Prosper.com is near bankruptcy

Its no secret. Prosper.com has been hemorrhaging cash. Its all in the public SEC filings.

I'm no accountant, but the numbers really jump off the page. Prosper is near bankruptcy.

Prosper's most recent quarterly report, which reports on the company's condition on 9/30/2009 reported $2,079,624 of cash left. That was down from $4,617,954 in the 6/30/2009 report. During this interval, cash was used up at the rate of $27,591 per day.

If you review the quarterly report, you will note that I have excluded a category called "restricted cash". A footnote explains "Restricted cash consists primarily of an irrevocable letter of credit held by a financial institution in connection with the Company’s office lease and cash deposits required to support the Company’s ACH activities and secured corporate credit cards." Gotta keep those ACH transfers rollin', etc. That restricted cash has to stay where it is. Therefore, I only count the cash that isn't in this restricted category.

Assuming a constant cash burn rate, on 11/10/2009 prosper would have had $948,412 of cash left. On that day, Nigel Morris invested $1,000,000., bringing my estimate of prosper's cash to $1,948,412. But then...

Assuming the cash burn rate stayed constant at $27,591 per day, Prosper would have had zero cash as of 1/20/2010, a few days ago!

I'm not saying prosper is bankrupt now. This is merely what would have occurred under this simple scenario. The inside story is surely more complex.

One would expect that as cash dried up, a prudent manager would reduce staff, defer executive salaries, defer accounts payable (ie pay the landlord late, pay the lawyers late, etc). We don't know whether these things have occurred. If they have taken these prudent steps, then another month or perhaps more is possible.

Simple analysis of the public documents indicates that prosper is in desperate need of cash.

The public documents also tells us about prosper.com's liabilities. The most recently quarterly report lists $434,738 accounts payable, $987,128 accrued liabilities, $281,061 long term debt. Those total to $1.7 million. It seems likely that those liabilities are higher now that it was on the 9/30/09 report date. If so, then zero cash in the bank is really net negative $1.7 million.

Oh but then on 11/10/09, Nigel Morris' invested $1,000,000 in the form of a "bridge loan" (per SEC filings), so that increased liabilities to maybe $2.7 million. That money is surely now spent (see above calculation).

Having zero cash and at the same time $2.7 million in liabilities is quite serious.

You may also notice that I haven't counted the loans or notes (two sides of the same coin) that prosper issued after their restart in 2009. That's because these as far as cash flow is concerned, these two items net out. For every loan prosper makes, there is an equal amount of notes issued to lenders.

I haven't tried to calculate what would happen if a bankruptcy were to occur. I've simply calculated what appears to be happening in the operation of the ongoing business.

There are now two possibilities. We could see a new investment of several million in Prosper during the next few weeks, which would breath new life to their balance sheet, or we could see bankruptcy.

Would be a shame to see this great idea go down. With cash in the bank from a new large investment, and new management, I might even become a customer again.

I'm no accountant, but golly gosh, it sure looks like the situation is coming to a head.

The best discussion among prosper lenders is always found at prospers.org

Prosper.com - 12/2009 late loan stats update

Here's the December 2009 update to to my Prosper.com late loan statistics charts.

These charts show statistics for the performance of all prosper.com loans. Each curve represents the set of loans that were created in one calendar month. The vertical axis is the fraction of those loans that have "gone bad", in other words are 1 month late or worse (up to and including default or "charge off" as it is now called). The horizontal axis is the observation date. All data comes from Prosper.com's performance web page.

The worst month so far is still October '06. Of the loans originated by Prosper.com in October'06, 44.2% have now gone bad.

Feb '07 is comin' up fast with 43.9% gone bad so far.

More detail can be found in my earlier posts.

Click on the chart to see a larger clearer version.

Here's a chart of the same data in which each curve has been slid to the left to a common origin. The horizontal axis is now days since loan origination month.

Explanation of methodology can be found in my prior postings in this blog, and in forum discussions on the old prosper forum, now archived at www.prosperreport.com

Many of the very early posts in this blog are still on point, and provide background on prosper, from a lender's perspective. If you're new to this, please read old posts before sending questions.

Not much news from prosper.com this month. Lenders have not yet heard from new Prosper executive Nick Talwar.

Prosper needs a cash infusion from venture capital source within the next few months. Difficult to predict with precision, but the deadline must be coming up pretty soon now. Maybe end of January? If they become frugal, perhaps the cash could last a little longer. They must be desperately be searching for funds.

PS: Best discussion among P2P and Prosper.com lenders is always found on prospers.org. See you there