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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019 
Commission
File Number
Exact Name of Registrant as Specified in its Charter
I.R.S. Employer
Identification Number
333-147019
333-179941-01
333-204880
333-225797-01
PROSPER MARKETPLACE, INC.
a Delaware corporation
221 Main Street, 3rd Floor
San Francisco, CA 94105
Telephone: (415) 593-5400
73-1733867
333-179941
333-204880-01
333-225797
PROSPER FUNDING LLC
a Delaware limited liability company
221 Main Street, 3rd Floor
San Francisco, CA 94105
Telephone: (415) 593-5479
45-4526070
Securities registered pursuant to Section 12(b) of the Act:
RegistrantTitle of Each ClassName of Each Exchange on Which Registered
Prosper Marketplace, Inc.NoneNone
Prosper Funding LLCNoneNone

Securities registered pursuant to Section 12(g) of the Act:
RegistrantTitle of Each ClassName of Each Exchange on Which Registered
Prosper Marketplace, Inc.NoneNone
Prosper Funding LLCNoneNone

Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Prosper Marketplace, Inc.
Yes x No ¨
Prosper Funding LLC
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Prosper Marketplace, Inc.
Yes x No ¨
Prosper Funding LLC
Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large
Accelerated
Filer
Accelerated
Filer
Non-
Accelerated
Filer
Smaller
Reporting
Company
Emerging Growth Company
Prosper Marketplace, Inc.
o
o
x
o
o
Prosper Funding LLC
o
o
x
o
o

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Prosper Marketplace, Inc.
Yes ¨ No x
Prosper Funding LLC
Yes ¨ No x
Prosper Funding LLC meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H(2) of Form 10-Q.
As of May 6, 2019, there were 70,491,295 shares of Prosper Marketplace, Inc. common stock outstanding. Prosper Funding LLC does not have any common stock outstanding.
THIS COMBINED FORM 10-Q IS SEPARATELY FILED BY PROSPER MARKETPLACE, INC. AND PROSPER FUNDING LLC. INFORMATION CONTAINED HEREIN RELATING TO ANY INDIVIDUAL REGISTRANT IS FILED BY SUCH REGISTRANT ON ITS OWN BEHALF. EACH REGISTRANT MAKES NO REPRESENTATION AS TO INFORMATION RELATING TO THE OTHER REGISTRANT.

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TABLE OF CONTENTS
 
Page No.
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
Except as the context requires otherwise, as used herein, “Registrants” refers to Prosper Marketplace, Inc. (“PMI”), a Delaware corporation, and its wholly owned subsidiary, Prosper Funding LLC (“PFL”), a Delaware limited liability company; “we,” “us,” “our,” “Prosper,” and the “Company” refer to PMI and its wholly owned subsidiaries, PFL, BillGuard, Inc. (“BillGuard”), a Delaware corporation, Prosper Healthcare Lending LLC (“PHL”), a Delaware limited liability company, and Prosper Warehouse I Trust, a Delaware statutory trust, on a consolidated basis; and “Prosper Funding” refers to PFL and its wholly owned subsidiaries, Prosper Asset Holdings LLC (“PAH”), a Delaware limited liability company, and Prosper Depositor LLC, a Delaware limited liability company, on a consolidated basis. PAH was dissolved on November 28, 2018. As a result, references to Prosper Funding do not include PAH for periods subsequent to the year ended December 31, 2018. In addition, the unsecured, consumer loans originated through our marketplace are referred to as “Borrower Loans,” and the borrower payment dependent notes issued through our marketplace, whether issued by PMI or PFL, are referred to as “Notes.” Investors currently invest in Borrower Loans through two channels: (i) the “Note Channel,” which allows investors to purchase Notes from PFL, the payments of which are dependent on the payments made on the corresponding Borrower Loan; and (ii) the “Whole Loan Channel,” which allows accredited and institutional investors to purchase Borrower Loans in their entirety directly from PFL. The Notes available to Note Channel investors are distinguishable from notes held by certain third party investors pursuant to Prosper’s securitization transactions, which are referred to herein as “Notes Issued by Securitization Trust.” Finally, although historically we have referred to investors as “lender members,” we call them “investors” herein to avoid confusion since WebBank is the lender for Borrower Loans originated through our marketplace.

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Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as “may,” “believe,” “expect,” “project,” “estimate,” “intend,” “anticipate,” “plan,” “continue” or similar expressions. In particular, information appearing under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes forward-looking statements. Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Where, in any forward-looking statement, PFL or PMI expresses an expectation or belief as to future results or events, such expectation or belief is based on the current plans and expectations of their respective managements, expressed in good faith and is believed to have a reasonable basis. Nevertheless, there can be no assurance that the expectation or belief will result or be achieved or accomplished.
The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:
the performance of the Notes, which, in addition to being speculative investments, are special, limited obligations that are not guaranteed or insured;
PFL’s ability to make payments on the Notes;
our ability to attract potential borrowers and investors to our marketplace;
the reliability of the information about borrowers that is supplied by borrowers, including actions by some borrowers to defraud investors;
our ability to service the Borrower Loans, and our ability or the ability of a third party debt collector to pursue collection against any borrower, including in the event of fraud or identity theft;
credit risks posed by the credit worthiness of borrowers, including the impact of borrower delinquencies, defaults and prepayments on the returns on the Notes, and the effectiveness of our credit rating systems;
the impact of future economic conditions on the performance of the Notes and the loss rates for the Notes;
our compliance with applicable regulations and regulatory developments or court decisions affecting our business;
potential efforts by state regulators or litigants to impose liability that could affect PFL’s (or any subsequent assignee’s) ability to continue to charge to borrowers the interest rates that they agreed to pay at origination of their loans;
our compliance with applicable local, state and federal law, including the Securities Act, the Investment Advisers Act of 1940, the Investment Company Act of 1940 and other laws;
potential efforts by state regulators or litigants to characterize PFL or PMI, rather than WebBank, as the lender of the Borrower Loans originated through our marketplace;
the application of federal and state bankruptcy and insolvency laws to borrowers and to PFL and PMI;
the lack of a public trading market for the Notes and the lack of any trading platform on which investors can resell the Notes;
the federal income tax treatment of an investment in the Notes and the corresponding PMI Management Rights, each of which is an "investment contract," a concept under federal securities law that refers to an arrangement where investors invest money in a common enterprise with the expectation of profits, primarily from the efforts of others;
our ability to prevent security breaches, disruptions in service, and comparable events that could compromise the personal and confidential information held on our data systems, reduce the attractiveness of our marketplace or adversely impact our ability to service Borrower Loans.
There may be other factors that may cause actual results to differ materially from the forward-looking statements in this Quarterly Report on Form 10-Q. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them does occur, what impact they will have on our results of operations and financial condition. You should carefully read the factors described in the “Risk Factors” sections of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2018 for a description of certain risks that could, among other things, cause our actual results to differ from these forward-looking statements.
All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q. We undertake no
4


obligation to update or revise forward-looking statements that may be made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events, other than as required by law.
Where You Can Find More Information
The following filings are available for download free of charge at www.prosper.com as soon as reasonably practicable after such filings are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”): Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports. Our SEC filings are also available to the public at the SEC’s website at www.sec.gov.
5


Item 1. Condensed Consolidated Financial Statements
Prosper Marketplace, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except for share and per share amounts)
March 31, 2019December 31, 2018
Assets
Cash and Cash Equivalents$64,188 $57,945 
Restricted Cash (1)148,798 149,114 
Available for Sale Investments, at Fair Value4,259 22,173 
Accounts Receivable (1)
987 5,119 
Loans Held for Sale, at Fair Value (1)106,640 183,788 
Borrower Loans, at Fair Value (1)
448,710 263,522 
Property and Equipment, Net31,394 15,273 
Prepaid and Other Assets (1)7,478 4,643 
Servicing Assets13,814 14,687 
Goodwill36,368 36,368 
Intangible Assets, Net929 999 
Total Assets$863,565 $753,631 
Liabilities, Convertible Preferred Stock and Stockholders' Deficit
Accounts Payable and Accrued Liabilities$17,463 $19,967 
Payable to Investors117,676 127,538 
Notes, at Fair Value258,722 264,003 
Notes Issued by Securitization Trust (1)
163,125  
Certificates Issued by Securitization Trust, at Fair Value (1)
19,134  
Warehouse Lines (1)93,629 162,488 
Other Liabilities25,992 10,629 
Convertible Preferred Stock Warrant Liability163,483 143,679 
Total Liabilities859,224 728,304 
Commitments and Contingencies (see Note 18)
Convertible Preferred Stock – $0.01 par value; 444,760,848 shares authorized as of March 31, 2019 and December 31, 2018; 214,637,925 issued and outstanding as of March 31, 2019 and December 31, 2018. Aggregate liquidation preference of $375,952 as of March 31, 2019 and December 31, 2018. 323,793 323,793 
Stockholders' Deficit 
Common Stock – $0.01 par value; 625,000,000 shares authorized; 71,427,230 shares issued and 70,491,295 shares outstanding, as of March 31, 2019; 71,411,145 shares issued and 70,475,210 shares outstanding, as of December 31, 2018 229 229 
Additional Paid-In Capital147,204 145,486 
Less: Treasury Stock(23,417)(23,417)
Accumulated Deficit(443,465)(420,751)
Accumulated Other Comprehensive Loss(3)(13)
Total Stockholders' Deficit(319,452)(298,466)
Total Liabilities, Convertible Preferred Stock and Stockholders' Deficit$863,565 $753,631 
(1) Includes amounts in consolidated variable interest entities (VIEs) presented separately in the table below.
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The following table presents the assets and liabilities of consolidated variable interest entities (VIEs), which are included in the condensed consolidated balance sheets above. The assets in the table below may only be used to settle obligations of consolidated VIEs and are in excess of those obligations. Additionally, the assets and liabilities in the table below include third-party assets and liabilities of consolidated VIEs only and exclude intercompany balances that eliminate in consolidation. See Note 7 - Securitizations and Note 11 - Debt, to our Notes to Condensed Consolidated Financial Statements for additional information.


March 31, 2019December 31, 2018
Assets of consolidated VIEs, included in total assets above
Restricted Cash$15,278 $ 
Accounts Receivable
$ $3,902 
Prepaid and Other Assets
3,340 $1,393 
Loans Held for Sale, at Fair Value106,640 $183,788 
Borrower Loans, at Fair Value
186,768 $ 
Total assets of consolidated variable interest entities$312,026 $189,083 
Liabilities of consolidated VIEs, included in total liabilities above
Notes Issued by Securitization Trust
163,125 $ 
Warehouse Line93,629 $162,488 
Certificates Issued by Securitization Trust, at Fair Value19,134 $ 
Total liabilities of consolidated variable interest entities$275,888 $162,488 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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Prosper Marketplace, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except for share and per share amounts)
Three Months Ended March 31, 
20192018
Revenues
Operating Revenues
Transaction Fees, Net$26,294 $31,354 
Servicing Fees, Net6,202 7,184 
Gain (Loss) on Sale of Borrower Loans2,697 3,350 
Fair Value of Warrants Vested on Sale of Borrower Loans(9,747)(15,279)
Other Revenue1,036 1,352 
Total Operating Revenues26,482 27,961 
Interest Income
Interest Income on Borrower Loans18,428 12,360 
Interest Expense on Notes, Certificates Issued by Securitization Trust, and Warehouse Lines(13,120)(10,729)
Net Interest Income5,308 1,631 
Change in Fair Value of Financial Instruments, Net(1,713)858 
Total Net Revenue30,077 30,450 
Expenses
Origination and Servicing8,161 8,821 
Sales and Marketing16,341 18,828 
General and Administrative18,768 18,715 
Restructuring Charges, Net82 323 
Change in Fair Value of Convertible Preferred Stock Warrants10,058 (4,604)
Other Expenses (Income), Net(648)(242)
Total Expenses52,762 41,841 
Net Loss Before Taxes(22,685)(11,391)
Income Tax Expense29 10 
Net Loss$(22,714)$(11,401)
Net Loss Per Share – Basic and Diluted$(0.32)$(0.16)
Weighted-Average Shares – Basic and Diluted70,487,006 70,302,910 
The accompanying notes are an integral part of these condensed consolidated financial statements.
8


Prosper Marketplace, Inc.
Condensed Consolidated Statements of Other Comprehensive Loss (Unaudited)
(in thousands)
Three Months Ended March 31, 
20192018
Net Loss$(22,714)$(11,401)
Other Comprehensive Income (Loss), Before Tax
Change in Net Unrealized Gain on Available for Sale Investments, at Fair Value
10 (15)
Realized (Gain) Loss on Sale of Available for Sale Investments, at Fair Value
  
Other Comprehensive Income (Loss), Before Tax10 (15)
Income Tax Effect
  
Other Comprehensive Income (Loss), Net of Tax10 (15)
Comprehensive Loss(22,704)(11,416)

The accompanying notes are an integral part of these condensed consolidated financial statements.
9


Prosper Marketplace, Inc.
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit
(in thousands, except for share amounts)
 Convertible Preferred Stock Common StockTreasury Stock    
 Shares AmountSharesAmountSharesAmount
Additional
Paid-In
Capital
Accumulated Other Comprehensive Income
Accumulated
Deficit
Total
Balance as of January 1, 2018214,637,925 323,793 75,468,234 228 (5,177,235)(23,417)136,653 (73)(380,806)(267,415)
Exercise of Vested Stock Options— — 43,746 — — — 8 — — 8 
Restricted Stock Vested— — — — — — 5 — — 5 
Exercise of Warrants— — 8,200 — — — — — — — 
Stock-based Compensation Expense— — — — — — 2,425 — — 2,425 
Change in Net Unrealized Loss on Available for Sale Investments, at Fair Value— — — — — — — (16)— (16)
Net Loss— — — — — — — — (11,401)(11,401)
Balance as of March 31, 2018214,637,925 323,793 75,520,180 228 (5,177,235)(23,417)139,091 (89)(392,207)(276,394)
Balance as of January 1, 2019214,637,925 323,793 75,652,445 229 (5,177,235)(23,417)145,486 (13)(420,751)(298,466)
Exercise of Vested Stock Options— — 16,085 — — — 4 — — 4 
Stock-based Compensation Expense— — — — — — 1,714 — — 1,714 
Change in Net Unrealized Loss on Available for Sale Investments, at Fair Value— — — — — — — 10 — 10 
Net Loss— — — — — — — — (22,714)(22,714)
Balance as of March 31, 2019214,637,925 323,793 75,668,530 229 (5,177,235)(23,417)147,204 (3)(443,465)(319,452)

The accompanying notes are an integral part of these consolidated financial statements.
10


Prosper Marketplace, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Three Months Ended March 31, 
20192018
Cash flows from Operating Activities: 
Net Loss $(22,714)$(11,401)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: 
Change in Fair Value of Borrower Loans, Loans Held for Sale and Notes 2,214 (858)
Depreciation and Amortization 2,679 2,825 
Gain on Sales of Borrower Loans (2,742)(3,339)
Change in Fair Value of Servicing Rights 3,246 3,278 
Stock-Based Compensation Expense 1,614 2,331 
Restructuring Liability  323 
Fair Value of Warrants Vested 9,747 15,279 
Change in Fair Value of Warrants 10,058 (4,604)
Other, Net (252)(532)
Changes in Operating Assets and Liabilities: 
Purchase of Loans Held for Sale at Fair Value (490,855)(595,199)
Proceeds from Sales and Principal Payments of Loans Held for Sale at Fair Value 464,660 513,953 
Accounts Receivable 4,132 (3,156)
Prepaid and Other Assets (701)2,540 
Accounts Payable and Accrued Liabilities (2,167)(183)
Payable to Investors (9,862)18,632 
Other Liabilities (679)(722)
Net Cash Used in Operating Activities (31,622)(60,833)
Cash Flows from Investing Activities: 
Purchase of Borrower Loans Held at Fair Value (44,225)(46,276)
Principal Payments of Borrower Loans Held at Fair Value 45,155 46,023 
Purchases of Property and Equipment (2,830)(1,358)
Purchases of Available for Sale Investments, at Fair Value  (1,504)
Maturities of Available for Sale Investments 18,010 7,000 
Net Cash Provided by Investing Activities 16,110 3,885 
Cash Flows from Financing Activities: 
Proceeds from Issuance of Notes Held at Fair Value 44,939 46,225 
Payments of Notes Held at Fair Value (44,117)(47,102)
Principal Payments on Notes Issued by Securitization Trust
(6,766) 
Principal Payments on Certificates Issued by Securitization Trust(1,133) 
Proceeds from Securitization Issuance 1,177  
Proceeds from Revolving Debt Facilities 31,751 71,600 
Payment for Debt Issuance Costs (4,417)(873)
Proceeds from Exercise of Warrants and Stock Options including Early Exercise, and Issuance of Restricted Stock 5 9 
Net Cash Provided by Financing Activities 21,439 69,859 
Net Increase in Cash, Cash Equivalents and Restricted Cash 5,927 12,911 
Cash, Cash Equivalents and Restricted Cash at Beginning of the Period 207,059 198,463 
Cash, Cash Equivalents and Restricted Cash at End of the Period $212,986 $211,374 
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Supplemental Disclosure of Cash Flow Information: 
Cash Paid for Interest $13,295 $10,941 
Non-Cash Investing Activity- Accrual for Property and Equipment, Net $293 $153 
Non-Cash Financing Activity Issuance of Securitization Notes and Certificates
$191,591 $ 
Non-Cash Financing Activity Derecognition of Warehouse Line debt$(100,422)$ 

The accompanying notes are an integral part of these condensed consolidated financial statements.
12


Prosper Marketplace, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Basis of Presentation
Prosper Marketplace, Inc. (“PMI”) was incorporated in the state of Delaware on March 22, 2005. Except as the context requires otherwise, as used in these notes to the condensed consolidated financial statements of PMI, “Prosper,” “we,” “us,” and “our” refer to PMI and its wholly-owned subsidiaries, on a consolidated basis.
The unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) and disclosure requirements for interim financial information and the requirements of Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2018. The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date. Management believes these unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.
The preparation of Prosper’s condensed consolidated financial statements and related disclosures in conformity with US GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in Prosper’s financial statements and accompanying notes. Management bases its estimates on historical experience and on various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of certain assets and liabilities. These judgments, estimates and assumptions are inherently subjective in nature and actual results may differ from these estimates and assumptions.
The accompanying interim condensed consolidated financial statements include the accounts of PMI, its wholly-owned subsidiaries and consolidated variable interest entities ("VIEs"). All intercompany balances have been eliminated in consolidation.
Securitization Notes are notes held by certain third party investors pursuant to Prosper’s securitization transactions, and are distinguishable from the borrower payment dependent Notes available to investors through our Note Channel.
2. Summary of Significant Accounting Policies
Prosper’s significant accounting policies are included in Note 2 – Summary of Significant Accounting Policies in Prosper’s Annual Report on Form 10-K for the year ended December 31, 2018. There have been no changes to these accounting policies during the first three months of 2019 other than the changes noted below.
Fair Value Measurements
Financial instruments consist principally of Cash and Cash Equivalents, Restricted Cash, Available for Sale Investments at Fair Value, Borrower Loans, Loans Held for Sale, Accounts Receivable, Accounts Payable and Accrued Liabilities, Payable to Investors, Convertible Preferred Stock Warrant Liability, Certificates Issued by Securitization Trust and Notes. The estimated fair values of Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Accounts Payable and Accrued Liabilities, and Payable to Investors approximate their carrying values because of their short term nature.
Restricted Cash
Restricted Cash consists primarily of cash deposits and short term certificate of deposit accounts held as collateral as required for long term leases, loan funding and servicing activities, and cash that investors or Prosper have on our marketplace that has not yet been invested in Borrower Loans or disbursed to the investor.
The following table provides a reconciliation of Cash, Cash Equivalents, and Restricted Cash reported within the condensed consolidated balance sheets that sum to the total of the same such amount shown in the condensed consolidated statements of cash flows:

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March 31, 2019December 31, 2018March 31, 2018December 31, 2017
Cash and Cash Equivalents$64,188 57,945 $39,309 $45,795 
Restricted Cash148,798 149,114 172,065 152,668 
Total Cash, Cash Equivalents and Restricted Cash shown in the consolidated statements of cash flows$212,986 $207,059 $211,374 $198,463 
Borrower Loans, Loans Held for Sale and Notes
Through the Note Channel, Prosper purchases Borrower Loans from WebBank, then issues Notes and holds the Borrower Loans until maturity. The obligation to repay a series of Notes issued through the Note Channel is dependent upon the repayment of the associated Borrower Loan. Borrower Loans funded and Notes issued through the Note Channel are carried on Prosper’s condensed consolidated balance sheets as assets and liabilities, respectively. We choose to measure certain financial instruments and certain other items at fair value on an instrument-by-instrument basis with unrealized gains and losses on items for which the fair value option has been elected reported in earnings. Management believes that the fair value option is more meaningful for the readers of the financial statements and it allows both the Borrower Loans and Notes to be valued using the same methodology. The fair value election, with respect to an item, may not be revoked once an election is made. Prosper estimates the fair value of such Borrower Loans and Notes using discounted cash flow methodologies that take into account expected prepayments, losses, recoveries and default rates. The Borrower Loans are not derecognized when a corresponding Note is issued as Prosper maintains the ability to sell the Borrower Loans without the approval of the holders of the corresponding Notes. 
Leases
We determine if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are included on our consolidated balance sheets in the Property and Equipment, Net and the Other Liabilities sections, respectively.

If a contract contains a lease, we evaluate whether it should be classified as an operating or finance lease. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred.  Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. For certain leases with original terms of twelve months or less we recognize the lease expense as incurred and we do not recognize ROU assets and lease liabilities.

Consolidation of Variable Interest Entities

The determination of whether to consolidate a variable interest entity (“VIE”) in which we have a variable interest requires a significant amount of analysis and judgment regarding whether we are the primary beneficiary of a VIE due to our holding a controlling financial interest in the VIE. A controlling financial interest in a VIE exists if we have both the power to direct the VIE’s activities that most significantly affect the VIE’s economic performance and a potentially significant economic interest in the VIE. The determination of whether an entity is a VIE considers factors, such as (i) whether the entity’s equity investment at risk is insufficient to allow the entity to finance its activities without additional subordinated financial support and (ii) whether a holder’s equity investment at risk lacks any of the following characteristics of a controlling financial interest: the direct or indirect ability through voting rights or similar rights to make decisions about a legal entity’s activities that have a significant effect on the entity’s success, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the legal entity.

Management regularly reviews and reconsiders its previous conclusions regarding the status of an entity as a VIE and whether we are required to consolidate such VIE in the consolidated financial statements.
Recent Accounting Pronouncements
Accounting Standards Adopted In The Current Period
In June 2018, the FASB issued ASU No. 2018-07, "Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting." The ASU is intended to reduce the cost and complexity and to improve financial reporting for nonemployee share-based payments. The ASU expands the scope of Topic 718, Compensation-Stock Compensation, which
14


currently only includes share-based payments to employees, to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. Prosper adopted the standard effective January 1, 2019. The adoption of this standard did not have a material impact on Prosper’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. Prosper adopted the standard effective January 1, 2019.  In accordance with ASU 2018-11, "Leases (Topic 842), Target Improvements", Prosper has elected not to restate prior periods and has presented the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings on January 1, 2019. The standard had a material impact on our consolidated balance sheets, but did not materially impact on our consolidated statement of operations. The most significant impact is the recognition of ROU assets and lease obligation liabilities for operating leases. Additionally, Prosper recorded an impairment charge to its ROU asset upon adoption due to existing sublease arrangements that were entered into at a loss. The impairment charge did not have a material impact as it will be offset by a reduction of the existing restructuring liability for those leases.
Prosper has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any existing leases as of the adoption date. The Company did not elect to apply the hindsight practical expedient when determining lease term and assessing impairment of right-of-use assets. The Company also elected a practical expedient that allowed it to not separate non-lease components from lease components and instead to account for each lease and non-lease component as a single lease component. The adoption of ASU 2016-02 on January 1, 2019 resulted in the recognition of ROU assets of approximately $16.1 million, lease liabilities for operating leases of approximately $21.6 million, a reduction in existing other liabilities of $5.1 million related to deferred rent and restructuring liabilities, and no cumulative-effect adjustment on retained earnings on Prosper's Consolidated Balance Sheets, with no material impact to its Consolidated Statements of Operations.
Accounting Standards Issued, To Be Adopted By The Company In Future Periods
In June 2016, the FASB amended guidance related to impairment of financial instruments as part of ASU 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which will be effective for interim and annual periods beginning after December 15, 2019. The guidance replaces the incurred loss impairment methodology with an expected credit loss model for which a company recognizes an allowance based on the estimate of expected credit loss. Prosper accounts for its Borrower Loans at fair value through net income, which is outside the scope of Topic 326. For available for sale investments, the guidance will require recognition of expected credit losses by recognizing an allowance for credit losses when the fair value of the security is below amortized cost and the recognition of this allowance is limited to the difference between the security’s amortized cost basis and fair value. Prosper is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." The standard eliminates Step 2 from the goodwill impairment test, which requires a hypothetical purchase price allocation. Prosper will continue to have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The standard is effective for interim and annual periods beginning after December 15, 2019 and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The standard should be applied on a prospective basis. Prosper is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement." Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, but entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. Prosper is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal
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year and early adoption is permitted. Prosper is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
In March 2019, the FASB issued ASU No. 2019-01, "Leases (Topic 842): Codification Improvements." This ASU aligns the fair value treatment of the underlying asset by lessors that are not manufacturers or dealers as defined under Topic 842, presentation on the Statement of Cash Flows for sales and direct financing leases, and a clarification of interim disclosure requirements in the year of adoption, among other things. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year and early adoption is permitted. Prosper is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
3. Property and Equipment, Net
Property and equipment consist of the following (in thousands):
March 31, 2019December 31, 2018
Property and Equipment:
Operating lease right-of-use assets$16,138 $ 
Computer equipment15,558 15,193 
Internal-use software and website development costs25,120 22,505 
Office equipment and furniture3,015 3,015 
Leasehold improvements7,157 7,157 
Assets not yet placed in service2,303 2,745 
Property and equipment69,291 50,615 
Less accumulated depreciation and amortization(37,897)(35,342)
Total Property and Equipment, Net$31,394 $15,273 

Depreciation and amortization expense for Property and Equipment for the three months ended March 31, 2019 and March 31, 2018 was $1.8 million and $2.7 million, respectively. These charges are included in General and Administrative expenses on the condensed consolidated statements of operations. Prosper capitalized internal-use software and website development costs in the amount of $2.1 million and $1.1 million for the three months ended March 31, 2019 and March 31, 2018, respectively. Additionally, disclosures around the operating lease right-of-use assets are included in Note 17.
4. Borrower Loans, Loans Held for Sale, and Notes, Held at Fair Value
The aggregate principal balances outstanding and fair values of Borrower Loans, Loans Held for Sale, and Notes as of March 31, 2019 and December 31, 2018, are presented in the following table (in thousands):
Borrower LoansNotesLoans Held for Sale
March 31, 2019December 31, 2018March 31, 2019December 31, 2018March 31, 2019December 31, 2018
Aggregate principal balance outstanding$455,563 $269,093 $(265,961)$(272,430)$106,707 $185,657 
Fair value adjustments(6,853)(5,571)7,239 8,427 (67)(1,869)
Fair value$448,710 $263,522 $(258,722)$(264,003)$106,640 $183,788 

Borrower Loans
At March 31, 2019, outstanding Borrower Loans had original terms to maturity of either 36 or 60 months, had monthly payments with fixed interest rates ranging from 5.31% to 31.92%, and had various maturity dates through March 2024. At December 31, 2018, outstanding Borrower Loans had original maturities of either 36 or 60 months, had monthly payments with fixed interest rates ranging from 5.31% to 31.92%, and had various maturity dates through December 2023. 
Approximately $0.3 million and $0.4 million represents the loss that is attributable to changes in the instrument-specific credit risks related to Borrower Loans that were recorded in the change in fair value during the three months ending March 31, 2019 and March 31, 2018, respectively.
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As of March 31, 2019, Borrower Loans that were 90 days or more delinquent had an aggregate principal amount of $2.4 million and a fair value of $1.0 million. As of December 31, 2018, Borrower Loans that were 90 days or more delinquent had an aggregate principal amount of $2.5 million and a fair value of $1.1 million. Prosper places loans on non-accrual status when they are over 120 days past due. As of March 31, 2019 and December 31, 2018, Borrower Loans in non-accrual status had a fair value of $0.2 million and $0.3 million, respectively. 
Loans Held for Sale
At March 31, 2019, outstanding Loans Held for Sale had original terms to maturity of either 36 or 60 months, had monthly payments with fixed interest rates ranging from 5.31% to 31.82%, and had various maturity dates through March 2024. At December 31, 2018, outstanding Loans Held for Sale had original terms to maturity of either 36 or 60 months, had monthly payments with fixed interest rates ranging from 5.31% to 31.82% and had various maturity dates through December 2023. Fair value adjustments recorded in earnings on loans invested in by the Company was a net loss of $0.1 million during the quarter ended March 31, 2019. Interest income earned on Loans Held for Sale by the Company was $4.0 million and $1.4 million during the quarters ended March 31, 2019 and March 31, 2018, respectively.
As of March 31, 2019, Loans Held for Sale that were 90 days or more delinquent, had an aggregate principal amount of $0.9 million and a fair value of $0.4 million. As of December 31, 2018, Loans Held for Sale that were 90 days or more delinquent had an aggregate principal amount of $0.8 million and a fair value of $0.3 million.
5. Loan Servicing Assets and Liabilities
Prosper accounts for servicing assets and liabilities at their estimated fair values with changes in fair values recorded in servicing fees. The initial asset or liability is recognized when Prosper sells Borrower Loans to unrelated third-party buyers through the Whole Loan Channel and the servicing rights are retained. The servicing assets and liabilities are measured at fair value throughout the servicing period. The total gains and losses recognized on the sale of such Borrower Loans for the three months ended March 31, 2019 was a gain of $2.7 million and a loss of $9.7 million from the Fair Value of Warrants Vested on the Sale of Borrower Loans to the Consortium. The total gains recognized on the sale of such Borrower Loans were $3.4 million during the three months ended March 31, 2018, and a loss of $15.3 million from the Fair Value of Warrants Vested on the Sale of Borrower Loans to the Consortium.
As of March 31, 2019, Borrower Loans that were sold but for which Prosper retained servicing rights had a total outstanding principal balance of $3.3 billion, original terms of either 36 or 60 months, monthly payments with fixed interest rates ranging from 5.31% to 35.52%, and various maturity dates through March 2024. At December 31, 2018, Borrower Loans that were sold but for which Prosper retained servicing rights had a total outstanding principal balance of $3.6 billion, original terms of either 36 or 60 months, monthly payments with fixed interest rates ranging from 5.31% to 35.52%, and various maturity dates through December 2023.
$10.1 million and $10.6 million of contractually specified servicing fees and ancillary fees are included on our condensed consolidated statements of operations in Servicing Fees, Net for the three months ended March 31, 2