# IZEA Worldwide, Inc.: Form 10-Q for the period ended Jun 30, 2020

- Company: [IZEA Worldwide, Inc.](/companies/izea.md) (CIK 1495231)
- Form: 10-Q
- Filed: 2020-08-13
- Accepted by EDGAR: Aug 13, 2020, 16:02 ET
- Period: 2020-06-30
- Accession: 0001495231-20-000120
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1495231/000149523120000120/izea-20200630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1495231/000149523120000120/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-04-01 to 2020-06-30 | $3.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2020-01-01 to 2020-06-30 | $7.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2020-04-01 to 2020-06-30 | $1.4m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2020-01-01 to 2020-06-30 | $3.6m | us-gaap:CostOfRevenue |
| Operating income | 3 months, 2020-04-01 to 2020-06-30 | −$1.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2020-01-01 to 2020-06-30 | −$7.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2020-04-01 to 2020-06-30 | $19.5k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2020-01-01 to 2020-06-30 | $26.1k | us-gaap:InterestExpense |
| Net income | 3 months, 2020-04-01 to 2020-06-30 | −$1.8m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2020-01-01 to 2020-06-30 | −$8.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-04-01 to 2020-06-30 | −$0.05 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted EPS | 6 months, 2020-01-01 to 2020-06-30 | −$0.22 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 6 months, 2020-01-01 to 2020-06-30 | −$1.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2020-06-30 | $20.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-06-30 | $24.4m | us-gaap:AssetsCurrent |
| Total assets | at 2020-06-30 | $31.1m | us-gaap:Assets |
| Current liabilities | at 2020-06-30 | $9.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-06-30 | $10.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2020-06-30 | $21.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 53,511 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 consolidated financial statements, particularly those that utilize terminology such as “may,” “will,” “would,” “could,” “should,” “expects,” “anticipates,” “anticipates,” “estimates,” “believes,” “thinks,” “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:

- the impact of the COVID-19 pandemic on our operations, financial condition and the worldwide economy;
- customer cancellations;
- our ability to raise additional funding needed to fund our business operation in the future;
- our ability to satisfy the requirements for continued listing of our common stock on the Nasdaq Capital Market;
- our ability to maintain effective disclosure controls and procedures and internal control over financial reporting;
- our ability to protect our intellectual property;
- our ability to maintain and grow our business;
- results of any future litigation;
- competition in the industry;
- variability of operating results;
- our ability to maintain and enhance our brand;
- accuracy of tracking the number of user accounts;
- 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;
- general government regulation;
- economic conditions, including as a result of health and safety concerns;
- 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;
- 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, 2019.

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 Annual 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, including brands, agencies, and publishers, with content creators such as bloggers and tweeters (“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 engage us to gain access to our industry expertise, technology, data, 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 by licensing our technology. 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 platform, *The IZEA Exchange (“IZEAx”*) enables transactions to be completed at scale through the management of custom content workflow, creator search and targeting, bidding, analytics, and payment processing. *IZEAx* is 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. Until December 2019 when it was merged into *IZEAx*, we operated the *Ebyline* technology platform, which we acquired in January 2015. The *Ebyline* platform was originally designed as a self-service content marketplace to replace in-house editorial newsrooms in news agencies with a “virtual newsroom” to source and handle their content workflow with outside creators. 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. In July 2016, we acquired the *ZenContent* technology platform to use as an in-house workflow tool that enables us to produce highly scalable, multi-part production of content for both e-commerce entities and brand customers. The *TapInfluence* technology platform, acquired in 2018, performed in a similar manner to *IZEAx* and was being utilized by the majority of the TapInfluence customers as a self-service platform via a licensing arrangement, allowing access to the platform and its creators for self-managed marketing campaigns. After the migration of the last customers to *IZEAx* from the *Ebyline* platform in December 2019 and from the *TapInfluence* platform in February 2020, all marketplace revenue is solely generated from the *IZEAx* platform.

### Impact of COVID-19 on our Business

Although the ultimate impact of COVID-19 on our business is still unknown, our operations, sales and finances have been impacted by the pandemic during the six months ended June 30, 2020. In an effort to protect the health and safety of our employees, we took precautionary action and directed all staff to work from home effective March 16, 2020. During this work-from-home period, we have not renewed leases for our headquarters and temporary office spaces and we do not have any plans to do so prior to the end of 2020 and until circumstances allow.

Although we are able to maintain full operations remotely, the economic conditions caused by COVID-19 have negatively impacted the business activity of our customers. We observed changes in advertising decisions, timing and spending priorities from brand and agency customers, which have resulted in a negative impact to our revenue.

In light of the adverse economic conditions caused by the COVID-19 pandemic, we implemented certain cost-reduction measures, including temporary salary and wage reductions averaging 20%, including a 21% reduction in base salary for our Chief Executive Officer, Chief Operating Officer and fees for our directors, during the entire three months ended June 30, 2020. We reduced and shifted our marketing expense and eliminated travel expense for the near term future. In March 2020, we incurred debt by drawing on our secured credit facility and receiving a loan under the U.S. Small Business Association’s Paycheck Protection Program. After we were able to secure additional capital through sales of our common stock through an at the market offering in June 2020, the secured credit facility was paid down by June 30, 2020 and the employee salary reductions and hiring restrictions were removed effective July 1, 2020.

In an effort to contain COVID-19 or slow its spread, governments around the world have also enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. These measures have impacted the method and timing of certain business meetings and our attendance at industry events.

When COVID-19 is demonstrably contained, we anticipate a rebound in economic activity, depending on the rate, pace, and effectiveness of the containment efforts deployed by various national, state, and local governments; however, the timing and extent of any such rebound is uncertain.

We will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, employees, and prospects, or on our financial results for the remainder of fiscal year 2020 or beyond.

### 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 historically generated 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 campaign management services (“Managed Services”); (2) revenue from fees charged to software 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 workflow (“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 Fees”). After the migration of the last customers from the *Ebyline* platform to *IZEAx* in December 2019, there is no longer any revenue generated from Legacy Workflow Fees and all such revenue is reported as Marketplace Spend Fees under the *IZEAx* platform.

As discussed in more detail within “Critical Accounting Policies and Use of Estimates” under “Note 1. Company and Summary of Significant Accounting Policies,” under Part I, Item 1 herein, 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 Fees are reported on a gross basis. We further categorize these sources into two primary groups: (1) Managed Services and (2) SaaS Services, which includes revenue from Marketplace Spend Fees, License Fees and Legacy Workflow Fees, and Other Fees.

### 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 under depreciation and amortization in our consolidated statements of operations.

### Sales and Marketing

Our sales and marketing expenses consist primarily of salaries, bonuses, commissions, stock-based compensation, employee benefit costs, travel and miscellaneous departmental costs for our marketing, 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,­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, as well as 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 in our consolidated statements of operations. General and administrative expense also includes current period gains and losses on costs previously accrued related to our acquisitions, as well as gains and losses from the sale of fixed assets. Impairments on fixed assets, intangible assets and goodwill, are included as part of general and administrative expense when they are not material and broken out separately in our consolidated statements of operations when they are material.

### Depreciation and Amortization

Depreciation and amortization expense consists primarily of amortization of 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 Income (Expense)

*Interest Expense.* 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 (Expense).* Other income (expense) consists primarily of interest income for interest earned or changes in the value of our foreign assets and liabilities 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 June 30, 2020 and 2019

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

|  | Three Months Ended June 30, 2020 | 2019 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $3,135,039 | $3,923,864 | $(788,825) | (20)% |
| Costs and expenses: |  |  |  |  |
| Cost of revenue (exclusive of amortization) | 1,414,249 | 1,817,659 | (403,410) | (22)% |
| Sales and marketing | 1,228,691 | 1,362,242 | (133,551) | (10)% |
| General and administrative | 1,920,492 | 2,232,305 | (311,813) | (14)% |
| Depreciation and amortization | 377,107 | 448,105 | (70,998) | (16)% |
| Total costs and expenses | 4,940,539 | 5,860,311 | (919,772) | (16)% |
| Loss from operations | (1,805,500) | (1,936,447) | 130,947 | (7)% |
| Other income (expense): |  |  |  |  |
| Interest expense | (19,476) | (86,737) | 67,261 | (78)% |
| Other income, net | 33,834 | 30,798 | 3,036 | 10% |
| Total other income (expense), net | 14,358 | (55,939) | 70,297 | (126)% |
| Net loss | $(1,791,142) | $(1,992,386) | $201,244 | (10)% |

### 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 June 30, 2020 |  | 2019 |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Managed Services Revenue** | 2,490,343 | 80% | 2,991,571 | 76% | $(501,228) | (17)% |
| Legacy Workflow Fees | — | —% | 44,291 | 1% | (44,291) | (100)% |
| Marketplace Spend Fees | 195,894 | 6% | 314,638 | 8% | (118,744) | (38)% |
| License Fees | 408,728 | 13% | 548,494 | 14% | (139,766) | (25)% |
| Other Fees | 40,074 | 1% | 24,870 | 1% | 15,204 | 61% |
| **SaaS Services Revenue** | 644,696 | 20% | 932,293 | 24% | (287,597) | (31)% |
| **Total Revenue** | $3,135,039 | 100% | $3,923,864 | 100% | $(788,825) | (20)% |

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 expanded our SaaS Services and provided the ability to increase revenue derived from Marketplace Spend Fees and License Fees.

*Managed Services* is generated when a marketer (typically a brand, agency or partner) pays us to provide custom content, influencer marketing, amplification or other campaign management services. Managed Services revenue during the three months ended June 30, 2020, decreased 17% from the same period in 2019, primarily due to marketers canceling or pausing planned advertising campaigns in the second quarter of 2020 as a result of uncertainty or inability to offer their products for sale as a result of business shutdowns due to COVID-19 or in light of civil unrest. Although we saw a decrease in revenue during the quarter, bookings, or sales orders, for our Managed Services increased by 50% from $2.64 million in the in the three months ended June 30, 2019 to $3.96 million in the three months ended June 30, 2020, as marketers who are still advertising shifted more of their spend to influencer marketing campaigns. Managed Service bookings typically convert to future revenue over the next three to twelve months, but the timing of revenue may fluctuate from prior year results or current expectations in the event of continued or additional economic changes.

*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. After the migration of the last customers from the *Ebyline* platform to *IZEAx* in December 2019, there is no longer any revenue generated from Legacy Workflow Fees. Any activity from former legacy workflow customers is now generated under the *IZEAx* platform and reported as Marketplace Spend Fees.
- *Marketplace Spend Fees* revenue primarily results from fees on transaction spending by marketers and partners using the *IZEAx* and, from July 2018 - February 2020, the *TapInfluence* platforms on a SaaS basis to purchase or distribute content for their internal use or advertising purposes. We charge the self-service customer the transaction price plus a fee based on agreed upon rates. Our revenue from Marketplace Spend Fees decreased by $118,744 to $195,894 for the three months ended June 30, 2020 when compared to $314,638 for the same period in 2019, primarily as a result of lower spend levels from our marketers and lower fees assessed on those spends as a result of competitive pricing efforts and the incorporation of lower margin legacy workflow customers into *IZEAx*. Revenue from Marketplace Spend Fees represents our net margins received on this business. After the migration of the last customers from the *TapInfluence* platform to *IZEAx* in February 2020, all revenue is solely generated from the *IZEAx* platform.
- *License Fees* revenue is generated primarily through the granting of limited, non-exclusive, non-transferable licenses to customers for the use of the *IZEAx* and, until February 2020, the *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 decreased during the three months ended June 30, 2020 to $408,728 compared to $548,494 in the same period of 2019. The decrease was partly due to former TapInfluence customers who churned during the second half of 2019. Additionally, we implemented a competitive standardized pricing system for all *IZEAx* customers that was at a lower price point than the former TapInfluence licensing contracts.
- *Other Fees* revenue consists of other fees, such as inactivity fees, early cash-out fees, and plan fees charged to users of our platforms. Other Fees revenue increased 61% for the three months ended June 30, 2020 compared to the same period in 2019 due to an increase in plan subscription fees on certain new self-service offerings such as *IZEAx* Discovery.

### Cost of Revenue

Cost of revenue for the three months ended June 30, 2020 decreased by $403,410, or approximately 22%, compared to the same period in 2019 primarily as a result of the decrease in variable costs associated with the decline in Managed Services revenue. Cost of revenue as a percentage of revenue improved from 46% in 2019 and 45% in 2020 primarily due to a $73,000 reduction in personnel and travel related costs on the fulfillment of customer marketing campaigns.

### Sales and Marketing

Sales and marketing expense for the three months ended June 30, 2020 decreased by $133,551, or approximately 10%, compared to the same period in 2019. Although our average number of sales and marketing personnel increased by 3% for the three months ended June 30, 2020 compared to the same period in 2019, we saw a $29,000 decrease in sales and marketing payroll and personnel related expenses including stock compensation due to the salary reductions that were implemented during the three months ended June 30, 2020 as a result of the COVID-19 cost reduction efforts. We also decreased our marketing expenses by $51,000 and travel related expenses by $48,000 due to the impact of COVID-19 restricting travel for the entire quarter in 2020.

### General and Administrative

General and administrative expense for the three months ended June 30, 2020 decreased by $311,813, or approximately 14%, compared to the same period in 2019. General and administrative expense for the three months ended June 30, 2020 decreased primarily due to a $338,000 decrease in payroll and personnel related expenses as a result of a 12% reduction in staff compared to the prior year quarter and the 20% average decrease in salaries that was implemented during the three months ended June 30, 2020 as a result of the COVID-19 cost reduction efforts. Rent expense also decreased by $66,000 due to the non-renewal of expiring office facility leases and travel costs decreased by $44,000 as our employees continue to work from home. These decreases were offset by a $92,000 increase in professional services for special projects, a $35,000 increase in moving costs to vacate our leasehold premises, and a $9,000 increase in insurance premiums during the three months ended June 30, 2020.

### Depreciation and Amortization

Depreciation and amortization expense for the three months ended June 30, 2020 decreased by $70,998, or approximately 16%, compared to the same period in 2019.

Depreciation and amortization expense on property and equipment was $34,578 and $35,946 for the three months ended June 30, 2020 and 2019, respectively. Depreciation expense has declined primarily due to certain assets becoming fully depreciated.

Amortization expense was $342,529 and $412,159 for the three months ended June 30, 2020 and 2019, respectively. Amortization expense related to intangible assets acquired in the Ebyline, ZenContent, and TapInfluence acquisitions was $239,990 and $322,907 for the three months ended June 30, 2020 and 2019, respectively, while amortization expense related to internal use software development costs was $102,539 and $89,252 for the three months ended June 30, 2020 and 2019, respectively. Amortization on our intangible acquisition assets decreased in the three months ended June 30, 2020 due to completion of amortization on certain intangible assets acquired in prior years. Amortization on our internal use software increased due to the release of *IZEAx 3.0* in April 2019.

### Other Income (Expense)

Interest expense decreased by $67,261 to $19,476 during the three months ended June 30, 2020 compared to the same period in 2019 due primarily to the elimination of amounts owed on our acquisition costs payable and amortization thereon after July 2019.

The $3,036 increase in other income during the three months ended June 30, 2020 when compared to the same period in 2019 resulted primarily from net currency exchange gains related to our Canadian transactions compared to net currency exchange gains on our Canadian transactions in 2019.

### Net Loss

Net loss for the three months ended June 30, 2020 was $1,791,142, a $201,244 decrease compared to the net loss of $1,992,386 for the same period in 2019. The decrease in net loss was primarily the result of the cost reductions implemented as a result of the revenue declines experienced as a result of COVID-19 discussed above.

### Results of Operations for the Six Months Ended June 30, 2020 and 2019

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

|  | Six Months Ended June 30, 2020 | 2019 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $7,898,707 | $8,717,620 | $(818,913) | (9)% |
| Costs and expenses: |  |  |  |  |
| Cost of revenue (exclusive of amortization) | 3,554,766 | 3,916,950 | (362,184) | (9)% |
| Sales and marketing | 2,751,834 | 2,719,909 | 31,925 | 1% |
| General and administrative | 4,338,330 | 4,844,359 | (506,029) | (10)% |
| Impairment of goodwill | 4,300,000 | — | 4,300,000 | 100% |
| Depreciation and amortization | 878,376 | 884,329 | (5,953) | (1)% |
| Total costs and expenses | 15,823,306 | 12,365,547 | 3,457,759 | 28% |
| Loss from operations | (7,924,599) | (3,647,927) | (4,276,672) | 117% |
| Other income (expense): |  |  |  |  |
| Interest expense | (26,094) | (215,201) | 189,107 | (88)% |
| Other income (expense), net | (3,910) | 40,162 | (44,072) | (110)% |
| Total other income (expense), net | (30,004) | (175,039) | 145,035 | (83)% |
| Net loss | $(7,954,603) | $(3,822,966) | $(4,131,637) | 108% |

### Revenue

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

|  | Six Months Ended June 30, 2020 |  | 2019 |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Managed Services Revenue** | $6,615,404 | 84% | $6,858,803 | 79% | $(243,399) | (4)% |
| Legacy Workflow Fees | — | —% | 91,621 | 1% | (91,621) | (100)% |
| Marketplace Spend Fees | 362,187 | 5% | 689,291 | 8% | (327,104) | (47)% |
| License Fees | 825,544 | 10% | 1,039,588 | 12% | (214,044) | (21)% |
| Other Fees | 95,572 | 1% | 38,317 | —% | 57,255 | 149% |
| **SaaS Services Revenue** | 1,283,303 | 16% | 1,858,817 | 21% | (575,514) | (31)% |
| **Total Revenue** | $7,898,707 | 100% | $8,717,620 | 100% | $(818,913) | (9)% |

*Managed Services* revenue during the six months ended June 30, 2020, decreased 4% from the same period in 2019, primarily due to marketers canceling or pausing planned advertising campaigns in March 2020 and throughout the second quarter of 2020 as a result of uncertainty or inability to offer their products for sale as a result of business shutdowns due to COVID-19 or in light of civil unrest.

*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* are no longer generated after the migration of the last customers from the *Ebyline* platform to *IZEAx* in December 2019. Any activity from former legacy workflow customers is now generated under the *IZEAx* platform and reported as Marketplace Spend Fees.
- *Marketplace Spend Fees* decreased by $327,104 for the six months ended June 30, 2020 when compared with the same period in 2019, primarily as a result of lower spend levels from our marketers and lower fees charged assessed on

those spends as a result of competitive pricing efforts and the incorporation of lower margin legacy workflow customers into *IZEAx*. Revenue from Marketplace Spend Fees represents our net margins received on this business. After the migration of the last customers from the *TapInfluence* platform to *IZEAx* in February 2020, all revenue is solely generated from the *IZEAx* platform.

- *License Fees* revenue decreased during the six months ended June 30, 2020 to $825,544 compared to $1,039,588 in the same period of 2019. The decrease was partly due to former TapInfluence customers who churned during the second half of 2019. Additionally, we implemented a competitive standardized pricing system for all *IZEAx* customers that was at a lower price point than the former TapInfluence licensing contracts.
- *Other Fees* revenue increased 149% for the six months ended June 30, 2020 compared to the same period in 2019 due to increases in plan subscription fees on certain new self-service offerings such as *IZEAx* Discovery.

### Cost of Revenue

Cost of revenue for the six months ended June 30, 2020 decreased by $362,184, or approximately 9%, compared to the same period in 2019 primarily as a result of the decrease in Managed Services revenue. Cost of revenue as a percentage of revenue remained consistent at 45% in 2019 and 45% in 2020.

### Sales and Marketing

Sales and marketing expense for the six months ended June 30, 2020 increased by $31,925, or approximately 1%, compared to the same period in 2019. Our average number of sales and marketing personnel increased by 14% for the six months ended June 30, 2020 compared to the same period in 2019 which, along with the increase in variable compensation linked with sales performance and stock compensation, contributed to a $67,000 increase in sales and marketing payroll and personnel related expenses. Prior to the cost reduction efforts as a result of COVID-19, we also increased our marketing expenses to generate awareness and future revenue which resulted in an overall increase of $40,000 for the six months ended June 30, 2020 compared to the same period in 2019. These increases were offset by a reduction in travel related expenses of $59,000 due to the impact of COVID-19 restricting travel beginning in March 2020.

### General and Administrative

General and administrative expense for the six months ended June 30, 2020 decreased by $506,029, or approximately 10%, compared to the same period in 2019. General and administrative expense for the six months ended June 30, 2020 decreased due to a $550,000 reduction in payroll and personnel related expenses as a result of a 9% reduction in staff compared to the prior year quarter and the 20% average decrease in salaries that was implemented during the three months ended June 30, 2020 as a result of the COVID-19 cost reduction efforts. Rent expense also decreased by $88,000 due to the non-renewal of expiring office facility leases and travel costs decreased by $64,000 as our employees continue to work from home. General and administrative expense also declined due to an expense of $191,439 related to the settlement of our acquisition cost liabilities in 2019 that did not recur in 2020.

On January 26, 2019, pursuant to a Merger Agreement with TapInfluence, Inc., we issued 660,136 shares of our common stock valued at $884,583, or $1.34 per share, using the 30-day VWAP as reported by the Nasdaq Capital Market prior to the issuance date to pay for our purchase obligation. Upon the issuance, we recorded a non-cash loss on the settlement of this acquisition cost payable of $191,439 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. This non-cash expense was not recurring in the current year, thus resulting in a reduction of general and administrative expense in the six months ended June 30, 2020 as compared to the same period in 2019.

These decreases were offset by a $67,000 increase in professional services for special projects, a $35,000 increase in moving costs to vacate our leasehold premises during the six months ended June 30, 2020, and nearly $300,000 less in personnel costs capitalized to internal software costs after the release of *IZEAx 3.0* in April 2019 during the six months ended June 30, 2020 as compared to the same period in 2019 .

### Impairment of Goodwill

In March 2020, we identified triggering events due to the reduction in our projected revenue due to adverse economic conditions caused by the COVID-19 pandemic, the continuation of a market capitalization below our carrying value, and uncertainty for recovery given the volatility of the capital markets surrounding COVID-19. We performed an interim assessment of goodwill using the income approach of the discounted cash flow method and the market approach of the guideline transaction method and determined that the carrying value of our Company as of March 31, 2020 exceeded the fair value. As a result of the valuation, we recorded a $4.3 million impairment of goodwill resulting in an expense for the six months ended June 30, 2020.

### Depreciation and Amortization

Depreciation and amortization expense for the six months ended June 30, 2020 decreased by $5,953, or approximately 1%, compared to the same period in 2019.

Depreciation and amortization expense on property and equipment was $70,207 and $74,422 for the six months ended June 30, 2020 and 2019, respectively. Depreciation expense has declined primarily due to certain assets becoming fully depreciated.

Amortization expense was $808,169 and $809,907 for the six months ended June 30, 2020 and 2019, respectively. Amortization expense related to intangible assets acquired in the Ebyline, ZenContent, and TapInfluence acquisitions was $604,980 and $645,814 for the six months ended June 30, 2020 and 2019, respectively, while amortization expense related to internal use software development costs was $203,189 and $164,093 for the six months ended June 30, 2020 and 2019, respectively. Amortization on our intangible acquisition assets increased in 2020 due to higher amortization of the TapInfluence intangible assets acquired in July 2018 in the first quarter of 2020. However, this expense will decrease in the future periods as these assets were fully amortized by March 2020. Amortization on our internal use software is expected to increase in future periods due to the release of *IZEAx 3.0* in April 2019.

### Other Income (Expense)

Interest expense decreased by $189,107 to $26,094 during the six months ended June 30, 2020 compared to the same period in 2019 due primarily to the elimination of amounts owed on our acquisition costs payable and amortization thereon after July 2019 and partly to the reduction in our average borrowings on our secured credit facility during the six months ended June 30, 2020 compared to the same period in 2019.

The $44,072 decrease in other income during the six months ended June 30, 2020 when compared to the same period in 2019 resulted primarily from net currency exchange losses related to our Canadian transactions after the sharp decline in rates in March 2020 compared to net currency exchange gains on our Canadian transactions in 2019.

### Net Loss

Net loss for the six months ended June 30, 2020 was $7,954,603, a $4,131,637 increase in the net loss of $3,822,966 for the same period in 2019. The increase in net loss was primarily the result of the goodwill impairment discussed above.

### Key Metrics and Non-GAAP Financial Measures

Below are financial measures of our gross billings and Adjusted EBITDA. We use this information 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 Type

Company management evaluates our operations and makes strategic decisions based, in part, on our key metric of gross billings from our two primary types of revenue, Managed Services and SaaS Services. We define gross billings as the total dollar value of the amounts charged to 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 are 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 and Legacy Workflow Fees (which are included in SaaS Services) differ from revenue reported for these services in our consolidated statements of operations on a GAAP basis. These services are presented net of the amounts we pay to the third-party creators providing the content or sponsorship services. Gross billings for all other revenue types equal 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 allow 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:

|  | Six Months Ended June 30, 2020 |  | 2019 |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Managed Services Gross Billings** | $6,615,404 | 62% | $6,858,803 | 47% | $(243,399) | (4)% |
| Legacy Workflow Fees | — | —% | 1,261,681 | 9% | (1,261,681) | (100)% |
| Marketplace Spend Fees | 3,096,654 | 29% | 5,256,146 | 37% | (2,159,492) | (41)% |
| License Fees | 825,544 | 8% | 1,039,588 | 7% | (214,044) | (21)% |
| Other Fees | 95,572 | 1% | 38,317 | —% | 57,255 | 149% |
| **SaaS Services Gross Billings** | 4,017,770 | 38% | 7,595,732 | 53% | (3,577,962) | (47)% |
| **Total Gross Billings** | $10,633,174 | 100% | $14,454,535 | 100% | $(3,821,361) | (26)% |

### Adjusted EBITDA

Adjusted EBITDA is a “non-GAAP financial measure” as defined under the rules of the Securities and Exchange Commission (the “SEC”). 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 certain 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 to facilitate 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 was a recurring expense for our business on certain business contracts where the amounts could vary;
- 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 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 six months ended June 30, 2020 and 2019:

|  | Three Months Ended June 30, 2020 | 2019 | Six Months Ended June 30, 2020 | 2019 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(1,791,142) | $(1,992,386) | $(7,954,603) | $(3,822,966) |
| Non-cash stock-based compensation | 118,707 | 157,328 | 248,278 | 318,205 |
| Non-cash stock issued for payment of services | 31,249 | 37,497 | 62,499 | 74,995 |
| Loss on settlement of acquisition costs payable | — | — | — | 191,439 |
| Increase in value of acquisition costs payable | — | 2,669 | — | 5,333 |
| Interest expense | 19,476 | 86,737 | 26,094 | 215,201 |
| Depreciation and amortization | 377,107 | 448,105 | 878,376 | 884,329 |
| Impairment on intangible assets | — | — | 4,300,000 | — |
| Other non-cash items | (23,706) | (7,580) | (23,706) | (8,095) |
| Adjusted EBITDA | $(1,268,309) | $(1,267,630) | $(2,463,062) | $(2,141,559) |
| Revenue | $3,135,039 | $3,923,864 | $7,898,707 | $8,717,620 |
| Adjusted EBITDA as a % of Revenue | (40)% | (32)% | (31)% | (25)% |

37

### Liquidity and Capital Resources

We had cash and cash equivalents of $20,820,273 as of June 30, 2020 as compared to $5,884,629 as of December 31, 2019, an increase of $14,935,644 primarily due to net proceeds received from the sale of our common stock in our at the market offering program offset by 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 $68,339,372 as of June 30, 2020. To date, we have financed our operations through revenue from operations, borrowings under our secured credit facility, the PPP Loan (described below) and the sale of our equity securities.

| Net cash (used for)/provided by: | Six Months Ended June 30, 2020 | 2019 |
| --- | ---: | ---: |
| Operating activities | $(1,932,159) | $(161,146) |
| Investing activities | 38,492 | (464,261) |
| Financing activities | 16,829,311 | 7,982,196 |
| Net increase/(decrease) in cash and cash equivalents | $14,935,644 | $7,356,789 |

Cash used for operating activities was $1,932,159 during the six months ended June 30, 2020 and is primarily the result of our net loss for the period. Net cash provided by investing activities was $38,492 during the six months ended June 30, 2020 due to a return of deposits on our leasehold facilities and sales of fixed assets offset by the payment of $97,129 in the development of our proprietary software. Net cash provided by financing activities during the six months ended June 30, 2020 was $16,829,311, which consisted primarily of net proceeds of approximately $15.1 million from the sale of our common stock in our at the market offering program and approximately $1.9 million from the PPP Loan (described below).

### 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 June 30, 2020, we had no amounts outstanding under this agreement. Assuming that our unfunded remaining trade accounts receivable balance was eligible for funding, we had approximately $2.4 million in available credit of under the agreement as of June 30, 2020.

### PPP Loan

On April 23, 2020, we received a loan from Western Alliance Bank (the “Lender”) in the principal amount of $1,905,100 (the “PPP Loan”) under the Paycheck Protection Program (“PPP”), which was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). The term of the promissory note (the “Note”) issued in respect of the loan is two years, though it may be payable sooner in connection with an event of default under the Note. The PPP Loan carries a fixed interest rate of one percent per year, with the first payment due seven months from the date of initial cash receipt. Under the CARES Act and the PPP, certain amounts of loans made under the PPP may be forgiven if the recipients use the loan proceeds for eligible purposes, including payroll costs and certain rent or utility costs, and meet other requirements regarding, among other things, the maintenance of employment and compensation levels. We intend to use the PPP Loan for qualifying expenses such that we are eligible to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act. However, no assurance is provided that we will obtain forgiveness of the PPP Loan in whole or in part.

### At the Market (ATM) Offering

On June 4, 2020, we entered into an ATM Sales Agreement (the “Sales Agreement”) with National Securities Corporation, as sales agent (“National Securities”), pursuant to which we may offer and sell, from time to time, through National Securities, shares of our common stock, by any method deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended (the “ATM Offering”). As of June 30, 2020, we had sold 6,856,241 shares at an average price of $2.24 per share for total gross proceeds of $15,361,853. By August 10, 2020, we had sold a total of 13,258,172 shares at an average price of $1.94 per share for total gross proceeds of $25,740,293 in the ATM Offering under our shelf registration statement on Form S-3 (File No. 333-238619).

### Financial Condition

We have seen impacts on our operations due to changes in advertising decisions, timing and spending priorities from our customers as a result of COVID-19, which has had and may continue to have a negative impact to our expected future sales and valuation estimates. With our cash on hand as of June 30, 2020, we expect to have sufficient cash reserves and financing sources available to cover expenses at least one year from the issuance of this Quarterly Report based on our current estimates of revenue and expenses for the next twelve months. While the disruption caused by COVID-19 is currently expected to be temporary, there is uncertainty around the duration and the total economic impact. Therefore, while we expect this matter to negatively impact our business, such events are generally outside of our control and could have a further material adverse impact on our business, results of operations, and financial position.

### Off-Balance Sheet Arrangements

As of June 30, 2020, we did not engage in any activities involving variable interest entities or off-balance sheet arrangements.

### Critical Accounting Policies and Use of Estimates

There have been no material changes to our critical accounting policies as set forth in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the year ended December 31, 2019. For a summary of our significant accounting policies, please refer to Note 1 — Company and Summary of Significant Accounting Policies included in Item 1 of this Quarterly Report.

### Recent Accounting Pronouncements

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

## Controls and procedures

As filed, 4,556 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 period ended June 30, 2020, 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 June 30, 2020. Based on this evaluation, our management concluded that our disclosure controls and procedures were effective as 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.

### Changes in Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining effective 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 GAAP. 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 GAAP, and that receipts and expenditures are made only in accordance with authorizations of our management and directors; and

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

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

There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the fiscal quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 11,577 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, 2019 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.

### 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 $68,339,372 as of June 30, 2020. For the six months ended June 30, 2020, we had a net loss of $7,954,603, including a $7,924,599 loss from operations. We have not achieved profitability and cannot be certain that we will be able to realize sufficient revenue to achieve profitability. If we achieve profitability, we may not be able to sustain it. Therefore, we may need to raise capital through new financings, which could include equity financing, such as additional issuances of common stock under our at the market offering program, which may be dilutive to stockholders, or debt financing, which would likely restrict our ability to borrow from other sources. In addition, securities we issue may contain rights, preferences or privileges senior to those of the rights of our current stockholders. There can be no assurance that additional funds will be available on terms attractive to us, or at all. If adequate funds are not available, we may be required to curtail or reduce our operations or forced to sell or dispose of our rights or assets. An inability to raise adequate funds on commercially reasonable terms would have a material adverse effect on our business, results of operation and financial condition, including the possibility that a lack of funds could cause our business to fail and liquidate with little or no return to investors.

***Unfavorable global economic conditions, including as a result of health and safety concerns, could adversely affect our business, financial condition or results of operations.***

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (COVID-19) as a global pandemic and recommended containment and mitigation measures worldwide. As the spread continues throughout the United States, we have directed all of our staff to work from home effective March 16, 2020. We believe our business operations and ability to support our customers are fully functional while our employees are working from remote locations; however, their productivity and efficiency may be negatively affected, and we may face increased risk of interruptions. While the disruption is currently expected to be temporary, there is uncertainty around the duration and the total economic impact.

Our business relies heavily on people, and adverse events such as health-related concerns experienced by our employees, the inability to travel and other matters affecting the general work environment will impact our business near term. We may lose the services of a number of our employees or experience system interruptions, which could lead to diminishment of our regular business operations, inefficiencies and reputational harm. Additionally, the economic conditions caused by COVID-19 have negatively impacted the business activity of our customers, and we have observed declining demand and changes in their advertising decisions, timing and spending priorities, which will result in a negative impact to our sales. We cannot fully quantify the impact to our business operations as a result of COVID-19 at this time. Any of the foregoing could harm our business and we cannot anticipate all the ways in which the current global health crisis and financial market conditions could adversely impact our business.

The outbreak and attempts to slow the spread of COVID-19 have resulted in extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn could result in a variety of additional risks to our business, including weakened demand from our customers and delays in client payments. Given the current conditions, we may not have the ability to raise additional capital from the financial markets if additional capital is needed to sustain us for extended periods of lost revenue. If we are unable to obtain such additional financing on a timely basis or generate sufficient revenues from operations, we may have to curtail our activities, reduce expenses, and/or sell assets, perhaps on unfavorable terms, which would have a material adverse effect on our business, financial condition and results of operations, and ultimately we could be forced to discontinue our operations and liquidate.

***Impairment of our intangible assets has resulted in significant charges that adversely impact our operating results.***

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. In March 2020, we identified a triggering event due to the reduction in projected revenue related to COVID-19 and the continuation of a market capitalization below our carrying value and uncertainty for recovery given the volatility of the capital markets surrounding COVID-19. We performed an interim assessment of goodwill and determined that the carrying value of the Company as of March 31, 2020 exceeded the fair value. Therefore, we recorded a $4.3 million impairment of goodwill in the three months ended March 31, 2020. Future adverse changes in these or other unforeseeable factors could result in further impairment charges that would impact our results of operations and financial position in the reporting period identified.

***We have not extended our monthly arrangements for flexible office space in our remote offices, nor signed a new lease for our headquarters, which could negatively impact our business.***

In light of the uncertain and rapidly evolving situation relating to the spread of the COVID-19 - specifically stay-at-home orders imposed by certain states and localities - we did not enter into a new lease for our corporate headquarters in Winter Park, Florida and our Canadian headquarters in Toronto, Canada, for which both leases expired on April 30, 2020. Additionally, we plan to vacate and cancel the various co-working facilities our team members use around the country as their terms expire in the next three months. As a result, our management team and all of our employees will work remotely at least through the end of 2020. While our employees are accustomed to working with other remote employees and customers, our workforce has not previously been fully remote prior to March 16, 2020, when we proactively instituted a work-from-home policy in response to COVID-19 concerns. Although we continue to monitor the situation and may adjust our current plans as more information and guidance become available, not doing business in-person could negatively impact our marketing efforts, challenge our ability to enter into customer contracts in a timely manner, slow down our recruiting efforts, or create operational or other challenges as we adjust to a fully-remote workforce, any of which could harm our business. Additionally, when we determine it prudent to end our work-from-home policy, we will need to enter into a new lease for office space and/or arrangements for the use of co-working facilities. Although we believe suitable office space will be readily available when this time comes, we may encounter difficulties or delays in finalizing the terms of such lease arrangements or in obtaining rent prices at acceptable rates.

***Our common stock may be delisted if we fail to maintain compliance with the requirements for continued listing on the Nasdaq Capital Market, 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 for continued inclusion on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the "Bid Price Rule").

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 had 180 calendar days, or until December 10, 2019, to regain compliance. Our common stock had not regained compliance with Bid Price Rule as of such date. Therefore, by letter dated December 10, 2019, we requested an additional 180 days in which to regain compliance, including by effecting a reverse stock split, if necessary.

On December 11, 2019, we received a notification letter from the Listing Qualifications Department of Nasdaq stating that we had been granted an additional 180-day period, or until June 8, 2020, to regain compliance with the Bid Price Rule. Then on April 17, 2020, we received a notification letter from Nasdaq stating that, in response to the COVID-19 pandemic and related market conditions, Nasdaq had filed a rule change with the Securities and Exchange Commission to suspend the compliance period for the Bid Price Rule through June 30, 2020.

On June 22, 2020, we received notification from Nasdaq that we had regained compliance with the Bid Price Rule after the closing bid price of our common stock was at $1.00 per share or greater for the prior 10 consecutive business days.

Although we are now in compliance with the Bid Price Rule, if we fail to meet this or any of the other continued listing requirements in the future, 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.

Filed Aug 13, 2020.
Source: SEC EDGAR, the filing index for accession 0001495231-20-000120. Last ingested by Listed: Nov 2, 2026, 16:20 ET. No prices; not investment advice.