NOTE 3. INTANGIBLE ASSETS
|
| | | |
Year ending December 31: | Amortization Expense |
2017 (three months remaining) | $ | 246,908 |
|
2018 | 349,432 |
|
2019 | 207,349 |
|
2020 | 84,293 |
|
2021 | 26,834 |
|
Total | $ | 914,816 |
|
IZEA Worldwide, Inc.
Notes to the Unaudited Consolidated Financial Statements
reduction in its projected revenue due to adverse economic conditions caused by the COVID-19 pandemic, the continuation of a market capitalization below the Company’s carrying value, and uncertainty for recovery given the volatility of the capital markets surrounding COVID-19. The Company performed an interim assessment of goodwill, using the discounted cash flow method under the income approach and the guideline transaction method under the market approach, and determined that the carrying value of the Company’s reporting unit as of March 31, 2020 exceeded the fair value. As a result of the valuation, the Company recorded a $4.3 million impairment of goodwill, which is reflected as an expense under impairment of goodwill in the consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2020. The Company did not identify any triggering events during the three and nine months ended September 30, 2021.
NOTE 4. SOFTWARE DEVELOPMENT COSTS
Software development costs consists of the following:
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Software development costs | $ | 3,036,810 | | | $ | 3,036,810 | |
Less accumulated amortization | (1,909,717) | | | (1,564,126) | |
Software development costs, net | $ | 1,127,093 | | | $ | 1,472,684 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Software development costs | $ | 1,578,125 |
| | $ | 1,492,665 |
|
Less accumulated depreciation and amortization | (573,220 | ) | | (388,706 | ) |
Software development costs, net | $ | 1,004,905 |
| | $ | 1,103,959 |
|
The Company determined that on April 15, 2013, its project to create IZEAx became technologically feasible and the development phase began. Throughout 2013 and the first quarter of 2014, the Company developed its new web-based advertising exchangeinfluencer marketing platform, IZEAx,. On March 17, 2014, the Company launched a public beta of IZEA.com powered by IZEAx. This platform is being utilized both internallyto enable influencer marketing and externally to facilitate native advertisingcontent creation campaigns on a greater scale. The Company continues to add new features and additional functionality to this platform each year. These new features will enable IZEAx and developed additional platforms in 2020, BrandGraph and Shake, to facilitate the contracting, workflow, and delivery or posting of direct content as well as provide for invoicing, collaborating, and direct payments for the Company'sCompany’s customers and creators. The Company capitalized software as a service ("SaaS") customers. In accordance with ASC 350-40, Internal Use Softwaredevelopment costs of $0 and ASC 985-730, Computer Software Research$266,035 during the nine months ended September 30, 2021 and Development, research phase costs should be expensed as incurred and development phase costs including direct materials and services, payroll and benefits and interest costs may be capitalized. As a result, the2020, respectively. The Company has capitalized $1,578,125a total of $3,036,810 in direct materials, consulting, payroll, and benefit costs to its internal use software development costs in the consolidated balance sheet as of September 30, 2017. 2021.
The Company amortizes its software development costs, commencing upon initial release of the software or additional features, on a straight-line basis over the estimated the useful life of its developed software to be 5five years, which is consistent with the amount of time its legacy platforms were in-service.
in service. Amortization expense on software development costs that is excluded from cost of revenue and recorded in generaldepreciation and administrativeamortization expense in the accompanying consolidated statements of operations and comprehensive loss was $76,890$115,159 and $44,549$102,538 for the three months ended September 30, 20172021 and 2016, respectively. Amortization expense on software development costs recorded in general2020, respectively, and administrative expense in the accompanying consolidated statements of operations was $184,514$345,591 and $128,977$305,727 for the nine months ended September 30, 20172021 and 2016,2020, respectively.
As of September 30, 2017,2021, future estimated amortization expense related to software development costs over the next five years is set forth in the following schedule:
| | | | | |
| Software Development Amortization Expense |
Remainder of 2021 | $ | 107,493 | |
2022 | 400,474 | |
2023 | 359,685 | |
2024 | 177,764 | |
2025 | 78,920 | |
Thereafter | 2,757 | |
Total | $ | 1,127,093 | |
|
| | | |
Year ending December 31: | Software Amortization Expense |
2017 (three months remaining) | $ | 98,259 |
|
2018 | 304,241 |
|
2019 | 218,910 |
|
2020 | 183,956 |
|
2021 | 134,432 |
|
2022 | 65,107 |
|
| $ | 1,004,905 |
|
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
NOTE 5. COMMITMENTS & CONTINGENCIESACCRUED EXPENSES
Accrued expenses consist of the following:
Credit Agreement | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Accrued payroll liabilities | $ | 1,825,193 | | | $ | 1,504,113 | |
Accrued taxes | 114,254 | | | 286,455 | |
Current portion of finance obligation | 31,312 | | | 30,487 | |
Accrued other | 449,158 | | | 103,918 | |
Total accrued expenses | $ | 2,419,917 | | | $ | 1,924,973 | |
NOTE 6. NOTES PAYABLE
Canada Emergency Business Account (“CEBA”) Loan
On April 22, 2020, the Company received a Canadian dollar loan in the principal amount of 40,000 CAD ($31,470 USD as of September 30, 2021), from TD Canada Trust Bank pursuant to a CEBA term loan agreement (the “CEBA Loan”). The CEBA Loan has an initial term from inception through December 31, 2022 (the “Initial Term”) and an extended term from January 1, 2023 through December 31, 2025 (the “Extended Term”). No interest is accrued and no payments are due on the loan during the Initial Term. If the Company repays 75% of the CEBA Loan (30,000 CAD) on or prior to December 31, 2022, the remaining 10,000 CAD balance will be forgiven. Otherwise, interest will begin to accrue on the unpaid balance on January 1, 2023 with monthly interest payments commencing on January 31, 2023 until the CEBA Loan is paid in full on or before the end of the Extended Term.
Paycheck Protection Program (“PPP”) Loan
On April 23, 2020, the Company 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”), evidenced by a promissory note issued by the Company (the “Note”) to the Lender. The term of the Note was two years and carried a fixed interest rate of one percent per year. Certain amounts received under the PPP Loan were able to be forgiven if the loan proceeds were used for eligible purposes, including payroll costs and certain rent or utility costs, and the Company met other requirements regarding, among other things, the maintenance of employment and compensation levels. Loan payments on the PPP Loan may be deferred to either (1) the date that the SBA remits the Company’s loan forgiveness amount to the Lender or (2) ten months after the end of the Company’s loan forgiveness covered period, if the Company does not apply for loan forgiveness. The principal balance of the PPP Loan was $1,905,100, with $1,477,139 reflected in the current portion of notes payable in the consolidated balance sheets as of December 31, 2020.
The Company submitted its forgiveness application for the entire amount of the loan in December 2020. On June 18, 2021, the Company was notified by the Lender that the loan had been forgiven by the SBA in full, including accrued interest. The principal amount of $1,905,100 and accrued interest of $22,120, totaling $1,927,220, was recorded as a gain on forgiveness of debt in other income (expense) in the Company’s consolidated statements of operations and comprehensive loss in the nine months ended September 30, 2021.
Finance Obligation
The Company has 2 long term payment plans with a vendor to pay for its computer equipment in 4 annual payments between October 2019 and February 2023. The Company used an imputed interest rate of 9.5%, based on its incremental borrowing rate, to determine the present value of its finance obligation. The total balance owed was $65,604 and $74,295 as of September 30, 2021 and December 31, 2020, respectively, with the short-term portion of $31,312 and $30,487 recorded under accrued expenses in the consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively.
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
Secured Credit Facility
The Company had a secured credit facility agreement (also referred to herein as “line of credit”) with Western Alliance Bank, the parent company of Bridge Bank, N.A. of San Jose, California, which it obtained on March 1, 2013, and expanded on April 13, 2015. Pursuant to thisThe line of credit agreement the Company may submit requests for funding up to 80% of its eligible accounts receivable up to a maximum credit limit of $5 million. This agreement is secured by the Company's accounts receivable and substantially all of the Company's other assets. The agreement renews annually and requiresrequired the Company to pay an annual facility fee of $20,000 (0.4% of the credit limit) and an annual due diligence fee of $1,000. Interest accrues on the advances at the rate of prime plus 2% per annum. The default rate of interest is prime plus 7%. As of September 30, 2017, the Company had $810,376 outstanding under this line of credit agreement. The Company had no advances outstanding under this agreement as of December 31, 2016. As of September 30, 2017, the Company had a net accounts receivable balance of $5,253,423. Assuming that all of the Company's accounts receivable balance was eligible for funding, it had $3,392,362 in remaining available credit under the agreement as of September 30, 2017.
The annual fees are capitalized in the Company's consolidated balance sheet within other current assets and are amortized to interest expense over one year. The Company amortized $5,250 and $8,750 of the annual costs through interest expense during the three months ended September 30, 2017 and 2016, respectively. The Company amortized $15,750 and $14,546 of the annual costs through interest expense$1,000 upon renewal; during the nine months ended September 30, 20172021 and 2016, respectively. 2020, the Company amortized $7,000 and $15,750, respectively, of such costs through interest expense.
The remaining valueCompany terminated its line of thecredit in April 2021. There were 0 amounts outstanding under this secured credit facility as of December 31, 2020 and 0 remaining capitalized loan costs related to the Bridge Bank Credit Agreementsecured credit facility as of September 30, 2017 is $12,250.2021.
Summary
Interest expense on financing arrangements recorded in the Company’s consolidated statements of operations and comprehensive loss was $1,558 and $16,448 for the three months ended September 30, 2021 and 2020, respectively, and $24,090 and $42,542 for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, the future contractual maturities of our debt obligations by year are set forth in the following schedule:
| | | | | |
Remainder of 2021 | $ | 21,796 | |
2022 | 64,858 | |
2023 | 10,420 | |
Total | $ | 97,074 | |
NOTE 7. COMMITMENTS AND CONTINGENCIES
Lease Commitments
Due to the Company’s current work from home policy enacted on March 16, 2020 as a result of the COVID-19 pandemic, and its intent to remain virtual first, the Company does not have any office lease agreements as of September 30, 2021. Additionally, the Company does not have any other operating or finance lease greater than 12 months in duration as of September 30, 2021.
Total leasehold rent expense recorded in general and administrative expense in the accompanying consolidated statements of operations and comprehensive loss was $39,194 and $263,722 for the three and nine months ended September 30, 2020, respectively. Upon the January 1, 2019 adoption of ASU No. 2016-02, Leases, the Company had one material lease greater than 12 months in duration. This amount will be amortized to interestwas the lease associated with its corporate headquarters in Winter Park, Florida, which expired in April 2020. Cash paid for this 1 operating lease was $0 and $113,516 during the three and nine months ended September 30, 2020, respectively. There were no lease commitments or leasehold rent expense overduring the next seven months.three and nine months ended September 30, 2021.
Litigation
From time to time, the Company may become involved in various other lawsuits and legal proceedings that arise in the ordinary course of its business. Litigation is, however, subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company'sCompany’s business. The Company is currently not aware of any legal proceedings or claims that it believes would or could have, individually or in the aggregate, a material adverse effect on its operationsthe Company. Regardless of final outcomes, however, any such proceedings or financial position.claims may nonetheless impose a significant burden on management and employees and may come with costly defense costs or unfavorable preliminary interim rulings.
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
NOTE 6. STOCKHOLDERS'8. STOCKHOLDERS’ EQUITY
Authorized Shares
The Company has 200,000,000 authorized shares of common stock and 10,000,000 authorized shares of preferred stock, each with a par value of $0.0001$0.0001 per share.
Reverse Stock Split
Sale of Securities
On June 4, 2020, the Company entered into an ATM Sales Agreement (the “2020 Sales Agreement”) with National Securities Corporation, as sales agent (“National Securities”), pursuant to which the Company could offer and sell, from time to time, through National Securities, shares of the Company's common stock, by any method deemed to be an “at the market offering” (“ATM Offering”).
On June 12, 2020, the Company entered into an amendment to the 2020 Sales Agreement to increase the amount of common stock that could be offered and sold in the ATM Offering to $40 million in the aggregate. On January 6, 2016,25, 2021, the Company filedentered into a Certificate of Amendmentnew ATM Sales Agreement (the “January 2021 Sales Agreement”) with National Securities, pursuant to which the Secretary of State of NevadaCompany may offer and sell, from time to effect a reverse stock split of the issued and outstandingtime, through National Securities, up to $35 million shares of its common stock, at a ratio of one share for every 20 shares outstanding priorby any method deemed to the effective date of the reverse stock split. All current and historical information contained herein related to the share and per share information for the Company's common stock or stock equivalents reflects the 1-for-20 reverse stock split of the Company's outstanding shares of common stock that became market effective on January 11, 2016. There was no change in the number of the Company's authorized shares of common stock.be an ATM Offering.
Nasdaq Uplisting
On January 26, 2016, the Company's shares of common stock commenced trading on the Nasdaq Capital Market under the symbol IZEA. Prior thereto, the Company's common stock was quoted on the OTCQB marketplace under the same symbol.
Stock Issued for Purchases
As further discussed in Note 2, the Company issued 31,821 shares of its common stock to satisfy the $250,000 guaranteed purchase price payment obligation on July 30, 2015 per the Ebyline Stock Purchase Agreement. On January 29, 2016, the Company issued 114,398 shares of its common stock to satisfy the $848,832 annual guaranteed payment of $938,532 less $89,700 in closing related expenses owed as part of the Ebyline Stock Purchase Agreement and on January 30, 2017, the Company issued 200,542 shares of common stock to satisfy the final annual guaranteed payment of $938,532. On July 31, 2016, the Company issued 86,207 shares of IZEA common stock valued at $600,000 as a partial payment of the guaranteed purchase price per the ZenContent Stock Purchase Agreement.
Stock Issued for Services
The Company issued its five independent directors a total of 32,385 shares of restricted common stock initially valued at $93,750 for their service as directors of the Company during the nine months ended September 30, 2017. The stock vested monthly from January through September 2017. On February 12, 2017, the Company issued 7,109 shares valued at $30,000 as compensation for services a contractor provided. On August 14, 2017, the Company issued 2,812 shares of restricted stock to Mr. Edward Murphy, its Chief Executive Officer, as partial payment for his second quarter bonus. The stock was initially valued at $5,483 and vests in equal monthly installments over 48 months. On August 14, 2017, the Company issued 662 shares of restricted stock to Mr. Ryan Schram, its Chief Operating Officer, as partial payment for his second quarter bonus. The stock was initially valued at $1,291 and vests in equal monthly installments over 48 months.
The following table contains summarized information about nonvested restricted stock outstanding duringDuring the nine months ended September 30, 2017:
|
| | | | | | |
Restricted Stock | Common Shares | Weighted Average Grant Date Fair Value | Weighted Average Remaining Years to Vest |
Nonvested at December 31, 2016 | — |
| $ | — |
| |
Granted | 42,968 |
| 3.04 |
| |
Vested | (39,713 | ) | 3.61 |
| |
Forfeited | — |
| — |
| |
Nonvested at September 30, 2017 | 3,255 |
| $ | 7.10 |
| 3.8 |
Total expense recognized2021, the Company sold 11,186,084 shares at an average price of $4.16 per share for stock-based payments for services duringtotal gross proceeds of $46,544,688 pursuant to the three months ended2020 Sales Agreement and January 2021 Sales Agreement with National Securities. As of September 30, 20172021, the Company had sold a total of 26,005,824 shares at an average price of $2.88 per share for total gross proceeds of $74,999,784 pursuant to the 2020 Sales Agreement and 2016 was $60,074January 2021 Sales Agreement with National Securities. The 2020 Sales Agreement and $34,969, respectively. Total expense recognized for stock-based payments for services duringJanuary 2021 Sales Agreement were terminated following the nine months ended September 30, 2017sale of all shares of common stock available to be sold thereunder.
On June 21, 2021, the Company entered into a third ATM Sales Agreement (the “June 2021 Sales Agreement”) with National Securities Corporation, as sales agent, pursuant to which the Company could offer and 2016 was $143,536 and $107,439, respectively. The fair valuesell, from time to time, through National Securities, up to $100 million of shares of the services is based on the value of the Company'sCompany’s common stock over the term of service. The Company recognized a gain of $45,160 and $36,122 as a change in the fair value of derivatives during the three and nine months ended September 30, 2017, based on the change between the Company's stock price upon issuance and the Company's stock price upon the date of vesting. The fair value of the remaining nonvested, but issued, 3,255 shares of restricted stockby any method deemed to be an ATM Offering. No sales have been made under this agreement as of September 30, 2017 is $23,110, and it is included in prepaid expenses in the accompanying unaudited consolidated balance sheets. This value is the current estimate of future compensation expense that is expected to be recognized over the remaining individual vesting periods up to 46 months.2021.
Stock OptionsEquity Incentive Plans
In May 2011, the Company’s Board of Directors (the “Board”) adopted the 2011 Equity Incentive Plan of IZEA Worldwide, Inc. (the(as amended, the “May 2011 Plan”). AtThe stockholders approved an amendment and restatement of the Company's 2017Company’s May 2011 Plan at its 2020 Annual Meeting of Stockholders held on June 21, 2017,December 18, 2020, to allow the stockholders approvedCompany to award restricted stock, restricted stock units and stock options covering up to 7,500,000 shares of common stock as incentive compensation for its officers, employees, consultants, and advisors, including its non-employee directors. Shares of the amendment and restatementCompany’s common stock that are withheld (or not issued) to cover the purchase price of an option or any required tax withholding obligation will again be available for issuance under the May 2011 Plan which increasedPlan. As of September 30, 2021, the number ofCompany had 3,602,509 remaining shares of common stock available for issuance under the May 2011 Plan by 500,000 shares. The amended May 2011 Plan allows the Companypursuant to grant options to purchase up to 1,500,000 shares as an incentive for its employees and consultants. As of September 30, 2017, the Company had 438,636 shares of common stock available for future grants under the May 2011 Plan.
OnIn August 22, 2011, the Company adopted the 2011 B Equity Incentive Plan (the “August 2011 Plan”) reserving 4,375 shares of common stock for issuance under the August 2011 Plan. As of September 30, 2017, the Company had 1,875 shares of common stock available for future grantsNo additional awards may be granted under the August 2011 Plan.Plan following the tenth anniversary of its effective date, but awards theretofore granted may extend beyond that date.
Restricted Stock
Under both the May 2011 Plan and the August 2011 Plan (together, the "2011“2011 Equity Incentive Plans"Plans”), the Board determines the terms and conditions of Directorseach restricted stock issuance, including any future vesting restrictions.
On January 31, 2020, the Company issued its 5 independent directors a total of 390,625 shares of restricted common stock initially valued at $125,000 for their annual service as directors of the Company. The stock vested in equal monthly installments from January through December 2020.
During the nine months ended September 30, 2021, the Company issued its 6 independent directors a total of 30,324 shares of restricted common stock initially valued at $147,329 for their annual service as directors of the Company. The stock vests in equal monthly installments from January through December 2021.
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
The following table contains summarized information about restricted stock issued during the year ended December 31, 2020 and the nine months ended September 30, 2021:
| | | | | | | | | | | |
Restricted Stock Activity | Common Shares | Weighted Average Grant Date Fair Value | Weighted Average Remaining Years to Vest |
Nonvested at December 31, 2019 | 31,282 | | $ | 2.15 | | 1.9 |
Granted | 390,625 | | 0.32 | | |
Vested | (408,241) | | 0.39 | | |
Forfeited | — | | | |
Nonvested at December 31, 2020 | 13,666 | | $ | 2.28 | | 1.4 |
Granted | 30,324 | | 4.86 | | |
Vested | (30,475) | | 4.24 | | |
Forfeited | — | | 0 | |
Nonvested at September 30, 2021 | 13,515 | | $ | 3.65 | | 0.5 |
Although restricted stock is issued upon the grant of an award, the Company excludes restricted stock from the computations within the financial statements of total shares outstanding and basic earnings per share until the restricted stock vests.
Expense recognized on restricted stock issued to non-employees for services was $37,544 and $31,250 for the three months ended September 30, 2021 and 2020, respectively, and $109,784 and $93,749 during the nine months ended September 30, 2021 and 2020, respectively. Expense recognized on restricted stock issued to employees was $6,364 and $6,507 for the three months ended September 30, 2021 and 2020, respectively, and $19,371 and $27,175 during the nine months ended September 30, 2021 and 2020, respectively.
On September 30, 2021, the fair value of the Company’s common stock was approximately $1.92 per share and the intrinsic value on the non-vested restricted stock was $25,949. Future compensation expense related to issued, but non-vested, restricted stock awards as of September 30, 2021 is $49,376. This value is estimated to be recognized over the weighted-average vesting period of approximately six months.
Restricted Stock Units
The Board determines the terms and conditions of each restricted stock unit award issued under the May 2011 Plan.
The Company issued 84,994 restricted stock units on January 3, 2020 to Mr. Ryan Schram, its Chief Operating Officer, under the terms of his employment agreement. The restricted stock units were initially valued at $23,739 and vest in equal monthly installments over 48 months from issuance. The Company also issued 100,000 restricted stock units on January 3, 2020 to Mr. Schram as additional incentive compensation. The restricted stock units were initially valued at $27,930 and vest 12 months from issuance.
During the twelve months ended December 31, 2020, the Company issued a total of 580,099 restricted stock units initially valued at $215,936 to non-executive employees as additional incentive compensation. The restricted stock units vest 12 months from issuance.
During the twelve months ended December 31, 2020, the Company issued Mr. Edward Murphy, its Chief Executive Officer, 123,228 restricted stock units valued at $61,790 for bonuses owed under the terms of his amended employment agreement. The restricted stock units vest in equal monthly installments over 36 months from issuance.
During the twelve months ended December 31, 2020, the Company issued Mr. Schram 41,824 restricted stock units initially valued at $14,052 for bonuses owed under the terms of his employment agreement. The restricted stock units vest in equal monthly installments over 48 months from issuance.
During the nine months ended September 30, 2021 the Company issued Mr. Murphy 100,000 restricted stock units valued at $394,000 as a one-time bonus. The restricted stock units vest in equal monthly installments over 10 months from issuance.
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
During the nine months ended September 30, 2021 the Company issued Mr. Peter Biere, its Chief Financial Officer, 4,286 restricted stock units valued at $8,101 for bonuses owed under the terms of his employment agreement. The restricted stock units vest in equal monthly installments over 36 months from issuance.
During the nine months ended September 30, 2021 the Company issued an aggregate of 30,514 restricted stock units valued at $73,715 to 37 non-executive employees related to performance bonuses. The restricted stock units vest 12 months from issuance.
The following table contains summarized information about restricted stock units during the year ended December 31, 2020 and the nine months ended September 30, 2021:
| | | | | | | | | | | |
Restricted Stock Units Activity | Common Shares | Weighted Average Grant Date Fair Value | Weighted Average Remaining Years to Vest |
Nonvested at December 31, 2019 | 366,812 | | $ | 0.42 | | 3.2 |
Granted | 930,145 | | 0.37 | | |
Vested | (172,441) | | 0.41 | | |
Forfeited | (154,167) | | 0.30 | | |
Nonvested at December 31, 2020 | 970,349 | | $ | 0.39 | | 1.2 |
Granted | 134,800 | | 3.53 | | |
Vested | (673,201) | | 0.73 | | |
Forfeited | (3,336) | | 1.46 | | |
Nonvested at September 30, 2021 | 428,612 | | $ | 0.84 | | 1.4 |
During the three and nine months ended September 30, 2021, the Company withheld 18,398 and 200,942 shares of common stock valued at $40,682 and $437,644, respectively, to cover statutory employee withholding taxes due upon the delivery of common stock for the vested restricted stock units. Expense recognized on restricted stock units issued to employees was $147,044 and $44,636 for the three months ended September 30, 2021 and 2020, respectively, and $427,287 and $159,720 during the nine months ended September 30, 2021 and 2020, respectively. On September 30, 2021, the fair value of the Company’s common stock was approximately $1.92 per share and the intrinsic value on the non-vested restricted units was $822,935. Future compensation related to the non-vested restricted stock units as of September 30, 2021 is $278,669 and it is estimated to be recognized over the weighted-average vesting period of approximately 1.4 years.
Stock Options
Under the 2011 Equity Incentive Plans, the Board determines the exercise price to be paid for the stock option shares, the period within which each stock option may be exercised, and the terms and conditions of each stock option. The exercise price of the incentive and non-qualified stock options may not be less than 100% of the fair market value per share of the Company’s common stock on the grant date. If an individual owns stock representing more than 10% of the outstanding shares, the exercise price of each share of an incentive stock option must be equal to or exceed 110% of fair market value. Unless otherwise determined by the Board of Directors at the time of grant, the purchaseexercise price is set at the fair market value of the Company’s common stock on the grant date (or the last trading day prior to the grant date, if it is awarded on a non-trading day). Additionally, the term is set at ten years and the optionsoption typically vestvests on a straight-line basis over the requisite service period as follows: 25% of options shall vest one year from the date of grant andwith the remaining options shall vestvesting monthly in equal increments over the following three years. years. The Company issues new shares to the optionee for any stock awards or options exercised pursuant tounder its 2011 Equity Incentive Plans.
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
A summary of option activity under the 2011 Equity Incentive Plans forduring the year ended December 31, 20162020 and the nine months ended September 30, 2017,2021, is presented below:
| | | | | | | | | | | | | | | | | |
Options Outstanding | Common Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Life (Years) |
Outstanding at December 31, 2019 | 1,357,837 | | | $ | 3.24 | | | 7.2 |
Granted | 411,350 | | | 0.69 | | | |
Exercised | (369) | | | 1.00 | | | |
Expired | — | | | — | | | |
Forfeited | (56,012) | | | 5.08 | | | |
Outstanding at December 31, 2020 | 1,712,806 | | | $ | 2.56 | | | 6.9 |
Granted | 266,594 | | | 2.64 | | | |
Exercised | (161,270) | | | 0.34 | | | |
Expired | — | | | — | | | |
Forfeited | (17,021) | | | 3.50 | | | |
Outstanding at September 30, 2021 | 1,801,109 | | | $ | 2.77 | | | 6.2 |
| | | | | |
Exercisable at September 30, 2021 | 1,079,065 | | | $ | 3.68 | | | 5.2 |
|
| | | | | | | | |
Options Outstanding | Common Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Life (Years) |
Outstanding at December 31, 2015 | 830,599 |
| | $ | 8.65 |
| | 6.5 |
Granted | 179,998 |
| | 6.16 |
| | |
Exercised | — |
| | — |
| | |
Forfeited | (50,733 | ) | | 10.15 |
| | |
Outstanding at December 31, 2016 | 959,864 |
| | $ | 8.11 |
| | 6.4 |
Granted | 94,246 |
| | 3.64 |
| | |
Exercised | — |
| | — |
| | |
Forfeited | (42,535 | ) | | 50.15 |
| | |
Outstanding at September 30, 2017 | 1,011,575 |
| | $ | 6.05 |
| | 6.1 |
| | | | | |
Exercisable at September 30, 2017 | 683,642 |
| | $ | 6.24 |
| | 5.1 |
During the three and nine months ended September 30, 2017 and 2016, no2021, 161,270 options were exercised.exercised for gross proceeds of $54,105. The intrinsic value on exercised options was $454,123. There were 369 options exercised during the nine months ended September 30, 2020. The fair value of the Company's common stock on September 30, 20172021 was $7.10approximately $1.92 per share. Theshare and the intrinsic value on outstanding options as of September 30, 20172021 was $1,354,688.$971,773. The intrinsic value on exercisable options as of September 30, 20172021 was $815,179.$412,605.
A summary of the nonvested stock option activity under the 2011 Equity Incentive Plans forduring the year ended December 31, 20162020 and the nine months ended September 30, 2017,2021, is presented below:
| | | | | | | | | | | | | | | | | |
Nonvested Options | Common Shares | | Weighted Average Grant Date Fair Value | | Weighted Average Remaining Years to Vest |
Nonvested at December 31, 2019 | 600,779 | | | $ | 0.64 | | | 3.0 |
Granted | 411,350 | | | 0.56 | | | |
Vested | (283,766) | | | 0.72 | | | |
Forfeited | (12,877) | | | 0.88 | | | |
Nonvested at December 31, 2020 | 715,486 | | | $ | 0.56 | | | 2.5 |
Granted | 266,594 | | | 2.81 | | | |
Vested | (251,647) | | | 0.65 | | | |
Forfeited | (8,389) | | | 0.92 | | | |
Nonvested at September 30, 2021 | 722,044 | | | $ | 0.93 | | | 2.4 |
|
| | | | | | | | |
Nonvested Options | Common Shares | | Weighted Average Grant Date Fair Value | | Weighted Average Remaining Years to Vest |
Nonvested at December 31, 2015 | 461,926 |
| | $ | 3.84 |
| | 2.8 |
Granted | 179,998 |
| | 2.88 |
| | |
Vested | (187,181 | ) | | 4.00 |
| | |
Forfeited | (40,437 | ) | | 3.76 |
| | |
Nonvested at December 31, 2016 | 414,306 |
| | $ | 3.60 |
| | 2.6 |
Granted | 94,246 |
| | 1.28 |
| | |
Vested | (161,321 | ) | | 3.52 |
| | |
Forfeited | (19,298 | ) | | 3.12 |
| | |
Nonvested at September 30, 2017 | 327,933 |
| | $ | 2.72 |
| | 2.6 |
There were outstanding options to purchase 1,801,109 shareswith a weighted average exercise price of $2.77 per share, of which options to purchase 1,079,065 shares were exercisable with a weighted average exercise price of $3.68 per share as of September 30, 2021.
Stock-based compensation cost related to
Expense recognized on stock options granted under the 2011 Equity Incentive Plans is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite service period. The Company estimates the fair value of each option award on the date of grant using a Black-Scholes option-pricing model that uses the assumptions stated in Note 1. Total stock-based compensation expense recognized on option awards outstandingissued to employees during the ninethree months ended September 30, 2017 and 2016 was $509,642 and $576,144, respectively. Stock-based compensation expense was recorded as $45,331 to sales and marketing and $464,311 to general and administrative expense in the Company's consolidated statement of operations during the nine months ended September 30, 2017. Stock-based compensation expense2021 and 2020 was recorded as $67,586$73,739 and $55,202, respectively. Expense recognized on stock options issued to sales and marketing and $508,558 to general and administrative expense in the Company's consolidated statement of operationsemployees during the three and nine months ended September 30, 2016.2021 and 2020 was $182,137 and $166,955, respectively. Future compensation related to nonvestednon-vested awards expected to vestas of $753,299September 30, 2021 is $710,661, and it is estimated to be recognized over the weighted-average vesting period of approximately two years, six2.4 years.
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
The following table shows the number of stock options granted under the Company’s 2011 Equity Incentive Plans and the assumptions used to determine the fair value of those options using a Black-Scholes option-pricing model during the nine months. ended September 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Period Ended | | Total Stock Options Granted | | Weighted-Average Exercise Price | | Weighted-Average Expected Term | | Weighted-Average Volatility | | Weighted-Average Risk-Free Interest Rate | | Expected Dividends | | Weighted-Average Grant Date Fair Value |
September 30, 2020 | | 410,215 | | | $0.69 | | 6 years | | 108.56% | | 0.46% | | — | | | $0.56 |
September 30, 2021 | | 266,594 | | | $2.64 | | 6 years | | 120.14% | | 0.94% | | — | | | $2.81 |
Employee Stock Purchase Plan
On April 16, 2014, stockholders holding a majority of the Company's outstanding shares of common stock, upon previous recommendation
The amended and approval of the Board of Directors, adopted therestated IZEA Worldwide, Inc. 2014 Employee Stock Purchase Plan (the “ESPP”) and reserved 75,000, provides for the issuance of up to 500,000 shares of the Company'sCompany’s common stock for issuance thereunder. Any employeeto employees regularly employed by the Company for 90 days or more on a full-time or part-time basis (20 hours or more per week on a regular schedule) is eligible to participate in the ESPP.. The ESPP operates in successive six month months offering periods commencing at the beginning ofJanuary 1 and July 1 each fiscal
year half.year. Each eligible employee who elects to participate may purchase up to 10% of their annual compensation in common stock not to exceed $21,250 annually or 1,0002,000 shares per offering period. The purchase price will be the lower of (i) 85% of the fair market value of a share of common stock on the first trading day of the offering period or (ii) 85% of the fair market value of a share of common stock on the last trading day of the offering period. The ESPP will continue until January 1, 2024, unless otherwise terminated by the Board. Employees
During the nine months ended September 30, 2021 and 2020, employees paid $16,232$5,222 to purchase 9,9983,376 shares of common stock during the nine months ended September 30, 2017. Employees paid $34,587and $1,944 to purchase 5,3409,665 shares of common stock, respectively. Expense recognized on the options to purchase shares under the ESPP was $1,892 and $2,223 during the ninethree months ended September 30, 2016.2021 and 2020, respectively, and $4,424 and $2,996 during the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2017,2021, the Company had 39,764392,237 remaining shares of common stock available for future grantsissuances under the ESPP.
Summary Stock-Based Compensation
Stock-based compensation cost related to all awards granted to employees is measured at the grant date based on the fair value of the award and is recognized as an expense over the employee’s requisite service period utilizing the weighted-average forfeiture rates disclosed in Note 1. Total stock-based compensation expense recognized on restricted stock, restricted stock units, stock options, and employee stock purchase plan issuances during the three and nine months ended September 30, 2021 and 2020 was recorded in the Company’s consolidated statements of operations and comprehensive loss as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
Cost of revenue | $ | 1,898 | | | $ | 9,709 | | | $ | 5,315 | | | $ | 24,278 | |
Sales and marketing | 5,342 | | | 3,324 | | | 16,090 | | | 42,967 | |
General and administrative | 221,799 | | | 95,535 | | | 611,814 | | | 289,601 | |
Total stock-based compensation | $ | 229,039 | | | $ | 108,568 | | | $ | 633,219 | | | $ | 356,846 | |
NOTE 7. EARNINGS (LOSS)9. LOSS PER COMMON SHARE
Basic earnings (loss) per common share is computed by dividing the net income or loss by the basic weighted-average number of shares of common stock outstanding during each period presented. Although restricted stock is issued upon the grant of an award, the Company excludes restricted stock from the computations of weighted-average number of shares of common stock outstanding until such time as the stock vests. Diluted earningsloss per share is computed by dividing the net income or loss by the sum of the total of the basic weighted-average number of shares of common stock outstanding plus the additional dilutive securities that could be exercised or converted into common shares during each period presented less the amount of shares that could be repurchased using the proceeds from the exercises.
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 | | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
Net loss | $ | (558,805 | ) | | $ | (1,511,603 | ) | | $ | (4,724,623 | ) | | $ | (5,730,568 | ) | Net loss | $ | (1,480,757) | | | $ | (1,254,800) | | | $ | (3,584,881) | | | $ | (9,209,403) | |
Weighted average shares outstanding - basic and diluted | 5,702,297 |
| | 5,420,020 |
| | 5,659,423 |
| | 5,357,119 |
| Weighted average shares outstanding - basic and diluted | 61,883,017 | | | 45,772,638 | | | 59,875,142 | | | 38,879,218 | |
Basic and diluted loss per common share | $ | (0.10 | ) | | $ | (0.28 | ) | | $ | (0.83 | ) | | $ | (1.07 | ) | Basic and diluted loss per common share | $ | (0.02) | | | $ | (0.03) | | | $ | (0.06) | | | $ | (0.24) | |
The Company excluded the following weighted average items from the above computation of diluted loss per common share, as their effect would be anti-dilutive:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
Stock options | | 1,726,580 | | | 1,611,459 | | | 1,732,763 | | | 1,505,320 | |
Restricted stock units | | 467,214 | | | 1,030,559 | | | 549,385 | | | 971,326 | |
Restricted stock | | 20,351 | | | 180,843 | | | 26,798 | | | 283,287 | |
Warrants | | — | | | — | | | — | | | 8,704 | |
Total excluded shares | | 2,214,145 | | | 2,822,861 | | | 2,308,946 | | | 2,768,637 | |
|
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
Stock options | | 993,546 |
| | 904,706 |
| | 979,775 |
| | 874,363 |
|
Warrants | | 520,147 |
| | 557,423 |
| | 537,039 |
| | 550,002 |
|
Restricted stock units | | — |
| | — |
| | — |
| | — |
|
Total excluded shares | | 1,513,693 |
| | 1,462,129 |
| | 1,516,814 |
| | 1,424,365 |
|
NOTE 8. SUBSEQUENT EVENTS10. REVENUE
No material eventsThe Company has consistently applied its accounting policies with respect to revenue to all periods presented in the consolidated financial statements contained herein. Beginning in 2021, the Company began classifying subscription fees for BrandGraph and IZEAx Discovery as License Fees; accordingly, these amounts from 2020 have occurred afterbeen reclassified from Other Fees to conform with their 2021 classification. The following table illustrates the Company’s revenue by product service type:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
Managed Services Revenue | | $ | 7,153,517 | | | $ | 3,513,806 | | | $ | 18,139,370 | | | $ | 10,129,210 | |
| | | | | | | | |
Marketplace Spend Fees | | 89,196 | | | 120,630 | | | 269,160 | | | 482,817 | |
License Fees | | 354,850 | | | 396,549 | | | 1,082,734 | | | 1,291,002 | |
Other Fees | | 9,983 | | | 5,135 | | | 30,653 | | | 31,798 | |
SaaS Services Revenue | | 454,029 | | | 522,314 | | | 1,382,547 | | | 1,805,617 | |
| | | | | | | | |
Total Revenue | | $ | 7,607,546 | | | $ | 4,036,120 | | | $ | 19,521,917 | | | $ | 11,934,827 | |
The following table provides the Company’s revenues as determined by the country of domicile:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
United States | | $ | 7,401,814 | | | $ | 3,666,860 | | | $ | 18,964,711 | | | $ | 11,313,653 | |
Canada | | 205,732 | | | 369,260 | | | 557,206 | | | 621,174 | |
Total | | $ | 7,607,546 | | | $ | 4,036,120 | | | $ | 19,521,917 | | | $ | 11,934,827 | |
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
Contract Balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers reported in the Company’s consolidated balance sheet:
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Accounts receivable, net | $ | 7,093,028 | | | $ | 5,207,205 | |
Contract liabilities (unearned revenue) | $ | 10,660,068 | | | $ | 7,180,264 | |
The increase in contract liabilities is primarily the result of the increase in contracts where the customers have been charged in advance of services in future periods. The Company does not typically engage in contracts that are longer than one year. Therefore, the Company recognized substantially all of the contract liabilities recorded at the end of the year in the following year and it did not recognize any contract assets as of September 30, 20172021 or December 31, 2020. The Company does not capitalize costs to obtain its customer contracts given their general duration of less than one year, and the amounts are not material.
Contract receivables are recognized when the receipt of consideration is unconditional. Contract liabilities relate to charges to customers in advance of the Company satisfying performance obligations under the terms of the contracts, which will be earned in future periods. Contract liabilities increase as a result of additional charges to customers and decrease as revenue is recognized upon the Company meeting the performance obligations for those services. As a practical expedient, the Company expenses the costs of sales commissions that require recognition or disclosureare paid to its sales force associated with obtaining contracts less than 1 year in length in the financial statements.period incurred.
Remaining Performance Obligations
The Company typically enters into contracts that are one year or less in length. As such, the remaining performance obligations as of September 30, 2021 and December 31, 2020 are equal to the contract liabilities disclosed above. The Company expects to recognize the full balance of the unearned revenue as of September 30, 2021 within the next year.
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SpecialCautionary Note Regarding Forward-Looking Information
The following discussion and analysis is provided to increase the understanding of, and should be read in conjunction with, our consolidated financial statements and related notes included elsewhere in this report. Historical results and percentage relationships among any amounts in these financial statements are not necessarily indicative of trends in operating results for any future period. This reportQuarterly Report on Form 10-Q (this “Quarterly Report”) contains “forward-looking statements.”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 this Management'sthose 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,” “should,“expects,” “expects,“anticipates,” “anticipates,” “estimates,” “believes,” “thinks,” “intends,” “likely,” “projects,” “plans,” “pursue,” “strategy” or “future,” or “plans”the negative of these words or comparable terminologyother 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 variousinherent risks, uncertainties, and uncertainties.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 the resultsthose reflected in these forward-looking statements. FactorsTherefore, you should not rely on any of these forward-looking statements. Important factors that mightcould cause such a differencethese 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 transition to a fully remote working environment;
•estimates or judgements relating to our critical accounting policies;
•our ability to raise additional funding customer cancellations, 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 grow procedures and internal control over financial reporting;
•our business, ability to protect our intellectual property without patents;
•results of any future litigation;
•competition in the industry;
•variability of operating results, results;
•market acceptance of our IZEAx, Shake and BrandGraph platforms;
•variability of operating results;
•our ability to maintain and enhance our brand, brand;
•accuracy of tracking the number of user accounts and our ability to detect click-fraud;
•reliance on third-party social media platforms to provide the mechanism necessary to deliver influencer marketing;
•our development and introduction of new products and services, services;
•the successful integration of acquired companies, technologies, and assets into our portfolio of software and services, services;
•marketing and other business development initiatives, competition in the industry, general initiatives;
•government regulation, including relating to user privacy;
•economic conditions, including as a result of health and safety concerns;
•the ability of our security measures to protect against cyberattacks;
•the volatility of the price of our common stock;
•dependence on key personnel, personnel;
•the ability to attract, hire, and retain personnel who possess the technical skills and experience necessary to meet the service requirements of our customers, our ability to protect our intellectual property, customers;
•the potential liability with respect to actions taken by our existing and past employees, employees;
•risks associated with international sales,sales; and
•the other risks and uncertainties described hereinin the Risk Factors sections of this Quarterly Report and in our other filings withAnnual Report on Form 10-K for the SEC.year ended December 31, 2020.
All forward-looking statements in this document are based on our current expectations, intentions, and beliefs using information currently available to us as of the date of this report,Quarterly Report, and we assume no obligation to update any forward-looking statements, except as required by law. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.
Company History
IZEA was founded in February 2006 under the name PayPerPost, Inc. and became a public company incorporated in the stateTable of Nevada in May 2011. In January 2015, we purchased all of the outstanding shares of capital stock of Ebyline, Inc. and in July 2016, we purchased all the outstanding shares of capital stock of ZenContent, Inc. These entities, which aid in our management and production of custom branded content, now operate as wholly-owned subsidiaries under IZEA, Inc. On March 9, 2016, we formed IZEA Canada, Inc., a wholly-owned subsidiary of IZEA, Inc. incorporated in Ontario, Canada to operate as a sales and support office for our Canadian customers and partners.Contents
Company Overview
IZEA Worldwide, Inc. (together with its wholly-owned subsidiaries, “we,” “us,” “our,” “IZEA” or the “Company”) creates and operates online marketplaces that connect marketers, including brands, agencies, and publishers, with influential content creators.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 momsstay-at-home individuals to celebrities and accredited journalists the opportunity to monetize their content, creativity, and influence.influence through our marketers. These creators are compensated by IZEA for producing unique content such as long-formlong and short form text, videos, photos, illustrations,status updates, and status updates. In addition to creating contentillustrations for marketers our creators are also compensated for distributionor distributing such content on behalf of that contentmarketers through their personal websites, blogs, and social channels such as Twitter, Facebook and YouTube.media channels.
Marketers including brands, agencies, and partners, engage us to gain access to our industry expertise, technology, data, analytics, and network of creators. These companies are our primary customers where we generate theThe majority of our revenue. Theythe marketers engage us to perform these services on their behalf, but they also have the ability to use our servicesmarketplaces 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, (also known as “influencer marketing” or "sponsored social"), or the engagement of creators to create stand-alone custom content for the marketer'smarketers’ own use as well as third party content marketing and native advertising efforts (“custom content”).distribution. Marketers receive influential consumer content and engaging, shareable stories that drive awareness.
Our primary technology platform, theThe IZEA Exchange (“(“IZEAx”), enables transactions to be completed at scale through the management of custom content development,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 including blog posts, status updates, videos, and photos to be provided and further distributed through a wide variety ofcreator’s personal websites, blogs, or social media channels including blogs, Twitter, Facebook, Instagram, and Tumblr,YouTube, among others.
In addition to IZEAx,2020, we operatelaunched two new platforms, BrandGraph and Shake. BrandGraph is a social media intelligence platform that 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. The platform maps and classifies the Ebyline technology platform, which we acquired in January 2015.complex hierarchy of corporation-to-brand relationships by category and associates social content with brands through a proprietary content analysis engine. Shake is 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 EbylineShake platform is aimed at digital creatives seeking freelance “gig” work. Creators list available “Shakes” on their accounts in the platform and marketers select and purchase creative packages from them through a self-service content marketplacestreamlined chat experience, assisted by ShakeBot - a proprietary, artificial intelligence assistant.
Impact of COVID-19 on our Business
Our operations, sales, and finances were impacted by the COVID-19 pandemic during the nine months ended September 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 and 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 made the decision to continue our work from home policy indefinitely as a virtual first employer.
While we are able to maintain full operations remotely, the economic conditions caused by COVID-19 negatively impacted the business activity of our customers in 2020. We observed changes in advertising decisions, timing, and spending priorities from brand and agency customers, which was originally designedresulted in a negative impact to replace editorial newsrooms located within newspapers withour revenue in 2020.
Following the third quarter of 2020, we have seen a “virtual newsroom”year over year increase in Managed Services bookings, our net orders from customers, in each of the following quarters through the second quarter of 2021. That growth in bookings led to handle their content workflow.a 64% growth in overall revenue in the nine months ended September 30, 2021. While we have seen an increase in Managed Services bookings, there is still risk that bookings will not be recognized as revenue if customers cancel prior to the performance of service.
We will continue to actively monitor the COVID-19 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 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 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 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 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 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 and comprehensive loss. General and administrative expense also includes current period gains and losses on our acquisition costs payable, 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 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 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. For 2021, it also includes gain on the forgiveness of debt.
Results of Operations for the Three Months Ended September 30, 2017 Compared to the Three Months Ended September 30, 20162021 and 2020
Revenues
Historically, we broke out our revenue into categories labeled Sponsored Revenue, Content Revenue and Service Fees. In January 2017, we revised the way we categorize our revenue streams to more closely align the revenue based on margin profiles and how we currently analyze our business. For the revised chart classification by quarterly historical periods in 2015 and 2016, see our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 filed with the SEC on May 10, 2017 and the information set forth under Management's Discussion and Analysis entitled"Results of Operations for the Three Months Ended March 31, 2017 Compared to the Three Months Ended March 31, 2016." Our prior period revenue and cost categories included herein have been reclassified to conform to the current period presentation.
We derive revenue from three sources: revenue from our managed services when a marketer, typically a brand, agency or partner, pays us to provide custom content, influencer marketing or amplification services ("Managed Services"), revenue from the self-service use of our Ebyline platform by news agencies to handle their content workflow from initial content request to payment of content received ("Content Workflow"), and revenue derived from various service and license fees charged to users of our platforms ("Service Fee Revenue").
The following table illustrates our approximate revenue, cost of sales and gross profit by revenue stream for the three months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | | |
| September 30, 2017 | | September 30, 2016 | | $ Change | % Change |
Revenue & % of Total | | | | | | | | |
Managed Services | $ | 6,997,391 |
| 86 | % | | $ | 5,838,139 |
| 78 | % | | $ | 1,159,252 |
| 20 | % |
Content Workflow | 1,141,795 |
| 14 | % | | 1,576,001 |
| 21 | % | | (434,206 | ) | (28 | )% |
Service Fees & Other Revenue | 15,488 |
| — | % | | 82,832 |
| 1 | % | | (67,344 | ) | (81 | )% |
Total Revenue | $ | 8,154,674 |
| 100 | % | | $ | 7,496,972 |
| 100 | % | | $ | 657,702 |
| 9 | % |
| | | | | | | | |
Cost of Sales & % of Total | | | | | | | | |
Managed Services COS | $ | 2,693,803 |
| 72 | % | | $ | 2,464,238 |
| 63 | % | | $ | 229,565 |
| 9 | % |
Content Workflow COS | 1,064,818 |
| 28 | % | | 1,463,041 |
| 37 | % | | (398,223 | ) | (27 | )% |
Service Fees & Other COS | — |
| — | % | | — |
| — | % | | — |
| 100 | % |
Total Cost of Sales | $ | 3,758,621 |
| 100 | % | | $ | 3,927,279 |
| 100 | % | | $ | (168,658 | ) | (4 | )% |
| | | | | | | | |
Gross Profit & Profit % | | | | | | | | |
Managed Services | $ | 4,303,588 |
| 62 | % | | $ | 3,373,901 |
| 58 | % | | $ | 929,687 |
| 28 | % |
Content Workflow | 76,977 |
| 7 | % | | 112,960 |
| 7 | % | | (35,983 | ) | (32 | )% |
Service Fees & Other Revenue | 15,488 |
| 100 | % | | 82,832 |
| 100 | % | | (67,344 | ) | (81 | )% |
Total Gross Profit | $ | 4,396,053 |
| 54 | % | | $ | 3,569,693 |
| 48 | % | | $ | 826,360 |
| 23 | % |
Revenues for the three months ended September 30, 2017 increased by $657,702, or approximately 9%, compared to the same period in 2016. Managed Services revenue increased primarily due to concentrated sales efforts toward larger IZEA-managed campaigns that have components of both custom content and influencer marketing resulting in higher revenue per
salesperson, and repeat business from existing customers. Content Workflow revenue generated from newspaper and traditional publishers through the Ebyline platform on a self-service basis declined compared to the same period in 2016 due to the ongoing consolidation and cutbacks in the newspaper industry. Although revenue from Content Workflow decreased by $434,206, or approximately 28%, in the three months ended September 30, 2017, our gross margin only declined by $35,983, because the margins are fixed at only 7% to 9% with these customers. We expect to see continued declines in Content Workflow revenue up to 35% compared to prior year levels due to the overall decline in this industry. Service Fee revenue decreased in the three months ended September 30, 2017 due to lower licensing fees generated from partners using our platforms.
Our net bookings of $7.9 million for the three months ended September 30, 2017 were 2% higher than the net bookings of $7.7 million for the three months ended September 30, 2016. Net bookings is a measure of sales orders received minus any cancellations or changes in a given period. Management uses net bookings as a leading indicator of future revenue recognition as revenue is typically recognized within 90-120 days of booking, though larger contracts may be recognized over twelve months from the original booking date. Net bookings can be affected by, among other things, cancellations or changes to orders that occur in future periods. Reductions in net bookings or changes in the expected timing of delivery for services due to delays and customer preferences or other considerations may result in fluctuations in expected future revenue.
Cost of Sales and Gross Profit
Our cost of sales is comprised primarily of amounts paid to our content creators to provide custom content or advertising services through the promotion or amplification of sponsored content in a blog post, tweet, click or action.
Cost of sales for the three months ended September 30, 2017 decreased by $168,658, or approximately 4%, compared to the same period in 2016. Cost of sales decreased overall due to the decrease in Content Workflow. However, this decrease was tempered by the increase in costs on Managed Services as a result of the higher revenues generated during the quarter.
Gross profit for the three months ended September 30, 2017 increased by $826,360, or approximately 23%, compared to the same period in 2016. Our gross profit percentage increased nearly 600 basis points in the three months ended September 30, 2017 compared to the same period in 2016. This increase is a result of the increased margins we are receiving on our managed customer content services in 2017. Content Workflow gross margin was consistent at 7% for the three months ended September 30, 2017 and 2016.
The total gross profit increase was primarily attributable to the increase in revenue and contribution margin from our higher margin, Managed Services offset by reduced revenue from our lower margin, Content Workflow. Managed Services contributed approximately 98% to the gross profit during the three months ended September 30, 2017 compared to 95% during the three months ended September 30, 2016. The mix of sales between our higher margin, Managed Services and lower margin, Content Workflow has a significant effect on our overall gross profit percentage.
The following table sets forth a summary of our consolidated statements of operations and comprehensive loss and the change between the periods:
| | | | | | | | | | | | | | | | | | | | |
| | | | |
| Three Months Ended September 30, | | |
| 2021 | | 2020 | | $ Change | % Change |
Revenue | $ | 7,607,546 | | | $ | 4,036,120 | | | $ | 3,571,426 | | 88 | % |
| | | | | | |
Costs and expenses: | | | | | | |
Cost of revenue (exclusive of amortization) | 3,975,532 | | | 1,701,770 | | | 2,273,762 | | 134 | % |
Sales and marketing | 2,240,936 | | | 1,403,037 | | | 837,899 | | 60 | % |
General and administrative | 2,670,785 | | | 1,827,267 | | | 843,518 | | 46 | % |
Depreciation and amortization | 220,453 | | | 372,483 | | | (152,030) | | (41) | % |
Total costs and expenses | 9,107,706 | | | 5,304,557 | | | 3,803,149 | | 72 | % |
Loss from operations | (1,500,160) | | | (1,268,437) | | | (231,723) | | 18 | % |
Other income (expense): | | | | | | |
Interest expense | (1,558) | | | (16,448) | | | 14,890 | | (91) | % |
Other income, net | 20,961 | | | 30,085 | | | (9,124) | | (30) | % |
Total other income (expense), net | 19,403 | | | 13,637 | | | 5,766 | | 42 | % |
Net loss | $ | (1,480,757) | | | $ | (1,254,800) | | | $ | (225,957) | | 18 | % |
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, | | | |
| 2021 | | 2020 | | $ Change | % Change |
Managed Services Revenue | 7,153,517 | | 94 | % | | 3,513,806 | | 87 | % | | $ | 3,639,711 | | 104 | % |
| | | | | | | | |
Marketplace Spend Fees | 89,196 | | 1 | % | | 120,630 | | 3 | % | | (31,434) | | (26) | % |
License Fees | 354,850 | | 5 | % | | 396,549 | | 10 | % | | (41,699) | | (11) | % |
Other Fees | 9,983 | | — | % | | 5,135 | | — | % | | 4,848 | | 94 | % |
SaaS Services Revenue | 454,029 | | 6 | % | | 522,314 | | 13 | % | | (68,285) | | (13) | % |
| | | | | | | | |
Total Revenue | $ | 7,607,546 | | 100 | % | | $ | 4,036,120 | | 100 | % | | $ | 3,571,426 | | 88 | % |
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 and generate Marketplace Spend Fees 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 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, 2021, increased by $3.6 million or 104% to $7.2 million compared to $3.5 million for the same period in 2020, primarily due to increased orders from new and existing customers returning to and expanding their marketing efforts through sponsored social marketing as compared to the prior year period when customers were limiting marketing efforts in light of the COVID-19 uncertainties.
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, BrandGraph, and Shake platforms, along with the license and support fees to access the platform services.
|
| | | | | | | | | | | | | | |
| (Unaudited) | | | | |
| Three Months Ended | | |
| September 30, 2017 | | September 30, 2016 | | $ Change | | % Change |
Revenue | $ | 8,154,674 |
| | $ | 7,496,972 |
| | $ | 657,702 |
| | 9 | % |
Cost of sales | 3,758,621 |
| | 3,927,279 |
| | (168,658 | ) | | (4 | )% |
Gross profit | 4,396,053 |
| | 3,569,693 |
| | 826,360 |
| | 23 | % |
Operating expenses: | | | | | | | |
General and administrative | 2,687,266 |
| | 2,454,555 |
| | 232,711 |
| | 9 | % |
Sales and marketing | 2,342,002 |
| | 2,584,287 |
| | (242,285 | ) | | (9 | )% |
Total operating expenses | 5,029,268 |
| | 5,038,842 |
| | (9,574 | ) | | — | % |
Loss from operations | (633,215 | ) | | (1,469,149 | ) | | 835,934 |
| | 57 | % |
Other income (expense): | | | | | | | |
Interest expense | (15,058 | ) | | (25,511 | ) | | 10,453 |
| | (41 | )% |
Loss on exchange of warrants | — |
| | — |
| | — |
| | 100 | % |
Change in fair value of derivatives, net | 45,160 |
| | (14,705 | ) | | 59,865 |
| | (407 | )% |
Other income (expense), net | 44,308 |
| | (2,238 | ) | | 46,546 |
| | (2,080 | )% |
Total other income (expense), net | 74,410 |
| | (42,454 | ) | | 116,864 |
| | 275 | % |
Net loss | $ | (558,805 | ) | | $ | (1,511,603 | ) | | $ | 952,798 |
| | 63 | % |
Operating Expenses
Operating expenses consist of general and administrative expenses and sales and marketing expenses. Total operating expenses•Marketplace Spend Fees decreased by $31,434 to $89,196 for the three months ended September 30, 20172021 compared to $120,630 for the same period in 2020, primarily as a result lower spend levels from our 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, 2021 to $354,850 compared to $396,549 in the same period of 2020. The decrease in IZEAx license fees was offset by $9,574an increase in subscriptions for BrandGraph and IZEAx Discovery services. Prior to 2021, the subscription fees for BrandGraph and IZEAx Discovery were classified under Other Fees, but these amounts from 2020 have been reclassified under License Fees to conform with their 2021 classification.
•Other Fees revenue increased by $4,848, or approximately 94%, for the three months ended September 30, 2021 compared to the same period in 2016.2020 due to an increase in plan fees assessed on user accounts.
Cost of Revenue
Cost of revenue for the three months ended September 30, 2021 increased by $2,273,762, or approximately 134%, compared to the same period in 2020 primarily as a result of the increase in Managed Services revenue. Cost of revenue as a percentage of revenue increased from 42% in 2020 to 52% in 2021 primarily due to a higher volume of larger customer contracts which generally carry higher overall delivery costs.
Sales and Marketing
Sales and marketing expense for the three months ended September 30, 2021 increased by $837,899, or approximately 60%, compared to the same period in 2020. Advertising and marketing expenses increased $360,000 to further promote brand awareness and improve customer acquisition, satisfaction, and retention. Our payroll and personnel related expenses and stock compensation for sales and marketing personnel increased $368,000 as a result of increased commission and bonus expense due to the increase in customer bookings in the third quarter of 2021. Additionally, we began outsourcing certain sales support functions and adding new software solutions to assist personnel in 2021 resulting in an increase of $25,000 for contractors and $44,000 for software subscriptions.
General and administrative expenses consist primarily of administrative and engineering personnel costs, general operating costs, public company costs, including non-cash stock compensation, acquisition costs, facilities costs, insurance, depreciation, professional fees, and investor relations costs. Administrative
General and administrative expense for the three months ended September 30, 20172021 increased by $232,711$843,518, or approximately 46%, compared to the same period in 2016. We posted a $129,000 increase in fixed personnel costs and in the variable costs related to personnel such as stock based compensation expense, software and subscription costs, communication, travel and supply costs due to higher average salaries and higher bonuses for our administrative and engineering personnel compared to the prior year period.2020. General and administrative expense alsofor the three months ended September 30, 2021 increased by approximately $153,000due to a $685,000 increase in payroll, personnel related expenses, and stock compensation primarily as a result of an increase in annual salaries, and higher bonus and stock compensation expense due to the changeimproved company performance in the third quarter of 2021. Contractor expenses increased $281,000 as we are increasing the number of internal and external engineers working on our acquisition cost liabilitytechnology offerings. These increases were partially offset by decreases in (i) rent expense of $39,000 due to the non-renewal of expiring office facility leases and (ii) non-renewal of investor relations contracts with a savings of $16,000.
Depreciation and Amortization
Depreciation and amortization expense for the three months ended September 30, 2021 decreased by $152,030, or approximately 41%, compared to the same period in 2020.
Depreciation and amortization expense on property and equipment was $33,201 and $34,578 for the three months ended September 30, 2021 and 2020, respectively. Depreciation expense has decreased slightly due to the disposal of aging computer equipment in recent quarters.
Amortization expense was $187,381 and $340,195 for the three months ended September 30, 2021 and 2020, respectively. Amortization expense related to intangible assets acquired in acquisitions was $72,222 and $237,657 for the ZenContentthree months ended September 30, 2021 and 2020, respectively, while amortization expense related to internal use software development costs was $115,159 and $102,538 for the three months ended September 30, 2021 and 2020, respectively. Amortization on our intangible acquisition assets is decreasing due to completion of amortization on certain intangible assets acquired in July 2016 as further discussed below. The increasesprior years while amortization on our internal software costs is increasing due to continued development and the release of BrandGraph and Shake in general and administrative expenses2020.
Other Income (Expense)
Interest expense decreased by $14,890 to $1,558 during the three months ended September 30, 2017 were offset by a $27,000 decrease in contractor and professional fees and a $31,000 decrease in investor relation expenses due2021 compared to the non-renewal of our investor relations firm agreement (effective May 1, 2017).
On July 31, 2016, we purchased all of the outstanding shares of capital stock of ZenContent, Inc. for aggregate consideration up to $4,500,000, consisting of guaranteed payments of $2,000,000 and contingent performance payments up to $2,500,000 based on ZenContent meeting certain revenue targets for each of the three years ending July 31, 2017, 2018 and 2019. These payments are subject to downward adjustment of up to 30% if Brianna DeMike, ZenContent’s co-founder, is terminated by IZEA for cause or if she terminates her employment without good reason. As a result, the Company initially reduced its acquisition cost liability by $300,000 to be accrued as compensation expense over the three-year term rather than allocatedsame period in 2020 due primarily to the purchase price in accordance with ASC 805-10-55-25. Compensation expense added to the guaranteedelimination of amounts owed on our acquisition costs payable and recorded as general and administrative expense was $28,125 and $40,972amortization thereon after July 2019.
The $9,124 increase in other income during the three months ended September 30, 2017 and 2016, respectively. We estimate the fair value of the $2,500,000 of the future contingent performance payments for the ZenContent purchase each quarter using a Monte-Carlo simulation to simulate revenue based on actual results and future projections. Based on this calculation, we determined that the current fair value of the contingent performance payments was $508,444 as of September 30, 2017 compared to $342,861 as of June 30, 2017. As a result of the change in the value, we recorded a $165,583 non-cash increase in general and administrative expense during the three months ended September 30, 2017. Of this amount, $47,583 was allocated to compensation expense and $118,000 was allocated as an increase in the fair value of the contingent performance payments. To the extent that our future estimates in the value of contingent performance payments changes, this will continue to affect our general and administrative expense.
Sales and marketing expenses consist primarily of personnel costs related to employees and consultants who support sales and marketing efforts, promotional and advertising costs, and trade show expenses. Sales and marketing expenses for the three months ended September 30, 2017 decreased by $242,285, or approximately 9%,2021 when compared to the same period in 2016. The decrease in sales and marketing expense was2020 resulted primarily attributable to a $134,000 decrease in public relations, tradeshows and marketing event attendance in 2017 as a resultfrom higher levels of our cost reduction efforts for nearshort term profitability, as well as a $74,000 decrease in salaries and variable costs related to sales and sales support personnel due to a 25% reduction in the number of personnel following our implementation of marketing automation and ongoing performance optimization during 2017.
Other Income (Expense)
Other income (expense) consists primarily of interest expense, loss on exchange of warrants and the change in the fair value of derivatives.
In prior years, we entered into financing transactions that gave rise to derivative liabilities. Additionally, we issue restricted stock that vests over future periods. These financial instruments are carried at fair value in our financial statements. Changes in the fair value of these instruments are required to be recorded in other income (expense) in the period of change. During the three months ended September 30, 2017 and 2016, we recorded income of $45,160 and expense of $15,936, respectively, due to the change in the fair value of our restricted stock as a result of the fluctuation in our stock price between the time of issuance and the time when the stock vested. During the three months ended September 30, 2016, we recorded income of $1,231, related to the change in the fair value of our remaining warrant liability. We have no control over the amount of change in the fair value of our derivative instruments as this is a factor based on fluctuating interest rates and stock prices and other market conditions outside of our control.
The $46,546 change in other income (expense) is primarily the result of currency exchange losses related to our Canadian transactions during the three months ended September 30, 2017.
investments.
Net Loss
Net loss for the three months ended September 30, 20172021 was $558,805, which decreased from$1,480,757, a $225,957 increase compared to the net loss of $1,511,603$1,254,800 for the same period in 2016.2020. The increase in net loss was a result of the changes discussed above.
Results of Operations for the Nine Months Ended September 30, 2021 and 2020
The following table sets forth a summary of our consolidated statements of operations and comprehensive loss and the change between the periods:
| | | | | | | | | | | | | | | | | | | | |
| | | | |
| Nine Months Ended September 30, | | |
| 2021 | | 2020 | | $ Change | % Change |
Revenue | $ | 19,521,917 | | | $ | 11,934,827 | | | $ | 7,587,090 | | 64 | % |
| | | | | | |
Costs and expenses: | | | | | | |
Cost of revenue (exclusive of amortization) | 9,664,543 | | | 5,256,536 | | | 4,408,007 | | 84 | % |
Sales and marketing | 6,622,128 | | | 4,154,871 | | | 2,467,257 | | 59 | % |
General and administrative | 7,865,510 | | | 6,165,597 | | | 1,699,913 | | 28 | % |
Impairment of goodwill | — | | | 4,300,000 | | | (4,300,000) | | (100) | % |
Depreciation and amortization | 949,906 | | | 1,250,859 | | | (300,953) | | (24) | % |
Total costs and expenses | 25,102,087 | | | 21,127,863 | | | 3,974,224 | | 19 | % |
Loss from operations | (5,580,170) | | | (9,193,036) | | | 3,612,866 | | (39) | % |
Other income (expense): | | | | | | |
Interest expense | (24,090) | | | (42,542) | | | 18,452 | | (43) | % |
Other income (expense), net | 2,019,379 | | | 26,175 | | | 1,993,204 | | 7,615 | % |
Total other income (expense), net | 1,995,289 | | | (16,367) | | | 2,011,656 | | (12,291) | % |
Net loss | $ | (3,584,881) | | | $ | (9,209,403) | | | $ | 5,624,522 | | (61) | % |
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, | | | |
| 2021 | | 2020 | | $ Change | % Change |
Managed Services Revenue | $ | 18,139,370 | | 93 | % | | $ | 10,129,210 | | 85 | % | | $ | 8,010,160 | | 79 | % |
| | | | | | | | |
Marketplace Spend Fees | 269,160 | | 1 | % | | 482,817 | | 4 | % | | (213,657) | | (44) | % |
License Fees | 1,082,734 | | 6 | % | | 1,291,002 | | 11 | % | | (208,268) | | (16) | % |
Other Fees | 30,653 | | — | % | | 31,798 | | — | % | | (1,145) | | (4) | % |
SaaS Services Revenue | 1,382,547 | | 7 | % | | 1,805,617 | | 15 | % | | (423,070) | | (23) | % |
Total Revenue | $ | 19,521,917 | | 100 | % | | $ | 11,934,827 | | 100 | % | | $ | 7,587,090 | | 64 | % |
Managed Services revenue during the nine months ended September 30, 2021 increased by $8.0 million or 79% to $18.1 million compared to $10.1 million the same period in 2020, primarily due to increased orders from new and existing customers returning to and expanding their marketing efforts through sponsored social marketing as compared to the prior year period when customers curtailed marketing efforts in light of the COVID-19 uncertainties.
SaaS Services revenue during the nine months ended September 30, 2021 decreased 23% from the same period in 2020, as follows:
•Marketplace Spend Fees decreased by $213,657 for the nine months ended September 30, 2021 when compared with the same period in 2020, primarily as a result of lower spend levels from our marketers and lower average fees assessed on those spends as a result of competitive pricing efforts in IZEAx. Revenue from Marketplace Spend Fees represents the net margins on this business.
•License Fees revenue decreased during the nine months ended September 30, 2021 to $1,082,734 compared to $1,291,002 in the same period of 2020. The decrease was a result of the implementation of a competitive standardized pricing system for all new and renewing IZEAx license fee customers in 2020 that was at a lower price point than the former licensing contracts put in place prior to 2020. The decrease in IZEAx license fees was
offset by an increase in subscriptions for BrandGraph and IZEAx Discovery services. Prior to 2021, the subscription fees for BrandGraph and IZEAx Discovery were classified under Other Fees, but these amounts from 2020 have been reclassified under License Fees to conform with their 2021 classification.
•Other Fees revenue decreased $1,145 for the nine months ended September 30, 2021 compared to the same period in 2020 due to a decrease in the amount of inactivity fees assessed on user accounts.
Cost of Revenue
Cost of revenue for the nine months ended September 30, 2021 increased by $4,408,007, or approximately 84%, compared to the same period in 2020 primarily as a result of the increase in Managed Services revenue. Cost of revenue as a percentage of revenue increased from 44% in 2020 to 50% in 2021 primarily due to a higher volume of larger customer contracts which generally carry higher overall delivery costs.
Sales and Marketing
Sales and marketing expense for the nine months ended September 30, 2021 increased by $2,467,257, or approximately 59%, compared to the same period in 2020. Advertising and marketing expenses increased $1,146,000 as a result of increased spend to increase brand awareness and improve customer acquisition, satisfaction, and retention. Our payroll and personnel related expenses and stock compensation for sales and marketing personnel increased $1,075,000 as a result of increased commission and bonus expense due to the increase in customer bookings year to date of 2021. Additionally, we began outsourcing certain sales support functions and adding new software solutions to assist personnel in 2021 resulting in an increase of $136,000 for contractors and $77,000 for software subscriptions.
General and Administrative
General and administrative expense for the nine months ended September 30, 2021 increased by $1,699,913, or approximately 28%, compared to the same period in 2020. General and administrative expense for the nine months ended September 30, 2021 increased due to a $1,276,000 increase in payroll and personnel related expenses primarily as a result of an increase in annual salaries, and higher bonus and stock compensation expense due to the improved company performance in the first two quarters of 2021. Contractor expenses increased $782,000 as we are increasing the number of internal and external engineers working on our technology offerings. These increases were partially offset by decreases in (i) rent expense of $255,000 due to the non-renewal of expiring office facility leases, (ii) non-renewal of investor relations contracts with a savings of $61,000, and (iii) reduced bad debt expense of $108,000 in 2021 after the outbreak of COVID-19 caused an increase in 2020.
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 discounted cash flow method under the income approach and the guideline transaction method under the market approach, and determined that the carrying value of our Company’s reporting unit 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 nine months ended September 30, 2020.
Depreciation and Amortization
Depreciation and amortization expense for the nine months ended September 30, 2021 decreased by $300,953, or approximately 24%, compared to the same period in 2020.
Depreciation and amortization expense on property and equipment was $98,759 and $102,495 for the nine months ended September 30, 2021 and 2020, respectively. Depreciation expense has decreased slightly due to the disposal of aging computer equipment as well as furniture and fixtures in recent periods.
Amortization expense was $851,147 and $1,148,364 for the nine months ended September 30, 2021 and 2020, respectively. Amortization expense related to intangible assets acquired in acquisitions was $505,556 and $842,637 for the nine months ended September 30, 2021 and 2020, respectively, while amortization expense related to internal use software development costs was $345,591 and $305,727 for the nine months ended September 30, 2021 and 2020, respectively. Amortization on our intangible acquisition assets decreased due to completion of amortization on certain intangible assets
acquired in prior years while amortization on our internal software costs increased due to continued development and the release of new platforms.
Other Income (Expense)
Interest expense decreased by $18,452 to $24,090 during the nine months ended September 30, 2021 compared to the same period in 2020 due primarily to a reduction in our financing arrangements, including the line of credit with Western Alliance Bank, the PPP Loan, and finance charges on insurance premiums.
The increase in other income during the nine months ended September 30, 2021 when compared to the same period in 2020 resulted primarily from the gain on the forgiveness of debt totaling $1,927,220 on the PPP Loan, including the principal amount of $1,905,100 and accrued interest of $22,120.
Net Loss
Net loss for the nine months ended September 30, 2021 was $3,584,881, a $5,624,522 decrease in the net loss of $9,209,403 for the same period in 2020. The decrease in net loss was primarily the result of the increaseimpairment of goodwill recognized in 2020 as well as the debt forgiveness of the PPP Loan in 2021.
Key Metrics
We review information provided by our key financial metrics, Managed Services Bookings, and gross profit contribution as discussed above.
Resultsbillings, to assess the progress of Operations for the Nine Months Ended September 30, 2017 Comparedour business and make decisions on where to allocate our resources. As our business evolves, we may make changes to the Nine Months EndedSeptember 30, 2016key financial metrics that we use to measure our business in future periods.
RevenuesManaged Services Bookings
The following table illustrates our approximate revenue, costManaged Services Bookings is a measure of all sales and gross profit by revenue stream for the nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | |
| September 30, 2017 | | September 30, 2016 | | $ Change | % Change |
Revenue & % of Total | | | | | | | | |
Managed Services | $ | 17,274,314 |
| 81 | % | | $ | 14,741,536 |
| 74 | % | | $ | 2,532,778 |
| 17 | % |
Content Workflow | 3,973,286 |
| 19 | % | | 4,875,237 |
| 25 | % | | (901,951 | ) | (19 | )% |
Service Fees & Other Revenue | 89,801 |
| — | % | | 259,838 |
| 1 | % | | (170,037 | ) | (65 | )% |
Total Revenue | $ | 21,337,401 |
| 100 | % | | $ | 19,876,611 |
| 100 | % | | $ | 1,460,790 |
| 7 | % |
| | | | | | | | |
Cost of Sales & % of Total | | | | | | | | |
Managed Services COS | $ | 6,696,191 |
| 64 | % | | $ | 5,921,107 |
| 57 | % | | $ | 775,084 |
| 13 | % |
Content Workflow COS | 3,700,137 |
| 36 | % | | 4,525,928 |
| 43 | % | | (825,791 | ) | (18 | )% |
Service Fees & Other COS | — |
| — | % | | — |
| — | % | | — |
| 100 | % |
Total Cost of Sales | $ | 10,396,328 |
| 100 | % | | $ | 10,447,035 |
| 100 | % | | $ | (50,707 | ) | — | % |
| | | | | | | | |
Gross Profit & Profit % | | | | | | | | |
Managed Services | $ | 10,578,123 |
| 61 | % | | $ | 8,820,429 |
| 60 | % | | $ | 1,757,694 |
| 20 | % |
Content Workflow | 273,149 |
| 7 | % | | 349,309 |
| 7 | % | | (76,160 | ) | (22 | )% |
Service Fees & Other Revenue | 89,801 |
| 100 | % | | 259,838 |
| 100 | % | | (170,037 | ) | (65 | )% |
Total Gross Profit | $ | 10,941,073 |
| 51 | % | | $ | 9,429,576 |
| 47 | % | | $ | 1,511,497 |
| 16 | % |
Revenues for the nine months ended September 30, 2017increased by $1,460,790,orders received during a time period less any cancellations received, or approximately 7%, compared torefunds given during the same periodtime period. Sales order contracts vary in 2016. Managed Services revenue increased $2,532,778, Content Workflow revenue decreased $901,951complexity with each customer and Service Fee Revenue decreased $170,037 during the nine months ended September 30, 2017 compared to the same period in 2016. Managed Services revenue increased primarily due to concentrated sales efforts toward larger IZEA-managed campaigns that have components of bothrange from custom content and influencerdelivery to integrated marketing resulting in higher revenue per salesperson, and repeat businessservices; our contracts generally run from existing customers. Content Workflow revenue generated from newspaper and traditional publishers through the Ebyline platform on a self-service basis declined compared to the same period in 2016 due to the ongoing consolidation and cutbacks in the newspaper industry. Although revenue from Content Workflow decreased by $901,951, or 19%, in the nineseveral months ended September 30, 2017, our gross margin only declined by $76,160, because the margins are fixed with these customers at only 7% to 9%. We expect to see continued declines in Content Workflow revenuefor smaller contracts up to 35% compared to prior year levels due to the overall decline in this industry. Service Fee revenue decreased in the ninetwelve months ended September 30, 2017 due to lower licensing fees generated from partners using our platforms.
for larger contracts. We estimate thatrecognize revenue from our Managed Services will continue to increase over the prior year, but this increase will be offset by the declines in the self-service Content Workflow revenue noted above. We estimate that total revenue will be between $29-$30 million, with gross margins ranging between 49% to 50% for 2017.
Our net bookings of $22.3 million for the nine months ended September 30, 2017 were higher than the net bookings of $21.9 million for the nine months ended September 30, 2016. This minimal increase is due to a $1.2 million reduction in 2017 bookings from Content Workflow as discussed above.
Cost of Sales and Gross Profit
Our cost of sales is comprised primarily of amounts paid to our content creators to provide custom content or advertising services through the promotion or amplification of sponsored content in a blog post, tweet, click or action.
Cost of sales for the nine months ended September 30, 2017decreased by $50,707 compared to the same period in 2016. Cost of sales decreased due to the decrease in higher cost Content Workflow revenue. However, this decrease was tempered by the increase in costs spentcontracts based on Managed Services as a result of the higher revenues generated during the quarter.
Gross profit for the nine months ended September 30, 2017increased by $1,511,497, or approximately 16%, compared to the same period in 2016. Our gross profit as 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 increasedperiod 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 amount of orders received in one period, even though revenue from 47% forthose orders may be reflected over varying amounts of time. Management uses the nine months ended September 30, 2016Managed Services Bookings metric to 51% for the same period in 2017. plan its operating staff, to identify key customer group trends to enlighten go-to-market activities, and to inform its product development efforts.
The gross margin onfollowing tables set forth our Managed Services for influencer marketing or custom content services was 61%, while the gross margin on Content Workflow was 7% for the nine months ended September 30, 2017. Prior to being acquired by IZEA in 2015, Ebyline generated revenue primarily from newspaper and traditional publishers through their workflow platform on a self-service basis at a fixed 7% to 9% profit. We do not actively sell or market Content Workflow to new customers due to the low margins and challenges facing the newspaper industry. After the acquisition, this revenue stream still contributes a significant portion of our revenue, but we utilize the content creators to promote the sale of custom content to our marketers on a managed basis. These services are sold at comparable margins to our influencer marketing services.
The total gross profit increase was primarily attributable to the increase in revenue and contribution margin from our higher margin, Managed Services versus reduced revenue from our lower margin, Content Workflow. Managed Services contributed approximately 96% to the gross profit during the nine months ended September 30, 2017 compared to 93% during the nine months ended September 30, 2016. The mix of sales between our higher margin, Managed Services and lower margin, Content Workflow has a significant effect on our overall gross profit percentage.
The following table sets forth a summary of our statements of operationsBookings and the change between the periods:
| | | | | | | | | | | | | | | | | | | | |
| | | | |
| Three Months Ended September 30, | | |
| 2021 | | 2020 | | $ Change | % Change |
Managed Services Bookings | $ | 11,290,569 | | | $ | 4,022,528 | | | $ | 7,268,041 | | 181 | % |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | |
| Nine Months Ended September 30, | | |
| 2021 | | 2020 | | $ Change | % Change |
Managed Services Bookings | $ | 28,838,629 | | | $ | 10,698,329 | | | $ | 18,140,300 | | 170 | % |
| | | | | | |
|
| | | | | | | | | | | | | | |
| (Unaudited) | | | | |
| Nine Months Ended | | |
| September 30, 2017 | | September 30, 2016 | | $ Change | | % Change |
Revenue | $ | 21,337,401 |
| | $ | 19,876,611 |
| | $ | 1,460,790 |
| | 7 | % |
Cost of sales | 10,396,328 |
| | 10,447,035 |
| | (50,707 | ) | | — | % |
Gross profit | 10,941,073 |
| | 9,429,576 |
| | 1,511,497 |
| | 16 | % |
Operating expenses: | | | | | | | |
General and administrative | 8,021,420 |
| | 7,559,302 |
| | 462,118 |
| | 6 | % |
Sales and marketing | 7,666,720 |
| | 7,556,664 |
| | 110,056 |
| | 1 | % |
Total operating expenses | 15,688,140 |
| | 15,115,966 |
| | 572,174 |
| | 4 | % |
Loss from operations | (4,747,067 | ) | | (5,686,390 | ) | | 939,323 |
| | 17 | % |
Other income (expense): | | | | | | | |
Interest expense | (45,406 | ) | | (58,261 | ) | | 12,855 |
| | (22 | )% |
Loss on exchange of warrants | — |
| | — |
| | — |
| | 100 | % |
Change in fair value of derivatives, net | 36,122 |
| | 14,568 |
| | 21,554 |
| | 148 | % |
Other income (expense), net | 31,728 |
| | (485 | ) | | 32,213 |
| | (6,642 | )% |
Total other income (expense), net | 22,444 |
| | (44,178 | ) | | 66,622 |
| | 151 | % |
Net loss | $ | (4,724,623 | ) | | $ | (5,730,568 | ) | | $ | 1,005,945 |
| | 18 | % |
Gross Billings by Revenue Type
Operating Expenses
Operating expenses consistCompany management evaluates our operations and makes strategic decisions based, in part, on our key metric of generalgross billings from our two primary types of revenue, Managed Services and administrative expenses and sales and marketing expenses. Total operating expenses forSaaS Services. We define gross billings as the nine months ended September 30, 2017 increased by $572,174, or approximately 4%, compared to the same period in 2016. The increase was primarily attributable to increased personnel costs and additional marketing costs related to our IZEAFest Conference held in February 2017.
General and administrative expenses consist primarily of administrative and engineering personnel costs, general operating costs, public company costs, including non-cash stock compensation, acquisition costs, facilities costs, insurance, depreciation, professional fees, and investor relations costs. General and administrative expense for the nine months ended September 30, 2017 increased by $462,118, or approximately 6%, compared to the same period in 2016. The increase was primarily attributable to a $234,000 increase in base salary and personnel costs and in variable costs related to personnel such as bonuses, stock-based compensation expense, software and subscription costs, communication, travel and supply costs. Our
depreciation and amortization expense increased by $161,000 as a result of additional amortization on the increase in our intangible assets from software costs and the intangibles acquired in the ZenContent acquisition. As further discussed below, the change in our acquisition cost liability related to the ZenContent acquisition in July 2016 contributed $295,000 to the increase in general and administrative expense. The increases in general and administrative expense during the nine months ended September 30, 2017 were partially offset by a $99,000 decrease in contractor fees related to our software platforms and a $91,000 decrease in investor relation expenses due to the non-renewal of our investor relations firm after April 2017 and lower NASDAQ filing fees.
General and administrative expense is affected by the changes in our ZenContent acquisition liability valuation that are allocated to compensation expense each period. On July 31, 2016, we reduced our acquisition cost liability for guaranteed purchase price payments by $300,000 to be accrued as compensation expense over the three-year payment term. The compensation expense recorded as general and administrative expense and accrued to the acquisition cost liability during the nine months ended September 30, 2017 and 2016 was $151,042 and $40,972, respectively. We also determined that the current fairtotal dollar value of the $2,500,000 contingent performance paymentsamounts earned from our customers for the ZenContent was $508,444 asservices we perform or the amounts billed to our SaaS customers for their self-service purchase of September 30, 2017 comparedgoods and services on our platforms. The amounts billed to $324,000 asour SaaS customers are on a cost-plus basis. Gross billings are the amounts of December 31, 2016. As a resultour reported revenue plus the cost of payments we made to third-party creators providing the changecontent or sponsorship services, which are netted against revenue for generally accepted accounting principles in the value, we recorded a $184,444 non-cash expense duringUnited States (“GAAP”) reporting purposes.
Managed Services Gross Billings include the nine months ended September 30, 2017. Of this amount, $122,444 was allocated to compensation expense and $62,000 was allocated as an increase in the fairtotal dollar value of the contingent performance payments. To the extent thatamounts billed to our future estimates in the value of contingent performance payments changes, this will continue to affect our general and administrative expense.
Sales and marketing expenses consist primarily of personnel costs related to employees and consultants who support sales and marketing efforts, promotional and advertising costs, and trade show expenses. Sales and marketing expensescustomers for the nine months ended September 30, 2017 increasedservices 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 the 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 netted by $110,056,our third-party creator costs on those billings in accordance with GAAP.
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 flows. We invoice our customers based on total services performed or approximately 1%, comparedbased on their self-service transactions plus our fee. Then we remit the agreed-upon transaction price to the same periodcreators. 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 2016. 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 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 increase was primarily attributable to a $147,000 increase in personnel costs and related variable costs related to those personnel such as software and subscription costs, communication, travel and supply costs. Although we posted a $361,000 increase in public relations and marketing costs as a resultfollowing tables set forth our gross billings by revenue type, the percentage of our IZEAFest Conference held in February 2017, we decreased public relations and marketing costs more than $377,000 in the second and third quarters of 2017 compared to 2016. This decrease came from the non-renewal of our public relations firm after July 2016 and a decrease in tradeshow attendance and promotional spending as part of our efforts to reduce costs during 2017.
Other Income (Expense)
Other income (expense) consists primarily of interest expensetotal gross billings by type, and the change inbetween the fair valueperiods:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Three Months Ended September 30, | | QTD | QTD |
| 2021 | | 2020 | | $ Change | % Change |
Managed Services Gross Billings | $ | 7,153,517 | | 83 | % | | $ | 3,513,806 | | 64 | % | | $ | 3,639,711 | | 104 | % |
| | | | | | | | |
Marketplace Spend Fees | 1,105,516 | | 13 | % | | 1,605,729 | | 29 | % | | (500,213) | | (31) | % |
License Fees | 354,850 | | 4 | % | | 396,549 | | 7 | % | | (41,699) | | (11) | % |
Other Fees | 9,983 | | — | % | | 5,135 | | — | % | | 4,848 | | 94 | % |
SaaS Services Gross Billings | 1,470,349 | | 17 | % | | 2,007,413 | | 36 | % | | (537,064) | | (27) | % |
| | | | | | | | |
Total Gross Billings | $ | 8,623,866 | | 100 | % | | $ | 5,521,219 | | 100 | % | | $ | 3,102,647 | | 56 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | YTD | YTD |
| 2021 | | 2020 | | $ Change | % Change |
Managed Services Gross Billings | $ | 18,139,370 | | 80% | | $ | 10,129,210 | | 63% | | $ | 8,010,160 | | 79% |
| | | | | | | | |
Marketplace Spend Fees | 3,295,451 | | 15% | | 4,702,383 | | 29% | | (1,406,932) | | (30)% |
License Fees | 1,082,734 | | 5% | | 1,291,002 | | 8% | | (208,268) | | (16)% |
Other Fees | 30,653 | | —% | | 31,798 | | —% | | (1,145) | | (4)% |
SaaS Services Gross Billings | 4,408,838 | | 20% | | 6,025,183 | | 37% | | (1,616,345) | | (27)% |
Total Gross Billings | $ | 22,548,208 | | 100% | | $ | 16,154,393 | | 100% | | $ | 6,393,815 | | 40% |
Interest expense during the nine months ended September 30, 2017decreased by $12,855 to $45,406 compared to the same period in 2016 primarily due to the lower imputed interest on the remaining balance of acquisition costs payable.
In prior years, we entered into financing transactions that gave rise to derivative liabilities. Additionally, we issue restricted stock that vests over future periods. These financial instruments are carried at fair value in our financial statements. Changes in the fair value of derivative financial instruments are required to be recorded in other income (expense) in the period of change. We recorded income of $36,122 and $14,568 resulting from the change in the fair value of certain warrants and restricted stock during the nine months ended September 30, 2017 and 2016, respectively.
The $32,213 change in other income (expense) is primarily the result of currency exchange losses related to our Canadian transactions during the nine months ended September 30, 2017.
Net Loss
Net loss for the nine months ended September 30, 2017 was $4,724,623, which decreased from a net loss of $5,730,568 for the same period in 2016. The decrease in net loss was primarily the result of the increased revenue and profit margins on our Managed Services offset by the increase in personnel expenses as discussed above.
Non-GAAP Financial MeasuresMeasure
Below are financial measures of cash based operating expenses (“Cash Opex”) and Adjusted EBITDA. These areEBITDA
Adjusted EBITDA is a “non-GAAP financial measures” as definedmeasure” under the rules of the Securities and Exchange Commission (the “SEC”).
We define Cash Opex as total operating expenses exclusive of unusual or non-cash expenses such as depreciation and amortization, non-cash stock related compensation, gain or loss on asset disposals or impairment and changes in acquisition cost estimates, and gains or losses on settlement of liabilities, if applicable.
We define Adjusted EBITDA as earnings or loss before interest, taxes, depreciation and amortization, non-cash stock relatedstock-based compensation, gain or loss on asset disposals or impairment, changes in acquisition cost estimates, and allcertain 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 Cash Opex as a percentage of revenue and Adjusted EBITDA as measuresa 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 Cash Opex as a percentage of revenue and Adjusted EBITDA also provideprovides useful information to investors as they exclude transactions not related to our core cash operating business activities, includingit primarily excludes non-cash transactions, and they provideit provides consistency andto facilitate period-to-period comparisons. We believe that excluding these transactions allows investors to meaningfully trend and analyze the performance of our core cash operations.
All companies do not calculate Cash Opex and Adjusted EBITDA in the same manner, and Cash Opex and Adjusted EBITDA as presented by us may not be comparable to Cash Opex and Adjusted EBITDA presented by other companies, which limits theirits usefulness as a comparative measures.
measure. Moreover, Cash Opex and Adjusted EBITDA havehas limitations as an analytical tools,tool, and you should not consider themit in isolation or as a substitute for an analysis of our results of operations as reported under generally accepted accounting principlesGAAP. These limitations are described further in the United States (“GAAP”). These limitations include that Cash Opex“Management’s Discussion and Adjusted EBITDA:
do not include stock-based compensation expense, which has been,Analysis of Financial Condition and will continue to beResults of Operations” section our Annual Report on Form 10-K for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy;fiscal year ended December 31, 2020.
do not include stock issued for payment of services, which is a non-cash expense, but has been, and is expected to be for the foreseeable future, an important means for us to compensate our vendors and other parties who provide us with services;
do not include changes in acquisition cost estimates as a result of the allocation of acquisition costs payable to compensation expense or changes in the estimate of contingent acquisition costs payable, which may or may not ever be paid, but may be a significant recurring expense for our business if we continue to make business acquisitions;
do not include gains or losses on the settlement of acquisition costs payable or liabilities when the stock value, as agreed upon in the agreement, varies from the market price of our stock on the settlement date, which is a non-cash expense, but will continue to be a recurring expense for our business on certain business contracts where the amounts can vary; and
do not include depreciation and intangible assets amortization expense, impairment charges and gains or losses on disposal of equipment, which is not always a current period cash expense, but the assets being depreciated and amortized may have to be replaced in the future.
Furthermore, Adjusted EBITDA excludes changes in fair value of derivatives, interest expense and other gains, losses, and expenses that we do not believe are indicative of our ongoing results, but these items may represent a reduction or increase in cash available to us.
Because of these limitations, Cash Opex should not be considered as a measure of our total operating expenses, and Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the operation and growth of our business or as a measure of cash that will be available to us to meet our obligations. You should compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP financial measures as supplements. In evaluating these non-GAAP financial measures, you should be aware that in the future we may incur expenses similar to those for which adjustments are made in calculating Adjusted EBITDA and Cash Opex. Our presentation of these non-GAAP financial measures should also not be construed to infer that our future results will be unaffected by unusual or non-recurring items.
The following table sets forth a reconciliation from the GAAP measurement of Operating Expenses to our non-GAAP financial measure of Cash Opex and Cash Opex as a percentage of revenue for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Total operating expenses | $ | 5,029,268 |
| | $ | 5,038,842 |
| | $ | 15,688,140 |
| | $ | 15,115,966 |
|
Less: | | | | | | | |
Non-cash stock-based compensation | 182,796 |
| | 170,818 |
| | 509,642 |
| | 576,144 |
|
Non-cash stock issued for payment of services | 60,074 |
| | 34,970 |
| | 143,536 |
| | 107,440 |
|
(Gain) loss on disposal of equipment | (1,775 | ) | | (484 | ) | | (5,462 | ) | | (484 | ) |
(Gain) loss on settlement of acquisition costs payable | — |
| | — |
| | (10,491 | ) | | — |
|
Increase (decrease) in value of acquisition costs payable | 193,708 |
| | 40,972 |
| | 335,486 |
| | 40,972 |
|
Depreciation and amortization | 374,965 |
| | 339,589 |
| | 1,095,831 |
| | 935,063 |
|
Total excluded expenses | 809,768 |
| | 585,865 |
| | 2,068,542 |
| | 1,659,135 |
|
| | | | | | | |
Cash Opex | $ | 4,219,500 |
| | $ | 4,452,977 |
| | $ | 13,619,598 |
| | $ | 13,456,831 |
|
| | | | | | | |
Revenue | $ | 8,154,674 |
| | $ | 7,496,972 |
| | $ | 21,337,401 |
| | $ | 19,876,611 |
|
Cash Opex / Revenue | 52 | % | | 59 | % | | 64 | % | | 68 | % |
The following table sets forth a reconciliation from the GAAP measurement of Net Lossnet loss to our non-GAAP financial measure of Adjusted EBITDA for the three and nine months ended September 30, 20172021 and 2016:2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net loss | $ | (1,480,757) | | | $ | (1,254,800) | | | $ | (3,584,881) | | | $ | (9,209,403) | |
Gain on the forgiveness of debt | — | | | — | | | (1,927,220) | | | — | |
Non-cash stock-based compensation | 229,039 | | | 108,568 | | | 633,219 | | | 356,846 | |
Non-cash stock issued for payment of services | 37,544 | | | 31,250 | | | 109,784 | | | 93,749 | |
Interest expense | 1,558 | | | 16,448 | | | 24,090 | | | 42,542 | |
Depreciation and amortization | 220,453 | | | 372,483 | | | 949,906 | | | 1,250,859 | |
Impairment of goodwill | — | | | — | | | — | | | 4,300,000 | |
Other non-cash items | (13,732) | | | 1,283 | | | (21,522) | | | (22,423) | |
Adjusted EBITDA | $ | (1,005,895) | | | $ | (724,768) | | | $ | (3,816,624) | | | $ | (3,187,830) | |
| | | | | | | |
Revenue | $ | 7,607,546 | | | $ | 4,036,120 | | | $ | 19,521,917 | | | $ | 11,934,827 | |
| | | | | | | |
Adjusted EBITDA as a % of Revenue | (13) | % | | (18) | % | | (20) | % | | (27) | % |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net loss | $ | (558,805 | ) | | $ | (1,511,603 | ) | | $ | (4,724,623 | ) | | $ | (5,730,568 | ) |
Non-cash stock-based compensation | 182,796 |
| | 170,818 |
| | 509,642 |
| | 576,144 |
|
Non-cash stock issued for payment of services | 60,074 |
| | 34,970 |
| | 143,536 |
| | 107,440 |
|
(Gain) loss on disposal of equipment | (1,775 | ) | | (484 | ) | | (5,462 | ) | | (484 | ) |
(Gain) loss on settlement of acquisition costs payable | — |
| | — |
| | (10,491 | ) | | — |
|
Increase (decrease) in value of acquisition costs payable | 193,708 |
| | 40,972 |
| | 335,486 |
| | 40,972 |
|
Depreciation and amortization | 374,965 |
| | 339,589 |
| | 1,095,831 |
| | 935,063 |
|
Interest expense | 15,058 |
| | 25,511 |
| | 45,406 |
| | 58,261 |
|
Change in fair value of derivatives | (45,160 | ) | | 14,705 |
| | (36,122 | ) | | (14,568 | ) |
Adjusted EBITDA | $ | 220,861 |
| | $ | (885,522 | ) | | $ | (2,646,797 | ) | | $ | (4,027,740 | ) |
Although we estimate that operating expenses will increase for the year ending December 31, 2017 as a result of our continued expansion and investment in future growth, we expect that our Cash Opex as a percentage of revenue will decline in future quarters. We estimate that Adjusted EBITDA for the year ending December 31, 2017 will be approximately negative $3.0 million as a result of our continued investment in sales and engineering staff necessary to increase our revenue and support our customers.
Liquidity and Capital Resources
We had cash and cash equivalents of $3,447,998$74,451,857 as of September 30, 20172021 as compared to $5,949,004$33,045,225 as of December 31, 2016, a decrease2020, an increase of $2,501,006$41,406,632, primarily due to net proceeds received from the fundingsale of our common stock, partly offset by operating losses. We have incurred significant net losses and negative cash flow from operations for most periods since our inception in 2006, which has resulted in a total accumulated deficit of $46,534,344$74,219,657 as of September 30, 2017.2021. To date, we have financed our operations through internally generated revenue from operations, and the sale and exercise of our equity securities.securities, and proceeds from the PPP Loan.
Cash used for operating activities was $3,227,788$3,652,080 during the nine months ended September 30, 20172021 and is primarily the result of expenses exceedingoperating losses during the amount of gross margin provided from our revenues. Cashperiod. Net cash used for investing activities was $88,913$4,088 during the nine months ended September 30, 20172021 due to the payment of $93,000 related to the developmentpurchases and sales of our proprietary software and purchases of computer and office equipment for our expanded staff. These payments were offset by a net decrease of $4,000 in leasehold deposits on our California and Canadian space. Cashfixed assets. Net cash provided by financing activities during the nine months ended September 30, 20172021 was $815,695,$45,062,800, which amount consisted primarily of advances receivednet proceeds of approximately $45.5 million from the sale of our line of credit with Western Alliance Bank. We also received cash of $16,232 from employee stock purchases offset by stock issuance costs of $10,913.common stock.
At the Market (ATM) Offering
On June 4, 2020 and January 30, 2015,25, 2021, we purchased all of the outstanding shares of capital stock of Ebyline. The Ebyline Stock Purchase Agreement required a cash payment at closing of $1,200,000, a stock issuance of $250,000 paid on July 30, 2015,entered into ATM Sales Agreements with National Securities Corporation, as sales agent (“National Securities”), pursuant to which we could offer and $1,877,064 paid in cash or stock in two equal installments of $938,532 on the first and second anniversaries of the closing. On January 29, 2016, we issued 114,398sell shares of our common stock through National Securities, by any method deemed to satisfybe an “at the first annual guaranteed paymentmarket offering” as defined in Rule 415 under the Securities Act of $938,532 less $89,7001933, as amended, for aggregate purchase prices of up to $40 million and $35 million, respectively (the “ATM Offerings”). During the nine months ended September 30, 2021, we sold 11,186,084 shares at an average price of $4.16 per share for total gross proceeds of $46,544,688. 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 $74,999,784 in closing related expenses. the ATM Offerings under our shelf registration statement on Form S-3 (File No. 333-238619). The June 2020 and January 2021 Sales Agreements were each terminated following the sale of all shares of common stock available to be sold thereunder.
On January 30, 2017,June 21, 2021, we issued 200,542entered into a third ATM Sales Agreement with National Securities Corporation, as sales agent, pursuant to which we could offer and sell shares of our common stock, from time to satisfy the second and final annual guaranteed payment of $938,532. The Ebyline Stock Purchase Agreement also required contingent performance paymentstime, through National Securities, for aggregate purchase prices up to $5,500,000$100 million by any method deemed to be paid if Ebyline met certain revenue targets in the three years following the closing. None of these targets were met in the first two years following the closing and it is not expected that they will be met in the third year. Therefore, we do not believe that we will be required to make any of the $5,500,000 in contingent performance payments and we currently expect that the total consideration to be paid for the Ebyline acquisition will be $3,327,064.
On July 31, 2016, we purchased all of the outstanding shares of capital stock of ZenContent. Upon closing we paid a cash payment of $400,000 and issued 86,207 shares ofan ATM Offering under our common stock valued at $600,000. The agreement also requires (i) three equal annual installment payments totaling $1,000,000, commencing 12 months following the closing and (ii) contingent performance payments of up to an aggregate of $2,500,000 over the three 12-month periods following the closing, based upon ZenContent achieving certain minimum revenue thresholds. Of these payments, 33% of each such annual installment or contingent performance payment will be in the form of cash and the remainder of such payment will be in the form of either cash or additional shares of our common stock (determined at our option)shelf registration statement on Form S-3 (File No. 333-256078). If we decide to issue stock rather than make cash payments, this may result in the issuance of substantial amount of shares because the number of shares will be determined using the 30 trading-day volume-weighted average closing price of our common stock prior to the payment. On July 31, 2017, we paid $266,898 all in cash for the first annual installment of $333,333 less $66,435 in working capital adjustments.
WeNo sales have a secured credit facility agreement with Western Alliance Bank. Pursuant to this agreement, we may submit requests for funding up to 80% of our eligible accounts receivable up to a maximum credit limit of $5 million. As of September 30, 2017, we had $810,376 outstandingbeen made under this agreement. Assuming that all of our accounts receivable balance was eligible for funding, we had remaining available credit of $3,392,362 under the agreement as of September 30, 2017.2021.
We believePPP Loan
On April 23, 2020, we received a PPP Loan in the principal amount of $1,905,100. On June 18, 2021, we were notified by the Lender that withthe loan had been forgiven by the SBA in full, including accrued interest. The principal amount of $1,905,100 and accrued interest of $22,120 was recorded as a gain on forgiveness of debt in other income (expense) in our currentconsolidated statements of operations and comprehensive loss in June 2021.
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 and our available credit line with Western Alliance Bank,on hand as of September 30, 2021, we willexpect 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 longer than the next twelve months. GivenWhile the volatility in U.S. equity markets and our normal working capital fluctuations, we may seekdisruption caused by COVID-19 is currently expected to raise additional capital at any time to supplement our operating cash flows to the extent we can do so on competitive market terms. In such event, an equity financing may dilute the ownership interestsbe temporary, it is generally outside of our common stockholders.control and there is uncertainty around the duration and the total economic impact. Therefore, this matter could have a further material adverse impact on our business, results of operations, and financial position in future periods.
Off-Balance Sheet Arrangements
As of September 30, 2017, we doWe did not engage in any activities involving variable interest entities or off-balance“off-balance sheet arrangements.arrangements” (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of September 30, 2021.
Critical Accounting Policies and Use of Estimates
The preparation of the accompanying financial statements and related disclosures in conformity with GAAP requires usThere have been no material changes to make judgments, assumptions and estimates that affect the amounts reported in the accompanying financial statements and the accompanying notes. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, tax positions and stock-based compensation. When making these estimates and assumptions, we consider our historical experience, our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The following critical accounting policies are significantly affected by judgments, assumptionsas set forth in Item 7, “Management’s Discussion and estimates usedAnalysis of Financial Condition and Results of Operations,” included in the preparation of the financial statements.
Accounts receivable are customer obligations due under normal trade terms. Uncollectability of accounts receivable is not significant since most customers are bound by contract and are required to fund us for all the costs of an “opportunity,” defined as an order created by a marketer for a creator to develop or share contentour Annual Report on behalf of a marketer. If a portion of the account balance is deemed uncollectible, we will either write-off the amount owed or provide a reserve based on the uncollectible portion of the account. Management determines the collectability of accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions. We have a reserve of $220,000 for doubtful accounts as of September 30, 2017. We believe that this estimate is reasonable, but there can be no assurance that the estimate will not change as a result of a change in economic conditions or business conditions within the industry, the individual customers or our Company. Any adjustments to this account are reflected in the consolidated statements of operations as a general and administrative expense. Bad debt expense was less than 1% of revenueForm 10-K for the three and nine monthsyear ended September 30, 2017 and 2016.
Throughout 2013 and the first quarter of 2014, we developed our new web-based advertising exchange platform, IZEAx. This platform is being utilized both internally and externally to facilitate native advertising campaigns onDecember 31, 2020. For a greater scale. We continue to add new features and additional functionality to this platform each year. These new features will enable IZEAx to facilitate the contracting, workflow, and delivery of direct custom content as well as provide for invoicing, collaborating, and direct payments for our SaaS customers. In accordance with ASC 350-40, Internal Use Software and ASC 985-730, Computer Software Research and Development, research phase costs should be expensed as incurred and development phase costs including direct materials and services, payroll and benefits and interest costs may be capitalized. As a result, we have capitalized $1,578,125 in direct materials, consulting, payroll and benefit costs to software development costs in the consolidated balance sheet as of September 30, 2017. We estimate the useful lifesummary of our softwaresignificant accounting policies, please refer to be 5 years, consistent with the amountNote 1 — Company and Summary of time our legacy platforms were in-service, and we are amortizing the software development costs overSignificant Accounting Policies included in Item 1 of this period.Quarterly Report.
We derive revenue from three sources: Managed Services, Content Workflow, and Service Fee Revenue. Managed Services is when a marketer, typically a brand, agency or partner, contracts IZEA to provide custom content, influencer marketing or amplification services. Content Workflow is derived from the self-service use of our Ebyline platform by news agencies to handle their content workflow from initial content request to payment of content received. Service Fee Revenue is generated when fees are charged to customers primarily related to subscription fees for different levels of service within a platform, licensing fees for white-label use of IZEAx, early cash-out fees if a creator wishes to take proceeds earned for services from their account when the account balance is below certain minimum balance thresholds and inactivity fees for dormant accounts. We recognize revenue at various times depending on the service that is being performed.
For our Managed Services, we enter into an agreement to provide services that may require multiple deliverables in the form of: (a) sponsored social items, such as blogs, tweets, photos or videos shared through social network offerings that provide awareness or advertising buzz regarding the marketer's brand; (b) content promotion, such as click-through advertisements appearing in websites and social media channels and (c) original content items, such as a research or news article, informational material or videos that a publisher or other marketer can use. We may provide one type or a combination of all types of these deliverables including a management fee on a statement of work for a lump sum fee. These deliverables are to be provided over a stated period that may range from one day to one year. Each item is considered delivered once the custom content has been delivered to the customer or once the content is distributed live through a public or social network. Revenue is accounted for separately on each of the deliverables depending on the type of service provided. We recognize revenue related to influencer marketing services after a marketer's sponsored content is posted through IZEAx and shared through a creator's social network for a requisite period of time. The requisite period ranges from 3 days for a tweet to 30 days for a blog, video or other form of content. Management fees from advertising campaigns managed by us are recognized ratably over the term of the campaign which may range from a few days to one year. Revenue related to custom content provided to a
marketer is recognized when the content is delivered to and accepted by the customer. Payment terms are typically 30 days from the invoice date. If we are unable to provide a portion of the services, we may agree with the customer to provide a different type of service or to provide a credit for the value of those services, which may be applied to the existing order or used for future services. The statement of work typically provides for a cancellation fee if the agreement is canceled by the customer prior to our completion of services.
For Content Workflow services, the self-service marketer contracts the creators directly to provide custom content. The Ebyline platform controls the contracting, description of services, acceptance of and payment for the requested content. This service is used primarily by news agencies to control the outsourcing of their content needs. Revenue is recognized when the transaction is completed by the creator and accepted by the marketer.
Service Fee Revenue is recognized immediately when the service is performed or at the time an account becomes dormant or is cashed out. Service Fee Revenue for subscription or licensing fees is recognized straight-line over the term of service.
Marketers who use us to manage their social advertising campaigns or custom content requests may prepay for services or request credit terms. Payments received or billings in advance of completed services are recorded as unearned revenue until earned as described above.
All of our revenues are generated through the rendering of services. We recognize revenue under the general guidelines of Staff Accounting Bulletin Topic 13 A.1, which states that revenue will be recognized when it is realized or realizable and earned. We consider our revenue as generally realized or realizable and earned once (i) persuasive evidence of an arrangement exists, (ii) services have been rendered, (iii) the price to the marketer or customer is fixed (required to be paid at a set amount that is not subject to refund or adjustment) and determinable, and (iv) collectability is reasonably assured. We record revenue on the gross amount earned since we generally are the primary obligor in the arrangement, take on credit risk, establish the pricing and determine the service specifications.
Stock-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite service period. We estimate the fair value of each stock option as of the date of grant using the Black-Scholes pricing model. Options typically vest ratably over four years with one-fourth of options vesting one year from the date of grant and the remaining options vesting monthly, in equal increments over the remaining three-year period and generally have five or ten-year contract lives. We estimate the fair value of our common stock using the closing stock price of our common stock on the date of the grant. We estimate the volatility of our common stock at the date of grant based on the volatility of comparable peer companies that are publicly traded and have had a longer trading history than us. We determine the expected life based on historical experience with similar awards, giving consideration to the contractual terms, vesting schedules and post-vesting forfeitures. We use the risk-free interest rate on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term approximately equal to the expected life of the award. We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. We estimate forfeitures when recognizing compensation expense and this estimate of forfeitures is adjusted over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures are recognized through a cumulative catch-up adjustment, which is recognized in the period of change, and a revised amount of unamortized compensation expense to be recognized in future periods.
The following table shows the number of options granted under our 2011 Equity Incentive Plans and the assumptions used to determine the fair value of those options during the nine months ended September 30, 2017 and 2016:
2011 Equity Incentive Plans - Options Granted |
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Period Ended | | Total Options Granted | | Weighted Average Exercise Price | | Weighted Average Expected Term | | Weighted Average Volatility | | Weighted Average Risk Free Interest Rate | | Weighted Average Grant Date Fair Value |
December 31, 2016 | | 179,998 |
| | $6.16 | | 6.0 years | | 47.95% | | 1.58% | | $2.88 |
September 30, 2017 | | 94,246 |
| | $3.64 | | 6.0 years | | 43.49% | | 1.98% | | $1.28 |
There were outstanding options to purchase 1,011,575 shares with a weighted average exercise price of $6.05 per share, of which options to purchase 683,642 shares were exercisable with a weighted average exercise price of $6.24 per share as of September 30, 2017. The intrinsic value on outstanding options as of September 30, 2017 was $1,354,688. The intrinsic value on exercisable options as of September 30, 2017 was $815,179.
We account for derivative instruments in accordance with ASC 815, Derivatives and Hedging, which requires additional disclosures about the objectives and strategies for using derivative instruments, how the derivative instruments and related hedged items are accounted for, and how the derivative instruments and related hedging items affect the financial statements. We do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms of equity instruments are reviewed to determine whether or not they contain embedded derivative instruments that are required under ASC 815 to be accounted for separately from the host contract, and recorded on the balance sheet at fair value. The fair value of derivative liabilities, if any, is required to be revalued at each reporting date, with corresponding changes in fair value recorded in current period operating results. Pursuant to ASC 815, an evaluation of specifically identified conditions is made to determine whether the fair value of warrants issued is required to be classified as equity or as a derivative liability.
Recent Accounting Pronouncements
See "Note“Note 1. Company and Summary of Significant Accounting Policies,"” under Part I, Item 1 in Part I of this Form 10-Q.Quarterly Report for information on additional recent pronouncements.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
ITEM 4 – CONTROLS AND PROCEDURES
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 officer,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 orof 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 reportQuarterly Report on Form 10-Q for the period ended September 30, 2017,2021, an evaluation was performed under the supervision and with the participation of our management including our Chief Executive Officer ("CEO")principal executive officer and Chief Financial Officer ("CFO")principal financial and accounting officer to determine the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2017.2021. Based on this evaluation, our management concluded that our disclosure controls and procedures were effective as of September 30, 2017designed to provide reasonable assuranceensure that the information required to be disclosed by us in the reports we file or submittedsubmit 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 the Company's CEOour principal executive officer and CFO, as appropriate,principal financial and accounting officer, to allow timely decisions regarding required disclosure.disclosures.
Changes in Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with 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.
During the quarter ended September 30, 2017, thereThere were no significant changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurredduring the fiscal quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II -– OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
From time to time, we may become involved in various other lawsuits and legal proceedings that arise in the ordinary course of our business. Litigation is, however, subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. WeAs of November 10, 2021, we are currently not aware of any legal proceedings or claims that we believe would or could have, individually or in the aggregate, a material adverse effect on us. Regardless of final outcomes, however, any such proceedings or claims may nonetheless impose a significant burden on management and employees and may come with costly defense costs or unfavorable preliminary interim rulings.
ITEM 1A – RISK FACTORS
In addition toYou should carefully consider the information set forthbelow risk factors and those factors discussed under Item 1A of Part I to our Annual Report on Form 10-K for the year ended December 31, 2016,2020 regarding the information set forth at the beginning of Management's Discussion and Analysis entitled "Special Note Regarding Forward-Looking Information," and updates noted below, you should consider that there are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial condition or results of operation may be materially and adversely affected. In such case, the trading price of our common stock could decline, and investors could lose all or part of their investment. These risk factors may not identify all risks that we face, and our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations.
Risks Related to our Business and Industry
We have a history of annual net losses, expect future losses and cannot assure you that we will achieve profitability.
We have incurred significant net losses and negative cash flow from operations for most periods since our inception, which has resulted in a total accumulated deficit of $46,534,344 as of September 30, 2017. For the nine months ended September 30, 2017, we had a net loss of $4,724,623, including a $4,747,067 loss from operations and we expect to incur a net loss for the fiscal year 2017. Although our revenue has increased since inception, we have not achieved profitability and cannot be certain that we will be able to maintain these growth rates or realize sufficient revenue to achieve profitability. If we achieve profitability, we may not be able to sustain it.
If we fail to retain existing customers or add new customers, our revenue and business will be harmed.
We depend on our ability to attract and retain customers that are prepared to offer products or services on compelling terms through IZEAx. Additionally, we rely on customers who purchase direct custom content from our creators in our platforms. We must continue to attract and retain customers in order to increase revenue and achieve profitability. We had no customers that accounted for more than 10% of our revenue and one customer that accounted for 11% of our revenue during the nine months ended September 30, 2017 and 2016, respectively. The loss of customers or a significant reduction in revenue from our major customers could have a material adverse effect on our results of operation. Moreover, if customers do not find our marketing and promotional services effective, they are not satisfied with content they receive, or if they do not believe that utilizing our platforms provides them with a long-term increase in value, revenue or profit, they may stop using our platforms or managed services. In addition, we may experience attrition in our customers in the ordinary course of business resulting from several factors, including losses to competitors, mergers, closures or bankruptcies. If we are unable to attract new customers in numbers sufficient to grow our business, or if too many customers are unwilling to offer products or services with compelling terms to our creators through our platforms or if too many large customers seek extended payment terms, our operating results will be adversely affected.
Risks Relating to our Common Stock
ExerciseThe price of stock options, warrants and other securities will dilute your percentage of ownership and could cause our stock price to fall.
As of November 3, 2017, we had 5,726,336 shares of common stock issued, outstandingin the public markets has experienced, and may in the future experience, extreme volatility due to a variety of factors, many of which are beyond our control.
Since our common stock optionsstarted trading on the Nasdaq Capital Market, it has been relatively thinly traded and at times been subject to purchase 1,009,191price volatility. Recently, our common stock has experienced extreme price and volume volatility. From January 1, 2020 to December 31, 2020, the closing price of our common stock ranged from a low of $0.13 on March 18, 2020 to a high of $2.82 on June 11, 2020, with an average daily trading volume of 6.7 million shares. On January 25, 2021, the price increased to an intraday high of $7.45 per share (a 52-week high) and 25.3 million shares were traded. By comparison, during the three months ended June 30, 2021, the closing price of our common stock averaged $3.28 with an average daily trading volume of 3.7 million shares and, during the three months ended September 30, 2021, the closing price of our common stock averaged $2.19 with an average daily trading volume of 1.0 million shares.
In addition to shares of our common stock, at an average exercise pricethe stock market in general, and the stock prices of $6.03 per share, and outstanding warrants to purchase 516,919 shares of our common stock at an average exercise price of $8.45 per share.
We alsotechnology-based companies in particular, have reserved shares to issue stock options, restricted stock or other awards to purchase or receive up to 441,020 shares of common stock under our May 2011 Equity Incentive Plan and 39,764 shares of common stock under our 2014 Employee Stock Purchase Plan. In the future, we may grant additional stock options, restricted stock units, warrants and convertible securities, as well as issue additional shares of common stock pursuantexperienced volatility that often has been unrelated to the earn-out provisionsoperating performance of theany specific public company. Further, on some occasions, our stock purchase agreements in connection with our Ebyline and ZenContent acquisitions. The exercise, conversionprice may be, or exchange by holders of stock options, restricted stock units, warrants or convertible securities for shares of common stock, and the issuance of new shares pursuantmay be purported to acquisition earn-out provisions, will dilute the percentage ownership of our other stockholders. Sales ofbe, subject to “short squeeze” activity. A “short squeeze” is a substantial number of shares of our common stock could causetechnical market condition that occurs when the price of a stock increases substantially, forcing market participants who had taken a position that its price would fall (i.e. who had sold the stock “short”), to buy it, which in turn may create significant, short-term demand for the stock not for fundamental reasons, but rather due to the need for such market participants to acquire the stock in order to forestall the risk of even greater losses. A “short squeeze” condition in the market for a stock can lead to short-term conditions involving very high volatility and trading that may or may not track fundamental valuation models.
In addition, in the past, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Securities litigation brought against us following volatility in our common stock to fallprice, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our financial condition and could impairoperating results and divert management’s attention and resources from our ability to raise capital by selling additional securities.business.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
NoneThe Company did not sell any unregistered securities during the period covered by this report.
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES
NoneNone.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicableapplicable.
ITEM 5 -– OTHER INFORMATION
NoneNone.
ITEM 6 – EXHIBITS
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31.1Exhibit No. | *Description |
3.1 | | |
3.2 | | |
3.3 | | |
3.4 | | |
3.5 | | |
3.6 | | |
3.7 | | |
3.8 | | |
3.9 | | |
3.10 | | |
3.11 | | |
31.1 | * | |
31.2 | * | |
32.1 | * (a) | |
32.2 | * (a) | |
101 | * (b) | The following materials from IZEA Worldwide, Inc.'s AnnualQuarterly Report on Form 10-Q for the quarter ended September 30, 20172021 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Unaudited Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Operations and Comprehensive Loss, (iii) the Unaudited Consolidated Statement of Stockholders' Equity, (iv) the Unaudited Consolidated Statements of Cash Flow, and (iv) the Notes to the Unaudited Consolidated Financial Statements. |
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* | * Filed or furnished herewith. |
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(a) | In accordance with Item 601of Regulation S-K, this Exhibit is hereby furnished to the SEC as an accompanying document and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933. |
(a) In accordance with Item 601of Regulation S-K, this Exhibit is hereby furnished to the SEC as an accompanying document and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933.
(b) In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| IZEA Worldwide, Inc. a Nevada corporation |
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November 10, 2021 | By: | /s/ Edward H. Murphy |
| | Edward H. Murphy Chairman and Chief Executive Officer (Principal Executive Officer) |
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November 10, 2021 | IZEA, Inc.
a Nevada corporationBy: | /s/ Peter J. Biere |
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November 7, 2017 | By: | /s/ Edward H. Murphy |
| | Edward H. Murphy
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
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November 7, 2017 | By: | /s/ LeAnn C. Hitchcock |
| | LeAnn C. Hitchcock
Peter J. Biere Chief Financial Officer (Principal Financial and Accounting Officer)
|