LightInTheBox (NYSE: LITB) sets today’s IPO price at $9.50 per ADS, raising $78.85 million. It gives the company a market value of approximately $465 million.
Founded in 2007, the company is an online retailer best-known for low-priced, made-in-China wedding dresses and other fashion and lifestyle goods.
In 2012, 98% of its total orders were from outside China. In Q1 2013, 64.7%, 19.8% and 7% of its net revenues are from Europe, North America and South America, respectively.
It reported $200 million in sales in 2012, with $2.23 million in net loss. It managed to turn a profit from Q4, 2012. As of March 31, 2013, it had approximately 1.1 million customers.
LightInTheBox Holding Co., Ltd. was incorporated in the Cayman Islands, as its ultimate holding company, in March 2008. It conducts operations through the Hong Kong subsidiary, Light In The Box Limited, and the PRC subsidiary, Lanting Jishi.
Before the initial public offering it raised four rounds of funding previously. The angel round was from Xu Xiaoping, an angel investor and co-founder of New Oriental Education&Technology, and Zhou Zhe, an early employee with Google. In 2008, Ceyuan Venture invested $5 million in it. $11. 27 million series B funding was from GSR Ventures and Ceyuan Venture in 2009. The two was joined by Trust Bridge Partnersin the latest round, $35 million, in 2010.
image credit: blog.freeshipping.com
LITB vague disclosure, tax evasion, illegal settlement, financial fraud
Chapter 1: LITB’s Illegal Export and Tax Evasion
LITB’s fuzzy disclosure is aimed to covering his trade with illegal underground banks to pay his Chinese suppliers through illegal foreign exchange and remittance, trying to evade export tariffs of Chinese goods, resulting in unfair competition and negative impact against retail industries of the United States, Europe and other countries.
1. illegal Export: LITB’s parcels export is actually goods export; however his export behavior does not comply with regulations listed in the Republic of China’s exports law, who has never ever provided qualified goods inspection report or certification to any of departments in customs and never gone through customs declaration or customs clearance. They skillfully skip all processes required by customs by exporting in the name of personal packages operated by private courier companies rather than in the name of LITB Company as commercial goods parcels.
2. Tax Evasion: LITB pay their Chinese suppliers through illegal underground banks, successfully evaded tax regulated by customs as mentioned above. The thing is that their suppliers have not either paid taxes for their goods. And it is totally Tax 0 by this operation and definitely tax evasion.
Chapter 2: Illegal Settlement through HK Underground Banks
1. As LITB’s Disclosure in F1 Page 125: ‘we use sourcing agents located in Hong Kong to settle payments and delivery with many of our suppliers. Our payments are made directly to such agents and thus are not subject to the jurisdictions of PRC foreign exchange laws and regulations.’ In reality, most of procurement capital of LITB was paid to his Chinese suppliers by the three main companies in Hong Kong, but curiously none of these companies’ name was disclosure in LITB’s Prospectus
2. In reality, the three main companies are actually LIBT’s underground banks partners rather than sourcing companies as disclosure, and they do not have implemented any supplier management function at all.
3. The three companies are highly suspected as underground banks or underground money exchangers. They adopt underground channels to convert LITB’s USA dollar income into RMB and pay his Chinese suppliers’ procurement capital. And they did skillfully evade regulation of Chinese Customs and China SAFE. LITB’s suppliers are suspected of export tax evasion and unfair competition. The three companies are not LITB’s sourcing companies but his underground banks, whose function is to illegal payment settlement and remittance.
4. Moreover, the three companies are actually combined with LITB’s management board and these transactions are convinced to be inside trade. There is high risk in there since they make huge profits by charging suppliers unreasonable transaction fee and exchange rate difference.
Chapter 3: LITB Financial Fraud, Revenue Fraud and Accounting irregularity
1. LITB’s revenue comes from three websites http://www.lightinthebox.com. http://www.ouku.com and http://www.miniinthebox.com but in F1 of prospectus none of specific income ratio of the three companies were listed.
2. LITB’s acquisition with http://www.ouku.com was convinced to be inside trade since it is LITB’CEO had this deal with his former colleague in Google. http://www.ouku.com is a Chinese website, whose targeted customers and market is in China and its business model and pattern are greatly different compared with http://www.lightinthebox.com, which make it difficult to be regulated and understood by investors.
3. LITB has successfully inflated his sales by lending his own DHL, UPS etc logistic accounts to third party logistics companies to use and the shipping fee were inflated and were accounted to LITB’s revenue.
4. Accounting irregularity : Huge difference exists between LITB website sale revenue disclosure and his internal financial statements. If inflated revenue were assumed from http://www.ouku.com and http://www.minithebox.com , then LITB’s disclosure of each category’s sales proportion contribution can not hold the water. Accordance with his internal financial documents, LITB’s sales revenue should be as follows:
February 2012 sales revenue of USD 7,360,427
March 2012 sales revenue of USD 10,010,196
April 2012 sales revenue of USD 10,938,983
May 2012 sales revenue of USD9, 718,439
June 2012 sales revenue of USD8, 267,943
Disclosed in Prospectus
2012 Q1 sales revenue: USD 36,887,000
2012 Q2 sales revenue: USD 47,317,000
The two group’s data are just too much different.