[PrivCoTeam]

PrivCo has absolutely NO short positions in any private company we cover. These are PRIVATE companies and with rare exception do not trade. Nor do we earn any fees from private companies we cover (and we do NOT accept paid advertising, unless you count a the standard Google links).

We have no agenda other than to try and publish facts, and what LivingSocial announced yesterday immediately struck us as misleading and fishy based on everything we knew about the company and it's dire financials. The press release and memo to employees (imagine you are one of those trusting hardworking employees, or a local daily deals merchant they owe money to "soon") - over $300 Million worth actually, but have only $76 million - made it seem as if the company was doing so well financially that their happy investors who had invested at a $5.7 Billion valuation wanted to double down on their investments and bet even bigger. NOTHING WAS FURTHER FROM THE TRUTH. The company was NOT doing fine, lost over $400 Million last year, was running low on cash, and had to take a massive valuation haircut and grant all sorts of special preferences in order to get this last lifeline of cash.

Their financials can't be papered over...and they verified to the penny as public Amazon.com owns 31% now of the company. Look them up...if you know anything about finance or accounting you will reach the same conclusions as PrivCo did. LivingSocial will soon require mass layoffs, and will be insolvent or sold for pennies on the dollar by the end of this year is our prediction. (And we hope we're wrong, and don't make a dime either way, as we don't want to see 4,000 trusting employees lose their jobs).

But the numbers don't lie and we stick by our prediction.

The PrivCo Team www.privco.com

[btilly]

Nobody is debating whether LivingSocial has a world of problems.

We're debating the veracity of all of the non-public details that made your report interesting. Well, in theory we are. Only one side of the debate seems to have showed up.

[PrivCoTeam]

CNN/Fortune story just updated again to say insiders confirm that LivingSocial was down to JUST $28M IN CASH in February right before taking yesterday's financing.

Do the math: looking at their 2012 financials on PrivCo: http://www.privco.com/livingsocial-receives-emergency-110m-c...

That is, LivingSocial's operating expenses are about $1.4 Billion/year (Revenue + Operating loss = about $1.4 Billion they spend a year). That's $120 Million a month of expenses. $4 million a day. MEANING NEW FORTUNE/CNN UPDATE to their story confirms LIVINGSOCIAL WAS DOWN TO JUST 7 DAYS OF CASH! How is that NOT the very definition of a "distressed financing" situation? Correct the record CNN and Fortune - shame on you - and admit when you're wrong - (and by the way they just deleted this posting from the article comments). LivingSocial was down to a dangerously low level of cash just as PrivCo's sources confirmed, only a week, maybe 2, left, before paychecks would start bouncing and the whole house of cards came down. This is the very definition of a "distressed financing."

[btilly]

Take out the $600 million non-cash "goodwill" item they wrote down, and you've got $800 million per year operating expenses. That ups them to nearly 2 weeks.

But they have been trying to get profitable. So they have been cutting expenses and adding revenue. This deal would not be possible without that. Therefore they likely are not losing money as fast as in 2012. So a month or more of runway is perfectly believable.

Next, expenses and revenue tend to come in on different schedules. If that is cash right after you've paid employees, and you have revenue booked but not realized yet, you're in a much better position than if those two are reversed. That could easily add another month.

The result? I suspect CEO's claim of "several months" is possible, but likely optimistic. However I would be shocked if your "7 days" is in the right ballpark. But there is an easy way to check. If you're right, they should have run through this investment inside of 2 months, 3 months tops.