# IZEA Worldwide, Inc.: Form 10-Q for the period ended Jun 30, 2017

- Company: [IZEA Worldwide, Inc.](/companies/izea.md) (CIK 1495231)
- Form: 10-Q
- Filed: 2017-08-10
- Accepted by EDGAR: Aug 10, 2017, 16:02 ET
- Period: 2017-06-30
- Accession: 0001495231-17-000083
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1495231/000149523117000083/izea17063010q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1495231/000149523117000083/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Gross profit | 3 months, 2017-04-01 to 2017-06-30 | $3.5m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2017-01-01 to 2017-06-30 | $6.5m | us-gaap:GrossProfit |
| Operating income | 3 months, 2017-04-01 to 2017-06-30 | −$1.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2017-01-01 to 2017-06-30 | −$4.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2017-04-01 to 2017-06-30 | $13.3k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2017-01-01 to 2017-06-30 | $30.3k | us-gaap:InterestExpense |
| Net income | 3 months, 2017-04-01 to 2017-06-30 | −$1.4m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2017-01-01 to 2017-06-30 | −$4.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2017-04-01 to 2017-06-30 | −$0.25 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted EPS | 6 months, 2017-01-01 to 2017-06-30 | −$0.74 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 6 months, 2017-01-01 to 2017-06-30 | −$2.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2017-01-01 to 2017-06-30 | $8.6k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2017-06-30 | $3.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2017-06-30 | $8.0m | us-gaap:AssetsCurrent |
| Total assets | at 2017-06-30 | $14.3m | us-gaap:Assets |
| Current liabilities | at 2017-06-30 | $7.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2017-06-30 | $8.1m | us-gaap:Liabilities |
| Shareholders' equity | at 2017-06-30 | $6.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 56,633 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,” “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, customer cancellations, 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 customers, 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. In January 2015, we purchased all of the outstanding shares of capital stock of Ebyline, Inc. and in July 2016, we purchased all the outstanding shares of capital stock of ZenContent, Inc. These entities, which aid in our management and production of custom branded content, now operate as wholly-owned subsidiaries under IZEA, Inc. On March 9, 2016, we formed IZEA Canada, Inc., a wholly-owned subsidiary of IZEA, Inc. incorporated in Ontario, Canada to operate as a sales and support office for our Canadian customers and partners.

### Company Overview

IZEA creates and operates online marketplaces that connect marketers with influential content creators. Our technology brings the marketers and creators together, enabling their transactions to be completed at scale through the management of content workflow, creator search and targeting, bidding, analytics and payment processing.

We help power the creator economy, allowing everyone from college students and stay at home moms to celebrities and accredited journalists the opportunity to monetize their content, creativity and influence. These creators are compensated by IZEA for producing unique content such as long-form text, videos, photos, illustrations, and status updates. In addition to creating content for marketers, our creators are also compensated for distribution of that content through their personal blogs and social channels such as Twitter, Facebook and YouTube.

Marketers, including brands, agencies, and partners, engage us to gain access to our industry expertise, technology, analytics, and network of creators. These companies are our primary customers where we generate the majority of our revenue. They use our services for two primary purposes: the engagement of creators for influencer marketing campaigns (also known as “influencer marketing” or "sponsored social"), or the engagement of creators to create stand-alone custom content for the marketer's own use, as well as third party content marketing and native advertising efforts (“custom content”). Marketers receive influential consumer content and engaging, shareable stories that drive awareness.

Our primary technology platform, the IZEA Exchange (“*IZEAx”*), enables transactions to be completed at scale through the management of custom content development, 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 to be provided and further distributed through a wide variety of social channels including blogs, Twitter, Facebook, Instagram and Tumblr, among others.

In addition to *IZEAx*, we operate the Ebyline technology platform we acquired in January 2015. The Ebyline platform is a self-service content marketplace which was originally designed to replace editorial newsrooms located within newspapers with a “virtual newsroom” to handle their content workflow.

### Results of Operations for the Three Months Ended June 30, 2017 Compared to the Three Months Ended June 30, 2016

### Revenues

Historically, we broke out our revenue into categories labeled Sponsored Revenue, Content Revenue and Service Fees. In January 2017, we revised the way we categorize our revenue streams to more closely align the revenue based on margin profiles and how we currently analyze our business. For the revised chart classification by quarterly historical periods in 2015 and 2016, see our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 filed with the SEC on May 10, 2017 and the information set forth under Management's Discussion and Analysis entitled "Results of Operations for the Three Months Ended March 31, 2017 Compared to the Three Months Ended March 31, 2016." Our prior period revenue and cost categories included herein have been reclassified to conform to the current period presentation.

We derive revenue from three sources: revenue from our managed services when a marketer, typically a brand, agency or partner, pays us to provide custom content, influencer marketing or amplification services ("Managed Services"), revenue from the self service use of our Ebyline platform by news agencies to handle their content workflow from initial content request to payment of content received ("Content Workflow"), and revenue derived from various service and license fees charged to users of our platforms ("Service Fee Revenue").

The following table illustrates our approximate revenue, cost of sales and gross profit by revenue stream for the three months ended June 30, 2017 and 2016:

| Revenue & % of Total | Three Months Ended June 30, 2017 |  | June 30, 2016 |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Managed Services | $5,593,000 | 80% | $5,225,000 | 76% | $368,000 | 7.0% |
| Content Workflow | 1,362,000 | 20% | 1,595,000 | 23% | (233,000) | (14.6)% |
| Service Fees & Other Revenue | 26,000 | —% | 94,000 | 1% | (68,000) | (72.3)% |
| Total Revenue | $6,981,000 | 100% | $6,914,000 | 100% | $67,000 | 1.0% |
| **Cost of Sales & % of Total** |  |  |  |  |  |  |
| Managed Services COS | $2,175,000 | 63% | $1,939,000 | 57% | $236,000 | 12.2% |
| Content Workflow COS | 1,268,000 | 37% | 1,480,000 | 43% | (212,000) | (14.3)% |
| Service Fees & Other COS | — | —% | — | —% | — | 100.0% |
| Total Cost of Sales | $3,443,000 | 100% | $3,419,000 | 100% | $24,000 | 0.7% |
| **Gross Profit & Profit %** |  |  |  |  |  |  |
| Managed Services | $3,418,000 | 61% | $3,286,000 | 63% | $132,000 | 4.0% |
| Content Workflow | 94,000 | 7% | 115,000 | 7% | (21,000) | (18.3)% |
| Service Fees & Other Revenue | 26,000 | 100% | 94,000 | 100% | (68,000) | (72.3)% |
| Total Gross Profit | $3,538,000 | 51% | $3,495,000 | 51% | $43,000 | 1.2% |

Revenues for the three months ended June 30, 2017 increased by $66,532, or 1.0%, compared to the same period in 2016. Managed Services increased primarily due to concentrated sales efforts toward larger IZEA managed campaigns that have components of both custom content and influencer marketing resulting in higher revenue per salesperson, and repeat business from existing customers. Content Workflow generated from newspaper and traditional publishers through the Ebyline platform on a self-service basis declined compared to the same period in 2016 due to the ongoing consolidation and cutbacks in the newspaper industry. Although revenue from Content Workflow decreased by $233,000, or (15%), in the three months ended June 30, 2017, our gross margin only declined by $21,000, because the margins are fixed with these customers at only 7% to 9%. We expect to see continued declines in Content Workflow revenue up to 35% compared to prior year levels due to the overall decline in this industry. Service Fee Revenue decreased in the three months ended June 30, 2017 due to lower licensing fees generated from partners using our platforms.

Our net bookings of $6.6 million for the three months ended June 30, 2017 were 3% lower than the net bookings of $6.8 million for the three months ended June 30, 2016, due to a 2017 reduction on a 2016 booking by one customer of $1 million after they underwent budget cuts on previously committed funds. Net bookings is a measure of sales orders received minus any cancellations or changes in a given period. Management uses net bookings as a leading indicator of future revenue recognition as revenue is typically recognized within 90-120 days of booking, though larger contracts may be recognized over twelve months from the original booking date. Net bookings can be affected by, among other things, cancellations or changes to orders that occur in future periods. Reductions in net bookings or changes in the expected timing of delivery for services due to delays and customer preferences or other considerations may result in fluctuations in expected future revenue.

### Cost of Sales and Gross Profit

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

Cost of sales for the three months ended June 30, 2017 increased by $23,794, or 1%, compared to the same period in 2016. Cost of sales increased proportionally with the increase in our sales.

Gross profit for the three months ended June 30, 2017 increased by $42,738, or 1%, compared to the same period in 2016. Our gross profit percentage was nearly the same in the three months ended June 30, 2017 compared to the same period in 2016. We are now consistently selling all of our managed custom content services at similar margins to our historical Managed Sponsored Revenue margins. Content Workflow gross margin was consistent at 7% for the three months ended June 30, 2017 and 2016.

The total gross profit increase was primarily attributable to the increase in revenue and contribution margin from our higher margin, Managed Services offset by reduced revenue from our lower margin, Content Workflow. Managed Services contributed approximately 97% to the gross profit during the three months ended June 30, 2017 compared to 94% during the three months ended June 30, 2016. The mix of sales between our higher margin, Managed Services and lower margin, Content Workflow has a significant effect on our overall gross profit percentage.

The following table sets forth a summary of our statements of operations and the change between the periods:

*(Unaudited)*

|  | Three Months Ended June 30, 2017 | June 30, 2016 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $6,980,221 | $6,913,689 | $66,532 | 1.0% |
| Cost of sales | 3,442,181 | 3,418,387 | 23,794 | 0.7% |
| Gross profit | 3,538,040 | 3,495,302 | 42,738 | 1.2% |
| Operating expenses: |  |  |  |  |
| General and administrative | 2,524,630 | 2,524,746 | (116) | —% |
| Sales and marketing | 2,426,363 | 2,612,714 | (186,351) | (7.1)% |
| Total operating expenses | 4,950,993 | 5,137,460 | (186,467) | (3.6)% |
| Loss from operations | (1,412,953) | (1,642,158) | 229,205 | 14.0% |
| Other income (expense): |  |  |  |  |
| Interest expense | (13,272) | (11,411) | (1,861) | 16.3% |
| Loss on exchange of warrants | — | — | — | 100.0% |
| Change in fair value of derivatives, net | (8,420) | 26,421 | (34,841) | (131.9)% |
| Other income (expense), net | (11,953) | 803 | (12,756) | (1,588.5)% |
| Total other income (expense), net | (33,645) | 15,813 | (49,458) | 312.8% |
| Net loss | $(1,446,598) | $(1,626,345) | $179,747 | 11.1% |

### Operating Expenses

Operating expenses consist of general and administrative expenses and sales and marketing expenses. Total operating expenses for the three months ended June 30, 2017 decreased by $186,467, or (4)%, compared to the same period in 2016. The decrease was primarily attributable to decreases in our sales and marketing expenses.

General and administrative expenses consist primarily of administrative and engineering personnel costs, general operating costs, public company costs, including non-cash stock compensation, acquisition costs, facilities costs, insurance, depreciation, professional fees, and investor relations costs. General and administrative expense for the three months ended June 30, 2017 decreased by $116 compared to the same period in 2016. Although we saw a $34,000 increase in personnel costs and increase in the variable costs related to personnel such as software and subscription costs, communication, travel and supply costs due to a 9% increase in the average number of our administrative and engineering personnel from the prior year period, this was offset by a decrease in our stock option expense by approximately $25,000 due to completed vesting on prior option issuances and less option expense on newer option issuances to general and administrative personnel. The increase in general and administrative expenses was further offset by a $59,000 decrease in contractor and professional fees during the three months ended June 30, 2017. Our depreciation and amortization expense increased by $59,000 as a result of additional amortization on the increase in our intangible assets from software costs and the intangibles acquired in the ZenContent acquisition discussed below.

On July 31, 2016, we purchased all of the outstanding shares of capital stock of ZenContent, Inc. for aggregate consideration up to $4,500,000, consisting of guaranteed payments of $2,000,000 and contingent performance payments up to $2,500,000 based on ZenContent meeting certain revenue targets for each of the three years ending July 31, 2017, 2018 and 2019. These payments are also subject to downward adjustment of up to 30% if Brianna DeMike, ZenContent’s co-founder, is terminated by IZEA for cause or she terminates her employment without good reason. As a result, the Company initially reduced its acquisition cost liability by $300,000 to be accrued as compensation expense over the three-year term rather than allocated to the purchase price in accordance with ASC 805-10-55-25. Compensation expense added to the guaranteed acquisition costs payable and recorded as general and administrative expense during the three months ended June 30, 2017 was $61,459. We also estimate the fair value of the $2,500,000 of the future contingent performance payments for the ZenContent purchase each quarter using a Monte-Carlo simulation to simulate revenue based on actual results and future projections. Based on this calculation, we determined that the current fair value of the contingent performance payments was $342,861 as of June 30, 2017 compared to $366,334 as of March 31, 2017. As a result of the change in the value, we recorded a $23,473 reduction in general and administrative expense during the three months ended June 30, 2017. Of this amount, $6,473 was allocated to reduce compensation expense and $17,000 was allocated as a reduction in the fair value of the contingent performance payments. To the extent that our future estimates in the value of contingent performance payments changes, this will continue to affect our general and administrative expense.

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 June 30, 2017 decreased by $186,351, or (7)%, compared to the same period in 2016. The decrease was primarily attributable to a $190,000 decrease in public relations, tradeshows and marketing event attendance in 2017 as a result of our cost reduction efforts for near term profitability.

### 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.

In prior years, we entered into financing transactions that gave rise to derivative liabilities. Additionally, we issue restricted stock that vests over future periods. 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 $8,420 and income of $26,421 resulting from the increase or decrease in the fair value of certain warrants and stock during the three months ended June 30, 2017 and 2016, 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.

The $12,756 change in other income (expense) is primarily the result of currency exchange losses related to our Canadian transactions during the three months ended June 30, 2017.

### Net Loss

Net loss for the three months ended June 30, 2017 was $1,446,598, which decreased from a net loss of $1,626,345 for the same period in 2016. The reduction in net loss was primarily the result of the decrease in our operating expenses as discussed above.

### Results of Operations for the Six Months Ended June 30, 2017 Compared to the Six Months Ended June 30, 2016

### Revenues

The following table illustrates our approximate revenue, cost of sales and gross profit by revenue stream for the six months ended June 30, 2017 and 2016:

| Revenue & % of Total | Six Months Ended June 30, 2017 |  | June 30, 2016 |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Managed Services | $10,277,000 | 78% | $8,904,000 | 72% | $1,373,000 | 15.4% |
| Content Workflow | 2,832,000 | 21% | 3,299,000 | 27% | (467,000) | (14.2)% |
| Service Fees & Other Revenue | 74,000 | 1% | 177,000 | 1% | (103,000) | (58.2)% |
| Total Revenue | $13,183,000 | 100% | $12,380,000 | 100% | $803,000 | 6.5% |
| **Cost of Sales & % of Total** |  |  |  |  |  |  |
| Managed Services COS | $4,002,000 | 60% | $3,457,000 | 53% | $545,000 | 15.8% |
| Content Workflow COS | 2,636,000 | 40% | 3,063,000 | 47% | (427,000) | (13.9)% |
| Service Fees & Other COS | — | —% | — | —% | — | 100.0% |
| Total Cost of Sales | $6,638,000 | 100% | $6,520,000 | 100% | $118,000 | 1.8% |
| **Gross Profit & Profit %** |  |  |  |  |  |  |
| Managed Services | $6,275,000 | 61% | $5,447,000 | 61% | $828,000 | 15.2% |
| Content Workflow | 196,000 | 7% | 236,000 | 7% | (40,000) | (16.9)% |
| Service Fees & Other Revenue | 74,000 | 100% | 177,000 | 100% | (103,000) | (58.2)% |
| Total Gross Profit | $6,545,000 | 50% | $5,860,000 | 47% | $685,000 | 11.7% |

Revenues for the six months ended June 30, 2017 increased by $803,088, or 6%, compared to the same period in 2016. Managed Services increased $1,373,000, Content Workflow decreased $467,000 and Service Fee Revenue decreased $103,000 during the six months ended June 30, 2017 compared to the same period in 2016. Managed Services increased primarily due to concentrated sales efforts toward larger IZEA managed campaigns that have components of both custom content and influencer marketing resulting in higher revenue per salesperson, and repeat business from existing customers. Content Workflow generated from newspaper and traditional publishers through the Ebyline platform on a self-service basis declined compared to the same period in 2016 due to the ongoing consolidation and cutbacks in the newspaper industry. Although revenue from Content Workflow decreased by $467,000, or (14%), in the six months ended June 30, 2017, our gross margin only declined by $40,000, because the margins are fixed with these customers at only 7% to 9%. We expect to see continued declines in Content Workflow revenue up to 35% compared to prior year levels due to the overall decline in this industry. Service Fee Revenue decreased in the six months ended June 30, 2017 due to lower licensing fees generated from partners using our platforms.

We estimate that revenues from our Managed Services will continue to increase over 15% compared to the prior year, but this increase will be offset by the declines in the self-service Content Workflow noted above. We estimate that total revenue will be between $29-$30 million, with gross margins ranging between 48% to 49% for 2017.

Our net bookings of $14.4 million for the six months ended June 30, 2017 were higher than the net bookings of $14.3 million for the six months ended June 30, 2016. This minimal increase is due to a 2017 reduction on a 2016 booking by one customer of $1 million after they underwent budget cuts on previously committed funds. Nearly all of these bookings to date are expected to translate into revenue during 2017.

### Cost of Sales and Gross Profit

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

Cost of sales for the six months ended June 30, 2017 increased by $117,951, or 2%, compared to the same period in 2016. Cost of sales increased primarily due to the increase in our sales.

Gross profit for the six months ended June 30, 2017 increased by $685,137, or 12%, compared to the same period in 2016. Our gross profit as a percentage of revenue increased from 47% for the six months ended June 30, 2016 to 50% for the same period in 2017. The gross margin on our Managed Services for influencer marketing or custom content services was 61%, while the gross margin on Content Workflow was 7% for the six months ended June 30, 2017. Prior to being acquired by IZEA in 2015, Ebyline generated revenue primarily from newspaper and traditional publishers through their workflow platform on a self-service basis at a fixed 7% to 9% profit. We do not actively sell or market Content Workflow to new customers due to the low margins and challenges facing the newspaper industry. After the acquisition, this revenue stream still contributes a significant portion of our revenue, but we utilize the content creators to promote the sale of custom content to our marketers on a managed basis. These services are sold at comparable margins to our influencer marketing services.

The total gross profit increase was primarily attributable to the increase in revenue and contribution margin from our higher margin, Managed Services versus reduced revenue from our lower margin, Content Workflow. Managed Services contributed approximately 96% to the gross profit during the six months ended June 30, 2017 compared to 93% during the six months ended June 30, 2016. The mix of sales between our higher margin, Managed Services and lower margin, Content Workflow has a significant effect on our overall gross profit percentage.

The following table sets forth a summary of our statements of operations and the change between the periods:

*(Unaudited)*

|  | Six Months Ended June 30, 2017 | June 30, 2016 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $13,182,727 | $12,379,639 | $803,088 | 6.5% |
| Cost of sales | 6,637,707 | 6,519,756 | 117,951 | 1.8% |
| Gross profit | 6,545,020 | 5,859,883 | 685,137 | 11.7% |
| Operating expenses: |  |  |  |  |
| General and administrative | 5,334,154 | 5,104,747 | 229,407 | 4.5% |
| Sales and marketing | 5,324,718 | 4,972,377 | 352,341 | 7.1% |
| Total operating expenses | 10,658,872 | 10,077,124 | 581,748 | 5.8% |
| Loss from operations | (4,113,852) | (4,217,241) | 103,389 | 2.5% |
| Other income (expense): |  |  |  |  |
| Interest expense | (30,348) | (32,750) | 2,402 | (7.3)% |
| Loss on exchange of warrants | — | — | — | 100.0% |
| Change in fair value of derivatives, net | (9,038) | 29,273 | (38,311) | (130.9)% |
| Other income (expense), net | (12,580) | 1,753 | (14,333) | (817.6)% |
| Total other income (expense), net | (51,966) | (1,724) | (50,242) | (2,914.3)% |
| Net loss | $(4,165,818) | $(4,218,965) | $53,147 | 1.3% |

### Operating Expenses

Operating expenses consist of general and administrative expenses and sales and marketing expenses. Total operating expenses for the six months ended June 30, 2017 increased by $581,748, or 6%, compared to the same period in 2016. The increase was primarily attributable to increased personnel costs and additional marketing costs related to our IZEAFest Conference held in February 2017.

General and administrative expenses consist primarily of administrative and engineering personnel costs, general operating costs, public company costs, including non-cash stock compensation, acquisition costs, facilities costs, insurance, depreciation, professional fees, and investor relations costs. General and administrative expense for the six months ended June 30, 2017 increased by $229,407, or 4%, compared to the same period in 2016. The increase was primarily attributable to a $154,000 increase in personnel costs and 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 12% since the prior year period along with increased average salaries those personnel. Stock option expense decreased by approximately $64,000 due to completed vesting on prior option issuances and less option expense on newer option issuances to general and administrative personnel. Our depreciation and amortization expense increased by $125,000 as a result of additional amortization on the increase in our intangible assets from software costs and the intangibles acquired in the ZenContent acquisition.

General and administrative expense is affected by the changes in our ZenContent acquisition liability valuation that are allocated to compensation expense each period. On July 31, 2016, we reduced our acquisition cost liability for guaranteed purchase price payments by $300,000 to be accrued as compensation expense over the three-year payment term. Compensation expense added to the guaranteed acquisition costs payable and recorded as general and administrative expense during the six months ended June 30, 2017 was $122,917. We also determined that the current fair value of the $2,500,000 contingent performance payments for the ZenContent was $342,861 as of June 30, 2017 compared to $324,000 as of December 31, 2016. As a result of the change in the value, we recorded an $18,861 expense during the six months ended June 30, 2017. Of this amount, $74,861 was allocated to compensation expense and a gain of $56,000 was allocated as a reduction in the fair value of the contingent performance payments. To the extent that our future estimates in the value of contingent performance payments changes, this will continue to affect our general and administrative expense.

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 six months ended June 30, 2017 increased by $352,341, or 7%, compared to the same period in 2016. The increase was primarily attributable to a $264,000 increase in personnel costs and related variable costs related to those personnel such as software and subscription costs, communication, travel and supply costs. These increases in the personnel costs are the result of higher level sales and support personnel with higher base salaries along with increases in bonuses and commissions paid on the increase in sales. Additionally, there was a $118,000 increase in public relations and marketing costs as a result of our IZEAFest Conference held in February 2017. These larger marketing spends were not in the first half of 2016, as the IZEAFest conference is held every 16-20 months, and the last IZEAFest conference was held in the fourth quarter of 2015.

### Other Income (Expense)

Other income (expense) consists primarily of interest expense and the change in the fair value of derivatives.

Interest expense during the six months ended June 30, 2017 decreased by $2,402 to $30,348 compared to the same period in 2016 primarily due to the lower imputed interest on the remaining balance of acquisition costs payable.

In prior years, we entered into financing transactions that gave rise to derivative liabilities. Additionally, we issue restricted stock that vests over future periods. 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 expense of $9,038 and income of $29,273 resulting from the increase or decrease in the fair value of certain warrants and stock during the six months ended June 30, 2017 and 2016, respectively.

The $14,333 change in other income (expense) is primarily the result of currency exchange losses related to our Canadian transactions during the six months ended June 30, 2017.

### Net Loss

Net loss for the six months ended June 30, 2017 was $4,165,818, which decreased from a net loss of $4,218,965 for the same period in 2016. The decrease in net loss was primarily the result of the increased revenue and profit margins on our Managed Services offset by the increase in personnel and marketing expenses as discussed above.

### Non-GAAP Financial Measures

Below are financial measures of cash based operating expenses (“Cash Opex”) and Adjusted EBITDA. These are “non-GAAP financial measures” as defined under the rules of the Securities and Exchange Commission (the “SEC”).

We define Cash Opex as total operating expenses exclusive of unusual or non-cash expenses such as depreciation and amortization, non-cash stock related compensation, gain or loss on asset disposals or impairment and changes in acquisition cost estimates, and gains or losses on settlement of liabilities, if applicable.

We define 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 acquisition cost estimates, and all other non-cash income and expense items such as gains or losses on settlement of liabilities and exchanges, and changes in the fair value of derivatives, if applicable.

We use Cash Opex as a percentage of revenue and Adjusted EBITDA as measures of operating performance, for planning purposes, to allocate resources to enhance the financial performance of our business and in communications with our Board of Directors regarding our financial performance. We believe that Cash Opex as a percentage of revenue and Adjusted EBITDA also provide useful information to investors as they exclude transactions not related to our core cash operating business activities, including non-cash transactions, and they provide consistency and facilitate period-to-period comparisons. 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 Cash Opex and Adjusted EBITDA in the same manner, and Cash Opex and Adjusted EBITDA as presented by us may not be comparable to Cash Opex and Adjusted EBITDA presented by other companies, which limits their usefulness as comparative measures.

Moreover, Cash Opex and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation or as a substitute for an analysis of our results of operations as reported under generally accepted accounting principles in the United States (“GAAP”). These limitations include that Cash Opex and Adjusted EBITDA:

- do not include stock-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy;
- do not include stock issued for payment of services, which is a non-cash expense, but has been, and is expected to be for the foreseeable future, an important means for us to compensate our vendors and other parties who provide us with services;
- do not include changes in acquisition cost estimates as a result of the allocation of acquisition costs payable to compensation expense or changes in the estimate of contingent acquisition costs payable, which may or may not ever be paid, but may be a significant recurring expense for our business if we continue to make business acquisitions;
- do not include gains or losses on the settlement of acquisition costs payable or liabilities when the stock value, as agreed upon in the agreement, varies from the market price of our stock on the settlement date, which is a non-cash expense, but will continue to be a recurring expense for our business on certain business contracts where the amounts can vary; and
- do not include depreciation and intangible assets amortization expense, impairment charges and gains or losses on disposal of equipment, which is not always a current period cash expense, but the assets being depreciated and amortized may have to be replaced in the future.

Furthermore, Adjusted EBITDA excludes changes in fair value of derivatives, interest expense and other gains, losses, and expenses that we do not believe are indicative of our ongoing results, but these items may represent a reduction or increase in cash available to us.

Because of these limitations, Cash Opex should not be considered as a measure of our total operating expenses, and Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the operation and growth of our business or as a measure of cash that will be available to us to meet our obligations. You should compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP financial measures as supplements. In evaluating these non-GAAP financial measures, you should be aware that in the future we may incur expenses similar to those for which adjustments are made in calculating Adjusted EBITDA and Cash Opex. Our presentation of these non-GAAP financial measures should also not be construed to infer that our future results will be unaffected by unusual or non-recurring items.

The following table sets forth a reconciliation from the GAAP measurement of Operating Expenses to our non-GAAP financial measure of Cash Opex and Cash Opex as a percentage of revenue for the three and six months ended June 30, 2017 and 2016:

|  | Three Months Ended June 30, 2017 | 2016 | Six Months Ended June 30, 2017 | 2016 |
| --- | ---: | ---: | ---: | ---: |
| Total operating expenses | $4,950,993 | $5,137,460 | $10,658,872 | $10,077,124 |
| Less: |  |  |  |  |
| Non-cash stock-based compensation | 167,870 | 200,354 | 326,846 | 405,326 |
| Non-cash stock issued for payment of services | 22,830 | 41,220 | 83,462 | 72,470 |
| (Gain) loss on disposal of equipment | (1,734) | — | (3,687) | — |
| (Gain) loss on settlement of acquisition costs payable | — | — | (10,491) | — |
| Increase (decrease) in value of acquisition costs payable | 37,986 | — | 141,778 | — |
| Depreciation and amortization | 358,260 | 299,177 | 720,866 | 595,474 |
| Total excluded expenses | 585,212 | 540,751 | 1,258,774 | 1,073,270 |
| Cash Opex | $4,365,781 | $4,596,709 | $9,400,098 | $9,003,854 |
| Revenue | $6,980,221 | $6,913,689 | $13,182,727 | $12,379,639 |
| Cash Opex / Revenue | 63% | 66% | 71% | 73% |

The following table sets forth a reconciliation from the GAAP measurement of Net Loss to our non-GAAP financial measure of Adjusted EBITDA for the three and six months ended June 30, 2017 and 2016:

|  | Three Months Ended June 30, 2017 | 2016 | Six Months Ended June 30, 2017 | 2016 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(1,446,598) | $(1,626,345) | $(4,165,818) | $(4,218,965) |
| Non-cash stock-based compensation | 167,870 | 200,354 | 326,846 | 405,326 |
| Non-cash stock issued for payment of services | 22,830 | 41,220 | 83,462 | 72,470 |
| (Gain) loss on disposal of equipment | (1,734) | — | (3,687) | — |
| (Gain) loss on settlement of acquisition costs payable | — | — | (10,491) | — |
| Increase (decrease) in value of acquisition costs payable | 37,986 | — | 141,778 | — |
| Depreciation and amortization | 358,260 | 299,177 | 720,866 | 595,474 |
| Interest expense | 13,272 | 11,411 | 30,348 | 32,750 |
| Change in fair value of derivatives | 8,420 | (26,421) | 9,038 | (29,273) |
| Adjusted EBITDA | $(839,694) | $(1,100,604) | $(2,867,658) | $(3,142,218) |

Although we estimate that operating expenses will increase for the year ending December 31, 2017 as a result of our continued expansion and investment in future growth, we expect that our Cash Opex as a percentage of revenue will decline in future quarters. We estimate that Adjusted EBITDA for the year ending December 31, 2017 will be approximately negative $4.0 million to $4.5 million as a result of our continued investment in sales and engineering staff necessary to increase our revenue and support our customers.

### Liquidity and Capital Resources

We had cash and cash equivalents of $3,563,540 as of June 30, 2017 as compared to $5,949,004 as of December 31, 2016, a decrease of $2,385,464 primarily due to the funding of our operating losses. We have incurred significant net losses and negative cash flow from operations for most periods since our inception, which has resulted in a total accumulated deficit of $45,975,539 as of June 30, 2017. 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 $2,308,970 during the six months ended June 30, 2017 and is the result of expenses exceeding the amount of gross margin provided from our revenues. Cash used for investing activities was $89,100 during the six months ended June 30, 2017 due to the payment of $94,000 related to the development of our proprietary software and purchases of computer and office equipment for our expanded staff. These payments were offset by a net decrease of $5,000 in leasehold deposits on our California and Canadian space. Cash provided by financing activities was $12,606 during the six months ended June 30, 2017 as a result of employee stock purchases of $16,232 offset by stock issuance costs of $3,626.

On January 30, 2015, we purchased all of the outstanding shares of capital stock of Ebyline. The stock purchase agreement required a cash payment at closing of $1,200,000, a stock issuance of $250,000 paid on July 30, 2015, and $1,877,064 paid in cash or stock in two equal installments of $938,532 on the first and second anniversaries of the closing. On January 29, 2016, we issued 114,398 shares of our common stock to satisfy the first annual guaranteed payment of $938,532 less $89,700 in closing related expenses. On January 30, 2017, we issued 200,542 shares of our common stock to satisfy the second and final annual guaranteed payment of $938,532. The stock purchase agreement also required contingent performance payments up to $5,500,000 to be paid if Ebyline met certain revenue targets in the three years following the closing. None of these targets were met in the first two years following the closing and it is not expected that they will be met in the third year. Therefore, 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 July 31, 2016, we purchased all of the outstanding shares of capital stock of ZenContent. Upon closing we paid a cash payment of $400,000 and issued 86,207 shares of our common stock valued at $600,000. 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). If we decide to issue stock rather than make cash payments, this may result in the issuance of substantial amount of shares because the number of shares will be determined using the 30 trading-day volume-weighted average closing price of our common stock prior to the payment. On July 31, 2017, we paid $266,898 all in cash for the first annual installment of $333,333 less $66,435 in working capital adjustments.

We have a secured credit facility agreement with Western Alliance 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. As of June 30, 2017, we had no advances outstanding under this agreement. Assuming that all of our accounts receivable balance was eligible for funding, we had available credit of $3,299,466 under the agreement as of June 30, 2017.

We believe that, with our current cash and our available credit line with Western Alliance, we will have sufficient cash reserves available to cover expenses for longer than the next 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 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 management 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. Uncollectability 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 develop or share content on behalf of a marketer. 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 collectability 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 $220,000 for doubtful accounts as of June 30, 2017. 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 six months ended June 30, 2017 and 2016.

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 continue to add new features and additional functionality to this platform each year. These new features will enable *IZEAx* to facilitate the contracting, workflow, and delivery of direct custom content as well as provide for invoicing, collaborating, and direct payments for our SaaS customers. 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 $1,578,125 in direct materials, consulting, payroll and benefit costs to software development costs in the consolidated balance sheet as of June 30, 2017. 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: Managed Services, Content Workflow, and Service Fee Revenue. Managed Services is when a marketer, typically a brand, agency or partner, contracts IZEA to provide custom content, influencer marketing or amplification services. Content Workflow is derived from the self-service use of our Ebyline platform by news agencies to handle their content workflow from initial content request to payment of content received. 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. We recognize revenue at various times depending on the service that is being performed.

For our Managed Services, 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) content promotion, 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 other marketer 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 item is considered delivered once the custom content has been delivered to the customer or once the content is distributed live through a public or social network. Revenue is accounted for separately on each of the deliverables in the time frames set forth below. 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, which may be applied to the existing order or used for future services. The statement of work typically provides for a cancellation fee if the agreement is canceled by the customer prior to our completion of services. We recognize revenue on influencer marketing services 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 from advertising campaigns managed by us are recognized ratably over the term of the campaign which may range from a few days to one year. Revenue on custom content provided to a marketer is recognized when the content is delivered to and accepted by the customer.

For Content Workflow services, the self-service marketer contracts the creators directly to provide custom content. The Ebyline platform controls the contracting, description of services, acceptance of and payment for the requested content. This service is used primarily by news agencies to control the outsourcing of their content needs. Revenue is recognized when the transaction is completed by the creator and accepted by the marketer.

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.

Marketers who use us to manage their social advertising campaigns or custom content requests may prepay for services or request credit terms. Payments received or billings in advance of completed 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 Staff Accounting Bulletin 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) collectability 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 six months ended June 30, 2017 and 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, 2016 | 179,998 | $6.16 | 6.0 years | 47.95% | 1.58% | $2.88 |
| June 30, 2017 | 55,003 | $3.64 | 6.0 years | 43.78% | 2.03% | $1.60 |

There were outstanding options to purchase 977,793 shares with a weighted average exercise price of $6.26 per share, of which options to purchase 635,371 shares were exercisable with a weighted average exercise price of $6.24 per share as of June 30, 2017. The intrinsic value on outstanding options as of June 30, 2017 was $0. The intrinsic value on exercisable options as of June 30, 2017 was $0.

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

See "Note 1. Summary of Significant Accounting Policies," under Item 1 in Part I of this Form 10-Q.

## Controls and procedures

As filed, 4,720 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 June 30, 2017, 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 June 30, 2017. Based on this evaluation, our management concluded that our disclosure controls and procedures were effective as of June 30, 2017 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 significant 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 June 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 6,082 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, 2016, the information set forth at the beginning of Management's Discussion and Analysis entitled "Special Note Regarding Forward-Looking Information," and updates noted below, you 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. These risk factors may not identify all risks that we face and our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations.*

### Risks Related to our Business and Industry

***We have a history of annual net 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 for most periods since our inception, which has resulted in a total accumulated deficit of $45,975,539 as of June 30, 2017. For the six months ended June 30, 2017, we had a net loss of $4,165,818, including a $4,113,852 loss from operations and we expect to incur a net loss for the fiscal year 2017. Although our revenue has increased since inception, we have not achieved profitability and cannot be certain that we will be able to maintain 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 custom content from our creators in our platforms. We must continue to attract and retain customers in order to increase revenue and achieve profitability. We had no customers that accounted for more than 10% of our revenue and one customer that accounted for 11% of our revenue during the six months ended June 30, 2017 and 2016, respectively. The loss of customers or a significant reduction in revenue from our major customers could have a material adverse effect on our results of operation. Moreover, 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 may fail to meet publicly announced financial guidance or other expectations about our business, which could cause our stock to decline in value.***

From time to time, we provide preliminary financial results or forward-looking financial guidance, to our investors, including the guidance provided above under "Management's Discussion and Analysis." Such statements are based on our current views, expectations and assumptions and involve known and unknown risks and uncertainties that may cause actual results, performance, achievements or share prices to be materially different from any future results, performance, achievements or share prices expressed or implied by such statements. Such risks and uncertainties include, among others:

changes to the assumptions used to forecast or calculate such guidance, the risk that our business does not perform as expected, changes in the markets for our products and services and risks related to competitive factors. Such risks are summarized in the other risks factors included this Risk Factors section and under Item 1A of Part I to our Annual Report on Form 10-K for the year ended December 31, 2016.

### 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 August 2, 2017, we had 5,706,152 shares of common stock issued, outstanding stock options to purchase 977,270 shares of our common stock at an average exercise price of $6.23 per share, and outstanding warrants to purchase 522,421 shares of our common stock at an average exercise price of $8.63 per share.

We also have reserved shares to issue stock options, restricted stock or other awards to purchase or receive up to 477,040 shares of common stock under our May 2011 Equity Incentive Plan and 39,764 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, as well as issue additional shares of common stock pursuant to the earn-out provisions of the stock purchase agreements in connection with our Ebyline and ZenContent acquisitions. The exercise, conversion or exchange by holders of stock options, restricted stock units, warrants or convertible securities for shares of common stock, and the issuance of new shares pursuant to acquisition earn-out provisions, 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 Aug 10, 2017.
Source: SEC EDGAR, the filing index for accession 0001495231-17-000083. Last ingested by Listed: Nov 2, 2026, 16:20 ET. No prices; not investment advice.