# IZEA Worldwide, Inc.: Form 10-Q for the period ended Sep 30, 2019

- Company: [IZEA Worldwide, Inc.](/companies/izea.md) (CIK 1495231)
- Form: 10-Q
- Filed: 2019-11-14
- Accepted by EDGAR: Nov 14, 2019, 16:09 ET
- Period: 2019-09-30
- Accession: 0001495231-19-000169
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1495231/000149523119000169/izea19093010-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1495231/000149523119000169/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-07-01 to 2019-09-30 | $4.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2019-01-01 to 2019-09-30 | $13.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2019-07-01 to 2019-09-30 | $1.9m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2019-01-01 to 2019-09-30 | $5.8m | us-gaap:CostOfRevenue |
| Operating income | 3 months, 2019-07-01 to 2019-09-30 | −$1.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2019-01-01 to 2019-09-30 | −$4.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2019-07-01 to 2019-09-30 | $27.7k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2019-01-01 to 2019-09-30 | $242.9k | us-gaap:InterestExpense |
| Net income | 3 months, 2019-07-01 to 2019-09-30 | −$1.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2019-01-01 to 2019-09-30 | −$5.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-07-01 to 2019-09-30 | −$0.04 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted EPS | 9 months, 2019-01-01 to 2019-09-30 | −$0.22 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 9 months, 2019-01-01 to 2019-09-30 | −$2.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2019-01-01 to 2019-09-30 | $83.9k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2019-09-30 | $6.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-09-30 | $12.0m | us-gaap:AssetsCurrent |
| Total assets | at 2019-09-30 | $24.7m | us-gaap:Assets |
| Current liabilities | at 2019-09-30 | $8.8m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2019-09-30 | $15.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 49,523 characters.

### Cautionary Note Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. The statements, which are not historical facts contained in this report, including those contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the notes to our unaudited consolidated financial statements, particularly those that utilize terminology such as “may,” “will,” “would,” “could,” “should,” “expects,” “anticipates,” “estimates,” “believes,” “intends,” “likely,” “projects,” “plans,” “pursue,” “strategy” or “future,” or the negative of these words or other words or expressions of similar meaning, are forward-looking statements. Such statements are based on currently available operating, financial and competitive information, and are subject to inherent risks, uncertainties and changes in circumstances that are difficult to predict and many of which are outside of our control. Future events and our actual results and financial condition may differ materially from those reflected in these forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause these differences include, but are not limited to, the following:

- our ability to raise additional funding;
- our ability to issue shares to settle future acquisition costs payable;
- customer cancellations;
- our ability to maintain and grow our business;
- variability of operating results;
- our ability to establish effective disclosure controls and procedures and internal control over financial reporting;
- our ability to regain compliance with the minimum bid price requirements for continued listing of our common stock on the Nasdaq Capital Market;
- our ability to maintain and enhance our brand;
- our ability to develop and introduce 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;
- our 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 the other risks and uncertainties described in the Risk Factors section of this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, 2018.

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 Quarterly 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 Overview

IZEA creates and operates online marketplaces that connect marketers with content creators. Our technology brings the marketers and creators together, enabling their transactions to be completed at scale through the management of custom 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 individuals to celebrities and accredited journalists the opportunity to monetize their content, creativity and influence through our marketers. These creators are compensated by IZEA for producing unique content such as long and short form text, videos, photos, status updates, and illustrations for marketers or distributing such content on behalf of marketers through their personal websites, blogs, and social media channels.

Marketers, including brands, agencies, and publishers, engage us to gain access to our industry expertise, technology, analytics, and network of creators. The majority of the marketers engage us to perform these services on their behalf, but they also have the ability to use our marketplaces on a self-service basis. Our technology is used for two primary purposes: the engagement of creators for influencer marketing campaigns, or the engagement of creators to create stand-alone custom content for the marketers’ own use and distribution. Marketers receive influential consumer content and engaging, shareable stories that drive awareness.

Our primary technology platforms, *The IZEA Exchange (“IZEAx”*) and *TapInfluence*, enable transactions to be completed at scale through the management of custom content workflow, creator search and targeting, bidding, analytics, and payment processing. *IZEAx* and *TapInfluence* are designed to provide a unified ecosystem that enables the creation and publication of multiple types of custom content through a creator’s personal websites, blogs, or social media channels including Twitter, Facebook, Instagram, and YouTube, among others. In addition to *IZEAx* and *TapInfluence*, we operate the *Ebyline* technology platform, which we acquired in January 2015, and the *ZenContent* platform, which we acquired in July 2016. The *Ebyline* platform was originally designed as a self-service content marketplace to replace editorial newsrooms located in the news agencies with a “virtual newsroom” of creators to produce their content needs and to handle their content workflow. After the acquisition, we began to utilize the creators in the *Ebyline* platform to produce professional custom content for brands, in addition to the self-service functionality used by newspapers. The *ZenContent* platform is an in-house workflow tool that enables us to produce highly scalable, multi-part production of content for both e-commerce entities, as well as brand customers.

Subsequent to the July 2018 acquisition of TapInfluence, the Company maintained two operating segments based on its major revenue streams (Managed Services and SaaS Services), which was the result of TapInfluence having a significant amount of SaaS revenue, through June 30, 2019. In the year following the TapInfluence acquisition, the Company integrated TapInfluence into the Legacy sales platform, merged personnel and resources between the entities, and plans to merge all of the operations onto a single platform (next generation of IZEAx). Accordingly, the individual results of Managed Services and SaaS services are not being reviewed for profitability on an individual basis. Due to these factors the Company determined that only one reportable operating segment exists.

### Key Components of Results of Operations

Overall consolidated results of operations are evaluated based on Revenue, Cost of Revenue, Sales and Marketing expenses, General and Administrative expenses, Depreciation and Amortization, and Other Income (Expense), net.

### Revenue

We generate revenue from five primary sources: (1) revenue from our managed services when a marketer (typically a brand, agency or partner) pays us to provide custom content, influencer marketing, amplification or other consulting services (“Managed Services”); (2) revenue from fees charged to self-service customers on their marketplace spend within our *IZEAx* and *TapInfluence* platforms (“Marketplace Spend Fees”); (3) revenue from fees charged to access the *IZEAx, Ebyline,* and *TapInfluence* platforms (“License Fees”); (4) revenue from transactions generated by the self-service use of our *Ebyline* platform for professional custom content (“Legacy Workflow Fees”); and (5) revenue derived from other fees such as inactivity fees, early cash-out fees, and plan fees charged to users of our platforms (“Other”).

As discussed in more detail in “Note 1. Company and Summary of Significant Accounting Policies,” of this Quarterly Report, revenue from Marketplace Spend Fees and Legacy Workflow Fees is reported on a net basis and revenue from all other sources, including Managed Services, License Fees and Other are reported on a gross basis.

### Cost of Revenue

Our cost of revenue consists of direct costs paid to our third-party creators who provide the custom content, influencer marketing or amplification services for our Managed Service customers where we report revenue on a gross basis. It also includes internal costs related to our campaign fulfillment and SaaS support departments. These costs include salaries, bonuses, commissions, stock-based compensation, employee benefit costs, and miscellaneous departmental costs related to the personnel who are primarily responsible for providing support to our customers and ultimately fulfillment of our obligations under our contracts with customers. Where appropriate, we capitalize costs that were incurred with software that is developed or acquired for our revenue supporting platforms and amortize these costs over the estimated useful lives of those platforms. This amortization is separately stated in Depreciation and amortization on our consolidated statements of operations.

### Sales and Marketing

Our sales and marketing expense consists primarily of salaries, bonuses, commissions, stock-based compensation, employee benefit costs, travel and miscellaneous departmental costs for our sales and sales support personnel, as well as marketing expenses such as brand marketing, public relation events, trade shows and marketing materials, and travel expenses.

### General and Administrative

Our general and administrative expense consists primarily of salaries, bonuses, commissions, stock-based compensation, employee benefit costs, and miscellaneous departmental costs related to our executive, finance, legal, human resources, and other administrative personnel. It also includes travel, public company and investor relations expenses, as well as accounting and legal professional services fees, leasehold facilities­ related costs, and other corporate­ related expenses. General and administrative expense also includes our technology and development costs consisting primarily of our payroll costs for our internal engineers and contractors responsible for developing, maintaining and improving our technology, along with hosting and software subscription costs. These costs are expensed as incurred, except to the extent that they are associated with internal use software that qualifies for capitalization, which are then recorded as software development costs in the consolidated balance sheet. We also capitalize costs that are related to our acquired intangible assets. Depreciation and amortization related to these costs are separately stated under depreciation and amortization. General and administrative expense also includes current period gains and losses on costs previously accrued related to our acquisitions.

### Depreciation and Amortization

Depreciation and amortization consists primarily of amortization on our internal use software and acquired intangible assets from our business acquisitions. To a lesser extent, we also have depreciation and amortization on equipment and leasehold improvements used by our personnel. Costs are amortized or depreciated over the estimated useful lives of the associated assets.

### Other (Expense) Income

Interest expense is mainly related to the imputed interest on our acquisition costs payable and interest when we use our secured credit facility.

Other income consists primarily of interest income for interest earned on our cash and cash equivalent balances and foreign currency exchange gains and losses on foreign currency transactions, primarily related to the Canadian Dollar.

### Results of Operations for the Three Months Ended September 30, 2019 and 2018

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

|  | Three Months Ended September 30, 2019 | 2018 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $4,411,086 | $5,780,941 | $(1,369,855) | (24)% |
| Costs and expenses: |  |  |  |  |
| Cost of revenue (exclusive of amortization) | 1,904,287 | 2,397,466 | (493,179) | (21)% |
| Sales and marketing | 1,518,165 | 1,574,335 | (56,170) | (4)% |
| General and administrative | 1,752,126 | 2,699,978 | (947,852) | (35)% |
| Depreciation and amortization | 433,094 | 370,674 | 62,420 | 17% |
| Total costs and expenses | 5,607,672 | 7,042,453 | (1,434,781) | (20)% |
| Loss from operations | (1,196,586) | (1,261,512) | 64,926 | (5)% |
| Other income (expense): |  |  |  |  |
| Interest expense | (27,734) | (90,452) | 62,718 | (69)% |
| Change in fair value of derivatives, net | — | — | — | 100% |
| Other income, net | 51,285 | 19,135 | 32,150 | 168% |
| Total other income (expense), net | 23,551 | (71,317) | 94,868 | (133)% |
| Net loss | $(1,173,035) | $(1,332,829) | $159,794 | (12)% |

### Revenue

The following table illustrates our revenue by type, the percentage of total revenue by type, and the change between the periods:

|  | Three Months Ended September 30, 2019 |  | 2018 |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Managed Services Revenue | $3,558,109 | 81% | $4,859,434 | 84% | $(1,301,325) | (27)% |
| Legacy Workflow Fees | 44,170 | 1% | 48,409 | 1% | (4,239) | (9)% |
| Marketplace Spend Fees | 266,037 | 6% | 378,768 | 7% | (112,731) | (30)% |
| License Fees | 505,634 | 11% | 485,651 | 8% | 19,983 | 4% |
| SaaS Services Revenue | 815,841 | 18% | 912,828 | 16% | (96,987) | (11)% |
| Other Revenue | 37,136 | 1% | 8,679 | —% | 28,457 | 328% |
| Total Revenue | $4,411,086 | 100% | $5,780,941 | 100% | $(1,369,855) | (24)% |

Historically, we have invested the majority of our time and resources in our Managed Services business, which provides the majority of our revenue. Our acquisitions of Ebyline and ZenContent allowed us to expand our product offerings to provide custom content in addition to and in combination with our influencer marketing campaigns to expand our Managed Services. Our July 2018 merger with TapInfluence provided a springboard for SaaS Services and an immediate increase of market share in Marketplace Spend Fees and License Fees on SaaS Services.

*Managed Services* revenue decreased by 27% over the same period in 2018, due to fewer managed and content contracts booked for 2019 and slow fulfillment due to client delays.

*SaaS Services* revenue is generated by the self-service use of our technology platforms by marketers to manage their own content workflow and influencer marketing campaigns. It consists of fees earned on the marketer’s spend within the *IZEAx, TapInfluence* and *Ebyline* platforms, along with the license and support fees to access the platform services.

- *Legacy Workflow Fees* revenue represents self-service transactions through the *Ebyline* platform for professional custom content workflow. This revenue is declining quarter over quarter due to the ongoing consolidation and cutbacks in the newspaper industry. Revenue from Legacy Workflow Fees transactions decreased to $44,170 for the three months ended September 30, 2019, compared to $48,409 for same period in 2018. With the addition of TapInfluence and its SaaS revenue model and our modifications to *IZEAx*, which now allows marketers to purchase custom content, in addition to sponsored posts, we have shifted our focus away from this platform and its content generated primarily for newspapers and traditional publishers, and expect Legacy Workflow Fees revenue to continue to decline going forward.
- *Marketplace Spend Fees* revenue primarily results from marketers and partners using the *IZEAx*, and beginning in July 2018, the *TapInfluence,* platforms on a SaaS basis to distribute content for marketing and influencer marketing campaigns. Revenue from Marketplace Spend Fees decreased by $112,731 for the three months ended September 30, 2019 when compared with the same period of 2018, primarily as a result of slow adoption of TapInfluence clients migrating into IZEAx and churned clients. Revenue from Marketplace Spend Fees represents our net margins received on this business.
- *License Fees* revenue are generated primarily through the granting of limited, non-exclusive, non-transferable licenses to customers for the use of the *IZEAx* and *TapInfluence* technology platforms for an agreed-upon subscription period. Customers license the platforms to manage their own influencer marketing campaigns. Fees for subscription or licensing services are recognized straight-line over the term of the service. License Fees revenue increased during the three months ended September 30, 2019 to $505,634, primarily as a result of the merger with TapInfluence, compared to $485,651 in the same period of the prior year.

*Other* revenue consists of other fees, such as inactivity fees, early cash-out fees, and plan fees charged to users of our platforms. These fees did not have a significant effect on our revenue for the three months ended September 30, 2019 or 2018.

### Cost of Revenue

Cost of revenue for the three months ended September 30, 2019 decreased by $493,179, or approximately 21%, compared to the same period in 2018 due to lower revenue in the current period. Cost of revenue as a percentage of revenue increased from 41.5% in 2018 to 43.2% in 2019, due to an decrease of approximately $97,000 in our higher margin SaaS license revenue, which is recognized on a net basis.

### Sales and Marketing

Sales and marketing expense for the three months ended September 30, 2019 decreased by $56,170, or approximately 4%, compared to the same period in 2018 due to an increase in billboard advertising efforts in cities and airports, offset by a significantly smaller sales organization which has reduced expenses to be reclassified out of general and administrative expense and into sales and marketing expense. Our average number of sales and marketing personnel, excluding support personnel, declined by 29% for the three months ended September 30, 2019 when compared with 2018.

### General and Administrative

General and administrative expense for the three months ended September 30, 2019 decreased by $947,852, or approximately 35%, compared to the same period in 2018. General and administrative expenses were impacted most notably by decreases in payroll due to lower head count of predominantly sales staff of approximately $362,000, a decrease in professional services of $500,000 due to expenses accrued in 2018 for a class action lawsuit, a decrease in non-cash operating expenses of $621,000 due to a gain on liability settlement, offset by an increase in other operating expenses of $216,000 due to lower expense capitalization in the current year.

### Depreciation and Amortization

Depreciation and amortization expense for the three months ended September 30, 2019 increased by $62,420, or approximately 17%, compared to the same period in 2018.

Depreciation expense on property and equipment was $25,391 and $55,034 for the three months ended September 30, 2019 and 2018, respectively. Depreciation expense has declined primarily due to certain assets becoming fully depreciated.

Amortization expense was $407,703 and $315,639 for the three months ended September 30, 2019 and 2018, respectively. Amortization expense related to intangible assets acquired in the Ebyline, ZenContent, and TapInfluence acquisitions was $46,500 and $46,500 for the three months ended September 30, 2019 and 2018, respectively. Amortization expense related to internal use software development costs was $110,073 and $73,622 for the three months ended September 30, 2019 and 2018, respectively.

### Other (Expense) Income

Interest expense decreased by $62,718 to $27,734 during the three months ended September 30, 2019 compared to the same period in 2018 due primarily to lower average amounts outstanding on our credit facility in 2019.

The $32,150 increase in other income during the three months ended September 30, 2019 when compared to 2018 is primarily attributable to interest income on our invested cash balances.

### Net Loss

Net loss for the three months ended September 30, 2019 was $1,173,035, a $159,794 decrease in the net loss of $1,332,829 for the same period in 2018. The decrease in net loss was impacted primarily by the factors discussed previously.

### Results of Operations for the Nine Months Ended September 30, 2019 and 2018

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

|  | Nine Months Ended September 30, 2019 | 2018 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $13,128,706 | $13,798,342 | $(669,636) | (5)% |
| Costs and expenses: |  |  |  |  |
| Cost of revenue (exclusive of amortization) | 5,821,237 | 6,490,906 | (669,669) | (10)% |
| Sales and marketing | 4,238,074 | 5,065,457 | (827,383) | (16)% |
| General and administrative | 6,596,485 | 6,285,810 | 310,675 | 5% |
| Depreciation and amortization | 1,317,423 | 846,820 | 470,603 | 56% |
| Total costs and expenses | 17,973,219 | 18,688,993 | (715,774) | (4)% |
| Loss from operations | (4,844,513) | (4,890,651) | 46,138 | (1)% |
| Other income (expense): |  |  |  |  |
| Interest expense | (242,935) | (147,166) | (95,769) | 65% |
| Change in fair value of derivatives, net | — | (11,794) | 11,794 | (100)% |
| Other income, net | 91,447 | 23,907 | 67,540 | 283% |
| Total other income (expense), net | (151,488) | (135,053) | (16,435) | 12% |
| Net loss | $(4,996,001) | $(5,025,704) | $29,703 | (1)% |

### Revenue

The following table illustrates our revenue by type, the percentage of total revenue by type, and the change between the periods:

|  | Nine Months Ended September 30, 2019 |  | 2018 |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Managed Services Revenue | $10,416,912 | 79% | $12,660,949 | 92% | $(2,244,037) | (18)% |
| Legacy Workflow Fees | 135,791 | 1% | 164,994 | 1% | (29,203) | (18)% |
| Marketplace Spend Fees | 955,328 | 7% | 388,492 | 3% | 566,836 | 146% |
| License Fees | 1,545,222 | 12% | 538,262 | 4% | 1,006,960 | 187% |
| SaaS Services Revenue | 2,636,341 | 20% | 1,091,748 | 8% | 1,544,593 | 141% |
| Other Revenue | 75,453 | 1% | 45,645 | —% | 29,808 | 65% |
| Total Revenue | $13,128,706 | 100% | $13,798,342 | 100% | $(669,636) | (5)% |

Historically, we have invested the majority of our time and resources in our Managed Services business, which provides the majority of our revenue. Our acquisitions of Ebyline and ZenContent allowed us to expand our product offerings to provide custom content in addition to and in combination with our influencer marketing campaigns to expand our Managed Services. Our July 2018 merger with TapInfluence provided a springboard for SaaS Services and an immediate increase of market share in the Marketplace Spend Fees and License Fees on SaaS Services.

Managed Services revenue decreased 18% from the same period in 2018, due to a significant decrease in our front-line sales personnel, however revenue increased slightly per person.

*SaaS Services* revenue is generated by the self-service use of our technology platforms by marketers to manage their own content workflow and influencer marketing campaigns. It consists of fees earned on the marketer’s spend within the *IZEAx, TapInfluence* and *Ebyline* platforms, along with the license and support fees to access the platform services.

- *Legacy Workflow Fees* revenue represents self-service transactions through the *Ebyline* platform for professional custom content workflow. This revenue is declining quarter over quarter due to the ongoing consolidation and cutbacks in the newspaper industry. Revenue from Legacy Workflow Fees transactions decreased to $135,791 for the nine months ended September 30, 2019, compared to $164,994 for same period in 2018. With the addition of

TapInfluence and its SaaS revenue model and our modifications to *IZEAx* which now allows marketers to purchase custom content, in addition to sponsored posts, we have shifted our focus away from this platform and its content generated primarily for newspapers and traditional publishers, and expect Legacy Workflow Fees revenue to continue to decline going forward.

- *Marketplace Spend Fees* revenue primarily results from marketers and partners using the *IZEAx*, and beginning in July 2018, the *TapInfluence,* platforms on a SaaS basis to distribute content for marketing and influencer marketing campaigns. We increased our revenue from Marketplace Spend Fees by $566,836 for the nine months ended September 30, 2019 when compared with the same period of 2018, primarily as a result of our merger with TapInfluence as well as an increased investment in SaaS sales efforts. Revenue from Marketplace Spend Fees represents our net margins received on this business.
- *License Fees* revenue are generated primarily through the granting of limited, non-exclusive, non-transferable licenses to customers for the use of the *IZEAx* and *TapInfluence* technology platforms for an agreed-upon subscription period. Customers license the platforms to manage their own influencer marketing campaigns. Fees for subscription or licensing services are recognized straight-line over the term of the service. License Fees revenue increased during the nine months ended September 30, 2019 to $1,545,222, primarily as a result of the merger with TapInfluence as well as an increased investment in SaaS sales efforts, compared to $538,262 in the same period of the prior year.

*Other* revenue consists of other fees, such as inactivity fees, early cash-out fees, and plan fees charged to users of our platforms. These fees did not have a significant effect on our revenue for the nine months ended September 30, 2019 or 2018.

### Cost of Revenue

Cost of revenue for the nine months ended September 30, 2019 decreased by $669,669, or approximately 10%, compared to the same period in 2018. Cost of revenue as a percentage of revenue improved from 47% in 2018 to 44% in 2019, due to an increase of approximately $1,545,000 in our higher margin revenue from SaaS Services, which is recognized on a net basis.

### Sales and Marketing

Sales and marketing expense for the nine months ended September 30, 2019 decreased by $827,383, or approximately 16%, compared to the same period in 2018. Our average number of sales and marketing personnel, excluding support personnel, declined by 28% for the nine months ended September 30, 2019 when compared with 2018 which, along with the decrease in variable compensation linked with sales performance, contributed to a reduction in sales and marketing payroll and personnel related expenses.

### General and Administrative

General and administrative expense for the nine months ended September 30, 2019 increased by $310,675, or approximately 5%, compared to the same period in 2018. General and administrative expense for the nine months ended September 30, 2019 included a loss on the settlement of acquisition costs payable of $602,411 associated with our January and July 2019 payment related to the acquisition of TapInfluence and our July 2019 payment related to the acquisition of ZenContent. General and administrative expense for the nine months ended September 30, 2019 was reduced by a gain of $703,450 on the adjustment of acquisition costs to fair value. Adjusting for these discrete items, general and administrative expense for the nine months ended September 30, 2019 increased by $203,412, or approximately 3% compared to the same period in 2018. General and administrative expenses were impacted most notably by increased personnel related costs for our administrative and development functions of approximately $421,000, decreased professional services spend of approximately $86,000, and an increase in software licensing and hosting fees of approximately $198,000, primarily related to TapInfluence platform hosting costs.

### Depreciation and Amortization

Depreciation and amortization expense for the nine months ended September 30, 2019 increased by $470,603, or approximately 56%, compared to the same period in 2018.

Depreciation and amortization expense on property and equipment was $99,814 and $167,900 for the nine months ended September 30, 2019 and 2018, respectively. Depreciation expense has declined primarily due to certain assets becoming fully depreciated.

Amortization expense was $1,217,609 and $678,920 for the nine months ended September 30, 2019 and 2018, respectively. Amortization expense related to intangible assets acquired in the Ebyline, ZenContent, and TapInfluence acquisitions was $99,500 and $99,500 for the nine months ended September 30, 2019 and 2018, respectively. Amortization expense related to internal use software development costs was $274,166 and $220,866 for the nine months ended September 30, 2019 and 2018, respectively.

### Other (Expense) Income

Interest expense increased by $95,769 to $242,935 during the nine months ended September 30, 2019 compared to the same period in 2018 due primarily to higher interest rates and higher average amounts outstanding on our credit facility in 2019, and interest incurred related to our acquisition costs payable.

We recorded $11,794 resulting from the change in the fair value of restricted stock for the nine months ended September 30, 2018 with no comparable amount for the same period in 2019.

The $67,540 increase in other income during the nine months ended September 30, 2019 when compared to the same period in 2018 results from a combination of net currency exchange gains related to our Canadian transactions, and interest earned on our invested cash subsequent to our May 2019 equity offering.

### Net Loss

Net loss for the nine months ended September 30, 2019 was $4,996,001, a $29,703 decrease in the net loss of $5,025,704 for the same period in 2018. The decrease in net loss was impacted primarily by the factors discussed previously.

### Non-GAAP Financial Measures

Below are financial measures of our gross billings and Adjusted EBITDA. These are “non-GAAP financial measures” as defined under the rules of the Securities and Exchange Commission (the “SEC”). We use these non-GAAP financial measures to assess the progress of our business and make decisions on where to allocate our resources. As our business evolves, we may make changes in future periods to the key financial metrics that we consider to measure our business.

#### Gross Billings by Revenue Stream

Company management evaluates its operations and makes strategic decisions based, in part, on gross billings from its two primary types of revenue, Managed Services and SaaS Services. We define gross billings as the total dollar value of the amounts earned from our customers for the services we performed, or the amounts billed to our customers for their self-service purchase of goods and services on our platforms. Gross billings are the amounts of our reported revenue plus the cost of payments we made to third-party creators providing the content or sponsorship services, which are netted against revenue for generally accepted accounting principles in the United States (“GAAP”) reporting purposes.

Gross billings for Managed Services is the same as revenue reported in our consolidated statements of operations on a GAAP basis, as there is no requirement to net the costs of revenue against the revenue. Gross billings for Marketplace Spend Fees (which are included in SaaS Services) differ from revenue reported in our consolidated statements of operations on a GAAP basis, which is presented net of the amounts we pay to our third-party creators providing the content or sponsorship services. Gross billings for all other revenue types equals the revenue reported in our consolidated statements of operations.

We consider gross billings to be an important indicator of our potential performance as it measures the total dollar volume of transactions generated through our marketplaces. Tracking gross billings allows us to monitor the percentage of gross billings that we are able to retain after payments to our creators. Additionally, tracking gross billings is critical as it pertains to our credit risk and cash flow. We invoice our customers based on our services performed or based on their self-service transactions plus our fee. Then we remit the agreed-upon transaction price to the creators. If we do not collect the money from our customers prior to the time of payment to our creators, we could experience large swings in our cash flows. Finally, gross billings allows us to evaluate our transaction totals on an equal basis in order for us to see our contribution margins by revenue stream so that we can better understand where we should be allocating our resources.

The following table sets forth our gross billings by revenue type, the percentage of total gross billings by type, and the change between the periods:

|  | Three Months Ended September 30, 2019 |  | 2018 |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Managed Services Revenue | $3,558,109 | 53% | $4,859,434 | 53% | $(1,301,325) | (27)% |
| Legacy Workflow Fees | 609,375 | 9% | 673,065 | 7% | (63,690) | (9)% |
| Marketplace Spend Fees | 1,942,995 | 29% | 3,191,484 | 35% | (1,248,489) | (39)% |
| License Fees | 505,634 | 8% | 485,651 | 5% | 19,983 | 4% |
| SaaS Services Gross Billings | 3,058,004 | 46% | 4,350,200 | 47% | (1,292,196) | (30)% |
| Other Revenue | 37,136 | 1% | 8,679 | —% | 28,457 | 328% |
| Total Gross Billings | $6,653,249 | 100% | $9,218,313 | 100% | $(2,565,064) | (28)% |

|  | Nine Months Ended September 30, 2019 |  | 2018 |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Managed Services Revenue | $10,416,912 | 49% | $12,660,949 | 67% | $(2,244,037) | (18)% |
| Legacy Workflow Fees | 1,871,056 | 9% | 2,335,834 | 13% | (464,778) | (20)% |
| Marketplace Spend Fees | 7,199,141 | 34% | 3,249,527 | 17% | 3,949,614 | 122% |
| License Fees | 1,545,222 | 7% | 538,262 | 3% | 1,006,960 | 187% |
| SaaS Services Gross Billings | 10,615,419 | 50% | 6,123,623 | 33% | 4,491,796 | 73% |
| Other Revenue | 75,453 | —% | 45,645 | —% | 29,808 | 65% |
| Total Gross Billings | $21,107,784 | 100% | $18,830,217 | 100% | $2,277,567 | 12% |

Gross billings for our SaaS Services revenue were $3,058,004 for the three months ended September 30, 2019, a decrease of $1,292,196 compared to the same period in 2018. For the nine months ended September 30, 2019, our gross billings for SaaS Services revenue were $10,615,419, an increase of $4,491,796 compared to the same period in 2018. The decrease in SaaS Services revenue for the three months ended September 30, 2019 is attributable to a decrease in the sales team compared to the same period in 2018. The increase in SaaS Services revenue for the nine months ended September 30, 2019 compared to the same period in 2018, was primarily due to the addition of TapInfluence in July 2018. We expect our merger with TapInfluence to have a continuing positive impact on our future gross billings with respect to our SaaS Services revenue as we build on the significant marketer base obtained from the merger, offset by the phasing out of our Legacy Workflow activity.

The following table sets forth a reconciliation from the GAAP measurement of revenue to our non-GAAP financial measure of gross billings stated above and the percentage change between the periods:

|  | Three Months Ended September 30, 2019 | 2018 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $4,411,086 | $5,780,941 | $(1,369,855) | (24)% |
| Plus payments made to third-party creators (1) | 2,242,163 | 3,437,372 | (1,195,209) | (35)% |
| Gross billings | $6,653,249 | $9,218,313 | $(2,565,064) | (28)% |

(1) Payments made to third-party creators for the Legacy Workflow and Marketplace Spend components of our revenue reported on a net basis for GAAP.

|  | Nine Months Ended September 30, 2019 | 2018 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $13,128,706 | $13,798,342 | $(669,636) | (5)% |
| Plus payments made to third-party creators (1) | 7,979,078 | 5,031,875 | 2,947,203 | 59% |
| Gross billings | $21,107,784 | $18,830,217 | $2,277,567 | 12% |

(1) Payments made to third-party creators for the Legacy Workflow and Marketplace Spend components of our revenue reported on a net basis for GAAP.

#### Adjusted EBITDA

We define Adjusted EBITDA as earnings or loss before interest, taxes, depreciation and amortization, non-cash stock-based compensation, gain or loss on asset disposals or impairment, changes in acquisition cost estimates, and all other unusual or 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 Adjusted EBITDA as a measure 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 Adjusted EBITDA also provides useful information to investors as it excludes transactions not related to our core cash-generating operating business activities, and it provides consistency and facilitates period-to-period comparisons. We believe that excluding these transactions allows investors to meaningfully trend and analyze the performance of our core cash-generating operations.

All companies do not calculate Adjusted EBITDA in the same manner, and Adjusted EBITDA as presented by us may not be comparable to Adjusted EBITDA presented by other companies, which limits its usefulness as a comparative measure. Moreover, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for an analysis of our results of operations as under GAAP. These limitations are that Adjusted EBITDA:

- does not include stock-based compensation expense, which is a non-cash expense, but 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;
- does 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 directors, vendors and other parties who provide us with services;
- does not include changes in acquisition cost estimates as a result of the allocation of acquisition costs payable to compensation expense which may be a significant recurring expense for our business if we continue to make business acquisitions;
- does 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. This 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;
- does not include unusual or expected non-recurring items such as large litigation reserves;
- does 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; and
- does not include changes in fair value of derivatives, interest expense and other gains, losses, and expenses that we believe are not indicative of our ongoing core operating results, but these items may represent a reduction or increase in cash available to us.

Because of these limitations, 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. 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 net loss to our non-GAAP financial measure of Adjusted EBITDA for the three and nine months ended September 30, 2019 and 2018:

|  | Three Months Ended September 30, 2019 | 2018 | Nine Months Ended September 30, 2019 | 2018 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(1,173,035) | $(1,332,829) | $(4,996,001) | $(5,025,704) |
| Non-cash stock-based compensation | 179,866 | 118,410 | 498,071 | 468,042 |
| Non-cash stock issued for payment of services | 37,509 | 31,244 | 112,504 | 93,734 |
| Change in fair value of derivatives | — | — | — | 11,794 |
| Gain on settlement of acquisition costs payable | (793,850) | (84,938) | (602,411) | (84,938) |
| Increase (decrease) in value of acquisition costs payable | 889 | 6,084 | 6,222 | (618,512) |
| Legal expense accrual | — | 500,000 | — | 500,000 |
| Interest expense | 27,734 | 90,452 | 242,935 | 147,166 |
| Depreciation and amortization | 433,094 | 370,674 | 1,317,423 | 846,820 |
| Other non-cash items | 31,998 | 6,642 | 23,903 | 5,242 |
| Adjusted EBITDA | $(1,255,795) | $(294,261) | $(3,397,354) | $(3,656,356) |
| Revenue | $4,411,086 | $5,780,941 | $13,128,706 | $13,798,342 |
| Adjusted EBITDA as a % of Revenue | (28)% | (5)% | (26)% | (26)% |

37

### Liquidity and Capital Resources

We had cash and cash equivalents of $6,808,553 as of September 30, 2019 as compared to $1,968,403 as of December 31, 2018, an increase of $4,840,150 primarily due to net proceeds received from our public securities offering in May 2019. 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 $58,090,650 as of September 30, 2019. To date, we have financed our operations through internally generated revenue from operations, the sale of our equity securities and borrowings under our secured credit facility.

| Net cash (used for)/provided by: | Nine Months Ended September 30, 2019 | 2018 |
| --- | ---: | ---: |
| Operating activities | $(2,281,371) | $(4,157,786) |
| Investing activities | (582,434) | (638,655) |
| Financing activities | 7,703,955 | 4,754,320 |
| Net increase/(decrease) in cash and cash equivalents | $4,840,150 | $(42,121) |

Cash used for operating activities was $2,281,371 during the nine months ended September 30, 2019 and is the net result of our net loss not being fully offset by the net conversion of working capital into cash. Net cash used for investing activities was $582,434 during the nine months ended September 30, 2019 primarily due to the payment of $499,363 related to the development of our proprietary software and purchases of $83,910 for updated computer equipment. Net cash provided by financing activities during the nine months ended September 30, 2019 was $7,703,955 which consisted primarily of net proceeds received from our public securities offering in May 2019, offset by net repayments on our secured credit facility of $1,526,288.

#### Secured Credit Facility

We have a secured credit facility agreement with Western Alliance Bank, the parent company of Bridge Bank, National Association. 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. Effective August 30, 2018, as a result of IZEA’s merger with TapInfluence, we entered into a Business Financing Modification Agreement and Consent with Western Alliance Bank to add TapInfluence as an additional borrower on the credit facility. As of September 30, 2019,we had $0 outstanding under this agreement. Assuming that all of our accounts receivable balance was eligible for funding, we had remaining available credit of $3,598,127 under the agreement as of September 30, 2019.

#### Public Offering

On May 10, 2019, the Company closed on its underwritten registered public offering of 14,285,714 shares of common stock at a public offering price of $0.70 per share, for total gross proceeds of approximately $10.0 million. The net proceeds to the Company were approximately $9.23 million.

In July 2018, and September 2018, we completed two separate underwritten public offerings for the sale of 3,556,000 and 1,407,333 shares of our common stock at a public offering price of $1.00 and $1.50 per share, respectively. The net proceeds for all shares sold by us in the public offerings were approximately $4.9 million after deducting underwriting discounts and commissions and estimated offering expenses.

#### Acquisition Obligations

#### ZenContent, Inc.

On July 31, 2016, we entered into a Stock Purchase Agreement (the “ZenContent Stock Purchase Agreement”) with ZenContent, Inc. (“ZenContent”), pursuant to which we purchased all of the outstanding shares of capital stock of ZenContent.

On July 31, 2019, we made the third and final annual installment payment under the ZenContent Stock Purchase Agreement of 447,489 shares of our common stock valued at $222,223 or $0.4966 per share, using a thirty (30) trading day volume-weighted average closing price (the “30-day VWAP”) as recorded by the Nasdaq Capital Market prior to the issuance date. We recognized a gain of $41,259 on the settlement of this acquisition cost payable as a result of the difference between the actual closing market price of the common stock of $0.4044 on the settlement date and the 30-day VWAP.

In July 2018, pursuant to an amendment to the ZenContent Stock Purchase Agreement, the parties agreed to fix the amount payable for any further contingent performance payments at $90,000, of which $45,000 was paid in cash on November 1, 2018, and $45,000 was paid in cash on November 1, 2019. The payment on November 1, 2019 was paid in cash and relieved the acquisition cost payable balance of $44,805 as of September 30, 2019.

#### TapInfluence

On July 26, 2018, we completed our merger with TapInfluence. Pursuant to the Agreement and Plan of Merger (the Merger Agreement”), we were required to pay the former TapInfluence stockholders an additional $4,500,000, less any final working capital adjustments, in the form of cash, common stock or a combination thereof, at our option, in two installments.

On January 26, 2019, we paid the first installment of $884,583 ($1,000,000 less the final working capital adjustment of $115,416) using 660,136 shares of our common stock valued at $1.34 per share, using the 30-day VWAP as reported by the Nasdaq Capital Market prior to the issuance date. We recorded a $191,439 loss on the settlement of this acquisition cost payable as a result of the difference between the actual closing market price of the common stock of $1.63 on the settlement date and the 30-day VWAP of $1.34 required by the Merger Agreement.

On July 26, 2019, we paid the second and final installment through the issuance to the former shareholders of TapInfluence of 6,908,251 shares of its common stock valued at $3,500,000, or $0.50664 per share, using the 30-day VWAP as required by the Merger Agreement. The Company recognized a gain of $752,591 on the settlement of this acquisition cost payable as a result of the difference between the actual closing market price of the common stock of $0.3977 on the settlement date and the 30-day VWAP.

### Off-Balance Sheet Arrangements

As of September 30, 2019, we did not engage in any activities involving variable interest entities or off-balance sheet arrangements.

### Critical Accounting Policies and Use of Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

During the nine months ended September 30, 2019, there were no significant changes to our critical accounting policies and estimates as described in the consolidated financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (“SEC”) on March 28, 2019.

### Recent Accounting Pronouncements

See Note 1. “Company and Summary of Significant Accounting Policies,” under Part 1, Item 1 of this Quarterly Report for information on recent pronouncements.

## Controls and procedures

As filed, 6,082 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 principal financial officers, 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 quarter ended September 30, 2019, an evaluation was performed under the supervision and with the participation of our management including our principal executive officer and principal financial officer 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, 2019. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit 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 our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures. Given that the remediation of material weakness outlined below has not been validated and tested, our principal executive and principal financial officers concluded that our disclosure controls and procedures were not effective as of September 30, 2019.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

In connection with the 2017 year-end financial statement close and preparation of the corresponding 2017 Annual Report during early 2018, management determined that there were errors in our financial statements issued prior to 2017 related to our presentation of revenue related to the self-service Content Workflow portion of our revenue and our classification of cost of revenue related to our Managed Services. This conclusion resulted in the restatement of certain 2015 and 2016 Consolidated Financial Statements in our 2017 Annual Report on Form 10-K. At that time, we determined that we have a material weakness in the evaluation of the application of generally accepted accounting principles for our contractual arrangements with customers, more specifically the method of revenue recognition and the identification and classification of the costs of our services.

Because the remediation plans associated with this material weakness are still in process of being verified and tested, management concluded that we did not maintain effective internal control over financial reporting as of September 30, 2019.

### Remediation of Material Weakness

To remediate the material weakness described above, we have identified appropriate additional controls including the engagement of independent third-party technical accounting experts to assist management with the adoption of new accounting and reporting requirements, the review and evaluation of significant contracts, and the related financial reporting. We are continuing to evaluate our processes and controls after giving effect to the additional controls. Further processes and controls may be added. We believe that these measures will remediate the material weakness identified and strengthen our internal control over financial reporting.

### Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2019, the Company will utilize a third-party technical experts to assist with tax-related accounting and reporting requirements on an ongoing basis where needed. In addition, the Company has continued to work with a third-party software provider to provide an automated solution for the back-office administration and accounting for the Company’s stock-based compensation programs. Management believes that both of these changes are improving the effectiveness of the Company’s internal control over financial reporting. As a smaller reporting company, our Chief Financial Officer plays a critical role in our control environment, both at the entity level and at the transactional level. During the quarter ended September 30, 2019, our former Chief Financial Officer left the Company and we hired a new Chief Financial Officer. Aside from these three items, there were no other 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, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 13,073 characters.

In addition to the information set forth in this report, you should carefully consider the factors discussed under Item 1A of Part I to our Annual Report on Form 10-K for the year ended December 31, 2018 regarding the 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.

***Impairment of our intangible assets could result in significant charges that would adversely impact our future operating results.***

We have significant goodwill of approximately $8.3 million. We assess the potential impairment of goodwill and our finite-lived intangible assets on an annual basis, as well as whenever events or changes in circumstances indicate that the carrying value may not be recoverable. As of September 30, 2019, we evaluated whether any triggering events for goodwill were deemed to be more likely than not and determined that as of September 30, 2019 they were not. The triggering event in question related to the reduction of the Company’s market capitalization below the Company’s carrying value. As a result, the Company performed an interim valuation and determined that the fair value of the Company exceeded the carrying value. Future adverse changes in these or other unforeseeable factors could result in an impairment charge that would impact our results of operations and financial position in the reporting period identified.

***If we fail to regain compliance with the minimum closing bid requirements of the Nasdaq Capital Market or to satisfy other requirements for continued listing, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.***

Our common stock is listed for trading on the Nasdaq Capital Market (“Nasdaq”). To maintain this listing, we must satisfy Nasdaq’s continued listing requirements, including, among other things, a minimum closing bid price requirement of $1.00 per share.

On June 13, 2019, we received a notification letter from Nasdaq informing us that for the prior 30 consecutive business days, the bid price of our common stock had closed below $1.00 per share. This notice had no immediate effect on our Nasdaq listing and we have 180 calendar days, or until December 10, 2019, to regain compliance. The closing bid price of our common stock must be at least $1.00 per share for a minimum of ten consecutive business days to regain compliance. If by that time we have not regained compliance with the bid price requirement, a second 180-day compliance period may be available, provided (i) we meet the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on Nasdaq (except for the bid price requirement), and (ii) we provide written notice to Nasdaq of our intention to cure this deficiency during the second compliance period by effecting a reverse stock split, if necessary.

If we are unable to regain compliance with the minimum closing bid price requirement by December 10, 2019, or such further extended period as may be provided by Nasdaq, or if we fail to meet any of the other continued listing requirements, our common stock may be delisted from Nasdaq, which could reduce the liquidity of our common stock materially and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, employees and business development opportunities. Such a delisting likely would impair your ability to sell or purchase our common stock when you wish to do so. Further, if we were to be delisted from Nasdaq, our common stock may no longer be recognized as a “covered security” and we would be subject to regulation in each state in which we offer our securities. Thus, delisting from Nasdaq could adversely affect our ability to raise additional financing through the public or private sale of equity securities, would significantly impact the ability of investors to trade our securities and would negatively impact the value and liquidity of our common stock.

***We have been named as a defendant in a securities class action lawsuit and other shareholder derivative lawsuits relating to an error in the presentation of revenues and classification of expenses in certain financial statements issued in prior years. This litigation, and any other similar or related claims or investigations, could result in substantial damages and cost and may divert management’s time and attention from our business.***

A securities class action lawsuit, *Julian Perez, individually, and on behalf of all others similarly situated v. IZEA, Inc., et al*., case number 2:18-cv-02784-SVW-GJS was instituted April 4, 2018 in the U.S. District Court for the Central District of California against us and certain of our executive officers on behalf of certain purchasers of our common stock. The plaintiffs seek to recover damages for investors under federal securities laws. We have estimated and accrued a potential loss of $500,000 representing our deductible on associated insurance coverage.

On April 15, 2019, a stipulation of settlement was filed in the U.S. District Court for the Central District of California that contained settlement terms as agreed upon by the parties to the *Perez* class action lawsuit described above. The motion for preliminary approval of the settlement was granted on May 7, 2019. According to the terms of the settlement as agreed upon by the parties IZEA’s insurer deposited $800,000 into the settlement fund and we paid the remainder of our previously accrued insurance deductible of $400,000 into escrow to be used as settlement funds, inclusive of lead plaintiff awards and lead counsel fees. The settlement is subject to final approval by the U.S. District Court, and the Court has scheduled a hearing for September 23, 2019. Upon final approval by the Court, the settlement will require that the *Perez* lawsuit be dismissed with prejudice. In the event that the Court does not approve the settlement, we intend to vigorously defend against the claims based upon our belief that the claims are without merit.

On July 3, 2018, a shareholder derivative lawsuit, *Korene Stuart v. Edward H. Murphy et al*., case number A-18-777135-C was instituted in the Eighth Judicial District Court of the State of Nevada, Clark County against certain executive officers and members of the Board of Directors for IZEA. IZEA has been named as a nominal defendant. The plaintiff seeks to recover damages on behalf of us for purported breaches of the individual defendants’ fiduciary duties as directors and/or officers of IZEA, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets in violation of state common law.

Additionally, on October 19, 2018, a shareholder derivative lawsuit, *Dennis E. Emond v. Edward H. Murphy et al.*, case number 2:18-cv-9040, was instituted in the U.S. District Court for the Central District of California against certain executive officers and members of the Board of Directors for IZEA. IZEA has been named as a nominal defendant. An amended complaint was filed on October 31, 2018. The plaintiff seeks to recover damages on behalf of us for purported breaches of the individual defendants’ fiduciary duties as directors and/or officers of IZEA, gross mismanagement and alleged violations of federal securities laws.

On August 28, 2019, the United States District Court for the Central District of California entered an order preliminarily approving a stipulation of settlement filed on March 6, 2019 (the "Settlement") that contained settlement terms as agreed upon by parties to the *Stuart* and *Emond* shareholder derivative lawsuits described above. The terms of the Settlement include IZEA’s directing its insurers to make a payment of $300,000 as a fee and service award to the plaintiffs and their counsel in the *Stuart* and *Emond* lawsuits and IZEA’s enacting certain governance reforms. A hearing on final approval of the Settlement will be held on December 16, 2019 at 8:30 a.m., Los Angeles time. Pursuant to the terms of the Settlement, final approval of the Settlement by the United States District Court for the Central District of California will result in the dismissal with prejudice of both the *Stuart* and *Emond* lawsuits.

These lawsuits, and any other similar or related claims or investigations, could result in the diversion of management’s time and attention away from business operations, which could harm our business and also harm our relationships with existing customers, vendors and business partners. The lawsuits may also materially damage our reputation and the value of our brand. Our legal expenses incurred in defending the lawsuits, and any other similar or related matters, could be significant, and a ruling against us, or any settlement, could have a material adverse effect on us.

There can be no assurance that any litigation to which we are, or in the future may become, a party will be resolved in our favor. These lawsuits and any other lawsuits that we may become party to are subject to inherent uncertainties, and the costs to us of defending litigation matters will depend upon many unknown factors. Any claim that is successfully decided against us may require us to pay substantial damages, including punitive damages, and other related fees. We may also determine that a settlement of one or more of the actions is in the best interest of us and our shareholders.

Regardless of whether lawsuits are resolved in our favor or if we are the plaintiff or the defendant in the litigation, any lawsuits to which we are or may become a party will likely be expensive and time consuming to defend or resolve.

***We are continuing to develop our IZEAx platform and are in the process of transitioning certain features and customers from our legacy Ebyline, ZenContent and TapInfluence platforms. Our updated IZEAx platform may not achieve sufficient market acceptance to be commercially viable for open marketplace or SaaS services.***

We are continuing to develop our primary platform, *IZEAx,* and we intend to focus the majority of our engineering resources on the *IZEAx* platform for the foreseeable future. In April 2019, we released version 3.0 of *IZEAx,* which allows marketers to make offers that require a single creator to complete multiple tasks or deliverables. The new version also allows users to source multiple creators to produce a combined deliverable for the end-marketer. Throughout the remainder of 2019, we plan to continue to add additional features to support SaaS white-label partners and integrate the *Ebyline, ZenContent* and

*TapInfluence* platform offerings for custom content services within our *IZEAx* platform. We are spending a significant amount of time and resources on the development of this platform, and we cannot provide any assurances of its short or long-term commercial success or growth. There is no assurance that the amount of money being allocated for the platform will be sufficient to complete it, or that such completion will result in significant revenues or profit for us.

The *Ebyline* platform is naturally declining as we are dedicating resources to the continuation and development of our *IZEAx* platform. We are working towards merging the two platforms and there is a risk that the merging of our Ebyline customers into *IZEAx* will result in a further decrease in revenue related to the self-service Content Workflow business if the customers do not understand the changes or do not believe that the *IZEAx* platform can provide them with a similar or improved service from what they received in the *Ebyline* platform.

Additionally, there is a risk that existing creators registered under our *Ebyline, ZenContent* and *TapInfluence* platforms will either not migrate or will not participate and accept offers after their migration into *IZEAx*. If our marketers and creators do not perceive this platform to be of high value and quality, we may not be able to retain them or acquire new marketers and creators. Additionally, if existing or future competitors develop or offer products or services that provide significant performance, price, creative or other advantages over this platform, demand for *IZEAx* may decrease and our business, prospects, results of operations and financial condition could be negatively affected.

Filed Nov 14, 2019.
Source: SEC EDGAR, the filing index for accession 0001495231-19-000169. Last ingested by Listed: Nov 2, 2026, 16:20 ET. No prices; not investment advice.