# IZEA Worldwide, Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [IZEA Worldwide, Inc.](/companies/izea.md) (CIK 1495231)
- Form: 10-Q
- Filed: 2022-11-14
- Accepted by EDGAR: Nov 14, 2022, 08:08 ET
- Period: 2022-09-30
- Accession: 0001495231-22-000186
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1495231/000149523122000186/izea-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1495231/000149523122000186/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $10.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $32.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $6.6m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $19.0m | us-gaap:CostOfRevenue |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | −$1.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | −$4.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-07-01 to 2022-09-30 | $814 | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-01-01 to 2022-09-30 | $2.6k | us-gaap:InterestExpense |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$906.2k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | −$3.6m | us-gaap:NetIncomeLoss |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | −$6.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2022-09-30 | $20.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $53.5m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $84.0m | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $13.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $13.1m | us-gaap:Liabilities |
| Long-term debt | at 2022-09-30 | $63.5k | us-gaap:LongTermDebt |
| Shareholders' equity | at 2022-09-30 | $70.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 49,218 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,” “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:

- risks related to the restatement of the Company’s previously issued interim financial statements for the quarterly periods ended March 31, 2020, June 30, 2020, and September 30, 2020 (the “Restatement”) included in our Annual Report for the year ended December 31, 2021, including, without limitation, potential inquiries from the SEC and/or the Nasdaq Capital Market, the potential adverse effect on the price of our common stock, and possible claims by our stockholders or otherwise;
- the impact of the COVID-19 pandemic on our operations, financial condition, and the worldwide economy;
- the impact of the Ukraine crisis and ramifications of sanctions against Russia;
- customer cancellations;
- any erroneous or inaccurate estimates or judgments relating to our critical accounting policies;
- our ability to raise the 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 remediate the material weakness in our internal control over financial reporting and establish effective controls and procedures;
- our ability to protect our intellectual property and other proprietary rights;
- our ability to maintain and grow our business;
- results of any future litigation and costs incurred in connection with any such 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;
- any security breaches or other disruptions compromising our proprietary information and exposing us to liability;
- 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 concerning actions taken by our existing and past employees;
- any losses or issues we may encounter as a consequence of accepting or holding digital assets;
- risks associated with doing business internationally; and
- the other risks and uncertainties described in the Risk Factors section of our Annual Report for the year ended December 31, 2021, filed with the SEC on March 31, 2022.

All forward-looking statements in this document are based on current expectations, intentions, and beliefs using information available to us as of the date of this Quarterly Report; 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 Worldwide, Inc. (“IZEA”, “we”, “us” or “our”) creates and operates online marketplaces that connect marketers, including brands, agencies, and publishers, with content creators such as Instagram influencers, TikTok influencers, YouTube stars, designers, photographers, and writers (“creators”). Marketers also engage us to gain access to our industry expertise, data, and analytics. Our primary technology platform, the IZEA Exchange (“IZEAx”), is designed to provide a unified ecosystem that enables the creation and publication of multiple types of content to be completed at scale.

We provide value through managing custom content workflow, creator search and targeting, bidding, analytics, and payment processing. While the majority of the marketers engage us to perform these services (the “Managed Services”) on their behalf, they may also use our marketplaces to engage creators for influencer marketing campaigns or to produce custom content on a self-service basis by licensing our technology.

***Influencer Marketing.*** We work with marketers to enable influencer marketing campaigns at scale. A subset of influencer marketing known as “Sponsored Social” is when a company compensates creators to share sponsored content with the creators’ social network followings. This sponsored content is within the body of the content stream. We believe that we pioneered the concept of a marketplace for sponsorships on the social web in 2006 with the launch of our first platform, *PayPerPost.* We have focused on scaling our product and service offerings ever since, including by acquiring TapInfluence in July 2018 and launching Shake and BrandGraph in 2020.

***Custom Content.*** We also work with marketers to augment or replace their content development efforts. Our network of creators produces editorial and marketing content that can be published both online and offline. Our network of creators includes professional journalists, subject matter experts, bloggers, and everyday content creators, allowing our customers to produce content ranging from complex white papers to simple product descriptions. Many of our content customers use this service to create a steady stream of posts for their corporate blogs. We first began offering custom content services in 2015 after acquiring Ebyline, a leading marketplace in the editorial content space, and continued to expand this offering with our acquisition of ZenContent in July 2016, a company that predominantly focused on e-commerce-related asset creation.

### Our Platforms

***IZEAx.*** The platform is designed to provide a unified ecosystem that enables the creation and publication of multiple types of custom content through our creators’ websites, blogs, and social media channels, including, among others, Twitter, Facebook, YouTube, Twitch, and Instagram. We extensively use this platform to manage influencer marketing campaigns on behalf of our marketers. This platform is also available directly to our marketers as a self-service tool and a licensed white label product. *IZEAx* was engineered from the ground up to replace all of our previous platforms with an integrated offering that is improved and more efficient.

***BrandGraph.*** In March 2020, we launched *BrandGraph*, a social media intelligence platform. BrandGraph is heavily integrated with *IZEAx,* and both platforms rely heavily on data from each other, but it is also available as a stand-alone platform. *BrandGraph* offers marketers an analysis of share-of-voice, engagement benchmarking, category spending estimates, influencer identification, and sentiment analysis. The platform maps and classifies the complex hierarchy of corporation-to-brand relationships by category and associates social content with brands through a proprietary content analysis engine. It aggregates and analyzes content data to provide insights for marketers across their competitive landscapes that are particularly useful to influencer marketing professionals, including our managed services team.

***Shake.*** In November 2020, we launched *Shake,* a new online marketplace where buyers can quickly and easily hire creators of all types for influencer marketing, photography, design, and other digital services. The *Shake* platform is aimed at digital creators seeking freelance “gig” work. Creator’s list available “Shakes” on their accounts on the platform. Marketers select and purchase creative packages from them through a streamlined chat experience, assisted by ShakeBot - a proprietary, artificial intelligence assistant.

This year, we announced the launch of The Creator Marketplace® which expands upon the foundation of the *Shake* platform and ultimately replaces it and *IZEAx* as the primary platform for marketers and creators to find each other and conduct business. Later this year we expect to launch IZEA Flex a workflow tool to complement The Creator Marketplace.

### Impact of COVID-19 on our Business

The COVID-19 pandemic impacted our operations, sales, and finances beginning in 2020. 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. We allowed the leases for our company headquarters and temporary office spaces to expire at the end of their terms throughout 2020. We have not experienced any major declines in operating efficiency in our remote working environment and have decided to continue our work-from-home policy indefinitely as a virtual-first employer.

We will continue to actively monitor the COVID-19 situation and may take further actions altering the 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 future financial results.

### 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 four 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 *Shake* platforms (“Marketplace Spend Fees”); (3) revenue from license and subscription fees charged to access the *IZEAx* and *BrandGraph* platforms (“License Fees”); and (4) revenue derived from other fees such as inactivity fees, early cash-out fees, and other miscellaneous fees charged to users of our platforms (“Other Fees”).

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 are 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 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 responsible for providing support to our customers and ultimately fulfilling our obligations under our contracts with customers. Where appropriate, we capitalize costs incurred with software 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 and comprehensive loss.

### 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 relations events, trade shows, and marketing materials, and travel expenses.

### General and Administrative

Our general and administrative (“G&A”) 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, investor relations expenses, accounting, legal professional services fees, and other corporate-related expenses. G&A 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 is 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 and comprehensive loss. G&A expense also includes current period gains and losses on our acquisition costs payable and 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 and comprehensive loss 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 prior years has primarily been related to the imputed interest on our secured credit facility, accrued interest for the PPP loan, and interest on the financing of computers. The Company is only recognizing interest expense on the financing of computers in the current year.

*Other Income.* Other income consists primarily of interest income for interest earned on investments, 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.

### Other Comprehensive Income

*Unrealized (gain) loss on securities held.* Unrealized gains and losses on investment securities represent the difference between fair value at the balance sheet date and adjusted cost, which would be the cash settlement value of investment securities if held to maturity.

### Results of Operations for the Three Months Ended September 30, 2022 and 2021

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

*(Unaudited)*

|  | Three Months Ended September 30, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $10,826,335 | $7,734,374 | $3,091,961 | 40.0% |
| Costs and expenses: |  |  |  |  |
| Cost of revenue | 6,597,430 | 4,022,395 | 2,575,035 | 64.0% |
| Sales and marketing | 2,502,128 | 2,240,936 | 261,192 | 11.7% |
| General and administrative | 2,928,679 | 2,670,785 | 257,894 | 9.7% |
| Depreciation and amortization | 127,535 | 220,453 | (92,918) | (42.1)% |
| Total costs and expenses | 12,155,772 | 9,154,569 | 3,001,203 | 32.8% |
| Loss from operations | (1,329,437) | (1,420,195) | 90,758 | (6.4)% |
| Other income (expense): |  |  |  |  |
| Interest expense | (814) | (1,558) | 744 | (47.8)% |
| Other income, net | 424,019 | 20,961 | 403,058 | 1,922.9% |
| Total other income (expense), net | 423,205 | 19,403 | 403,802 | 2,081.1% |
| Net Loss | $(906,232) | $(1,400,792) | $494,560 | (35.3)% |

### 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, 2022 |  | 2021 |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Managed Services Revenue** | $10,476,278 | 96.8% | $7,281,984 | 94.2% | $3,194,294 | 43.9% |
| Marketplace Spend Fees | 16,019 | 0.1% | 87,556 | 1.1% | (71,537) | (81.7)% |
| License Fees | 320,349 | 3.0% | 354,850 | 4.6% | (34,501) | (9.7)% |
| Other Fees | 13,689 | 0.1% | 9,984 | 0.1% | 3,705 | 37.1% |
| **SaaS Services Revenue** | 350,057 | 3.2% | 452,390 | 5.8% | (102,333) | (22.6)% |
| **Total Revenue** | $10,826,335 | 100.0% | $7,734,374 | 100.0% | $3,091,961 | 40.0% |

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 in 2015 and ZenContent in 2016 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 to derive revenue from Marketplace Spend Fees and License Fees.

*Managed Services* revenue 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 September 30, 2022 increased by $3.2 million, or 44%, to $10.5 million compared to $7.3 million for the same period in 2021. Revenue from one large customer accounted for $3.1 million of the increase to Managed Services revenue in the period.

*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.

- *Marketplace Spend Fees* decreased by $71,537 for the three months ended September 30, 2022 when compared with the same period in 2021, primarily as a result of lower spend levels from fewer marketers and lower average fees assessed on those spends as a result of competitive pricing efforts in IZEAx. Revenue from Marketplace Spend Fees represents our net margins received on this business.
- *License Fees* revenue decreased during the three months ended September 30, 2022 to $320,349 compared to $354,850 in the same period of 2021. The fee decrease was primarily due to a reduction in *BrandGraph and IZEAx* Discovery service subscriptions.
- *Other Fees* revenue increased by $3,705 during the three months ended September 30, 2022 compared to the same period in 2021 due to fees earned on an increased number of early creator cash outs.

### Cost of Revenue

Cost of revenue for the three months ended September 30, 2022 totaled $6.6 million, or 61% of revenue, compared to $4.0 million, or 52% of revenue for the same period in 2021. The increase in the cost of revenue is primarily due to higher cost deliveries on one large customer contract, which made up approximately 30% of current quarter revenues. Aside from the one large customer contract, the cost of revenue was in range with recent historical averages.

### Sales and Marketing

Sales and marketing expense for the three months ended September 30, 2022 increased by $261,192, or approximately 12%, compared to the same period in 2021. Higher Payroll costs due to additional headcount were offset by reduced selling commissions related to lower bookings compared to the prior year quarter and lower contractor and other spending during the current quarter.

### General and Administrative

General and administrative expense for the three months ended September 30, 2022 increased by $257,894, or approximately 10%, compared to the same period in 2021. Contractor related expense decreased $120,000 primarily as a result of the capitalization of engineering wages for software development. Software & licenses costs increased $177,000 due to increased software hosting and subscription costs. Professional services increased $200,000 over the prior year primarily due to audit fees related changing our independent public accountant.

### Depreciation and Amortization

Depreciation and amortization expense for the three months ended September 30, 2022 was $127,535, a decrease of $92,918, or approximately 42%, compared to the same period in 2021.

Depreciation and amortization expense on property and equipment was $25,672 and $33,072 for the three months ended September 30, 2022 and 2021, respectively. Depreciation expense has decreased slightly due to the disposal of aging equipment in the second quarter of 2022.

Amortization expense was $101,863 and $187,381 for the three months ended September 30, 2022 and 2021, respectively. Amortization expense related to intangible assets acquired in the Ebyline, ZenContent, and TapInfluence acquisitions was $72,222 for the three months ended June 30, 2021. There was no amortization expense related to intangible acquired assets for the three months ended September 30, 2022, as they were fully amortized during fiscal year 2021. Amortization expense related to internal use software development costs was $101,863 and $115,159 for the three months ended September 30, 2022 and 2021, respectively. Amortization on our intangible acquisition assets decreased in the three months ended September 30, 2022 due to completion of amortization on certain intangible assets acquired in prior years.

### Other Income (Expense)

Interest expense decreased by $744 to $814 during the three months ended September 30, 2022 compared to the same period in 2021 due to the elimination of amounts owed on loan acquisition costs for the Bridge Bank Line of Credit and the PPP loan.

Other income, net increased by $403,058 during the three months ended September 30, 2022, when compared to the same period in 2021. The increase is primarily driven by interest income earned on marketable securities, which investment commenced in April 2022 as described in Note 11 of Notes to the Consolidated Financial Statements.

### Net Loss

Net loss for the three months ended September 30, 2022 was $906,232, a $494,560 decrease compared to the net loss of $1,400,792 for the same period in 2021. The change in net loss was a result of the items discussed above.

### Results of Operations for the Nine Months Ended September 30, 2022 and 2021

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

|  | Nine Months Ended September 30, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $32,293,682 | $19,678,991 | $12,614,691 | 64.1% |
| Costs and expenses: |  |  |  |  |
| Cost of revenue | 18,989,076 | 9,688,870 | 9,300,206 | 96.0% |
| Sales and marketing | 7,312,240 | 6,622,128 | 690,112 | 10.4% |
| General and administrative | 9,810,102 | 7,865,510 | 1,944,592 | 24.7% |
| Depreciation and amortization | 404,856 | 949,906 | (545,050) | (57.4)% |
| Total costs and expenses | 36,516,274 | 25,126,414 | 11,389,860 | 45.3% |
| Loss from operations | (4,222,592) | (5,447,423) | 1,224,831 | (22.5)% |
| Other income (expense): |  |  |  |  |
| Interest expense | (2,594) | (24,090) | 21,496 | (89.2)% |
| Other income (expense), net | 672,821 | 2,019,379 | (1,346,558) | (66.7)% |
| Total other income (expense), net | 670,227 | 1,995,289 | (1,325,062) | (66.4)% |
| Net Loss | $(3,552,365) | $(3,452,134) | $(100,231) | 2.9% |

### 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, 2022 |  | 2021 |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Managed Services Revenue** | $31,025,350 | 96.1% | $18,309,295 | 93.0% | $12,716,055 | 69.5% |
| Marketplace Spend Fees | 122,243 | 0.4% | 256,308 | 1.3% | (134,065) | (52.3)% |
| License Fees | 1,030,718 | 3.2% | 1,082,734 | 5.5% | (52,016) | (4.8)% |
| Other Fees | 115,371 | 0.4% | 30,654 | 0.2% | 84,717 | 276.4% |
| **SaaS Services Revenue** | 1,268,332 | 3.9% | 1,369,696 | 7.0% | (101,364) | (7.4)% |
| **Total Revenue** | $32,293,682 | 100.0% | $19,678,991 | 100.0% | $12,614,691 | 64.1% |

*Managed Services* revenue 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 nine months ended September 30, 2022, increased 69% from the same period in 2021. Revenues from one large customer contract, dating to April 2021, comprised over one-third of the increase in managed services revenue. The balance of the increase in managed services revenue year to date is due to growth in orders from new and existing customers expanding their marketing efforts through sponsored social marketing as compared to the prior-year.

*SaaS Services* revenue, which includes license and support fees to access the platform services, and fees earned on the marketers’ self-service use of our technology platforms to manage their content workflow and influencer marketing campaigns, declined (7.4)% from the same period in 2021, due to:

- *Marketplace Spend Fees* decreased by $134,065 for the nine months ended September 30, 2022, when compared with the same period in 2021, 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 in *IZEAx*. Revenue from Marketplace Spend Fees represents our net margins received on this business.
- *License Fees* revenue decreased 5% during the nine months ended September 30, 2022 to $1,030,718 compared to $1,082,734 in the same period of 2021. The decrease was primarily driven by a reduction in subscriptions for *BrandGraph,* this reduction was partially offset by an increase in subscribers for IZEAx Discovery services, albeit at lower rates. Additionally, we implemented a competitive standardized pricing system for all *IZEAx* license fee customers.
- *Other Fees* revenue increased $84,717 for the nine months ended September 30, 2022, compared to the same period in 2021 due primarily to a customer deposit forfeiture. Nonrefundable deposits are collected from certain customers due to defined minimum spend per the contract or prepayment required for any identified credit issues. Customers do not typically forfeit deposits held on account.

### Cost of Revenue

Cost of revenue for the nine months ended September 30, 2022, increased by $9.3 million, or approximately 96%, compared to the same period in 2021. The increase in the cost of revenue is primarily due to higher-cost deliveries on one large customer contract, which made up approximately 33% of the year-to-date revenues. Aside from the one large customer contract, the cost of revenue was in range with recent historical averages.

### Sales and Marketing

Sales and marketing expenses for the nine months ended September 30, 2022, increased by $690,112, or approximately 10%, compared to the same period in 2021. The increase over the prior year is primarily related to additional headcount and associated payroll costs.

### General and Administrative

General and administrative expense for the nine months ended September 30, 2022, increased by $1.9 million, or approximately 25%, compared to the same period in 2021. The increase over the prior year was primarily due to $460,000 in higher payroll and personnel related expenses as a result of an increase in headcount. Contractor costs increased $152,000 for additional engineers to supplement our team working to expand our technology offerings. Professional services increased $370,000 due to new ERP system implementation and additional accounting and legal fees related to the Restatement and transition costs related to changing our independent public accountant. Travel increased $204,000 due to relaxing COVID-19 restrictions. Public company expenses increased $140,000 primarily due to usage of consultants to assist with stock management software implementation, penetration testing, proxy solicitation, and investment strategy. Software and licenses increased approximately $575,000 due to increased usage of AWS hosting, new software subscriptions, and additional licenses on existing software subscriptions.

### Depreciation and Amortization

Depreciation and amortization expense for the nine months ended September 30, 2022 was $404,856, a decrease of $545,050, or approximately 57%, compared to the same period in 2021.

Depreciation expense on property and equipment was $91,200 and $98,759 for the nine months ended September 30, 2022, and 2021, respectively. Depreciation expense decreased slightly due to the disposal of aging equipment in 2021.

Amortization expense was $313,656 and $851,147 for the nine months ended September 30, 2022, and 2021, respectively. Amortization expense related to intangible assets acquired in the Ebyline, ZenContent, and TapInfluence acquisitions was zero and $505,556 for the nine months ended September 30, 2022, and 2021, respectively, while amortization expense related to internal-use software development costs was $313,656 and $345,591 for the nine months ended September 30, 2022, and 2021, respectively. Amortization on our intangible acquisition assets is decreasing due to the completion of amortization on certain intangible assets acquired in prior years while amortization on our internal software costs is increasing due to continued development.

### Other Income (Expense)

Interest expense decreased by $21,496 to $2,594 during the nine months ended September 30, 2022 compared to the same period in 2021 due primarily to the elimination of amounts owed on loan acquisition costs payable and the reduction in our average borrowings on our secured credit facility during the nine months ended September 30, 2022, compared to the same period in 2021.

Other income, net decreased by $1.3 million during the nine months ended September 30, 2022, when compared to the same period in 2021. The prior year period included income related to the forgiveness of debt, including principal and interest. The current year period includes $230,000 of interest income earned on marketable securities, which investment commenced in April 2022.

### Net Loss

Net loss for the nine months ended September 30, 2022, was $3.6 million, a $0.10 million decrease in the net loss of $3.5 million for the same period in 2021. The decrease in net loss was a result of the changes discussed above.

### Key Metrics

We review the information provided by our key financial metrics, Managed Services Bookings, and gross billings, to assess the progress of our business and make decisions on where to allocate our resources. As our business evolves, we may change the key financial metrics in future periods.

### Managed Services Bookings

Managed Services Bookings is a measure of all sales orders received during a time period less any cancellations received, or refunds given during the same time period. Sales order contracts vary in complexity with each customer and range from custom content delivery to integrated marketing services; our contracts generally run from several months for smaller contracts up to twelve months for larger contracts. We recognize revenue from our Managed Services contracts on a percentage of completion basis as we deliver the content or services over time, which can vary greatly. Historically, bookings have converted to revenues over a 6-month period on average. However, since late 2020, we have been receiving increasingly larger and more complex sales orders which, in turn, has lengthened the average revenue period to approximately 9-months, with the largest contracts taking longer to complete. For this reason, Managed Services Bookings, while an overall indicator of the health of our business, may not be used to predict quarterly revenues, and could be subject to future adjustment. Managed Services Bookings is useful information as it reflects the value of orders received in one period, even though revenue from those orders may be reflected over varying amounts of time. Management uses the Managed Services Bookings metric to plan its operating staff, to identify key customer group trends to enlighten go-to-market activities, and to inform its product development efforts.

The following tables set forth our Managed Services Bookings and the change between the periods:

|  | Three Months Ended September 30, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Managed Services Bookings | $8,217,765 | $11,290,569 | $(3,072,804) | (27.2)% |

|  | Nine Months Ended September 30, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Managed Services Bookings | $29,683,261 | $28,838,629 | $844,632 | 2.9% |

### 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 perform, and the amounts billed to our SaaS customers for their self-service purchase of goods and services on our platforms. The amounts billed to our SaaS customers are on a cost-plus basis. 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.

Managed Services gross billings include the total dollar value of the amounts billed to our customers for the services we perform. Gross billings for Managed Services are the same as Managed Services Revenue reported for those services in our consolidated statements of operations and comprehensive loss in accordance with GAAP.

SaaS Service gross billings include license and other fees together with the total amounts billed to our SaaS customers for their self-service purchase of goods and services on our platforms, termed ‘Marketplace Spend Fees.’ Our SaaS customers’ marketplace spend is billed on a cost-plus basis. SaaS Services Revenue includes the total of License and Other Fees gross billings, plus the Marketplace Spend Fees gross billings (which includes our third-party creator costs on those billings that are netted against revenue for GAAP reporting purposes).

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 retain after payments to our creators. Additionally, tracking gross billings is critical as it pertains to our credit risk and cash flows. 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 paying our creators, we could experience large swings in our cash flows. Additionally, we incur the credit risk to collect amounts owed from our customers for all services performed by us or by the creators. Finally, gross billings allow us to evaluate our transaction totals on an equal basis to see our contribution margins by revenue stream so that we can better understand where we should be allocating our resources.

The following tables set 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, 2022 |  | 2021 |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Managed Services Gross Billings** | $10,476,278 | 90.4% | $7,281,984 | 83.5% | $3,194,294 | 43.9% |
| Marketplace Spend Fees | 775,055 | 6.7% | 1,077,268 | 12.3% | (302,213) | (28.1)% |
| License Fees | 320,349 | 2.8% | 354,850 | 4.1% | (34,501) | (9.7)% |
| Other Fees | 13,689 | 0.1% | 9,984 | 0.1% | 3,705 | 37.1% |
| **SaaS Services Gross Billings** | 1,109,093 | 9.6% | 1,442,102 | 16.5% | (333,009) | (23.1)% |
| **Total Gross Billings** | $11,585,371 | 100.0% | $8,724,086 | 100.0% | $2,861,285 | 32.8% |

|  | Nine Months Ended September 30, 2022 |  | 2021 |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Managed Services Gross Billings | $31,025,350 | 89.9% | $18,309,295 | 81.2% | $12,716,055 | 69.5% |
| Marketplace Spend Fees | 2,355,534 | 6.8% | 3,137,124 | 13.9% | (781,590) | (24.9)% |
| License Fees | 1,030,718 | 3.0% | 1,082,734 | 4.8% | (52,016) | (4.8)% |
| Other Fees | 115,371 | 0.3% | 30,654 | 0.1% | 84,717 | 276.4% |
| SaaS Services Gross Billings | 3,501,623 | 10.1% | 4,250,512 | 18.8% | (748,889) | (17.6)% |
| Total Gross Billings | $34,526,973 | 100.0% | $22,559,807 | 100.0% | $11,967,166 | 53.0% |

### Non-GAAP Financial Measure

### Adjusted EBITDA

Adjusted EBITDA is a “non-GAAP financial measure” 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, 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 valuable information to investors as it excludes non-cash transactions, and it provides consistency to facilitate period-to-period comparisons.

You should not consider Adjusted EBITDA in isolation or as a substitute for an analysis of our results of operations as under GAAP. All companies do not calculate Adjusted EBITDA in the same manner, limiting its usefulness as a comparative measure. Moreover, Adjusted EBITDA has limitations as an analytical tool, including 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 essential 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 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 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 this non-GAAP financial measure, 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 this non-GAAP financial measure 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, 2022, and 2021:

|  | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(906,232) | $(1,400,792) | $(3,552,365) | $(3,452,134) |
| Gain on the forgiveness of debt | — | — | — | (1,927,220) |
| Write down of digital assets | 1,081 | — | 141,808 | — |
| Non-cash stock-based compensation | 154,115 | 229,039 | 428,013 | 633,219 |
| Non-cash stock issued for payment of services | 31,260 | 37,544 | 93,742 | 109,784 |
| Interest expense | 814 | 1,558 | 2,594 | 24,090 |
| Depreciation and amortization | 127,535 | 220,453 | 404,856 | 949,906 |
| Other non-cash items | — | (13,732) | 18,555 | (21,522) |
| Adjusted EBITDA | $(591,427) | $(925,930) | $(2,462,797) | $(3,683,877) |
| Revenue | $10,826,335 | $7,734,374 | $32,293,682 | $19,678,991 |
| Adjusted EBITDA as a % of Revenue | (5.5)% | (12.0)% | (7.6)% | (18.7)% |

### Liquidity and Capital Resources

### Near-Term Liquidity and Capital Resources

The Company’s primary cash needs have historically been funding the development and integration of IZEAx and other technology platforms used in its business, marketing expenses, and general and administrative (“G&A”) expenses including salaries, bonuses, commissions, and stock-based compensation. The Company has incurred losses and negative cash flow from operations for most periods since inception, primarily the result of costs associated with third-party creators, salaries, bonuses and stock-based compensation, and other G&A expenses, including technology and development costs, which has resulted in a total accumulated deficit of $77.2 million as of September 30, 2022. While we have not achieved profitability, we have sufficient resources to fund operations and planned investments for at least the next twelve months.

We had cash and cash equivalents of $20.0 million as of September 30, 2022, as compared to $75.4 million as of December 31, 2021. This decrease of $55.4 million is primarily the result of investment of cash pursuant to our investment policy, $25.1 million of which is classified as long-term investments and $21.9 million of which is classified as short-term investments, with the balance for the change primarily due to operating losses.

| Net cash (used for) provided by: | September 30, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Operating activities | $(6,916,555) | $(3,652,080) |
| Investing activities | (48,439,579) | (4,088) |
| Financing activities | (50,684) | 45,062,800 |
| Net (decrease) increase in cash and cash equivalents | $(55,406,818) | $41,406,632 |

Cash used for operating activities was $6.9 million during the nine months ended September 30, 2022 and is primarily the result of $3.6 million in operating losses and $3.5 million in net working capital changes. Net cash used for investing activities was $48,439,579 during the nine months ended September 30, 2022, primarily due to the purchase and sale of marketable securities. Net cash used for financing activities during the nine months ended September 30, 2022, was $50,684, which consisted primarily of payments on shares withheld for taxes.

In June 2020 and January 2021, we entered into ATM Sales Agreements with National Securities Corporation, as sales agent (“National Securities”), pursuant to which we could offer and sell up to $40 million and $35 million, respectively, of common stock (the “ATM Offerings”). From June 4, 2020 through April 15, 2021, we sold a total of 26,005,824 shares at an average price of $2.88 per share for total gross proceeds of $75.0 million in the ATM Offerings. On June 21, 2021, we entered into a third ATM Sales Agreement with National Securities, as sales agent (the “2021 ATM Sales Agreement”), pursuant to which we can offer and sell shares of our common stock, from time to time for aggregate purchase prices up to $100 million by any method deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act under our shelf registration statement on Form S-3 (File No. 333-256078). We terminated the 2021 ATM Sales Agreement with National Securities effective September 6, 2022. No sales were made under this agreement.

### Long-Term Liquidity

We anticipate that our operating expenses will increase in the foreseeable future as we continue to pursue the expansion of our business. We currently expect that we have adequate cash and invested resources to fund our business growth for the next twelve months, however, should additional capital become necessary, we expect these funds would be financed predominately through proceeds from future equity, equity-based, or debt offerings, unless and until our operations are profitable and sustain our ongoing capital needs. As a result, our business success could depend, to a significant extent, upon our ability to obtain the funding necessary to support our operations.

### Financial Condition

Our business operations and results have been impacted by COVID-19, which in the first half of 2020 had a material effect on our customers, their advertising commitments, bookings cancellations, revenues, and cash flows. Since late 2020, through mid-summer of 2022, the Company saw a material increase in the overall social media marketing spend by large and small customers, which benefited our bookings and revenue growth rates, and cash flows. Since June of 2022, on top of continuing economic impacts of supply-chain issues, labor disruption, business closures, and recent inflationary pressures, the broadening unenthusiastic economic outlook may be affecting marketing budgets as evidenced by the softness in bookings the Company has experienced through the third quarter of 2022. While our recent bookings have not met expectations, we see evidence of continued demand for influencer marketing services in our pipeline, and despite opportunities taking longer to close, we believe that our base business remains strong. These matters, taken together, could have a further material adverse impact on our business, results of operations, and financial position in future periods.

### 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, 2021. 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,” of this Quarterly Report for information on additional recent pronouncements.

## Controls and procedures

As filed, 7,718 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 the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the 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 the Company files under the Exchange Act is accumulated and communicated to management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures.

In designing and evaluating the disclosure controls and procedures, 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 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 of 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

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.

In connection with the preparation of this Quarterly Report on Form 10-Q for the period ended September 30, 2022, an evaluation was performed under the supervision and with the participation of the Company’s management team including its principal executive officer and principal financial and accounting officer to determine the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2022. 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 periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures. Due to the material weakness outlined below, our principal executive and principal financial officers concluded that our disclosure controls and procedures were not effective as of September 30, 2022. 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.

During the preparation of the Company’s Annual Report for the year ended December 31, 2021, management conducted a review of the Company’s recognition of liabilities and associated costs relating to the Company’s Managed Services within its IZEAx platform ("Managed Services"), in connection with which the Company enters into contracts with marketers for creators to produce sponsored social services content (“Sponsored Content”) and publish the Sponsored Content on one or more approved social media platforms. The Company determined that a portion of the liability, associated cost, and related revenue from Sponsored Content should have been accrued upon its initial posting (publication) based on the number of posting days during the Term of the agreement in which such Sponsored Content was to remain live. Since the Company recognizes its Managed Services revenue using an input method of costs incurred compared to the total of expected costs, the timing of the accrual of Sponsored Content costs affected the related Managed Services revenue recognized during each period. In light of this determination, the Company restated its interim financial statements for the quarterly periods ended March 31, 2020, June 30, 2020, and September 30, 2020, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. As a result of the Restatement, we determined that we have a material weakness in our internal control over financial reporting relating to the inadequate design and operation of management’s controls over identifying the appropriate timing of cost recognition related to creator content deliveries used in the input method of costs incurred compared to total expected costs.

### Remediation of Material Weakness

To remediate the material weakness described above, we have identified additional controls and engaged an independent third-party technical accounting expert to assist management with the continued review and evaluation of our processes and pertinent controls. We completed the Restatement in order to apply adjustments to certain liabilities and cost accruals related to the material weakness and have reflected such adjusted methods in the subsequent interim periods. We will continue to design and implement measures to strengthen the Company's internal control over financial reporting.

### Changes in Internal Control over Financial Reporting

During the three months ended September 30, 2022, the Company utilized the new Enterprise Resource Planning (“ERP”) system to accurately maintain our financial records, enhance the flow of financial information, improve data management, and provide timely information to senior leadership. Except for the utilization of the new ERP system, there have been no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the quarter ended September 30, 2022 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 5,180 characters.

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, 2021 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. Except as described below, there have been no material changes to the risk factors described under “Risk Factors,” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

***Our common stock may be delisted if we fail to comply 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 5450(a)(1) (the "Bid Price Rule").

On July 6, 2022, the Company received a notification letter from the Listing Qualifications Department of Nasdaq stating that the Company was not in compliance with the Bid Price Rule. The notification letter stated that the Company would be afforded 180 calendar days (until January 2, 2023) to regain compliance. In order to regain compliance, the Company's closing bid price must remain at $1.00 or more for a minimum of ten consecutive business days. The notification letter also states that in the event the Company does not regain compliance within the 180 day period, the Company may be eligible for an additional 180 days to regain compliance. To qualify, the Company will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary.

If we are unable to regain compliance with the Bid Price Rule, or fail to meet 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.

***A few of our customers account for a significant portion of our gross billings and accounts receivable, and the loss of, or reduced purchases from, this or other customers could have a material adverse effect on our operating results.***

A significant portion of our gross billings and accounts receivable are attributable to a small number of customers. At September 30, 2022, one customer accounted for 33% of total accounts receivable and, during the three months ended September 30, 2022, two customers accounted for an aggregate of almost 40% of gross billings. The concentration of our sales with a relatively small number of customers makes us particularly dependent on factors, both positive and negative, affecting those customers. If demand for our services from these customers increases, our results are favorably impacted, while if their demand for our services decreases, they may reduce their purchases of, or stop purchasing, our services and our operating results would suffer. The Company does not typically engage in contracts are longer than one year, and so most of our customers can cease reduce or cease business with us on a relatively short basis. The loss of a large customer and failure to add new customers to replace lost revenue would have a material adverse effect on our business, financial condition, and results of operations.

Filed Nov 14, 2022.
Source: SEC EDGAR, the filing index for accession 0001495231-22-000186. Last ingested by Listed: Nov 2, 2026, 16:20 ET. No prices; not investment advice.