# IZEA Worldwide, Inc.: Form 10-Q for the period ended Sep 30, 2016

- Company: [IZEA Worldwide, Inc.](/companies/izea.md) (CIK 1495231)
- Form: 10-Q
- Filed: 2016-11-14
- Accepted by EDGAR: Nov 14, 2016, 16:04 ET
- Period: 2016-09-30
- Accession: 0001495231-16-000146
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1495231/000149523116000146/izea16093010q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1495231/000149523116000146/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-07-01 to 2016-09-30 | $7.5m | us-gaap:SalesRevenueNet |
| Revenue | 9 months, 2016-01-01 to 2016-09-30 | $19.9m | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2016-07-01 to 2016-09-30 | $3.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2016-01-01 to 2016-09-30 | $10.4m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2016-07-01 to 2016-09-30 | $3.6m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2016-01-01 to 2016-09-30 | $9.4m | us-gaap:GrossProfit |
| Operating income | 3 months, 2016-07-01 to 2016-09-30 | −$1.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2016-01-01 to 2016-09-30 | −$5.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2016-07-01 to 2016-09-30 | $25.5k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2016-01-01 to 2016-09-30 | $58.3k | us-gaap:InterestExpense |
| Net income | 3 months, 2016-07-01 to 2016-09-30 | −$1.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2016-01-01 to 2016-09-30 | −$5.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-07-01 to 2016-09-30 | −$0.28 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted EPS | 9 months, 2016-01-01 to 2016-09-30 | −$1.07 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 9 months, 2016-01-01 to 2016-09-30 | −$4.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2016-01-01 to 2016-09-30 | $121.7k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2016-09-30 | $6.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2016-09-30 | $11.5m | us-gaap:AssetsCurrent |
| Total assets | at 2016-09-30 | $18.7m | us-gaap:Assets |
| Current liabilities | at 2016-09-30 | $7.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2016-09-30 | $8.1m | us-gaap:Liabilities |
| Shareholders' equity | at 2016-09-30 | $10.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 58,702 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,” “would,” “could,” “should,” “should,” “expects,” “anticipates,” “estimates,” “believes,” “intends,” 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 our current expectations, intentions and beliefs using 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 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 near Orlando, Florida with additional offices in Chicago, Los Angeles, Mountain View and Toronto and a sales presence in New York, Detroit and Boston.

### Company Overview

IZEA operates online marketplaces that facilitate transactions between brands and influential content creators. Our creators range from leading bloggers and social media personalities to A-list celebrities and professional journalists. These creators are compensated by IZEA for producing and distributing unique content such as long-form text, videos, photos and status updates on behalf of brands through websites, blogs and social media channels. Brands receive influential consumer content and engaging, shareable stories that drive awareness.

We help power the creator economy, allowing everyone from college students and stay at home moms to celebrities the opportunity to monetize their content, creativity and influence. Marketers benefit from buzz, traffic, awareness and sales, and creators earn cash compensation in exchange for their work and promotion.

Our online marketplaces are powered by the IZEA Exchange (“*IZEAx”*). Our technology enables transactions to be completed at scale through the management of content workflow, creator search and targeting, bidding, analytics and payment processing. *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.

We derive revenue from three sources: revenue from a marketer when it pays for a social media publisher or influencer such as a blogger or tweeter to share sponsored content with their social network audience ("Sponsored Revenue"), revenue when a publisher or company purchases custom branded content for its own use, 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").

### Results of Operations for the Three Months Ended September 30, 2016 Compared to the Three Months Ended September 30, 2015

*(Unaudited)*

|  | Three Months Ended September 30, 2016 | September 30, 2015 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $7,496,972 | $5,442,457 | $2,054,515 | 37.7% |
| Cost of sales | 3,927,279 | 3,290,457 | 636,822 | 19.4% |
| Gross profit | 3,569,693 | 2,152,000 | 1,417,693 | 65.9% |
| Operating expenses: |  |  |  |  |
| General and administrative | 2,454,555 | 1,056,473 | 1,398,082 | 132.3% |
| Sales and marketing | 2,584,287 | 1,982,088 | 602,199 | 30.4% |
| Total operating expenses | 5,038,842 | 3,038,561 | 2,000,281 | 65.8% |
| Loss from operations | (1,469,149) | (886,561) | (582,588) | (65.7)% |
| Other income (expense): |  |  |  |  |
| Interest expense | (25,511) | (31,191) | 5,680 | (18.2)% |
| Loss on exchange of warrants | — | (1,845,810) | 1,845,810 | (100.0)% |
| Change in fair value of derivatives, net | (14,705) | 115,904 | (130,609) | (112.7)% |
| Other income (expense), net | (2,238) | 2,571 | (4,809) | (187.0)% |
| Total other income (expense), net | (42,454) | (1,758,526) | 1,716,072 | 97.6% |
| Net loss | $(1,511,603) | $(2,645,087) | $1,133,484 | 42.9% |

### Non-GAAP Financial Measures

To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles in the United States ("GAAP"), we consider certain financial measures that are not prepared in accordance with GAAP, including Adjusted 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 Adjusted 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 Adjusted EBITDA as presented by IZEA may not be comparable to EBITDA presented by other companies. IZEA defines Adjusted 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 Adjusted EBITDA: | Three Months Ended September 30, 2016 | September 30, 2015 |
| --- | ---: | ---: |
| Net loss | $(1,511,603) | $(2,645,087) |
| Non-cash stock-based compensation | 170,818 | 188,458 |
| Non-cash stock issued for payment of services | 34,970 | 31,251 |
| Change in the fair value of derivatives | 14,705 | (115,904) |
| Loss on exchange of warrants | — | 1,845,810 |
| Loss (gain) on disposal of equipment | (484) | 595 |
| Gain on change in value of contingent acquisition costs payable | — | (1,734,300) |
| Interest expense | 25,511 | 31,191 |
| Depreciation and amortization | 339,589 | 230,553 |
| Adjusted EBITDA | $(926,494) | $(2,167,433) |

23

### Revenues

The following table breaks down our approximate revenue, cost of sales and gross profit by revenue stream for the three months ended September 30, 2016 and 2015:

*(Unaudited)*

| Revenue & % of Total | Three Months Ended September 30, 2016 | September 30, 2016 | September 30, 2015 | September 30, 2015 |
| --- | ---: | ---: | ---: | ---: |
| Sponsored Revenue | $4,644,000 | 62% | $3,232,000 | 59% |
| Content Revenue | 2,770,000 | 37% | 2,166,000 | 40% |
| Service Fees & Other Revenue | 83,000 | 1% | 45,000 | 1% |
| Total Revenue | $7,497,000 | 100% | $5,443,000 | 100% |
| **Cost of Sales & % of Total** |  |  |  |  |
| Sponsored COS | $1,878,000 | 48% | $1,361,000 | 41% |
| Content COS | 2,049,000 | 52% | 1,930,000 | 59% |
| Service Fees & Other COS | — | —% | — | —% |
| Total Cost of Sales | $3,927,000 | 100% | $3,291,000 | 100% |
| **Gross Profit & Profit %** |  |  |  |  |
| Sponsored Revenue | $2,766,000 | 60% | $1,871,000 | 58% |
| Content Revenue | 721,000 | 26% | 236,000 | 11% |
| Service Fees & Other Revenue | 83,000 | 100% | 45,000 | 100% |
| Total Profit | $3,570,000 | 48% | $2,152,000 | 40% |

Revenues for the three months ended September 30, 2016 increased by $2,054,515, or 38%, compared to the same period in 2015. Sponsored Revenue increased $1,412,000, Content Revenue increased $604,000 and Service Fee Revenue increased $38,000 during the three months ended September 30, 2016 compared to the same period in 2015. Sponsored Revenue increased primarily due to to our larger sales force, concentrated sales efforts toward larger IZEA managed campaigns rather than smaller marketer self-service campaigns and generating repeat business from existing customers. Content Revenue increased due to the same reasons as Sponsored Revenue. Service Fee Revenue increased in the three months ended September 30, 2016 due to more licensing fees generated from the white-label partners in *IZEAx.*

Our net bookings of $7.7 million for the three months ended September 30, 2016 were 14% higher than the net bookings of $6.7 million for the three months ended September 30, 2015. 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 recognized on average within 120 days of booking, though larger contracts may be recognized over twelve months from the original booking date. We experienced higher bookings as a result of the ZenContent acquisition, new customers, larger IZEA managed campaigns and an increase in repeat clients. These bookings are expected to continue to translate into higher revenue for the remainder of 2016 as compared to 2015.

### 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 promotion of sponsored content in a blog post, tweet, click or action.

Cost of sales for the three months ended September 30, 2016 increased by $636,822, or 19%, compared to the same period in 2015. Cost of sales increased primarily due to the increase in our sales, but it was tempered by the improved margins on our managed services.

Gross profit for the three months ended September 30, 2016 increased by $1,417,693, or 66%, compared to the same period in 2015. Our gross profit as a percentage of revenue increased from 40% for the three months ended September 30, 2015 to 48% for the same period in 2016. Sponsored Revenue gross margin was 60% and Content Revenue gross margin was 26% for the three months ended September 30, 2016.

The gross profit increase was primarily attributable to increased use of our managed services versus self-service content and sponsored social offerings. 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% to 9% profit. After the acquisition, these customers still produce a significant amount of revenue, but we are increasing the sales of Content Revenue to customers on a managed basis and expect to see continued improvement in the Content Revenue 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 effect on our overall gross profit percentage.

For the three months ended September 30, 2016, managed services were 43% of Content Revenue compared to 14% for the three months ended September 30, 2015. Additionally, the margins on the managed portion of Content Revenue increased by 18 percentage points for the three months ended September 30, 2016 as we incorporated our standard pricing guidelines into new bookings that were closed in fourth quarter of fiscal 2015.

### Operating Expenses

Operating expenses consist of general and administrative expenses and sales and marketing expenses. Total operating expenses for the three months ended September 30, 2016 increased by $2,000,281, or 66%, compared to the same period in 2015. The increase was primarily attributable to increased personnel costs and additional overhead resulting from increased personnel.

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 expense for the three months ended September 30, 2016 increased by $1,398,082, or 132%, compared to the same period in 2015.

During the three months ended September 30, 2015, general and administrative expenses were reduced by a gain of $1,734,300 due to the reduction in our estimated fair value of contingent acquisition costs payable on the Ebyline acquisition. 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 determined the fair value of the contingent payments to be $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 that is not a recurring reduction in our general and administrative expenses in 2016. The increase in general and administrative expenses is also attributable to a $109,000 increase in depreciation and amortization expense during the three months ended September 30, 2016 as a result of the amortization of software development costs for *IZEA Exchange (IZEAx*) and the Ebyline and ZenContent intangible assets acquired.

The increase in general and administrative expenses were partially offset due to a $480,000 decrease in legal and litigation fees primarily for the active defense and settlement costs in our patent ligation with Blue Calypso that occurred during the third quarter of 2015. On August 17, 2015, we entered into a $390,506 settlement agreement with Blue Calypso ending all outstanding patent litigation.

Sales and marketing expenses consist primarily of personnel costs related to employees and consultants 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, 2016 increased by $602,199 or 30%, compared to the same period in 2015. The increase was primarily attributable to a $633,000 increase in personnel costs and a $38,000 increase in variable costs related to personnel such as software and subscription costs, communication, travel and supply costs. These increases are the result of a 31% increase in the number of our sales and marketing personnel since the prior year along with a $39,000 increase in commission expense as a result of the increase in customer bookings. Sales and marketing decreased $85,000 as a result of lower amounts of spending on trade show activity and advertising.

### 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, 2016 decreased by $5,680 to $25,511 compared to the same period in 2015 primarily due to lower 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 2,191,547 shares of common stock were exercised and converted into common stock at an average exercise price of $5.87 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 years, 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 an expense of $14,705 and income of$115,904 resulting from the increase or decrease in the fair value of certain warrants and stock during the three months ended September 30, 2016 and 2015, 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, we have fewer remaining warrants requiring re-measurement of fair values during the year, resulting in lower fluctuations in fair values than amounts recorded during 2015. As of September 30, 2016, we have warrants to purchase 5,502 shares 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 resulting in income 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 resulting in expense from the change in fair value.

### Net Loss

Net loss for the three months ended September 30, 2016 was $1,511,603, which decreased from a net loss of $2,645,087 for the same period in 2015. The reduction in net loss was primarily the result of the increased revenue and profit margins partially offset by the increase in operating expenses and reduced gain from the change in the fair value of derivative financial instruments as discussed above.

### Results of Operations for the Nine Months Ended September 30, 2016 Compared to the Nine Months Ended September 30, 2015

*(Unaudited)*

|  | Nine Months Ended September 30, 2016 | September 30, 2015 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $19,876,611 | $14,205,693 | $5,670,918 | 39.9% |
| Cost of sales | 10,447,035 | 8,649,308 | 1,797,727 | 20.8% |
| Gross profit | 9,429,576 | 5,556,385 | 3,873,191 | 69.7% |
| Operating expenses: |  |  |  |  |
| General and administrative | 7,559,302 | 5,081,367 | 2,477,935 | 48.8% |
| Sales and marketing | 7,556,664 | 5,310,124 | 2,246,540 | 42.3% |
| Total operating expenses | 15,115,966 | 10,391,491 | 4,724,475 | 45.5% |
| Loss from operations | (5,686,390) | (4,835,106) | (851,284) | (17.6)% |
| Other income (expense): |  |  |  |  |
| Interest expense | (58,261) | (86,354) | 28,093 | (32.5)% |
| Loss on exchange of warrants | — | (1,845,810) | 1,845,810 | (100.0)% |
| Change in fair value of derivatives, net | 14,568 | (2,139,540) | 2,154,108 | (100.7)% |
| Other income (expense), net | (485) | 5,520 | (6,005) | (108.8)% |
| Total other income (expense), net | (44,178) | (4,066,184) | 4,022,006 | 98.9% |
| Net loss | $(5,730,568) | $(8,901,290) | $3,170,722 | 35.6% |

### Non-GAAP Financial Measures

To supplement our consolidated financial statements presented in accordance with GAAP, we consider certain financial measures that are not prepared in accordance with GAAP, including Adjusted 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 Adjusted 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 Adjusted EBITDA as presented by IZEA may not be comparable to EBITDA presented by other companies. IZEA defines Adjusted 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 Adjusted EBITDA: | Nine Months Ended September 30, 2016 | September 30, 2015 |
| --- | ---: | ---: |
| Net loss | $(5,730,568) | $(8,901,290) |
| Non-cash stock-based compensation | 576,144 | 511,202 |
| Non-cash stock issued for payment of services | 107,440 | 136,592 |
| Change in the fair value of derivatives | (14,568) | 2,139,540 |
| Loss on exchange of warrants | — | 1,845,810 |
| Loss (gain) on disposal of equipment | (484) | 595 |
| Gain on change in value of contingent acquisition costs payable | — | (1,734,300) |
| Interest expense | 58,261 | 86,354 |
| Depreciation and amortization | 935,063 | 631,060 |
| Adjusted EBITDA | $(4,068,712) | $(5,284,437) |

27

### Revenues

The following table breaks down our approximate revenue, cost of sales and gross profit by revenue stream for the nine months ended September 30, 2016 and 2015:

*(Unaudited)*

| Revenue & % of Total | Nine Months Ended September 30, 2016 | September 30, 2016 | September 30, 2015 | September 30, 2015 |
| --- | ---: | ---: | ---: | ---: |
| Sponsored Revenue | $12,020,000 | 61% | $8,375,000 | 59% |
| Content Revenue | 7,597,000 | 38% | 5,686,000 | 40% |
| Service Fees & Other Revenue | 260,000 | 1% | 145,000 | 1% |
| Total Revenue | $19,877,000 | 100% | $14,206,000 | 100% |
| **Cost of Sales & % of Total** |  |  |  |  |
| Sponsored COS | $4,619,000 | 44% | $3,570,000 | 41% |
| Content COS | 5,828,000 | 56% | 5,080,000 | 59% |
| Service Fees & Other COS | — | —% | — | —% |
| Total Cost of Sales | $10,447,000 | 100% | $8,650,000 | 100% |
| **Gross Profit & Profit %** |  |  |  |  |
| Sponsored Revenue | $7,401,000 | 62% | $4,805,000 | 57% |
| Content Revenue | 1,769,000 | 23% | 606,000 | 11% |
| Service Fees & Other Revenue | 260,000 | 100% | 145,000 | 100% |
| Total Profit | $9,430,000 | 47% | $5,556,000 | 39% |

Revenues for the nine months ended September 30, 2016 increased by $5,670,918, or 40%, compared to the same period in 2015. Sponsored Revenue increased $3,645,000, Content Revenue increased $1,911,000 and Service Fee Revenue increased $115,000 during the nine months ended September 30, 2016 compared to the same period in 2015. Sponsored Revenue increased primarily due to to our larger sales force, concentrated sales efforts toward larger IZEA managed campaigns rather than smaller marketer self-service campaigns and generating repeat business from existing customers. Content Revenue increased due to the same reasons as Sponsored Revenue, the ZenContent acquisition and also because there were nine full months of revenue reported in 2016 compared to only eight months in 2015 as a result of the Ebyline acquisition on January 30, 2015. Service Fee Revenue increased in the nine months ended September 30, 2016 due to more licensing fees generated from the white-label partners in *IZEAx.*

Our net bookings of $21.9 million for the nine months ended September 30, 2016 were 27% higher than the net bookings of $17.2 million for the nine months ended September 30, 2015. 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 recognized on average within 120 days of booking, though larger contracts may be recognized over twelve months from the original booking date. 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 continue to translate into higher revenue in 2016 as compared to 2015.

### 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 promotion of sponsored content in a blog post, tweet, click or action.

Cost of sales for the nine months ended September 30, 2016 increased by $1,797,727, or 21%, compared to the same period in 2015. Cost of sales increased primarily due to the increase in our sales, but it was tempered by the improved margins on our managed services.

Gross profit for the nine months ended September 30, 2016 increased by $3,873,191, or 70%, compared to the same period in 2015. Our gross profit as a percentage of revenue increased from 39% for the nine months ended September 30, 2015 to 47% for the same period in 2016. Sponsored Revenue gross margin was 62% and Content Revenue gross margin was 23% for the nine months ended September 30, 2016.

The gross profit increase was primarily attributable to increased use of our managed services versus self-service content and sponsored social offerings. 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% to 9% profit. After the acquisition, these customers still produce a significant amount of revenue, but we are increasing the sales of Content Revenue to customers on a managed basis and expect to see continued improvement in the Content Revenue 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 effect on our overall gross profit percentage.

For the nine months ended September 30, 2016, managed services were 36% of Content Revenue compared to 12% for the nine months ended September 30, 2015. Additionally, the margins on the managed portion of Content Revenue increased by17 percentage points for the nine months ended September 30, 2016 as we incorporated our standard pricing guidelines into new bookings that were closed in fourth quarter of fiscal 2015.

### Operating Expenses

Operating expenses consist of general and administrative expenses and sales and marketing expenses. Total operating expenses for the nine months ended September 30, 2016 increased by $4,724,475, or 45%, compared to the same period in 2015. The increase was primarily attributable to increased personnel costs and additional overhead resulting from increased personnel.

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 expense for the nine months ended September 30, 2016 increased by $2,477,935, or 49%, compared to the same period in 2015. The increase was primarily attributable to a $767,000 increase in personnel costs, a $120,000 increase in variable costs related to personnel such as software and subscription costs, communication, travel and supply costs. These costs increased as a result of an increase in the average number of our administrative and engineering personnel by 40% since the prior year period along with increased costs for those personnel. Increased personnel costs are expected to continue in 2016 due to planned growth in the total number of administrative and engineering personnel needed to handle our growing organization. The increase in general and administrative expenses is also attributable to a $304,000 increase in depreciation and amortization expense as a result of the amortization of software development costs for *IZEA Exchange (IZEAx*) and the Ebyline and ZenContent intangible assets acquired; a $119,000 increase in bad debt expense to establish a general reserve for doubtful accounts; a $89,000 increase in contractor expense for outsourced engineering and finance projects; and a $85,000 increase in rent for our facilities and an additional office in Canada. Legal fees decreased by $753,000 from the prior year period due to the settlement of our patent ligation in August 2015.

General and administrative expenses in 2015 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, 2016. Therefore, general and administrative expense for the nine months ended September 30, 2016 is higher than the comparable period in 2015 as a result of this non-recurring gain.

Sales and marketing expenses consist primarily of personnel costs related to employees and consultants 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, 2016 increased by $2,246,540 or 42%, compared to the same period in 2015. The increase was primarily attributable to a $1,920,000 increase in personnel costs and a $232,000 increase in variable costs related to personnel such as software and subscription costs, communication, travel and supply costs. These increases in the personnel costs are the result of a 24% increase in the number of our sales and marketing personnel since the prior year along with a $241,000 increase in commission expense as a result of the increase in customer bookings. Travel costs included in the variable costs increased by 19% as a result of increased training and corporate events during the first half of 2016. Sales and marketing expenses also increased $67,000 in contractor expenses and $34,000 as a result of increased trade show activity and advertising.

### 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, 2016 decreased by $28,093 to $58,261 compared to the same period in 2015 primarily due to lower imputed interest on the acquisition costs payable.

As discussed in more detail in the results of operations for the three months ended September 30, 2016, we reported a$1,845,810 loss on the exchange of Warrants during the three months ended September 30, 2015 that did not recur in 2016. In prior years, 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 expense of $14,568 and income of $2,139,540 resulting from the increase or decrease in the fair value of certain warrants and stock during the nine months ended September 30, 2016 and 2015, respectively. Due to the large exercise of Warrants in August 2015 resulting in fewer remaining warrants requiring re-measurement of fair values, we believe that these fluctuations will significantly decrease in future periods and will be substantially different from the amounts recorded during 2015.

### Net Loss

Net loss for the nine months ended September 30, 2016 was $5,730,568, which decreased from a net loss of $8,901,290 for the same period in 2015. The reduction in net loss was primarily the result of the increased revenue and profit margins along with a reduced expense from the change in the fair value of derivative financial instruments partially offset by the increase in operating expenses as discussed above.

### Liquidity and Capital Resources

We had cash and cash equivalents of $6,598,901 as of September 30, 2016 as compared to $11,608,452 as of December 31, 2015, a decrease of $5,009,551 primarily as a result of funding our operating losses. We have incurred significant net losses and negative cash flow from operations since our inception which has resulted in a total accumulated deficit of $39,980,089 as of September 30, 2016. To date, we have financed our operations through internally generated revenue from operations and the sale and exercise of our equity securities.

Cash used for operating activities was $4,215,808 during the nine months ended September 30, 2016 and was primarily a result of our loss from operations during the period of $5,686,390. Cash used for investing activities was $798,546 during the nine months ended September 30, 2016 due primarily to a $400,000 cash payment for the purchase of ZenContent, purchases of computer and office equipment for our expanding staff and development of our proprietary software. Cash provided by financing activities was $4,803 during the nine months ended September 30, 2016 and was the result of proceeds from the exercise of options offset by expenses on the issuance of shares and principal payments on our capital lease obligations.

On January 30, 2015, we purchased all of the outstanding shares of capital stock of Ebyline. The aggregate consideration payable by us was to be an amount 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.

Content Revenue was $7,978,000 from February-December 2015 after our acquisition and it was $708,000 in January 2015 prior to our acquisition. Additionally, there were approximately $26,000 in subscription fees for Ebyline platform services during 2015 resulting in total Content Revenue of $8,712,000 or 51% of the 2015 Content Revenue Target. Based on the actual results for 2015 and our projections for 2016-2017, 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 and we currently expect that the total consideration to be paid for the Ebyline acquisition will be $3,327,064.

On January 29, 2016, we issued 114,398 shares of common stock valued at $848,832 to the former Ebyline stockholders as settlement of our annual installment payment of $938,532 less $89,700 in closing related expenses owed as part of the Stock Purchase Agreement.

On April 13, 2015, we expanded our secured credit facility agreement with Bridge Bank, N.A. of San Jose, California ("Bridge Bank"). Pursuant to this agreement, we may submit requests for funding up to 80% of our 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%. As of September 30, 2016, we had no advances outstanding under this agreement.

On July 31, 2016, we purchased all of the outstanding shares of capital stock of ZenContent, pursuant to the terms of a Stock Purchase Agreement, dated as of July 31, 2016, by and among IZEA, ZenContent and the stockholders of ZenContent. Upon closing we (a) paid a cash payment of $400,000 and (b) issued 86,207 shares of our common stock valued at $600,000 (using the 30 trading-day volume-weighted average closing price of the Company's common stock of $6.96 per share as of July 29, 2016). The agreement also requires (i) three equal annual installment payments totaling $1,000,000, commencing 12 months following the closing and (ii) contingent performance payments of up to an aggregate of $2,500,000 over the three 12-month periods following the closing, based upon ZenContent achieving certain minimum revenue thresholds. Of these payments, 33% of each such annual installment or contingent performance payment will be in the form of cash and the remainder of such payment will be in the form of either cash or additional shares of our common stock (determined at our option).

We believe that, with our current cash and our available credit line with Bridge Bank, we will have sufficient cash reserves available to cover expenses for longer than the future twelve months. Given the volatility in U.S. equity markets and our normal working capital fluctuations, we may seek to raise additional capital at any time to supplement our operating cash flows to the extent we can do so on competitive market terms. In such event, an equity financing may dilute the ownership interests of our common stockholders.

### 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 a marketer for a creator to write about the marketer’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 $294,000 for doubtful accounts as of September 30, 2016. 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, 2016 and 2015.

Throughout 2013 and the first quarter of 2014, we developed our new web-based advertising exchange platform, *IZEAx*. This platform is being utilized both internally and externally to facilitate native advertising campaigns on a greater scale. We began adding features and additional functionality to this platform again in 2015 and will continue throughout 2016. These new features will enable our platform to facilitate the contracting, workflow and delivery of direct content. 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 $1,326,236 in direct materials, consulting, payroll and benefit costs to software development costs in the consolidated balance sheet as of September 30, 2016. We estimate the useful life of our software to be 5 years, consistent with the amount of time our legacy platforms were in-service, and we are amortizing the software development costs over this period.

We derive revenue from three sources: revenue from a marketer 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 its own use, 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").

For our managed customers, we enter into an agreement to provide services that may require multiple deliverables in the form of (a) sponsored social items, such as blogs, tweets, photos or videos shared through social network offerings that provide awareness or advertising buzz regarding the marketer's brand; (b) media advertisements, such as click-through advertisements appearing in websites and social media channels and (c) original content items, such as a research or news article, informational material or videos that a publisher or brand can use. We may provide one type or a combination of all types of these deliverables including a management fee on a statement of work for a lump sum fee. These deliverables are to be provided over a stated period that may range from one day to one year. Each of these items are considered delivered once the content is live through a public or social network or content has been delivered to the customer for their own use. Revenue is accounted for separately on each of the deliverables in the time frames set forth below. The statement of work typically provides for a cancellation fee if the agreement is canceled by the customer prior to our completion of services. Payment terms are typically 30 days from the invoice date. If we are unable to provide a portion of the services, we may agree with the customer to provide a different type of service or to provide a credit for the value of those services that may be applied to the existing order or used for future services.

Sponsored Revenue is recognized and considered earned after a marketer'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 several months. Content Revenue is recognized when the content is delivered to and accepted by the customer. Service Fee Revenue is generated when fees are charged to customers 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 Fee Revenue is recognized immediately when the service is performed or at the time an account becomes dormant or is cashed out. Service Fee Revenue for subscription or licensing fees is recognized straight-line over the term of service. Self-service marketers must prepay for services by placing a deposit in their account with the Company. The deposits are typically paid by the marketer via credit card. Marketers 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 marketer 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 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 2011 Equity Incentive Plans and the assumptions used to determine the fair value of those options during the year ended December 31, 2015 and nine months ended September 30, 2016:

### 2011 Equity Incentive Plans - Options Granted

| Period Ended | Total Options Granted | Weighted Average Exercise Price | Weighted Average Expected Term | Weighted Average Volatility | Weighted Average Risk Free Interest Rate | Weighted Average Grant Date Fair Value |
| --- | ---: | ---: | --- | ---: | ---: | ---: |
| December 31, 2015 | 277,059 | $7.43 | 6.0 years | 55.47% | 1.65% | $3.84 |
| September 30, 2016 | 115,979 | $6.85 | 6.0 years | 50.01% | 1.42% | $3.28 |

There were outstanding options to purchase 914,978 shares with a weighted average exercise price of $8.34 per share, of which options to purchase 507,213 shares were exercisable with a weighted average exercise price of $9.36 per share as of September 30, 2016. The intrinsic value on outstanding options as of September 30, 2016 was $307,121. The intrinsic value on exercisable options as of September 30, 2016 was $251,330.

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 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.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, *Revenue from Contracts with Customers*, 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, 2017, 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 the first quarter of 2018.

In March 2016, the FASB issued ASU 2016-08, *Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)*. The amendments in this ASU are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations by amending certain existing illustrative examples and adding additional illustrative examples to assist in the application of the guidance. The effective date and transition of these amendments is the same as the effective date and transition of ASU 2014-09 stated above.

In April 2016, the FASB issued ASU No. 2016-10, *Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing*. ASU 2016-10 is intended to reduce the cost and complexity of applying the guidance in the FASB's new revenue standard on identifying performance obligations, and is also intended to improve the operability and understandability of the licensing implementation guidance. The effective date for ASU 2016-10 is the same as for ASU 2014-09 stated above.

We are currently evaluating the impact of the adoption of ASU 2014-09, ASU 2016-08 and ASU 2016-10 on our consolidated financial statements and have not yet determined the method by which we will adopt the standards in the first quarter of 2018.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, *Leases*. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact that this ASU will have on our consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update 2016-13, *Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments*. ASU 2016-13 removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under current U.S. GAAP, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all current recognition thresholds and will require companies to recognize an allowance for lifetime expected credit losses. Credit losses will be immediately recognized through net income; the amount recognized will be based on the current estimate of contractual cash flows not expected to be collected over the financial asset's contractual term. ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale debt securities. For public business entities, ASU 2016-13 is effective for financial statements issued for fiscal years and for interim periods within those fiscal years beginning after December 15, 2019. Companies will be required to apply the changes through a cumulative-effect adjustment to their retained earnings as of the beginning of the first reporting period in which the guidance is effective. We are currently evaluating the impact that this ASU will have on our consolidated financial statements.

## Controls and procedures

As filed, 4,728 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, 2016, an evaluation was performed under the supervision and with the participation of the Company's management including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") 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, 2016. Based on this evaluation, our management concluded that our disclosure controls and procedures were effective as of September 30, 2016 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 CEO and CFO, 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, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 5,742 characters.

*In addition to the information set forth under Item 1A of Part I to our Annual Report on Form 10-K for the year ended December 31, 2015, the information set forth at the beginning of Management's Discussion and Analysis entitled "Special Note Regarding Forward-Looking Information" and updates noted below, 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.***

We have incurred significant net losses and negative cash flow from operations since our inception which has resulted in a total accumulated deficit of $39,980,089 as of September 30, 2016. For the nine months ended September 30, 2016, we had a net loss of $5,730,568, including a $5,686,390 loss from operations and we expect a net loss for the remainder of this fiscal year. 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.

***If we fail to retain existing customers or add new customers, our revenue and business will be harmed.***

We depend on our ability to attract and retain customers that are prepared to offer products or services on compelling terms through *IZEAx*. Additionally, we rely on customers who purchase direct content from our creators in our platforms. We must continue to attract and retain customers in order to increase revenue and achieve profitability. We have one customer that accounted for 11% of our revenue during the nine months ended September 30, 2016. If customers do not find our marketing and promotional services effective, they are not satisfied with content they receive, or they do not believe that utilizing our platforms provides them with a long-term increase in value, revenue or profit, they may stop using our platforms or managed services. In addition, we may experience attrition in our customers in the ordinary course of business resulting from several factors, including losses to competitors, mergers, closures or bankruptcies. If we are unable to attract new customers in numbers sufficient to grow our business, or if too many customers are unwilling to offer products or services with compelling terms to our creators through our platforms or if too many large customers seek extended payment terms, our operating results will be adversely affected.

***We will be subject to risks associated with increases in the cost of labor as a result of recent changes to the FLSA's overtime rule.***

Effective December 1, 2016, we and all U.S. employers must comply with the recent changes made to the overtime regulations of the Fair Labor Standards Act ("FLSA"), which make certain previously "exempt" employees, due to their rate of pay and type of work that they do, eligible to be paid time and a half for any hours worked more than 40 in a workweek. Under the new FLSA overtime rule, workers who do not earn at least $47,476 a year ($913 a week) will have to be paid overtime, even if they are classified as a manager or professional. Currently, costs associated with our administrative and engineering personnel, as well as our sales and marketing employees, represent a substantial portion of our operating expenses. As a result, we may incur increased labor-related expenses in the future, although we have not quantified the impact from the reclassification of certain employees or the potential increased costs at this time. Should such incremental increases become significant and we are not able to control such costs through staff reductions without harming our business growth, our financial condition and results of operations may be adversely affected. In addition, in the future, if it is determined that any of our employees who we classify as "exempt" should be re-classified as "non-exempt" under the FLSA, we may incur costs and liabilities for back wages, unpaid overtime, fines or penalties and be subject to employee litigation.

### Risks Relating to our Common Stock

***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 7, 2016, we had 5,450,005 shares of common stock issued, outstanding stock options to purchase 921,888 shares of common stock at an average exercise price of $8.31 per share, and outstanding warrants to purchase 557,421 shares of common stock at an average exercise price of $8.59 per share.

We also have reserved shares to issue stock options, restricted stock or other awards to purchase or receive up to 66,057 shares of common stock under our May 2011 Equity Incentive Plan and 55,875 shares of common stock under our 2014 Employee Stock Purchase Plan. In the future, we may grant additional stock options, restricted stock units, warrants and convertible securities. The exercise, conversion or exchange of stock options, restricted stock units, 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.

Filed Nov 14, 2016.
Source: SEC EDGAR, the filing index for accession 0001495231-16-000146. Last ingested by Listed: Nov 2, 2026, 16:20 ET. No prices; not investment advice.