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[Urbi_et_Orbi]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010
 

http://sec.gov/Archives/edgar/data/1416265/000141626511000224/0001416265-11-000224-index.htm

[Urbi_et_Orbi]

On June 30, 2011, we intend to replace our automated plan system with a new loan search tool.  Beginning on that date, lenders will no longer be able to create automated plans, but will instead be able to use the loan search tool to identify Notes that meet their investment criteria. A lender using the search tool will be asked to indicate (i) the Prosper Rating or Ratings she wishes to use as search criteria, (ii) the total amount she wishes to invest and (iii) the amount she wishes to invest per Note. If she wishes to search for Notes using criteria other than, or in addition to, Prosper Rating, she will be able to use one or more of several dozen additional search criteria, such as loan amount, debt-to-income ratio and credit score.

The search tool will then compile a basket of Notes for the lender’s consideration that meet her search criteria.  If the aggregate principal amount of the Notes that meet her criteria exceeds the total amount she wishes to invest, the search tool will select Notes for her basket based on the principle of first in, first out, i.e.,  the Note with the corresponding listing that was posted on our website earliest will be the first included in her basket, then the Note with the next oldest corresponding listing will be included, and so on, until the aggregate principal amount of Notes in her basket equals the amount she wishes to invest. To the extent available Notes that meet the lender’s criteria are insufficient to fill her order, the lender will be advised of this shortfall and given an opportunity either to reduce the size of her order or modify her search criteria to make her search more expansive.

If the lender’s search criteria included multiple Prosper Ratings, the search tool will divide her basket into equal portions, one portion representing each Prosper Rating selected, and then attempt to fill each portion in the manner just described.  To the extent there are insufficient Notes available with a particular Prosper Rating to fill that portion of the lender’s basket, the search tool will attempt to make up the deficit by including additional Notes with the other Prosper Ratings selected in equal proportions. To the extent available Notes with these other Prosper Ratings are still insufficient to fill the lender’s order, the lender will be advised of this shortfall and given an opportunity either to reduce the size of her order or modify her search criteria to make her search more expansive.

For example, if a lender using the search tool indicated that she wished to invest a total of $300 in Notes with a Prosper Rating of B, C or D, the search tool would first attempt to fill her order with equal portions of B, C and D Notes ($100 – B; $100 – C; $100 – D). If there were only $50 of D Notes available, the search tool would attempt to make up the difference by  increasing the allocation of B and C Notes from $100 to $125 ($125 – B; $125 – C; $50 – D).  If there were $125 of B Notes available but only $110 of C Notes available, the search tool would then attempt to make up the remaining gap by increasing the allocation of B Notes from $125 to $140 ($140 – B; $110 – C; $50 – D). But if there were only $130 worth of B Notes available, the lender would be given the choice of expanding her search criteria or reducing the total size of her order from $300 to $290.  If she elected to reduce the size of her order, her final order would consist of $290 of Notes: $130 of B Notes, $110 of C Notes and $50 of D Notes.

As with a lender making manual bids, a lender using the loan search tool will not be permitted to place a bid unless the funds in her account are sufficient to cover the bid, and funds will only be debited from her account if and when her bid is successful.

[Urbi_et_Orbi]

Our normal collection process for borrower loans changes in the event of a borrower member bankruptcy filing.  When we receive notice of the bankruptcy filing, as required by law, we cease all automatic monthly payments on the borrower loan and defer any other collection activity.  The status of the borrower loan, which the relevant lender members may view through their online Prosper account, switches to “bankruptcy.”  We then determine whether we have a basis to object to the inclusion of the debt in any bankruptcy action (e.g., based on the time between loan origination and bankruptcy filing).  If the proceeding is a Chapter 7 bankruptcy filing seeking liquidation, we attempt to determine if the proceeding is a “no asset” proceeding, based on instructions we receive from the bankruptcy court.  If the proceeding is a “no asset” proceeding, we take no further action and assume that no recovery will be made on the borrower loan.
 
In all other cases, we file a proof of claim involving the borrower member.  The decision to pursue additional relief beyond the proof of claim in any specific matter involving a borrower member will be entirely within our discretion and will depend upon certain factors including:
 
·if the borrower member used the proceeds of the borrower loan in a way other than that which was described in the Prosper borrower listing;
 
·if the bankruptcy is a Chapter 13 proceeding, whether the proceeding was filed in good faith and if the proposed plan reflects a “best effort” on the borrower member’s behalf; and
 
·our view of the costs and benefits to us of any proposed action

[Urbi_et_Orbi]

As of December 31, 2010, we employed thirty-eight full-time employees.  Of these employees:
 
·13 were in network and engineering;
 
·8 were in customer services and operations, which includes the employees who conduct our collection activities;
 
·7 were in legal and finance;
 
·8 were in marketing and risk; and
 
·2 were in general and administration.

[Urbi_et_Orbi]

On February 25, 2011, we exercised our option to extend our corporate office lease term by two years so that the lease will expire on July 31, 2013.

[Urbi_et_Orbi]

We have incurred operating losses since our inception and we anticipate that we will continue to incur net losses for a number of years as we grow our business.  For the periods ended December 31, 2010 and 2009 we had negative cash flows from operations of $9.6 million and $9.8 million, respectively.  Additionally, since our inception through December 31, 2010, we have an accumulated deficit of $50.8 million.

Incidentally, the statement regarding expecting net losses for a number of years stands in contrast with recent public statements from Prosper executive Jim Catlin, EVP of Acquisitions and Risk.

http://www.prospers.org/forum/prosper_projects_breakeven_in_2012_w_2030_million_in_monthly_originations-t23360.0.html

Some really significant claims being made here...and no safe harbor language regarding such major forward-looking claims in a public interview by a company exec.

http://www.sociallending.net/state-of-the-industry/interview-with-senior-management-at-prosper/

Some notable highlights from Jim Catlin, EVP of Acquisitions and Risk.

- Everyone very excited about the platform tweak (even though it is the complete oppsite of what they set out to do.  oh, well.)
- Feeling very confident about new round of cash injection from existing investors within the next few months. wow.
- Working on forecast which has Prosper breaking even in 2012.
- Anticipates $20-$30 million in monthly originations in 2012.

[Urbi_et_Orbi]

The decrease in professional service expenses is attributable to lower legal fees in 2010 related to our registration statement, the termination of our lobbying contract...

Sensible move.

[Urbi_et_Orbi]

As reflected in the accompanying consolidated financial statements, Prosper has incurred net losses and negative cash flows from operations since inception, and has an accumulated deficit of approximately $50.8 million as of December 31, 2010.  At December 31, 2010, the Company had approximately $4.3 million in cash and cash equivalents. The Company does not believe that its cash resources are sufficient to sustain its operations through 2011 without obtaining additional financing.

Based on their burn-rate, that additional financing would need to come pretty soon.

[Urbi_et_Orbi]

On March 9, 2011, we amended our Articles of Incorporation to increase the number of authorized common stock by 296,886 to 43,860,321.

[onthefence]

Beginning on that date, lenders will no longer be able to create automated plans, but will instead be able to use the loan search tool to identify Notes that meet their investment criteria.

That is going to suck.  Will people have to rely on Prosper's custom built automated plans?

[Urbi_et_Orbi]

Beginning on that date, lenders will no longer be able to create automated plans, but will instead be able to use the loan search tool to identify Notes that meet their investment criteria.

That is going to suck.  Will people have to rely on Prosper's custom built automated plans?

Not my area of expertise at all, but sections of the 10-K seemed to indicate that Prosper is concerned about being classified as an "investment advisor."  I wonder if the current version of the automated bidding tool was a potential problem in this regard.

[Xenon481]

Per the 10-K, Prosper had $4.3million in cash on December 31st, 2010 and their average burn rate for 2010 was ~$875,000/month.

If everything were to stay the same, Prosper would be running out of money around the end of May or beginning of June in 2011.

If they are going to get a VC infusion, they better get it within the next 1.5-2 months.

[Xenon481]

Nominating to The Lobby!

[jimmycaps]

Urbi -- Thanks for your interpretation of the forms.  That helps.

Xenon -- I'm with you. I anticipate them running out of money by Mid-May to June.  It makes sense because all of these rebates are to be paid 4/30/2011.   I plan on holding onto my current loans through this month and if I don't hear any news about them getting more money, I'm selling

[Mtnchick]

Nominating to The Lobby!

I tried doing that hours ago, lol!