Groupon, Inc.
Groupon, Inc. (Form: 8-K, Received: 01/02/2014 16:12:38)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): January 2, 2014
 
GROUPON, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
Delaware
(State or other
jurisdiction
of incorporation)
 
1-353335
(Commission
File Number)
 
27-0903295
(I.R.S. Employer
Identification No.)

 
 
 
 
600 West Chicago Avenue, Suite 400
Chicago, Illinois
 (Address of principal executive offices)
 
60654
(Zip Code)
 
312-676-5773
(Registrant's telephone number, including area code)
 
N/A
(Former name or former address, if changed since last report)
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o             Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o             Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o             Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o             Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






Item 1.01. Entry into a Material Definitive Agreement.
On January 1, 2014, Groupon, Inc. (the "Company") entered into Amendment No. 2 to the Share Purchase Agreement (the "Amendment") by and among the Company, Groupon Trailblazer, Inc. ("Groupon Trailblazer"), LivingSocial, Inc. ("LivingSocial"), and LivingSocial, B.V. ("LivingSocial B.V."). The Amendment was entered into in connection with the previously reported Share Purchase Agreement, dated as of November 6, 2013 (the "Share Purchase Agreement"), and Amendment No. 1 to the Share Purchase Agreement, dated as of November 26, 2013, by and among the Company, Groupon Trailblazer, LivingSocial and LivingSocial B.V., pursuant to which Groupon Trailblazer will acquire (the "Acquisition") all of the issued and outstanding share capital of LivingSocial Korea, Inc. ("LS Korea"), the holding company of Ticket Monster Inc. ("Ticket Monster").
Pursuant to the Amendment, the parties agreed that LivingSocial will provide certain post-closing support to the Company in the preparation of certain financial statements of LS Korea for the quarter and year ended December 31, 2013.  The parties also agreed that LivingSocial may sell the shares of Class A common stock that it will receive as consideration for the transaction in an underwritten offering, and that LivingSocial will be responsible for certain expenses in connection therewith.
The foregoing description of the Amendment is qualified in its entirety by reference to the full text of the Amendment which is attached to this Current Report on Form 8-K as Exhibit 2.1 and incorporated herein by reference in its entirety. The Amendment has been attached to provide investors with information regarding its terms. It is not intended to provide any other factual information about the Company, Groupon Trailblazer, LS Korea or Ticket Monster.
Item 2.01. Completion of Acquisition or Disposition of Assets.
On January 2, 2014, the Company and Groupon Trailblazer completed its previously reported acquisition of LS Korea pursuant to a Share Purchase Agreement, dated November 6, 2013, as amended, by and among the Company, LivingSocial and LivingSocial B.V.
A copy of the Share Purchase Agreement was attached as Exhibit 2.1 to the Company's Form 8-K filed on November 7, 2013 and a copy of Amendment No.1 to the Share Purchase Agreement was attached as Exhibit 2.1 to the Company's Form 8-K filed on November 29, 2013. The Company entered into Amendment No.2 to the Share Purchase Agreement on January 1, 2014, a copy which is attached to this Current Report on Form 8-K as Exhibit 2.1 and incorporated herein by reference.
Item 3.02. Unregistered Sales of Equity Securities.
The information contained in Item 2.01 is hereby incorporated into this Item 3.02. In accordance with the Share Purchase Agreement, as amended, a portion of the consideration to be delivered to the former stockholders of LS Korea consists of shares of the Company's Class A common stock. These shares of the Company's Class A common stock will be issued pursuant to exemptions from registration provided by Section 4(2) and/or Regulation D and/or Regulation S of the 1933 Securities Act, as amended.
Item 7.01. Regulation FD Disclosure.
            On January 2, 2014, the Company posted a series of questions and answers regarding the Acquisition to the Company’s Investors Relations website.  A copy of the document is attached as Exhibit 99.2 to this Current Report on Form 8-K.
             This information shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.





Item 9.01. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
The unaudited condensed consolidated financial statements of LivingSocial Korea, Inc. as of September 30, 2013 and for the nine months ended September 30, 2013 and 2012 and the related notes thereto are filed as Exhibit 99.3 hereto.
The audited consolidated financial statements of LivingSocial Korea, Inc. as of December 31, 2012 and 2011 and for the year ended December 31, 2012 and the period from July 1, 2011 (inception) through December 31, 2011 and the related notes thereto are filed as Exhibit 99.4 hereto.
The audited consolidated financial statements of Ticket Monster Inc. for the period from January 1, 2011 through September 16, 2011 and for the period from February 1, 2010 (inception) through December 31, 2010 and the related notes thereto are filed as Exhibit 99.5 hereto.
(b) Pro forma financial information.
The unaudited pro forma condensed combined consolidated financial statements of Groupon, Inc. and LivingSocial Korea, Inc. as of and for the nine months ended September 30, 2013 and for the year ended December 31, 2012 and the related notes thereto are filed as Exhibit 99.6 hereto.





(d) Exhibits.
Exhibit No.
 
Description
 
 
 
2.1
 
Amendment No. 2 to the Share Purchase Agreement, dated as of January 1, 2014, among Groupon, Inc., Groupon Trailblazer, Inc., LivingSocial, Inc. and LivingSocial, B.V.
23.1
 
Consent of Samil PricewaterhouseCoopers, Independent Auditor of LivingSocial Korea, Inc. and Ticket Monster Inc.
99.1
 
Press Release Dated January 2, 2014.
99.2
 
Questions and Answers regarding the Acquisition of LivingSocial Korea, Inc.
99.3
 
Unaudited condensed consolidated financial statements of LivingSocial Korea, Inc. as of September 30, 2013 and for the nine months ended September 30, 2013 and 2012 and the related notes thereto.
99.4
 
Audited consolidated financial statements of LivingSocial Korea, Inc. as of December 31, 2012 and 2011 and for the year ended December 31, 2012 and the period from July 1, 2011 (inception) through December 31, 2011 and the related notes thereto.
99.5
 
Audited consolidated financial statements of Ticket Monster Inc. for the period from January 1, 2011 through September 16, 2011 and for the period from February 1, 2010 (inception) through December 31, 2010 and the related notes thereto.
99.6
 
Unaudited pro forma condensed combined consolidated financial statements of Groupon, Inc. and LivingSocial Korea, Inc. as of and for the nine months ended September 30, 2013 and for the year ended December 31, 2012 and the related notes thereto.







SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
GROUPON, INC.
 
 
 
 
 
 
Dated: January 2, 2014
By:
/s/ Jason E. Child
 
Name:
Jason E. Child
 
Title:
Chief Financial Officer





Exhibit Index
Exhibit No.
 
Description
 
 
 
2.1
 
Amendment No. 2 to the Share Purchase Agreement, dated as of January 1, 2014, among Groupon, Inc., Groupon Trailblazer, Inc., LivingSocial, Inc. and LivingSocial, B.V.
23.1
 
Consent of Samil PricewaterhouseCoopers, Independent Auditor of LivingSocial Korea, Inc. and Ticket Monster Inc.
99.1
 
Press Release Dated January 2, 2014.
99.2
 
Questions and Answers regarding the Acquisition of LivingSocial Korea, Inc.
99.3
 
Unaudited condensed consolidated financial statements of LivingSocial Korea, Inc. as of September 30, 2013 and for the nine months ended September 30, 2013 and 2012 and the related notes thereto.
99.4
 
Audited consolidated financial statements of LivingSocial Korea, Inc. as of December 31, 2012 and 2011 and for the year ended December 31, 2012 and the period from July 1, 2011 (inception) through December 31, 2011 and the related notes thereto.
99.5
 
Audited consolidated financial statements of Ticket Monster Inc. for the period from January 1, 2011 through September 16, 2011 and for the period from February 1, 2010 (inception) through December 31, 2010 and the related notes thereto.
99.6
 
Unaudited pro forma condensed combined consolidated financial statements of Groupon, Inc. and LivingSocial Korea, Inc. as of and for the nine months ended September 30, 2013 and for the year ended December 31, 2012 and the related notes thereto.

    
    


Exhibit 2.1

AMENDMENT NO. 2 TO SHARE PURCHASE AGREEMENT
This Amendment No. 2 to SHARE PURCHASE AGREEMENT (this " Amendment ") has been entered into as of January 1, 2014, by and among LivingSocial , Inc. , a Delaware corporation (" LivingSocial "), LivingSocial , B.V. , a Netherlands limited liability company (" Seller "), Groupon , Inc. , a Delaware corporation (" Parent "), and Groupon Trailblazer , Inc. , a Delaware corporation (" Buyer "). LivingSocial, Seller, Parent, and Buyer are sometimes referred to herein as the " Parties " and each, individually, as a " Party ".
Recitals
A.    Reference is made to that certain Share Purchase Agreement dated as of November 6, 2013, as amended by Amendment No. 1 thereto, dated November 26, 2013 (the " Share Purchase Agreement "), by and among the Parties.
B.    Pursuant to Section 9.10 of the Share Purchase Agreement, the Parties desire to amend, restate and supplement certain provisions set forth in the Share Purchase Agreement.
C.    All capitalized terms used, but not otherwise defined, herein shall have the meanings ascribed thereto in the Share Purchase Agreement.
NOW, THEREFORE, the Parties hereto agree as follows:
Amendment
1. The following definitions shall be inserted into Section 1.1 of the Share Purchase Agreement in the proper alphabetical order:
"" Prospectus " has the meaning ascribed thereto in the Underwriting Agreement."
"" Underwriting Agreement " shall mean the proposed underwriting agreement among LivingSocial, Parent and Morgan Stanley & Co., LLC."
2. A new Section 4.2(d) is hereby added to the Share Purchase Agreement as follows:
(d)    Not intending to limit the foregoing, after the Closing Date but subject to the execution of the Underwriting Agreement and the filing of the Prospectus, LivingSocial shall:
(i)    (A) provide reasonable access upon reasonable advance notice at reasonable times during normal business hours to the information necessary to support Parent's preparation and completion by March 31, 2014 of audited consolidated financial statements of LS Korea, the Company and its Subsidiaries for the year ended December 31, 2013, as Parent may reasonably request, and (B) provide reasonable access upon reasonable advance notice at reasonable times during normal business hours to LivingSocial personnel who will cooperate with Parent personnel and auditors, as applicable, with respect to the preparation and completion of such financial statements; and
(ii)    provide as soon as practicable, but in no case later than January 31, 2014: (A) information and supporting documentation relied upon by LivingSocial to substantiate the value of the LivingSocial shares held by LS Korea as required by law, as of the date of receipt by LS Korea (in connection with the acquisition of the Company by LivingSocial and LS Korea), and (B) information and supporting documentation reasonably required for Parent to perform a formula-based calculation, under Korean Tax requirements, of the value of the LivingSocial shares held by LS Korea, as of the date of disposal by LS Korea, and (C) to the extent any valuations of LivingSocial have been performed on or around the date such LivingSocial shares were received by LS Korea or disposed of by LS Korea, LivingSocial shall use reasonable efforts to secure access to such valuation reports from its third party valuation consultant.
3. The following sentence is hereby added to the end of Section 4.15(d) of the Share Purchase Agreement:
"All incremental expenses (including reasonable attorney and auditor fees) incurred by Parent specifically attributable to the underwritten sale of the Parent Shares under the Underwriting Agreement shall be borne by the Selling Stockholder, up to an aggregate maximum of $300,000; provided that Parent shall pay $75,000 worth of such expenses (" Parent Share of Expenses ". Prior to the Closing, Parent shall provide the Selling Stockholder estimates of all such underwriting



Exhibit 2.1

expenses, which aggregate estimated underwriting expenses shall reduce the Closing Cash Payment, except that the Parent Share of Expenses shall not reduce the Closing Cash Payment. Following the Closing, Parent shall provide reasonable documentation to the Selling Stockholder evidencing the final amount of all such underwriting expenses, and Parent and the Selling Stockholder then shall reconcile and promptly pay the amounts, if any, owing to one another for such final underwriting expenses."
4. The second sentence of Section 4.15(n) of the Share Purchase Agreement is hereby amended and restated in its entirety to read as follows:
"Notwithstanding the foregoing, Seller will be permitted to sell in a single trading day more than ten percent (10%) of the ADTV; provided that such sales are carried out (i) by means of block trades of Parent Shares that in the aggregate are valued at least at One Hundred Million U.S. Dollars ($100,000,000) (or such lesser amount equal to the value of the Parent Shares actually delivered if Parent does not deliver Parent Shares valued at least at One Hundred Million U.S. Dollars ($100,000,000) pursuant to Section 2.2(a)(ii)), or (ii) pursuant to the Underwriting Agreement; provided further that (x) any such block trades made pursuant to subsection (i) are executed by JP Morgan Chase, Morgan Stanley or another dealer agreed to in advance by Parent and Seller, at a discount of no more than five percent (5%) to Parent’s prevailing share price at the time of such trade and Parent shall reasonably cooperate in any such sale, and (y) Parent shall reasonably assist and cooperate in any diligence efforts and trades to be made pursuant to the Underwriting Agreement, including by making its executive officers available for diligence interviews with Morgan Stanley and its counsel, entering into a lock-up for the reasonable period required by Morgan Stanley, causing its directors and officers to enter into a lock-up for the reasonable period required by Morgan Stanley, and executing and complying with the terms of the Underwriting Agreement."
5. Except as specifically set forth herein, the Share Purchase Agreement shall remain in full force and effect, and its provisions shall be binding on the Parties thereto. References in the Share Purchase Agreement or in any other document to the Share Purchase Agreement shall refer to the Share Purchase Agreement, as amended hereby.
6. This Amendment may be executed in one or more counterparts, all of which shall be considered one and the same instrument and shall become effective when one or more counterparts have been signed by each Party and delivered to the other Parties. Each counterpart may be delivered by facsimile transmission or e‑mail (as a .pdf, .tif or similar uneditable attachment), which transmission shall be deemed delivery of an originally executed counterpart hereof.
7. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE CONFLICTS OF LAWS RULES THEREOF.

[Signature page follows]



Exhibit 2.1


IN WITNESS WHEREOF , the undersigned have executed this Amendment No. 2 to Share Purchase Agreement as of the date first above written.

 
SELLER :

LIVINGSOCIAL, B.V.


By: /s/ Timothy O'Shaughnessy
Name: Timothy O'Shaughnessy
Title: Director A


By: /s/ Siti Strijbosch
Name: Siti Strijbosch
Title: Director B

 
LIVINGSOCIAL:

LIVINGSOCIAL, INC.


By: /s/ Timothy O'Shaughnessy
Name: Timothy O'Shaughnessy
Title: Chief Executive Officer

 
 
BUYER :

GROUPON TRAILBLAZER, INC.


By:   /s/ Jason Harinstein
Name: Jason Harinstein
Title: Senior Vice President
 
PARENT:

GROUPON, INC.

By:   /s/ Jason Harinstein
Name: Jason Harinstein
Title: Senior Vice President






Exhibit 23.1


CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-181854 and 333-177799) of Groupon, Inc. of our reports dated December 23, 2013 relating to the financial statements of LivingSocial Korea, Inc. and Ticket Monster Inc., which appear in the Current Report on Form 8-K of Groupon, Inc. dated January 2, 2014.



/s/ Samil PricewaterhouseCoopers
Seoul, Korea
January 2, 2014



Exhibit 99.1

Groupon Completes Acquisition of Ticket Monster

CHICAGO – Groupon (NASDAQ: GRPN) today announced it has completed the acquisition of Ticket Monster, a leading Korean ecommerce company, for $260 million in cash and stock.

As previously disclosed, the Ticket Monster brand and leadership team will remain in place and continue to be led by Daniel Shin, CEO of Ticket Monster. The company will maintain its headquarters in Seoul, where it employs approximately 1,000 employees.

As announced on November 7, 2013, Groupon has acquired LivingSocial Korea, Inc., the holding company that owns Ticket Monster. LivingSocial Korea's Malaysian subsidiary was divested prior to close and is not part of this transaction.

Per the terms of the agreement, the final allocation paid to LivingSocial, Inc. was $100 million in cash and $160 million in Groupon Class A common stock, subject to registration rights.

For the nine months ended September 30, 2013, LivingSocial Korea, Inc., excluding its Malaysian subsidiary, had gross billings of $572.7 million, revenue of $78.5 million, an operating loss of $38.7 million, and Adjusted EBITDA of $0.7 million.

For more information, visit Groupon's Investor Relations page at investor.groupon.com.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of Groupon securities in any state or jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.

Non-GAAP Financial Measures
In addition to financial results reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP), we have provided Adjusted EBITDA, a non-GAAP financial measure, in this release. This non-GAAP financial measure is presented to aid investors in better understanding the performance of the business that we acquired and to facilitate comparisons to many of its peers who present similar measures. However, this measure is not intended to be a substitute for measures reported in accordance with U.S. GAAP. This measure may be different from non-GAAP financial measures used by other companies, even when similar terms are used to identify such measures.

Groupon defines Adjusted EBITDA as net income (loss) excluding income taxes, interest and other non-operating items, depreciation and amortization, stock-based compensation, and acquisition-related expense (benefit), net. We exclude depreciation and amortization and stock-based compensation from this measure because they are primarily non-cash in nature and we believe that non-GAAP financial measures excluding these items provide meaningful supplemental information about operating performance and liquidity. We exclude other non-operating items and acquisition-related expense (benefit), net because we believe that non-GAAP financial measures excluding these items provide meaningful supplemental information about core operating performance and facilitate comparisons to historical operating results.




Exhibit 99.1

The following table reconciles the Adjusted EBITDA of LivingSocial Korea, Inc., excluding its Malaysian subsidiary that we did not acquire, to its Net Loss, which is the most applicable financial measure under U.S. GAAP, for the nine months ended September 30, 2013 (in thousands):

Adjusted EBITDA
$
682

Adjustments:
 
Stock-based compensation
(25,887
)
Acquisition-related expense (benefit), net

Depreciation and amortization
(13,470
)
Non-operating items:
 
Other expense, net
(514
)
Provision (benefit) for income taxes

Net Loss
$
(39,189
)
About Groupon
Groupon (NASDAQ: GRPN) is a global leader of local commerce and the place you start when you want to buy just about anything, anytime, anywhere. By leveraging the company’s global relationships and scale, Groupon offers consumers a vast marketplace of unbeatable deals all over the world. Shoppers discover the best a city has to offer on the web or on mobile with Groupon Local, enjoy vacations with Groupon Getaways, and find a curated selection of electronics, fashion, home furnishings and more with Groupon Goods. Groupon is redefining how traditional small businesses attract, retain and interact with customers by providing merchants with a suite of products and services, including customizable deal campaigns, credit card payment processing capabilities, and point-of-sale solutions that help businesses grow and operate more effectively. To search for great deals or subscribe to Groupon emails, visit www.Groupon.com. To download Groupon's five-star mobile apps, visit www.groupon.com/mobile. To learn more about the company’s merchant solutions and how to work with Groupon, visit www.GrouponWorks.com.

Media Contact
Groupon
Bill Roberts, 312-459-5191
billr@groupon.com


Exhibit 99.2

What is the strategic rationale for the Ticket Monster ("TMON") acquisition?
TMON is a great fit for Groupon and was attractive to us for many reasons -
Korea is one of the world’s largest economies, with a healthy and growing e-commerce sector and one of the world’s highest mobile penetration rates. The acquisition allows us to solidify a market-leading position in one of the world’s largest e-commerce markets.
TMON has been successful building what we have been working to build, with a strong brand, scale, and rapid topline growth, a truly mobile marketplace, with approximately half of billings driven by mobile, and their own Pull marketplace, with little reliance on email.
They have a strong management team with a track record of success, which will add nice depth to the Groupon team.
Their product suite closely aligns with our own, across product, local, and travel.
Overall, TMON will become the anchor of our Asian business, bringing scale, innovation, and e-commerce expertise to our existing operations.

What synergies are you anticipating as a result of the TMON acquisition?
Now that the transaction has closed, we will begin formally implementing our integration plans. As TMON is already a highly efficient operation, we do not anticipate material cost synergies.

How many employees does TMON have? Do you have retention mechanisms in place for critical talent?
TMON has about 1,000 employees, all of whom became Groupon employees effective immediately upon the close of the transaction. We are confident we will retain key talent.

What initial reactions have you seen or heard from customers and merchants? Do you expect any attrition?
TMON is one of the leading brands in Korea. Their relationships with customers and merchants will not be impacted as a result of this transaction, so we are not anticipating material changes.

What is TMON’s product mix?
Approximately 65% goods, 20-25% local, the remainder travel.

Why are TMON’s take rates lower than Groupon's take rates? Is there an opportunity to increase them?
TMON’s business mix is more heavily weighted toward product than that of Groupon. The margins of the product business are lower than their other businesses, similar to what we see in Groupon Goods. TMON’s margins also reflect the fact that the Korean market is a uniquely competitive market. We will work with TMON to continue to strengthen their business, but keep in mind that during the nine months ended September 30, 2013, they were able to reach breakeven on an Adjusted EBITDA basis, despite lower take rates.

Does TMON recognize revenue on a gross or a net basis?
The large majority of TMON’s revenue is recognized on a net basis (the revenue in the “Products” line on their P&L is recorded on a gross, or direct basis, the remainder is third-party and is recorded on a net basis). As with our own business, we will evaluate ways to do more deals on a direct basis over time.

Will you close Groupon’s Korea office?
With the transaction having just closed, we have now officially kicked off integration. No changes to our operations at this time.

How do we reconcile between your commentary that TMON is about breakeven on an Adjusted EBITDA basis, and the nearly $40 million operating loss reported for the nine months ended September 30, 2013?
Of the $38.7 million operating loss for the nine months ended September 30, 2013 (for LivingSocial Korea excluding the Malaysian subsidiary not acquired), $25.9 million is stock-based compensation, and $13.5 million is depreciation and amortization. Both of these non-cash items are excluded in Groupon’s calculation of Adjusted EBITDA. Excluding these items, LivingSocial Korea’s Adjusted EBITDA was close to breakeven. The full reconciliation of LivingSocial Korea’s net loss to Adjusted EBITDA is included in the press release issued today.

Why does Groupon view this as an attractive acquisition, when it would have negatively impacted your bottom line by $42 million for the nine-month period ended September 30, 2013?
Part of the loss is related to the amortization of intangible assets acquired, including trade names, subscriber and merchant relationships, and developed technology. These intangible assets are expected to be amortized on a straight-line basis over their useful lives, which range from 2 to 5 years. Until fully amortized, they will negatively impact our bottom line. In addition, a significant portion of LivingSocial Korea’s operating loss is related to stock-based compensation. Excluding these non-cash items, the company was about breakeven on an Adjusted EBITDA basis. This is quite an accomplishment for a company that is not yet

1

Exhibit 99.2

4 years old. As the company continues to grow, we expect that it will begin to contribute to Groupon’s Adjusted EBITDA growth, which we believe is a useful measure of the financial health of the business.

How many shares will you issue in connection with the transaction? How long is LivingSocial required to hold them?
We issued 13.8 million of Class A common shares in connection with the acquisition of TMON. This was calculated based on the average closing price of GRPN stock for the 10 trading days immediately prior to close.

The shares issued to LivingSocial are subject to registration rights. On January 3, 2014, we intend to file a registration statement for the shares issued to LivingSocial, pursuant to which LivingSocial will have the ability to sell their shares immediately, based on pre-agreed trading limits, if they so choose. LivingSocial may sell up to 10% of Groupon’s average daily trading volume (measured over the previous five trading days) per day in the open market. They may also arrange for block trades or for an underwritten sale of the shares without regard to this volume limitation, in the manner specified in the Share Purchase Agreement, as amended, filed with the SEC.

Any plans to increase your share repurchase program to offset the dilutive impact of the new shares?
No changes to announce related to the existing $300 million share repurchase authorization, which expires in August 2015.

Any changes to your guidance as a result of the transaction closing so close to the end of the quarter?
Our fourth quarter of 2013 included some costs related to the transaction. Outside of these costs, the acquisition had no impact on the fourth quarter. We are not updating or affirming the guidance that we gave on the earnings call on November 7, 2013.

How will your external reporting change as a result of this acquisition?
We do not currently have plans to change our segment reporting. We are always evaluating the best way to provide appropriate transparency into our business and will inform you of any expected changes.


Please direct additional questions to ir@groupon.com . The most commonly asked questions will either be posted here or addressed in connection with the company’s fourth quarter earnings call in February. Thank you.

Note on Forward-Looking Statements
This document contains forward-looking statements within the meaning of the ''safe harbor'' provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on the current expectations and beliefs of the Company's management and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The forward-looking statements contained herein include statements regarding the acquisition of Ticket Monster and other agreements with Ticket Monster and its employees, including the share purchase agreement. These statements are not guarantees of future performance, involve certain risks, uncertainties and assumptions that are difficult to predict, and are based upon assumptions as to future events that may not prove accurate. Therefore, actual outcomes and results may differ materially from what is expressed herein. The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements: the risk that Groupon may not realize the anticipated benefits of the Ticket Monster acquisition, the risk that the Company may not retain the customer, merchant and vendor relationships of Ticket Monster, the inability to retain key employees of Ticket Monster, and the inability to successfully integrate the acquired technologies or operations. Groupon urges you to refer to the factors included under the headings ''Risk Factors'' and ''Management's Discussion and Analysis of Financial Condition and Results of Operations'' in the company's Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, copies of which may be obtained by visiting the company's Investor Relations web site at http://investor.groupon.com or the SEC's web site at www.sec.gov .

Groupon's actual results could differ materially from those predicted or implied and reported results should not be considered an indication of future performance. You should not rely upon forward-looking statements as predictions of future events. Although Groupon believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither the company nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. The forward-looking statements reflect Groupon's expectations as of January 2, 2014. Groupon undertakes no obligation to update publicly any forward-looking statements for any reason after the date of this release to conform these statements to actual results or to changes in its expectations.

2
Exhibit 99.3








LivingSocial Korea, Inc.
Unaudited Condensed Consolidated Financial Statements
For the nine months ended
September 30, 2013 and 2012







LivingSocial Korea, Inc.
Index
For the nine months ended September 30, 2013 and 2012
_____________________________________________________________________________________




Unaudited Condensed Consolidated Financial Statements
Page(s)

Unaudited Condensed Consolidated Balance Sheets
1

Unaudited Condensed Consolidated Statements of Operations
2

Unaudited Condensed Consolidated Statements of Comprehensive Loss
3

Unaudited Condensed Consolidated Statements of Cash Flows
4

Notes to Unaudited Condensed Consolidated Financial Statements
5-12





LivingSocial Korea, Inc.
Unaudited Condensed Consolidated Balance Sheets
As of September 30, 2013 and December 31, 2012
_____________________________________________________________________________________

(in thousands, except unit data)
As of
 
As of
 
 
 
 
 
 
 
September 30,
 
December 31,
 
 
 
 
 
 
 
2013
 
2012
Assets
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
$
15,133

 
$
11,109

 
Accounts receivable, net
12,322

 
12,188

 
Other current assets
5,021

 
2,535

 
 
 
 
Total current assets
32,476

 
25,832

Property and equipment, net
5,976

 
5,182

Intangible assets, net
40,960

 
52,359

Other noncurrent assets
1,435

 
3,030

Goodwill
50,685

 
50,557

 
 
 
 
Total assets
$
131,532

 
$
136,960

 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholder's Equity
 
 
 
Current liabilities
 
 
 
 
Accounts payable
$
8,105

 
$
5,256

 
Merchants payable
66,153

 
44,219

 
Accrued expenses
15,120

 
29,750

 
Due to related parties
16,920

 
21,886

 
Other current liabilities
807

 
472

 
 
 
 
Total current liabilities
107,105

 
101,583

Other noncurrent liabilities
5,069

 
3,857

 
 
 
 
Total liabilities
112,174

 
105,440

 
 
 
 
 
 
 
 
 
 
Commitments and contingencies (Note 9)
 
 
 
 
 
 
 
 
 
 
 
 
 
Stockholder's equity
 
 
 
Share capital (1,413,593 units (₩5,000 par value) outstanding at September 30, 2013 and December 31, 2012)
288,475

 
276,113

Accumulated deficit
(169,159
)
 
(128,989
)
Investment of shares in Parent, at cost
(99,403
)
 
(115,439
)
Accumulated other comprehensive loss
(555
)
 
(165
)
 
 
 
 
 
Total stockholder's equity
19,358

 
31,520

 
 
 
 
 
Total liabilities and stockholder's equity
$
131,532

 
$
136,960



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

1


LivingSocial Korea, Inc.
Unaudited Condensed Consolidated Statements of Operations
Nine Months Ended September 30, 2013 and 2012
_____________________________________________________________________________________

(in thousands)
 
Nine Months Ended
 
 
 
 
 
 
 
 
September 30,
 
 
 
 
 
 
 
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
Deals
 
$
77,398

 
$
48,524

Products
 
1,638

 
2,297

Other
 
2,029

 
1,065

 
 
 
 
 
Total revenue
 
81,065

 
51,886

Operating expenses
 
 
 
 
Costs of revenue (exclusive of depreciation and amortization)
 
20,187

 
18,596

Costs of goods sold (exclusive of depreciation and amortization)
 
1,145

 
1,247

Marketing expenses
 
13,567

 
14,866

Selling, general and administrative expenses
 
72,230

 
73,949

Depreciation and amortization
 
13,470

 
30,081

 
 
 
 
 
Total operating expenses
 
120,599

 
138,739

 
 
 
 
 
Operating loss
 
(39,534
)
 
(86,853
)
Interest expense, net
 
(870
)
 
(1,072
)
Other income, net
 
234

 
1,530

 
 
 
 
 
Net loss from continuing operations before benefit from income taxes
 
(40,170
)
 
(86,395
)
Benefit from income taxes
 

 
(8,273
)
 
 
 
 
 
Net loss
 
$
(40,170
)
 
$
(78,122
)


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

2


LivingSocial Korea, Inc.
Unaudited Condensed Consolidated Statements of Comprehensive Loss
For the nine months ended September 30, 2013 and 2012
_____________________________________________________________________________________________

(in thousands)
 
 
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
September 30,
 
 
 
 
 
 
 
2013
 
2012
 
 
 
 
 
 
 
 
Net loss
 
$
(40,170
)
 
$
(78,122
)
Other comprehensive income (loss)
 
 
 
 
   Foreign currency translation adjustments
 
(555
)
 
3,102

Comprehensive loss
 
$
(40,725
)
 
$
(75,020
)


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

3


LivingSocial Korea, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2013 and 2012
_____________________________________________________________________________________________

(in thousands)
Nine Months Ended
 
 
 
 
 
 
 
September 30,
 
 
 
 
 
 
 
2013
 
2012
 
 
 
 
 
 
 
 
 
 
Operating activities
 
 
 
Net cash provided by operating activities
$
10,607

 
$
(209
)
 
 
 
 
 
 
 
 
 
 
Investing activities
 
 
 
Purchases of property and equipment and capitalized software
(2,175
)
 
(2,664
)
Cash received from sale of business and assets
318

 

Acquisitions of businesses, net of acquired cash

 
608

Change in restricted cash

 
401

Net cash used in investing activities
(1,857
)
 
(1,655
)
 
 
 
 
 
 
 
 
 
 
Financing activities
 
 
 
Net proceeds (repayments) on parent working capital loan
(4,966
)
 
7,303

Payment to acquire remaining shares of noncontrolling interest

 
(400
)
Payment of deferred consideration

 
(425
)
Net cash provided by (used in) financing activities
(4,966
)
 
6,478

 
 
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
240

 
992

 
 
 
 
 
Net increase in cash and cash equivalents
4,024

 
5,606

 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
Beginning of period
11,109

 
6,044

End of period
$
15,133

 
$
11,650



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

4


LivingSocial Korea, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the nine months ended September 30, 2013 and 2012
_____________________________________________________________________________________


1.    Summary of Business
LivingSocial Korea, Inc. ("LivingSocial-Korea" or the "Company"), through its wholly-owned subsidiary Ticket Monster Inc. ("TicketMonster") is a provider of e-commerce deals, primarily in the Republic of Korea.
The Company's business consists of "Deals," "Products" and other offerings. The Company uses email, the Internet, mobile devices, social networks and other forms of media to promote its offerings. Deals represent discounted goods and services offered to the Company’s subscribers on behalf of its merchant partners, who are responsible for providing the product or service to the consumer. Products represent tangible goods sold directly to subscribers, where the Company is the primary obligor.
The Company was established by LivingSocial, Inc. ("LivingSocial" or the "Parent") on July 1, 2011 solely to acquire and hold the assets of TicketMonster (see Note 3).
Liquidity and Capital Resources
Since its inception in 2011, the Company has incurred significant losses from operations. As of September 30, 2013, the Company had cash and cash equivalents of $15.1 million and a working capital deficit of $74.6 million. Since its inception, the Company has relied on its Parent for funding its working capital requirements. In November 2013, the Parent entered into an agreement to sell the Company to Groupon, Inc.; the sale is expected to close in January 2014.
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business. The propriety of using the going concern basis is dependent upon, among other things, the achievement of future profitable operations and the ability to generate sufficient cash from operations and potential other funding sources to meet the Company's obligations as they become due. The Company's operating assumptions and projections reflect management's best estimates of future operating activity; however, these assumptions and projections are subject to risks and uncertainties. The ability to generate cash flow from operations in the future will be subject to general economic, financial, competitive, and other factors, many of which are beyond the Company's control. Management believes the going concern basis is appropriate for the accompanying unaudited condensed consolidated financial statements based on its current operating plan into 2014. In addition, management has the intent and ability to take additional actions to continue as a going concern.
2.    Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The Company has prepared the unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and consistent with Article 10 of Regulation S-X. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its majority owned and controlled subsidiaries. All intercompany transactions and balances between the Company and its subsidiaries have been eliminated, and net income not attributable to the Company has been allocated to noncontrolling interests when material.
The accompanying unaudited condensed consolidated financial statements include all of the relevant assets, liabilities, revenues and expenses attributable to LivingSocial-Korea's operations. These financial statements do not include any corporate assets or liabilities of LivingSocial which cannot be specifically identifiable to LivingSocial-Korea. LivingSocial allocates certain general and administrative costs of the corporate function to the Company. These services include finance and accounting, executive office, compensation and benefits management, insurance, legal, tax planning and audit, and treasury, and are allocated using methods based on benefits provided to the Company.

5


LivingSocial Korea, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the nine months ended September 30, 2013 and 2012
_____________________________________________________________________________________

In the opinion of management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments that the Company considers necessary for the fair statement of its results of operations and cash flows for the interim periods covered and of the financial position of the Company at the date of the interim unaudited condensed consolidated balance sheet. The year-end condensed consolidated balance sheet at December 31, 2012 was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP.  The operating results for interim periods are not necessarily indicative of the operating results for the entire year. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with the rules and regulations of the U.S. Securities and Exchange Commission.
Foreign Currency
The Company's functional and reporting currency is the United States dollar. The functional currencies of the Company's wholly owned subsidiaries are their local currencies. Assets and liabilities of the Company's foreign subsidiaries are translated into United States dollars based on exchange rates at the end of the reporting period. Income and expense items are translated at the average exchange rates prevailing during the reporting period. Translation adjustments for subsidiaries that have not been sold, substantially liquidated or otherwise disposed of, are accumulated in other comprehensive income (loss), a component of stockholder's equity. Foreign currency translation adjustments are the sole component of accumulated other comprehensive income (loss) at September 30, 2013 and December 31, 2012. Foreign currency transaction gains and losses, excluding gains and losses on intercompany balances where there is no current intent to settle such amounts in the foreseeable future, are included in the determination of net loss, and were approximately $0.6 million in net losses and $1.1 million in net gains for the nine months ended September 30, 2013 and 2012, respectively.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. In the accompanying unaudited condensed consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, allowance for doubtful accounts, income taxes, acquired goodwill and intangible assets and their useful lives, recoverability of goodwill and other long-lived assets, refunds, contra revenue, loyalty rewards, contingent liabilities, corporate expense allocations, and the depreciable lives of fixed assets. Actual results could differ materially from those estimates.
Restricted Cash
The Company's restricted cash balances as of September 30, 2013 and December 31, 2012 were $0.1 million, related primarily to letters of credit for facility leases and other collateral related to payment processing. Restricted cash is included in "Other noncurrent assets" in the accompanying unaudited condensed consolidated balance sheets.
Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) includes the total of the Company's net income (loss) and all other changes in equity other than transactions with owners, including changes in equity for cumulative translation adjustments resulting from the consolidation of foreign subsidiaries that use their local currency as the functional currency. Effective January 1, 2012, the Company adopted ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (ASU 2011-05). As a result, the Company now presents a separate statement of comprehensive income (loss). The adoption of ASU 2011-05 did not affect the Company's consolidated results of operations, financial position, or liquidity.
Revenue Recognition
The Company recognizes revenue principally from (i) Deals, (ii) Products and (iii) other service offerings.  Revenue is recognized when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the

6


LivingSocial Korea, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the nine months ended September 30, 2013 and 2012
_____________________________________________________________________________________

selling price is fixed or determinable; and collectability is reasonably assured. Any cash payments received from revenue transactions are recorded as deferred revenue until all of the criteria have been met. The Company's deferred revenue balances include amounts from all types of revenue sources. Deferred revenue was $0.04 million and $0.1 million as of September 30, 2013 and December 31, 2012, respectively, and is included in "Other current liabilities" in the accompanying unaudited condensed consolidated balance sheets.
Deals
For Deals, the customer is the merchant. The revenue recognition criteria are met when the Company has fulfilled its obligations to the merchant typically by electronically delivering the voucher to the subscriber and providing the purchaser list to the merchant. Under certain Deals arrangements, the Company is obligated to (i) provide subscriber delivery information to the merchant or (ii) deliver the products to the subscriber on behalf of the merchant; in these situations the revenue recognition criteria are satisfied when the required obligations are met.  The Company's Deal merchants assume the contractual risks, which include providing the goods or service and the risk of unsold inventory. As such, all Deals transactions are recorded at the net commission amount, which is the amount charged to the subscriber less the amount to be paid to the merchant and any applicable taxes and net of estimated refunds.
Under certain Deals arrangements, the Company pays the merchant on a redemption model, whereby the merchant is paid based on vouchers redeemed as opposed to vouchers sold. If a subscriber does not redeem a voucher under these agreements, the Company retains the entire initial purchase value of the voucher including the amount that would have been payable to the merchant if the deal had been redeemed, to the extent permitted by local laws and regulations. The Company records revenue from unredeemed vouchers, less any applicable taxes, and derecognizes the related liability only when the Company is legally released from its obligation, which the Company deems to be the later of (i) the expiration of the paid and promotional value of the voucher and (ii) final payment to the merchant to the extent permitted by local law.
Products
For Products, the revenue recognition criteria are met when the goods are shipped and title passes to the subscriber, which is the customer in a Products arrangement. Product sales represent revenue from the gross selling price of products and related shipping fees, net of promotional discounts and returns allowances. In these transactions, the Company is the primary obligor, is subject to inventory risk, and has latitude in establishing prices.
Other
The Company's Other revenues are derived primarily from advertising arrangements with third parties.  Revenue from advertising sales is recognized as advertising services are provided to the Company’s customers. 
Contra-revenue
The Company makes payments through arrangements with merchants. Payments to merchants are generally recorded as contra-revenue unless the Company receives in return a specifically identifiable benefit and the fair value of such benefit is determinable and measurable. If a benefit can be identified with a determinable and measurable fair value, the payment is recorded as marketing expense up to the fair value of the benefit.
Subscriber Loyalty Programs
The Company's loyalty programs allow its subscribers to earn credits that can be redeemed for future purchases of Deals or Products. Subscriber credits are provided to existing subscribers for performing qualifying acts. A qualifying act is when a subscriber performs an action, such as providing the Company a new subscriber referral, and the subscriber is made aware of the credits prior to the performance of the action. Upon issuance of the subscriber credits following a qualifying act, the value of subscriber credits is allocated between marketing expense or contra-revenue, based upon an estimate of whether such credits will be used by a subscriber in a Deals or Products transaction. If credits are issued for a specific revenue

7


LivingSocial Korea, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the nine months ended September 30, 2013 and 2012
_____________________________________________________________________________________

transaction, the value of the subscriber credit is recorded consistent with the underlying revenue transaction. Unredeemed subscriber credits are recorded at the Company’s ultimate cost of such credits in accrued liabilities. The cost of expired credits is reversed against the initial marketing expense or revenue amounts in the period of expiration.
The Company also issues promotional credits in subscriber acquisition and other marketing campaigns, where the recipient of the credits is not required to perform any qualifying acts. Upon redemption, the value of promotional credits is recorded as either marketing expense or contra-revenue, dependent upon how the underlying revenue transaction is recorded (Deals or Products, respectively).
Subscriber Refunds
At the time revenue is recorded, the Company records an accrual for estimated refunds primarily based on the Company's historical experience with refunds.  Refunds are recorded as a reduction of revenue.  The liability for refunds is adjusted as appropriate as actual refund activity occurs. The Company routinely evaluates its assumptions used to estimate its subscriber refund accrual based on developments in refund and expiration patterns, subscriber contract changes, and other factors.
Marketing Expenses
Marketing expenses consist primarily of subscriber acquisition costs. Marketing payroll and benefit costs, including related stock-based compensation expense, are also classified as marketing expense. The Company records these costs when incurred. For the nine months ended September 30, 2013 and 2012, advertising costs were $0.8 million and $3.8 million, respectively.
Stock-Based Compensation
Stock-based compensation is classified in the accompanying unaudited condensed consolidated statements of operations in a manner consistent with the statements of operations' classification of an employee's salary and benefits, as follows:
 
 
 
 
 
Nine Months Ended
(in thousands)
 
 
 
September 30,
 
 
 
 
 
2013
 
2012
 
 
 
 
 
 
 
 
Marketing expenses
$

 
$
1,166

Selling, general and administrative expenses
25,887

 
27,337

 
 
 
 
 
25,887

 
28,503

Capitalized stock-based compensation

 
254

Total stock-based compensation
$
25,887

 
$
28,757

Recent Accounting Pronouncements
In 2013, Financial Accounting Standards Board ("FASB") issued new accounting guidance clarifying the accounting for the release of cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. This new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2013. The Company does not anticipate that this adoption will have a significant impact on the Company’s financial position, results of operations or cash flows.

8


LivingSocial Korea, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the nine months ended September 30, 2013 and 2012
_____________________________________________________________________________________

In 2013, FASB also issued new accounting guidance requiring disclosure of items reclassified from other comprehensive income (loss) to net income. This guidance is effective for periods beginning after December 15, 2012. The adoption of this standard did not have a significant impact on the Company's financial position, results of operations or cash flows.
3.    Intangible Assets and Goodwill
Intangible Assets
Amortization expense for definite lived intangible assets was approximately $11.3 million and $28.6 million for the nine months ended September 30, 2013 and 2012, respectively. The weighted average remaining amortization period of intangible assets is 6.3 years as of September 30, 2013. 
Goodwill
Given that a significant component of goodwill is related to the Company's expected future growth, the Company closely monitors its results and projections.  If the long-term financial forecasts deteriorate and/or other indicators of impairment are present, the Company could be required to recognize impairment losses on the carrying value of the goodwill in future periods.
There were no goodwill impairment losses or measurement period adjustments during the nine months ended September 30, 2013 and 2012. The change in the carrying amount of goodwill during the nine months ended September 30, 2013 reflects the effect of changes in foreign currency exchange rates.
4.    Related Parties - relationship with LivingSocial, Inc.
LivingSocial provides certain executive office and other administrative services to the Company and allocates the fair value of such services to the Company, when material. For each of the nine month periods ended September 30, 2013 and 2012 approximately $1.6 million of strategic management costs were allocated based on the business unit's pro rata share of revenue.
As of September 30, 2013 and December 31, 2012, the Company has intercompany loans with LivingSocial to support working capital requirements, with balances of approximately $16.9 million and $21.9 million, respectively. The loans have stated terms and conditions, including stated interest rates equal to the one-year LIBOR rate plus 350 basis points compounded on a daily basis, and are expected to be collected and repaid, as appropriate, within one year. The total interest paid to LivingSocial in the nine-months ended September 30, 2013 and 2012 was $1.3 million and $0.2 million, respectively.
In connection with the Company's acquisition of TicketMonster in 2011, LivingSocial contributed 27.9 million shares of its common stock, with an estimated fair value of $195.0 million, to the Company to be used for both purchase consideration and post-acquisition compensation purposes. These shares have been reported in the Company's consolidated balance sheets as Investment in shares of Parent. In connection with the transfer of these shares and the acquisition of TicketMonster, the Company also entered into intercompany loans with LivingSocial in the amount of $167.4 million, which are reported in the Company's consolidated balance sheets as Share Capital. As a result of the final working capital adjustment, the Company repaid $0.6 million of this loan in 2012.
5.    Accrued Expenses
The Company made cash payments of approximately $2.4 million and $15.3 million in 2012 and the period ended September 30, 2013, respectively, for retention bonuses related to the 2011 TicketMonster acquisition.


9


LivingSocial Korea, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the nine months ended September 30, 2013 and 2012
_____________________________________________________________________________________

6.    Stock-Based Compensation
The Company uses LivingSocial common stock for various forms of stock-based awards, including but not limited to stock options and restricted stock, to compensate its employees and directors for future service.
Stock Options
A summary of stock option activity during the nine months ended September 30, 2013 is presented below:
 
 
 
 
 
 
 
 
 
 
 
Weighted-
 
 
 
 
 
 
 
 
 
 
 
Weighted-Average Exercise Price
 
Average
 
 
 
 
 
 
 
 
 
 
 
 
Remaining
 
 
 
 
 
 
 
 
 
 
 
 
Contractual
 
Aggregate
 
 
 
 
 
 
 
Stock Options
 
 
Life (in years)
 
Intrinsic Value
Outstanding at December 31, 2012
2,836,536

 
$
0.35

 
9.89

 
$

Granted
660,450

 
0.35

 
 
 

Exercised
(5,625
)
 
0.35

 
 
 

Forfeited
(409,441
)
 
0.35

 
 
 

Outstanding at September 30, 2013
3,081,920

 
$
0.35

 
9.26

 
$

Vested/Exercisable at September 30, 2013
164,284

 
$
0.35

 
8.73

 
$

During the nine months ended September 30, 2013, the weighted average fair value of stock options granted was $0.07. Stock-based compensation during the nine months ended September 30, 2013 and 2012 was approximately $0.1 million and $0.06 million, respectively, from stock options.
As of September 30, 2013, unrecognized stock-based compensation, net of estimated forfeitures, relating to unvested stock options was approximately $0.5 million, which is scheduled to be recognized as stock-based compensation over a weighted-average period of 2.8 years. To the extent the actual forfeiture rate is different than what the Company has anticipated compensation related to these options will be different from its expectations.
Restricted Stock
A summary of restricted stock activity during the nine months ended September 30, 2013 is presented below:
 
 
 Shares of Restricted Stock
 
 Weighted- Average Grant Date Fair Value
Outstanding at December 31, 2012
 
16,457,359

 
$
7.00

Granted
 

 

Vested
 
(1,110,955
)
 
$
7.00

Forfeited
 
(1,157,928
)
 
$
7.00

Outstanding at September 30, 2013
 
14,188,476

 
$
7.00

Stock-based compensation was $25.8 million and $28.7 million during the nine months ended September 30, 2013 and 2012, respectively, related to restricted stock.
As of September 30, 2013, there was $33.9 million of unrecognized stock-based compensation related to restricted stock, which is scheduled to be recognized as compensation over a weighted-average period of 1.0 years.

10


LivingSocial Korea, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the nine months ended September 30, 2013 and 2012
_____________________________________________________________________________________

Common Stock Valuations
Given the lack of an active public market for the Parent's common stock, the Company determined the fair value per share of the common stock underlying the stock-based awards through contemporaneous valuations as authorized by the Parent's board of directors, third-party transactions in the Parent's stock, or management's best estimate of fair value based upon recent transactions and valuations.
7.    Fair Value
Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Short-term Financial Instruments
The inputs used in measuring the fair value of cash equivalents are considered to be Level 1 in accordance with the three-tier fair value hierarchy. The fair market values are based on quoted prices in active markets at period-end supplied by the various banks and brokers that held the majority of the Company's funds.
Other Instruments
The Company has no other financial instruments or nonfinancial assets or liabilities that are measured at fair value on a recurring basis.
Assets Measured at Fair Value on a Nonrecurring Basis
The Company measures its long-lived assets, including property and equipment, goodwill and other intangible assets, at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be impaired.
8.    Income Taxes
The Company accounts for income taxes using the asset and liability approach, which requires the recognition of future tax benefits or liabilities on the temporary differences between the financial reporting and tax bases of its assets and liabilities. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized. For interim periods, the Company recognizes an income tax provision (benefit) based on its estimated annual effective tax rate expected for the entire year. The Company's benefit for income taxes was $8.3 million for the nine months ended September 30, 2012 and none in 2013. As of September 30, 2013 and December 31, 2012 the Company had recognized a full valuation allowance against its net deferred tax assets.
The Company also recognizes a tax benefit from uncertain tax positions only if it is "more likely than not" that the position is sustainable based on its technical merits. The Company's policy is to recognize interest and penalties on uncertain tax positions as a component of income tax expense.
9.    Commitments and Contingencies
From time to time the company is party to certain litigation or other legal proceedings arising in the ordinary course of business.  Because of the uncertainties inherent in litigation, the company cannot predict the outcome of such litigation or other legal proceedings; however, the company believes that none of these matters are probable or estimable at this time. Accordingly, the Company has not recorded an accrual for any possible losses in its financial statements.

11


LivingSocial Korea, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the nine months ended September 30, 2013 and 2012
_____________________________________________________________________________________

10.    Subsequent Events
The Company has performed an evaluation of subsequent events through the date the accompanying financial statements were available and issued.
During November 2013, the Company entered into a definitive agreement to sell its Korean subsidiaries to an affiliate of Groupon, Inc. for $260 million in cash and stock. The agreement is for at least $100 million in cash and up to $160 million in the Class A common stock of Groupon, Inc., with the final cash and stock allocation to be determined prior to close.
The transaction is expected to close in January 2014, subject to customary closing conditions. As part of the transaction, all shares of LivingSocial common stock that were to be earned by and distributed to TicketMonster employees pursuant to the Company's 2011 acquisition of TicketMonster will be distributed at closing, and all outstanding options to acquire LivingSocial's common stock held by TicketMonster employees will terminate. Additionally, in conjunction with the transaction, LivingSocial will purchase from the Company 100% of its Malaysian subsidiary.

12
Exhibit 99.4








LivingSocial Korea, Inc.
Consolidated Financial Statements
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011







LivingSocial Korea, Inc.
Index
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________



Audited Consolidated Financial Statements
Page(s)

Independent Auditor's Report
1

Consolidated Balance Sheets
2

Consolidated Statements of Operations
3

Consolidated Statements of Comprehensive Loss
4

Consolidated Statements of Cash Flows
5-6

Consolidated Statements of Stockholder's Equity
7

Notes to Consolidated Financial Statements
8-26







Independent Auditor's Report
To the Board of Directors and Stockholder of LivingSocial Korea, Inc.
We have audited the accompanying consolidated financial statements of LivingSocial Korea, Inc. and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss, stockholder's equity and cash flows for the year ended December 31, 2012 and for the period from date of inception (July 1, 2011) through December 31, 2011.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LivingSocial Korea, Inc. and its subsidiaries at December 31, 2012 and 2011, and the results of their operations and their cash flows for the year ended December 31, 2012 and for the period from date of inception (July 1, 2011) through December 31, 2011 in accordance with accounting principles generally accepted in the United States of America.


/s/ Samil PricewaterhouseCoopers
Seoul, Korea
December 23, 2013



1



LivingSocial Korea, Inc.
Consolidated Balance Sheets
As of December 31, 2012 and 2011
_____________________________________________________________________________________

(in thousands, except unit data)
 
As of
 
As of
 
 
 
 
 
 
 
 
December 31,
 
December 31,
 
 
 
 
 
 
 
 
2012
 
2011
Assets
 
 
 
 
Current assets
 
 
 
 
 
Cash and cash equivalents
 
$
11,109

 
$
6,044

 
Accounts receivable, net
 
12,188

 
9,473

 
Other current assets
 
2,535

 
2,020

 
 
 
 
Total current assets
 
25,832

 
17,537

Property and equipment, net
 
5,182

 
3,232

Intangible assets, net
 
52,359

 
80,024

Other noncurrent assets
 
3,030

 
1,794

Goodwill
 
50,557

 
46,561

 
 
 
 
Total assets
 
$
136,960

 
$
149,148

 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
 
Current liabilities
 
 
 
 
 
Accounts payable
 
$
5,256

 
$
8,411

 
Merchants payable
 
44,219

 
23,352

 
Accrued expenses
 
29,750

 
4,082

 
Due to related party
 
21,886

 
15,067

 
Other current liabilities
 
472

 
620

 
 
 
 
Total current liabilities
 
101,583

 
51,532

Deferred tax liability, net
 

 
7,971

Other noncurrent liabilities
 
3,857

 
6,944

 
 
 
 
Total liabilities
 
105,440

 
66,447

 
 
 
 
 
 
 
 
 
 
 
Commitments and contingencies (Note 11)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stockholder's equity
 
 
 
 
Share capital (1,413,593 units (₩5,000 par value) outstanding at December 31, 2012 and 2011)
 
276,113

 
239,050

Accumulated deficit
 
(128,989
)
 
(33,570
)
Investment in shares of Parent, at cost
 
(115,439
)
 
(118,627
)
Accumulated other comprehensive loss
 
(165
)
 
(4,152
)
 
 
 
 
 
Total stockholder's equity
 
31,520

 
82,701

 
 
 
 
 
Total liabilities and stockholder's equity
 
$
136,960

 
$
149,148

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



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

2



LivingSocial Korea, Inc.
Consolidated Statements of Operations
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
______________________________________________________________________________________________________

(in thousands)
 
 
 
Period from
 
 
 
 
 
 
 
 
Twelve Months Ended
 
Date of Inception through
 
 
 
 
 
 
 
 
December 31,
 
December 31,
 
 
 
 
 
 
 
 
2012
 
2011
 
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
Deals
 
$
71,101

 
$
11,769

Products
 
3,300

 

Other
 
2,449

 
446

 
 
 
 
 
Total revenue
 
76,850

 
12,215

Operating expenses
 
 
 
 
Costs of revenue (exclusive of depreciation and amortization)
 
25,032

 
5,545

Costs of goods sold (exclusive of depreciation and amortization)
 
1,808

 

Marketing expenses
 
19,803

 
9,601

Selling, general and administrative expenses
 
101,002

 
22,817

Depreciation and amortization
 
34,653

 
11,859

Acquisition related
 

 
975

 
 
 
 
 
Total operating expenses
 
182,298

 
50,797

 
 
 
 
 
Operating loss
 
(105,448
)
 
(38,582
)
Interest expense, net
 
(1,370
)
 
(217
)
Other (expense) income, net
 
3,125

 
(526
)
 
 
 
 
 
Net loss before benefit from income taxes
 
(103,693
)
 
(39,325
)
Benefit from income taxes
 
(8,274
)
 
(5,755
)
 
 
 
 
 
Net loss
 
$
(95,419
)
 
$
(33,570
)



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

3



LivingSocial Korea, Inc.
Consolidated Statements of Comprehensive Loss
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________

(in thousands)
 
 
 
 
 
 
 
Period from
 
 
 
 
 
 
 
Year Ended
 
Date of Inception through
 
 
 
 
 
 
 
December 31,
 
December 31,
 
 
 
 
 
 
 
2012
 
2011
 
 
 
 
 
 
 
 
Net loss
$
(95,419
)
 
$
(33,570
)
Other comprehensive income (loss)
 
 
 
   Foreign currency translation adjustments
3,987

 
(4,152
)
Comprehensive loss
$
(91,432
)
 
$
(37,722
)




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

4



LivingSocial Korea, Inc.
Consolidated Statements of Cash Flows
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________

(in thousands)
 
 
Period from
 
 
 
 
 
 
 
Year Ended
 
Date of Inception through
 
 
 
 
 
 
 
December 31
 
December 31,
 
 
 
 
 
 
 
2012
 
2011
 
 
 
 
 
 
 
 
 
 
Operating activities
 
 
 
Net loss
$
(95,419
)
 
$
(33,570
)
Adjustments to reconcile net loss to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
34,653

 
11,859

 
Unrealized foreign currency transaction gains
(941
)
 
(33
)
 
Change in fair value of contingent consideration

 
(3,619
)
 
Stock-based compensation
37,984

 
9,286

 
Deferred tax benefit
(8,545
)
 
(6,000
)
 
Provision for refunds and loyalty awards
23,061

 
1,309

 
Change in assets and liabilities:
 
 
 
 
 
Accounts receivable
(1,829
)
 
(7,065
)
 
 
Prepaid expenses and other current assets
(1,545
)
 
386

 
 
Other non current assets
(1,339
)
 
1,444

 
 
Accounts payable
(1,349
)
 
4,033

 
 
Accrued expenses
17,367

 
382

 
 
Other liabilities
(2,590
)
 
6,861

Net cash provided by (used in) operating activities
(492
)
 
(14,727
)
 
 
 
 
 
 
 
 
 
 
Investing activities
 
 
 
Purchases of property and equipment and capitalized software
(3,274
)
 
(1,487
)
Cash paid for business acquisition, net of cash acquired
608

 
(24,277
)
Change in restricted cash
321

 

Net cash provided by (used in) investing activities
(2,345
)
 
(25,764
)
 
 
 
 
 
 
 
 
 
 
Financing activities
 
 
 
Net proceeds on parent working capital loan
7,760

 
14,092

Investment by Parent

 
32,625

Payment to acquire remaining shares of noncontrolling interest
(400
)
 

Payment of deferred consideration
(541
)
 

Net cash provided by financing activities
6,819

 
46,717

 
 
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
1,083

 
(182
)
 
 
 
 
 
Net increase in cash and cash equivalents
5,065

 
6,044

 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
Beginning of period
6,044

 

End of period
$
11,109

 
$
6,044

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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

5


Non-cash investing and financing activities
 
 
 
Issuance of Parent common stock for acquisition
$
(2,567
)
 
$
(76,337
)
Parent loan contributed to capital, net
$
(590
)
 
$
167,388

Capitalized stock-based compensation
$
290

 
$

 
 
 
 
 
 
 
 
 
 
Supplemental cash flow information
 
 
 
Cash paid for interest
$
345

 
$




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

6



LivingSocial Korea, Inc.
Consolidated Statements of Stockholder's Equity
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________

(in thousands)
 
Share
capital
 
Investment in shares of Parent
 
Accumulated deficit
 
Accumulated other comprehensive income (loss)
 
Total stockholder's equity
 
 
 
 
Balance at inception
 
$

 
$

 
$

 
$

 
$

Net loss
 

 

 
(33,570
)
 

 
(33,570
)
Parent shares contributed
 
29,751

 
(194,964
)
 

 

 
(165,213
)
Initial contribution of cash from Parent
 
32,625

 

 

 

 
32,625

Parent shares delivered to purchase TMON
 

 
76,337

 

 

 
76,337

Foreign currency translation
 

 

 

 
(4,152
)
 
(4,152
)
Parent loan contributed to capital, net
 
167,388

 

 

 

 
167,388

Stock-based compensation
 
9,286

 

 

 

 
9,286

Balance at December 31, 2011
 
$
239,050

 
$
(118,627
)
 
$
(33,570
)
 
$
(4,152
)
 
$
82,701

 
 
 
 
 
 
 
 
 
 
 
Net loss
 

 

 
(95,419
)
 

 
(95,419
)
Parent shares forfeited
 
(621
)
 
621

 

 

 

Parent shares delivered to purchase TMON
 

 
2,567

 

 

 
2,567

Foreign currency translation
 

 

 

 
3,987

 
3,987

Return of contribution to Parent
 
(590
)
 

 

 

 
(590
)
Stock-based compensation
 
38,274

 

 

 

 
38,274

Balance at December 31, 2012
 
$
276,113

 
$
(115,439
)
 
$
(128,989
)
 
$
(165
)
 
$
31,520

 
 
 
 
 
 
 
 
 
 
 


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

7


LivingSocial Korea, Inc.
Notes to Consolidated Financial Statements
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________



1.    Summary of Business
LivingSocial Korea, Inc. ("LivingSocial-Korea" or the "Company"), through its wholly-owned subsidiary Ticket Monster Inc. ("TicketMonster") is a provider of e-commerce deals, primarily in the Republic of Korea.
The Company's business consists of "Deals," "Products" and other offerings. The Company uses email, the Internet, mobile devices, social networks and other forms of media to promote its offerings. Deals represent discounted goods and services offered to the Company's subscribers on behalf of its merchant partners, who are responsible for providing the product or service to the consumer. Products represent tangible goods sold directly to subscribers, where the Company is the primary obligor.
The Company was established by LivingSocial, Inc. ("LivingSocial" or the "Parent") on July 1, 2011 and acquired TicketMonster (see Note 3) on September 16, 2011. The accompanying consolidated financial statements are presented for the period from the date of inception (July 1, 2011) through December 31, 2011, or the "2011 Period") and for the year ended December 31, 2012.
Liquidity and Capital Resources
Since its inception in 2011, the Company has incurred significant losses from operations. As of September 30, 2013, the Company had cash and cash equivalents of $15.1 million (unaudited) and had a working capital deficit of $74.6 million (unaudited). The Company has relied on its Parent for funding its working capital requirements. In November 2013, the Parent entered into an agreement to sell the Company to Groupon, Inc., and the sale is expected to close in January 2014.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business. The propriety of using the going concern basis is dependent upon, among other things, the achievement of future profitable operations and the ability to generate sufficient cash from operations and potential other funding sources to meet the Company's obligations as they become due. The Company's operating assumptions and projections reflect management's best estimates of future operating activity; however, these assumptions and projections are subject to risks and uncertainties. The ability to generate cash flow from operations in the future will be subject to general economic, financial, competitive, and other factors, many of which are beyond the Company's control. Management believes the going concern basis is appropriate for the accompanying consolidated financial statements based on its current operating plan into 2014. In addition, management has the intent and ability to take additional actions to continue as a going concern.
2.    Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The Company has prepared the consolidated financial statements in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The accompanying consolidated financial statements include the accounts of the Company and its majority owned and controlled subsidiaries. All intercompany transactions and balances between the Company and its subsidiaries have been eliminated, and net income not attributable to the Company has been allocated to noncontrolling interests when material.
The accompanying consolidated financial statements include all of the relevant assets, liabilities, revenues and expenses attributable to LivingSocial-Korea's operations. These financial statements do not include any corporate assets or liabilities of LivingSocial which cannot be specifically identifiable to LivingSocial-Korea. LivingSocial allocates certain general and administrative costs of the corporate function to the Company. These services include finance and accounting, executive

8


LivingSocial Korea, Inc.
Notes to Consolidated Financial Statements
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________


office, compensation and benefits management, insurance, legal, tax planning and audit, and treasury, and are allocated using methods based on benefits provided to the Company.
Foreign Currency
The Company's functional and reporting currency is the United States dollar. The functional currency of its wholly owned subsidiaries is the subsidiaries' local currency. Assets and liabilities of subsidiaries are translated into United States dollars based on exchange rates at the end of the reporting period. Income and expense items are translated at the average exchange rates prevailing during the reporting period. Translation adjustments for subsidiaries that have not been sold, substantially liquidated or otherwise disposed of are accumulated in other comprehensive income (loss), a component of stockholder's equity. Foreign currency translation adjustments are the sole component of accumulated other comprehensive loss at December 31, 2012 and 2011. Foreign currency transaction gains and losses, excluding gains and losses on intercompany balances where there is no current intent to settle such amounts in the foreseeable future, are included in the determination of net loss. The gains associated with foreign currency transactions were approximately $2.2 million and $0.01 million for the year ended December 31, 2012 and the 2011 Period, respectively.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. In the accompanying consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, allowance for doubtful accounts, income taxes, acquired goodwill and intangible assets and their useful lives, recoverability of goodwill and other long-lived assets, refunds, contra revenue, loyalty rewards, contingent consideration, contingent liabilities, corporate expense allocations, and the depreciable lives of fixed assets. Actual results could differ materially from those estimates.
Fair Value
The consolidated balance sheets include various financial instruments (primarily cash equivalents, contingent consideration, and deferred consideration) that are recorded at fair value. Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. The Company's financial instruments that are not carried at fair value include restricted cash, prepaid expenses and other current assets, deposits, accounts receivable, accounts payable, merchants payable, accrued expenses, and other current liabilities. The carrying value of these assets and liabilities approximate their fair values due to their short-term nature. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value. These tiers include:
Level 1 defined as observable inputs such as quoted prices in active markets for identical assets;
Level 2 defined as observable inputs other than Level 1 prices such as quoted prices for similar assets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
See Note 9 for additional information regarding fair value.


9


LivingSocial Korea, Inc.
Notes to Consolidated Financial Statements
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________



Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. While the Company maintains its cash and cash equivalents with financial institutions with high credit ratings, it often maintains these deposits in federally insured financial institutions in excess of federally insured limits. Accounts receivable include funds owed to the Company by a limited number of payment processors.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The cash and cash equivalents balances at December 31, 2012 and 2011 consisted of cash deposited in institutional money market mutual funds and regular interest bearing and noninterest bearing depository accounts with commercial banks.
The Company's restricted cash balances as of December 31, 2012 and 2011 were $0.1 million and $0.4 million, respectively, related primarily to letters of credit for facility leases and other collateral related to payment processing. Restricted cash is included in "Other noncurrent assets" in the accompanying consolidated balance sheets.
Accounts Receivable
Accounts receivable primarily represents the net cash due from the Company's credit card and other payment processors for cleared transactions as well as cash due from merchants. When necessary, the carrying amount of the Company's receivables is reduced by an allowance for doubtful accounts that reflects management's best estimate of amounts that will not be collected. The allowance is based on historical experience and specific risks identified in collection matters. The Company's allowance for doubtful accounts was $1.8 million and $0.4 million at December 31, 2012 and December 31, 2011, respectively.
Property and Equipment
Property and equipment is carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the following estimated useful lives:
Computer equipment
 
1-3 years
Office furniture and equipment
 
3-7 years
Software
 
3 years
Leasehold improvements
 
shorter of useful life or remaining lease term
The Company periodically reviews the depreciation method, useful lives and estimated salvage value of its property and equipment and revises those estimates as necessary. Repairs and maintenance costs are expensed as incurred.
Internally Developed Software
Costs related to the design or maintenance of internally developed software are expensed as incurred. Costs incurred in the application development stage to develop software applications for internal use are capitalized and amortized over the estimated useful lives of the software once placed in service . The Company capitalized $1.0 million of costs associated with internally developed software in the year ended December 31, 2012 (none in the 2011 Period). Amortization of capitalized amounts was $0.1 million in 2012.

10


LivingSocial Korea, Inc.
Notes to Consolidated Financial Statements
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________



Inventory
Inventory is primarily accounted for using the specific identification method. Inventory is valued using direct costs of the products, along with allocated overhead costs when material, and is carried at the lower of cost or current market value. Selling expenses, which do not include shipping and overhead, are reported as period costs and are excluded from inventory costs. Inventory is classified as "Other current assets" on the consolidated balance sheets.
Intangible Assets
Intangible assets are definite lived intangible assets generated from business combinations and are carried at cost less accumulated amortization. Amortization is calculated over the estimated useful lives (see Note 3). The Company applies an accelerated method of amortization to reflect an estimated pattern of economic benefit received from the subscriber relationships intangible asset. The remaining intangible assets are amortized using the straight-line method over their estimated useful lives as patterns of economic benefit cannot be reliably determined.
Impairment of Long-lived Assets
The Company assesses its long-lived assets for impairment when indicators of potential impairment are present. If impairment indicators are present, recoverability of assets is measured by comparing the carrying values of the assets to the future undiscounted cash flows expected to be generated by the assets. Any impairment loss would be measured as the excess of the assets' carrying values over their fair values. Fair value is based on market prices, when available, or the use of various other valuation techniques, including discounted cash flows.
Impairment of Goodwill
Goodwill is the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. Impairment testing for goodwill assigned to the Company's sole reporting unit is performed annually on October 1 or more frequently if indicators of potential impairment exist. When the Company performs its impairment test, it first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If based on this assessment the Company determines it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then performing the two-step impairment test is necessary. The first step of the goodwill impairment test examines whether the carrying value of a reporting unit exceeds its fair value. If the carrying value of the reporting unit exceeds its fair value, the second step of the test requires the Company to then compare the implied fair value of that reporting unit's goodwill with the carrying value of its goodwill to determine the amount of impairment charge, if any. Fair value is based on market prices, when available, or the use of various valuation techniques.
Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) includes the total of the Company's net income (loss) and all other changes in equity other than transactions with owners, including changes in equity for cumulative translation adjustments resulting from the consolidation of foreign subsidiaries as the financial statements of the subsidiaries are accounted for using the local currency as the functional currency. Effective January 1, 2012, the Company adopted ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (ASU 2011-05). As a result, the Company now presents a separate statement of comprehensive income (loss). The adoption of ASU 2011-05 did not affect the Company's consolidated results of operations, financial position, or liquidity.



11


LivingSocial Korea, Inc.
Notes to Consolidated Financial Statements
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________


Revenue Recognition
The Company recognizes revenue principally from (i) Deals, (ii) Products and (iii) other service offerings.  Revenue is recognized when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the selling price is fixed or determinable; and collectability is reasonably assured. Any cash payments received from revenue transactions are recorded as deferred revenue until all of the criteria have been met. The Company's deferred revenue balances include amounts from all types of revenue sources. Deferred revenue was $0.1 million and $0.3 million as of December 31, 2012 and 2011, respectively, and is included in "Other current liabilities" in the accompanying consolidated balance sheets.
Deals
For Deals, the customer is the merchant. The revenue recognition criteria are met when the Company has fulfilled its obligations to the merchant typically by electronically delivering the voucher to the subscriber and providing the purchaser list to the merchant. Under certain Deals arrangements, the Company is obligated to (i) provide subscriber delivery information to the merchant or (ii) deliver the products to the subscriber on behalf of the merchant; in these situations the revenue recognition criteria are satisfied when the required obligations are met.  The Company's Deal merchants assume the contractual risks, which include providing the goods or service and the risk of unsold inventory. As such, all Deals transactions are recorded at the net commission amount, which is the amount charged to the subscriber less the amount to be paid to the merchant and any applicable taxes and net of estimated refunds.
Under certain Deals arrangements, the Company pays the merchant on a redemption model, whereby the merchant is paid based on vouchers redeemed as opposed to vouchers sold. If a subscriber does not redeem a voucher under these agreements, the Company retains the entire initial purchase value of the voucher including the amount that would have been payable to the merchant if the deal had been redeemed, to the extent permitted by local laws and regulations. The Company records revenue from unredeemed vouchers, less any applicable taxes, and derecognizes the related liability only when the Company is legally released from its obligation, which the Company deems to be the later of (i) the expiration of the paid and promotional value of the voucher and (ii) final payment to the merchant to the extent permitted by local law.
Products
For Products, the revenue recognition criteria are met when the goods are shipped and title passes to the subscriber, which is the customer in a Products arrangement. Product sales represent revenue from the gross selling price of products and related shipping fees, net of promotional discounts and returns allowances. The Company is the primary obligor in these transactions, is subject to inventory risk, and has latitude in establishing prices.
Other
The Company's Other revenues are derived primarily from advertising arrangements with third parties.  Revenue from advertising sales is recognized as advertising services are provided to the Company's customers. 
Contra-revenue
The Company makes payments through arrangements with merchants. Payments to merchants are generally recorded as contra-revenue unless the Company receives in return a specifically identifiable benefit and the fair value of such benefit is determinable and measurable. If a benefit can be identified with a determinable and measurable fair value, the payment is recorded as marketing expense up to the fair value of the benefit.



12


LivingSocial Korea, Inc.
Notes to Consolidated Financial Statements
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________


Subscriber Loyalty Programs
The Company's loyalty programs allow its subscribers to earn credits that can be redeemed for future purchases of Deals or Products. Subscriber credits are provided to existing subscribers for performing qualifying acts. A qualifying act is when a subscriber performs an action, such as providing the Company a new subscriber referral, and the subscriber is made aware of the credits prior to the performance of the action. Upon issuance of the subscriber credits following a qualifying act, the value of subscriber credits is allocated between marketing expense or contra-revenue, based upon an estimate of whether such credits will be used by a subscriber in a Deals or Products transaction. If credits are issued for a specific revenue transaction, the value of the subscriber credit is recorded consistent with the underlying revenue transaction. Unredeemed subscriber credits are recorded at the Company's ultimate cost of such credits in accrued liabilities. The cost of expired credits is reversed against the initial marketing expense or revenue amounts in the period of expiration.
The Company also issues promotional credits in subscriber acquisition and other marketing campaigns, where the recipient of the credits is not required to perform any qualifying acts. Upon redemption, the value of promotional credits is recorded as either marketing expense or contra-revenue, dependent upon how the underlying revenue transaction is recorded (Deals or Products, respectively).
Subscriber Refunds
At the time revenue is recorded, the Company records an accrual for estimated refunds primarily based on the Company's historical experience with refunds.  Refunds are recorded as a reduction of revenue.  The liability for refunds is adjusted as appropriate as actual refund activity occurs. The Company routinely evaluates its assumptions used to estimate its subscriber refund accrual based on developments in refund and expiration patterns, subscriber contract changes, and other factors.
Costs of Revenue
Costs of revenue consist primarily of editorial and production costs, which include payroll and benefit costs, including related stock-based compensation expense, email fees for delivering vouchers to subscribers, fees paid to credit card and other payment processors, shipping costs, commissions paid to delivery agents and distributor fees. The Company records these costs when incurred. In addition, when it becomes probable that a revenue contract will result in an overall loss, the expected loss is recognized as costs of revenue when such losses become evident.
Costs of Goods Sold
Costs of goods sold include the cost of Products sold to subscribers along with outbound shipping charges and allocated editorial and production costs. Editorial and production costs include payroll and benefit costs, including related stock-based compensation expense, email fees for delivering vouchers to subscribers, fees paid to credit card and other payment processors, shipping costs, commissions paid to delivery agents and distributor fees. The Company records these costs upon the sale of Products.
Marketing Expenses
Marketing expense consists primarily of subscriber acquisition costs. These include online marketing costs, such as sponsored search, advertising on social networking sites, email marketing campaigns, and subscriber loyalty programs, and to a lesser extent, offline marketing costs such as television, radio and print advertising. Marketing payroll and benefit costs, including related stock- based compensation expense, are also classified as marketing expense. The Company records these costs when incurred. For the year ended December 31, 2012 and the 2011 Period, advertising costs were $4.2 million and $3.1 million, respectively.


13


LivingSocial Korea, Inc.
Notes to Consolidated Financial Statements
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________


Stock-Based Compensation
The Company uses its Parent's common stock for various forms of stock-based awards, including but not limited to stock options and restricted stock, to compensate its employees for future service. The Company accounts for stock-based compensation at fair value on the date of grant or modification, net of estimated forfeitures. The Company determines the fair value of stock options using the Black-Scholes option pricing model. The fair value of other stock-based awards is based on the valuation of the Company's common stock on the date of grant or modification (see Note 8). The fair value of an award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service period.
Stock-based compensation is classified in the consolidated statements of operations in a manner consistent with the statements of operations' classification of the employee's salary and benefits, as follows:
(in thousands)
Year ended December 31, 2012
 
Period from date of inception through December 31, 2011
 
 
 
 
Marketing expenses
$
1,187

 
$
434

Selling, general and administrative
36,797

 
8,852

Stock-based compensation expense
37,984

 
9,286

Capitalized stock-based compensation
290

 

Stock-based compensation
$
38,274

 
$
9,286


Income Taxes
The Company accounts for income taxes using the asset and liability approach. This approach requires the recognition of tax benefits or expenses on the temporary differences between the financial reporting and tax bases of the Company's assets and liabilities. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company also recognizes a tax benefit from uncertain tax positions only if it is "more likely than not" that the position is sustainable based on its technical merits. The Company's policy is to recognize interest and penalties on uncertain tax positions as a component of income tax expense.
Recent Accounting Pronouncements
In 2013, the Financial Accounting Standards Board ("FASB") issued new accounting guidance clarifying the accounting for the release of cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. This new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2013. The Company does not anticipate that this adoption will have a significant impact on the Company’s financial position, results of operations or cash flows.
In 2013, FASB also issued new accounting guidance requiring disclosure of items reclassified from other comprehensive income (loss) to net income. This guidance is effective for periods beginning after December 15, 2012. The adoption of this standard did not have a significant impact on the Company’s financial position, results of operations or cash flows.


14


LivingSocial Korea, Inc.
Notes to Consolidated Financial Statements
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________


3.    Business Combinations
On September 16, 2011, the Company acquired 100% of the outstanding capital stock of TicketMonster, a company incorporated under the laws of South Korea. TicketMonster has operations in South Korea and Malaysia. TicketMonster is primarily in the business of promoting discounted goods and services to its subscribers on behalf of its local merchant partners. The Company acquired TicketMonster principally for the purpose of extending the Deals business into South Korea and Malaysia and acquiring the leadership and human capital needed to develop and expand the business in those territories. The total purchase consideration consisted of the following:
(in thousands)
Non-Contingent
 
Contingent
 
Total
 
Consideration
 
Consideration
 
Consideration
 
 
 
 
 
 
Shares granted (11,272)
$
78,904

 
$

 
$
78,904

Cash paid at closing
26,113

 

 
26,113

Fair value of contingent consideration

 
3,619

 
3,619

Working capital adjustment
(1,643
)
 

 
(1,643
)
Total consideration
$
103,374

 
$
3,619

 
$
106,993

The fair values as of September 16, 2011 of shares issued as a component of the consideration and the contingent consideration were determined using a valuation analysis prepared with the assistance of a third party. The contingent consideration was payable in cash based on various financial metrics achieved by TicketMonster during the period between the closing date and December 31, 2012, up to a total maximum payment of $45.0 million. Based on financial metrics achieved by TicketMonster through December 31, 2012, the Company has determined that no payments are required to be made pursuant to this arrangement.
In addition to the purchase consideration, the Company agreed to transfer 16.5 million shares of LivingSocial's common stock to TicketMonster's founders and employees as they vest based on continued employment over the three-year period after acquisition (see Note 12), along with up to $17.7 million in cash also subject to continued employment. The Company is expensing the value of the issuable shares and the deferred cash payment as compensation expense over the post- combination period. The Company recognized approximately $38.0 million and $9.3 million of expense related to the shares during 2012 and 2011, respectively. The Company recognized approximately $13.7 million and $4.0 million of expenses related to the deferred cash payments during 2012 and 2011, respectively, of which $2.4 million, net of withholding, was paid in 2012. As of December 31, 2012, the deferred cash payment balance of $15.3 million was presented as "Accrued expenses" on the consolidated balance sheet.
The Company accounted for its acquisition of TicketMonster by recording all tangible and intangible assets acquired and liabilities assumed at their respective fair values on the acquisition date, with the remaining unallocated purchase price recorded as goodwill. The fair value assigned to identifiable intangible assets acquired was determined using an income approach for trade names, subscriber relationships and merchant relationships and a cost approach for technology. The fair values were based on the Company's estimates, including estimates for the deferred income tax liabilities, and were prepared using the assistance of a third party. The Company recognized deferred income tax assets and liabilities for the tax effects of the differences between assigned book values and tax bases of assets acquired and liabilities assumed in the acquisition. As a result, the Company recorded a net deferred income tax liability of $14.3 million.




15


LivingSocial Korea, Inc.
Notes to Consolidated Financial Statements
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________



The following represents the allocation of the purchase consideration:
($ in thousands)
Estimated
 
  Estimated
 
Fair Value
 
 Useful Life
 
 
 
 
Accounts receivable
$
2,655

 
 
Other current assets (including cash of $1,836)
3,147

 
 
Other non-current assets
5,186

 
 
Merchants payable
(20,611
)
 
 
Accounts payable
(8,388
)
 
 
Other current liabilities
(2,581
)
 
 
Other liabilities
(1,039
)
 
 
Deferred tax assets (liabilities)
(14,323
)
 
 
Intangible assets:
 
 
 
Technology
600

 
1 year
Trade name
18,200

 
12 years
Subscriber relationships
53,900

 
6 years
Merchant relationships
21,700

 
1 year
Goodwill
48,547

 
 
Total consideration
$
106,993

 
 
The goodwill of the acquired company is primarily related to expected sales growth from future product offerings and customers, together with certain intangible assets that do not qualify for separate recognition, including assembled workforce. None of the goodwill is deductible for tax purposes.
TicketMonster recognized approximately $76.8 million of revenue and $95.4 million of net losses in 2012 and approximately $12.2 million of revenue and $32.3 million of net losses from the acquisition date to December 31, 2011, which results are included in the accompanying consolidated financial statements. The Company expensed acquisition-related costs of approximately $1.0 million related to this acquisition in 2011.









16


LivingSocial Korea, Inc.
Notes to Consolidated Financial Statements
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________


4.    Property and Equipment
(in thousands)
As of December 31,
 
2012
 
2011
Computer equipment
$
3,357

 
$
1,395

Office furniture and equipment
1,269

 
579

Software
2,049

 
322

Leasehold improvements
1,304

 
915

Construction in progress
34

 
547

 
8,013

 
3,758

Less: Accumulated depreciation and amortization
(2,831
)
 
(526
)
Total property and equipment, net
$
5,182

 
$
3,232


Depreciation and amortization expense related to property and equipment for the year ended December 31, 2012 and the 2011 Period was approximately $2.1 million and $0.3 million, respectively.
5.    Intangible Assets and Goodwill
Intangible Assets
The carrying amounts of definite lived intangible assets consist of the following:
(in thousands)
     As of December 31, 2012
 
 
 
 
 
 
 
Gross
 
Accumulated
 
Net
 
Carrying Value
 
Amortization
 
Carrying Value
Subscriber relationships
$
56,059

 
$
(20,905
)
 
$
35,154

Merchant/customer relationships
22,569

 
(22,569
)
 

Trade names
18,928

 
(2,038
)
 
16,890

Technology
790

 
(789
)
 
1

Non-compete agreements
824

 
(510
)
 
314

Total other intangible assets
$
99,170

 
$
(46,811
)
 
$
52,359


17


LivingSocial Korea, Inc.
Notes to Consolidated Financial Statements
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________


(in thousands)
     As of December 31, 2011
 
 
 
 
 
 
 
Gross
 
Accumulated
 
Net
 
Carrying Value
 
Amortization
 
Carrying Value
Subscriber relationships
$
51,675

 
$
(4,521
)
 
$
47,154

Merchant/customer relationships
20,804

 
(6,068
)
 
14,736

Trade names
17,449

 
(424
)
 
17,025

Technology
727

 
(210
)
 
517

Non-compete agreements
759

 
(167
)
 
592

Total other intangible assets
$
91,414

 
$
(11,390
)
 
$
80,024

Amortization expense for definite lived intangible assets was approximately $32.5 million and $11.6 million for the year ended December 31, 2012 and the 2011 Period, respectively. The weighted average remaining amortization period of intangible assets is 6.7 years as of December 31, 2012. Estimated future amortization expense with respect to definite lived intangible assets existing at December 31, 2012, by year and in the aggregate, is as follows:
(in thousands)
 
 
 
 
 
Fiscal Years
 
 Amount
2013
 
 $ 13,957
2014
 
           9,986
2015
 
           9,169
2016
 
           6,336
2017
 
           3,563
thereafter
 
           9,348
 
 
 $ 52,359
Goodwill
The carrying value of goodwill was $50.6 million and $46.6 million at December 31, 2012 and 2011 respectively. Given that a significant component of goodwill is related to the Company's expected future growth of its reporting units, the Company closely monitors the results and projections at each reporting unit.  If the long-term financial forecasts for these reporting units deteriorate and/or other indicators of impairment are present, the Company could be required to recognize impairment losses on the carrying value of the goodwill in future periods. The Company believes the fair value of its goodwill exceeds its carrying value at December 31, 2012 and 2011.
There were no goodwill impairment losses or measurement period adjustments during 2012 or 2011. The $4.0 million change in the carrying amount of goodwill during the year ended December 31, 2012 reflects the effect of changes in foreign currency exchange rates.




18


LivingSocial Korea, Inc.
Notes to Consolidated Financial Statements
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________


6.    Accrued Expenses
The following summarizes the Company's accrued expenses as of December 31, 2012 and 2011:
(in thousands)
     As of December 31,
 
2012
 
2011
Loyalty programs
$
1,584

 
$
608

Refunds
3,005

 
179

Accrued compensation and benefits
22,927

 
3,295

Accrued professional fees and other
2,234

 

Total accrued expenses
$
29,750

 
$
4,082

7.    Related Parties - relationship with LivingSocial, Inc.
LivingSocial provides certain executive office and other administrative services to the Company and allocates the fair value of such services to the Company, when material, based on the business unit's pro rata share of revenue. For the year ended December 31, 2012 approximately $2.1 million was allocated for these services and none was allocated in 2011.
As of December 31, 2012 and 2011, the Company had intercompany loans with LivingSocial and its subsidiaries to support working capital requirements, with balances of approximately $21.9 million and $15.1 million, respectively. The loans have stated terms and conditions, including a stated interest rate equal to the one-year LIBOR rate plus 350 basis points compounded on a daily basis, and are expected to be collected and repaid, as appropriate, within one year. Approximately $0.3 million of interest was paid in 2012 and none was paid in the 2011 Period.
In connection with the Company's acquisition of TicketMonster in 2011, LivingSocial contributed 27.9 million shares of its common stock, with an estimated fair value of $195.0 million, to the Company to be used for both purchase consideration and post-acquisition compensation purposes. These shares have been reported in the Company's consolidated balance sheets as Investment in shares of Parent. In connection with the transfer of these shares and the acquisition of TicketMonster, the Company also entered into intercompany loans with LivingSocial in the amount of $167.4 million, which are reported in the Company's consolidated balance sheets as Share Capital. As a result of the final working capital adjustment, the Company repaid $0.6 million of this loan in 2012.
8.    Stock-Based Compensation
The Company uses LivingSocial common stock for various forms of stock-based awards, including but not limited to stock options and restricted stock, to compensate its employees and directors for future service.
Stock Options
Options generally become vested and exercisable over a period of four years. The term of the options is up to ten years. A summary of stock option activity during the year ended December 31, 2012 and the 2011 Period is presented below:

19


LivingSocial Korea, Inc.
Notes to Consolidated Financial Statements
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________


 
 
 Stock Options
 
 Weighted- Average Exercise Price
 
 Weighted- Average Remaining Contractual Life (in years)
 
 Aggregate Intrinsic Value
Outstanding at date of inception
 

 

 

 

Granted
 
86,999

 
$
7.69

 
 
 
 
Exercised
 

 

 
 
 
 
Forfeited
 

 

 
 
 
 
Outstanding at December 31, 2011
 
86,999

 
$
7.69

 
9.83

 
$

Granted
 
2,789,937

 
$
0.35

 
 
 
 
Exercised
 

 

 
 
 
 
Forfeited
 
(40,400
)
 
$
3.98

 
 
 
 
Outstanding at December 31, 2012
 
2,836,536

 
$
0.35

 
9.89

 
$

Vested/Exercisable at December 31, 2012
 
32,905

 
$
0.35

 
7.01

 
$

Vested and Expected to Vest
 
2,729,337

 
$
0.35

 
9.89

 
$

During the year ended December 31, 2012 and the 2011 Period, the weighted average fair value of stock options granted was $0.21 and $3.28, respectively. Stock-based compensation during 2012 and 2011 was approximately $0.1 million and $0.02 million, respectively, from stock options.
As of December 31, 2012, unrecognized stock-based compensation, net of estimated forfeitures, relating to unvested stock options was approximately $0.6 million, which is scheduled to be recognized as stock-based compensation over a weighted-average period of 3.5 years.
The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock option grants. The determination of the fair value of stock-based compensation grants is affected by estimates of the fair value of LivingSocial's stock as well as assumptions regarding a number of variables, including stock price volatility, risk-free interest rate, and actual and projected stock option exercise behaviors. The Company estimated the fair value for these stock options at the grant date, using the following assumptions:
 
2012
 
2011
Risk-free interest rate
0.88% - 1.56%
 
1.41% - 1.83%
Expected dividend yield
 
Expected volatility
40.4% - 46.9%
 
49.50%
Expected term (years)
6.25
 
6.25
LivingSocial does not anticipate paying dividends on common stock during the expected term of the grants; therefore, the dividend rate was assumed to be zero. Expected volatility is estimated by considering the historical volatility of similar publicly-traded companies for which share price information is available. The expected term represents the period of time the stock options are expected to be outstanding; the Company estimated the expected term using the "simplified method" as it does not have sufficient historical exercise data to provide a reasonable estimate.


20


LivingSocial Korea, Inc.
Notes to Consolidated Financial Statements
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________


Restricted Stock
A summary of restricted stock activity during the year ended December 31, 2012 and for the 2011 Period is presented below:
 
 
 Shares of Restricted Stock
 
 Weighted- Average Grant Date Fair Value
Outstanding at July 1, 2011

 

Granted in conjunction with TicketMonster acquisition
16,503,750

 
$
7.00

Outstanding at December 31, 2011
16,503,750

 
$
7.00

Forfeited
(46,391
)
 
$
7.00

Outstanding at December 31, 2012
16,457,359

 
$
7.00

Stock-based compensation (including amounts capitalized) was $38.2 million and $9.3 million during 2012 and 2011, respectively, related to restricted stock.
As of December 31, 2012, there was $67.8 million of unrecognized stock-based compensation related to restricted stock, which is scheduled to be recognized as compensation over a weighted-average period of 1.7 years.
Common Stock Valuations
Given the lack of an active public market for the Parent's common stock, the Company determined the fair value per share of the common stock underlying the stock-based awards through contemporaneous valuations as authorized by the Parent's board of directors, third-party transactions in the Parent's stock, or management's best estimate of fair value based upon recent transactions and valuations.
9.    Fair Value
Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Short-term Financial Instruments
The inputs used in measuring the fair value of cash equivalents are considered to be Level 1 in accordance with the three-tier fair value hierarchy. The fair market values are based on quoted prices in active markets at period-end supplied by the various banks and brokers that held the majority of the Company’s funds.
Other Financial Instruments
The inputs used in measuring the fair value of contingent consideration related to the Company’s acquisition of TicketMonster are considered to be Level 3 in accordance with the hierarchy. The fair market value of the contingent consideration was approximately $3.6 million as of the acquisition date and was determined to be $0 as of December 31, 2011 with the change being reflected in net loss. The contingency expired on December 31, 2012 without payment.

21


LivingSocial Korea, Inc.
Notes to Consolidated Financial Statements
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________


Other Instruments
The Company has no other financial instruments or nonfinancial assets or liabilities that are measured at fair value on a recurring basis.
Assets Measured at Fair Value on a Nonrecurring Basis
The Company measures its long-lived assets, including property and equipment, goodwill and other intangible assets, at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be impaired.
10.    Income Taxes
Domestic (Korean) and foreign components of loss from continuing operations before income taxes are presented below:
(in thousands)
 
 
Year Ended December 31, 2012
 
Period from Date of Inception through December 31, 2011
 
 
 
 
 
 
 
Domestic loss before income taxes
$
(101,658
)
 
$
(38,886
)
Foreign loss before income taxes
(2,035
)
 
(439
)
    Total loss before income taxes
$
(103,693
)
 
$
(39,325
)

The benefit from income taxes consists of the following:

22


LivingSocial Korea, Inc.
Notes to Consolidated Financial Statements
For the Year Ended December 31, 2012 and from Date of Inception (July 1, 2011) through December 31, 2011
_____________________________________________________________________________________


(in thousands)
 
 
Year Ended December 31, 2012
 
Period from Date of Inception through December 31, 2011
 
 
 
 
 
 
 
Current income tax provision (benefit):
 
 
 
 
 
Domestic
 
$
21

 
$
177

 
Foreign