# IZEA Worldwide, Inc.: Form 10-Q for the period ended Sep 30, 2015

- Company: [IZEA Worldwide, Inc.](/companies/izea.md) (CIK 1495231)
- Form: 10-Q
- Filed: 2015-11-16
- Accepted by EDGAR: Nov 16, 2015, 16:02 ET
- Period: 2015-09-30
- Accession: 0001495231-15-000067
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1495231/000149523115000067/izea15093010q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1495231/000149523115000067/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2015-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2015-07-01 to 2015-09-30 | $5.4m | us-gaap:SalesRevenueNet |
| Revenue | 9 months, 2015-01-01 to 2015-09-30 | $14.2m | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2015-07-01 to 2015-09-30 | $3.3m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2015-01-01 to 2015-09-30 | $8.6m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2015-07-01 to 2015-09-30 | $2.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2015-01-01 to 2015-09-30 | $5.6m | us-gaap:GrossProfit |
| Operating income | 3 months, 2015-07-01 to 2015-09-30 | −$886.6k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2015-01-01 to 2015-09-30 | −$4.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2015-07-01 to 2015-09-30 | $31.2k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2015-01-01 to 2015-09-30 | $86.4k | us-gaap:InterestExpense |
| Net income | 3 months, 2015-07-01 to 2015-09-30 | −$2.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2015-01-01 to 2015-09-30 | −$8.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2015-07-01 to 2015-09-30 | −$0.03 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2015-01-01 to 2015-09-30 | −$0.14 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2015-07-01 to 2015-09-30 | −$0.03 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2015-01-01 to 2015-09-30 | −$0.14 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2015-07-01 to 2015-09-30 | 81,512,092 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2015-01-01 to 2015-09-30 | 65,728,626 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2015-01-01 to 2015-09-30 | −$5.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2015-01-01 to 2015-09-30 | $145.6k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2015-09-30 | $13.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2015-09-30 | $17.1m | us-gaap:AssetsCurrent |
| Total assets | at 2015-09-30 | $22.7m | us-gaap:Assets |
| Current liabilities | at 2015-09-30 | $5.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2015-09-30 | $6.4m | us-gaap:Liabilities |
| Shareholders' equity | at 2015-09-30 | $16.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 54,077 characters.

### Special Note Regarding Forward-Looking Information

The following discussion and analysis is provided to increase the understanding of, and should be read in conjunction with, our consolidated financial statements and related notes included elsewhere in this report. Historical results and percentage relationships among any amounts in these financial statements are not necessarily indicative of trends in operating results for any future period. This report contains “forward-looking statements.” The statements, which are not historical facts contained in this report, including this Management's Discussion and Analysis of Financial Condition and Results of Operations, and notes to our consolidated financial statements, particularly those that utilize terminology such as “may” “will,” “should,” “expects,” “anticipates,” “estimates,” “believes,” or “plans” or comparable terminology are forward-looking statements. Such statements are based on currently available operating, financial and competitive information, and are subject to various risks and uncertainties. Future events and our actual results may differ materially from the results reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, our ability to raise additional funding, our ability to maintain and grow our business, variability of operating results, our ability to maintain and enhance our brand, our development and introduction of new products and services, the successful integration of acquired companies, technologies and assets into our portfolio of software and services, marketing and other business development initiatives, competition in the industry, general government regulation, economic conditions, dependence on key personnel, the ability to attract, hire and retain personnel who possess the technical skills and experience necessary to meet the service requirements of our clients, our ability to protect our intellectual property, the potential liability with respect to actions taken by our existing and past employees, risks associated with international sales, and other risks described herein and in our other filings with the SEC.

All forward-looking statements in this document are based on information currently available to us as of the date of this report, and we assume no obligation to update any forward-looking statements, except as required by law. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

### Company History

IZEA, Inc. was founded in February 2006 under the name PayPerPost, Inc. and became a public company incorporated in the state of Nevada in May 2011. We are headquartered in Orlando, Florida with additional offices in Chicago and Los Angeles.

### Company Overview

IZEA, Inc. is a leading company in the social sponsorship space. We believe that we pioneered the concept of a marketplace for sponsorships on the social web in 2006 with the launch of our first platform, *PayPerPost.com*, and have focused on scaling our offerings ever since. We democratize the sponsorship process, allowing everyone from college students and stay at home moms to celebrities the opportunity to monetize their content, creativity and influence in social media. We direct bloggers, tweeters and other types of social media content creators to share information about companies, products, websites and events within their social media content streams. Advertisers benefit from buzz, traffic, awareness and sales, and creators earn cash compensation in exchange for their posts.

On January 30, 2015, we purchased all of the outstanding shares of capital stock of Ebyline, Inc. (“Ebyline”), pursuant to the terms of a Stock Purchase Agreement, dated as of January 27, 2015, by and among IZEA, Ebyline and the stockholders of Ebyline. Based in Los Angeles, California, Ebyline operates an online marketplace that enables publishers to access a network of over 12,000 content creators ranging from writers to illustrators in 73 countries. Over 2,000 fully vetted individuals in the Ebyline network have professional journalism credentials with backgrounds at well-known media outlets. Ebyline’s proprietary workflow is utilized by leading media organizations to obtain the content they need from professional content creators. In addition to publishers, Ebyline is leveraged by brands to produce custom branded content for use on their owned and operated sites, as well as third party content marketing and native advertising efforts. As described herein, our acquisition of Ebyline has significantly contributed to the increase in our revenues and cost of sales during 2015 as compared to 2014.

We derive revenue from three sources: revenue from an advertiser when it pays for a social media publisher or influencer such as a blogger or tweeter ("creators") to share sponsored content with their social network audience ("Sponsored Revenue"), revenue when a publisher or company purchases custom branded content for use on its owned and operated sites, as well as third party content marketing and native advertising efforts ("Content Revenue") and revenue derived from various service and license fees charged to users of our platforms ("Service Fee Revenue").

We operate the Ebyline online marketplace and our own online marketplace that connects brands with creators at IZEA.com as well as other white label marketplaces. IZEA.com and all white label sites are powered by the IZEA Exchange (“*IZEAx”*), a platform that handles content workflow, creator search and targeting, bidding, analytics and payment processing. *IZEAx* takes the existing concepts of product placement and endorsements commonly found in movies, television and radio and applies them to the social web. *IZEAx* is designed to provide a unified ecosystem that enables the creation of multiple types of content including blog posts, status updates, videos and photos through a wide variety of social channels including blogs, Twitter, Facebook, Instagram and Tumblr, among others. Prior to the launch of *IZEAx,* we had independent technology platforms including *PayPerPost.com, SocialSpark.com* and *SponsoredTweets.com,* all of which were transitioned to the *IZEAx* system by the end of 2014.

### Results of Operations for the Three Months Ended September 30, 2015 Compared to the Three Months Ended September 30, 2014

*(Unaudited)*

|  | Three Months Ended September 30, 2015 | September 30, 2014 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $5,442,457 | $1,931,671 | $3,510,786 | 181.7% |
| Cost of sales | 3,290,457 | 692,217 | 2,598,240 | 375.4% |
| Gross profit | 2,152,000 | 1,239,454 | 912,546 | 73.6% |
| Operating expenses: |  |  |  |  |
| General and administrative | 1,056,473 | 1,287,048 | (230,575) | (17.9)% |
| Sales and marketing | 1,982,088 | 1,515,139 | 466,949 | 30.8% |
| Total operating expenses | 3,038,561 | 2,802,187 | 236,374 | 8.4% |
| Loss from operations | (886,561) | (1,562,733) | 676,172 | 43.3% |
| Other income (expense): |  |  |  |  |
| Interest expense | (31,191) | (5,519) | (25,672) | 465.2% |
| Loss on exchange of warrants | (1,845,810) | — | (1,845,810) | 100.0% |
| Change in fair value of derivatives, net | 115,904 | 2,250,344 | (2,134,440) | (94.8)% |
| Other income, net | 2,571 | 3,278 | (707) | (21.6)% |
| Total other income (expense) | (1,758,526) | 2,248,103 | (4,006,629) | 178.2% |
| Net income (loss) | $(2,645,087) | $685,370 | $(3,330,457) | 485.9% |

### Non-GAAP Financial Measures

To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"), we consider certain financial measures that are not prepared in accordance with U.S. GAAP, including Operating EBITDA. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP. These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

We believe that Operating EBITDA provides useful information to investors as it excludes transactions not related to the core cash operating business activities including non-cash transactions. We believe that excluding these transactions allows investors to meaningfully trend and analyze the performance of our core cash operations. All companies do not calculate EBITDA in the same manner, and Operating EBITDA as presented by IZEA may not be comparable to EBITDA presented by other companies. IZEA defines Operating EBITDA as earnings or loss before interest, taxes, depreciation and amortization, non-cash stock related compensation, gain or loss on asset disposals, changes in contingent acquisition costs, or impairment and all other income and expense items such as loss on exchanges and changes in fair value of derivatives, if applicable.

*(Unaudited)*

| Reconciliation of Net Loss to Operating EBITDA: | Three Months Ended September 30, 2015 | September 30, 2014 |
| --- | ---: | ---: |
| Net income (loss) | $(2,645,087) | $685,370 |
| Non-cash stock-based compensation | 188,458 | 142,252 |
| Non-cash stock issued for payment of services | 31,251 | 18,750 |
| Change in the fair value of derivatives | (115,904) | (2,250,344) |
| Loss on exchange of warrants | 1,845,810 | — |
| Loss on disposal of equipment | 595 | 16,593 |
| Gain on change in value of contingent acquisition costs payable | (1,734,300) | — |
| Interest expense | 31,191 | 5,519 |
| Depreciation & amortization | 230,553 | 72,309 |
| Operating EBITDA | $(2,167,433) | $(1,309,551) |

### Revenues

The following table breaks down our approximate revenue, cost of sales and gross profit by revenue stream as of the three months ended September 30, 2015 and 2014:

| Revenue & % of Total | Three Months Ended September 30, 2015 | September 30, 2015 | September 30, 2014 | September 30, 2014 |
| --- | ---: | ---: | ---: | ---: |
| Sponsored Revenue | $3,232,000 | 59% | $1,787,000 | 92% |
| Content Revenue | $2,166,000 | 40% | $— | —% |
| Service Fees & Other | $45,000 | 1% | $145,000 | 8% |
| Total Revenue | $5,443,000 | 100% | $1,932,000 | 100% |
| **Cost of Sales & % of Total** |  |  |  |  |
| Sponsored Revenue | $1,361,000 | 41% | $692,000 | 100% |
| Content Revenue | $1,930,000 | 59% | $— | —% |
| Service Fees & Other | $— | —% | $— | —% |
| Total Cost of Sales | $3,291,000 | 100% | $692,000 | 100% |
| **Gross Profit & Profit %** |  |  |  |  |
| Sponsored Revenue | $1,871,000 | 58% | $1,095,000 | 61% |
| Content Revenue | $236,000 | 11% | $— | —% |
| Service Fees & Other | $45,000 | 100% | $145,000 | 100% |
| Total Profit | $2,152,000 | 40% | $1,240,000 | 64% |

Revenues for the three months ended September 30, 2015 increased by $3,510,786, or 182%, compared to the same period in 2014. The increase was primarily attributable to increases in our Sponsored Revenue of $1,445,000 and Content Revenue of $2,166,000 during the three months ended September 30, 2015 compared to the same period in 2014. Our sales mix has changed in the current year due to the acquisition of Ebyline in January 2015. The increase in Sponsored Revenue income was primarily attributable to our larger sales force, concentrated sales efforts toward larger IZEA managed campaigns rather than smaller advertiser self-service campaigns and generating repeat business from existing customers. Content Revenue increased as a result of the Ebyline acquisition in January 2015. Service fees decreased in the three months ended September 30, 2015 due to less fees received from inactive accounts since there are relatively few inactive accounts in *IZEAx.*

Our net bookings of $6.7 million for the three months ended September 30, 2015 were over 230% higher than the net bookings of $2.0 million for the three months ended September 30, 2014. Net bookings is a measure of sales orders minus any cancellations or refunds in a given period. Management uses net bookings as a leading indicator of future revenue recognition as revenue is typically recognized within 90 days of booking. We experienced higher bookings as a result of the Ebyline acquisition, new customers, larger IZEA managed campaigns and an increase in repeat clients. These bookings are expected to translate into higher revenue in 2015 as compared to 2014.

### Cost of Sales and Gross Profit

Our cost of sales is comprised primarily of amounts paid to our content creators to provide content or advertising services through the pushing of sponsored content through a blog post, tweet, click or action.

Cost of sales for the three months ended September 30, 2015 increased by $2,598,240, or 375%, compared to the same period in 2014. The increase in cost of sales was primarily related to the increase in our sales and higher cost on 40% of those sales related to Content Revenue.

Gross profit for the three months ended September 30, 2015 increased by $912,546, or 74%, compared to the same period in 2014. Our gross profit as a percentage of revenue decreased from 64% for the three months ended September 30, 2014 to 40% for the same period in 2015. The gross profit decrease during the three months ended September 30, 2015 compared to 2014 was primarily attributable to substantially lower profit margins on Content Revenue that was added to our product mix during the three months ended September 30, 2015.

During the three months ended September 30, 2015, we generated a gross profit of 11% on 40% of our total revenue related to sales of Content. Prior to being acquired by IZEA, Ebyline generated Content Revenue primarily from newspaper and traditional publishers through their workflow platform on a self-service basis at a 7%-9% profit. After the acquisition, these customers still produce a significant amount of revenue, but we are increasing the sales of Content to customers on a managed basis and expect to see continued improvement in the Content margins. The mix of sales between our higher margin Sponsored Revenue and our lower margin Content Revenue (particularly the self-service workflow portion of this revenue) has a significant affect on our overall gross profit percentage. As a result of the changes in our sales mix, we expect that our total revenue will increase but our margins will decrease to an expected range of 35%-40%.

### Operating Expenses

Operating expenses consist of general and administrative expenses, contingent acquisition cost adjustments and sales and marketing expenses. Total operating expenses for the three months ended September 30, 2015 increased by $236,374, or 8.4%, compared to the same period in 2014. The increase was primarily attributable to increased personnel costs and additional overhead from the Ebyline acquisition.

General and administrative expenses consist primarily of administrative and engineering personnel costs, general operating costs, public company costs, including non-cash stock compensation, facilities costs, insurance, depreciation, professional fees, and investor relations costs. General and administrative expenses for the three months ended September 30, 2015 decreased by $(230,575), or (17.9)%, compared to the same period in 2014. General and administrative expenses increased due to a $568,000 increase in personnel costs as a result of the increase in the average number of our administrative and engineering personnel by nearly 50% since the prior year period. Additionally contributing to the increase in personnel costs, there was an increase in bonus expenses as a result of a $200,000 one-time discretionary bonus award to our chief executive officer in in the third quarter of 2015. Increased personnel costs are expected to continue in 2015 due to the realization of an entire year of salaries, taxes and benefits for the new personnel hires in late 2014 and early 2015 along with planned increases in the total number of entry and higher level engineering personnel. The increase in general and administrative expenses is also attributable to a $496,000 increase in legal & litigation fees primarily for the active defense and settlement costs in our patent ligation with Blue Calypso. On August 17, 2015, we entered into a $390,506 settlement agreement with Blue Calypso ending all outstanding patent litigation. Therefore, we expect that future legal fees will decrease substantially compared to prior quarters. We also had a $158,000 increase in depreciation and amortization expense as a result of the amortization of software development costs for *IZEA Exchange (IZEAx*) and the Ebyline intangible assets acquired; a $52,000 increase in public company costs due to the addition of additional board members and investor relations services, a $46,000 increase in stock compensation, and a $54,000 increase in rent for our expanded facilities and additional offices in California.

General and administrative expense increases were reduced by a gain of $1,734,300 during three months ended September 30, 2015 due to the reduction in our estimated fair value of contingent acquisition costs payable. On January 30,

2015, we purchased all of the outstanding shares of capital stock of Ebyline, pursuant to the terms of a Stock Purchase Agreement, dated as of January 27, 2015, by and among IZEA, Ebyline and the stockholders of Ebyline. The aggregate consideration payable by us will be an amount in the aggregate of up to $8,850,000, including a cash payment at closing of $1,200,000, a stock issuance valued at $250,000 paid on July 30, 2015, $1,877,064 in two equal installments of $938,532 on the first and second anniversaries of the closing, and up to $5,500,000 in contingent performance payments based on Ebyline meeting certain revenue targets for each of the three years ending December 31, 2015, 2016 and 2017. We initially valued the fair value of the contingent payments at $2,210,000 using a Monte-Carlo simulation to simulate revenue over the next three years. Of this amount, $357,700 was determined to be future compensation expense and the $1,834,300 remainder was determined to be purchase consideration and recorded as acquisition costs payable. During the three months ended September 30, 2015, we reassessed the expected revenues to be produced from Content-Only Revenues over the next three years and do not believe that they will meet the revenue targets required to achieve the performance payments. The revised calculations using the Monte Carlo simulation as of September 30, 2015 resulted in a calculated fair value of $100,000. Therefore, we recorded a gain of $1,734,300 for the three months ended September 30, 2015 due to the reduction in our estimated fair value of contingent acquisition costs payable.

Sales and marketing expenses consist primarily of costs personnel costs related to those who support sales and marketing efforts, promotional and advertising costs and trade show expenses. Sales and marketing expenses for the three months ended September 30, 2015 increased by $466,949 or 30.8%, compared to the same period in 2014. The increase was primarily attributable to the increase in personnel costs as a result of a 24% increase in the number of our sales personnel since the prior year and $146,000 in increased commissions as a result of the increase in customer bookings.

### Other Income (Expense)

Other income (expense) consists primarily of interest expense, loss on exchange of warrants and the change in the fair value of derivatives.

Interest expense during the three months ended September 30, 2015 increased by $25,672 compared to the same period in 2014 primarily due to the imputed interest on the acquisition costs payable.

From July 20, 2015 through August 14, 2015, we offered a 25% discount on the warrant exercise prices to investors holding the series A and series B warrants to purchase common stock issued in its August - September 2013 private placement (the “2013 Warrants”) and a 26% discount on the warrant exercise prices to investors holding series A and series B warrants to purchase common stock issued in its February 2014 private placement (the “2014 Warrants” and together with the 2013 Warrants, the "Warrants"). At the close of the offer period on August 14, 2015, Warrants for a total of 43,830,802 shares of common stock were exercised and converted into common stock at an average exercise price of $0.293 per share for total proceeds of $12,861,057 less $3,972 in transaction costs. The amendment of Warrants to reduce the exercise price required the Company to treat the adjustment as an exchange whereby it computed the fair value of the Warrants immediately prior to the price reduction and the fair value of the Warrants after the price reduction. The $1,845,810 change in the fair value of the Warrants as a result of the price reduction was treated as a loss on exchange and recorded in the consolidated statements of operations during the three months ended September 30, 2015.

In prior periods, we entered into financing transactions that gave rise to derivative liabilities. These financial instruments are carried at fair value in our financial statements. Changes in the fair value of derivative financial instruments are required to be recorded in other income (expense) in the period of change. We recorded a gain of $115,904 and $2,250,344 resulting from the decrease in the fair value of certain warrants during the three months ended September 30, 2015 and 2014, respectively. We have no control over the amount of change in the fair value of our derivative instruments as this is a factor based on fluctuating interest rates and stock prices and other market conditions outside of our control. Due to the large exercise of warrants in August 2015 resulting in less remaining warrants requiring valuation in the future, we believe that these fluctuations will dramatically decrease in future periods. We have 123,804 warrants that are required to be fair valued each period. When the price of our stock decreases, it causes the fair value of our warrant liability in our consolidated balance sheets to decrease creating a gain from the change in fair value in our consolidated statement of operations. Alternatively, when the price of our stock increases, it causes the fair value of our warrant liability to increase causing a loss from the change in fair value.

### Net Loss

Net loss for the three months ended September 30, 2015 was $2,645,087, which decreased from net income of $685,370 for the same period in 2014. The reduction in net income was primarily the result of the increase in operating expenses and the change in the fair value of derivative financial instruments as discussed above.

### Results of Operations for the Nine Months Ended September 30, 2015 Compared to the Nine Months Ended September 30, 2014

*(Unaudited)*

|  | Nine Months Ended September 30, 2015 | September 30, 2014 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $14,205,693 | $5,857,946 | $8,347,747 | 142.5% |
| Cost of sales | 8,649,308 | 1,998,406 | 6,650,902 | 332.8% |
| Gross profit | 5,556,385 | 3,859,540 | 1,696,845 | 44.0% |
| Operating expenses: |  |  |  |  |
| General and administrative | 5,081,367 | 3,600,621 | 1,480,746 | 41.1% |
| Sales and marketing | 5,310,124 | 3,726,370 | 1,583,754 | 42.5% |
| Total operating expenses | 10,391,491 | 7,326,991 | 3,064,500 | 41.8% |
| Loss from operations | (4,835,106) | (3,467,451) | (1,367,655) | (39.4)% |
| Other income (expense): |  |  |  |  |
| Interest expense | (86,354) | (20,587) | (65,767) | 319.5% |
| Loss on exchange of warrants | (1,845,810) | — | (1,845,810) | 100.0% |
| Change in fair value of derivatives, net | (2,139,540) | 5,625,555 | (7,765,095) | (138.0)% |
| Other income, net | 5,520 | 7,677 | (2,157) | (28.1)% |
| Total other income (expense) | (4,066,184) | 5,612,645 | (9,678,829) | 172.4% |
| Net income (loss) | $(8,901,290) | $2,145,194 | $(11,046,484) | 514.9% |

### Non-GAAP Financial Measures

To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"), we consider certain financial measures that are not prepared in accordance with U.S. GAAP, including Operating EBITDA. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP. These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

We believe that Operating EBITDA provides useful information to investors as it excludes transactions not related to the core cash operating business activities including non-cash transactions. We believe that excluding these transactions allows investors to meaningfully trend and analyze the performance of our core cash operations. All companies do not calculate EBITDA in the same manner, and Operating EBITDA as presented by IZEA may not be comparable to EBITDA presented by other companies. IZEA defines Operating EBITDA as earnings or loss before interest, taxes, depreciation and amortization, non-cash stock related compensation, gain or loss on asset disposals or impairment, changes in contingent acquisition costs, and all other income and expense items such as loss on exchanges and changes in fair value of derivatives, if applicable.

*(Unaudited)*

| Reconciliation of Net Loss to Operating EBITDA: | Nine Months Ended September 30, 2015 | September 30, 2014 |
| --- | ---: | ---: |
| Net income (loss) | $(8,901,290) | $2,145,194 |
| Non-cash stock-based compensation | 511,202 | 389,002 |
| Non-cash stock issued for payment of services | 136,592 | 147,860 |
| Change in the fair value of derivatives | 2,139,540 | (5,625,555) |
| Loss on exchange of warrants | 1,845,810 | — |
| Loss on disposal of equipment | 595 | 16,192 |
| Gain on change in value of contingent acquisition costs payable | (1,734,300) | — |
| Interest expense | 86,354 | 20,587 |
| Depreciation & amortization | 631,060 | 160,495 |
| Operating EBITDA | $(5,284,437) | $(2,746,225) |

### Revenues

The following table breaks down our approximate revenue, cost of sales and gross profit by revenue stream as of the nine months ended September 30, 2015 and 2014:

| Revenue & % of Total | Nine Months Ended September 30, 2015 | September 30, 2015 | September 30, 2014 | September 30, 2014 |
| --- | ---: | ---: | ---: | ---: |
| Sponsored Revenue | $8,375,000 | 59% | $5,473,000 | 93% |
| Content Revenue | $5,686,000 | 40% | $— | —% |
| Service Fees & Other | $145,000 | 1% | $385,000 | 7% |
| Total Revenue | $14,206,000 | 100% | $5,858,000 | 100% |
| **Cost of Sales & % of Total** |  |  |  |  |
| Sponsored Revenue | $3,570,000 | 41% | $1,998,000 | 100% |
| Content Revenue | $5,080,000 | 59% | $— | —% |
| Service Fees & Other | $— | —% | $— | —% |
| Total Cost of Sales | $8,650,000 | 100% | $1,998,000 | 100% |
| **Gross Profit & Profit %** |  |  |  |  |
| Sponsored Revenue | $4,805,000 | 57% | $3,475,000 | 63% |
| Content Revenue | $606,000 | 11% | $— | —% |
| Service Fees & Other | $145,000 | 100% | $385,000 | 100% |
| Total Profit | $5,556,000 | 39% | $3,860,000 | 66% |

Revenues for the nine months ended September 30, 2015 increased by $8,347,747, or 143%, compared to the same period in 2014. The increase was primarily attributable to increases in our Sponsored Revenue of $2,902,000 and Content Revenue of $5,686,000 during the nine months ended September 30, 2015 compared to the same period in 2014. Our sales mix has changed in the current year due to the acquisition of Ebyline in January 2015. The increase in Sponsored Revenue income was primarily attributable to our larger sales force, concentrated sales efforts toward larger IZEA managed campaigns rather than smaller advertiser self-service campaigns and generating repeat business from existing customers. Content Revenue increased as a result of the Ebyline acquisition in January 2015. Service fees decreased in the nine months ended September 30, 2015 due to less fees received from inactive accounts since there are relatively few inactive accounts in *IZEAx.*

Our net bookings of $17.2 million for the nine months ended September 30, 2015 were 174% higher than the net bookings of $6.3 million for the nine months ended September 30, 2014. Net bookings is a measure of sales orders minus any cancellations or refunds in a given period. Management uses net bookings as a leading indicator of future revenue recognition as revenue is typically recognized within 90 days of booking. We experienced higher bookings as a result of the Ebyline acquisition, new customers, larger IZEA managed campaigns and an increase in repeat clients. These bookings are expected to translate into higher revenue in 2015 as compared to 2014.

### Cost of Sales and Gross Profit

Our cost of sales is comprised primarily of amounts paid to our content creators to provide content or advertising services through the pushing of sponsored content through a blog post, tweet, click or action.

Cost of sales for the nine months ended September 30, 2015 increased by $6,650,902, or 332.8%, compared to the same period in 2014. The increase in cost of sales was primarily related to the increase in our sales and higher cost on 40% of those sales related to Content Revenue.

Gross profit for the nine months ended September 30, 2015 increased by $1,696,845, or 44.0%, compared to the same period in 2014. Our gross profit as a percentage of revenue decreased from 66% for the nine months ended September 30, 2014 to 39% for the same period in 2015. The gross profit decrease during the nine months ended September 30, 2015 compared to 2014 was primarily attributable to substantially lower profit margins on Content Revenue that was added to our product mix during the nine months ended September 30, 2015, as well as increased participation by IZEAx white-label partners.

During the nine months ended September 30, 2015, we generated a gross profit of 11% on 40% of our total revenue related to sales of Content. Prior to being acquired by IZEA, Ebyline generated Content Revenue primarily from newspaper and traditional publishers through their workflow platform on a self-service basis at a 7%-9% profit. After the acquisition, these customers still produce a significant amount of revenue, but we are increasing the sales of Content to customers on a managed basis and expect to see continued improvement in the Content margins. The mix of sales between our higher margin Sponsored Revenue and our lower margin Content Revenue (particularly the self-service workflow portion of this revenue) has a significant affect on our overall gross profit percentage. Additionally, the addition of white label partners to IZEAx will translate into lower margins on our Sponsored Revenue. White label partners receive a percentage of each transaction generated by users within their system. As a result of the changes in our sales mix, we expect that our total revenue will increase but our margins will decrease to an expected range of 35%-40%.

### Operating Expenses

Operating expenses consist of general and administrative expenses, contingent acquisition cost adjustments and sales and marketing expenses. Total operating expenses for the nine months ended September 30, 2015 increased by $3,064,500, or 41.8%, compared to the same period in 2014. The increase was primarily attributable to increased personnel costs and additional overhead from the Ebyline acquisition.

General and administrative expenses consist primarily of administrative and engineering personnel costs, general operating costs, public company costs, including non-cash stock compensation, facilities costs, insurance, depreciation, professional fees, and investor relations costs. General and administrative expenses for the nine months ended September 30, 2015 increased by $1,480,746, or 41.1%, compared to the same period in 2014. The increase was primarily attributable to a $1.5 million increase in personnel costs and $160,000 increase in communication, travel and supply costs as a result of the increase in the number and higher cost of our administrative and engineering personnel by nearly 50% since the prior year. Increased personnel costs are expected to continue in 2015 due to the realization of an entire year of salaries, taxes and benefits for the 2014 new hires and planned increases in the total number of engineering personnel. The increase in general and administrative expenses is also attributable to a $730,000 increase in professional & litigation fees primarily for the active defense and settlement costs in our patent ligation with Blue Calypso. On August 17, 2015, we entered into a $390,506 settlement agreement with Blue Calypso ending all outstanding patent litigation. Therefore, we expect that future legal fees will decrease substantially compared to prior periods. The increase in general and administrative expenses is also attributable to a $462,000 increase in depreciation and amortization expense as a result of the amortization of software development costs for *IZEA Exchange (IZEAx*) and the Ebyline intangible assets acquired; a $122,000 increase in stock compensation, and a $187,000 increase in rent for our expanded facilities and additional offices in California.

General and administrative expense increases were reduced by a gain of $1,734,300 for the nine months ended September 30, 2015 due to a reduction in our estimated fair value of contingent acquisition costs payable as discussed in more detail in the results of operations for the three months ended September 30, 2015.

Sales and marketing expenses consist primarily of costs personnel costs related to those who support sales and marketing efforts, promotional and advertising costs and trade show expenses. Sales and marketing expenses for the nine months ended September 30, 2015 increased by $1,583,754 or 42.5%, compared to the same period in 2014. The increase was primarily attributable to the increase in personnel costs as a result of a 51% increase in the number of our sales personnel since the prior year and $318,000 in increased commissions paid as a result of the increase in customer bookings.

### Other Income (Expense)

Other income (expense) consists primarily of interest expense, loss on exchange of warrants and the change in the fair value of derivatives.

Interest expense during the nine months ended September 30, 2015 increased by $65,767 compared to the same period in 2014 primarily due to the imputed interest on the acquisition costs payable.

As discussed in detail in the three month comparison above, we incurred a $1,845,810 loss on exchange of warrants due to a limited time price reduction offered to our warrant holders during the nine months ended September 30, 2015.

In prior periods, we entered into financing transactions that gave rise to derivative liabilities. These financial instruments are carried at fair value in our financial statements. Changes in the fair value of derivative financial instruments are required to be recorded in other income (expense) in the period of change. We recorded a loss of $2,139,540 and a gain of $5,625,555 resulting from the increase (decrease) in the fair value of certain warrants during the nine months ended September 30, 2015 and 2014, respectively. We have no control over the amount of change in the fair value of our derivative instruments as this is a factor based on fluctuating interest rates and stock prices and other market conditions outside of our control. Due to the large exercise of warrants in August 2015 resulting in less remaining warrants requiring valuation in the future, we believe that these fluctuations will significantly decrease in future periods. We have 123,804 warrants that are required to be fair valued each period. When the price of our stock decreases, it causes the fair value of our warrant liability in our consolidated balance sheets to decrease creating a gain from the change in fair value in our consolidated statement of operations. Alternatively, when the price of our stock increases, it causes the fair value of our warrant liability to increase causing a loss from the change in fair value.

### Net Loss

Net loss for the nine months ended September 30, 2015 was $8,901,290, which decreased from net income of $2,145,194 for the same period in 2014. The reduction in net income was primarily the result of the increase in operating expenses and the change in the fair value of derivative financial instruments as discussed above.

### Liquidity and Capital Resources

Our cash position was $13,273,048 as of September 30, 2015 as compared to $6,521,930 as of December 31, 2014, an increase of $6,751,118 primarily as a result of proceeds received from warrant exercises less the funding of our operating losses and our acquisition of Ebyline. We have incurred significant net losses and negative cash flow from operations since our inception which has resulted in a total accumulated deficit of $31,842,640 as of September 30, 2015. To date, we have financed our operations through internally generated revenue from operations and the sale of our equity securities.

Cash used for operating activities was $5,038,125 during the nine months ended September 30, 2015 and was primarily a result of our loss from operations during the period of $4,835,106. Cash used for investing activities was $1,051,642 during the nine months ended September 30, 2015 due primarily to the acquisition of Ebyline and increases in computer equipment purchases. Cash received from financing activities was $12,840,885 during the nine months ended September 30, 2015 and was primarily a result of proceeds received from warrant exercises and issuance of shares under our Employee Stock Purchase Program offset by principal payments on our capital leases of $46,065.

On January 30, 2015, we purchased all of the outstanding shares of capital stock of Ebyline, pursuant to the terms of a Stock Purchase Agreement, dated as of January 27, 2015, by and among IZEA, Ebyline and the stockholders of Ebyline. The aggregate consideration payable by us will be an amount in the aggregate of up to $8,850,000, including a cash payment at closing of $1,200,000, a stock issuance valued at $250,000 paid on July 30, 2015, $1,877,064 in two equal installments of $938,532 on the first and second anniversaries of the closing, and up to $5,500,000 in contingent performance payments, subject to Ebyline meeting certain revenue targets for each of the three years ending December 31, 2015, 2016 and 2017. The

$1,877,064 in annual payments and the $5,500,000 in contingent performance payments may be made in cash or common stock, at our option. The performance payments are to be made only if Ebyline achieves at least 90% of Content Revenue targets of $17,000,000 in 2015, $27,000,000 in 2016 and $32,000,000 in 2017. If Ebyline achieves at least 90%, but less than 100% of the Content Revenue targets, the performance payments owed of $1,800,000, $1,800,000 and $1,900,000 for each of the three years ending December 31, 2015, 2016 and 2017, respectively, will be subject to adjustment. Anything below 90% of the Content Revenue targets will not be eligible for any performance payment. Based on our current projections for Content Revenue for 2015-2017, we do not believe that these targets will be met within each of the respective years. As a result, we do not believe that we will be required to make any of the $5,500,000 in contingent performance payments. Therefore, the total expected purchase price for the Ebyline acquisition will be $3,327,064.

On April 13, 2015, we expanded our secured credit facility agreement with Bridge Bank, N.A. of San Jose, California. Pursuant to this agreement, we may submit requests for funding up to 80% of its eligible accounts receivable up to a maximum credit limit of $5 million. This agreement is secured by our accounts receivable and substantially all of our other assets. The agreement renews annually and requires us to pay an annual facility fee of $20,000 (0.4% of the credit limit) and an annual due diligence fee of $1,000. Interest accrues on the advances at the rate of prime plus 2% per annum. The default rate of interest is prime plus 7%. If the agreement is terminated prior to May 1, 2016, we will be required to pay a termination fee of .70% of the credit limit divided by 80%. As of September 30, 2015, we had no advances outstanding under this agreement.

On July 30, 2015, pursuant to the terms of a Stock Purchase Agreement, dated as of January 27, 2015, by and among IZEA, Ebyline and the stockholders of Ebyline, we issued 636,294 shares of restricted common stock to the former Ebyline shareholders to satisfy the $250,000 purchase obligation that was due on such date.

As discussed in the comparative results above, on August 14, 2015, Warrants for a total of 43,830,802 shares of common stock were exercised and converted into common stock at an average exercise price of $0.293 per share for total proceeds of $12,861,057 less $3,972 in transaction costs.

We believe that with our current cash, the expanded credit line and the proceeds received from the closing of the warrants, we will have sufficient cash reserves available to cover expenses for the future year.

### Off-Balance Sheet Arrangements

We do not engage in any activities involving variable interest entities or off-balance sheet arrangements.

### Critical Accounting Policies and Use of Estimates

The preparation of the accompanying financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in the accompanying financial statements and the accompanying notes. The preparation of these financial statements requires managements to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. When making these estimates and assumptions, we consider our historical experience, our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances. Actual results could differ from these estimates. The following critical accounting policies are significantly affected by judgments, assumptions and estimates used in the preparation of the financial statements.

Accounts receivable are customer obligations due under normal trade terms. Uncollectibility of accounts receivable is not significant since most customers are bound by contract and are required to fund us for all the costs of an “opportunity,” defined as an order created by an advertiser for a creator to write about the advertiser’s product. If a portion of the account balance is deemed uncollectible, we will either write-off the amount owed or provide a reserve based on the uncollectible portion of the account. Management determines the collectibility of accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions. We have a reserve of $31,000 for doubtful accounts as of September 30, 2015. We believe that this estimate is reasonable, but there can be no assurance that the estimate will not change as a result of a change in economic conditions or business conditions within the industry, the individual customers or our company. Any adjustments to this account are reflected in the consolidated statements of operations as a general and administrative expense. Bad debt expense was less than 1% of revenue for the three and nine months ended September 30, 2015 and 2014.

Throughout 2013 and the first quarter of 2014, we developed our new web-based advertising exchange platform, *IZEAx*. This platform will be utilized both internally and externally to facilitate native advertising campaigns on a greater scale. In accordance with ASC 350-40, *Internal Use Software* and ASC 985-730, *Computer Software Research and Development*, research phase costs should be expensed as incurred and development phase costs including direct materials and services, payroll and benefits and interest costs may be capitalized. As a result, we have capitalized $568,875 in direct materials, payroll and benefit costs to software development costs in the consolidated balance sheet. We estimate the useful life for *IZEAx* will be 5 years, consistent with the amount of time our legacy platforms were in-service, and are amortizing the software development costs over this period.

We derive revenue from three sources: revenue from an advertiser when it pays for a social media publisher or influencer such as a blogger or tweeter ("creators") to share sponsored content with their social network audience ("Sponsored Revenue"), revenue when a publisher or company purchases custom branded content for use on its owned and operated sites, as well as third party content marketing and native advertising efforts ("Content Revenue") and revenue derived from various service and license fees charged to users of our platforms ("Service Fee Revenue"). Sponsored revenue is recognized and considered earned after an advertiser's sponsored content is posted through *IZEAx* and shared through a creator's social network for a requisite period of time. The requisite period ranges from 3 days for a tweet to 30 days for a blog, video or other form of content. Management fees related to Sponsored Revenue from advertising campaigns managed by us are recognized ratably over the term of the campaign which may range from a few days to months. Content Revenue is recognized when the content is delivered to and accepted by the customer. Service fees charged to customers are primarily related to subscription fees for different levels of service within a platform, licensing fees for white-label use of *IZEAx*, early cash-out fees if a creator wishes to take proceeds earned for services from their account when the account balance is below certain minimum balance thresholds and inactivity fees for dormant accounts. Service fees are recognized immediately when the service is performed or at the time an account becomes dormant or is cashed out. Self-service advertisers must prepay for services by placing a deposit in their account with the Company. The deposits are typically paid by the advertiser via credit card. Advertisers who use us to manage their social advertising campaigns or content requests may prepay for services or request credit terms. Payments received or billings in advance of services are recorded as unearned revenue until earned as described above.

All of our revenue is generated through the rendering of services and is recognized under the general guidelines of SAB Topic 13 A.1 which states that revenue will be recognized when it is realized or realizable and earned. We consider our revenue as generally realized or realizable and earned once (i) persuasive evidence of an arrangement exists, (ii) services have been rendered, (iii) the price to the advertiser or customer is fixed (required to be paid at a set amount that is not subject to refund or adjustment) and determinable, and (iv) collectibility is reasonably assured. We record revenue on the gross amount earned since we generally are the primary obligor in the arrangement, take on credit risk, establish the pricing and determine the service specifications.

Stock-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite service period. We estimate the fair value of each stock option as of the date of grant using the Black-Scholes pricing model. Options typically vest ratably over four years with one-fourth of options vesting one year from the date of grant and the remaining options vesting monthly, in equal increments over the remaining three-year period and generally have five or ten-year contract lives. We estimate the fair value of our common stock using the closing stock price of our common stock as quoted in the OTCQB marketplace on the date of the option award. We estimate the volatility of our common stock at the date of grant based on the volatility of comparable peer companies that are publicly traded and have had a longer trading history than us. We determine the expected life based on historical experience with similar awards, giving consideration to the contractual terms, vesting schedules and post-vesting forfeitures. We use the risk-free interest rate on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term approximately equal to the expected life of the award. We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. We estimate forfeitures when recognizing compensation expense and this estimate of forfeitures is adjusted over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures are recognized through a cumulative catch-up adjustment, which is recognized in the period of change, and a revised amount of unamortized compensation expense to be recognized in future periods.

The following table shows the number of options granted under our May 2011 and August 2011 Equity Incentive Plans and the assumptions used to determine the fair value of those options during the quarterly periods in 2014 and 2015:

### 2011 Equity Incentive Plans - Options Granted

| Period Ended | Total Options Granted | Weighted Average Fair Value of Common Stock | Weighted Average Expected Term | Weighted Average Volatility | Weighted Average Risk Free Interest Rate | Weighted Average Fair Value of Options Granted |
| --- | ---: | ---: | --- | ---: | ---: | ---: |
| March 31, 2014 | 330,000 | $0.48 | 5 years | 43.32% | 1.60% | $0.19 |
| June 30, 2014 | 1,066,680 | $0.46 | 5 years | 41.38% | 1.66% | $0.18 |
| September 30, 2014 | 1,992,151 | $0.38 | 5 years | 40.38% | 1.74% | $0.14 |
| December 31, 2014 | 970,000 | $0.26 | 9 years | 46.76% | 2.14% | $0.15 |
| March 31, 2015 | 1,868,333 | $0.32 | 6 years | 58.58% | 1.50% | $0.15 |
| June 30, 2015 | 1,185,333 | $0.40 | 6 years | 55.17% | 1.58% | $0.19 |
| September 30, 2015 | 697,356 | $0.40 | 6 years | 53.81% | 1.78% | $0.18 |

There were outstanding options to purchase 14,877,733 shares with a weighted average exercise price of $0.44 per share, of which options to purchase 6,614,375 shares were exercisable with a weighted average exercise price of $0.53 per share as of September 30, 2015. There is no aggregate intrinsic value on the exercisable, outstanding options as of September 30, 2015 since the weighted average exercise price per share exceeded the market price of $0.42 of our common stock on such date.

We account for derivative instruments in accordance with ASC 815, *Derivatives and Hedging* , which requires additional disclosures about the our objectives and strategies for using derivative instruments, how the derivative instruments and related hedged items are accounted for, and how the derivative instruments and related hedging items affect the financial statements. We do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms of convertible debt and equity instruments are reviewed to determine whether or not they contain embedded derivative instruments that are required under ASC 815 to be accounted for separately from the host contract, and recorded on the balance sheet at fair value. The fair value of derivative liabilities, if any, is required to be revalued at each reporting date, with corresponding changes in fair value recorded in current period operating results. Pursuant to ASC 815, an evaluation of specifically identified conditions is made to determine whether the fair value of warrants issued is required to be classified as equity or as a derivative liability.

### Recent Accounting Pronouncements

There are new accounting pronouncements issued by the Financial Accounting Standards Board ("FASB") which are not yet effective. Management does not believe any of these accounting pronouncements will have a material impact on our financial position or operating results.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, *Revenue from Contracts with Customers* (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition

process than are required under existing U.S. GAAP.

The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.

## Controls and procedures

As filed, 4,778 characters.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officer, as appropriate to allow timely decisions regarding required disclosures.

In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Furthermore, controls and procedures could be circumvented by the individual acts of some persons, by collusion or two or more people or by management override of the control. Misstatements due to error or fraud may occur and not be detected on a timely basis.

### Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this quarterly report on Form 10-Q for the period ended September 30, 2015, an evaluation was performed under the supervision and with the participation of the Company's management including our Chief Executive Officer ("CEO") and Principal Financial and Accounting Officer ("PFO") to determine the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2015. Based on this evaluation, our management concluded that our disclosure controls and procedures were effective as of September 30, 2015 to provide reasonable assurance that the information required to be disclosed by us in reports or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to management, including the Company's principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.

### Changes in Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Company’s transactions;

(ii) provide reasonable assurance that transactions are recorded as necessary for the preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are made only in accordance with authorizations of our management and directors; and

(iii) provide reasonable assurance regarding prevention or timely detection of any unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect financial statement misstatements. Also, projections of any evaluation of internal control effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 5,755 characters.

*In addition to the information set forth at the beginning of Management's Discussion and Analysis entitled "Special Note Regarding Forward-Looking Information", investors should consider that there are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial condition or results of operation may be materially and adversely affected. In such case, the trading price of our common stock could decline and investors could lose all or part of their investment.*

### Risks Related to our Business and Industry

***We have a history of losses, expect future losses and cannot assure you that we will achieve profitability or obtain the financing necessary for future growth.***

We have incurred significant net losses and negative cash flow from operations since our inception which has resulted in a total accumulated deficit of $31,842,640 as of September 30, 2015. Although our revenue has increased since inception, we have not achieved profitability and cannot be certain that we will be able to sustain these growth rates or realize sufficient revenue to achieve profitability. If we achieve profitability, we may not be able to sustain it.

***Exercise of stock options, warrants and other securities will dilute your percentage of ownership and could cause our stock price to fall.***

As of November 6, 2015, we have 104,002,308 shares of common stock issued, outstanding stock options to purchase 15,044,492 shares of common stock at an average price of $0.44 per share, outstanding warrants to purchase 10,461,863 shares of common stock at an average price of $0.46 per share, and 221,539 shares of vested, yet unissued, shares of restricted common stock.

Additionally, we have reserved shares to issue stock options, restricted stock or other awards to purchase or receive up to 5,040,524 shares of common stock under our May 2011 Equity Incentive Plan and 1,367,351 shares of common stock under our 2014 Employee Stock Purchase Plan. In the future, we may grant additional stock options, warrants and convertible securities. The exercise, conversion or exchange of stock options, warrants or convertible securities will dilute the percentage ownership of our other stockholders. Sales of a substantial number of shares of our common stock could cause the price of our common stock to fall and could impair our ability to raise capital by selling additional securities.

***There may be substantial issuances of our common stock to satisfy our obligations under the Stock Purchase Agreement for our acquisition of Ebyline, Inc.***

On January 30, 2015, we purchased of all of the outstanding shares of capital stock of Ebyline pursuant to the terms of a Stock Purchase Agreement, dated as of January 27, 2015, by and among IZEA, Ebyline and the stockholders of Ebyline. The aggregate consideration payable by us will be an amount in the aggregate of up to $8,850,000, including a cash payment made at closing of $1,200,000, a stock issuance valued at $250,000 paid on July 30, 2015, $1,877,064 in two equal installments of $938,532 on the first and second anniversaries of the closing and up to $5,500,000 in performance payments paid over three years, subject to Ebyline meeting certain revenue targets for each of the three years ending December 31, 2015, 2016 and 2017. The $1,877,064 in annual payments and the $5,500,000 in performance payments may be made in cash or common stock, at our option.

If Ebyline achieves all of the revenue targets, and we choose to issue shares of our common stock to satisfy the future payment obligations, stock payments are to be based on the 30-day volume-weighted average closing price prior to the payment date. The issuance of a substantial number of shares of common stock to satisfy the future payment obligations could significantly dilute the percentage ownership interests of and may be at prices more beneficial than those paid by our existing common stockholders.

***There may be substantial sales of our common stock under the prospectus relating to our 2013 and 2014 Private Placements, which could cause our stock price to drop.***

As described in Notes 4 and 6 of the Notes to the Unaudited Consolidated Financial Statements, we have two effective registration statements (File No. 333-191743 and File No. 333-197482) covering the resale of 27,565,517 shares of our common stock that may be offered by certain stockholders who participated in our 2013 Private Placement and loan consideration from August through September 2013 or who obtained restricted shares of common stock for services. The number of shares the selling stockholders may sell consists of 25,566,053 shares of common stock that are currently issued and outstanding and 1,999,464 shares of common stock that they may receive if they exercise their warrants.

We also have a third effective registration statement (File No. 333-195081) covering the resale of 68,571,456 shares of our common stock that may be offered by certain stockholders who participated in our 2014 Private Placement. The number of shares the selling stockholders may sell consists of 60,641,000 shares of common stock that are currently issued and outstanding and 7,930,456 shares of common stock that they may receive if they exercise their warrants.

There are currently no agreements or understandings in place with these selling stockholders to restrict their sale of those shares. Sales of a substantial number of shares of our common stock by the selling stockholders over a short period of time could cause the market price of our common stock to drop and could impair our ability to raise capital in the future by selling additional securities.

Filed Nov 16, 2015.
Source: SEC EDGAR, the filing index for accession 0001495231-15-000067. Last ingested by Listed: Nov 2, 2026, 16:20 ET. No prices; not investment advice.