the holders of Common Stock, together with all other funds held in the Trust Account.

Material U.S. Federal Income Tax Consequences

The receipt of cash for your tendered Common Stock will generally be treated for U.S. federal income tax purposes either as a sale or exchange transaction or as a distribution. As discussed under “Material U.S. Federal Income Tax Consequences – U.S. Holders – Taxation of Redemption of Common Stock Pursuant to the Offer,” the treatment for U.S. federal income tax purposes of the tender (or redemption) of a shareholder’s Common Stock pursuant to the Offer as a sale or exchange transaction or as a distribution generally will depend on whether and the extent to which the shareholder’s percentage ownership in Aquasition (including shares the shareholder is deemed to own under certain constructive ownership rules) has decreased by reason of the redemption. Since this generally will depend upon the particular circumstances of each shareholder, each shareholder is urged to consult its own tax advisor concerning the specific tax consequences to such shareholder of tendering its shares pursuant to the Offer. See “Material U.S. Federal Income Tax Consequences,” below.

Regulatory Approvals

The Offer and the transaction contemplated by this Offer to Purchase are subject to the Tender Offer Rules under Securities Exchange Act of 1934, as amended.

MARKET PRICE INFORMATION

Aquasition’s Common Stock, warrants and units are traded on Nasdaq Stock Market, under the symbols “AQU,” “AQUUW” and “AQUUU,” respectively. Each of Aquasition’s units consists of one share of Common Stock and one warrant, each to purchase an additional share of Aquasition’s Common Stock. Aquasition’s units commenced to trade on Nasdaq Stock Market on October 26, 2012. Aquasition’s Common Stock and warrants commenced to trade separately from its units on January 23, 2013.

The following tables set forth, for the periods indicated, the high and low sale prices for our shares, warrants and units, respectively, as reported on the Nasdaq Stock Market.

The Common Stock may be delisted if we fail to maintain certain Nasdaq listing requirements. Aquasition received a letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC stating that Nasdaq’s staff had determined that Aquasition was not in compliance with Listing Rule 5550(a)(3), which rule requires that the Company maintain a minimum of 300 public holders for continued listing of its securities on Nasdaq. On May 5, 2014 the Company provided the Nasdaq with a plan to regain compliance. Aquasition included a description of this tender offer as part of its plan to regain compliance. While the tender offer will reduce the number of currently public shares outstanding, Aquasition believes that the Acquisition will increase the total number of shares outstanding. Aquasition believes that, in addition to directly increasing the number of public shareholders by issuing shares at the closing, the Acquisition is an attractive business opportunity that will attract additional shareholders at or immediately after closing, and Aquasition is actively marketing the Acquisition to encourage shareholders to not tender their shares. On June 2, 2014, Aquasition received a letter from Nasdaq indicating that it had until August 15, 2014, to provide evidence to Nasdaq that it had a minimum of 300 round lot shareholders. There can be no assurance that Aquasition will be able to regain compliance with the Nasdaq continued listing requirements, including the minimum public holder requirement, or that its securities will continue to be listed on the Nasdaq Capital Market. See “Risk Factors — Nasdaq may delist our securities, which could limit investors’ ability to transact in our securities and subject us to additional trading restrictions.”

Aquasition anticipates issuing an aggregate of approximately 22,957,455 shares of Common Stock as consideration in the Acquisition. These shares are all being issued pursuant to the exemption from registration included in Section 4(a)(2) of the Securities Act. Assuming all of these shares are issued, a total of 4,995,000 shares are tendered in the tender offer related to our initial acquisition transaction, and none of Aquasition’s warrants or options are exercised, Aquasition’s current shareholders will own approximately 9.1% of the post-Acquisition company.

Dividends

As required by the Agreement, promptly following the closing of this transaction, the Board of Directors of the combined company will adopt a dividend policy for the payment of an annual dividend for the first two fiscal years post-closing in an amount equal to at least twenty percent (20%) of its distributable profits after tax and after compulsory statutory reserves, which can be no less than 10% of after-tax income in China. After the first two years, the Board of Directors may elect to modify the dividend policy.

RISK FACTORS

You should carefully consider the following risk factors in addition to the other information included or incorporated by reference in this Offer to Purchase, including matters addressed in the section entitled “Forward-Looking Statements” before you decide whether to tender Common Stock in this Offer. We caution you not to place undue reliance on the forward-looking statements contained in this Offer, which speak only as of the date hereof.

The risks and uncertainties described below include all of the material risks applicable to Aquasition; however they are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations or the Acquisition.

Risk Factors Relating to the Tender Offer

There is no guarantee that your decision whether or not to tender your Common Stock will put you in a better future economic position.

We can give no assurance as to the price at which a shareholder may be able to sell its Common Stock in the future following the completion of the Offer. If you choose to tender your Common Stock in the Offer, certain future events may cause an increase in our share price, and may result in a lower value realized now than you might realize in the future had you not agreed to tender your Common Stock. Similarly, if you do not tender your Common Stock, you will continue to bear the risk of ownership of your Common Stock after the closing of the Offer, and there can be no assurance that you will be able to sell your Common Stock in the future at a price equal to or higher price than the Purchase Price. You should consult your own individual tax and/or financial advisor for assistance on how this may affect your individual situation.

If certain conditions are not met, Aquasition may terminate or extend the Offer.

Upon the consummation of the Acquisition, we plan to use the cash available from the funds held in the Trust Account to purchase the Common Stock validly tendered and not properly withdrawn pursuant to the Offer, and the balance will be released to us to fund our working capital. The trust fund balance at closing is estimated to be approximately $57,165,000. Assuming maximum 4,995,000 shares are tendered for redemption, the remaining balance will be further reduced to approximately $5,716,500. However, if the conditions to the Acquisition or the Offer, including the Acquisition Condition and the condition that Aquasition have no less than $10 million, after deducting liabilities, available for the use of the post transaction company (which may be waived by KBS), are not satisfied, we will not be able to access the funds held in the Trust Account and thus will need to terminate or extend the Offer. See “The Offer — Conditions of the Offer.”

The Offer presents potential risks and disadvantages to us and our continuing shareholders.

Although our board of directors has determined that the Acquisition and making the Offer are in the best interests of our shareholders, the Offer exposes us to a number of risks including:

Risk Factors Relating to Aquasition and the Target Business

Our independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt about our ability to continue as a “going concern.”

As of June 20, 2014, we had no present revenue, and our cash and working capital as of December 31, 2013 were not sufficient to complete our planned activities for the upcoming year. These conditions raise substantial doubt about our ability to continue as a going concern. Management’s plans to address this need for capital are discussed in the section of this Offer titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  We cannot assure you that our plans to consummate an initial acquisition transaction will be successful. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements contained elsewhere in this Offer do not include any adjustments that might result from our inability to consummate the Acquisition or our inability to continue as a going concern.

We may not be able to consummate an acquisition transaction within the required time frame, in which case we would automatically dissolve and liquidate our assets, and you may not be able to recover your full investment.

Pursuant to our Amended and Restated Articles of Incorporation and by-laws, we must complete an acquisition transaction with a fair market value of at least 80% of the balance of the trust account at the time of the acquisition transaction (excluding deferred underwriting discounts and commissions of $350,000, and taxes payable) on or prior to August 1, 2014. Prior to an acquisition transaction or our liquidation, if we are unable to consummate an acquisition transaction within the allotted time, amounts in trust may not be released, except for (i) interest earned on the trust account that may be released to us to pay any taxes we incur, and (ii) interest earned by the trust account that may be released to us from time to time to fund our working capital and general corporate requirements (any amounts in the trust account in excess of $10.30 per public share). If we fail to consummate an acquisition transaction within the required time frame, we will, in accordance with our Amended and Restated Articles of Incorporation and by-laws, automatically dissolve, liquidate and wind up. The foregoing requirements are set forth in Article VIII of our Amended and Restated Articles of Incorporation and by-laws and may not be eliminated without the vote of our board of directors and the vote of at least 90% of the voting power of our outstanding shares of common stock. We may not be able to find and complete an acquisition transaction with a suitable acquisition target within the required time frame. In addition, our negotiating position and our ability to conduct adequate due diligence on any potential acquisition target may be reduced as we approach the deadline for the consummation of our initial acquisition transaction. Although $10.30 per share is initially placed in trust, if third parties bring claims against us that are not subject to a valid and enforceable waiver, the proceeds held in the trust account may be reduced and the per share liquidation price received by you will be less than $10.30 per share. If so, you will not be able to recover your full investment.

You will not have any rights or interest in funds from the trust account, except under certain limited circumstances, and therefore may not have access to such funds on or prior to August 1, 2014.

Our public stockholders will be entitled to receive funds from the trust account only in the event of our liquidation or if they seek to redeem their respective shares of common stock for cash in connection with an acquisition transaction that is consummated by us. In no other circumstances will a stockholder have any right or interest of any kind in the trust account. Therefore, you may not be able to obtain access to such funds prior to August 1, 2014.

Under Marshall Islands law, the requirements and restrictions contained in our Amended and Restated Articles of Incorporation and by-laws may be amended, which could reduce or eliminate the protection afforded to our stockholders by such requirements and restrictions.

Our Amended and Restated Articles of Incorporation and by-laws set forth certain requirements and restrictions that apply to us until the consummation of our initial acquisition transaction. Specifically, our Amended and Restated Articles of Incorporation and by-laws provide, among other things, that:

Pursuant to our Amended and Restated Articles of Incorporation and by-laws, the foregoing provisions may be amended by at least 90% of the voting power of our outstanding shares of common stock. In addition, the relevant portions of the agreement governing the trust account can only be amended with the consent of 90% of the voting power of public shares. Except for the shares issued immediately prior to our IPO and the shares underlying the units issued in connection with our IPO, we will not issue securities with voting rights to vote on any proposals to amend our Amended and Restated Articles of Incorporation and by-laws prior to an acquisition transaction. If any of these provisions are amended, our stockholders:

We have no intention of amending our Amended and Restated Articles of Incorporation to reduce or remove such limitation or to allow us a longer period of time to complete our initial acquisition transaction prior to our consummation of such initial acquisition transaction. Notwithstanding the foregoing, if we do seek to amend such provisions, we will provide dissenting public stockholders with the opportunity to redeem their public shares in connection with any such vote. Our founders have agreed to waive any redemption rights with respect to any founders’ shares and any public shares they may hold in connection with any such vote to amend our Amended and Restated Articles of Incorporation.

Stockholders may be liable for claims of third party creditors to the extent you receive distributions in a dissolution and any such liability of our stockholders will likely extend beyond the third anniversary of such dissolution or the settlement of claims, litigation or proceedings begun prior to or during the three year period.

Under Marshall Islands law, stockholders might, in certain circumstances, be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. If we complied with the procedures set forth in Section 106 of the Marshall Islands Business Corporations Act, which are intended to ensure that we make reasonable provision for all claims against us, including a six month notice period during which any third-party claims can be brought against us before any liquidating distributions are made to stockholders, any liability of a stockholder with respect to a liquidating distribution should be limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder should be barred after the period set forth in such notice. However, it is our intention to make liquidating distributions to our stockholders as soon as reasonably possible after dissolution. As such, our stockholders could potentially be liable for any claims to the extent of distributions received by them in a dissolution and any such liability of our stockholders will likely extend beyond the third anniversary of such dissolution or the settlement of claims, litigation or proceedings begun prior to or during the three year period. Accordingly, third parties may seek to recover from our stockholders amounts owed to them by us.

As a foreign private issuer, we are exempt from certain rules that are applicable to U.S. companies, and while we have agreed with the underwriters in our IPO to comply with certain of these requirements, such agreement can be waived without your consent and you may receive less information about us and our operations than you would receive if such agreements were not waived or we were a U.S. company.

As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of proxy statements to stockholders, and our executive officers, directors and principal stockholders are exempt from certain of the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. Therefore you may receive less information about us than you would receive if we were a U.S. company. For example, we are making use of the exemption available to foreign private issuers to not seek shareholder approval of a transaction such as the Acquisition in the event that such approval is not required under Marshall Islands law.

We have agreed with the underwriters that, for the period commencing with the date of our IPO and ending on the consummation of our initial acquisition transaction, we will:

However, the agreement to provide such information to our stockholders may be waived, in whole or in part, by the representative of the underwriters.

The representative may have a conflict of interest in granting a waiver if such requirements prevent or delay an acquisition transaction from occurring because a substantial portion of the underwriter’s discount is deferred until, and subject to, the closing of an acquisition transaction.

If third parties bring claims against us, the proceeds held in the trust account may be reduced and the per share liquidation price received by you will be less than $10.30 per share.

Our placing of funds in the trust account may not protect those funds from third-party claims against us. Although we will seek to have all prospective acquisition targets we enter into agreements with and all vendors and service providers that we contract to provide services to us, which we collectively refer to as the contracted parties, execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders. There is no guarantee that we will be able to get waivers from the contracted parties and there is no guarantee that even if the contracted parties executed such agreements with us that such waivers will be enforceable by operation of law or that the contracted parties would be prevented from bringing claims against the trust account. In the event that a potential contracted party were to refuse to execute such a waiver, we will execute an agreement with that person only if our management first determines that we would be unable to obtain, on a reasonable basis, substantially similar services or opportunities from another person willing to execute such a waiver. Accordingly, the proceeds held in the trust account may be subject to claims which would take priority over the claims of our public stockholders and, as a result, the per share liquidation price could be less than $10.30 per share due to claims of such creditors. If we are unable to complete an acquisition transaction and are forced to dissolve and liquidate, our founders, by agreement, will jointly and severally indemnify us for all claims of contracted parties, to the extent we fail to obtain valid and enforceable waivers from such parties. Only claims based on agreements that do not include a valid and enforceable waiver of claims against the trust account are covered by the indemnification provided by our founders, and any claim based on an agreement that includes a valid and enforceable waiver of claims against the trust account will not be covered by such indemnification. Under these circumstances, our board of directors would have a fiduciary obligation to our stockholders to bring a claim against our founders to enforce their indemnification obligations. We are not currently aware of any claims against the trust account.

Additionally, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the funds held in our trust account will be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to claims of third parties with priority over the claims of our public stockholders. To the extent bankruptcy claims deplete the trust account, we cannot assure you we will be able to return to our public stockholders the liquidation amounts due them.

We allow up to 90% of our public stockholders to exercise their redemption rights, which could result in very little money remaining in trust for the post-transaction company.

We are offering each stockholder the right to have his, her or its shares of common stock converted to cash if the initial acquisition transaction is consummated. Our founders have agreed not to redeem any shares of common stock held by them. We will consummate the initial acquisition transaction only if public stockholders owning no more than 90% of the shares sold in our IPO exercise their redemption rights. Because we permit a larger number of stockholders to exercise their redemption rights, it will be easier for us to consummate an initial acquisition transaction with an acquisition target in the face of strong stockholder dissent. Depending on the number of shares that are redeemed in connection with our initial acquisition transaction, we may have very little money in our trust account with which to consummate our initial acquisition transaction, which may result in our having to obtain additional financing to consummate our initial acquisition transaction, result in less money being available for use as working capital post acquisition transaction, or result in our failure to consummate an initial acquisition transaction.

Our redemption threshold of 90% may reduce the liquidity of our securities in the open market.

Since we have a redemption threshold of 90%, a high number of public shares may be redeemed in connection with our initial acquisition transaction, which would result in significantly fewer public shares issued and outstanding, and which would in turn significantly reduce the liquidity of our securities, including our public shares that are not redeemed.

Stockholders are entitled to redeem up to 90% of the public shares, as a result of which our public stockholders will have limited information regarding the combined company’s capital structure prior to the acquisition transaction.

Depending on the number of stockholders who choose to exercise their redemption rights in connection with our initial acquisition transaction, pursuant to our Amended and Restated Articles of Incorporation and by-laws, we could be required to redeem for cash up to 90% of the shares of common stock sold in our IPO, or 4,995,000 shares of common stock at an initial per share redemption price of $10.30 per share for approximately $51,448,500 in the aggregate.

We are only providing pro forma financial information assuming no redemption, maximum redemptions permitted assuming that acquisition has $10 million available in the trust account and full redemptions by public stockholders in order to provide our stockholders with the range of possible capital structures for the combined company. Given the relatively high redemption threshold, the difference in capital structure assuming no redemptions and full redemptions will be significant. Furthermore, we will not be able to provide stockholders with any assurance of where, within the possible range disclosed, the combined company will fall following consummation of an acquisition transaction. As a result, our public stockholders will have limited information regarding the combined company’s capital structure at the time of the acquisition transaction.

Because we are incorporated under the laws of the Marshall Islands, you may face difficulty protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited.

We are a company incorporated under the laws of the Marshall Islands, and certain of our assets may in the future be located outside the United States. In addition, all of our directors and officers, and their assets, are located outside of the United States. As a result, you may have difficulty serving legal process within the United States upon us or any of these persons. You may also have difficulty enforcing, both in and outside the United States, judgments you may obtain in U.S. courts against us or these persons in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws. You may also have difficulty bringing an original action in the appropriate court of the Marshall Islands to enforce liabilities against us or any person based upon the U.S. federal securities laws.

Your only opportunity to evaluate and affect the investment decision regarding a potential acquisition transaction may be limited to exercising your redemption rights in connection with our initial acquisition transaction.

You will be relying on the ability of our officers and directors, with the assistance of employees, advisors and consultants, to choose a suitable acquisition transaction. At the time of your investment in us, you will not be provided with an opportunity to evaluate the specific merits or risks of any potential acquisition target, and we do not intend on holding a stockholder vote to approve our initial acquisition transaction. Accordingly, your only opportunity to evaluate and affect the investment decision regarding a potential acquisition transaction may be limited to exercising your redemption rights in connection with our initial acquisition transaction.

We are not required to obtain a fairness opinion from an independent investment banking firm as to the fair market value of the acquisition target.

Our initial acquisition transaction must be with one or more acquisition targets whose fair market value, individually or collectively, is equal to at least 80% of the balance in the trust account (excluding deferred underwriting discounts and commissions of $350,000, and taxes payable) at the time of such acquisition. The fair market value of the acquisition target we acquire has been determined by our board of directors based upon an analysis conducted by them (which may include an analysis of actual and potential sales, earnings, cash flow and/or book value). Accordingly, we have no obligation to obtain or provide you with a fairness opinion, and our stockholders must rely solely on the judgment of our board of directors with respect to the determination of the fair market value of our initial acquisition transaction.

Your equity interest in us will be diluted and there will be a change in control of our company if the Acquisition closes.

Our Amended and Restated Articles of Incorporation authorizes the issuance of up to 150,000,000 shares of common stock, par value $0.0001 per share and 5,000,000 shares of preferred stock, par value $0.0001 per share. Immediately after our IPO, there were 136,276,500 authorized but unissued shares of common stock available for issuance (after appropriate reservation for the issuance of shares upon (i) full exercise of the underwriters’ unit purchase option, and (ii) our outstanding warrants, including the redeemable warrants issued in our IPO, the warrants included in the private placement warrants, and the warrants included in the units underlying the underwriters’ unit purchase option) and 5,000,000 authorized but unissued shares of preferred stock. We will issue approximately 22,957,455 additional shares of common stock as consideration for the Acquisition transaction. Except for the agreements with SNV, EBC and STRH described under “The Acquisition — Finder’s and Financial Services Agreements,” we have no other commitments as of the date of this Offer to issue any additional securities except in connection with the Acquisition. Our issuance of additional shares of common stock, including upon redemption of any debt securities:

The value of your investment in us may decline if any of these events occur.

The underwriting agreement and our Amended and Restated Articles of Incorporation and by-laws prohibit us, prior to our initial acquisition transaction, from issuing additional units, additional shares of common stock, preferred shares, additional warrants, or any options or other securities convertible or exchangeable into shares of common stock, or preferred shares, that participate in any manner in the proceeds of the trust account, or which votes as a class with the shares of common stock on an acquisition transaction.

Some of our executive officers and directors may remain with us following our initial acquisition transaction, which may result in a conflict of interest in determining whether a particular acquisition target is appropriate for an acquisition transaction and in the public stockholders’ best interests.

We intend that at least one executive officer and one independent director will continue to be involved in our management following our initial acquisition transaction, and we expect two such persons will be appointed as directors of the combined company. Our executive officers and directors were negotiating the terms and conditions of the Acquisition on our behalf at the same time that they, as individuals, were negotiating the terms and conditions related to employment and continued participation on the Board of Directors. As a result, there was a conflict of interest in the negotiation of the terms and conditions related to such continuing relationships as our executive officers and directors may be influenced by their personal and financial interests rather than the best interests of our public stockholders.

Our founders currently control us and may influence certain actions requiring a stockholder vote.

Our founders beneficially own, in the aggregate, approximately 24% of our issued and outstanding shares of Common Stock. In connection with a stockholder vote to approve our initial acquisition transaction and/or amend Article VIII of our Amended and Restated Articles of Incorporation (the article that contains all of the special provisions applicable to us prior to and in connection with our initial acquisition transaction) prior to consummation of our initial acquisition transaction, our founders have agreed to vote the founders’ shares and shares included in the placement units in the same manner as a majority of the public stockholders who vote at the special or annual meeting called for such purpose. In addition, each of our founders, directors, and officers has agreed that if he, she or it acquires shares of common stock in or following our IPO, he, she or it will vote all such acquired shares in favor of any acquisition transaction presented to our stockholders by our board of directors, and not to exercise redemption rights in connection with any shares held by such person. With respect to a vote to amend Article VIII of our Amended and Restated Articles of Incorporation and by-laws, our founders, directors, and officers may vote any shares acquired by them in or following our IPO in any way they wish.

Because our founders and their designees, will hold, in the aggregate, warrants to purchase 368,000 shares of common stock after an acquisition transaction, the exercise of those warrants may increase the ownership of our founders. This increase could allow our founders to influence the outcome of matters requiring stockholder approval, including the election of directors and executive officers, approval of benefits plans, mergers and significant corporate transactions after consummation of our initial acquisition transaction. Moreover, except to the extent stockholder proposals are properly and timely submitted, our directors will determine which matters, including prospective acquisition transactions, to submit to a stockholder vote. As a result, they will exert substantial control over actions requiring a stockholder vote both before and following our initial acquisition transaction.

Our one-third quorum threshold may make it easier for our founders to influence actions requiring a stockholder vote.

In accordance with our Amended and Restated Articles of Incorporation and by-laws, two stockholders representing at least one-third of our issued and outstanding shares of common stock (whether or not held by public stockholders) will constitute a quorum at a stockholders meeting. Our founders hold approximately 24% of our outstanding shares of common stock. Accordingly, if only a small proportion of public stockholders participate in a stockholders meeting and all of our founders participate, the quorum requirement may be satisfied and our founders could cast a majority of the votes at such meeting.

Certain obligations of our founders are memorialized in agreements between the founders, the underwriters of our IPO and us, and these agreements may be amended to change these obligations or eliminate them entirely.

In connection with our IPO, the founders have agreed to certain obligations pursuant to the Securities Escrow Agreement between us, American Stock Transfer & Trust Company and the founders, including: to transfer restrictions on, and the placement in escrow of, the founders’ shares, placement units and underlying securities, and to forfeit for no consideration all of the founders’ shares in the event we are unable to complete an acquisition transaction.

In connection with our IPO, the founders have agreed to certain obligations pursuant to the Letter Agreements between us, Lazard Capital Markets LLC and each of the founders, including:

These agreements are filed with the registration statement from our IPO. Each of these agreements, by their terms, are governed by New York law. In addition, each agreement may be amended or terminated with the consent of each of the parties thereto. Accordingly, if each of the parties to an agreement determine that these obligations are no longer in their best interest, then the agreements may be amended or terminated and these obligations may be changed or eliminated entirely.

Because our founders own or will own securities in us that will not participate in liquidating distributions, they may have a conflict of interest in deciding if a particular acquisition target is an attractive candidate for an acquisition transaction.

Aqua Investments Corp. acquired an aggregate of 1,437,500 founders’ shares for an aggregate purchase price of $25,000, of which 50,000 shares were cancelled upon partial execution of the over-allotment option by the underwriters of our IPO, and our founders and their designees purchased 368,000 placement units in connection with the IPO. The $3,680,000 purchase price of the placement units was included in the trust account that is distributed to our public stockholders in the event of our dissolution and liquidation. In the event of our dissolution and liquidation, our founders will not receive distributions from the trust account with respect to the placement units and the warrants included in the placement units will expire worthless. Therefore, our directors’ and officers’ personal and financial interests may influence their motivation in identifying and selecting acquisition target and consummating our initial acquisition transaction in a timely manner. This may also result in a conflict of interest when they determine whether the terms, conditions and timing of a particular acquisition transaction are appropriate and in our stockholders’ best interest.

Unless we complete an acquisition transaction, neither our officers, directors, nor any of their respective affiliates, will receive reimbursement for any out-of-pocket expenses they incur if such expenses exceed the amount available to us for working capital and general corporate purposes. Therefore, they may have a conflict of interest in determining whether a particular acquisition target is appropriate for an acquisition transaction and in the public stockholders’ best interest.

We shall provide reimbursement of out-of-pocket expenses reasonably incurred by our officers, directors, or any of their respective affiliates, in connection with identifying, investigating and consummating an acquisition transaction, for which there is no maximum amount of out-of-pocket expenses that may be incurred. Notwithstanding, neither our officers, directors, nor any of their respective affiliates, will receive reimbursement for any out-of-pocket expenses reasonably incurred by them to the extent that such expenses exceed the amount not required to be retained in the trust account unless an acquisition transaction is consummated. Our officers and directors may negotiate the repayment of some or all of any such expenses. If the acquisition target’s owners do not agree to such repayment, this could cause our management to view such potential acquisition transaction unfavorably, thereby resulting in a conflict of interest. The financial interest of our officers, directors, or any of their respective affiliates, could influence their motivation in selecting an acquisition target and thus, there may be a conflict of interest when determining whether a particular acquisition transaction is in the stockholders’ best interest.

Nasdaq may delist our securities, which could limit investors’ ability to transact in our securities and subject us to additional trading restrictions.

The Common Stock is traded and listed on the Nasdaq Capital Market under the symbol “AQU.” The Common Stock may be delisted if we fail to maintain certain Nasdaq listing requirements. Aquasition received a letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC stating that Nasdaq’s staff had determined that Aquasition was not in compliance with Listing Rule 5550(a)(3), which rule requires that the Company maintain a minimum of 300 public holders for continued listing of its securities on Nasdaq. On May 5, 2014 the Company provided the Nasdaq with a plan to regain compliance. Aquasition included a description of the Acquisition and this tender offer as part of its plan to regain compliance. While the tender offer will reduce the number of currently public shares outstanding, Aquasition believes that the Acquisition will increase the total number of shares outstanding. Aquasition believes that, in addition to directly increasing the number of public shareholders by issuing shares at the closing, the Acquisition is an attractive business opportunity that will attract additional shareholders at or immediately after closing, and Aquasition is actively marketing the Acquisition to encourage shareholders to not tender their shares. On June 2, 2014, Aquasition received a letter from Nasdaq indicating that it had until August 15, 2014, to provide evidence to Nasdaq that it had a minimum of 300 round lot shareholders. There can be no assurance that Aquasition will be able to regain compliance with the Nasdaq continued listing requirements, including the minimum public holder requirement, or that its securities will continue to be listed on the Nasdaq Capital Market.

Additionally, the Nasdaq will require us to meet its initial listing requirements, as opposed to its more lenient continued listing requirements, at the time of our initial acquisition transaction. We cannot assure you that we will be able to meet those initial listing requirements at that time.

If the Nasdaq delists our securities from trading, we could face significant consequences, including:

In addition, we would no longer be subject to Nasdaq rules, including rules requiring us to meet certain corporate governance standards.

We intend to meet the Nasdaq’s listing standards without making use of the exemptions for foreign private issuers which make the listing standards less stringent than those for U.S. filers, other than the exemption to the requirement to obtain stockholder approval of a business combination, which exemption the Company plans to utilize. However, in the future we may rely on other exemptions.

If we are unable to comply with the rules applicable to for foreign private issuers, we may be delisted. If we are delisted, then we will no longer be required to meet the Nasdaq’s listing standards.

If our shares of common stock become subject to the SEC’s penny stock rules, broker-dealers may experience difficulty in completing customer transactions, and trading activity in our securities may be adversely affected.

If at any time our shares are not listed on the Nasdaq Capital Market and we have net tangible assets of $5,000,000 or less and our shares of common stock have a market price per share of less than $5.00, transactions in our shares of common stock may be subject to the “penny stock” rules promulgated under the Exchange Act. Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must:

If our shares of common stock become subject to these rules, broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely affected. As a result, the market price of our securities may be depressed, and you may find it more difficult to sell our securities.

Following the Acquisition we may discover or otherwise become aware of adverse information regarding Target, and we may be required subsequently to take write-downs or write-offs, restructuring, and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and our share price, which could cause you to lose some or all of your investment.

We have conducted a due diligence investigation of Target. Intensive due diligence is time consuming and expensive due to the operations, accounting, finance and legal professionals who must be involved in the due diligence process. Even though we have conducted extensive due diligence on Target, we cannot assure you that this diligence will identify all material issues that may be present inside Target, or that factors outside of the Target and outside of our control will not later arise. In addition, our management team has limited experience in China and in the retail industry and therefore may not have uncovered potential issues with KBS that a more experienced management team would have. If our diligence fails to discover or identify material issues relating to Target, industry or the environment in which Target operates, we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject as a result of assuming debt held by Target or by virtue of our obtaining post-combination debt financing.

We may enter into agreements with consultants or financial advisers that provide for the payment of fees upon the consummation of our initial acquisition transaction, and, therefore, such consultants or financial advisers may have conflicts of interest.

We have entered into agreements with consultants or financial advisers that provide for the payment of fees upon the consummation of our initial acquisition transaction. See “The Acquisition – Finder’s and Financial Securities Agreements” for a description of these agreements. Because we are paying consultants and financial advisers fees that are tied to the consummation of our initial acquisition transaction, they may have conflicts of interest when providing services to us, and their interests in such fees may influence their advice with respect to a potential acquisition transaction. For example, if a consultant’s or financial advisor’s fee is based on the size of the transaction, then they may be influenced to present us larger transactions that may have lower growth opportunities or long-term value versus smaller transactions that may have greater growth opportunities or provide greater value to our stockholders. Similarly, consultants whose fees are based on consummation of an acquisition transaction may be influenced to present potential acquisition transactions to us regardless of whether they provide longer-term value for our stockholders. While we will endeavor to structure agreements with consultants and financial advisors to minimize the possibility and extent of these conflicts of interest, we cannot assure you that we will be able to do so and that we will not be impacted by the adverse influences they create.

Our outstanding warrants may adversely affect the market price of our shares of common stock and make it more difficult to effect an acquisition transaction.

There are currently 5,918,000 Aquasition redeemable warrants outstanding, including 368,000 warrants underlying the placement units. Each redeemable warrant entitles the holder to purchase one share of common stock at a price of $11.50 and will become exercisable on the consummation of an acquisition transaction. The warrants included in the placement units are identical to those redeemable warrants sold as part of the units in our IPO except that such warrants may be exercised on a cashless basis at any time after an acquisition transaction and even if there is not an effective registration statement relating to the shares underlying the warrants and the placement units and underlying securities are subject to certain transfer restrictions. We also issued to the representative of the underwriters, concurrently with our IPO, for a purchase price of $100, an option to purchase 250,000 units, each unit representing one share of common stock and one redeemable warrant. The sale or possibility of sale of the shares underlying the warrants could have an adverse effect on the market price for our shares of common stock or our units or our ability to obtain future financing. If and to the extent these warrants are exercised, you may experience dilution to your holdings.

You will not be able to exercise your redeemable warrants if we do not have an effective registration statement and a prospectus in place when you desire to do so.

No redeemable warrants will be exercisable, and we will not be obligated to issue shares of common stock upon exercise of redeemable warrants by a holder unless, at the time of such exercise, we have a registration statement or post-effective amendment under the Securities Act covering the shares of common stock issuable upon the exercise of the redeemable warrants and a current prospectus relating to shares of common stock. Under the terms of a redeemable warrant agreement between American Stock Transfer & Trust Company as warrant agent, and us, we have agreed to use our best efforts to have a registration statement in effect covering shares of common stock issuable upon exercise of the redeemable warrants from the date the redeemable warrants become exercisable and to maintain a current prospectus relating to shares of common stock until the redeemable warrants expire or are redeemed, and to take such action as is necessary to qualify the shares of common stock issuable upon exercise of the redeemable warrants for sale in those states in which the IPO was initially qualified. However, we cannot assure you that we will be able to do so. We may be unable to have a registration statement in effect covering shares of common stock issuable upon exercise of the redeemable warrants or to maintain a current prospectus relating to such shares of common stock if, for example, we lack the current financial statements necessary to be included in such registration statement or prospectus. We have no obligation to settle the redeemable warrants for cash, in any event, and the redeemable warrants may not be exercised and we will not deliver securities therefor in the absence of an effective registration statement and a prospectus available for use. The redeemable warrants may be deprived of any value, the market for the redeemable warrants may be limited if there is no registration statement in effect covering the shares of common stock issuable upon the exercise of the redeemable warrants or the prospectus relating to the shares of common stock issuable upon the exercise of the redeemable warrants is not current and the redeemable warrants may expire worthless. If you are unable to exercise or sell your redeemable warrants, you will have paid the full unit price for only the shares of common stock underlying the units.

Holders of warrants included in the placement units may exercise these warrants even if an effective registration statement and a prospectus is not in place, which means they may be able to exercise such warrants while public warrants might not be exercisable and may expire worthless.

Unlike the warrants underlying the units issued in connection with our IPO, the warrants included in the placement units will not be restricted from being exercised in the absence of a registration statement under the Securities Act in effect covering the shares of common stock issuable upon the exercise of the such warrants and a current prospectus relating to shares of common stock. Therefore, once the warrants included in the placement units become exercisable, the holders thereof will be able to exercise such warrants regardless of whether the issuance of the underlying shares of common stock is registered under the Securities Act, while public warrants might not be exercisable and may expire worthless.

If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to consummate our initial acquisition transaction or operate over the near term or long-term in our intended manner.

We do not plan to operate as an investment fund or investment company, or to be engaged in the business of investing, reinvesting or trading in securities. Our plan is to acquire, hold, operate and grow for the long-term one or more operating businesses or a portion of such business or businesses. We do not plan to operate as a passive investor or as a merchant bank seeking dividends or gains from purchases and sales of securities. Our founders are experienced as officers and directors of operating companies. However, we may be deemed to be an investment company under the Investment Company Act if, following our IPO and prior to the consummation of our initial acquisition transaction, we are viewed as engaging in the business of investing in securities or we own “investment securities” having a value exceeding 40% of our total assets, and may be required to register as an investment company or a registered investment adviser under the U.S. securities laws.

If we are deemed to be an investment company under the Investment Company Act, we may be subject to certain restrictions that may make it difficult for us to complete an acquisition transaction, including:

each of which may make it difficult for us to consummate our initial acquisition transaction.

In addition, we may have imposed upon us burdensome requirements, including:

compliance with which would reduce the funds we have available outside the trust account to consummate our initial acquisition transaction.

We do not believe that our anticipated activities will subject us to the Investment Company Act as the net proceeds of our IPO and sale of units in our private placement offering that are held in the trust account may only be invested by the trust agent in United States government treasury bills having a maturity of 180 days or less, or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940 and that invest solely in U.S. treasuries. By restricting the investment of the trust account to these instruments, we intend to meet the requirements for the exemption provided in Rule 3a-1 promulgated under the Investment Company Act. If we were deemed to be subject to the Investment Company Act, compliance with these additional regulatory burdens would require additional expense for which we have not allotted.

We are dependent upon each of Messrs. Polemis, Los, Sougioultzoglou, Frangos and Kalapotharakos and the loss of one or more of them could adversely affect our ability to operate.

Our operations are dependent upon a relatively small group of individuals and, in particular, upon Messrs. Polemis, Los, Sougioultzoglou, Frangos and Kalapotharakos. Each of these persons has played a key role in our search for an acquisition target, and we believe that our success in identifying and completing an acquisition transaction with an attractive acquisition target depends on the continued service of these persons, at least until we have consummated our initial acquisition transaction.

We cannot assure you that such individuals will remain with us for the immediate or foreseeable future. In addition, none of Messrs. Polemis, Los, Sougioultzoglou, Frangos and Kalapotharakos are required to commit any specified amount of time to our affairs and, accordingly, they will have conflicts of interest in allocating management time among various business activities, including identifying potential acquisition transactions and monitoring the related due diligence. We do not have employment or consulting agreements with, or key-man insurance on the life of, one or more of these individuals. The unexpected loss of the services of one or more of these individuals could have a detrimental effect on us and impair our ability to identify and complete an acquisition transaction with an attractive acquisition target.

We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act which allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.

We are an emerging growth company as defined in the JOBS Act, and will continue to be an emerging growth company until: (i) the last day of our fiscal year following the fifth anniversary of our IPO, (ii) the date on which we become a large accelerated filer, or (iii) the date on which we have issued an aggregate of $1 billion in non-convertible debt during the preceding 3 years. As an emerging growth company, we have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

There is a risk that we could be treated as a domestic (U.S.) corporation for U.S. federal income tax purposes, which (among other things) could result in significantly greater U.S. federal income tax liability to us.

Section 7874(b) of the Internal Revenue Code of 1986, as amended (the “Code”) generally provides that a corporation organized outside the United States that acquires, directly or indirectly, pursuant to a plan or series of related transactions, substantially all of the assets of a corporation organized in the United States, will be treated as a U.S. corporation for U.S. federal income tax purposes if (i) the acquiring corporation, together with all corporations connected to it by a chain of greater than 50% ownership by vote and value (the “expanded affiliated group”), does not have substantial business activities in the country in which the acquiring corporation is organized, compared to the total worldwide business activities of the expanded affiliated group, and (ii) shareholders of the acquired corporation, by reason of owning shares of the acquired corporation, own at least 80% of either the voting power or the value of the stock of the acquiring corporation after the acquisition. For this purpose, options and warrants with respect to a corporation generally are treated as stock in the corporation with a value equal to the value of the stock that may be acquired pursuant to the option or warrant, less the exercise price thereof (but not less than zero), and excluding the amount of any property the holder of the option or warrant would be required to provide to the corporation under the terms of the option or warrant if such option or warrant were exercised. If Section 7874(b) of the Code applies to the Acquisition and related transactions, among other things, we would be subject to U.S. federal income tax on our worldwide taxable income following the Acquisition and related transactions as if we were a domestic (U.S.) corporation for U.S. federal income tax purposes.

After the completion of the Acquisition and related transactions, although it is expected that the expanded affiliated group that would include us will not conduct substantial business activities in the Marshall Islands as compared to the total worldwide business activities of such expanded affiliated group, it is not clear at this time whether the stockholders of KBS will own, by reason of owning stock of KBS, at least 80% of the voting power or value of our Common Stock after the Acquisition (taking into account any redemptions of stock pursuant to the Offer and any options and warrants that may be treated as stock under the above rules). Accordingly, it is not clear at this time whether Section 7874(b) of the Code would apply to the Acquisition and related transactions and whether we will be treated as a U.S. corporation or a foreign corporation for U.S. federal income tax purposes from the date of the Acquisition. See the discussion under “Material U.S. Federal Income Tax Consequenses—Our Treatment as a U.S. Corporation or a Foreign Corporation for U.S. Federal Income Tax Purposes,” below.

Even if Section 7874(b) of the Code were to apply to us and our conversion from a foreign corporation to a domestic corporation for U.S. federal income tax purposes qualifies as a reorganization under Section 368(a)(1)(F) of the Code, a U.S. Holder generally may still recognize gain with respect to its Common Stock at the effective time of such conversion.

In general, the conversion of a foreign corporation to a domestic corporation by reason of Section 7874(b) of the Code constitutes a deemed reorganization pursuant to Section 368(a)(1)(F) of the Code that generally occurs at the end of the day immediately preceding the date of the acquisition, directly or indirectly, of substantially all of the assets of the acquired corporation (a “Deemed Reorganization”).

Even if any such Deemed Reorganization that applied to us qualifies as a reorganization under Section 368(a)(1)(F) of the Code, a U.S. Holder (as that term is defined in the section entitled “Material U.S. Federal Income Tax Consequences — General”) of Common Stock may still recognize gain (but not loss) upon the deemed exchange of its Common Stock solely for common stock of a domestic corporation pursuant to the Deemed Reorganization under the “passive foreign investment company,” or “PFIC,” rules of the Code or under Section 367(b) of the Code, equal to the excess, if any, of the fair market value of the common stock of the domestic corporation deemed received in the Deemed Reorganization and the U.S. Holder’s adjusted tax basis in the Common Stock deemed surrendered in the Deemed Reorganization. In such event, the U.S. Holder’s aggregate tax basis in the domestic corporation stock deemed received in connection with a Deemed Reorganization should be the same as the aggregate tax basis of the Common Stock deemed surrendered in the transaction, increased by any amount included in the income of such U.S. Holder under the PFIC rules or Section 367(b) of the Code. See the discussion under “Material U.S. Federal Income Tax Consequences—U.S. Holders —PFIC Considerations” and “—Effect of Section 367 of the Code,” below. In addition, the holding period of the domestic corporation stock deemed received in a Deemed Reorganization generally should include the holding period of the Common Stock deemed surrendered in a Deemed Reorganization.

If Section 7874(b) of the Code did not apply to us, and we remained a foreign corporation for U.S. federal income tax purposes from and after the date of the Acquisition, we may still qualify as a passive foreign investment company, or “PFIC,” which could result in adverse U.S. federal income tax consequences to U.S. investors.

In general, if Section 7874(b) of the Code did not apply to us and we remained a foreign corporation for U.S. federal income tax purposes from and after the date of the Acquisition, we would be treated as a PFIC for any taxable year ending after the date of the Acquisition in which either (1) at least 75% of our gross income (looking through certain 25% or more-owned corporate subsidiaries) is passive income or (2) at least 50% of the average value of our assets (looking through certain 25% or more-owned corporate subsidiaries) is attributable to assets that produce or are held for the production of, passive income. Passive income generally includes, without limitation, dividends, interest, rents, royalties, and gains from the disposition of passive assets. If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder (as defined in “Material U.S. Federal Income Tax Consequences – General”) of our Common Stock, the U.S. Holder may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements. Our actual PFIC status for our current taxable year or any subsequent taxable year will not be determinable until after the end of such taxable year. Accordingly, there can be no assurance with respect to our status as a PFIC for our current taxable year or any subsequent taxable year. We urge U.S. Holders to consult their own tax advisors regarding the possible application of the PFIC rules. For a more detailed explanation of the tax consequences of PFIC classification to U.S. Holders, see “Material U.S. Federal Income Tax Consequences – U.S. Holders – PFIC Considerations.”

Current economic conditions and the global tightening of credit may adversely affect the financial condition of our business following the consummation of the Acquisition.

Since the onset of the “credit crisis” in mid-2007, the number of banks advancing new loans against Southern European properties has fallen substantially and that decline, together with a tightening of lending policies, has resulted in a significant contraction in the amount of debt available to fund re-financings, acquisitions, developments and other commercial real estate investments. Assuming the Acquisition is successfully consummated, there can be no assurance that the continuation of current economic conditions will not impact certain of the properties in Southern Europe we may acquire following the Acquisition. Such properties could experience higher levels of vacancy than anticipated at the time of our acquisition of such properties, which could adversely impact the financial performance of our post-Acquisition company.

Your only opportunity to affect the investment decision regarding a potential business combination will be limited to the exercise of your right to redeem your shares of Common Stock us for cash in this Offer.

Because our board of directors may consummate an acquisition transaction without seeking shareholder approval in accordance with our Articles of Incorporation, holders of shares of Common Stock will not have the right or opportunity to vote on the business combination, unless we seek such shareholder vote. Accordingly, your only opportunity to affect the investment decision regarding the Acquisition may be limited to exercising your redemption rights within the period of time set forth in this Offer, as amended. In addition, your election to exercise your redemption rights could still be rejected if the conditions to this Offer are not satisfied.

We had a material weakness in our internal control in financial reporting, and our disclosure controls and procedures were not effective, for the year ended December 31, 2013 due to the lack of requisite U.S. GAAP experience of our management team and a lack of internal resources to complete required filings in a timely fashion.

In our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2013, we determined that we had a material weakness in our internal control in financial reporting, and our disclosure controls and procedures were not effective, because the Company did not employ an individual with the necessary qualifications to prepare a complete set of financial statements and related footnotes in accordance with generally accepted accounting principles, including all applicable Securities and Exchange Commission pronouncements, and the Company has a lack of internal resources to account for the completeness of transactions to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and regulations, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO, as appropriate, to allow timely decisions regarding required disclosure.

A material weakness makes it a reasonable possibility that a material misstatement of our company’s annual or interim financial statements will not be prevented or detected on a timely basis.

In the event that the material weakness described above led to our financial statements not being prepared properly (which we currently do not believe to be the case), we would be required to restate our financial statements. In addition, the lack of effectiveness of our disclosure controls and procedures could result in our failing to file required disclosure documents in a timely fashion and being delisted from the Nasdaq Stock Market.

Risk Factors Relating to Aquasition’s Business Following the Acquisition

General economic conditions, including a prolonged weakness in the economy, may affect consumer discretionary spending, which could adversely affect Target’s business and financial performance.

The apparel industry has historically been subject to substantial cyclical variations. Target’s business and financial performance are dependent on a number of factors impacting consumer discretionary spending, including general economic and business conditions; consumer confidence; wages and employment levels; the housing market; consumer debt levels; availability of consumer credit; credit and interest rates; fuel and energy costs; energy shortages; taxes; general political conditions, both domestic and abroad. Consumer product purchases, including purchases of our products, may decline during recessionary periods. Target’s ability to access the capital markets may be restricted at a time when Target would like, or need, to raise capital, which could impair on Target’s ability to open additional stores or build additional manufacturing lines. In addition, as domestic and international economic conditions change, trends in consumer spending on discretionary items, including Target’s merchandise, become unpredictable and subject to reductions due to economic uncertainties. A prolonged economic recovery or an uncertain outlook in the economy could result in additional declines in consumer discretionary spending, which could materially affect Target’s financial performance.

A contraction in apparel sales and production could impair Target’s results of operations and liquidity and jeopardize Target’s supply base.

Apparel sales and production are cyclical and depend, among other things, on general economic conditions and consumer spending and preferences. As the volume of apparel production fluctuates, the demand for Target’s products also fluctuates. A contraction in apparel sales could harm Target’s results of operations and liquidity. In addition, Target’s suppliers would also be subject to many of the same consequences which could pressure their results of operations and liquidity. Depending on an individual supplier’s financial condition and access to capital, its viability could be challenged which could impact its ability to perform as Target expects and consequently Target’s ability to meet Target’s own commitments.

If Target is unable to anticipate consumer preferences and develop new menswear products, Target may not be able to maintain or increase Target’s net revenues and profits.

Target’s success depends on Target’s ability to identify, originate and define apparel trends as well as to anticipate, gauge and react to changing consumer demands for menswear in a timely manner. Target’s target market of consumers comprises urban males between the ages of 20 and 40 with moderate-to-high levels of disposable income. Target’s business is particularly sensitive to their fashion preferences, which cannot be predicted with certainty. Target’s new products may not receive consumer acceptance as consumer preferences could shift rapidly, and Target’s future success depends in part on Target’s ability to anticipate and respond to these changes. If Target fails to anticipate accurately and respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, designs, styles and categories, Target could experience lower sales, excess inventories and lower profit margins. In a distressed economic and retail environment, many of Target’s competitors may engage in aggressive activities, such as markdowns or other promotional sales to dispose of excess, slow-moving inventory, further increasing the need to react appropriately to changing consumer preferences and fashion trends. Failure to do so could adversely affect the level of acceptance of our products, our brand image and our relationship with our distributors, and therefore have a material adverse effect on our financial condition or results of operations.

The apparel industry is highly competitive, and if Target fails to compete effectively, Target could lose Target’s market position.

The menswear industry is highly competitive in China and worldwide. Target competes with various domestic brands with similar business models and target markets. Target also competes with a growing number of international brands trying to expand their market share in China to take advantage of rising consumer spending on casual menswear. Target’s primary international and domestic competitors include Exceed, Xiniya, Cabbeen, and NQ. Some of Target’s competitors are significantly larger and have greater financial resources than Target does. In order to compete effectively, Target must: (1) maintain the image of Target’s brands and Target’s reputation for innovation and high quality; (2) be flexible and innovative in responding to rapidly changing market demands on the basis of brand image, style, performance and quality; and (3) offer consumers a wide variety of high quality products at competitive prices.

The purchasing decisions of consumers are highly subjective and can be influenced by many factors, such as brand image, marketing programs and product features. Some of Target’s competitors enjoy competitive advantages, including greater brand recognition and greater financial resources for competitive activities, such as sales, marketing and strategic acquisitions. The number of Target’s direct competitors and the intensity of competition may increase as Target expands into other product lines or as other companies expand into Target’s product lines. Target’s competitors may enter into business combinations or alliances that strengthen their competitive positions or prevent Target from taking advantage of such combinations or alliances. Target’s competitors also may be able to respond more quickly and effectively than Target can to new or changing opportunities, standards or consumer preferences. Target’s results of operations and market position may be adversely impacted by Target’s competitors and the competitive pressures in the menswear industries.

Failure to effectively promote or develop Target’s brand could materially and adversely affect Target’s sales and profits.

Target sells all Target’s products under the KBS brand, from which Target derives most of Target’s revenues. Brand image is an important factor that affects a customer’s purchasing decision for menswear products. Target’s success therefore depends on, among other things, market recognition and acceptance of the KBS brand and the culture, lifestyle, and images associated with the brand, some of which may not be within Target’s control. We have limited control over our distributors that we rely upon to sell our products, which may limit our ability to ensure a consistent brand image. See “-Risks Factors Relating to Aquasition’s Business Following the Acquisition -Target has limited control over the ultimate retail sales by Target’s distributors and Target’s image and business may be adversely affected if Target’s distributors fail to adhere to, or fail to cause the third party retail outlet operators to adhere to, Target’s retail policies and standards.” Target began designing, promoting, and selling KBS branded products in China in 2006. To effectively promote KBS brand, Target needs build and maintain the brand image by focusing on a variety of promotional and marketing activities to promote brand awareness, as well as to increase its presence in the markets in which Target competes. There is no assurance that Target will be able to effectively promote or develop KBS brand, and if Target fails to do so, the goodwill of KBS brand may be undermined and Target’s business as well as Target’s financial results may be adversely affected. In addition, negative publicity or disputes regarding KBS brand, products, company, or management could materially and adversely affect public perception of KBS brand. Any impact on Target’s ability to continue to sell KBS brand or any significant damage to KBS brand’s image could materially and adversely affect Target’s sales and profits.

Target’s business depends substantially on the continuing efforts of Target’s senior executives and other key personnel, and Target’s business may be severely disrupted if Target loses their services.

Target’s future success heavily depends on the continued service of Target’s senior executives and other key employees. In particular, Target relies on the expertise, experience, and business contacts, of Mr. Keyan Yan, Target’s Chairman and Chief Executive Officer, and Mr. Stanley Wong, Target’s Chief Financial Officer. If one or more of Target’s senior executives are unable or unwilling to continue to work for Target in their present positions, Target may have to spend a considerable amount of time and resources searching, recruiting, and integrating the replacements into Target’s operations, which would substantially divert management’s attention from Target’s business and severely disrupt Target’s business. This may also adversely affect Target’s ability to execute Target’s business strategy. Moreover, if any of Target’s senior executives joins a competitor or forms a competing company, Target may lose customers, suppliers and key employees.

Failure to execute Target’s business expansion plan could adversely affect Target’s financial condition and results of operations.

A large part of Target’s initial growth resulted from an increase in the number of Target’s retail sales outlets, including corporate and franchised stores, and the increased sales volume and profitability provided by these sales outlets. The number of Target’s sales outlets increased from 8 in 2006 to 114 in 2013. In the future, Target will depend upon the addition of new retail stores to increase Target’s sales volume and profitability. Target plans to open approximately 30 corporate stores and 100 franchised stores by 2015. Opening these stores will significantly increase Target’s expenses and Target may encounter problems in opening these new stores that would affect Target’s profitability. Moreover, Target cannot assure you that Target will be able to timely open and operate Target’s new sales outlets or that any such expansion will be profitable.

Target’s production facility is located in Taihu City in Anhui Province, China. Currently the facility has a production capacity of 2 million pieces of clothes per year and the facility is on a leased term. This production facility mainly produces ODM products for famous sportswear producers. Target is in the process of acquiring land use rights for land adjacent to their current facility consisting of 110,557 square meters to build a new facility, a portion of which already been acquired. Upon completion, the new facility is expected to have a production capacity of 20 million pieces and accommodate 5,000 workers. The construction commenced in 2011 and is to occur in four phases: Phase 1 consists of a 5-story dormitory which was completed in 2012. Phase 2 is to add facilities with annual production capacity of five million pieces of clothes, and is expected to be completed by the end of 2014. Phase 3 construction work is to add additional facilities with annual production capacity of 5 million pieces and is expected to be finished by the end of 2015. Phase 4 will include production facilities with annual production capacity of 10 million pieces, an office building, staff quarters and living facilities, and is expected to be completed by the end of 2018. Due to the local government’s need for additional time to conclude negotiations with local residents over appropriate resettlement terms, the timeline of the construction of the adjacent facility has been delayed. As a result, Target’s commitments to this facility may reduce Target’s liquidity for an indefinite period and until it is completed. Target may also indefinitely lose opportunities to expand Target’s sales due to this delay.

The decision to increase Target’s production capacity was based in part on Target’s projections of market demand for Target’s products and ODM orders from other brand name owners. If actual customer demand does not meet Target’s projections, Target will likely suffer overcapacity problems and may have to leave capacity idle or need to contract out Target’s facilities at an unfavorable price, which may reduce Target’s overall profitability and adversely affect Target’s financial condition and results of operations. Target’s future success depends on Target’s ability to expand Target’s business to address growth in demand for Target’s current and future products.

Target’s ability to expand Target’s business is subject to significant risks and uncertainties, including:

The expansion of Target’s business may place significant strain on Target’s personnel, management, financial systems and operational infrastructure and may impede Target’s ability to meet any increased demand for Target’s products. To accommodate Target’s growth, Target will need to implement a variety of new and upgraded operational and financial systems, procedures, and controls, including improvements to Target’s accounting and other internal management systems, by dedicating additional Target’s resources to Target’s reporting and accounting function and improvements to Target’s record keeping and contract tracking system. Target will also need to recruit more personnel and train and manage Target’s growing employee base. Furthermore, Target will need to maintain and expand Target’s relationships with Target’s current and future customers, suppliers, distributors and other third parties, and there is no guarantee that Target will succeed.

If Target encounters any of the risks described above or if Target is otherwise unable to establish or successfully operate additional stores or additional production capacity, Target may be unable to grow Target’s business and revenues, reduce Target’s operating costs, maintain Target’s competitiveness or improve Target’s profitability and, consequently, Target’s business, financial condition, results of operations and prospects will be adversely affected.

If Target is unable to fund capital expenditures or obtain additional sources of liquidity when Target needs it, Target’s business may be adversely affected. In addition, if Target obtains equity financing, the issuance of Target’s equity securities could cause dilution for Target’s stockholders. To the extent Target obtains the financing through the issuance of debt securities, Target’s debt service obligations could increase and Target may become subject to restrictive operating and financial covenants.

Target anticipates that Target will make substantial capital investments to expand Target’s business within the next 3 years. For the fiscal years ended December 31, 2013 and 2012, Target paid approximately $11.9 million and $14.1 million, respectively, for capital expenditures. Target estimates that Target’s capital expenditures for the fiscal year ended December 31, 2014 will be approximately $16 million, which includes expenditure on Target’s second phase construction, opening of new stores, commencing e-commerce project, upgrading of Target’s point-of-sale and enterprise resource planning systems.

According to the agreement, Aquasition should have no less than $10 million of cash on hand immediately following the closing of the Acquisition, there is no assurance that Target will have sufficient cash to fund its anticipated capital expenditures. If Target is unable to obtain adequate financing or financing on terms favorable to us, Target may be unable to successfully maintain Target’s operations and accomplish Target’s growth strategy. In addition, Target may be unable to generate sufficient cash internally or obtain alternative sources of capital to fund Target’s proposed capital expenditures, take advantage of business opportunities or respond to competitive pressures. As a result, we may seek to sell additional equity securities, debt securities, or borrow from lending institutions. Any issuance of equity securities could cause dilution for our stockholders. Any incurrence of indebtedness could increase Target’s debt service obligations and cause Target to be subject to restrictive operating and finance covenants. Target’s ability to obtain external financing in the future is also subject to a number of uncertainties, including:

If Target is unable to obtain funding in a timely manner or on commercially acceptable terms, or at all, Target’s growth prospects and future profitability may be materially adversely affected. Adverse changes in the capital markets could make it difficult to obtain capital or obtain it at attractive rates.

Due to Target’s rapid growth in recent years, Target’s past results may not be indicative of Target’s future performance and evaluating Target’s business and prospects may be difficult.

Target’s business has grown and evolved rapidly in recent years as demonstrated by Target’s growth in net sales, from $71 million for the year ended December 31, 2012 to $99.6 million for the year ended December 31, 2013. Target may not be able to achieve similar growth in future periods, and Target’s historical operating results may not provide a meaningful basis for evaluating Target’s business, financial performance and prospects. Moreover, Target’s ability to achieve satisfactory production results at higher volumes is unproven. Therefore, you should not rely on Target’s past results or Target’s historical rate of growth as an indication of Target’s future performance.

Target experiences fluctuations in operating results.

Target’s annual and quarterly operating results have fluctuated, and are expected to continue to fluctuate. Among the factors that may cause Target’s operating results to fluctuate are customers’ response to merchandise offerings, the timing of the rollout of new sales outlets, seasonal variations in sales, the timing of merchandise receipts, the level of merchandise returns, changes in merchandise mix and presentation, Target’s cost of merchandise, unanticipated operating costs, and other factors beyond Target’s control, such as general economic conditions and actions of competitors.

Target has historically experienced seasonal fluctuations in Target’s sales. A substantial portion of Target’s revenues are typically earned during the second and fourth quarters and Target generally experiences lowest revenues during the first and third quarters. If sales during the second and fourth quarters are lower than expected, Target’s operating results would be adversely affected, and it would have a disproportionately large impact on Target’s annual operating results. The sales of Target’s products are also affected by local spending behavior, which are typically affected by seasonal shopping patterns during major Chinese holidays. Extreme changes in weather patterns could also affect customers’ purchasing behavior, which may lead to fluctuations in Target’s net sales. For example, extended periods of unusually warm temperatures during the winter season or cool weather during the summer season could render a portion of our inventory incompatible with such unusual weather conditions. These extreme or unusual weather conditions could have a material adverse effect on our results of operations.

As a result of these factors, Target believes that period-to-period comparisons of historical and future results will not necessarily be meaningful and should not be relied on as an indication of future performance.

Target’s failure to collect the trade receivables or untimely collection could affect Target’s liquidity

Target extends credit to some of Target’s customers while generally requiring no collateral. Depending on the size and creditworthiness of a customer, Target typically expects and receives payment within 30-90 days of product delivery. Target performs ongoing credit evaluations of Target’s customers’ financial condition and as of December 31, 2013, Target generally has no difficulties in collections. However, Target sales going forward may rely more heavily on credit, and if Target encounters future problems collecting amounts due from Target’s clients or if Target experiences delays in the collection of amounts due from Target’s clients, Target’s liquidity could be negatively affected.

Target relies on distributors for a substantial portion of Target’s sales and the loss of any of Target’s large distributors would harm Target’s business.

A substantial portion of Target’s sales are made to distributors that resell Target’s products. For the year ended December 31, 2013, such distributors accounted for approximately 78.5% of Target’s total sales and Target’s top five distributors accounted for approximately 67% of Target’s total sales. The marketing efforts of Target’s distributors are critical for Target’s success. If Target fails to attract additional distributors, and Target’s existing distributors do not promote Target’s products at the same or at a greater level than the products of Target’s competitors, Target’s business, financial condition and results of operations could be adversely affected.

Furthermore, there is no assurance that any of Target’s distributors will satisfy the sales targets set forth in their distribution agreements and Target or they may not wish to renew the distribution agreements in future years. Moreover, Target’s distributors are not obliged to continue to place orders with Target at the same level as before or at all and there is no assurance that Target would be able to obtain orders from other distributors to replace any such lost sales on terms satisfactory to Target or all. If any of Target’s five largest distributors substantially reduces its purchases from us, or otherwise fails to renew its distribution agreement with us, Target may suffer a significant loss of sales and Target’s business, results of operations, and financial condition may be materially and adversely affected.

Target has limited control over the ultimate retail sales by Target’s distributors and Target’s image and business may be adversely affected if Target’s distributors fail to adhere to, or fail to cause the third party retail outlet operators to adhere to, Target’s retail policies and standards.

Target relies on the contractual obligations set forth in the distribution agreements that Target enter into with Target’s distributors, as well as policies and standards Target formulates from time to time, to impose Target’s retail policies on these distributors in respect of the franchisee retail outlets. In addition, as Target does not enter into any agreements with the third party retail outlet operators, Target relies on Target’s distributors to ensure that these franchisee retail outlets operate in accordance with Target’s retail policies. As such, Target’s control over the ultimate retail sales by Target’s distributors and the franchisee retail outlet operators is limited. There is no assurance that Target’s distributors or the third party franchisee retail outlet operators will comply with, or that the distributors will enforce, Target’s retail policies. As a result, Target may not be able to effectively manage Target’s sales network or maintain a uniform brand image, and cannot assure you that franchisee retail outlets would continue to offer quality services to consumers.

In addition, if any of the distributors or third party franchisee retail outlet operators experiences difficulties in selling Target’s products in the retail market, they may attempt to disregard Target’s pricing policies and liquidate their excessive inventory buildup through aggressive discounts, which may damage the image and the value of Target’s brand. There is no assurance that Target will be able to, in a timely manner, impose penalties on or replace any distributors who consistently fail to comply with, or fail to cause the third party franchisee retail outlet operators appointed by them to comply with, Target’s retail policies in their operation of franchisee retail outlets. In such event, Target’s business, results of operations, and financial condition may be materially and adversely affected.

Target may not be able to accurately track the inventory levels at Target’s distributors, retailers or department store concessions.

Target’s ability to track the sales by Target’s distributors to third-party retailers and the ultimate retail sales by the retailers, and consequently their respective inventory levels, is limited. Target implements a policy to require Target’s distributors to provide Target with their sales reports on a weekly basis and Target carry out random on-site inspections of Target’s distributors to track their inventories. The purpose of tracking the inventory level is mainly to gather information regarding the market acceptance of Target’s products so that Target can reflect consumers’ preferences in the design and development of Target’s products for the next season. The tracking of inventory level also helps Target to understand the market recognition of Target’s products in a particular region, and thus allows Target to adjust Target’s marketing strategy if necessary. The implementation of the policy, however, requires the distributors to accurately report the relevant data to Target in a timely manner, which is largely dependent on the cooperation of Target’s distributors. Target may not always obtain the required data in time and the data provided to Target by Target’s distributors may be inaccurate or incomplete.

Target plans to implement an enterprise resource planning system, or ERP system, in 2014 that will allow Target to track sales at the authorized retail outlets on a timely basis. Such system is expected to facilitate the processing of basic replenishment orders from Target’s distributors, the movement of products through Target’s authorized retail network, and the collection of information for planning and forecasting purposes. If Target is unable to roll out the ERP system as planned, Target would not be able to accurately track Target’s inventory levels on a timely basis. Inaccurate, mistaken, incomplete or delayed data regarding inventory levels may mislead Target to make wrong business judgments for Target’s production, marketing efforts and sales strategies. If that happens, Target’s operations and financial results may be materially adversely affected. In addition, if Target cannot manage inventory levels properly, future orders of Target’s products may be reduced, which would materially adversely affect Target’s future business, financial condition, results of operation and prospects.

Target’s operations could be materially adversely affected if Target fails to effectively manage Target’s relationships with, or lose the services of, Target’s ODM contract manufacturers.

The production of Target’s brand name products are 100% outsourced to PRC-based third party ODM contract manufacturers. In the years ended December 31, 2013 and 2012, Target had 6 and 10 contract manufacturers, respectively. Purchases from Target’s top five ODM contract manufacturers accounted for approximately 98% and 99% of Target’s total purchases in 2013 and 2012, respectively. As Target does not enter into long-term contracts with Target’s ODM contract manufacturers, Target’s ODM contract manufacturers may decide not to accept Target’s future ODM orders on the same or similar terms, or at all. If an ODM contract manufacturer decides to substantially reduce its volume of supply to Target or to terminate its business relationship with us, Target may not be able to find a proper replacement in a timely manner and may be forced to default on the agreements with Target’s distributors that sell Target’s products. This may negatively impact Target’s revenues and adversely affect Target’s reputation and relationships with Target’s distributors that sell Target’s products, causing a material adverse effect on Target’s financial condition, results of operations and prospects.

Further, if any of Target’s ODM contract manufacturers fails to provide the required number of products meeting Target’s quality standards, Target may have to delay delivery of products to Target’s distributors, become unable to supply products at all, or even recall products previously dispatched. This could cause Target to lose revenues or market share and damage Target’s reputation, any of which could have a material adverse effect on Target’s business, financial condition, results of operations and prospects. In addition, some ODM contract manufacturers may not fully comply with certain laws, such as labor and environmental laws. If any of Target’s ODM contract manufacturers is found to have violated laws and regulations in the PRC, media reports on such violations may negatively affect Target’s reputation and image, resulting in material adverse impact on Target’s business, financial condition and results of operations.

Since Target provides the designs of Target’s products to the ODM contract manufacturers, as well as guidance for manufacturing the products ordered by us. Target does not have direct control over the ODM contract manufacturers. If any of them is involved in unauthorized production and sale of goods using the KBS brand, Target’s reputation, financial condition and results of operations may be materially adversely affected.

As Target grows, Target’s reliance on ODM contract manufacturers may also grow as Target’s added production capacity may not be sufficient to keep pace with the increased production requirements driven by Target’s growth. Target may not be able to find sufficient additional ODM contract manufacturers to produce Target’s products on the same or similar terms as Target’s existing ODM contract manufacturers, and Target may not be able to achieve Target’s growth and development goals.

Any interruption in Target’s operations could impair Target’s financial performance and negatively affect Target’s brand.

Target’s operations are complicated and integrated, involving the coordination of third party ODM contract manufacturers and external distribution processes. While these operations are modified on a regular basis in an effort to improve outsourcing and distribution efficiency and flexibility, Target may experience difficulties in coordinating the various aspects of Target’s operations processes, thereby causing downtime and delays. In addition, Target may encounter interruption in Target’s operations processes due to a catastrophic loss or events beyond Target’s control, such as fires, explosions, labor disturbances or violent weather conditions. Any interruptions in Target’s operations or capabilities at Target’s facilities could result in Target’s inability to procure Target’s products, which would reduce Target’s net sales and earnings for the affected period. If there is a delays in delivery times to Target’s customers, Target’s business and reputation could be severely affected. Any significant delays in deliveries to Target’s customers could lead to increased returns or cancellations and cause Target to lose future sales. Target currently does not have business interruption insurance to offset these potential losses, delays and risks so a material interruption of Target’s business operations could severely damage Target’s business.

Target relies heavily on Target’s management information system for inventory management, distribution and other functions. If Target’s system fails to perform these functions adequately or if Target experiences an interruption in Target’s operation, Target’s business and results of operations could be materially adversely affected.

The efficient operation of Target’s business is dependent on Target’s management information systems. Target relies heavily on Target’s management information systems to manage Target’s order entry, order fulfillment, pricing, point-of-sale and inventory replenishment processes.

Target cannot assure you that Target’s management information system will operate properly or without interruption. Any malfunction to any part or all of Target’s management information system for a prolonged period may cause delays in operations or impairment of Target’s overall business efficiency. Target also cannot ensure that the level of security currently maintained will be sufficient to protect the system from third party intrusions, viruses, lost or stolen data, or similar situations. Additionally, as part of Target’s growth and development strategy over the next few years, Target plans to upgrade and improve Target’s management information system. Target cannot assure you that there will be no interruptions to Target’s management information system during the upgrades or that the new management information system will be able to integrate fully with the existing information system.

The failure of Target’s management information system to perform as Target anticipates could disrupt Target’s business and could result in decreased revenue, increased overhead costs and excess or out-of-stock inventory levels, causing Target’s business and results of operations to suffer materially.

Failure to protect the integrity, security and use of Target’s customers’ information and media could expose Target to litigation and materially damage Target’s standing with Target’s customers.

Increasing costs associated with information security — such as increased investment in technology, the costs of compliance with consumer protection laws and costs resulting from consumer fraud — could cause Target’s business and results of operations to suffer materially. While Target has taken significant steps to protect customer and confidential information, including entering into confidentiality agreements with relevant employees and incorporate confidentiality clauses in Target’s policies, there can be no assurance that advances in computer capabilities, new discoveries in the field of cryptography or other developments will prevent the compromise of Target’s customer transaction processing capabilities and personal data. If any such compromise of Target’s security were to occur, it could have a material adverse effect on Target’s reputation, operating results and financial condition. Any such compromise may materially increase the costs Target incurs to protect against such information security breaches and could subject Target to additional legal risk. Procurement specialists and managers are required to sign a confidentiality agreement.

Target has limited insurance coverage in China and may not be able to recover insurance proceeds if Target experiences uninsured losses.

Operation of Target’s facilities involves many risks, including equipment failures, natural disasters, industrial accidents, power outages, labor disturbances and other business interruptions. Target does not carry any business interruption insurance, product recall or third-party liability insurance for Target’s production facilities or with respect to Target’s products to cover claims pertaining to personal injury or property or environmental damage arising from defects in Target’s products, product recalls, accidents on Target’s property or damage relating to Target’s operations. While business interruption insurance and other types of insurance are available to a limited extent in China, Target has determined that the risks of interruption, cost of such insurance and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for Target to have such insurance. Therefore, Target’s existing insurance coverage may not be sufficient to cover all risks associated with Target’s business. As a result, Target may be required to pay for financial and other losses, damages and liabilities, including those caused by natural disasters and other events beyond Target’s control, out of Target’s own funds, which could have a material adverse effect on Target’s business, financial condition and results of operations.

Target’s inability to protect Target’s trademarks and other intellectual property rights may prevent Target from successfully marketing Target’s products and competing effectively.

We believe our trademarks and other intellectual property rights are important to our success and competitive position and recognize the importance of registering the trademarks related to our KBS brand for protection against infringement. Target currently holds two registered trademarks. Failure to protect our intellectual property could harm our brand and our reputation, and adversely affect our ability to compete effectively. Further, enforcing or defending Target’s intellectual property rights, including Target’s trademarks, patents, copyrights and trade secrets, could result in the expenditure of significant financial and managerial resources. Target produces, market and sell Target’s products under registered trademarks. Target regards Target’s intellectual property, particularly Target’s trademarks and trade secrets to be of considerable value and importance to Target’s business and Target’s success. Target relies on a combination of trademark, patent, and trade secrecy laws, and contractual provisions to protect Target’s intellectual property rights. There can be no assurance that the steps taken by Target to protect these proprietary rights will be adequate or that third parties will not infringe or misappropriate Target’s trademarks, trade secrets or similar proprietary rights. In addition, there can be no assurance that other parties will not assert infringement claims against us, and Target may have to pursue litigation against other parties to assert Target’s rights. Any such claim or litigation could be costly and Target may lack the resources required to defend against such claims. In addition, any event that would jeopardize Target’s proprietary rights or any claims of infringement by third parties could have a material adverse affect on Target’s ability to market or sell Target’s brands, and profitably exploit Target’s products.

Environmental regulations impose substantial costs and limitations on Target’s operations.

Target uses chemicals and produces significant emissions in Target’s manufacturing operations. As such, Target is subject to various national and local environmental laws and regulations in China concerning issues such as air emissions, wastewater discharges, and solid waste management and disposal. These laws and regulations can restrict or limit Target’s operations and expose Target to liability and penalties for non-compliance. While Target believes that Target’s facilities are in material compliance with all applicable environmental laws and regulations, the risks of substantial unanticipated costs and liabilities related to compliance with these laws and regulations are an inherent part of Target’s business. It is possible that future conditions may develop, arise or be discovered that create new environmental compliance or remediation liabilities and costs. While Target believes that Target can comply with existing environmental legislation and regulatory requirements and that the costs of compliance have been included within budgeted cost estimates, compliance may prove to be more limiting and costly than anticipated.

We may be unable to establish and maintain an effective system of internal control over financial reporting, and, as a result, we may be unable to accurately report our financial results or prevent fraud.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404, the SEC adopted rules requiring public companies to include a report of management on their internal controls over financial reporting in their annual reports. In addition, the independent registered public accounting firm auditing the financial statements of a company that is not a non-accelerated filer under Rule 12b-2 of the Exchange Act must also attest to the operating effectiveness of the company’s internal controls.

Target is a private company not subject to SOX 404 and Target’s current internal control system may not be in compliance with the requirements of SOX 404. Upon closing of the Acquisition, Target’s business will be consolidated into our financial statements. We can provide no assurance that our management will conclude that our internal controls over financial reporting are effective, or that our independent registered public accounting firm will issue a positive opinion on our internal controls over financial reporting .

Failure to achieve and maintain an effective internal control environment could result in our inability to accurately report our financial results, prevent or detect fraud or provide timely and reliable financial and other information pursuant to the reporting obligations we have as a public company, which could have a material adverse effect on our business, financial condition and results of operations. Further, it could cause our investors to lose confidence in the information we report, which could adversely affect our stock price.

Risks Related To Doing Business In China Following the Acquisition

Target’s business operation may be affected if Target is forced to relocate Target’s manufacturing facilities and stores.

Target leased the premises for Target’s manufacturing facilities and corporate stores. However, none of Target’s lease agreements have been registered with the relevant governmental agencies. According to Grandall Law Firm (Beijing), without registration, Target’s rights to use and occupy the premises may not be secured if any third parties such as other tenants who have registered their lease agreements challenge Target under PRC law. Moreover, while Target has taken various measures to verify the ownership of property such as checking utility bills and search government records, most of Target’s landlords have declined to confirm whether they possess the property ownership certificates and land use rights certificates for Target’s properties. As a result, Target has been unable to verify whether third parties may assert their ownership rights under PRC law against most of Target’s landlords or challenge most of Target’s leases in the future. If Target’s rights to use the premises are challenged, Target may be forced to relocate to other premises. Target may not be able to relocate to a suitable premise promptly or lease alternative premises on terms at least as favorable as Target’s existing ones. In addition, relocation costs and interruption of production may have a material adverse effect on Target’s business operation and financial performance.

Changes in the economic and political policies of the PRC government could have a material and adverse effect on our business and operations.

Target conducts substantially all its business operations in China. Accordingly, Target’s results of operations, financial condition and prospects are significantly dependent on economic and political developments in China. China’s economy differs from the economies of developed countries in many aspects, including the level of development, growth rate and degree of government control over foreign exchange and allocation of resources. While China’s economy has experienced significant growth in the past 30 years, the growth has been uneven across different regions and periods and among various economic sectors in China. Target cannot assure you that China’s economy will continue to grow, or that if there is growth, such growth will be steady and uniform, or that if there is a slowdown, such slowdown will not have a negative effect on its business and results of operations.

The PRC government exercises significant control over China’s economic growth through the allocation of resources, control over payment of foreign currency-denominated obligations, implementation of monetary policy, and preferential treatment of particular industries or companies. Certain measures adopted by the PRC government may restrict loans to certain industries, such as changes in the statutory deposit reserve ratio and lending guidelines for commercial banks by the People’s Bank of China, or PBOC. These current and future government actions could materially affect our liquidity, access to capital, and ability to operate our business.

The global financial markets experienced significant disruptions in 2008 and the United States, Europe and other economies went into recession. Since 2012, growth of the Chinese economy has slowed. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall PRC economy but may also have a negative effect on Target. Target’s financial condition and results of operation could be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to Target. In addition, any stimulus measures designed to boost the Chinese economy, may contribute to higher inflation, which could adversely affect Target’s results of operations and financial condition. See “-Risks Related To Doing Business In China Following the Acquisition -Future inflation in China may inhibit Target’s ability to conduct business in China.”

Uncertainties with respect to the PRC legal system could limit the legal protections available to you and us.

Target conducts substantially all of Target’s business through Target’s operating subsidiary in the PRC. Target’s operating subsidiary is generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to foreign-invested enterprises. The PRC legal system is based on written statutes, and prior court decisions may be cited for reference but have limited precedential value. Since 1979, a series of new PRC laws and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since the PRC legal system continues to evolve rapidly, the interpretations of many laws, regulations, and rules are not always uniform, and enforcement of these laws, regulations, and rules involve uncertainties, which may limit legal protections available to you and us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. In addition, most of Target’s executive officers and directors are residents of China and not of the United States, and substantially all the assets of these persons are located outside the United States. As a result, it could be difficult for investors to affect service of process in the United States or to enforce a judgment obtained in the United States against Target’s Chinese operations and subsidiary.

You may have difficulty enforcing judgments against us in China.

Most of Target’s assets are located outside of the United States and most of Target’s current operations are conducted in the PRC. In addition, most of Target’s directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments on the civil liability provisions of the U.S. federal securities laws against Target and Target’s officers and directors, most of whom are not residents in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts. Target’s counsel as to PRC law, Grandall Law Firm (Beijing), has advised Target that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. Courts in China may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other arrangements that provide for the reciprocal recognition and enforcement of foreign judgments with the United States. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against Target or Target’s directors and officers if they decide that the judgment violates basic principles of PRC law or national sovereignty, security, or the public interest. So it is uncertain whether a PRC court would enforce a judgment rendered by a court in the United States.

Future inflation in China may inhibit Target’s ability to conduct business in China.

In recent years, the Chinese economy has experienced periods of rapid expansion and highly fluctuating rates of inflation. According to the National Bureau of Statistics of China, the annual average percent changes in the consumer price index in China for 2011, 2012 and 2013 were increases of 5.4%, 2.6% and 2.6%, respectively. High inflation may erode disposable incomes and consumer spending. Furthermore, certain components of our cost of sales, including direct raw material costs, direct labor costs and design costs may increase as a result of an increase in the cost of materials and labor resulting from general inflation. However, we cannot guarantee that we can pass on increased costs to customers through increases in retail prices. This could adversely impact our business, financial condition and results of operations.

Restrictions on currency exchange may limit Target’s ability to receive and use Target’s sales effectively.

The majority of Target’s sales will be settled in RMB and U.S. dollars, and any future restrictions on currency exchanges may limit Target’s ability to use revenue generated in RMB to fund any future business activities outside China or to make dividend or other payments in U.S. dollars. Although the Chinese government introduced regulations in 1996 to allow greater convertibility of the RMB for current account transactions, significant restrictions still remain, including primarily the restriction that foreign-invested enterprises may only buy, sell or remit foreign currencies after providing valid commercial documents, at those banks in China authorized to conduct foreign exchange business. In addition, conversion of RMB for capital account items, including direct investment and loans, is subject to governmental approval in China, and companies are required to open and maintain separate foreign exchange accounts for capital account items. Target cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB following the Acquisition.

In addition, the Notice of the General Affairs Department of the State Administration of Foreign Exchange on the Relevant Operating Issues concerning the Improvement of the Administration of Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, issued by the PRC State Administration of Foreign Exchange, or SAFE, and effective as of August 29, 2008, or Circular 142, regulates the conversion by foreign-invested enterprises of foreign currency into RMB by restricting how the converted RMB may be used. Circular 142 requires that RMB converted from the foreign currency-dominated capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the relevant government authority and may not be used to make equity investments in PRC, unless specifically provided otherwise. SAFE further strengthened its oversight over the flow and use of RMB funds converted from the foreign currency-dominated capital of a foreign-invested enterprise. The use of such RMB may not be changed without approval from SAFE, and may not be used to repay RMB loans if the proceeds of such loans have not yet been used. Any violation of Circular 142 may result in severe penalties, including substantial fines.

Fluctuations in exchange rates could adversely affect Target’s business and the value of Target’s securities.

The value of Target’s common stock will be indirectly affected by the foreign exchange rate between the U.S. dollar and RMB and between those currencies and other currencies in which Target’s sales may be denominated. Appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect Target’s financial results reported in U.S. dollar terms without giving effect to any underlying change in Target’s business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend Target issues that will be exchanged into U.S. dollars, as well as earnings from, and the value of, any U.S. dollar-denominated investments Target makes in the future.

Since July 2005, the RMB has no longer been pegged to the U.S. dollar. However, the PBOC regularly intervenes in the foreign exchange market to limit fluctuations in RMB exchange rates and achieve policy goals. Following the removal of the U.S. dollar peg, the RMB appreciated more than 20% against the U.S. dollar over the following three years. From July 2008 to June 2010, the RMB traded within a narrow range against the U.S. dollar. Since June 2010 the RMB has further appreciated against the U.S. dollar, from approximately RMB6.83 per U.S. dollar as of June 1, 2010 to approximately RMB6.16 per U.S. dollar as of June 18, 2014. It is difficult to predict how RMB exchange rates may change going forward.

Very limited hedging transactions are available in China to reduce Target’s exposure to exchange rate fluctuations. To date, Target has not entered into any hedging transactions. While Target may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and Target may not be able to successfully hedge Target’s exposure at all. In addition, Target’s foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict Target’s ability to convert RMB into foreign currencies. As a result, fluctuations in exchange rates may have a material adverse effect on your investment.

The implementation of the new PRC employment contract law and increases in the labor costs in China may hurt Target’s business and profitability.  

China adopted a new Labor Contract Law, effective on January 1, 2008, and issued its implementation rules, effective on September 18, 2008. The Labor Contract Law and related rules and regulations impose more stringent requirements on employers with regard to, among others, minimum wages, severance payment and non-fixed-term employment contracts, time limits for probation periods, as well as the duration and the times that an employee can be placed on a fixed-term employment contract. Due to the limited period of effectiveness of the Labor Contract Law and its implementation rules and regulations, and the lack of clarity with respect to their implementation and potential penalties and fines, it is uncertain how they will impact Target’s current employment policies and practices. In particular, compliance with the Labor Contract Law and its implementation rules and regulations may increase Target’s operating expenses. In the event that Target decides to terminate some of its employees or otherwise change its employment or labor practices, the Labor Contract Law and its implementation rules and regulations may also limit its ability to effect those changes in a manner that Target believes to be cost-effective or desirable, and could result in a material decrease in Target’s profitability.

Restrictions under PRC law on Target’s PRC subsidiaries’ ability to make dividends and other distributions could materially and adversely affect Target’s ability to grow, make investments or acquisitions that could benefit Target’s business, pay dividends to you, and otherwise fund and conduct Target’s business.

Substantially all of Target’s sales are earned by Target’s PRC subsidiaries. However, as discussed more fully under “Target’s Business—Regulation—Dividend Distributions” and “Target’s Business—Regulation—Foreign Currency Exchange”, PRC regulations restrict the ability of Target’s PRC subsidiaries to make dividends and other payments to its offshore parent company. Any limitations on the ability of Target’s PRC subsidiaries to transfer funds to Target could materially and adversely limit Target’s ability to grow, make investments or acquisitions that could be beneficial to Target’s business, pay dividends and otherwise fund and conduct Target’s business.

Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject Target’s PRC resident stockholders to personal liability, limit Target’s ability to acquire PRC companies or to inject capital into Target’s PRC subsidiary, limit Target’s PRC subsidiary’s ability to distribute profits to Target or otherwise materially adversely affect us.

In October 2005, SAFE issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents Inside China, generally referred to as Circular 75. Circular 75 requires PRC residents to register with the competent local SAFE branch before establishing or acquiring control over an offshore special purpose company, or SPV, for the purpose of engaging in an equity financing outside of China. See “Target’s Business—Regulation—Circular 75” for a detailed discussion of Circular 75 and its implementation.

Target has asked the beneficial owners of Target’s stock, who are PRC residents as defined in Circular 75, to register, or amend their previous registrations, with the relevant branch of SAFE, as currently required, in connection with their equity interests in us. However, we cannot provide any assurances that they can obtain the above SAFE registrations required by Circular 75. Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how or whether SAFE will apply it to us, we cannot predict how it will affect our business operations or future strategies. For example, our present and prospective PRC subsidiaries’ ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with Circular 75 by our PRC resident beneficial holders.

In addition, such PRC residents may not always be able to complete the necessary registration procedures required by Circular 75. Target also has little control over either Target’s present or prospective beneficial owners or the outcome of such registration procedures. A failure by Target’s PRC resident beneficial owners to comply with Circular 75, if SAFE requires it, could subject these PRC resident beneficial owners to fines or legal sanctions, restrict Target’s overseas or cross-border investment activities, limit Target’s subsidiary’s ability to make distributions or pay dividends or affect Target’s ownership structure, which could adversely affect Target’s business and prospects.

Our post-Acquisition business and financial performance may be materially adversely affected if the PRC regulatory authorities determine that Target’s acquisition of Hongri PRC constitutes a Round-trip Investment without MOFCOM approval.

On August 8, 2006, six PRC regulatory agencies promulgated the Regulation on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the Foreign M&A Rule, which became effective on September 8, 2006 and was amended on June 22, 2009.

According to the Foreign M&A Rule, a “Round-trip Investment” is defined as having taken place when a PRC business that is owned by PRC individual(s) is sold to a non-PRC entity that is established or controlled, directly or indirectly, by those same PRC individual(s). Under the Foreign M&A Rule, any Round-trip Investment must be approved by MOFCOM, and any indirect arrangement or series of arrangements which achieves the same end result without the approval of MOFCOM is a violation of PRC law.

Vast Billion acquired Hongri PRC in 2011 from Bizhen Chen and Keyan Yan. At the time of the acquisition, Hongri BVI, the parent company of Vast Billion, was owned and controlled by Mr. Sun Keung Chan and Ms. So Wa Cheung, both of whom are citizens of the Hong Kong Special Administrative Region. Mr. Yan entered into the Amended and Restated Option Agreement with Mr. Chan and Ms. Cheung, dated March 9, 2011, pursuant to which Mr. Yan was granted an option to acquire all of the shares of Target’s Common Stock that Mr. Chan and Ms. Cheung will acquire in Target in connection with the reverse acquisition, for an aggregate exercise price of RMB 131,409 (approximately $20,000). Mr. Yan may exercise this option during the period commencing on the date which is six (6) months after the date on which the first registration statement is filed by the Company under the Securities Act, and ending on the fifth anniversary thereof.

Because no Chinese nationals have direct stock ownership of either Hongri BVI or Vast Billion, Target believes that the above transactions do not constitute a “Round-trip Investment” and therefore it has decided not to seek the approval from MOFCOM or China Securities Regulatory Commission, or CSRC, pursuant to the Foreign M&A Rule. However, the PRC regulatory authorities may take the view that these transactions and the reverse acquisition of Hongri PRC are part of an overall series of arrangements which constitute a Round-trip Investment, because at the end of the transactions, the stockholders of Hongri PRC became majority owners and effective controlling parties of a foreign entity that acquired ownership of Hongri PRC. 

If after the Acquisition we are found to be in violation of the Foreign M&A Rule, the PRC regulatory authorities would have broad discretion in dealing with such violation, including levying fines, confiscating our income, revoking our PRC subsidiaries’ business or operating licenses, requiring us to restructure or unwind the relevant ownership structure or operations. Any of these actions could cause significant disruption to our business operations and may materially and adversely affect our business, financial condition and results of operations. Target believes that if these regulatory actions occur, Target may be able to find a way to re-establish control of Hongri PRC’s business operations through a series of contractual arrangements rather than an outright purchase of the equity of Hongri PRC. But Target cannot assure you that such contractual arrangements will be protected by PRC law or that we can receive as complete or effective economic benefit and overall control of Hongri PRC’s business than if we had direct ownership of Hongri PRC.  

Under the Enterprise Income Tax Law, Target may be classified as a “resident enterprise” of China. Such classification will likely result in unfavorable tax consequences to Target and Target’s non-PRC stockholders.

On March 16, 2007, the National People’s Congress of China passed a new Enterprise Income Tax Law, or the EIT Law, and on November 28, 2007, the State Council of China passed its implementing rules, which took effect on January 1, 2008. Under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. See “Target’s Business—Regulation—Taxation” for a detailed discussion of the EIT Law.

 On April 22, 2009, the State Administration of Taxation issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the EIT Law and its implementation non-Chinese enterprise or group controlled offshore entities. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, corporate chops, board and shareholder minutes are kept in China; and (iv) at least half of its directors with voting rights or senior management often resident in China. A resident enterprise would be subject to an enterprise income tax rate of 25% on its worldwide income and must pay a withholding tax at a rate of 10% when paying dividends to its non-PRC shareholders. However, it remains unclear as to whether the Notice is applicable to an offshore enterprise incorporated by a Chinese natural person. Nor are detailed measures on imposition of tax from non-domestically incorporated resident enterprises are available. Therefore, it is unclear how tax authorities will determine tax residency based on the facts of each case.

It remains unclear whether the PRC tax authorities would require or permit Target’s overseas registered entities to be treated as PRC resident enterprises. Target does not currently consider any of Target’s non-PRC subsidiaries to be a PRC resident enterprise. However, if the PRC tax authorities determine that Target is a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, Target may be subject to the enterprise income tax at a rate of 25% on Target’s worldwide taxable income as well as PRC enterprise income tax reporting obligations. In Target’s case, this would mean that income such as interest on offering proceeds and non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Second, although under the EIT Law and its implementing rules dividends paid to Target from Target’s PRC subsidiaries may qualify as “tax-exempt income,” Target cannot guarantee that such dividends will not be subject to a 5% or 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which a 5% or 10% withholding tax is imposed on dividends Target pays to Target’s non-PRC stockholders and with respect to gains derived by Target’s non-PRC stockholders from transferring Target’s shares.

Target faces uncertainty from China’s Circular on Strengthening the Administration of Enterprise Income Tax on Non-Resident Enterprises’ Share Transfer that was released in December 2009 with retroactive effect from January 1, 2008.

The Chinese State Administration of Taxation, or SAT, released a circular on December 15, 2009 that addresses the transfer of shares by nonresident companies, generally referred to as Circular 698. Circular 698, which is effective retroactively to January 1, 2008, may have a significant impact on many companies that use offshore holding companies to invest in China. Circular 698, which provides parties with a short period of time to comply with its requirements, indirectly taxes foreign companies on gains derived from the indirect sale of a Chinese company. Where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise by selling the shares in an offshore holding company, and the latter is located in a country or jurisdiction where the effective tax burden is less than 12.5% or where the offshore income of his, her, or its residents is not taxable, the foreign investor is required to provide the tax authority in charge of that Chinese resident enterprise with the relevant information within 30 days of the transfers. Moreover, where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise through an abuse of form of organization and there are no reasonable commercial purposes such that the corporate income tax liability is avoided, the PRC tax authority will have the power to re-assess the nature of the equity transfer in accordance with PRC’s “substance-over-form” principle and deny the existence of the offshore holding company that is used for tax planning purposes. There is uncertainty as to the application of Circular 698. For example, while the term “indirectly transfer” is not defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with China. Moreover, the relevant authority has not yet promulgated any formal provisions or formally declared or stated how to calculate the effective tax in the country or jurisdiction and to what extent and the process of the disclosure to the tax authority in charge of that Chinese resident enterprise. In addition, there are not any formal declarations with regard to how to decide “abuse of form of organization” and “reasonable commercial purpose,” which can be utilized by Target to determine if Target’s subsidiaries comply with the Circular 698. As a result, Target may become at risk of being taxed under Circular 698 and Target may be required to expend valuable resources to comply with Circular 698 or to establish that Target should not be taxed under Circular 698, which could have a material adverse effect on Target’s financial condition and results of operations.

Target started constructing a factory building in Anhui Province without certain required approvals from relevant governmental authorities, which may expose the company to administrative penalties and cause future use of the factory building to be prohibited.

Under PRC law, prior to the commencement of a building construction, certain approvals and permits should be obtained from various governmental authorities, including the approval or registration of the project, approval of environmental impact assessment, approval of fire-prevention design, land use planning and construction planning, and a building permit. As of the date of this Offer to Purchase, Anhui Kaixin Apparel Co. Ltd., a PRC subsidiary of Hongri PRC, is in the process of constructing its factory building without certain of these approvals and permits. As a result, the construction of this building may be challenged by relevant governmental authorities and subject to potential administrative penalties. In addition, the government may reject Target’s filing for the completion of construction and further refuse to issue the building ownership certificate to Target. As a result, Target’s future use of the building could be prohibited under PRC law and the value of the building could be adversely affected.

  Target’s failure to fully comply with PRC laws relating to social insurance and housing accumulation fund may expose it to potential administrative penalties.

The PRC laws and regulations require all employers in China to fully contribute their own portion to the social insurance and housing accumulation funds for their employees within a certain period of time. Failure to do so may expose the employers to make rectification for the unpaid contributions by the relevant labor authority.

As of the date of this Offer to Purchase, Hongri PRC has not paid housing accumulation funds for its employees. In addition, Hongri PRC failed to make contributions to the social insurance in full amount for its employees before 2013. As of May 2014, Hongri PRC had an aggregate of approximately $0.94 million accrued but not yet paid. PRC governmental authorities may impose penalties on Hongri PRC for failure to comply. In addition, in the event that any current or former employee files a complaint with the PRC government, Hongri PRC may be subject to making up the contributions to the social insurance and housing accumulation funds as well as paying administrative fines. The total cost of these contributions and any related fines or penalties could be significant and could have a material adverse effect on Target’s working capital.

Target may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption laws, and any determination that Target violated these laws could have a material adverse effect on Target’s business.

Target is subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business. Target has operations, has agreements with third parties, and makes most of Target’s sales in China. The PRC also strictly prohibits bribery of government officials. Target’s activities in China create the risk of unauthorized payments or offers of payments by the employees, consultants, sales agents, or distributors of Target’s subsidiaries, even though they may not always be subject to Target’s control. It is Target’s policy to implement safeguards to discourage these practices by Target’s employees. However, Target’s existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents, or distributors of Target’s subsidiaries may engage in conduct for which Target might be held responsible. Violations of the FCPA or Chinese anti-corruption laws may result in severe criminal or civil sanctions, and Target may be subject to other liabilities, which could negatively affect Target’s business, operating results and financial condition. In addition, the U.S. government may seek to hold Target’s subsidiaries liable for successor liability FCPA violations committed by companies in which Target invests or that Target acquires.

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 Target 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 stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to stockholder lawsuits, 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 subsidiaries, our business and our stock price after the Acquisition. 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 subsidiaries. This situation may be costly and time consuming and distract our management from growing our company. If such allegations are not proven to be groundless, our subsidiaries and business operations may be severely and adversely affected and your investment in our stock could be rendered worthless.

The disclosures in our reports and other filings with the SEC and our other public pronouncements will not be subject to the scrutiny of any regulatory bodies in the PRC. Accordingly, our public disclosure should be reviewed in light of the fact that no governmental agency that is located in China where all of our operations and business are located have conducted any due diligence on our operations or reviewed or cleared any of our disclosure.

Unlike public reporting companies whose operations are located primarily in the United States, however, after the Acquisition, all of our operations will be located in China. Since all of our operations and business takes place in China, it may be more difficult for the Staff of the SEC to overcome the geographic and cultural obstacles that are present when reviewing our disclosure. These same obstacles are not present for similar companies whose operations or business take place entirely or primarily in the United States. Furthermore, our SEC reports and other disclosure and public pronouncements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review of the CSRC, a PRC regulator that is tasked with oversight of the capital markets in China. Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understanding that no local regulator has done any due diligence on our company and with the understanding that none of our SEC reports, other filings or any of our other public pronouncements has been reviewed or otherwise been scrutinized by any local regulator.

Target’s auditor, like other independent registered public accounting firms operating in China, is registered with the U.S. Public Company Accounting Oversight Board, or the PCAOB, but has not yet been inspected, and as such, investors currently do not have the benefit of PCAOB oversight.

Auditors of companies that are registered with the SEC and traded publicly in the United States must be registered with the PCAOB and are required by U.S. law to undergo regular inspections by the PCAOB to assess their compliance with U.S. law and professional standards in connection with their audits of public company financial statements filed with the SEC. Because Target’s auditor is located in China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, the audit work and practices of its auditor, like other registered audit firms operating in China, is currently not inspected by the PCAOB. The inability of the PCAOB to conduct inspections of auditors in China also makes it more difficult to evaluate the effectiveness of Target auditor’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. As a result, if we continue to retain Target’s auditor after the Acquisition, investors may lose confidence in our future reported financial information and procedures and the quality of our future financial statements .

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Offer to Purchase contains forward-looking statements. Forward-looking statements provide our current expectations or forecasts of future events. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “will” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. The risks and uncertainties include, but are not limited to:

Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Our actual results could differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in “Risk Factors” in this Offer to Purchase. Accordingly, you should not unduly rely on these forward-looking statements, which speak only as of the date of this Offer to Purchase. Except as required by law, we undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Offer to Purchase or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission after the date of this Offer to Purchase.

INFORMATION ABOUT AQUASITION

Introduction

Aquasition Corp. is a blank check company formed on January 26, 2012, pursuant to the laws of the Republic of the Marshall Islands for the purpose of acquiring through a merger, capital stock exchange, asset acquisition, stock purchase, or similar acquisition transaction, one or more operating businesses or assets. Our Amended and Restated Articles of Incorporation and by-laws do not limit us to a particular geographic region or industry. To date, our efforts have been limited to organizational activities and financing activities. The address of the Company’s principal executive office is c/o Seacrest Shipping Co. Ltd., 8-10 Paul Street, London EC2A 4JH, England.

POST-ACQUISITION BUSINESS

KBS Corporate History and Background

KBS was organized under the laws of the State of Nevada on December 20, 2010 under the name Bay Peak 1 Opportunity Corp. Target’s initial shareholders were: Bay Peak, LLC, Kema Management (USA), Inc., Christopher E. Jensen and Jensen Children Irrevocable Trust, dated May 25, 2010. From Target’s inception until completion of the reverse acquisition of Hongri BVI discussed in more detail below, Target was a shell company with no assets or operations. Immediately prior to the share exchange transaction described below, Target’s executive officers and directors consisted of Mr. Christopher Jensen, Mr. David Steele and Mr. Cory Roberts.

On March 9, 2011, Target completed a round of private equity investment and issued an aggregate of 49,665 shares of Target’s common stock to a number of private investors.

Reverse Acquisition of Hongri BVI

On March 11, 2011, Target entered into a share exchange agreement with Hongri BVI and its stockholders, Mr. Sun Keung Chan and Ms. So Wa Cheung, or the Share Exchange Agreement, whereby Target acquired 100% of the issued shares of Hongri BVI in exchange for 15,936,820 shares of Target’s common stock. Target refers to this transaction as the reverse acquisition. The reverse acquisition was completed in two closings occurring on March 11, 2011 and March 31, 2011, respectively. As a result of the reverse acquisition, Target is now engaged in the design, development, manufacturing, marketing and sale of casual menswear in China. On May 25, 2011, Target changed Target’s name to KBS International Holdings Inc. to more accurately reflect Target’s new business operations.

Corporate History

Mr. Keyan Yan and Ms. Bizhen Chen established Hongri PRC on November 17, 2005 as a manufacturer and distributor of sports clothing. From 2006 to February 2011, Hongri PRC’s revenues and operations were controlled through a “variable interest enterprise”, or VIE, structure as a VIE of Roller Rome, a BVI corporation established on March 28, 2006 by Ms. Bizhen Chen, who is a Chinese national, pursuant to the Technology Development Service Contract and the Repurchase Agreement. The VIE structure was terminated in February 2011, when the Company’s control of Hongri PRC was changed to be a direct shareholding relationship, as described below.

Hongri BVI was organized by Mr. Sun Keung Chan and Ms. So Wa Cheung, both of whom are Hong Kong residents, on July 8, 2008, as an offshore investment holding company on behalf of Mr. Keyan Yan, a mainland PRC resident. Mr. Yan entered into the Option Agreement pursuant to which Mr. Yan was entitled to an exclusive right to purchase the 100% equity interest in Hongri BVI from Mr. Chan and Ms. Cheung at a cash consideration equivalent to the nominal value of the issued share capital of Hongri BVI. The purpose of these arrangements was to permit Mr. Yan to retain control over Hongri BVI without the need to obtain the regulatory approvals that might have been required for a mainland PRC resident to hold stock in a non-Chinese entity. Hongri BVI acquired 100% of the equity interest of Roller Rome on January 4, 2010. In order to rationalize Target’s corporate structure, in February 2011, Hongri PRC was restructured as a wholly-owned subsidiary of Vast Billion, a Hong Kong company and a wholly-owned subsidiary of Hongri BVI, as described below.

Vast Billion was organized by Mr. Sun Keung Chan on November 25, 2010. On December 28, 2010, Vast Billion, Ms. Bizhen Chen and Mr. Keyan Yan entered into a share purchase agreement whereby Vast Billion acquired 100% of the equity of Hongri PRC from Ms. Chen and Mr. Yan. On February 15, 2011, Hongri PRC obtained the approval from the local MOFCOM of Fujian Province to become a PRC wholly-foreign-owned enterprise, or WFOE. In February 2011, Hongri BVI acquired from Mr. Chan 100% of the issued shares of Vast Billion. As a result, Hongri PRC became the indirect wholly-owned subsidiary of Hongri BVI. Since no Chinese nationals have stock ownership of either Hongri BVI or Vast Billion, Target has not been required to obtain any regulatory approvals from the authorities in China with respect to Target’s corporate structure other than the approval obtained on February 15, 2011.

Mr. Keyan Yan entered into an Amended and Restated Option Agreement with Mr. Chan and Ms. Cheung, dated March 9, 2011, or the Amended and Restated Option Agreement, which amended and restated the Option Agreement. Pursuant to the Amended and Restated Option Agreement, Mr. Chan and Ms. Cheung granted an option to Mr. Yan to acquire all of the shares of Target’s common stock that Mr. Chan acquired in connection with the reverse acquisition, for an aggregate exercise price of RMB 131,409 (approximately $20,000). Mr. Yan may exercise this option during the period commencing on the date which is 6 months after the date on which the first registration statement is filed by Target under the Securities Act, and ending on the 5th anniversary thereof. The purpose of this arrangement was to permit Mr. Yan to retain control over the Company without needing to obtain the regulatory approvals that might have been required for a mainland PRC resident to hold stock in a non-Chinese entity.

France Cock, a Hong Kong corporation, was established on September 21, 2005 by Mr. Keyan Yan for the purpose of holding trademarks and patents. Hongri BVI acquired 100% equity interest of France Cock on January 4, 2010 at the then issued and paid up capital and it became a wholly-owned subsidiary of Hongri BVI.

On March 16, 2011, Hongri PRC established a wholly owned subsidiary, Anhui Kai Xin, as a PRC company. Its registered capital is RMB 1 million and is fully paid. Anhui Kai Xin was formed to consolidate Target’s PRC operations in Anhui Province into this entity.

On October 17, 2011, Hongri PRC established a wholly owned subsidiary, Shishi Hongri Brand Management Company Limited (“Brand Management”), as a PRC company for the purpose of managing the brand name of Hongri PRC. Its registered and paid up capital is RBM100,000. Up to the date of this Tender Offer, it has not yet commenced any operation.

Target is not required to obtain any regulatory approvals with respect to its current corporate structure.

Private Placement

On March 31, 2011, Target completed a private placement of 2,457,016 shares of Target’s common stock for an aggregate price of $6,304,977, representing 11.58% of Target’s issued and outstanding capital stock on a fully-diluted basis. In connection with the private placement, Target’s controlling stockholders entered into the Make Good Agreement, dated March 11, 2011, pursuant to which Target established certain financial targets for fiscal years 2010 and 2011. Target’s controlling stockholders deposited 4,000,000 shares of Target’s common stock owned by them in an escrow account established pursuant to the Escrow Agreement with Deutsche Bank National Trust Company and David Steele, as the Investor Representative, which were to be released to the controlling stockholders upon the fulfillment of the foregoing financial performance targets. The financial performance target for fiscal year 2010 was met and half the stock deposited in escrow was released to the controlling stockholders. The financial performance target for fiscal year 2011 was also met, and the remaining shares deposited in escrow are in the process of being released to the controlling stockholders.

Pursuant to the Make Good Agreement, Target agreed to file a registration statement on Form 10 or Form S-1 with the SEC within 180 days following the closing of the share exchange and, upon the automatic effectiveness or effectiveness of such registration statement, continuously comply with relevant SEC periodic reporting requirements. Target filed a registration statement on Form S-1 within 180 days following the closing of the share exchange, but that registration statement was never declared effective and was subsequently withdrawn. The Make Good Agreement also required Target, subject to satisfying applicable listing standards, to cause its common stock to be listed on the Hong Kong Stock Exchange, NASDAQ, NYSE-Amex, or NYSE within 455 calendar days after the closing of the share exchange. Target never satisfied the applicable listing standards and did not list its common stock on these or any other exchange. The Make Good Agreement contained penalties for failure to comply with the requirements just described. Target believes it has complied with these requirements and should not be subject to any penalties. Upon the closing of the Acquisition, as described below pursuant to the Supplemental Warrant Agreement, all potential claims for these penalties and any other claims under the Make Good Agreement will be released.

The Make Good Agreement gave the investors “piggyback” registration rights in the context of any public offering of Target’s securities for cash, subject to customary exclusions. No such offering has occurred. Under the Make Good Agreement, Target and Target’s controlling stockholders agreed to give the investors a right of first refusal in the sale, transfer or issuance of Target’s securities to subscribe pro rata to the shares being sold, transferred or issued. Where an investor does not exercise in full such right of first refusal, Target and such controlling stockholders agreed to give the investors the co-sale rights to participate pro rata in the sale or transfer of Target’s securities. These rights will terminate following the listing of Target’s shares. Target’s controlling stockholders and the investors agreed not to dispose of their shares in the Company prior to the listing of Target’s shares. Also pursuant to the Make Good Agreement, Target’s controlling stockholders and other shareholders that were party to Target’s March 31, 2011 private placement agreed not to sell or otherwise transfer or dispose of any shares of Target’s common stock until the listing of Target’s shares on an eligible stock exchange, without the prior written consent of the Investor Representative. There have been several transfers of shares by the controlling stockholders since the Make Good Agreement, all of which have been consented to by the Investor Representative under that Agreement and with regard to which all the rights described above were waived.

The Make Good Agreement gave Bay Peak, LLC the right to nominate one member, or Investor Nominee, to Target’s board of directors until Target completes the listing of Target’s shares. The Investor Nominee is initially Cory Roberts. Each of the controlling stockholders and the investors appointed the Investor Nominee as its proxies to represent and to vote all of such party’s shares of Common Stock in accordance with the terms and provisions of the Make Good Agreement, to the extent if the party (i) fails to vote or (ii) attempts to vote (whether by proxy, in person or by written consent) in a manner that is inconsistent with the terms of the Make Good Agreement. The investors are entitled to approve, through the investor representative, certain material corporate transactions of the Target. The investors are also entitled to certain information rights, until Target completes the listing of Target’s shares, which obligates Target to provide Target’s quarterly and yearly financial statements to the investors within prescribed timeframes of 45 days and 120 days following the end of the fiscal quarters and fiscal years, respectively.

Upon the closing of the private placement that closed on March 31, 2011, Target executed an Additional Warrant Side Letter Agreement, or Warrant Agreement, pursuant to which Target issued a three-year warrant, which we refer to collectively as the Warrants, to each of the investors in the private placement to purchase shares of common stock of the Target in numbers equal to 50% of the aggregate number shares of common stock acquired by such investor in the private placement, at a per share exercise price of $2.96.

Effective as of February 26, 2014, the parties to the Warrant Agreement executed a Supplement to Additional Warrant Side Letter, or Supplemental Warrant Agreement. The expiration date of the Warrants was extended by the Supplemental Warrant Agreement to the earlier of the Acquisition or March 31, 2016. The Supplemental Warrant Agreement also amended each Warrant to provide for an automatic conversion immediately before the closing of the Acquisition of all Warrants to common stock of Target, computed in accordance with an agreed formula.

The Supplemental Warrant Agreement, the parties to which included all parties to the Make Good Agreement, also provides that, upon the closing of the Acquisition, the Make Good Agreement will terminate, and all parties thereto will release and hold one another harmless form all claims, demands and causes of action arising thereunder or relating thereto.

Target’s Corporate Structure

All of Target’s business operations are conducted through Target’s Chinese operating subsidiaries, Hongri PRC and Anhui Kai Xin. The chart below presents Target’s corporate structure as of the date of this Offer:

TARGET’S BUSINESS

Overview of Target’s Business

Target is engaged in the design, manufacturing, marketing, distribution and sale of casual menswear in China, including apparel and accessories, which it markets under the “KBS” brand. The KBS brand was developed in 2006.

Target’s apparel products include cotton and down jackets, sweaters, shirts, T-shirts, jeans and trousers. Accessories include shoes, bags, socks and caps. In 2013, the suggested retail prices of its products ranged from RMB 168 to RMB 1,699 (approximately $27.55 to $278.67) for its apparel products and RMB 15 to RMB 599 (approximately $2.46 to $98.25) for its accessory products. Since 2006, Target has launched 450 collections of new products, each year with a different theme to highlight the current trends in menswear for the season.

Target’s marketing concept is “French origin, Korean design and made for Chinese.” Its target customers are middle-class consumers in the 20-40 age range, primarily located in tier two and tier three cities in China. Target has adopted “KBS” as a uniform brand name and image for all stores in its distribution network and on all products sold in those stores. It believes that the KBS brand has become a recognized brand name in the cities where its products are sold.

Target has established a nationwide distribution network covering 14 of China’s 32 provinces and centrally administered municipalities. As of December, 2013, this network was comprised of 18 corporate stores owned and operated by Target and 96 franchised stores operated by 23 third-party distributors or their sub-distributors. The number of stores has grown significantly in recent years, from 1 corporate store and 7 franchised stores as of December 31, 2006 to 18 corporate stores and 96 franchised stores as of December 31, 2013. In the years ended December 31, 2013 and 2012, sales through Target’s corporate stores accounted for 19.2% and 43.7% of its revenues, respectively, and sales through distributors accounted for 78.5% and 52.4% of its revenues, respectively. The increase in revenue from distribution sales and the decrease in revenue from corporate store sales reflects a shift in focus on the distribution business as a result of significant increase in rent expense associated with corporate stores in 2013. Target acts as an original design manufacturer, or ODM, upon request. Income from such services accounted for 2.3% and 3.9% of revenue for the years ended December 31, 2013 and 2012, respectively. By the end of 2015, it plans to increase its corporate stores and franchised stores to 48 and 196, respectively.

Relocated from Shishi City, Fujian, China in March 2011, Target’s production facility is currently located in Taihu City in Anhui Province, China. The facility has a production capacity of 2 million pieces per year and is on a year-on-year renewable lease basis. By relocating from the coastal area to Anhui Province, Target’s new facility takes advantage of lower labor costs and a more stable labor supply. Target has a variety of menswear products, including, jeans, shirts, suits and socks. Because of its variety and complexity in the production process, these products require special sewing machines and workmanship, which Target currently does not possess. In addition, as of December 31, 2013, Target had only 162 employees employed in its production operations and therefore did not have a sufficient skilled work force to produce its branded products at its own facility. As a result, Target is not yet able to produce KBS branded products and has outsourced its KBS branded product manufacturing to other established ODM manufacturers.

On the other hand, Target has been working with other brand name owners for a long period of time and has the required equipment and qualified employees to fulfill these brand name owners’ orders with existing production facilities. Currently, Target’s own production facility in Taihu mainly takes ODM orders from other sportswear companies, like Xtep.

Target is acquiring land adjacent to its current facility consisting of 110,557 square meters to build a new facility. Target obtained a portion of such land use rights for two pieces of land of 7,405 square meters and 2,440 square meters on March 19, 2012 and May 28, 2012, respectively and is in the process of obtaining approval from the relevant government bureau for the remaining land use right transfer. Once completed, total production capacity of the facility is expected increase to 20 million pieces per year from the current capacity of 2 million pieces per year. Due to the local government’s need for additional time to conclude negotiations with local residents over appropriate resettlement terms, the timeline of the construction of the adjacent facility has been delayed. Target will schedule its construction plan once it acquires the land use right and expects the construction of new production facilities to be completed by 2018.

Target has experienced rapid growth in recent years. For the years ended December 31, 2009 and 2013, total net sales increased from $28.1 million to $99.6 million, and a net income increased from $9 million to $25.8 million. The compounded annual growth rate for total net sales and net income from 2009 to 2013 is 37.2% and 30.1%, respectively.

Target leases the premises for its 17 corporate stores. Seven of these stores are located in shopping malls. A further ten stores are in other locations. Target has undertaken various measures to verify the lessors’ rights to the property leased to Target in respect of its stores. In China, all land is owned by the State or other governmental bodies, and “ownership” is generally evidenced by a land use rights certificate. Target has requested and received copies of land use rights certificates for all seven stores located in shopping malls and two stores located in other places. The remaining eight stores are located in rural areas where land use rights are held collectively by villages, where records regarding the ownership of land use rights are frequently not kept. In these cases, Target has confirmed Target’s ability to lease the stores through communications with village authorities, and has reviewed electricity and water bills to confirm utilities are being paid by the parties leasing the premises to Target. Based on the results of these efforts, Target believes the risk of third party claims against Target’s leases of these stores is relatively small and the measures taken by Target are sufficient to verify the land use rights for all of its stores. In addition, the property used as Target’s head office and corporate store is leased from a related party, whose ownership of the property has been verified by Target.

Target’s Competitive Strengths

Target believes that the following competitive strengths enable Target to compete effectively in and capitalize on the growing casual menswear industry in China.

Target’s Growth Strategies

Target intends to further strengthen Target’s market position in the casual menswear market in China by implementing the following strategies:

The KBS Brand

Target is engaged in a highly competitive industry in which brand image and recognition is critical to attracting customers to purchase Target’s products. Target has adopted KBS as a uniform brand name and image for all stores in Target’s distribution network and on all products sold in those stores. The KBS brand was created by Ms. Qinghua Ye in 2006 and registered with the trademark administration authority in 2008. Subsequently, Ms. Ye assigned the KBS trademark to Hongri PRC in 2008. In 2009, Hongri PRC transferred this trademark to France Cock, which then licensed such trademark back to Hongri PRC. Based on Target’s sharp rise in revenue since 2006, Target believes that the KBS brand has gained a following in the casual menswear market in the cities where Target’s products are sold.

To promote Target’s brand, Target has developed and implemented brand management policies in all of Target’s corporate stores and franchised stores. Target’s brand management policies set out detailed requirements for store decorations and display of products. This enables Target to project a consistent brand image. In addition, each season, Target’s design and product development team develops display concepts, including the presentation of Target’s collections in the stores and the color schemes for the backdrops. Target also works closely with Target’s distributors to supervise the daily operations of franchised stores through unscheduled visits to ensure that Target’s brand management policies are properly followed.

Target may suspend the supply of Target’s products or terminate distribution agreements in the event that any of Target’s distributors or their sub-distributors consistently fails to comply with Target’s brand management policies.

Target’s Products

Target’s apparel products include cotton and down jackets, sweaters, shirts, T-shirts, jeans and trousers. Accessories include shoes, bags, socks and caps. In 2013, the suggested retail prices of its products ranged from RMB 168 to RMB 1,699 (approximately $27.55 to $278.67) for its apparel products and RMB 15 to RMB 599 (approximately $2.46 to $98.25) for its accessory products. Since 2006, Target has launched 450 collections of new products, each year with a different theme to highlight the current trends in menswear for the season.

Target’s Design

Target believes one of Target’s key strengths is Target’s internal design and product development team, which designs products that reinforce Target’s brand image. All Target’s products are designed by Target’s internal design and product development team with the collaboration of Korean designers. As of December 31, 2013, Target’s design and product development team comprised 6 members, including one senior designer with over five years of working experience. Final design concepts are approved by Mr. Yan Keyan, who has more than 24 years of experience in the industry. All of the other designers are graduates of professional design schools in China. Target believes that Target’s design and product development team is innovative and passionate and that the individual experience of each of Target’s designers helps bring new and exciting products to Target’s customers. Target’s design and product development team conceptualizes each season’s collections through an interactive process, taking into account Target’s brand strategy, product image and market feedback, drawing inspirations from domestic and international fashion trends and collaborating with both Target’s suppliers and distributors to fine-tune Target’s designs. In particular, Target collaborates with Target’s suppliers to develop a variety of materials and fabrics for Target’s products. Target also involves distributors in Target’s product selection process to take advantage of their market intelligence, which helps Target to adapt to constantly changing customer preferences in local markets. Target’s designers also attend various domestic and international fashion shows to keep abreast of the latest fashion trends.

In a typical season, Target designs and makes around 600 prototypes. After the initial product selection, internal cost analysis of approved prototypes and final selection by distributors at the sales fairs, Target eventually selects approximately 450 designs for mass production. Final design of all of Target’s products will be approved by Target’s Chairman, Mr. Yan Keyan.

Target plans to relocate Target’s design and product development centre from Shishi City, Fujian Province to Shanghai for product design and market research and analysis by the end of 2015. Shanghai is one of the fashion centers in China with some of the top fashion institutes and designers. Target believes that this strategic relocation will enable Target to quickly adapt to domestic and international fashion trends and to have better access to a high quality pool of designers which, in turn, will strengthen Target’s product design capabilities and Target’s ability to compete more effectively against Target’s competitors.

Target’s Distribution Network

Target has established a nationwide distribution network consisting of corporate stores and franchised stores covering 14 of China’s 32 provinces and centrally administered municipalities.

Corporate Stores

As of December 31, 2013, Target owned and operated 18 corporate stores with an average floor area of approximately 110 square meters. The number of corporate stores has grown significantly in recent years from 1 as of December 31, 2006 to 18 as of December 31, 2013, with the aggregate floor area increasing from approximately 60 square meters as of December 31, 2006 to approximately 1,974 square meters as of December 31, 2013. In the years ended December 31, 2013 and 2012, sales through Target’s corporate stores accounted for 19% and 44% of Target’s revenues, respectively.

Target directly owns and operates all of Target’s corporate stores. This direct control enables Target to have closer relationship with Target’s ultimate customers and better understanding of market trends and consumer preferences. Required capital for opening of each store depends on the location and area of the designated store. On average, the renovation cost per store is around $50,000 and the first year of rent payment is around $380,000 including premium paid to last owner. Rental period varies from two to five years. The total capital required to open a new store is generally around $430,000 per store. Once negotiation of rent is concluded, it takes one to two months to open up a store. Target usually opens up stores right before a peak season, such as labor holiday in May, National holiday in October and Chinese New Year in January/February. On average, new stores break even after one to three months of operation.

Target has two standard designs for Target’s corporate stores. For corporate stores opened in second tier cities, Target has a higher aesthetic standard compared with corporate stores in third and fourth tier cities. Target generally locates Target’s corporate stores at street level to access high pedestrian flow. Normally, Target will sell in-season stock in Target’s second-tier city corporate stores. Target’s second-tier city corporate stores are also designed to showcase Target’s marketability to potential distributors so as to induce them to join Target’s distributorship. For stores opened in the third and fourth tier cities, Target normally sells some of Target’s slow-moving or off-season stock at a discount due to Target’s awareness of the generally lesser amount of disposable income available to residents of these cities. During certain times of the year, such as the New Year, Chinese New Year and Labor Day, Target will organize promotional discounts together with Target’s franchised stores to attract more customers and increase Target’s stock turnover.

Franchised Stores

Target sells a substantial amount of Target’s products to Target’s franchised distributors who in turn sell them to retail customers through KBS branded retail stores operated by Target’s distributors or their sub-distributors. Since 2013, Target has also been selling products to 3 provincial distributors without their own stores, or the no-store distributors, on a trial basis. Target does not have any ownership in, or controlling relationship with, these franchised stores, but Target has entered into distribution agreements with them in Target’s standard form, pursuant to which Target requires distributors and their sub-distributors to sell only KBS products in these stores. Distributors are responsible for selecting and ordering products from Target and overseeing the sales in the stores operated by them and their sub-distributors. By selling directly to Target’s distributors, Target can recognize revenues upon delivery to Target’s distributors and delegate the distribution responsibilities to Target’s distributors. This allows Target to distribute Target’s merchandise to a wide geographic area and penetrate markets by leveraging the local market knowledge of Target’s distributors and their sub-distributors. This also minimizes Target’s inventory and sales risks while allowing Target to allocate Target’s resources to Target’s core competitive strengths of design, brand management and product development. Target believes that Target’s cooperation with distributors has enabled Target to expand Target’s business and accelerate Target’s sales growth at much lower costs and operational risk and achieve brand recognition throughout China.

As of December 31, 2013, Target had 23 franchised distributors who operated 96 retail stores directly or through their sub-distributors, all of which were stand-alone stores, which were typically located in commercial centers, including department stores or shopping malls, in their cities. The average floor area of each retail store was approximately 78 square meters as of December 31, 2013. The number of retail stores has grown significantly in recent years from 7 as of December 31, 2006 to 96 as of December 31, 2013, with the aggregate floor area increasing from 560 square meters as of December 31, 2006 to 7,465 square meters as of December 31, 2013. In the years ended December 31, 2013 and 2012, sales through Target’s franchised distributors including no-store distributors accounted for 78% and 52% of Target’s revenues, respectively.

During the fiscal year ended December 31, 2013, Target had 3 customers exceeding 10% of net sales, namely Youfu Jiang, Zhiyan Wang and Jinshu Chi accounted for 16%, 14.9% and 15% of revenues, respectively. During the fiscal year ended December 31, 2012, no customer exceeded 10% of net sales.

Target has been building up Target’s selected franchised distributor network since 2007. As of December 31, 2013, Target had 23 distributors operating 96 franchise stores. All these distributors have worked with Target for more than 3 to 7 years. Target has not encountered any material dispute or financial difficulty with Target’s key distributors.

Sales generated by Target’s five best-performing franchised distributors accounted for approximately 52.8% and 17.7% of Target’s revenues in the years ended December 31, 2013 and 2012, respectively. Those top distributors have been with KBS since 2007 or 2008 and have grown organically with KBS. As the same time, KBS is exploring more distributors in other regions including relatively small distributors to grow with their businesses. Although Target relies on distributors for the sales and marketing of Target’s products, Target believes Target’s business is not substantially dependent on any individual distributor.

Target is highly selective in appointing distributors. Target selects Target’s distributors based on a number of criteria, including experience in the menswear retail industry, sales channels, business resources, brand promotion capabilities and ability to help Target implement Target’s broader business strategies. Target maintains good relationships with many regional or local distributor candidates which Target identifies through Target’s internal research and external referrals but only appoint a handful of them to become Target’s distributors. Target evaluates the relevant experience of the distributor candidates in operating retail stores, their financial condition and sources of funding required for the establishment of a regional distribution network and their ability to develop a network of retail stores in the designated distribution region of a given distributor before Target makes any appointment.

Once appointed, each distributor must enter into a distribution agreement with us. Target does not own any interest in any of Target’s distributors, their sub-distributors or the retail stores they operate. The distribution agreements Target typically enters into with distributors do not allow Target to be involved in the daily operating, financing or other activities of the distributors, except that distributors need to comply with Target’s brand management policies and pricing and store management guidelines. Key terms of Target’s standard distribution agreement include:

When opening new retail stores, Target’s distributors conduct research on the market potential of the proposed retail sites, after which they will provide Target with an application for opening a new retail store. In reviewing applications, Target considers factors including the store location, store layout, available area, market opportunities, competitors and estimated sales. Target conducts selected on-site investigations to verify applications filed by Target’s distributors. Target’s retail stores are generally located in convenient retail locations in their respective cities and thus benefit from high volumes of pedestrian traffic.

Effective monitoring of distributors and their retail stores is critical to Target’s success. Target has a team in Target’s marketing, sales and distribution department to monitor Target’s distributors’ and their sub-distributors’ performance, who conduct on-site inspections of selected retail stores each quarter without prior notice to ensure compliance with Target’s store management guidelines. According to the results of Target’s inspections, Target, from time to time, makes suggestions to Target’s distributors with respect to the opening or closure of their retail stores. Distributors also need to submit to Target their annual/ semi-annual plans to estimate their orders for the next season and their plan to improve the performance of existing retail stores or expand by opening new retail stores. This reporting system enables Target to access up-to-date sales projections of Target’s distributors and their sub-distributors, which reflects the overall level of retail sales of Target’s products. It also provides Target with the expansion plan of each distributor which helps Target prepare Target’s overall development plan in a more accurate manner.

Target invites Target’s distributors, as well as a select number of their sub-distributors and retail store managers, to attend Target’s sales fairs, which are held twice a year. During the sales fairs, Target discusses with Target’s distributors and their sub-distributors the upcoming product line. Apart from participating in two sales fairs each year, Target’s distributors visit Target from time to time and contact Target as necessary, which allows Target to have access to updated market information. Target also provides training for distributors and their sub-distributors in the areas of sales techniques, customer service and product knowledge, typically prior to the launch of Target’s new collections each year. Target believes that these investments help to improve the operations of the sales network and provide additional value-added services to retain Target’s distributors and their sub-distributors.

The following table lists by region the number of retail stores operated by distributors and sub-distributors as of the dates indicated:

Pricing Policy

Target sells Target’s products to Target’s distributors at uniform discounts from Target’s suggested retail prices. Target has a suggested retail price policy that applies to all Target’s stores to help maintain brand image, ensure consistent pricing levels from region to region and prevent price competition among Target’s distributors. In determining Target’s pricing strategies, Target takes into account market supply and demand, production cost and the prices of Target’s competitors’ similar products. Target’s sales representatives collect and record the retail prices of Target’s products sold by Target’s retailers. Target analyzes the information collected and engage in discussions with Target’s distributors to ensure that they follow Target’s pricing policy. See “—Franchised Stores.”

Expansion Plans

As of December 31, 2013, Target’s distribution network consisted of 18 corporate stores operated by Target and 96 franchised stores operated by Target’s distributors. By the end of 2015, Target plans to increase Target’s corporate stores and franchised stores to 48 and 196, respectively.

Production

Target’s production facility was originally located in Shishi City in Fujian Province and started production in 2006. The facility had a production capacity of 2 million units per year. Target’s production facility had been operating at full capacity between 2009 and 2012. In 2013, Target produced about 0.46 million units at the operating capacity of 23%.

Target’s production facility is located in Taihu City in Anhui Province, China. Currently the facility has a production capacity of 2 million pieces of clothes per year and the facility is on a leased term. This production facility mainly produces ODM products for famous sportswear producers. Since 2011, Target has been negotiating with the local government to acquire land use rights for land adjacent to their current facility consisting of 110,557 square meters to build a new facility. Target obtained a portion of such land use rights for two pieces of land of 7,405 square meters and 2,440 square meters on March 19, 2012 and May 28, 2012, respectively and is in the process of obtaining approval from the relevant government bureau for the remaining land use right transfer. The construction commenced in 2011 and is to occur in four phases: Phase 1 consists of a 5-story dormitory located at a piece of land of approximately 7,405 square meters that we have already acquired, which was completed in 2012. Phase 2 is to add facilities on another acquired piece of land of approximately 2,440 square meters with annual production capacity of five million pieces of clothes, and is expected to be completed by the end of 2014. Phase 3 construction work is to add additional facilities with annual production capacity of 5 million pieces and is expected to be finished by the end of 2015. Phase 4 will include production facilities with annual production capacity of 10 million pieces, an office building, staff quarters and living facilities, and is expected to be completed by the end of 2018. Upon completion, the new facility is expected to have a production capacity of 20 million pieces and accommodate 5,000 workers. All of the products produced by Target’s ODM contract manufacturers bear the brand name KBS. In the years ended December 31, 2013 and 2012, Target had 6 and 7 ODM contract manufacturers, respectively. Target’s sourcing strategy is based around the quality fabrics and workmanship that Target’s customers expect from the KBS brand. The costs of Target’s outsourced production amounted to approximately $53.8 million and $31.7 million for years ended December 31, 2013 and 2012, respectively, accounting for approximately 94% and 89% of Target’s total cost of sales in the respective periods.

As of December 31, 2013, Target’s principal ODM contract suppliers included the following:

Target is not materially reliant on any single ODM contract supplier.

Inventory Management

Target recognizes that controlling the level of inventory is important to Target’s overall operational efficiency and cost control. Based on the purchase orders Target’s distributors and the department store chains place at Target’s biannual sales fairs, Target is able to anticipate the demand for Target’s products in advance and plan ahead for Target’s own manufacturing and the orders Target will be required to place with Target’s ODM contract manufacturers. Target generally plans purchases of raw materials and place manufacturing orders with Target’s ODM contract manufacturers immediately after each of Target’s two seasonal sales fairs, usually in May for Target’s autumn and winter products and in October for Target’s spring and summer products, where Target confirms sales orders with Target’s distributors and department store chains. This enables Target and Target’s ODM contract manufacturers to have sufficient time, ranging from two to eight weeks, to produce the products and provide Target’s products suitable for a specific season to Target’s distributors and department store chains on a just-in-time basis so as to minimize Target’s inventory levels.

Quality Control

Product quality control is a critical aspect of Target’s business. Target’s dedicated quality control team performs various quality inspection and testing procedures, including random sample testing at different stages of Target’s production process, to ensure that Target’s products meet or exceed the expectations of Target’s consumers. Target also performs routine product inspections on every batch of Target’s products and sample testing to ensure consistent quality of Target’s products, including semi-finished and finished products.

Target has implemented a centralized system for procurement and inspection of raw materials and ancillary components to help ensure a stable and high quality supply. Those materials and components that fail to meet Target’s tests may be returned to the suppliers for replacement. Target’s quality control team also carries out quality control procedures on the products produced by Target’s ODM contract manufacturers. Target conducts on-site inspections of Target’s ODM contract manufacturers before Target enters into business relationships with them. Target also sends Target’s in-house quality control staff on-site to Target’s ODM contract manufacturers to monitor the entire production process. The initial product inspections are performed on-site by Target’s staff before these products are shipped to Target’s headquarters for further inspection and storage in Target’s warehouse. Target also provides technical training to ODM contract manufacturers to assist them with quality control of the production processes and inspect pre-production samples and finished products from ODM contract manufacturers. Target has not encountered any material disruptions to Target’s business as a result of the failure of any of Target’s ODM contract manufacturers to meet Target’s quality standards.

In order to further improve the quality of Target’s products and shorten Target’s delivery cycle, Target intends to increase Target’s control over the manufacturing process and production cycle of Target’s ODM contract manufacturers, primarily by requiring Target’s ODM contract manufacturers to implement stricter and more comprehensive quality control procedures, which cover each stage of the production process, from raw material selection and procurement to finished products packaging and delivery. Target also intends to apply more stringent standards for inspecting products manufactured for Target by Target’s ODM contract manufacturers.

Marketing and Advertising

Target has conducted multi-channel marketing campaigns to advertise Target’s products to Target’s target customers through advertising in newspapers, magazines, the Internet, and billboards, and organizing regular and frequent in-store marketing activities and road shows.

Target has implemented strict requirements on Target’s distributors with respect to the display and promotion of Target’s products to ensure consistent branding and enhance marketing results. Target’s distributors are required to ensure that Target’s marketing strategies are implemented at the retail outlets managed or authorized by them, including displaying Target’s products according to Target’s specifications and using Target’s billboard advertisements. Target also assign sales representatives to monitor the in-store displays of Target’s products at various retail outlets on a regular basis to help ensure that Target’s retailers have followed Target’s product display policies.

In the years ended December 31, 2013 and 2012, Target’s total advertising and promotional expenses amounted to approximately $2.5million and $0.9 million, respectively, which accounted for approximately 2.5% and 1.2% of Target’s revenues in the respective periods.

Competition

The menswear industry in China is a fragmented industry. Competition mainly comes from local market players such as Exceed, Xiniya, Zuoan and Cabbeen. Target believes that Target differentiates itself by providing more fashionable, younger-looking and leisure products, and competitive pricing without giving up the casual feel of Target’s products.

Target competes primarily on the basis of product design, brand recognition, operational efficiency and a low cost structure. Some of Target’s domestic competitors have a stronger customer base, greater resources and more industry expertise than us. However, Target believes that Target can continue to successfully compete with Target’s local competitors due to Target’s unique product designs.

Intellectual Property

Target currently has the licenses to use two registered trademarks in the PRC.

The registered trademarks on which Target has licenses are the following:

Trademark		Registration No.				Valid Term
KBS			4342760			January 1, 2014 - December 31, 2018
			3199344			January 1, 2006 - December 31, 2015

Target believes that these trademarks provide significant value as they are important for marketing and building brand recognition. Target is not aware of any third party currently using trademarks similar to Target’s trademarks in the PRC on the same products.

Employees

As of December, 2013, Target employed 348 full-time employees, of which 209 employees at Target’s production facility in Anhui Province, China, are contracted with through a labor agency. The following table sets forth the number of Target’s full-time employees by function.

Target maintains a satisfactory working relationship with Target’s employees, and Target has not experienced any significant labor disputes or any difficulty in recruiting staff for Target’s operations. None of Target’s employees is represented by a labor union.

Target’s employees in China participate in a state pension plan organized by Chinese municipal and provincial governments. Target is required to make monthly contributions to the plan for each employee at the rate of 23% of his or her average assessable salary. In addition, Target is required by Chinese law to cover employees in China with various types of social insurance. Target believes that Target is in material compliance with the relevant PRC laws.

Insurance

Target does not have any business liability, interruption or litigation insurance coverage for Target’s operations in China. Insurance companies in China offer limited business insurance products. While business interruption insurance is available to a limited extent in China, Target has determined that the risks of interruption, cost of such insurance and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for Target to have such insurance. Therefore, Target is subject to business and product liability exposure. See “Risk Factors—Risks Related to Target’s Business— Target has limited insurance coverage in China and may not be able to recover insurance proceeds if Target experiences uninsured losses.”

Regulation

Because Target’s primary operating subsidiaries are located in China, Target is subject to China’s national and local laws detailed below. Target believes that Target is in material compliance with all registrations and requirements for the issuance and maintenance of all licenses required by the governing bodies and that all license fees and filings are current.

Foreign Invested Entity and Foreign Investment in Commerce Sectors

The establishment, alteration, registered capital requirement, corporate governance, and similar matters, of Hongri PRC will be governed by the Wholly Foreign Owned Enterprise Law of the PRC, which was promulgated on April 12, 1986 and amended on October 31, 2000, and its Implementation Rules which were promulgated on December 1990 and amended on April 12, 2001 and February 19, 2014.

In addition, on April 16, 2004, MOFCOM issued the FICE Regulation to open up the commerce sector to foreign investment, and also to provide for various market entry restrictions against foreign investment in companies engaged in the wholesale, retail, commissioned sale and/or franchise business, or FICEs. FICEs are required to obtain special approvals from the national or provincial-level MOFCOM offices to conduct the foregoing commerce business.

Product Quality

The principal legal provisions governing product liability are set forth in the PRC Product Quality Law, which was promulgated in February 1993 by the SCNPC and amended in July 2000 and August 2009.

The PRC Product Quality Law stipulates the responsibilities and obligations of product sellers and producers. Violations of the PRC Product Quality Law may result in the imposition of fines. In addition, the seller or producer may be ordered to suspend its operations, and its business license may be revoked. There may also be criminal liability in serious cases.

According to the PRC Product Quality Law, consumers or other victims who suffer injury or property losses due to product defects may demand compensation from the manufacturer as well as the seller. After compensating the consumer, the seller may recover the corresponding amount from the manufacturer if the manufacturer is responsible for the product defects, and vice versa.

Consumer Protection

The principal legal provisions for the protection of consumer interests are set forth in the Law of the PRC on Protection of Consumer Rights and Interests, or the Consumer Protection Law, which was promulgated in October 1993 amended in October 2013. The Consumer Protection Law sets forth standards of behavior that businesses must observe in their dealings with consumers.

Violations of the Consumer Protection Law may result in the imposition of fines. In addition, the violating entity may be ordered to suspend its operations, and its business license may be revoked. There may also be criminal liability in serious cases.

According to the Consumer Protection Law, if the legal rights and interests of a consumer are injured during the purchase or use of goods, the consumer may seek compensation from the seller. If the manufacturer or an upstream distributor is responsible, after compensating the consumer, the seller may recover the corresponding amount from the manufacturer or the upstream distributor. Consumers or other persons who suffer personal injury or property damages due to defects in products may seek compensation from the manufacturer as well as the seller. After compensating the consumer, the seller may recover the corresponding amount from the manufacturer if the manufacturer is responsible for the product defects, and vice versa.

Trademarks

The PRC Trademark Law, adopted in 1982 and revised in 2001 and 2013, protects the proprietary rights to registered trademarks. The Trademark Office under the State Administration of Industry and Commerce handles trademark registration and grants a term of ten years to registered trademarks and another ten years to trademarks as requested upon expiry of the prior term. Trademark license agreements and transfer agreements must be filed with the Trademark Office for record.

Foreign Currency Exchange

All of Target’s net sales and expenses are denominated in RMB. Under the PRC foreign currency exchange regulations applicable to us, RMB is convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions. Currently, Target’s PRC operating subsidiaries may purchase foreign currencies for settlement of current account transactions, including payments of dividends to us, employee salaries (even if employees are based outside of China), and payment for equipment purchases outside of China, without the approval of the SAFE, by complying with certain procedural requirements. Conversion of RMB for capital account items, such as direct investment, loan, security investment and repatriation of investment, however, is still subject to the approval of SAFE. In particular, if Target’s PRC operating subsidiaries borrow foreign currency through loans from Target or other foreign lenders, these loans must be registered with SAFE, and if Target finances the subsidiary by means of an additional capital contribution, these capital contributions must be approved by certain government authorities, including MOFCOM, or their respective local branches. These limitations could affect Target’s PRC operating subsidiary’s ability to obtain foreign exchange through debt or equity financing. In the event of a liquidation of Target’s PRC subsidiary, SAFE approval is required before the remaining proceeds can be expatriated from China.

In addition, the Notice of the General Affairs Department of the State Administration of Foreign Exchange on the Relevant Operating Issues concerning the Improvement of the Administration of Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, issued by SAFE and effective as of August 29, 2008, or Circular 142, regulates the conversion by foreign-invested enterprises of foreign currency into RMB by restricting how the converted RMB may be used. Circular 142 requires that RMB converted from the foreign currency-dominated capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the relevant government authority and may not be used to make equity investments in PRC, unless specifically provided otherwise. SAFE further strengthened its oversight over the flow and use of RMB funds converted from the foreign currency-dominated capital of a foreign-invested enterprise. The use of such RMB may not be changed without approval from SAFE, and may not be used to repay RMB loans if the proceeds of such loans have not yet been used. Any violation of Circular 142 may result in severe penalties, including substantial fines.

In connection with the royalties that Hongri PRC is required to pay to France Cock, Hongri PRC is allowed to remit the cash outside the mainland China through competent banks after certain conditions are satisfied, including without limitation payment of the related taxes and obtaining the Filing Form regarding the Trademark Licensing Contract issued by the related trademark administration authority. The banks will accept the remittance application of the royalties to offshore companies once the documents evidencing the aforesaid requirements are complete and in order.

For the services fees required under the Technology Development Service Contract between Hongri PRC and Roller Rome, Hongri PRC is allowed to pay such fees across the border through competent banks after all the required documents are submitted, which include tax return certificates, contract between the parties, invoice issued by the receiving party and other documents as required by the banks. Part of the fee was remitted in 2010 to Roller Rome and France Cock. Due to the cash requirement of Hongri PRC and as permitted under a notice of postponement of fee collection provided by Roller Rome to Hongri PRC, all the remaining royalties and fees under the contracts will be legally transferred in due course. Target anticipates that these fees will be returned to Hongri PRC in the form of capital investment.

According to Enterprise Income Tax Law of the PRC and its implementation rules, France Cock and Roller Rome shall pay withholding taxes relating to the royalties and services at a rate of 10% of the income, which shall be withheld by Hongri PRC before it could remit the royalties and fees. As France Cock is a Hong Kong company and under the tax treaty between the mainland China and Hong Kong, France Cock may enjoy a preferential withholding tax rate of 7% of the total royalty fees which may be lower than that requested by Enterprise Income Tax Law of the PRC and its implementation rules. However, whether such preferential tax rate will be granted will be decided by the relevant PRC tax authority.

Target does not anticipate any material impact on Target’s net assets or liquidity relating to the above foreign currency exchange regulations. Target will update future filings with the SEC to reflect any significant changes in these regulations and Target’s expectations of their impact on Target’s net assets or liquidity.

Taxation

On March 16, 2007, the National People’s Congress of China passed the EIT Law, and on November 28, 2007, the State Council of China passed its implementing rules, which took effect on January 1, 2008. Before the implementation of the EIT Law, foreign invested enterprises, or FIEs, established in the PRC, unless granted preferential tax treatments by the PRC government, were generally subject to an earned income tax, or EIT, rate of 33.0%, which included a 30.0% state income tax and a 3.0% local income tax. The EIT Law and its implementing rules impose a unified EIT of 25.0% on all domestic-invested enterprises and FIEs, unless they qualify under certain limited exceptions. Despite these changes, the EIT Law gives FIEs established before March 16, 2007, or Old FIEs, a five-year grandfather period during which they can continue to enjoy their existing preferential tax treatments. During this five-year grandfather period, the Old FIEs which enjoyed tax rates lower than 25% under the original EIT law will be subject to gradually increased EIT rates over a 5-year period until their tax rate reaches 25%. In addition, the Old FIEs that are eligible for other preferential tax treatments by the PRC government under the original EIT law are allowed to continue enjoying their preference until these preferential treatment periods expire.

In addition to the changes to the current tax structure, under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a resident enterprise and will normally be subject to an EIT of 25% on its global income. The implementing rules define the term “de facto management bodies” as “an establishment that exercises, in substance, overall management and control over the production, business, personnel, accounting, etc., of a Chinese enterprise.” If the PRC tax authorities subsequently determine that Target should be classified as a resident enterprise, then Target’s organization’s global income will be subject to PRC income tax of 25%. For detailed discussion of PRC tax issues related to resident enterprise status, see “Risk Factors—Risks Related to Doing Business in China—Under the New Enterprise Income Tax Law, Target may be classified as a ‘resident enterprise’ of China. Such classification will likely result in unfavorable tax consequences to Target and Target’s non-PRC stockholders.”

In addition, the EIT Law and its implementing rules generally provide that an income tax rate of 10% will normally be applicable to dividends payable to investors that are “non-resident enterprises,” or non-resident investors, which (i) do not have an establishment or place of business in the PRC or (ii) have an establishment or place of business in the PRC, but the relevant income is not effectively connected with the establishment or place of business to the extent such dividends are derived from sources within the PRC. The State Council of the PRC or a tax treaty between China and the jurisdictions in which the non-PRC investors reside may reduce such income tax. Under the Arrangement between the Mainland and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, effective as of January 1, 2007, such dividend withholding tax rate is reduced to 5% if a Hong Kong resident enterprise owns over 25% of the PRC company distributing the dividends. As Vast Billion is a Hong Kong company and owns 100% of Hongri PRC, under the aforesaid arrangement, any dividends that Hongri PRC pays Vast Billion may be subject to a withholding tax at the rate of 5%. The Notice Regarding Interpretation and Recognition of Beneficial Owners under Tax Treaties, or Notice 601, promulgated by the State Administration of Taxation on October 27, 2009, provides guidance for the determination of “beneficial ownership” for the purpose of claiming benefits under the double tax agreements by treaty residents in respect of certain passive income, such as dividends, royalties, and interest.. If Vast Billion is not considered to be the “beneficial owner” of such dividends under Notice 601, such dividends would be subject to the withholding tax rate of 10%. The withholding tax rate of 5% or 10% applicable to Vast Billion will have a significant impact on the amount of dividends to be received by the Company and ultimately by stockholders.

Pursuant to the Provisional Regulation of China on Value Added Tax and its implementing rules, all entities and individuals that are engaged in the sale of goods, the provision of repairs and replacement services and the importation of goods in China are generally required to pay value added tax, or VAT, at a rate of 17.0% of the gross sales proceeds received, less any deductible VAT already paid or borne by the taxpayer. Further, when exporting goods, the exporter is entitled to some or all of the refund of VAT that it has already paid or borne.

Dividend Distributions

Substantially all of Target’s sales are earned by Target’s PRC subsidiary. However, PRC regulations restrict the ability of Target’s PRC subsidiary to make dividends and other payments to its offshore parent company. PRC legal restrictions permit payments of dividends by Target’s PRC subsidiary only out of its accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Target’s PRC subsidiary is also required under PRC laws and regulations to allocate at least 10% of its annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amounts in said fund reaches 50% of Target’s registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to Target in the form of loans, advances, or cash dividends.

Upon the closing of the Acquisition, the combined entity will be subject to PRC corporate income and other taxes at the level of its PRC operating subsidiaries, to a 5% dividend withholding tax on profits distributed from its PRC operating subsidiaries to their HK holding company, and, if the Company is subject to US taxation, to US taxes on amounts received in distribution from its subsidiary(ies). There is no income tax in Hong Kong, the BVI or the Marshall Islands on amounts distributed up through the entities from the PRC, or any dividend withholding tax in HK, the BVI or the Marshall Islands. The combined entities' obligation to pay dividends to the shareholders of the Company is calculated on an after-tax basis, and therefore is net of the taxes.

Environmental Matters

Target’s facilities are subject to various governmental regulations related to environmental protection. Target uses a myriad of chemicals in Target’s operations and produce emissions that could pose environmental risks. Target’s manufacturing facilities are subject to various pollution control regulations with respect to noise, water and air pollution and the disposal of waste and hazardous materials, including, China’s Environmental Protection Law, Law of the People’s Republic of China on Appraising of Environment Impacts, China’s Law on the Prevention and Control of Water Pollution and its implementing rules, China’s Law on the Prevention and Control of Air Pollution and its implementing rules, China’s Law on the Prevention and Control of Solid Waste Pollution, and China’s Law on the Prevention and Control of Noise Pollution. Target is subject to periodic inspections by local environmental protection authorities.

Target did not incur material costs in environmental compliance in fiscal years 2013 and 2012. Target believes Target is in material compliance with the relevant PRC environmental laws and regulations. Target is not currently subject to any pending actions alleging any violations of applicable PRC environmental laws.

Circular 75

On November 1, 2005, SAFE issued the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents to Engage in Overseas Financing and Round Trip Investment via Overseas Special Purpose Vehicles, or Circular 75, which regulates the foreign exchange matters in relation to the use of a “special purpose vehicle,” or SPV, by PRC residents to seek offshore equity financing and conduct “round trip investment” in China. Under Circular 75, a SPV refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or PRC entities for the purpose of seeking offshore equity financing using assets or interests owned by such PRC residents or PRC entities in onshore companies, while “round trip investment” refers to the direct investment in China by the PRC residents through the SPV, including, without limitation, establishing foreign-invested enterprises and using such foreign-invested enterprises to purchase or control onshore assets through contractual arrangements. Circular 75 requires that, before establishing or controlling a SPV, PRC residents and PRC entities are required to complete foreign exchange registration with the local offices of SAFE for their overseas investments.

An amendment to the registration is required if there is a material change in the SPV, such as increase or reduction of share capital and transfer of shares. Failure to comply with the registration procedures set forth in Circular 75 may result in restrictions on the foreign exchange activities of the relevant foreign-invested enterprises, including the payment of dividends and other distributions, such as proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent or affiliate and the capital inflow from the offshore parent, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations.

SAFE issued the Operating Guidelines on Foreign Exchange Administration of Domestic Residents’ Financing and Round-tripping Investment through Offshore Special Purpose Vehicles, or Circular 19, on May 20, 2011, which took effect on July 1, 2011. Circular 19 clarified the registration requirements applicable to SPVs and non-SPVs. With the introduction of the concept of “non-SPVs” under Circular 19, Target anticipates that SAFE will lessen the scrutiny over the non-Chinese entities whose initial stockholders did not have the intent to set up such entities as the vehicles for “round trip investments”. Target believes that Target’s company and its non-Chinese subsidiaries would likely be considered as non-SPVs, though Target has not received confirmation from SAFE that it does not consider Target and/or any of Target’s non-Chinese subsidiaries as SPVs.

As Target stated under “Risk factors—Risks Related to Doing Business in China—Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject Target’s PRC resident stockholders to personal liability, limit Target’s ability to acquire PRC companies or to inject capital into Target’s PRC subsidiary, limit Target’s PRC subsidiary’s ability to distribute profits to Target or otherwise materially adversely affect us,” Target has asked Target’s stockholders, who are PRC residents as defined in Circular 75, to register with the relevant branch of SAFE, as currently required, in connection with their equity interests in Target and Target’s acquisitions of equity interests in Target’s PRC subsidiary. However, many of the terms and provisions in Circular 75 remain unclear and implementation by central SAFE and local SAFE branches of Circular 75 have been inconsistent since their adoption. Therefore, Target cannot predict how Circular 75 will affect Target’s business operations or future strategies. For example, Target’s present and prospective PRC subsidiaries’ ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with Circular 75 by Target’s PRC resident beneficial holders.

Employee Stock Option Plans or Incentive Plans

In December 2006, the People’s Bank of China promulgated the Administrative Measures on Individual Foreign Exchange, or the Individual Foreign Exchange Regulations, setting forth the requirements for foreign exchange transactions by individuals (both PRC or non-PRC citizens) under the current account and the capital account. In January 2007, SAFE issued the implementation rules for the Individual Foreign Exchange Regulations which, among other things, specified the approval and registration requirement for certain capital account transactions such as a PRC citizen’s participation in employee share ownership and share option plans of overseas listed companies.

Pursuant to the implementation rules of Circular 75 issued by the SAFE on May 29, 2007, employee share ownership plans of SPVs and employee share option plans of SPVs must be filed with the SAFE while applying for the registration for the establishment of the SPVs. After employees exercise their options, they must apply for an amendment to the registration for the SPV with the SAFE.

On March 28, 2007, SAFE promulgated the Operating Procedures on Administration of Foreign Exchange for PRC Individuals’ Participation in Employee Share Ownership Plans and Employee Share Option Plans of Overseas Listed Companies, or the Share Option Rules. Under the Share Option Rules, PRC citizens who are granted incentive shares or share options by an overseas-listed company according to its employee share option or share incentive plan are required to entrust their employers (including the overseas listed companies and the subsidiaries or branch offices of such offshore listed companies in China) or engage other qualified PRC agents, to register with SAFE and complete certain other procedures related to the share option or share incentive plan. Foreign exchange income from the sale of shares or dividends distributed by the overseas-listed company must be remitted into China. In addition, the overseas-listed company or its PRC subsidiary or any other qualified PRC agent is required to appoint an asset manager or administrator and a custodian bank, and open foreign currency accounts to handle transactions relating to the share option or share incentive plan. As of the date of this Offer, Target has not granted any incentive shares or share options to Target’s PRC citizen employees, however, if Target does so in the future, Target’s PRC citizen employees who are granted restricted shares or share options will be subject to these rules upon the listing and trading of Target’s common stock.

M&A Rule

On August 8, 2006, six PRC regulatory agencies promulgated the Foreign M&A Rule, which was later amended in June 2009.

The Foreign M&A Rule, among other things, govern the approval process by which a PRC company may participate in an acquisition of assets or equity interests by foreign investors. The Foreign M&A Rule allow PRC government agencies to assess the economic terms of a business combination transaction. Parties to a business combination transaction may have to submit to MOFCOM and other relevant government agencies an appraisal report, an evaluation report and the acquisition agreement, all of which form part of the application for approval, depending on the structure of the transaction. The Foreign M&A Rule also prohibit a transaction at an acquisition price obviously lower than the appraised value of the PRC business or assets and in certain transaction structures, requires that consideration must be paid within defined periods, generally not in excess of a year. The Foreign M&A Rule also limit Target’s ability to negotiate various terms of the acquisition, including aspects of the initial consideration, contingent consideration, holdback provisions, indemnification provisions and provisions relating to the assumption and allocation of assets and liabilities. Transaction structures involving trusts, nominees and similar entities are prohibited.

In addition, the Foreign M&A Rule regulates “Round-trip Investments.” For further information, please see the discussion under “Risk Factors – Risks Related to Doing Business in China – Target’s business and financial performance may be materially adversely affected if the PRC regulatory authorities determine that Target’s acquisition of Hongri PRC constitutes a Round-trip Investment without MOFCOM approval.”

The Chinese Consumer Market and the PRC Apparel Industry

Retail revenues (LHS) and growth (RHS), 2008-2013E, RMB, National Bureau of China Statistics, Management Estimates

Retail sales of consumer goods have grown by an average of 21.3% annually from 2008-2013E according to the National Bureau of Statistics of China. The National Bureau of Statistics of China also believes that China’s apparel will continue to grow at a double digit rate for the next 10 years. It has become the 3rd largest retail clothing market in the world behind the United States and the EU, estimated turnover of $150 billion or 14% of the total $1.1 trillion global apparel market.

Disposable Urban Household Income 2008-2015E, RMB Per Capita, National Bureau of China Statistics and Aquasition Management Estimates

China’s apparel market has alos been fast, exhibiting 15.2% CAGR during 2007-2013, which is expected to grow at a similar rate over the next 5 years. Over the next decade, we estimate China’s apparel market share will grow to approximately 26% of a global $2.1 trillion market. China’s fashion casual menswear market accounts for approximately 16.5% of the total menswear market, having exhibited a CAGR of 15.4% from 2007 to 2012.

Target expects this growth primarily due to the following:

Target believes that the competitive landscape is favourable because, in part, the menswear market is young, very fragmented and has not reached a consolidation stage. The ten leading menswear companies in China had approximately 25% of the market share in 2012. Target believes that Brand competition benefits the companies with their own designers, such as KBS, because this allows such companies to develop a unique style and promote brand awareness, as well as allowing such companies to be respnive to fashion trends.

Top Five Menwear brands in 2012 Revenues and KBS FY2012

As of December 31, 2013 department stores accounted for 20% of menswear sales, shopping malls 30%, while online purchases was at a nascent 5% of revenues. The remainder of menswear revenues come from traditional street stores, which in more developed cities account sfor 40% of sales, while in smaller cities they account for 50% of sales.

Distribution Channels 2013E, Aquasition Management Estimates

THE ACQUISITION

Introduction

Aquasition Corp. is a blank check company formed on January 26, 2012, pursuant to the laws of the Republic of the Marshall Islands for the purpose of acquiring through a merger, capital stock exchange, asset acquisition, stock purchase, or similar acquisition transaction, one or more operating businesses or assets. Although our Amended and Restated Articles of Incorporation and by-laws do not limit us to a particular geographic region or industry, we intended to focus on operating businesses and assets in the international maritime transportation, offshore and related maritime services industries, especially those requiring energy, commodity, transportation or logistics expertise.

We sought to capitalize on the strength and expertise of our management team, which collectively has over 85 years of experience in the maritime transportation, offshore and related maritime services industries. Through their family businesses, they have collectively owned and managed over 80 vessels in the past 20 years through several market cycles. Our management team also has extensive experience in advising, acquiring, financing, managing and selling assets and private companies in a variety of industries. We believed that our contacts and sources, ranging from private and public company contacts, private equity funds, and investment bankers to attorneys, accountants and business brokers, would allow us to generate acquisition opportunities.

Our management team had identified, researched and considered numerous potential target businesses, both in the maritime transportation, offshore and related maritime services industries and other industries. However, a combination of factors led us to reject all other opportunities. The key reasons were insufficient visibility of returns, the acquisition price being too high, counterparty management quality, level of bank financing, competition risks, lack of historical financial data or audited financial results from prospective targets, and operational risks.

On September 10, 2013 we signed a Non-Disclosure agreement with SNV Global LTD (“SNV”). Mr. Stergios Voskopoulos is the managing director for SNV. On the same date we also signed a Master Finder's Fee Agreement relating to SNV identifying a potential target business with which to perform a merger, share capital exchange, assets acquisition, share purchase, reorganisation or similar business combination or transaction.

On September 11, 2013 Mr Voskopoulos provided information relating to the Target to Mr. Stylianos Stergios Sougioultzoglou, our Chief Financial Officer.

During the period from the of September 11-18, 2013, Mr. Sougioultzoglou and Mr. Matthew Los, Aquasition’s Chief Executive Officer, held various conference calls with Mr. Voskopoulos to further discuss the suitability of the Target.

On September 23, 2013, Mr. Sougioultzoglou sent a draft term sheet relating to the potential acquisition of the Target to Mr. Voskopoulos.

On September 26, 2013 Mr. Voskopoulos informed Mr. Sougioultzoglou via email and later on a conference call that the Target was in principle interested in a transaction with Aquasition. On the same day Mr. Voskopoulos sent to Mr. Sougioultzoglou some preliminary un-audited financial information on the Target for review by Aquasition's management.

On September 27, 2013 Mr. Sougioultzoglou, Mr. Kalapotharakos, Mr. Voskopoulos and Messrs. Keyan Yan and Stanley Wong, the Chief Executive Officer and Chief Financial Officer of the Target, respectively, as well as Mr. Michael Tian of M&T Global Ltd., acting as financial advisor to the Target, had an introductory call, and from this time up to October 10, 2013, several similar calls and exchanges of emails ensued around the main terms of a term sheet.

On October 11, 2013, our Chief Executive Officer, Mr. Matthew Los, and Mr. Wong signed a non-binding term sheet which outlined the basic terms of a transaction.

During the period from October 11, 2012 through December 2013 , Mr. Sougioultzoglou and Mrs. Alexandropoulou from Aquasition, conducted preliminary due diligence on the Target, and focused around the Target's financial statements, business plan, growth prospects and good standing. The Target’s US counsel, Pillsbury Winthrop Shaw Pittman LLP, set up a data room with all the relevant documents in order to facilitate this process.

On November 26, 2013, our Chairman, Mr. Leonidas Polemis met with Mr. Wong, and Mr. Tian in Hong Kong to discuss the Target’s business in more detail and, more specifically, the potential transaction, KBS's business, brand image, accounting/audit, growth strategy, as well as potential market expansion outside China. On the same day the Company received the draft audited financial statements of the Target for 2012.

On November 28, 2013 a first draft of a merger agreement, prepared by Pillsbury Winthrop Shaw Pittman LLP, was provided to Aquasition and its counsel, Loeb & Loeb LLP.

On December 4, 2013, Mr. Los travelled to the Target’s main office in Shishi City, Fujian and met with Mr. Yan and Mr. Wong, as well as Mr. Tian and Mr. Voskopoulos. The purpose of the visit was to discuss various business arrangements as well as the main terms for the merger agreement.

From December 10, 2013 through to March 24, 2014, Mr. Los and Mr. Themistoklis Kalapotharakos, Aquasition’s director, Mr. Giovanni Caruso of Loeb & Loeb LLP, Mr. Thomas Shoesmith of Pillsbury Winthrop Shaw Pittman LLP, Mr. Yan, Mr. Wong, Mr. Voskopoulos and Mr. Tian held several conference calls with regards to the negotiating and the drafting of the terms of the merger agreement and, subsequently the Agreement. The main points of negotiation were the valuation of KBS (on a EV/EBITDA basis) and the minimum cash requirement that Aquasition would have to raise at the closing of the transaction.

On February 19, 2014, Mr. Los and Mr. Kalapotharakos met with Mr. Wong and Mr. Tian in Hong Kong to discuss matters relating to the terms of the merger agreement. In this meeting they discussed and finalized the main points of the merger agreement.

On February 27, 2014 the Aquasition Board held a special meeting to discuss the Acquisition and the merger agreement. During the meeting our Directors reviewed the historical accounts of the Target, its products and business plan, the earnings growth potential, the Chinese economy as a whole, the fact that the due diligence performed was satisfactory, as well as the attractive valuation which the Target was willing to accept. Following these discussions, the board unanimously approved the Acquisition and authorized the officers of Aquasition to execute definitive documents for the Acquisition.

On February 28, 2014, a merger agreement was entered into by and among Aquasition, KBS, the Target, and So Wa Cheung and Sun Keung Chan, each an individual shareholder of KBS (the “Principal Stockholders”).

Subsequently, the parties decided that it would be preferable if Aquasition acquired the shares of the Target from KBS, as opposed to an Aquasition subsidiary merging with KBS. The parties began to negotiate the Agreement in mid-March 2014.

On March 23, 2014 the Aquasition Board held a special meeting to discuss the Acquisition and the Agreement. During the meeting our Directors again reviewed the historical accounts of the Target, its products and business plan, the earnings growth potential, the Chinese economy as a whole, the fact that the due diligence performed was satisfactory, as well as the attractive valuation which the Target was willing to accept. Following these discussions, the board unanimously approved the Acquisition and authorized the officers of Aquasition to execute the Agreement.

On March 24, 2014, the Agreement was entered into by and among Aquasition, KBS, the Target, and the Principal Stockholders.

On April 1, 2014 Aquasition engaged Chinese counsel, Messrs Allbright Law Offices (“Allbright”) based in Shanghai, China, to carry out due diligence on the Target's corporate structure, which included, among other things, incorporation documents, tax payment receipts, land use rights certificates, business licenses, lease contracts, employment contracts and trademark licensing contracts, as well as monthly bank statements and bank deposit verification slips.

In addition, Allbright:

In addition to the field visit, Allbright reviewed relevant agreements of these operating companies, including loan agreements, employment agreements and leases.

Based upon their legal due diligence, Allbright concluded that these three PRC subsidiaries are business entities duly incorporated and validly existing under the laws of PRC, and believe that they are in compliance with the foreign M & A Rule.

Aquasition did not receive a formal third party fairness opinion for the Target's valuation as its management believes that it has the ability to evaluate the value of the Target with the advice of its financial advisors. Aquasition assumed that the Target's value would be primarily based on its growth profile and its EV/EBITDA 2014. Through its own financial statement forecasts for the Target and market consensus estimates for the peer group, Aquasition concluded that at the post merger price, the valuation of the Target would be in the 20% fastest growing companies for their valuation (Price to Earnings Growth, or PEG) ratio and in the 20% lowest companies for EV/EBITDA multiple for 2015 among that retail apparel peer group as seen in the following table:

Our management team also compared certain financial information of the Target with that of other companies in the retail and apparel industry, including: Fast Retailing Co. Ltd, Columbia Sportswear Company, Jos. A Bank Clothiers Inc., Fujian Septwolves Industry Co. Ltd., V.F. Corporation, The Men’s Wearhouse, Inc., Perry Ellis International Inc., Ralph Lauren Corporation, Urban Outfitters Inc., Iconix Brand Group, Inc., PVH Corp., The Gap, Inc., Joeone Co., Ltd., China Liliang Limited, and Youngor Group Co.,Ltd. A number of comparable companies were selected and considered, including both Chinese retail companies listed in China as well as more established, larger international retail companies listed on exchanges outside of China. Given the combined company will be listed on Nasdaq, management felt it was important to include retail companies listed in the U.S. in the peer group in order to present a comprehensive picture of valuation dynamics. Aquasition reviewed fully diluted enterprise values, calculated as equity value plus net debt, as multiples of historical EBITDA for 2013 and projected EBITDA for 2014 and 2015. In addition, our management reviewed price to forward 2014 earnings multiples, price to earnings to growth ratios, EBITDA margins for the last twelve months, and projected two year revenue growth rates. Based on the average enterprise value to 2014 and 2015 EBITDA multiples and the price to 2014 earnings multiples calculated for the selected comparable companies, the valuation of the Target was determined to be at a discount to the peer group (48% discount to the average peer EV/ 2014E EBITDA multiple, 51% discount to the average peer EV/ 2015E EBITDA multiple, and 48% discount to the average peer Price / 2014E Earnings multiple as of June 16, 2014). You should be aware that no company used as a comparison in this analysis is identical to the Target. In addition, mathematical analysis is not in itself a meaningful method of using comparable market trading data.

Our management team decided to pursue a transaction with KBS after careful consideration of the historical accounts of the Target, its products and business plan, and the earnings growth potential, the Chinese economy as a whole, the fact that the due diligence we performed was satisfactory, as well as the attractive valuation which the Target was willing to accept. Management believes that the Acquisition presented the most attractive opportunity for the capital invested and one of the fastest growth profiles among the businesses we considered and determined that this transaction is in the best interests of Aquasition and its shareholders.

On June 21, 2014, the parties to the Agreement amended the Agreement to reduce the consideration to be paid in connection with the Acquisition, to remove the limitation that the total number of shares issued as consideration was required to be no less than 80% of the outstanding capital stock of Aquasition, and to extend the outside closing date to August 1, 2014. The description of the Agreement below describes the Agreement as it was amended on June 21, 2014.

Non-GAAP Financial Measures

EBITDA is a non-GAAP financial measure. A reconciliation of Target’s EBITDA to its nearest comparable GAAP measure is included in the following table. As described more fully below, Target’s management believes the use of non-GAAP measures in addition to GAAP measures is an additional useful method of evaluating Target’s financial condition and results of operations. EBITDA should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the expected results calculated in accordance with GAAP and reconciliations to those expected results should be carefully evaluated. EBITDA as the Target calculates it may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.

Target’s management uses this information to measure performance over time on a consistent basis and to identify trends related to Target's financial condition and results of operations. Target’s management believes that these non-GAAP measures provide investors with information regarding the underlying performance of the Target's core business operating results on a cash basis. 

Acquisition of Target; Acquisition Consideration

Upon the closing of the transactions contemplated in the Agreement, Aquasition will acquire 100% of the issued and outstanding equity interest in Target from KBS in exchange for the transaction consideration consisting of shares of Company common stock, which we refer to herein as the Acquisition, and KBS will liquidate immediately thereafter. The number of shares comprising the transaction consideration will be (a) (i) EBITDA multiplied by 5 ($39,722,240 as of December 31, 2013) less (ii) the Long Term Debt, plus (iii) cash held by Target; divided by (b) $10.30 (the “Transaction Consideration”). The Agreement defines EBITDA as Target’s 2013 standalone and adjusted earnings before interest, taxes, depreciation and amortization, as calculated based upon the audited Target financial statements for the year ended December 31, 2013, and defines “Long Term Debt” as Target’s existing net long-term debt as of one business day before the closing date of the Acquisition. Upon consummation of the Acquisition, KBS will dissolve and distribute all its assets to its shareholders in liquidation.

The Agreement provides that immediately after closing, the Company’s board of directors will consist of seven directors, two of whom will be designated by the Principal Stockholders, and one of which will be designated by Aquasition Investments Corp., a company incorporated in the Republic of the Marshall Islands (“AQU Invest”), a company controlled by Aquasition’s founders. The remaining four directors will be “independent” and have experience with public companies listed in the United States. Three of the independent directors will be designated by KBS, and the remaining independent director will be designated by AQU Invest. Concurrently with the closing, the Company, AQU Invest and the Principal Stockholders will enter into a voting agreement regarding the election of director designees following the closing, and the Company will purchase director’s and officer’s insurance.

Representations and Warranties

In the Agreement, KBS and the Principal Stockholders (collectively, the “Warrantors”) make certain representations and warranties (with certain exceptions set forth in the disclosure schedule to the Agreement) relating to, among other things: (a) proper corporate organization and similar corporate matters, (b) subsidiaries of the Target, (c) authorization, execution, delivery and enforceability of the Agreement and other transaction documents, (d) capital structure, (e) assumed names, (f) financial information, (g) books and records, (h) absence of certain changes and events, (i) material contracts, (j) real property and land use rights, (k) title to properties, (l) Target’s accounts, (m) labor and employment matters, (n) benefit plans, (o) transactions with affiliates and employees, (p) intellectual property, (q) tax matters, (r) insurance, (s) environmental matters, (t) licenses and permits, (u) non-contravention, (v) required consents, (x) litigation, (y) compliance with applicable laws, (z) disclosure, (aa) absence of undisclosed events, liabilities, developments or circumstances, (bb) money laundering laws, (cc) Office of Foreign Assets Control, (dd) Foreign Corrupt Practices, and (ee) Investment Company Act.

In the Agreement, Aquasition makes certain representations and warranties relating to, among other things: (a) proper corporate organization and similar corporate matters; (b) government authorization, (c) non-contravention, (d) issuance of shares, (e) capital structure, (f) information supplied, (g) the Trust Account (as defined below), (h) Nasdaq listing, (i) board approval and the Tender Offer (as defined below), (j) Company financial information and SEC documents, (k) articles of incorporation, (l) corporate records, (m) required consents, (n) books and records, (o) litigation, (p) compliance with laws, and (q) tax matters.

Conduct Prior to Closin g ; Covenants

The Warrantors have agreed to use their best efforts to cause Target and its subsidiaries and affiliated entities to continue to operate their business in the ordinary course prior to the closing (with certain exceptions) and not to take certain specified actions without the prior written consent of Aquasition. The Target will also be required to identify a Chief Financial Officer and make commercially reasonable efforts to ensure that certain key personnel be retained for a period of 36 months following closing. The Warrantors will continue to grant Aquasition full access to Target’s facilities and records, will furnish any information regarding the business of Target requested by Aquasition and its representatives, and cause Target’s employees and representatives to cooperate with Aquasition’s investigation of the business of Target. Target will be required to provide notice of certain events, including threatened litigation, communications with government authorities, and circumstances that may cause a representation to be false or omit a material fact. The Target will be required to provide interim financial statements to Aquasition pending closing, audited financial statements for the two years ended December 31, 2013 by April 28, 2014, and the Target will cooperate in Aquasition’s preparation of its filings with the SEC related to the Acquisition.

The Principal Stockholders agreed to enter into a voting agreement concurrently with the execution of the Agreement pursuant to which they will agree to approve the Agreement and the Acquisition.

Prior to closing Aquasition will conduct a tender offer (the “Tender Offer”) for any and all of the shares of Common Stock underlying the units issued in Aquasition’s initial public offering in accordance with the requirements of its Amended and Restated Articles of Incorporation and bylaws. Aquasition agreed provide the Warrantors notice of any event or development that would require amendment of the Tender Offer documents. Aquasition is required to obtain all necessary consents and authorization to complete the Acquisition including completion of the tender offer with not more than 90% of such shares tendered in the Tender Offer. Upon closing, Aquasition will issue the shares representing the Transaction Consideration, and will take all steps necessary to distribute the funds held in the trust account (the “Trust Account”) established in connection with our IPO in accordance with the Investment Management Trust Agreement governing the Trust Account. Aquasition will ensure that at least $10 million is available to the combined companies, excluding the cash and assets of the Target, as of immediately following the Closing, after deducting any amounts necessary to cover all liabilities including the redemption of shares of Common Stock in this Offer. KBS is permitted to waive this requirement. Aquasition hopes to meet its funding obligations by explaining to shareholders the value of the transaction with KBS so that they do not exercise their redemption rights.

The parties to the Agreement agreed to honor their respective indemnification obligations with respect to their respective directors and officers. The parties will cooperate to prepare and complete all filings, consents and other requirements necessary for consummation of the Acquisition, and will keep the other parties apprised with respect to the matters related thereto.

The Agreement provides for an exclusivity period terminating upon the closing of the Acquisition.

Other covenants of the parties include:

Conditions to Closing

General Conditions

Consummation of the Agreement and the acquisition is conditioned on (a) no conflict with any applicable law or order; (b) no pending third-party action enjoining or otherwise restricting the closing; (c) the Tender Offer having been duly completed; and (d) there being one or more valid exemptions to registration of the issuance of the Transaction Consideration, and dissolution and liquidation of KBS following the closing.

Company’s Conditions to Closing

The obligations of Aquasition to consummate the transactions contemplated by the Agreement, in addition to the conditions described above in the first paragraph of this section, are conditioned upon each of the following, among other things:

Warrantors’ Conditions to Closing

The obligations of the Warrantors to consummate the transactions contemplated by the Agreement, in addition to the conditions described above in the first paragraph of this section, are conditioned upon each of the following, among other things:

If permitted under applicable law, either Aquasition or the Warrantors may waive any inaccuracies in the representations and warranties made to such party in the Agreement and may waive compliance with any agreements or conditions for the benefit of itself or such party contained in the Agreement. However, the condition requiring that the holders of not more than 90% of Company’s public shares of common stock not be tendered in the Tender Offer may not be waived.

Indemnification

The Agreement provides for customary indemnification obligations on the part of Aquasition and the Warrantors. The indemnification obligations of the parties are capped at $1,000,000 and are generally subject to a minimum of $200,000 in indemnifiable losses.

Termination

In the event the closing has not occurred on or before August 1, 2014, the Agreement may be terminated by any party, without liability to the other parties, provided the party seeking to terminate is not in breach of the Agreement, in which case each party will bear its own expenses.

Either party may terminate the Agreement upon a material breach of the other party, provided such breach has not been cured within 10 days of notice thereof by the party seeking to terminate the Agreement, in which case the breaching party will pay the expenses of the non-breaching party.

Aquasition will be entitled to a termination fee of $4 million in the event that the board of directors of Target terminates the Agreement pursuant to the exercise of its fiduciary duties in order to accept or consummate a superior proposal.· Aquasition will pay Target a termination fee in the event that the condition to complete the Tender Offer cannot be completed, provided Aquasition’s inability to complete the Tender Offer is not due to the SEC not completing its review of the Tender Offer documents notwithstanding Aquasition’s efforts to complete the same.

The foregoing summary of the Agreement does not purport to be complete and is qualified in its entirety by reference to the actual Agreement, which is filed as Exhibit (d)(1) hereto, and which is incorporated by reference in this report.

Recommendation of Aquasition’s Board of Directors

Our board of directors has (i) approved our making the Offer, (ii) declared the advisability of the Acquisition, and (iii) determined that the Acquisition is in the best interests of Aquasition’s shareholders. If you tender your shares of Common Stock in the Offer, you will not be a shareholder of Aquasition after the Acquisition and, therefore, our board of directors recommends that you do not accept the Offer with respect to your Common Stock. The Board took into consideration that Target has a solid track record of consistent and high revenues. However, you must make your own decision as to whether to tender your Common Stock and, if so, how many shares of Common Stock to tender. In doing so, you should read carefully the information in this Offer to Purchase and in the Letter of Transmittal, including the purposes and effects of the Offer. See “The Offer — Purpose of the Offer; Certain Effects of the Offer.” You should discuss whether to tender your Common Stock with your broker or other financial advisor, if any. See “Risk Factors” for a discussion of risks that you should consider before deciding whether to participate in this Offer, and “The Acquisition—Pro forma Book Value” for a comparison of the tender offer price, the current market price, the price per share paid by the Founders, and the pro forma book value per share.

Advisors

Aquasition engaged the following to assist it with the Acquisition:

Regulatory Approvals

KBS, a Nevada company, wholly owns a British Virgin Islands company, which in turn wholly owns a Hong Kong company, which in turn wholly owns Hongri (Fujian) Sports Goods Co., Ltd. (the “WFOE”). The WFOE owns two subsidiaries in PRC. The relevant PRC authorities approved the corporate structure in 2011.

Since none of the parties signing the Agreement is a PRC company or citizen, no pre-approval of the Chinese government is required to complete the Acquisition.

After the Acquisition, however, the WFOE may be required to do post-event registrations with two Chinese government authorities: 1) at a local branch of the State Administration of Foreign Exchange (“SAFE”), when Aquasition provides funds to the WFOE (otherwise, these foreign funds cannot be used for the WFOE’s operations in China); and 2) depending on local practice, at a local branch of the Department of Commerce (“DOC”), to report the transaction between Aquasition and KBS, and to register the change of the WFOE’s owner from KBS to Aquasition. This registration is a routine process for every foreign owned Chinese company.

Interests of Certain Persons in the Acquisition

When you consider the recommendations of Aquasition’s board of directors in favor of the Acquisition and against the Offer, you should keep in mind that Aquasition’s pre-IPO shareholders, directors and officers (“Aquasition Inside Shareholders”) have interests in the Acquisition and Offer that may be different from, or in addition to, your interests as a shareholder. See “The Acquisition—Pro forma Book Value” for a comparison of the tender offer price, the current market price, the price per share paid by the Founders, and the pro forma book value per share.

Common Stock Held by Aquasition Inside Shareholders

Our founders own an aggregate of 1,437,500 shares of Common Stock that they purchased for $25,000, of which 50,000 shares were cancelled upon partial execution of the over-allotment option by the underwriters of our IPO, plus 368,000 placement units purchased for $3,680,000.

If the Acquisition is not consummated, Aquasition will be required to commence proceedings to dissolve and liquidate following distribution of the amounts in the Trust Account. There will be no distribution from the Trust Account with respect to Aquasition’s pre-IPO shareholders’ securities, which would expire worthless if the Acquisition is not completed. See “The Acquisition—Pro forma Book Value” for a comparison of the tender offer price, the current market price, the price per share paid by the Founders, and the pro forma book value per share.

Compensatory Arrangements for Board of Directors and Management

None of our directors or officers have received any cash compensation for services rendered to us during the years ended December 31, 2012 and 2013. We believe that because our officers and directors own an aggregate of 1,387,500 founders’ shares and 368,000 founders’ units, no compensation (other than reimbursement of out-of-pocket expenses) is necessary and such persons have agreed to serve in their respective role without compensation.

Immediately after the IPO, we began paying fees of $7,500 per month to Seacrest Shipping Co. Ltd., an agent of Remi Maritime Corp., an affiliate of our founders, and expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. Seacrest Shipping Co. Ltd. has agreed that after 4 months the monthly fee will begin to accrue and will only be payable thereafter upon completion of an acquisition transaction. This arrangement was agreed to by Seacrest Shipping Co. Ltd. for our benefit and is not intended to provide the founders compensation in lieu of a management fee or other remuneration because it is anticipated that the expenses to be paid by Seacrest Shipping Co. Ltd. will approximate the monthly reimbursement. As of May 30, 2014, we owed Seacrest Shipping Co. Ltd. an aggregate of $135,000 under this arrangement. We would not be able to repay this amount in the event that the Acquisition does not close.

Other than this $7,500 per month fee no compensation of any kind, including finder’s and consulting fees, will be paid to our officers, or directors, or any of their respective affiliates, for services rendered prior to or in connection with a business combination. However, our officers and directors and their respective affiliates will receive reimbursement for any reasonable out-of-pocket expenses incurred by them in connection with identifying, investigating and consummating a potential business combination with one of more target businesses. There are no limitations on the amount of expenses for which they can seek reimbursement, provided such expenses were incurred for our benefit. There will be no review of the reasonableness of the expenses by anyone other than our board of directors, which includes persons who may seek reimbursement, or a court of competent jurisdiction if such reimbursement is challenged. To the extent such out-of-pocket expenses exceed the available proceeds not deposited in the Trust Account, such out-of-pocket expenses would not be reimbursed by us unless we consummate our initial business combination. Since our IPO, our founders have, from time to time, advanced us funds to cover our operating expenses in exchange for promissory notes that are non-interest bearing and due upon the consummation of an acquisition transaction or our dissolution and liquidation. As of May 30, 2014, we had promissory notes due to our founders and their affiliates in the aggregate principal amount of $330,000. We would not be able to repay this amount in the event that the Acquisition does not close.

Officer and Director Liability

If we are unable to complete a business combination and are forced to dissolve and liquidate, our founders, by agreement, will jointly and severally indemnify us for all claims of contracted parties, to the extent we fail to obtain valid and enforceable waivers from such parties. Our board of directors has a fiduciary obligation to our shareholders to bring a claim against our founders to enforce their indemnification obligations.

Certain Other Interests in the Acquisition

In addition to the interests of our directors and officers in the Acquisition, you should keep in mind that certain individuals promoting the Acquisition have interests in the Acquisition that may be different from, or in addition to, your interests as a shareholder. The underwriters in the IPO agreed to defer payment of a portion of the underwriting discount equal to 2.5% of the gross proceeds, or $1,387,500. On May 30, 2014 the underwriters in the IPO agreed to reduce the deferred underwriting discount from $1,387,500 to $350,000. This amount will be held in trust and not released until the earlier to occur of (i) the completion of our initial business combination or (ii) our liquidation, in which case such proceeds will be distributed to the holders of Common Stock issued in our IPO, together with all other funds held in the Trust Account. We have asked the underwriter to forfeit any rights to or claims against such proceeds because a business combination was not timely completed.

Finder’s and Financial Services Agreements

On September 10, 2013, Aquasition entered into a Master Finder’s Fee Agreement (as amended from time to time, the “Finder’s Agreement”) with SNV Global Ltd. (“SNV”), pursuant to which SNV agreed to provide introductions to potential target companies to Aquasition, including KBS, among other services. Pursuant to an addendum to the Finder’s Agreement, dated February 26, 2014, the parties agreed that SNV would be entitled to a finder’s fee equal to 1.5% of the pre-closing equity value of Target to be paid in newly issued shares of the combined company, estimated to be 136,641 shares of acquisition common stock. This fee is payable if, and only if, an acquisition transaction with an introduced target is completed.

On May 8, 2014, Aquasition entered into an agreement (the “STRH Agreement”) with SunTrust Robinson Humphery, Inc. (“STRH”), pursuant to which STRH will provide Aquasition certain financial advisory services in connection with the Acquisition. Pursuant to the STRH Agreement, STRH will be entitled to a cash fee equal to $1,250,000 upon completion of an acquisition transaction prior to August 1, 2014 or during the term of STRH’s engagement. If an acquisition transaction is not completed within such period, then for a period of 24 months thereafter, if Aquasition is entitled to a breakup fee related to an acquisition transaction, then STRH will be entitled to 10% of any such breakup fee. In addition, Aquasition will reimburse STRH its out-of-pocket expenses related to the STRH Agreement, up to a maximum of $50,000.

On May 12, 2014, Aquasition entered into an agreement (the “EBC Agreement”) with Early Bird Capital, Inc. (“EBC”), pursuant to which EBC will provide Aquasition certain financial advisory services in connection with the Acquisition. Pursuant to the EBC Agreement, EBC will be entitled to a cash fee equal to $200,000, equity fee in the amount of 35,000 newly issued shares of the combined company, and an additional fee equal to 4% of the amount of the gross proceeds held in the trust account at closing of the Acquisition (after the payment of the tender offer consideration and excluding amounts attributable to Aquasition’s sponsors or investors introduced by such sponsors), all payable upon closing of the Acquisition. In addition, Aquasition will reimburse EBC its out-of-pocket expenses related to the EBC Agreement.

Reduction of Deferred Underwriting Discounts and Commissions

On May 30, 2014, Aquasition and the underwriter of its IPO agreed to reduce the amount of deferred underwriting discounts and commissions payable to the underwriter upon closing of the Acquisition from $1,387,500 to $350,000.

Accounting Treatment

The Acquisition is being accounted for as a reverse acquisition. Under this method of accounting Aquasition will be treated as the “acquired” company for financial reporting purposes. This determination was primarily based on Target comprising the ongoing operations of the combined entity, Target’s senior management comprising the senior management of the combined company, and KBS having a majority of the voting power of the combined entity. In accordance with guidance applicable to these circumstances, the acquisition will be considered to be a capital transaction in substance. Accordingly, for accounting purposes, the Acquistion will be treated as the equivalent of Target issuing stock for the net assets of Aquasition, accompanied by a recapitalization. The net assets of Aquasition will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Acquisition will be those of Target.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF AQUASITION

Overview

We are a blank check company formed on January 26, 2012, pursuant to the laws of the Republic of the Marshall Islands for the purpose of acquiring through a merger, capital stock exchange, asset acquisition, stock purchase, or similar acquisition transaction, one or more operating businesses or assets. Our Amended and Restated Articles of Incorporation and by-laws do not limit us to a particular geographic region or industry. To date, our efforts have been limited to organizational activities and a search for suitable businesses or assets to acquire.

On March 24, 2014, the Company entered into the Agreement with KBS Target and the Principal Stockholder. See Note 8 in the accompanying financial statements of Aquasition Corp.

Pursuant to the Agreement the Acquisition is expected to be consummated after the required tender offer and the fulfillment of certain other conditions, as described in our Report on Form 6-K furnished on April 4, 2014 and in the Agreement.

Results of Operations and Known Trends or Future Trends

We have neither engaged in any operations nor generated any revenues to date. Our entire activity since inception up to the closing of our IPO was in preparation of that event. After the IPO, our activity has been limited to the evaluation of acquisition transaction candidates, and we will not be generating any operating revenues until the closing and completion of our initial acquisition transaction. We expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. We expect to generate small amounts of non-operating income in the form of interest income on cash and cash equivalents. Interest income is not expected to be significant in view of current low interest rates on risk-free investments (treasury securities).

We had a net loss of $375,991 during the year ended December 31, 2013. The net loss was mainly the result of operating activity, which was principally comprised of $105,889 of travel, $90,000 of rent expense, $64,796 of legal and professional fees and a loss of $45,442 related to the change in the fair value of warrants.

We had a net loss of $3,108,717 for the period from January 26, 2012 (inception) through December 31, 2012. The net loss was mainly the result of a loss of $3,064,114 related to change in the fair value of warrants, $15,296 of travel and $15,000 of rent expense.

We classify the warrants issued as liabilities at their fair value and adjust the warrant instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the statement of operations.

Until we enter into an acquisition transaction, we will not have any revenues.

Immediately after the IPO, we began paying fees of $7,500 per month to Seacrest Shipping Co. Ltd., an agent of Remi Maritime Corp., an affiliate of our founders, and expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. Seacrest Shipping Co. Ltd. has agreed that after 4 months the monthly fee will begin to accrue and will only be payable thereafter upon completion of an acquisition transaction. The Company incurred rent expense of $90,000 and $15,000 under this arrangement for the year ended December 31, 2013 and for the period from January 26, 2012 (inception) through December 31, 2012, respectively.

Liquidity and Capital Resources

On February 27, 2012, the Company issued an aggregate of $85,650 unsecured promissory notes to its officers and directors. The notes were non-interest bearing and payable on December 31, 2012. In addition, an officer advanced to the Company an additional $95,934. Due to the short-term nature of the notes and advances, the fair value of the notes and advances approximated the carrying amount. Such advances were non-interest bearing and were due on demand. During 2012, the Company repaid $50,000 of the unsecured promissory note and $76,680 of the advance. During the year ended December 31, 2013, the Company repaid $35,650 of the unsecured promissory note. During the year ended December 31, 2013, an affiliate advanced the Company $50,650. The advance is non-interest bearing and is due on demand. As of December 31, 2013 and 2012, amounts owed under the promissory notes were $0 and $35,650, respectively, and amounts owed under the advances were $69,904 and $19,254, respectively.

On November 1, 2012, we consummated our IPO of 5,000,000 units. Each unit issued in the IPO (the “Units”) consists of one share of common stock and one warrant. Each warrant entitles the holder to purchase one share of common stock at a price of $11.50. Immediately prior to the consummation of the IPO, we completed a private placement of 337,750 Units to our founding stockholders generating gross proceeds of $3,377,500. On November 7, 2012, the underwriters of the IPO exercised their over-allotment option in part, for a total of an additional 550,000 Units (over and above the 5,000,000 Units sold in the IPO). Our founding stockholders acquired an additional 30,250 Units at $10.00 per Unit, generating gross proceeds of $302,500, in accordance with the terms of the private placement agreement entered into immediately prior to the IPO to ensure that the amount of funds initially held in the trust account is equal to $10.30 per unit sold in the IPO. The 5,550,000 Units sold in the IPO, including the 550,000 Units subject to the over-allotment option, were sold at an offering price of $10.00 per Unit, generating gross proceeds of $55,500,000. A total of $57,165,000, which includes a portion of the $3,680,000 of proceeds from the private placement of Units to the founding stockholders, has been placed in trust. On January 23, 2013, the common stock and warrants underlying the units sold in the IPO began to trade separately.

The net proceeds from the sale of our Units, after deducting certain offering expenses of $1,812,208, including underwriting discounts of $1,387,500, were $57,367,892. $57,165,000 of the proceeds from the IPO and the private placement was placed in a trust account for our benefit. The trust account contains $1,387,500 of the underwriter’s compensation which will be paid to them only in the event of an acquisition transaction. On May 30, 2014 the underwriters in the IPO agreed to reduce the deferred underwriting discount from $1,387,500 to $350,000. Except for interest that is earned on the funds contained in the trust account that may be released to us to be used as working capital, we will not be able to access the amounts held in the trust until we consummate an acquisition transaction. The amounts held outside of the trust account are available to be used by us to provide for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. During the year ended December 31, 2013 and for the period from January 26, 2012 (the date of our inception) through December 31, 2012, we had operating expenses of $338,521 and $48,388, respectively. The net proceeds deposited into the trust fund remain on deposit in the trust account earning interest. As of December 31, 2013 and 2012, we had $57,168,785 held in the trust account, which includes deferred underwriting fees of $350,000. Additionally, as of December 31, 2013, we have $27,918 outside the trust account to fund our working capital requirements.

We will use substantially all of the net proceeds of the IPO to acquire a target business, including identifying and evaluating prospective acquisition candidates, selecting the target business, and structuring, negotiating and consummating the acquisition transaction. To the extent that our capital stock is used in whole or in part as consideration to effect an acquisition transaction, the proceeds held in the trust account as well as any other net proceeds not expended will be used to finance the operations of the target business.

We anticipate that in order to fund our working capital requirements, we will need to use all of the remaining funds not held in the Trust Account, the interest earned on the funds held in the Trust Account, as well as entering into contingent fee arrangements with our vendors. We will need to raise additional capital through loans or additional investments from our Founders or third parties. None of our Founders are under any obligation to advance funds to, or to invest in, us. Accordingly, we may not be able to obtain additional financing. If the we are unable to raise additional capital, we may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of our business plan, and reducing overhead expenses. We cannot provide any assurance that new financing will be available to us on commercially acceptable terms, if at all. These conditions raise substantial doubt about our ability to continue as a going concern.

It is also possible that we could use a portion of our working capital, including the funds not in the trust account, to make a deposit, down payment or fund a “no-shop” provision with respect to a particular proposed acquisition transaction. In the event we were ultimately required to forfeit such funds, we may not have a sufficient amount of working capital available to pay expenses related to finding a suitable acquisition transaction without securing additional financing. If we were unable to secure additional financing, we would most likely fail to consummate an acquisition transaction in the allotted time and would be forced to liquidate.

Quantitative and Qualitative Disclosures about Market Risk

The net proceeds of our IPO, including amounts in the trust account, are and will be invested in U.S. “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 180 days or less. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.

Off-balance Sheet Arrangements; Commitments and Contractual Obligations

As of December 31, 2013, we did not have any off-balance sheet arrangements and did not have any commitments or contractual obligations.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE TARGET COMPANIES

Overview

Target is engaged in the design, development, marketing and sale of casual menswear in China, including apparel and accessories, which we market under the KBS brand. The KBS brand was developed in 2006. Before 2012, Target was engaged in the design, development, marketing and sale of fashion sportswear in China. Since its products feature a unique and stylish design that is more fashionable than traditional sportswear, as well as quality fabrics and materials and the sportswear market was getting more and more competitive, Target’s management decided to focus on casual menswear market which has higher profit margin, in late 2011.Target’s apparel products include cotton and down jackets, sweaters, shirts, T-shirts, Jeans and trousers. Accessories include shoes, bags, belts and caps. In 2013, the suggested retail prices of Target’s products ranged from RMB 168 to RMB 1,699 for its apparel products and RMB 15 to RMB 599 for its accessory products. Target holds new products launch conference twice every year, one in Spring and the other in Autumn. Since 2006, Target has launched 450 collections of new products each year with a different theme to highlight the current trends for the season. Target’s marketing concept is “French origin, Korean design and made for Chinese.” Target’s customers are male middle-class consumers in the 20-40 age range, primarily located in tier two and tier three cities in China. Target has adopted “KBS” as a uniform brand name, which stands for “Keep Best Style”, and image for all stores in its distribution network and on all products sold in those stores. Target believes that the KBS brand has become a recognized brand name in the cities where their products are sold.

Target has established a nationwide distribution network covering 14 of China’s 32 provinces and centrally administered municipalities. As of December, 2013, this network was comprised of 18 corporate stores owned and operated by Target and 96 franchised stores operated by 23 third-party distributors or their sub-distributors. The number of stores has grown significantly in recent years, from 1 corporate store and 7 franchised stores as of December 31, 2006 to 31 corporate stores as of December 31, 2012 and 96 franchised stores as of December 31, 2013. In 2013, Target closed 13 corporate stores in order to maximize the store operating efficiency. Target is closing corporate stores in tier one and tier two cities where rent expenses are increasing quickly. Developing corporate stores is one of Target’s strategies to attract more distributors to join its franchised program. It also facilitates Target’s efforts to improve its brand image. Target plans to open more stores in the 3 ^rd tier cities by 2015 where the rent expenses are relatively low and consumer purchasing power, however, is increasing. Target expects to spend around $21 million to develop its stores and distribution network and $17 million in its 2nd phase production facilities in 2015. In the long term, Target expects to spend approximately $50 million to complete the remaining phases of its production facilities by 2018.

In the years ended December 31, 2013 and 2012, sales from Target’s corporate stores accounted for 19.2% and 43.7% of its revenues, respectively, and sales made to distributors accounted for 78.5% and 52.4% of its revenues, respectively. The increase in revenue from distribution sales and the decrease in revenue from corporate store sales reflects a shift in focus on the distribution business as a result of significant increase in rent expense associated with corporate stores in 2013. On the contrary, the franchised store operators often own the stores and as a result, do not face rent increases. Even if they do not own the stores, many distributors have good relationships with local malls where the stores are located and their rent expenses usually do not increase to the same extent as Target’s corporate stores. Target acts as an original design manufacturer, or ODM, upon request. Income from such services accounted for 2.3% and 3.9% of revenue for the years ended December 31, 2013 and 2012, respectively. By the end of 2015, it plans to increase its corporate stores and franchised stores to 48 and 196, respectively. Target intends to rely on cash on hand and anticipated cash flow from its operations to fund the project.

Relocated from Shishi City, Fujian, China in March 2011, Target’s production facility is currently located in Taihu City in Anhui Province, China. The facility has a production capacity of 2 million pieces per year and is on a year-on-year renewable lease basis. Target believes that the shortage of labor and rising wage expectations in China, especially in the coastal area, could have a material impact on Target’s operations as well as its suppliers’ cost of manufacturing. By relocating from the coastal area to inland Anhui Province, Target’s new facility takes advantage of lower labor costs and a more stable labor supply. Since Target’s original production team was not ready to produce the new style KBS products, Target has outsourced its product manufacturing to other established ODM manufacturers. As such, Target’s own production facility in Taihu mainly takes ODM orders from other sportswear companies, like Xtep. Target is acquiring land adjacent to its current facility consisting of 110,557 square meters to build a new facility. Target obtained a portion of such land use rights for two pieces of land of 7,405 square meters and 2,440 square meters on March 19, 2012 and May 28, 2012, respectively and is in the process of obtaining approval from the relevant government bureau for the remaining land use right transfer. Once completed, total production capacity of the facility is expected increase to 20 million pieces per year from the current capacity of 2 million pieces per year. Due to the local government’s need for additional time to conclude negotiations with local residents over appropriate resettlement terms, the timeline of the construction of the adjacent facility has been delayed. Target will schedule its construction plan once it acquires the land use right and expects the construction of new production facilities to be completed by 2018. Due to the local government’s need for additional time to conclude negotiations with local residents over appropriate resettlement terms, the timeline of the construction of the adjacent facility has been delayed. Target does not greatly rely on its production facility to satisfy the demand of its products as it may outsource most of the production work to various ODM manufacturers in China. At the same time, building its own factory will give Target assurance to maintain some control over its production process in the longer term.

Principal Factors Affecting Target’s Financial Performance

Target’s operating results are primarily affected by the following factors:

Aside from achieving long-term revenue growth, Target’s future results of operations will depend on Target’s ability to: (i) accurately forecast product demand and match demand to manufacturing capacity; (ii) reduce production costs by focusing on cost-efficient manufacturing processes and cost-effective product design that strives to eliminate waste; (iii) control selling and administrative expenses; and (iv)improving working capital efficiency.

Target believes that the global economic crisis and macroeconomic trends could continue to put significant pressure on consumer spending in most markets worldwide, so Target’s future performance remains subject to the inherent uncertainty presented by volatile macroeconomic conditions. These conditions could continue to affect Target’s business in a number of direct and indirect ways, including lower revenues from decreased product demand, compressed margins and/or increased costs, lack of credit availability and business disruptions due to difficulties experienced by suppliers and customers. Target strives to position ourselves, from both a financial and an operational perspective, as a company that can react quickly and adapt effectively to evolving macroeconomic conditions, fluctuations in product demand and changes in liquidity and capital demands.

Taxation

Target is subject to United States federal income tax at a tax rate of 35%. No provision for income taxes in the United States has been made as Target has no income taxable in the United States.

Hongri BVI and Roller Rome were incorporated in the BVI and under the current laws of the BVI, are not subject to income taxes.

Vast Billion and France Cock were incorporated in Hong Kong and under the current laws of Hong Kong, are subject to Profits Tax of 16.5%. No provision for Hong Kong Profits Tax has been made as Vast Billion and France Cock have no taxable income.

Under the EIT Law, Hongri PRC is subject to an earned income tax of 25.0% . See “Target’s Business—Regulation—Taxation” and “—Dividend Distribution” for a detailed description of the EIT Law and tax regulations applicable to Hongri PRC.

Results of Operations

Financial Statement Presentation

Net sales.  During the periods covered by this section, Target generated revenue from sales of Target’s menswear products.

Cost of sales . During the periods covered by this section, Target’s cost of sales primarily consisted of the costs of Target’s outsourcing cost, raw materials, labor and overhead. Target did not have any inward or outward freight charges as these charges are borne by Target’s distributors and Target’s suppliers.

Gross profit and gross margin . For the periods covered by this section, Target’s gross profit is equal to the difference between Target’s net sales and Target’s cost of sales. Target’s gross margin is equal to Target’s gross profit divided by net sales. Target’s gross margin may not be comparable to those of other retail entities since some retail entities include all of their distribution network costs in cost of sales and others, like us, include these expenses in another statement of operations line item.

Administrative expenses . For the periods covered by this section, general and administrative expenses consisted primarily of compensation and benefits to Target’s general management, finance and administrative staff, professional advisor fees, audit fees and other expenses incurred in connection with general operations.

Selling expenses . For the periods covered by this section, Target’s selling and marketing expenses consisted primarily of compensation and benefits to Target’s sales and marketing staff, store rent, business travel, coordination with distributor marketing and promotions, transportation costs and other sales related costs.