See accompanying notes to the consolidated financial statements.
5
IZEA Worldwide, Inc.
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended September 30,
2024
2023
Cash flows from operating activities:
Net loss
$
(14,228,997)
$
(5,822,703)
Adjustments to reconcile net loss to net cash used for operating activities:
Adjustment to fair market value of digital assets
(28,414)
—
Depreciation
80,079
72,529
Amortization
589,704
501,709
Impairment of goodwill
4,016,722
—
Deferred tax benefit
(140,699)
—
Stock-based compensation
2,328,356
642,752
Value of stock issued or to be issued for payment of services
229,063
225,012
(Gain)/Loss on disposal of equipment
—
304
Bad debt
—
50,000
Change in fair value of acquisition costs payable
(6,000)
—
Changes in operating assets and liabilities:
Accounts receivable
(1,315,142)
(1,070,231)
Prepaid expenses and other current assets
(927,695)
2,847,209
Accounts payable
(243,355)
(506,590)
Accrued expenses
760,434
(76,482)
Contract liabilities
228,356
(2,543,414)
Net cash used in operating activities
(8,657,588)
(5,679,905)
Cash flows from investing activities:
Acquisitions, net of cash acquired
(203,403)
—
Purchase of short term investments
—
(265,887,875)
Proceeds from investment maturities
18,393,134
284,045,266
Purchase of property and equipment
(56,558)
(99,711)
Proceeds from the sale of digital assets
191,318
—
Capitalization of software development costs
(690,901)
(672,053)
Net cash provided by investing activities
17,633,590
17,385,627
Cash flows from financing activities:
Proceeds from exercise of stock options & ESPP issuances
12,675
7,992
Purchase of treasury stock
(57,571)
(1,019,997)
Payments on shares withheld for statutory taxes
(437,189)
(98,479)
Net cash used in financing activities
(482,085)
(1,110,484)
Effect of exchange rate changes on cash
17,455
—
Net increase in cash and cash equivalents
8,493,917
10,595,238
Cash and cash equivalents, beginning of period
37,446,728
24,600,960
Cash and cash equivalents, end of period
$
45,958,100
$
35,196,198
Supplemental cash flow information:
Interest paid
$
5,654
$
6,208
Non-cash financing and investing activities:
Equipment acquired with financing arrangement
$
—
$
80,843
See accompanying notes to the consolidated financial statements.
6
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
NOTE 1. COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Corporate Information and Nature of Business
IZEA Worldwide, Inc. (together with its wholly-owned subsidiaries, “IZEA” or the “Company”) is a Nevada corporation that was founded in February 2006 under the name PayPerPost, Inc. and became a public company in May 2011. In January 2015, IZEA purchased all of the outstanding shares of capital stock of Ebyline, Inc. (“Ebyline”). In March 2016, the Company formed IZEA Canada, Inc., a wholly-owned subsidiary, incorporated in Ontario, Canada, to operate as a sales and support office for IZEA’s Canadian customers. In July 2016, IZEA purchased all the outstanding shares of capital stock of ZenContent, Inc. (“ZenContent”) and in July 2018, a subsidiary of the Company merged with TapInfluence, Inc. (“TapInfluence”). The ZenContent legal entity was dissolved in December 2017, and Ebyline and TapInfluence were merged into IZEA and the legal entities were dissolved in December 2019 and December 2020, respectively. IZEA purchased all of the outstanding shares of capital stock of Hoozu Holdings, Ltd in December 2023, and completed an asset acquisition from Zuberance, Inc. in December 2023.
The Company helps power the creator economy, by enabling individuals to monetize their content, creativity and influence through global brands and marketers. IZEA compensates these creators for producing unique content, such as long and short-form text, videos, photos, status updates, and illustrations for marketers or distributing such content on behalf of marketers through their websites, blogs, and social media channels.
The Company also provides value through managing custom content workflow, creator search and targeting, bidding, analytics, and payment processing (the “Managed Services”). While the majority of the marketers engage the Company to perform the Managed Services on their behalf, marketers may also access IZEA’s marketplaces to engage creators for influencer marketing campaigns or to produce custom content on a self-service basis by licensing the Company’s technology.
Executive Leadership Transition
On September 6, 2024, the Company entered into separation agreements with Edward H. (Ted) Murphy, Chief Executive Officer and Chairman of the Board of Directors, and Ryan S. Schram, President, Chief Operating Officer, and Director. Under the terms of their respective Separation Agreements, both Mr. Murphy and Mr. Schram resigned their Director positions as of September 6, 2024, and their executive positions effective September 15, 2024. Neither resignation stemmed from any disagreement with the Company's management or Board. Concurrently, the Board appointed Patrick J. Venetucci, a Director on the Board as the new Chief Executive Officer. While assuming this new role, Mr. Venetucci will continue to serve as a Director on the Board.
Cooperation Agreement
On September 6, 2024, IZEA Worldwide, Inc. (the "Company") entered into a cooperation agreement (the “Cooperation Agreement”) with GP Cash Management, Ltd., GP Investments, Ltd., Rodrigo Boscolo, and Antonio Bonchristiano (collectively, the "GP Parties"). As part of this agreement, the Company’s Board of Directors (the “Board”) has appointed Mr. Bonchristiano and Mr. Boscolo as directors, filling the vacancies created by the departures of Ted Murphy and Ryan Schram. Mr. Bonchristiano serves on the Compensation Committee, Nominations and Corporate Governance Committee, and the Strategy and Capital Allocation Committee, and Mr. Boscolo serves on the Strategy and Capital Allocation Committee. Also pursuant to this agreement, the Company has established a Strategy and Capital Allocation Committee and agreed to initiate a search for a gender-diverse director candidate, who will be mutually agreed upon by the incumbent and GP Parties.
Basis of Presentation
The accompanying consolidated balance sheet as of September 30, 2024, the consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023, the consolidated statements of comprehensive loss for the three and nine months ended September 30, 2024 and 2023, the consolidated statements of stockholders' equity for the three and nine months ended September 30, 2024 and 2023, and the consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023 are unaudited but include all adjustments that are, in the opinion of management, necessary for a fair presentation of its financial position at such dates and its results of operations and cash flows for the periods then ended in conformity with generally accepted accounting principles in the United States ("GAAP"). The consolidated balance sheet as of December 31, 2023 has been derived from the audited consolidated financial statements at that date but, in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”), does not include all of the information and notes required by GAAP for complete financial statements. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of results that may be expected for the entire fiscal year. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 31, 2023, included in the Company's Annual Report on Form 10-K filed with the SEC on April 1, 2024.
7
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
Principles of Consolidation
The consolidated financial statements include the accounts of IZEA Worldwide, Inc. and its wholly-owned subsidiaries, subsequent to the subsidiaries’ individual acquisition, merger, or formation dates, as applicable. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less from the date of purchase to be cash equivalents. Deposits made to Company bank accounts are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to a maximum amount of $250,000. The Canada Deposit Insurance Corporation (“CDIC”) insures deposits made to the Company’s bank accounts in Canada up to CAD 100,000. The Australian Financial Claims Scheme insures deposits made to the Company’s accounts in Australia up to AUD $250,000. Deposit balances exceeding this limit were approximately $45.1 million and $36.7 million as of September 30, 2024 and December 31, 2023, respectively.
Investment in Debt Securities
Our investments in debt securities are carried at either amortized cost or fair value. The cost basis is determined by the specific identification method. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are carried at amortized cost and classified as held-to-maturity. Investments in debt securities that are not classified as held-to-maturity are carried at fair value and classified as either trading or available-for-sale. Realized and unrealized gains and losses on trading debt securities as well as realized gains and losses on available-for-sale debt securities are included in net income. Unrealized gains and losses, net of tax, on available-for-sale debt securities are included in our consolidated balance sheet as a component of accumulated other comprehensive income (loss).
Accounts Receivable and Concentration of Credit Risk
The Company’s accounts receivable balance consists of trade receivables, contract assets, and a reserve for doubtful accounts. Trade receivables are customer obligations due under normal trade terms. Contract assets represent amounts owed for work that has been performed but not yet billed. The Company had net trade receivables of $6.5 million, including $6.4 million of accounts receivable and contract assets of $93,584 on September 30, 2024. The Company had net trade receivables of $5.0 million, including $4.9 million of accounts receivable and contract assets of $83,697 at December 31, 2023.
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. An account is deemed delinquent when the customer has not paid an amount due by its associated due date. If a portion of the account balance is deemed uncollectible, the Company will either write off the amount owed or provide a reserve based on its best estimate of the uncollectible portion of the account. We assess collectability risk both generally and by specific aged invoices. Our loss history informs a general reserve percentage, which we apply to all invoices less than 90 days from the invoice due date, currently 1% of the outstanding balance. The general reserve, which we update periodically, recognizes that some invoices will likely become a collection risk. When an invoice ages 90 days past its due date, we consider each invoice to determine a reserve for collectability based on our prior history and recent communications with the customer, to determine a reserve amount. Generally, our reserve for such aged invoices will approach 100% of the invoice amount.
The Company had a reserve for doubtful accounts of $205,000 as of September 30, 2024, and $205,000 as of September 30, 2023. Management believes that this estimate is reasonable, but there can be no assurance that the estimate will not change due to a change in economic or business conditions within the industry, the individual customers, or the Company. Any adjustments to this account are reflected in the consolidated statements of operations as a general and administrative expense. The Company did not recognize any bad debt expense in the three and nine months ended September 30, 2024 and recognized $50,000 in the three and nine months ended September 30, 2023.
Concentrations of credit risk with respect to accounts receivable have been typically limited because a large number of geographically diverse customers make up the Company’s customer base, thus spreading the trade credit risk. The Company controls credit risk through credit approvals, credit limits, and monitoring procedures. The Company performs credit evaluations of its customers but generally does not require collateral to support accounts receivable. The Company had two customers that accounted for more than 10% of total accounts receivable at September 30, 2024 and one customer that
8
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
accounted for more than 10% of total accounts receivable at December 31, 2023. The Company had one customer that accounted for more than 10% of its revenue during the nine months ended September 30, 2024 and two customers that accounted for more than 10% of its revenue during the nine months ended September 30, 2023.
Property and Equipment
Property and equipment are recorded at cost, or if acquired in a business combination, at the acquisition date fair value. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
Computer Equipment
3 years
Office Equipment
3 - 10 years
Furniture and Fixtures
5 - 10 years
The carrying amounts of assets sold or retired and the related accumulated depreciation are eliminated in the year of disposal, with resulting gains or losses included in general and administrative expense in the consolidated statements of operations.
Goodwill
Goodwill represents the excess of the consideration transferred for an acquired business over the fair value of the underlying identifiable net assets. The Company has goodwill in connection with its acquisitions of Ebyline, ZenContent, TapInfluence, and Hoozu. Goodwill is not amortized but instead tested for impairment at least annually. In the event that management determines that the value of goodwill has become impaired, the Company will record a charge in an amount equal to the excess of the reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit during the fiscal quarter in which the determination is made.
Goodwill is required to be tested for impairment at the reporting unit level. A reporting unit is an operating segment or one level below the operating segment level, which is referred to as a component. Management identifies its reporting units by assessing whether components (i) have discrete financial information available, (ii) engage in business activities, and (iii) whether a segment manager regularly reviews the component’s operating results. Prior to the acquisition of Hoozu on December 1, 2023, IZEA had one business operating segment with one reporting unit for purposes of goodwill impairment testing. Hoozu is being treated as a second, separate reporting unit for goodwill impairment testing.
The Company performs its annual impairment tests of goodwill as of October 1 each year, or more frequently if certain indicators are present. In September 2024, the Company identified a triggering event related to the changes in executive management and Board level changes, including the Cooperation Agreement, and performed an interim assessment of Goodwill, as described in “Note 5 Intangible Assets.”
Intangible Assets
The Company acquired the majority of its intangible assets through its acquisitions of Ebyline, ZenContent, TapInfluence, and Hoozu. The Company amortizes identifiable intangible assets over periods of 12 to 60 months. See “Note 5 Intangible Assets” for further details.
The Company accounts for its digital assets held as indefinite-lived intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other. The Company maintains ownership of and control over its digital assets and may use third-party custodial services to secure them. The digital assets are initially recorded at cost and are subsequently evaluated for any changes in the fair market value.
In December 2023, the FASB issued ASU No. 2023-08, Intangibles - Goodwill and Other - Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”). ASU 2023-08 requires fair value measurement of certain crypto assets each reporting period with the changes in fair value reflected in net income. The amendments also require disclosures of the name, fair value, units held, and cost bases for each significant crypto asset held and annual reconciliations of crypto asset holdings. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024, with early adoption permitted. The Company has opted to adopt this guidance early.
A cumulative effect adjustment to retained earnings was recognized as of January 1, 2023 for $7,632. This adjustment brought the carrying value in line with the fair market value as of December 31, 2022. Adjustments were recognized for all quarterly reporting periods for 2023 as of December 31, 2023 to restate the carrying value at the end of each period for the Company’s digital assets, as described in “Note 5 Intangible Assets.”
In September 2024, the Company sold all of its digital assets for total proceeds of $190,170, net of de minimis fees. As of September 30, 2024, the Company no longer held any Bitcoin or Ethereum, as all digital assets were sold during the period.
9
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
The Company did not recognize any impairment of digital assets during the three and nine months ended September 30, 2024, and 2023.
The Company reviews long-lived assets, including software development costs and other intangible assets, for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared with the asset's carrying amount to determine if there has been an impairment, calculated as the difference between the asset’s fair value and the carrying value. Estimates of future undiscounted cash flows are based on expected growth rates for the business, anticipated future economic conditions, and estimates of residual values. Fair values take into consideration management estimates of risk-adjusted discount rates, which are believed to be consistent with assumptions that marketplace participants would use in their estimates of fair value. The Company did not recognize any impairment charges associated with the Company’s acquired intangible assets in the three and nine months ended September 30, 2024 and 2023.
Software Development Costs
In accordance with Accounting Standards Codification (“ASC”) 350-40, Internal Use Software, the Company capitalizes certain internal-use software development costs associated with creating and enhancing internally developed software related to its platforms. Software development activities generally consist of three stages (i) the research and planning stage, (ii) the application and development stage, and (iii) the post-implementation stage. Costs incurred in the research and planning stage and in the post-implementation stage of software development, or other maintenance and development expenses that do not meet the qualification for capitalization, are expensed as incurred. Costs incurred in the application and development stage, including significant enhancements and upgrades, are capitalized. These costs include personnel and related employee benefits expenses for employees or consultants directly associated with and who devote time to software projects and external direct costs of materials obtained in developing the software. The Company also capitalizes certain costs associated with cloud computing arrangements (“CCAs”). These software developments, acquired technology, and CCA costs are amortized on a straight-line basis over the estimated useful life of five years upon the initial release of the software or additional features. The Company reviews the software development costs for impairment when circumstances indicate their carrying amounts may not be recoverable. If the carrying value of an asset group is not recoverable, the Company recognizes an impairment loss for the excess carrying value over the fair value in its consolidated statements of operations. See “Note 6 Software Development Costs” for further details.
Leases
Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), established a right-of-use model that requires a lessee to record a right-of-use asset and a right-of-use liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company does not record leases on the balance sheet that have a lease term of 12 months or less at the commencement date.
Revenue Recognition
The Company generates revenue from four primary sources: (1) revenue from its managed services when a marketer (typically a brand, agency, or partner) pays the Company 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 the Company's platforms (“Marketplace Spend Fees”); (3) revenue from license and subscription fees charged to access ourplatforms (“License Fees”); and, (4) revenue from other fees such as inactivity fees, early cash-out fees, and other miscellaneous fees charged to users of the Company's platforms (“Other Fees”).
The Company recognizes revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, revenue is recognized based on a five-step model as follows: (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) performance obligations are satisfied. The core principle of ASC 606 is that revenue is recognized when the transfer of promised goods or services to customers is made in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are distinct performance obligations.
The Company also determines whether it acts as an agent or a principal for each identified performance obligation. The determination of whether the Company acts as principal or agent is highly subjective and requires the Company to evaluate a number of indicators individually and as a whole in order to make its determination. For transactions in which the Company
10
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
acts as a principal, revenue is reported on a gross basis as the amount paid by the marketer for the purchase of content or sponsorship, promotion, and other related services, and the Company records the amounts it pays to third-party creators as cost of revenue. For transactions in which the Company acts as an agent, revenue is reported on a net basis as the amount the Company charged to the self-service marketer using the Company’s platforms, less the amounts paid to the third-party creators providing the service.
The Company maintains separate arrangements with each marketer and content creator either in the form of a master agreement or terms of service, which specify the terms of the relationship and access to its platforms or by statement of work, which specifies the price and the services to be performed, along with other terms. The transaction price is determined based on the fixed fee stated in the statement of work and does not contain variable consideration. Marketers who contract with the Company to manage their advertising campaigns or custom content requests may prepay for services or request credit terms. Payment terms are typically 30 days from the invoice date. The agreement typically provides for either a non-refundable deposit or a cancellation fee if the agreement is canceled by the customer prior to the completion of services. Billings in advance of completed services are recorded as a contract liability until earned. The Company assesses collectability based on several factors, including the creditworthiness of the customer and payment and transaction history.
The Company does not typically engage in contracts that are longer than one year. Therefore, the Company does not capitalize costs to obtain its customer contracts as these amounts generally would be recognized over a period of less than one year and are not material.
Managed Services Revenue
For Managed Services Revenue, the Company enters into an agreement to provide services that may include multiple distinct performance obligations in the form of (i) an integrated marketing campaign to provide influencer marketing services, which may include the provision of blogs, tweets, photos, or videos shared through social network offerings and content promotion, such as click-through advertisements appearing in websites and social media channels, and (ii) custom content items, such as a research or news articles, informational material or videos. Marketers typically purchase influencer marketing services to provide public awareness or advertising buzz regarding the marketer’s brand and purchase custom content for internal and external use.
The Company views its obligation to deliver influencer marketing services, including management services, as a single performance obligation that is satisfied over time as the customer receives the benefits from the services. The majority of revenue is recognized using an input method of costs incurred compared to total expected costs to measure the progress towards satisfying the overall performance obligation of the marketing campaign. The Company’s performance obligation in certain contracts with customers may be a stand-ready promise to provide influencer marketing services for an unknown or unspecified quantity of deliverables for a specified term. Under a stand-ready obligation, the Company’s performance obligation is satisfied over time throughout the contract term, and therefore, revenue is recognized straight-line over the life of the contract. The Company may provide one type or a combination of all types of these influencer marketing services on a statement of work for a lump sum fee. When multiple types of performance obligations exist in a contract, the Company allocates revenue to each distinct performance obligation at contract inception based on its relative standalone selling price. These performance obligations are to be provided over a period that generally ranges from one day to one year. The delivery of custom content represents a distinct performance obligation that is satisfied at a point in time when each piece of content is delivered to the customer. Based on the Company’s evaluations, revenue from Managed Services is reported on a gross basis because the Company has the primary obligation to fulfill the performance obligations, and it creates, reviews, and controls the services. The Company takes on the risk of payment to any third-party creators, and it establishes the contract price directly with its customers based on the services requested in the statement of work.
Marketplace Spend Fees Revenue
For Marketplace Spend Fees Revenue, the self-service customers instruct creators found through the Company’s platforms to provide and/or distribute custom content for an agreed-upon transaction price. The Company’s platforms control the contracting, description of services, acceptance of, and payment for the requested content. This service is used primarily by news agencies or marketers to control the outsourcing of their content and advertising needs. The Company charges the self-service customer the transaction price plus a fee based on the contract. Revenue is recognized when the transaction is completed by the creator and accepted by the marketer or verified as posted by the system. Based on the Company’s evaluations, this revenue is reported on a net basis since the Company is acting as an agent through its platform for the third-party creator to provide the services or content directly to the self-service customer or to post approved content through one or more social media platforms.
License Fees Revenue
License Fees Revenue is generated by granting customers limited, non-exclusive, non-transferable access to the Company’s technology platforms for an agreed-upon subscription period. Customers access the platforms to manage their
11
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
influencer marketing campaigns. Fees for subscription or licensing services are recognized straight-line over the term of the service.
Other Fees Revenue
Other Fees Revenue is generated when fees are charged to the Company’s platform users primarily related to monthly plan fees, which are recognized within the month they relate to.
Advertising Costs
Advertising costs are charged to expense as they are incurred, including payments to content creators to promote the Company. Advertising costs for the three months ended September 30, 2024 and 2023 were approximately $0.6 million and $0.7 million, respectively. Advertising costs charged to operations for the nine months ended September 30, 2024, and 2023 were approximately $2.1 million and $2.0 million, respectively. Advertising costs are included in sales and marketing expense in the accompanying consolidated statements of operations.
Income Taxes
Deferred income taxes are accounted for using the balance sheet approach, which requires recognition of deferred tax assets and liabilities for the expected future consequences of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized. The Company incurs state franchise tax in ten states, which is included in general and administrative expense in the consolidated statements of operations and comprehensive loss.
The Company identifies and evaluates uncertain tax positions, if any, and recognizes the impact of uncertain tax positions for which there is a less than more likely-than-not probability of the position being upheld when reviewed by the relevant taxing authority. Such positions are deemed to be unrecognized tax benefits, and a corresponding liability is established on the balance sheet. The Company has not recognized a liability for uncertain tax positions. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company’s tax years subject to examination based on the statute of limitations by the IRS is generally three years; however, the IRS may examine records and other evidence from the year the net operating loss was generated when the Company utilizes net operating loss carryforwards in future periods. The Company’s tax years subject to examination by the Canadian Revenue Agency and the Australian Taxation Office is generally four years.
Fair Value of Financial Instruments
The Company’s financial instruments are recorded at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect certain market assumptions. There are three levels of inputs that may be used to measure fair value:
•Level 1 – Valuation based on quoted market prices in active markets for identical assets and liabilities.
•Level 2 – Valuation based on quoted market prices for similar assets and liabilities in active markets.
•Level 3 – Valuation based on unobservable inputs that are supported by little or no market activity, therefore requiring management’s best estimate of what market participants would use as fair value.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management. As of September 30, 2024, the Company holds Level 1 and Level 2 financial assets; this is discussed further in Note 3 - Financial Instruments of Notes to the Consolidated Financial Statements.
Stock-Based Compensation
Stock-based compensation cost related to stock options granted under the 2011 Equity Incentive Plan, as amended, (the “2011 Equity Incentive Plan”), and the IZEA Worldwide, Inc. 2023 Inducement Plan (the “Inducement Plan” (see “Note 10 Stockholder’s Equity”) is measured at the grant date, based on the fair value of the award, and is recognized as expense over the employee’s requisite service period on a straight-line basis. 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 noted in the table below. The Company uses the simplified method to estimate the expected term of employee stock options because it does not believe historical exercise data will provide a reasonable basis for estimating the expected term for the current share options granted. The simplified method assumes that employees will exercise share options evenly between the period when the share options are vested and ending on the date when the options would expire. The Company uses the closing stock price of its common stock on the date of the grant as the associated fair value of its common stock. The Company uses the risk-free interest rate on the
12
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
implied yield currently available on U.S. Treasury issues with an equivalent remaining term approximately equal to the expected life of the award. The Company has never paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future.
The Company estimates 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 Company may issue shares of restricted stock or restricted stock units (“RSUs”) that vest over future periods. The value of shares is recorded as the fair value of the stock or units upon the issuance date and is expensed on a straight-line basis over the vesting period. See “Note 10 Stockholder’s Equity” for additional information related to these shares.
On November 30, 2023, the IZEA Board of Directors adopted the Inducement Plan to accommodate equity grants to new employees hired by IZEA in connection with acquisition transactions, including the Hoozu acquisition. Under the Inducement Plan, IZEA may grant, subject to certain requirements, RSUs, including performance-based and time-based RSUs, covering up to a total of 1,800,000 shares of IZEA common stock to new employees of IZEA or its subsidiaries. See “Note 10 Stockholder’s Equity” for additional information related to shares issued under both plans.
Business Combinations and Asset Acquisitions
The Company accounts for business combinations in accordance with Accounting Standards Codification (ASC) Topic 805, “Business Combinations.” The acquisition method of accounting is applied to all business combinations, whereby the identifiable assets acquired, liabilities assumed, and any non-controlling interests in the acquiree are recognized and measured at their fair values as of the acquisition date. Goodwill represents the excess of the purchase price over the fair value of net identifiable assets acquired and liabilities assumed in a business combination. Goodwill is allocated to reporting units, which are expected to benefit from the synergies of the combination and is subject to annual impairment testing. Acquisition-related costs, including advisory, legal, and due diligence fees, are expensed as incurred and are included in general and administrative expenses in the period in which the acquisition occurs. The financial statements include the results of operations and financial position of businesses acquired from their respective acquisition dates. Any adjustments to the preliminary fair values of assets acquired and liabilities assumed, known as measurement period adjustments, are recorded to the period of the adjustment.
Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Credit Losses: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 replaces the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. In May 2019, the FASB issued ASU 2019-05, which provides transition relief for entities adopting ASU 2016-13. For entities that have adopted ASU 2016-13, the amendments in ASU 2019-05 are effective for fiscal years beginning after December 15, 2019, including interim periods therein. An entity may early adopt ASU No. 2019-05 in any interim period after its issuance if the entity has adopted ASU 2016-13. For all other entities, the effective date will be the same as the effective date of ASU 2016-13. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Effective January 1, 2023, the Company adopted this standard. At present, the exposure to credit losses is considered immaterial to the Company’s financial position.
Accounting for Contract Assets and Contract Liabilities from Contracts with Customers: In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). Under ASU 2021-08, an acquirer in a business combination must apply ASC 606 principles when recognizing and measuring acquired contract assets and contract liabilities. The provisions of ASU 2021-08 are applicable for the Company for fiscal years and interim periods beginning after December 15, 2022. As of September 30, 2024, the Company has ensured that acquired businesses contract assets and contract liabilities have been accounted for in accordance with ASC 2021-08.
Accounting for and Disclosure of Crypto Assets: In December 2023, the FASB issued ASU No. 2023-08, Intangibles - Goodwill and Other - Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”). ASU 2023-08 requires fair value measurement of certain crypto assets each reporting period with the changes in fair value reflected in net income. The amendments also require disclosures of the name, fair value, units held, and cost bases for each significant crypto asset held and annual reconciliations of crypto asset holdings. The new guidance is effective for fiscal years,
13
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
and interim periods within those fiscal years, beginning after December 15, 2024, with early adoption permitted. The Company has opted to early adopt this guidance. A cumulative-effect adjustment to retained earnings was booked as of January 1, 2023 for $7,632. Interim periods and annual periods for 2022 and 2023 have been presented with the change reflected in fair market value. Expanded disclosures for crypto assets have been added to Note 5 - Intangible Assets.
Recently Issued Accounting Pronouncements Not Yet Adopted
Segment Reporting: Improvements to Reportable Segment Disclosures: In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improving Reportable Segment Disclosures. This update is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The ASU also requires all annual disclosures currently required by Topic 280 to be included in the interim periods. The update is effective for fiscal years beginning after December 15, 2023, and interim periods within the fiscal years beginning after December 15, 2024, with early adoption permitted and requiring retrospective application to all prior periods presented in the financial statements. The Company is currently assessing the timing and impact of adopting the updated provisions.
Income Taxes: Improvements to Income Tax Disclosures: In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires additional disclosures of income tax components that affect the rate reconciliation and income taxes paid, broken out by the applicable taxing jurisdictions. The Company expects to adopt this ASU for the annual period beginning on January 1, 2025, and does not expect a material impact on the consolidated financial statements.
NOTE 2. BUSINESS ACQUISITIONS
Hoozu Holdings, LTD.
On December 1, 2023, the Company completed the announced acquisition of Hoozu Holdings, LTD (now Hoozu Holdings Pty Ltd.)(“Hoozu”) from Hoozu investors. Hoozu is a leading Australian influencer marketing company headquartered in Sydney. The company serves a roster of the region’s most innovative brands, including Bunnings, Emma Sleep, Super Cheap Auto, and Ryobi. In addition to its core services, Hoozu’s talent management division, called Huume, represents creators in the Australian market. The net purchase price was approximately $2.5 million, including cash consideration of $0.6 million and 726,210 shares of common stock, valued at approximately $1.7 million at the acquisition date, based on the closing market share price on the acquisition date. Approximately $150,000 of transaction-related costs are separately recorded in general and administrative costs in the accompanying consolidated statement of operations for the year ended December 31, 2023. The Company accounted for the acquisition in accordance with ASC 805, which requires the assets acquired and liabilities assumed to be recognized on the balance sheet at their fair values as of the acquisition date.
Gross Purchase Consideration
12/1/2023
Cash paid at closing
$
595,411
Stock issued at closing
1,746,535
First deferred purchase price installment (1)
114,400
Second deferred purchase price installment (1)
60,600
Total estimated consideration
$
2,516,946
(1)The Company’s acquisition of Hoozu on December 1, 2023, included four equal contingent cash consideration payments totaling $396,940, with twelve-month measurement periods ending December 31, 2024 and 2025. The contingent payments are based on meeting minimum Revenue and Adjusted Earnings before Taxes and Depreciation thresholds for each measurement period. The contingent payments are hit-or-miss, with the first measurement period payments carrying a make-up provision during the second measurement period. The Company determined the fair value of these contingent payments, using Monte Carlo simulation methods, to be $175,000 at the acquisition date, subject to periodic adjustment until both measurement periods are completed. During the quarter that ended June 30, 2024, the Company determined that based upon the lag behind Hoozu’s revenue and profitability growth, achieving the deferred purchase price targets for both 2024 and 2025 is not probable and accordingly reduced these installment balances to their expected payout value. The Company affirmed its probability assessment as of September 30, 2024.
The table below presents the fair values on December 1, 2023, allocated to the assets acquired and liabilities assumed. The purchase accounting and purchase price allocation for Hoozu are complete. The fair values are presented in the following table:
14
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
Provisional Fair Value
12/1/2023
Accounts receivable
$
419,336
Prepaid expenses
15,750
Property and equipment, net
9,033
Intangible assets
Tradename
668,000
Customer list
935,000
Goodwill
1,265,155
Deferred tax liability
(400,750)
Accounts payable
(718,515)
Current liabilities
(930,655)
Purchase consideration, excluding cash received
$
1,262,354
Plus: cash received
1,254,592
Total purchase consideration
$
2,516,946
Accounts receivable shown in the table above represent their gross amount, which approximates the fair value, and are expected to be collected in full. The significant fair value estimates included in the allocation of purchase price are discussed below.
The Company has determined that the fair value is $0 as of September 30, 2024. This valuation reflects substantial adverse changes in Hoozu’s financial condition and projected outlook, resulting in a complete reduction of its recorded value.
Other Intangible Assets
Other intangible assets with definite lives include acquired customer relationships of $0.9 million and tradename of $0.7 million. The preliminary customer-related intangible assets’ fair value was determined by using the income approach, while the tradename fair value was determined utilizing the relief from the royalty method. Acquired customer relationships and tradename generally have useful lives of 10 years, unless shorter periods are warranted, and are amortized to operating costs on an accelerated basis.
Goodwill
The excess of consideration for Hoozu over the preliminary net fair value of assets acquired and liabilities assumed resulted in the provisional recognition of $1.3 million of goodwill, which is not deductible for tax purposes. Goodwill is primarily attributable to the assembled workforce and synergies.
Contingent Liability
Contingent liability purchase price installments, which total $396,940 based on meeting certain revenue and EBITDA milestones for 2024 and 2025, were recorded at their fair value of $175,000 at the acquisition date. The contingent liability value is subject to periodic adjustment until both measurement dates are completed. No adjustment was recorded in December 2023.
As of June 30, 2024, the Company reassessed the fair value of the contingent performance-based consideration related to the earnout provision of the acquisition of Hoozu. Based on actual performance to date, and revised projections of Hoozu’s business performance, it was determined that the contingent milestones were no longer probable of being achieved. Consequently, the contingent liability was adjusted to the expected payout value, resulting in a gain of $175,000 recognized as a reduction to general and administrative expense in the consolidated statements of income. This adjustment reflects our updated expectation of future performance and aligns with the requirements of ASC 805, which expectations were affirmed as of September 30, 2024.
Privatization of Hoozu Holdings, Ltd
On March 27, 2024, Hoozu Holdings, Ltd was privatized and restructured to become Hoozu Holdings Pty, Ltd. This administrative change reflects a desire to streamline financial operations.
15
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
26 Talent
On July 1, 2024, the Company, through its subsidiary Hoozu, completed the acquisition of 26 Talent, in connection with the Company’s strategic expansion efforts in Asia-Pacific (APAC) region. 26 Talent is a talent management agency. Consideration for the acquisition consisted of cash of $150,000 and contingent consideration totaling up to $120,000, with twelve-month measurement periods ending July 31, 2025, and 2026. The contingent payments are based on meeting minimum Revenue thresholds for each measurement period. The contingent payments are hit-or-miss. The Company accounted for the acquisition in accordance with ASC 805, which requires the assets acquired and liabilities to be assumed to be recognized on the balance sheet at their fair market value as of the acquisition date.
Gross Purchase Considerations
07/1/2024
Cash paid at closing
$
150,000
First deferred purchase price installment(1)
38,000
Second deferred purchase price installment(1)
48,000
Total estimated consideration
$
236,000
(1)The Company’s acquisition of 26 Talent on July 1, 2024, included two equal contingent cash consideration payments totaling up to $120,000, with twelve-month measurement periods ending July 31, 2025 and 2026. The contingent payments are based on meeting minimum Revenue and Adjusted Earnings before Taxes and Deprecation thresholds for each measurement period. The contingent payments are hit-or-miss. The Company determined the fair value of these contingent payments, using Monte Carlo simulation methods, to be $86,000 at the acquisition date, subject to periodic adjustment until both measurement periods are complete.
The table below presents the provisional fair values on July 1, 2024, allocated to the assets acquired and liabilities assumed. The purchase accounting and purchase price allocation for 26 Talent are provisional. The fair values are presented in the following table:
Preliminary Purchase Price Allocation
Accounts receivable
$
146,857
Prepaid expenses
8,480
Customer list
162,575
Accounts payable
(14,590)
Current liabilities
(159,716)
Purchase consideration, excluding cash received
$
143,606
Plus cash received
92,394
Total purchase consideration
$
236,000
Accounts receivable shown in the above table represent their gross amount, which approximates the fair value, and are expected to be collected in full. The significant fair value estimates included in the provisional allocation of purchase price are discussed below.
Other Intangible Assets
Other intangible assets with definite lives include acquired customer relationships of $0.2 million. The preliminary customer-related intangible assets’ fair value was determined by using the income approach. Acquired customer relationships generally have useful lives of 10 years, unless shorter periods are warranted, and are amortized to operating costs on an accelerated basis.
Contingent Liability
Contingent liability purchase price installments, which total $120,000 based on meeting certain revenue and EBITDA milestones for 2025 and 2026, were recorded at their fair value of $86,000 at the acquisition date. The contingent liability value is subject to periodic adjustment until both measurement dates are completed. The fair value of the contingent liability value was increased to $92,000 in the three months ended September 30, 2024.
16
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
Zuberance
On December 1, 2023, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Zuberance, Inc., a Delaware corporation (“Zuberance”). Zuberance is a pioneering advocate marketing software platform. Zuberance provides marketers with the tools to build white-label communities of their customers and influencers while engaging these communities to serve as advocates for their brand, leading to low-cost content creation. The net purchase price was $18,400 in cash consideration, allocated to the fair value of assets acquired and liabilities assumed, as shown in the following table:
Estimated Fair Value
Intangibles-customer relationships
$
162,725
Current liabilities
(58,138)
Deferred revenue
(86,187)
Total purchase price
$
18,400
The customer-related intangible assets’ fair value was determined by using the income approach, has an estimated useful life of 5 years, and will be amortized to operating expenses on an accelerated basis.
Other
On July 24, 2024 the Company entered into an agreement with The Reiman Agency (“TRA”) and subsequently terminated this agreement, effective September 30, 2024.All consideration paid to TRA upon closing will be returned, and the inducement grant issued in connection with Mr. Reiman’s employment was forfeited, including a termination fee. The operating results of TRA, which are immaterial, are included in the Company’s operating results for the quarter ended September 30, 2024.
NOTE 3. FINANCIAL INSTRUMENTS
Cash, Cash Equivalents, and Marketable Securities (Available for Sale)
The Company has engaged a third party registered investment advisor and appointed a leading national bank for custody services with respect to investment securities. Investments comply with the Company’s revised investment strategy policy, designed to preserve capital, minimize investment risks, and maximize returns.
The following table shows the Company’s cash, cash equivalents, and marketable securities by significant investment category as of September 30, 2024:
Adjusted Cost
Unrealized Gains
Unrealized Losses
Fair Value
Cash and Cash Equivalents
Current Marketable Securities (1)
Cash and cash equivalents
$
4,869,228
$
—
$
—
$
4,869,228
$
4,869,228
$
—
Level 1 (2)
Commercial paper
—
—
—
—
—
Money market funds
41,088,872
—
—
41,088,872
41,088,872
—
US Treasury securities
1,009,767
—
(8,670)
1,001,097
—
1,001,097
Subtotal
42,098,639
—
(8,670)
42,089,969
41,088,872
1,001,097
Level 2 (3)
Asset back securities
1,245,068
15,828
(257)
1,260,639
—
1,260,639
Corporate debt securities
6,179,346
—
(21,830)
6,157,516
—
6,157,516
Subtotal
7,424,414
15,828
(22,087)
7,418,155
—
7,418,155
Total
$
54,392,281
$
15,828
$
(30,757)
$
54,377,352
$
45,958,100
$
8,419,252
(1) Current Marketable Securities have a holding period under one year.
(2) Level 1 fair value estimates are based on quoted prices in active markets for identical assets and liabilities.
(3) Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets and liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities.
17
IZEA Worldwide, Inc.
Notes to the Consolidated Financial Statements
The Company records the fair value of cash equivalents and marketable securities on the balance sheet. The adjusted cost, which includes unrealized gains and losses, reflects settlement amounts if all investments are held to maturity. The Company recognized a gain of $1,802 and a loss of $3,257 for the three and nine months ended September 30, 2024, and recognized gains of $0 and $104 for the three and nine months ended September 30, 2023, respectively. Realized gains and losses are a component of other income (expense), net. Unrealized gains and losses are a component of other comprehensive income (loss) (“OCI”).
The following table summarizes the estimated fair value of investments in marketable debt securities by stated contractual maturity dates:
As of September 30, 2024
As of December 31, 2023
Due in 1 year or less
$
8,419,252
$
17,126,057
Due in 1 year through 5 years
—
9,618,996
Total
$
8,419,252
$
26,745,053
The following table presents fair values and net unrealized gains (losses) recorded to OCI, aggregated by investment category:
September 30, 2024
December 31, 2023
Fair Value
Net Unrealized Gain (Loss)
Fair Value
Net Unrealized Gain (Loss)
Cash and cash equivalents
$
45,958,100
$
—
$
37,446,728
$
—
Government bonds
1,001,097
(8,670)
6,939,713
(79,840)
Corporate debt securities
6,157,516
(21,830)
16,196,931
(124,431)
Asset backed securities
1,260,639
15,571
3,608,409
(46,320)
Total
$
54,377,352
$
(14,929)
$
64,191,781
$
(250,591)
During the three and nine months ended September 30, 2024, the Company did not recognize any credit losses and had no ending allowance balance for credit losses.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30, 2024
December 31, 2023
Furniture and fixtures
$
29,848
$
29,848
Office equipment
8,506
8,506
Computer equipment
290,934
281,950
Total
329,288
320,304
Less accumulated depreciation
(192,365)
(114,927)
Property and equipment, net
$
136,923
$
205,377
Depreciation expense on property and equipment recorded in depreciation and amortization expense in the consolidated statements of operations and comprehensive loss was $26,821 and $26,583 for the three months ended September 30, 2024 and 2023, respectively, and was $80,079 and $72,529 for the nine months ended September 30, 2024 and 2023, respectively.
NOTE 5. INTANGIBLE ASSETS
Definite Lived Intangible Assets
Definite lived intangible assets, net of amortization as of September 30, 2024 and December 31, 2023 totaled $1.7 million and $1.7 million, respectively.
18
September 30, 2024
December 31, 2023
Balance
Accumulated Amortization
Net Book Value
Balance
Accumulated Amortization
Net Book Value
Useful Life in years
Trade names
$
668,169
$
74,925
$
593,244
$
668,000
$
5,567
$
662,433
10
Customer lists
Hoozu
935,234
106,794
828,440
935,000
7,791
927,209
10
Zuberance
162,508
36,113
126,395
162,508
2,709
159,799
5
26 Talent
109,619
2,740
106,879
—
—
—
10.0
Total definite-lived intangible assets
$
1,875,530
$
220,572
$
1,654,958
$
1,765,508
$
16,067
$
1,749,441
Total intangible assets from the Company’s acquisitions and other acquired assets net of accumulated amortization thereon consists of the following:
September 30, 2024
December 31, 2023
Hoozu intangible assets
$
1,603,403
$
1,603,000
Zuberance intangible assets
162,508
162,508
26 Talent intangible assets
109,619
—
Total
$
1,875,530
$
1,765,508
Less accumulated amortization
(220,572)
(16,067)
Intangible assets, net
$
1,654,958
$
1,749,441
As of September 30, 2024, future estimated amortization expense related to identifiable assets is set forth in the following schedule:
Future Amortization of Intangible Assets
Amount
Remainder of 2024
80,402
2025
271,827
2026
246,576
2027
221,324
2028
196,073
2029+
638,756
Total
$
1,654,958
There were no impairment charges associated with the Company’s identifiable intangible assets, other than digital assets, in the nine months ended September 30, 2024, and 2023.
Amortization expense recorded in depreciation and amortization in the accompanying consolidated statements of operations and comprehensive loss was $203,728 and $0 for the nine months ended September 30, 2024 and 2023, respectively.
Digital Assets
In September 2024, the Company sold all of its digital assets for total proceeds of $190,170, net of de minimis fees.
As of September 30, 2024, the Company no longer held any Bitcoin or Ethereum, as all digital assets were sold during the period. The Company recorded a loss of $51,703 and a gain $28,412 for the three and nine months ended September 30, 2024, respectively.
The Company determines the fair value of its digital assets on a recurring basis in accordance with ASU 2023-8, Accounting for and Disclosure of Crypto Assets, based on quoted prices on the active exchange(s) that has been determined to be the principal market for such assets (Level 1 inputs). The Company performs an analysis monthly to identify whether the fair market value of the digital assets has changed. If the then-current carrying value of a digital asset is different from the fair value so determined, an adjustment in the amount equal to the difference between their carrying value and the price determined is recognized.
19
Gains and losses on digital assets are recognized within other income in the consolidated statements of operations and comprehensive loss in the period in which the change to fair market value is identified. In determining the gain to be recognized upon sale, the Company calculates the difference between the sales price and carrying value of the digital assets sold immediately prior to sale.
Goodwill
The Company’s goodwill balance changed as follows:
Amount
Balance on December 31, 2022
$
4,016,722
Acquisitions during 2023
1,265,155
Currency translation adjustment
$
(1,505)
Balance on December 31, 2023
$
5,280,372
Impairment of goodwill
(4,016,722)
Currency translation adjustment
(313)
Balance on September 30, 2024
$
1,263,337
The Company completed its acquisition of Hoozu on December 1, 2023. While Hoozu’s business is reported together with our Managed Services business, it will be treated as a separate component for Goodwill impairment testing.
The Company performs an annual impairment assessment of goodwill on October 1 each year or more frequently, if certain indicators are present. In September 2024, the Company identified a triggering event related to the changes in executive management and Board level changes, including the Cooperation Agreement. The Company performed an interim assessment of goodwill using the income approach of the discounted cash flow method and the market approach of the guideline transaction method and determined that the carrying value of the Company’s IZEA reporting segment as of September 30, 2024, exceeded the fair value. As a result of the valuation, the Company recorded a $4 million impairment of goodwill in the three and nine months ended September 30, 2024. The Company also performed a qualitative assessment of the carrying value of its Hoozu reporting unit, which did not indicate impairment as of September 30, 2024.
NOTE 6. SOFTWARE DEVELOPMENT COSTS
Software development costs consist of the following:
September 30, 2024
December 31, 2023
Software development costs
$
6,081,303
$
5,390,403
Less accumulated amortization
(3,719,407)
(3,333,431)
Software development costs, net
$
2,361,896
$
2,056,972
In 2022, the Company began developing two new web-based influencer marketing platforms, IZEA Flex and Marketplace,to replace IZEAx and Shake, respectively. IZEAx was sunset in mid-2023, and Shake was sunset in Q4 of 2022. The Company capitalized software development costs of $253,749 and $690,901 during the three and nine months ended September 30, 2024, respectively. The Company capitalized software development costs of $234,176 and $672,053 during the three and nine months ended September 30, 2023, respectively. As a result, the Company has capitalized a total of $6.1 million in direct materials, consulting, payroll, and benefit costs to its internal-use software development costs in the consolidated balance sheet as of September 30, 2024.
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 useful life of five years, which is consistent with the amount of time its legacy platforms were in service, or its actual useful life, if shorter. The Company recorded amortization expense associated with its capitalized software development cost of $133,290 and $90,961 during the three months ended September 30, 2024 and 2023, respectively. The Company recorded amortization expense associated with its capitalized software development cost of $385,976 and $501,708 during the nine months ended September 30, 2024 and 2023, respectively.
20
As of September 30, 2024, future estimated amortization expense related to software development costs is set forth in the following schedule:
Software Development Amortization Expense
2024
132,693
2025
616,287
2026
610,539
2027
576,503
2028
307,476
2029
118,398
Total
$
2,361,896
NOTE 7. ACCRUED EXPENSES
Accrued expenses consist of the following:
September 30, 2024
December 31, 2023
Accrued payroll liabilities
$
2,227,765
$
2,153,617
Accrued taxes
175,629
253,677
Current portion of finance obligation
59,386
59,386
Accrued other
1,611,700
(1)
616,780
Total accrued expenses
$
4,074,480
$
3,083,460
(1) During the quarter ended September 30, 2024, the Company announced the departure of two executives. In accordance with their separation agreements and the payments they are entitled to receive, a severance amount of $825,000 was accrued.
NOTE 8. NOTES PAYABLE
Finance Obligation
The Company pays for its laptop computer equipment through long-term payment plans, using an imputed interest rate of 8%, based on its incremental borrowing rate, to determine the present value of its financial obligation and to record interest expense over the term of the plan. The Company refreshed a portion of its computer inventory during the fourth quarter of 2022, entering a new three-year payment plan with the same vendor. The total balance owed was $78,267 and $122,805 as of September 30, 2024 and December 31, 2023, respectively, with the short-term portion of $59,386 and $59,386 recorded under accrued expenses in the consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively.
Summary
Interest expense on financing arrangements recorded in the Company’s consolidated statements of operations was $5,654 and $6,373 during the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, the future contractual maturities of the Company’s long-term payment obligations by year are set forth in the following schedule:
2024
$
14,847
2025
56,683
2026
6,737
Total
$
78,267
NOTE 9. COMMITMENTS AND CONTINGENCIES
Deferred Purchase Price
The Company’s acquisition of Hoozu on December 1, 2023 included four equal contingent cash consideration payments totaling $396,940, with twelve-month measurement periods ending December 31, 2024 and 2025. The contingent payments are based on meeting minimum Revenue and Adjusted Earnings before Taxes and Depreciation thresholds for each
measurement period. The contingent payments are hit-or-miss, with the first measurement period payments carrying a make-up provision during the second measurement period. The Company determined the initial fair value of these contingent payments to be $175,000, subject to quarterly adjustment until both measurement periods are completed.
As of June 30, 2024, the Company reassessed the fair value of the contingent performance-based consideration related to the earnout provision of the acquisition of Hoozu. Based on actual performance to date, and revised projections of Hoozu’s business performance, it was determined that achieving the contingent milestones was no longer probable. Consequently, the contingent liability was written off, resulting in a gain of $175,000 recognized as a reduction to general and administrative expense in the consolidated statements of income. This adjustment reflects our updated expectation of future performance and aligns with the requirements of ASC 805. The fair value will continue to be subject to quarterly assessment until the completion of both measurement periods.
The Company’s acquisition of 26 Talent through its subsidiary Hoozu on July 1, 2024, included two equal contingent cash consideration payments totaling $120,000, with twelve-month measurement periods ending July 31, 2025, and 2026. The contingent payments are based on meeting minimum Revenue thresholds for each measurement period. The contingent payments are hit-or-miss. The Company determined the fair value of these contingent payments to be $86,000 at the acquisition date, subject to periodic adjustment until both measurement periods are completed. On September 30, 2024, the accreted fair value of the earnout payments was $92,000.
Lease Commitments
The Company does not have any operating or finance leases greater than 12 months in duration as of September 30, 2024.
Retirement Plans
The Company offers a 401(k) plan to all of its eligible employees. The Company matches participant contributions in an amount equal to 50% of each participant’s contribution up to 8% of the participant’s salary. The participants become vested in 20% annual increments after two years of service, or fully vest upon the age of 60. Total expense for employer matching contributions during the three and nine months ended September 30, 2024 and 2023 was recorded in the Company’s consolidated statements of operations as follows:
Three Months Ended
Nine Months Ended
September 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
Cost of revenue
$
18,741
$
16,752
$
60,941
$
61,028
Sales and marketing
28,713
18,384
88,943
51,800
General and administrative
38,397
39,136
130,999
116,963
Total contribution expense
$
85,851
$
74,272
$
280,883
$
229,791
Litigation
From time to time, the Company may become involved in lawsuits and various other legal proceedings that arise in the ordinary course of its business. Litigation is, however, subject to inherent uncertainties, and an adverse result in any such litigation that may arise from time to time that may harm the Company’s business. The Company is currently not party to any legal proceedings or claims that it believes would or could have, individually or in the aggregate, a material adverse effect on the Company.
NOTE 10. STOCKHOLDERS’ EQUITY
Authorized Shares
The Company has 50,000,000 authorized shares of common stock and 10,000,000 authorized shares of preferred stock, each with a par value of $0.0001 per share. 500,000 shares of preferred stock are designated as Series A Junior Participating Preferred Stock.
Share Repurchase
On March 30, 2023, the Company announced that its Board of Directors had authorized a $1.0 million share repurchase program of the Company’s common stock.
During the repurchase program, the Company purchased 365,855 shares of the Company’s common stock on the open market with an average price per share of $1.23, for a total of $1.0 million. Shares purchased before June 16, 2023 have been
21
adjusted for the reverse stock split. Repurchased shares have the status of treasury shares and may be issued, if and when needed, for general corporate purposes. The repurchase program was completed in August 2023.
On June 28, 2024, the Company announced that its Board of Directors had authorized a $10.0 million share repurchase program of the Company’s common stock. The repurchase program is subject to market conditions and the Company’s inside trading windows. As of September 30, 2024, 21,983 shares had been repurchased under the program with an average price per share of $2.5955, for a total of $57,057.
On September 30, 2024, the Company entered into an agreement adopted under the safe harbor provided by Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The agreement, which assists the Company in implementing its stock repurchase programs, provides for the purchase of up to $9.9 million, the remaining amount under its $10.0 million share repurchase program. Purchases may commence on November 1, 2024, and terminate on the earliest of May 15, 2025, until the aggregate number of shares are repurchased or upon certain other events. Purchases will be made from time to time, depending on market conditions, in open market or privately negotiated transactions, at prices deemed appropriate by management.
Equity Incentive Plan
The Company’s stockholders approved an amendment and restatement of the 2011 Equity Incentive Plan at the Company’s 2023 Annual Meeting of Stockholders held on October 17, 2023, to increase the number of plan shares by 1,800,000 shares, from 1,875,000 to 3,675,000 shares. As of September 30, 2024, the Company had 354,775 remaining shares of common stock available for issuance pursuant to future grants under the 2011 Equity Incentive Plan.
Restricted Stock
Under the 2011 Equity Incentive Plan, the Board determines the terms and conditions of each restricted stock issuance, including any future vesting restrictions.
In 2023, the Company issued its five independent directors a total of 131,520 shares of restricted common stock initially valued at $300,015 for their annual service as directors of the Company. The stock was granted in installments on the last day of each quarter and vested immediately.
In the three and nine months ended September 30, 2024, the Company issued its seven independent directors a total of 28,748 and 93,133 shares of restricted common stock, respectively, with an aggregate grant date valuation of $229,063 for their service as directors of the Company. Approximately $75,000 worth of shares are granted on the last day of each quarter and vest immediately.
The following table contains summarized information about restricted stock issued during the year ended December 31, 2023 and the nine months ended September 30, 2024:
Restricted Stock
Common Shares
Weighted Average Grant Date Fair Value
Weighted Average Remaining Years to Vest
Nonvested at December 31, 2022
72
$
5.36
0.3
Granted
131,520
2.28
Vested
(131,592)
2.28
Nonvested at December 31, 2023
—
$
—
0.0
Granted
93,133
2.46
Vested
(93,133)
2.46
Nonvested at September 30, 2024
—
$
—
0.0
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 such time as the restricted stock vests.
Expense recognized on restricted stock issued to directors for services was $79,057 and $75,003 during the three months ended September 30, 2024, and 2023, respectively and $229,063 and $225,012 during the nine months ended September 30, 2024, and 2023, respectively. There was no expense recognized on restricted stock issued to employees during the three months ended September 30, 2024, and 2023, respectively and $0 and $376 during the nine months ended September 30, 2024, and 2023, respectively.
22
On September 30, 2024, the fair value of the Company’s common stock was approximately $2.75 per share and the intrinsic value on the non-vested restricted stock was $0. Future compensation expense related to issued, but non-vested, restricted stock awards as of September 30, 2024, is $0.
Restricted Stock Units
The Board determines the terms and conditions of each restricted stock unit award issued under the 2011 Equity Incentive Plan.
During the nine months ended September 30, 2024, the Company issued a total of 804,800 restricted stock units initially valued at $1,843,989 to non-executive employees as additional incentive compensation. The restricted stock units vest between 12 and 36 months from issuance.
During the nine months ended September 30, 2024, the Company issued a total of 822,860 restricted stock units initially valued at $1,821,588 to executives as additional incentive compensation. The restricted stock units vest between 12 and 48 months from issuance.
The following table contains summarized information about restricted stock units during the year ended December 31, 2023 and the nine months ended September 30, 2024:
Restricted Stock Units
Common Shares
Weighted Average Grant Date Fair Value
Weighted Average Remaining Years to Vest
Nonvested at December 31, 2022
329,070
$
3.79
2.5
Granted
870,191
2.38
Vested
(163,085)
3.55
Forfeited
(73,327)
3.18
Nonvested at December 31, 2023
962,849
$
2.60
2.5
Granted
1,627,660
2.25
Vested(1)
(790,560)
2.54
Forfeited
(282,798)
2.41
Nonvested at September 30, 2024
1,517,151
$
2.29
1.4
(1) During the quarter ended September 30, 2024, the Company announced the departure of two executives. In accordance with their separation agreements, all outstanding equity awards, including stock options and restricted stock units (RSUs), held by the departing executives vested immediately upon separation, resulting in the vesting of 523,683 RSUs.
Expense recognized on restricted stock units issued to employees was $1,502,854 and $183,665 during the three months ended September 30, 2024 and 2023, respectively and $2,153,453 and $464,964 during the nine months ended September 30, 2024 and 2023, respectively. On September 30, 2024, the fair value of the Company’s common stock was approximately $2.75 per share and the intrinsic value on the non-vested restricted units was $4,172,165. Future compensation related to the non-vested restricted stock units as of September 30, 2024 is $3,042,415 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 Plan, 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 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 at the time of grant, the exercise 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 option typically vests on a straight-line basis over the requisite service period as follows: 25% one year from the date of grant with the remaining vesting monthly in equal increments over the following three years. The Company issues new shares for any stock awards or options exercised under its 2011 Equity Incentive Plan.
A summary of option activity under the 2011 Equity Incentive Plan during the year ended December 31, 2023, and the nine months ended September 30, 2024, is presented below:
23
Options Outstanding
Common Shares
Weighted Average Exercise Price
Weighted Average Remaining Life (Years)
Outstanding at December 31, 2022
415,562
$
11.31
5.3
Exercised
(586)
0.96
Expired
(71,013)
19.99
Forfeited
(362)
7.75
Outstanding at December 31, 2023
343,601
$
9.53
5.2
Exercised
(6,040)
1.23
Expired
(483)
7.11
Forfeited
(517)
9.19
Outstanding at September 30, 2024
336,561
$
9.54
0.6
Exercisable at September 30, 2024
334,535
$
9.67
0.6
During the nine months ended September 30, 2024, 6,040 options were exercised for gross proceeds of $13,482. The intrinsic value of the exercised options was $7,974. During the nine months ended September 30, 2023, 0 options were exercised for gross proceeds of $0. The intrinsic value of the exercised options was $0. The fair value of the Company's common stock on September 30, 2024 was approximately $2.75 per share, and the intrinsic value on outstanding options as of September 30, 2024 was $91,849. The intrinsic value of the exercisable options as of September 30, 2024 was $91,849.
A summary of the nonvested stock option activity under the 2011 Equity Incentive Plan during the year ended December 31, 2023, and the nine months ended September 30, 2024, is presented below:
Nonvested Options
Common Shares
Weighted Average Grant Date Fair Value
Weighted Average Remaining Years to Vest
Nonvested at December 31, 2022
72,474
$
5.80
1.7
Vested
(31,474)
9.53
Forfeited
(14,627)
19.99
Nonvested at December 31, 2023
26,373
$
8.83
1.1
Vested
(23,830)
9.69
Forfeited
(517)
9.19
Nonvested at September 30, 2024
2,026
$
9.69
0.6
There were outstanding options to purchase 336,561 shareswith a weighted average exercise price of $9.54 per share, of which options to purchase 334,535 shares were exercisable with a weighted average exercise price of $9.67 per share as of September 30, 2024.
Expense recognized on stock options issued to employees during the nine months ended September 30, 2024 and 2023 was $171,897 and $172,773, respectively and $75,418 and $53,649 for the three months ended September 30, 2024 and 2023, respectively. Future compensation related to non-vested awards as of September 30, 2024 is $17,481, and it is estimated to be recognized over the weighted-average vesting period of approximately 0.6 years.
No stock options were granted under the 2011 Equity Incentive Plan in the nine months ended September 30, 2024 and 2023.
Inducement Plan
On November 30, 2023, the Board of Directors adopted the IZEA Worldwide, Inc. 2023 Inducement Plan (the “Inducement Plan”) to accommodate equity grants to new employees hired by IZEA in connection with acquisition transactions, including the Hoozu acquisition. Under the Inducement Plan, IZEA may grant restricted stock units (“RSUs”), including performance-based and time-based RSUs, with respect to up to a total of 1,800,000 shares of IZEA common stock to new employees of IZEA or its subsidiaries. Pursuant to Rule 5635(c)(4) of the NASDAQ Listing Rules, the Inducement Plan was adopted without stockholder approval. In accordance with Rule 5635(c)(4) of the NASDAQ Listing Rules, awards under the Inducement Plan can only be made to individuals not previously employees or non-employee directors of IZEA (or
24
following such individuals’ bona fide period of non-employment with IZEA), as an inducement material to the individuals’ entry into employment with IZEA or in connection with a merger or acquisition, to the extent permitted by Rule 5635(c)(3) of the NASDAQ Listing Rules.
On December 1, 2023, the Board approved the grant of inducement awards under the Inducement Plan to five employees of Hoozu consisting of an aggregate of 328,354 performance-based RSUs as inducement awards material to such employees’ entering into employment with IZEA, pursuant to Rule 5635(c)(4) of the NASDAQ Listing Rules. The RSU grants, which vest in annual increments over a three-year performance period based upon the achievement of certain revenue and profitability metrics, represent the maximum number of shares that can be earned under the awards. Vesting is also subject to the receipt’s continued service through each annual vesting date. Unearned RSUs will be forfeited if the minimum revenue in each period is not achieved. Each award is subject to the terms and conditions of the Inducement Plan and the terms and conditions of the applicable RSU award agreement covering the grant.
Separately, on December 1, 2023, the IZEA Board approved the grant of an inducement award under the Inducement Plan in connection with the asset purchase from Zuberance consisting of 10,000 time-based RSUs as an inducement award material to such employee’s entering into employment with IZEA.
On May 3, 2024, a total of 91,209 inducement shares, originally awarded on December 1, 2023, were forfeited as a result of an individual’s voluntary separation from the Company.
On July 24, 2024, the Board of Directors of IZEA approved a grant of 169,357 time-based RSUs under the Inducement Plan. This grant is intended as an inducement for the employee to join IZEA in connection with the acquisition of TRA.
On September 30, 2024 the grant of 169,357 time-based RSUs was rescinded due to the exit of TRA from IZEA Worldwide, Inc.
As of September 30, 2024, an aggregate of 247,145 performance-based and time-based RSU awards have been granted in conjunction with our acquisitions, none of which have vested.
Time-Based
Performance Based
Total
Granted
179,355
318,354
497,709
Forfeited
(179,355)
(91,209)
(270,564)
Non-Vested
—
227,145
227,145
Employee Stock Purchase Plan
The amended and restated IZEA Worldwide, Inc. 2014 Employee Stock Purchase Plan (the “ESPP”) provides for the issuance of up to 125,000 shares of the Company’s common stock to 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). The ESPP operates in successive six-month periods commencing at the beginning of each fiscal year half. 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 2,000 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 day of the offering period or (ii) 85% of the fair market value of a share of common stock on the last day of the offering period. The ESPP will continue until January 1, 2028, unless otherwise terminated by the Board.
The stock compensation expense on ESPP Options was $965 and $2,039 for the three months ended September 30, 2024, and 2023, respectively. The stock compensation expense on ESPP options was $3,006 and $4,638 for the nine months ended September 30, 2024, and 2023, respectively. As of September 30, 2024, there were 77,931 remaining shares of common stock available for future issuance under the ESPP.
Shareholder Rights Plan
On May 28, 2024, the Board of Directors declared a dividend to the holders of the Company’s common stock outstanding at the close of business on June 7, 2024 (the “Record Date”) of one preferred share purchase right (a “Right”) for each share of common stock. Each Right initially entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.001 per share (the “Preferred Shares”), at a price of $8.25 per one one-thousandth of a Preferred Share (the “Purchase Price”), subject to adjustment. The description and terms of the Rights are set forth in a rights agreement (the “Rights Agreement”), dated May 28, 2024 between the Company and Broadridge Corporate Issuer Solutions, LLC, as rights agent (the “Rights Agent”).
Initially, the Rights are attached to all common stock certificates outstanding as of the Record Date, and evidenced by such shares being registered in the name of the holder thereof together with the Summary of Rights (as defined in the Rights
25
Agreement), and no separate certificates evidencing the Rights (“Right Certificates”) will be issued. The Rights Agreement provides that, until the Distribution Date (as defined below), or earlier expiration or redemption of the Rights, (i) the Rights will be transferred with and only with the common stock, (ii) new common share certificates issued after the Record Date or upon transfer or new issuance of common stock will contain a legend incorporating the Rights Agreement by reference, and (iii) the surrender for transfer of any certificates for common stock outstanding as of the Record Date, even without such legend or a copy of the Summary of Rights, will also constitute the transfer of the Rights associated with the common stock represented by such certificate.
The Rights would separate and begin trading separately from the common stock, and Right Certificates will be caused to evidence the rights on the earlier to occur of (i) the close of business on the tenth (10th) business day after a public announcement that a person or group of affiliated or associated persons (with certain exceptions noted below, an “Acquiring Person”) has acquired beneficial ownership of 15% or more of the outstanding common stock and (ii) the close of business on the tenth (10th) business day after the commencement by any person of, or of the first public announcement of the intention of any person to commence, a tender or exchange offer the consummation of which would result in such person becoming the beneficial owner of 15% or more of the outstanding shares of common stock (the earlier of such dates being called the “Distribution Date”). As soon as practicable following the Distribution Date, separate certificates evidencing the Rights (the “Rights Certificates”) will be mailed to holders of record of common stock as of the close of business on the Distribution Date and such separate Rights Certificates alone will evidence the Rights.
“Acquiring Person” shall not include (i) any person who became an “Acquiring Person” as a result of the events described in (i) through (v) of Section 1 of the Rights Agreement, (ii) any Excluded Persons or Grandfathered Persons, each as defined under the Rights Agreement and (iii) any Exempt Persons (as defined below).
The Rights are not exercisable until the Distribution Date. The Rights will expire at the earliest of (i) the close of business on May 28, 2025 or such later date as may be established by the Board of the Company prior to the expiration of the Rights, (ii) the time at which the Rights are redeemed or exchanged by the Company, and (iii) upon the occurrence of certain transactions.
This description of the Rights Agreement herein does not purport to be complete and is qualified in its entirety by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on May 28, 2024.
Summary of Stock-Based Compensation
The 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 as disclosed in “Note 1 Company and Summary of Significant Accounting Policies.” 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, 2024 and 2023 was recorded in the Company’s consolidated statements of operations as follows:
Three Months Ended
Nine Months Ended
September 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
Cost of revenue
82,608
$
24,202
191,053
$
59,457
Sales and marketing
50,567
44,761
171,774
92,352
General and administrative(1)
1,446,061
170,390
1,965,529
490,943
Total stock-based compensation
$
1,579,236
$
239,353
$
2,328,356
$
642,752
(1) During the quarter ended September 30, 2024, the Company announced the departure of two executives. In accordance with their separation agreements, all outstanding equity awards, including stock options and restricted stock units (RSUs), held by the departing executives vested immediately upon separation, resulting in an additional $1.1 million in stock expense being recognized.
26
Accumulated Other Comprehensive Income (Loss)
We recognize activity in other comprehensive income (loss) for unrealized gains and losses on securities and foreign currency translation adjustments. The activity in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2024, and 2023, respectively, was as follows:
Three Months Ended September 30, 2024
Three Months Ended September 30, 2023
Unrealized Gain (Loss) on Securities
Currency Translation Adjustment
Total Accumulated Other Comprehensive Income (Loss)
Unrealized Gain (Loss) on Securities
Currency Translation Adjustment
Total Accumulated Other Comprehensive Income (Loss)
Balance at June 30
$
(99,784)
$
(12,302)
$
(112,086)
$
(644,515)
$
—
$
(644,515)
Other comprehensive income (loss)
84,855
(94,195)
(9,340)
131,198
—
131,198
Balance at September 30
$
(14,929)
$
(106,497)
$
(121,426)
$
(513,317)
$
—
$
(513,317)
Nine Months Ended September 30, 2024
Nine Months Ended September 30, 2023
Unrealized Gain (Loss) on Securities
Currency Translation Adjustment
Total Accumulated Other Comprehensive Income (Loss)
Unrealized Gain (Loss) on Securities
Currency Translation Adjustment
Total Accumulated Other Comprehensive Income
Balance at December 31
$
(250,591)
$
—
$
(250,591)
$
(780,795)
$
—
$
(780,795)
Other comprehensive income (loss)
235,662
(106,497)
129,165
267,478
—
267,478
Balance at September 30
$
(14,929)
$
(106,497)
$
(121,426)
$
(513,317)
$
—
$
(513,317)
NOTE 11. 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 the weighted-average number of shares of common stock outstanding until the stock vests. Diluted loss 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.
Three Months Ended
Nine Months Ended
September 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
Net loss
$
(8,768,319)
$
(1,982,938)
$
(14,228,997)
$
(5,822,703)
Weighted average shares outstanding - basic and diluted
16,956,497
15,463,334
17,024,645
15,525,636
Basic and diluted loss per common share
$
(0.52)
$
(0.13)
$
(0.84)
$
(0.38)
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, 2024
September 30, 2023
September 30, 2024
September 30, 2023
Stock options
336,561
344,401
336,561
310,815
Restricted stock units
1,693,080
590,250
1,498,841
461,615
Restricted stock
—
—
—
—
Total excluded shares
2,029,641
934,651
1,835,402
772,430
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NOTE 12. REVENUE
The Company has consistently applied its accounting policies with respect to revenue to all periods presented in the consolidated financial statements contained herein. The following table illustrates the Company’s revenue by product service type:
Three Months Ended
Nine Months Ended
September 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
Managed Services Revenue
$
8,625,924
$
7,837,725
$
24,172,929
$
26,958,860
SaaS Services Revenue
205,870
57,176
705,564
362,822
Total Revenue
$
8,831,794
$
7,894,901
$
24,878,493
$
27,321,682
Managed Services revenue is comprised of two types of revenue, Sponsored Social and Content. Sponsored Social revenue, which totaled $7.6 million and $20.8 million for the three and nine months ended September 30, 2024, respectively, is recognized over time. Content revenue, which totaled $1.0 million and $3.4 million during the three and nine months ended September 30, 2024, respectively, is recognized at a point in time.
The following table provides the Company’s revenues as determined by customer geographic region:
Three Months Ended
Nine Months Ended
September 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
Revenue from North America
$
7,534,435
$
7,030,759
$
20,561,879
$
25,202,585
Revenue from APAC
1,203,702
—
3,343,124
—
Revenue from Other
93,657
864,142
973,490
2,119,097
Total
$
8,831,794
$
7,894,901
$
24,878,493
$
27,321,682
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, 2024
December 31, 2023
Accounts receivable, net
$
6,488,379
$
5,012,373
Contract liabilities (unearned revenue)
9,119,560
8,891,205
The Company does not typically engage in contracts that are longer than one year. Therefore, the Company will recognize substantially all of the contract liabilities recorded at the end of the year in the following year. The contract liability balance as of December 31, 2023 was $8.9 million. Of that balance, $8.0 million was carried to revenue during the first three quarters of 2024. The contract liability balance as of September 30, 2024 was $9.1 million. The Company expects to recognize the associated revenue during the next twelve months. The accounts receivable balance as of December 31, 2023 was $6.6 million. $0.2 million of the outstanding receivables balance from the prior year is still outstanding as of September 30, 2024. The carryforward receivables balance is fully reserved as of September 30, 2024.
Contract receivables are recognized when the receipt of consideration is unconditional. Contract liabilities relate to the consideration received from 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 receiving new advance payments from customers and decrease as revenue is recognized upon the Company meeting the performance obligations. As a practical expedient, the Company expenses the costs of sales commissions that are paid to its sales force associated with obtaining contracts less than one year in length in the period incurred.
Remaining Performance Obligations
Due to most of the Company’s contracts being one year or less in length. As such, the remaining performance obligations at September 30, 2024 and December 31, 2023, are equal to the contract liabilities disclosed above. The Company expects to recognize the full balance of the unearned revenue on September 30, 2024 within the next year.
28
NOTE 13. INCOME TAX
The provision for income taxes for interim periods is determined using an estimated annual effective tax rate in accordance with ASC 740-270, Income Taxes, Interim Reporting. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax position, if any, and changes in or the interpretation of tax laws in jurisdictions where the Company conducts business.
The Company’s income tax expense and effective tax rate were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Income tax benefit (expense)
$
33,621
$
—
$
140,699
$
—
Effective tax rate
0.4
%
—
%
1.0
%
—
%
The Company’s estimated annual effective tax rate for the three and nine months ended September 30, 2024 differed from the statutory rate primarily due to changes in the valuation allowance.
NOTE 14. SUBSEQUENT EVENTS
The Company has completed an evaluation of all subsequent events through November 14, 2024 to ensure that these consolidated financial statements include appropriate disclosure of events both recognized in the consolidated financial statements and events which occurred but were not recognized in the consolidated financial statements. The Company has concluded the below that no subsequent event has occurred that requires disclosure.
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this report, including those contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations and the notes to our consolidated financial statements, particularly those that utilize terminology such as “may,” “will,” “would,” “can,” “could,” “continue,” “design,” “should,” “expects,” “aims,” “anticipates,” “estimates,” “believes,” “thinks,” “intends,” “likely,” “projects,” “plans,” “pursue,” “strategy,” “future,” “forecasts,” “goal,” “hopes,” or the negative of these words or other words or expressions of similar meaning, are forward-looking statements. Such statements are based on currently available operating, financial and competitive information, and are subject to inherent risks, uncertainties, and changes in circumstances that are difficult to predict and many of which are outside of our control. Future events and our actual results and financial condition may differ materially from those reflected in these forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause these differences include, but are not limited to, the following:
•adverse economic or market conditions that may harm our business; including supply-chain issues, labor distribution, business closures, and inflationary pressures;
•a few of our customers accounting for a significant portion of our gross billings and accounts receivable, and the loss of, or reduced purchases from, these or other customers having a material adverse effect on our operating results;
•any erroneous or inaccurate estimates or judgments relating to our critical accounting policies;
•our ability to raise the additional funding needed to fund our business operation in the future;
•our ability to satisfy the requirements for continued listing of our common stock on the Nasdaq Capital Market;
•our ability to maintain effective internal control over financial reporting and effective disclosure controls and procedures;
29
•our ability to protect our intellectual property and other proprietary rights;
•our ability to maintain and grow our business;
•results of any future litigation and costs incurred in connection with any such litigation;
•competition in the industry;
•variability of operating results;
•our ability to maintain and enhance our brand;
•accuracy of tracking the number of user accounts;
•any security breaches or other disruptions compromising our proprietary information and exposing us to liability;
•our development and introduction of new products and services;
•our reliance on, and compliance with, open-source software;
•the successful integration of acquired companies, technologies, and assets into our portfolio of software and services;
•marketing and other business development initiatives;
•general government regulation;
•dependence on key personnel;
•the ability to attract, hire, and retain personnel who possess the technical skills and experience necessary to meet the service requirements of our customers;
•the potential liability concerning actions taken by our existing and past employees;
•any losses or issues we may encounter as a consequence of accepting or holding digital assets;
•impacts of the situation in the Middle East and the military conflict between Russia and Ukraine, and the global responses to them;
•risks associated with doing business internationally;
•shareholder activism could cause us to incur significant expense, disrupt our business, result in a proxy contest or litigation and impact our stock price; and
•the other risks and uncertainties described in the Risk Factors section of this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC on April 1, 2024.
All forward-looking statements in this document are based on current expectations, intentions, and beliefs using information available to us as of the date of this Quarterly Report; we assume no obligation to update any forward-looking statements, except as required by law. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results to differ materially from any future results, performance, or achievements expressed or implied by such forward-looking statements.
Company Overview
IZEA Worldwide, Inc. (“IZEA”, “Company,” “we”, “us” or “our”) is a leading innovator in the creator economy, specializing in providing advanced software solutions and professional services that connect brands with a broad spectrum of social influencers and content creators. The Company’s mission is to champion the creators, empowering individuals to monetize their creativity, content, and influence. IZEA made a significant mark in the industry by launching the first influencer marketplace, PayPerPost, in 2006, setting a precedent for the evolution of digital marketing platforms. Today, the Company caters to a diverse range of clients, including independent creators and Fortune 10 brands, offering services in influencer marketing, customer-generated content, and custom content creation. IZEA operates through managed services and self-service software tools, accommodating the varying needs of its clientele and ensuring mutually beneficial collaborations within its ecosystem.
On IZEA.com the Company offers a dynamic environment where creators can showcase their work to marketers, and marketers can directly engage and hire influencers, simplifying the collaboration process. This platform, alongside the innovative use of generative AI tools in FormAI, underscores IZEA's commitment to facilitating content creation and enhancing the efficiency of digital marketing strategies.
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IZEA Flex is the Company’s flagship enterprise solution for influencer marketing, designed to meet the industry's evolving demands and users’ feedback for more flexibility and customization. IZEA Flex, which has succeeded IZEAx, empowers marketers to conduct influencer collaborations across any platform with enhanced operational organization and data tracking capabilities. The platform boasts a suite of core modules, including Discover, ContentMine, and ShareMonitor, which together provide a comprehensive toolkit for optimizing influencer marketing campaigns. IZEA Flex is distinguished by its ability to quantify the ROI of marketing efforts at scale, complemented by the introduction of AI-powered tools that streamline content customization and creative campaign ideation.
On July 1, 2024, Hoozu acquired 26 Talent, a notable Australian talent management agency. 26 Talent is well-known for its exceptional representation of leading influencers and creators, providing comprehensive talent management and innovative marketing solutions. Post-acquisition, the agency will be integrated into Huume, Hoozu’s talent representation division.This acquisition strategically enhances Hoozu’s capabilities and extends its presence in the Asia-Pacific (APAC) region, consistent with IZEA’s global mergers and acquisitions strategy.
On September 6, 2024, the Company entered into separation agreements with Edward H. (Ted) Murphy, Chief Executive Officer and Chairman of the Board of Directors, and Ryan S. Schram, President, Chief Operating Officer, and Director. Under the terms of their respective Separation Agreements, both Mr. Murphy and Mr. Schram resigned their Director positions as of September 6, 2024, and their executive positions effective September 15, 2024, with neither resignation stemming from any disagreement with the Company's management or Board. Concurrently, the Board appointed Patrick J. Venetucci, a Director on the Board, as the new Chief Executive Officer. Mr. Venetucci will continue to serve in his Director capacity.
On September 6, 2024, the Company entered into a Cooperation Agreement with GP Cash Management, Ltd., GP Investments, Ltd., Rodrigo Boscolo, and Antonio Bonchristiano (collectively, the “GP Parties”). As part of the Cooperation Agreement, the Company’s Board of Directors has appointed Mr. Bonchristiano and Mr. Boscolo as directors, filling the vacancies created by the departures of Ted Murphy and Ryan Schram. One of the new directors will serve on the Compensation Committee and the other on the Nominations and Corporate Governance Committee.
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 platforms (“Marketplace Spend Fees”); (3) revenue from license and subscription fees charged to access our software platforms (“License Fees”); and (4) revenue derived from other fees such as fees charged to users of our platforms (“Other Fees”).
As discussed in more detail within “Revenue Recognition” 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. Revenue from all other sources, including Managed Services, License Fees, and Other Fees are reported on a gross basis. We further categorize these sources into two primary groups: (1) Managed Services and (2) SaaS Services, which includes revenue from Marketplace Spend Fees, License Fees, and Other Fees.
Cost of Revenue
Our cost of revenue consists of direct costs paid to our third-party creators who provide the custom content, influencer marketing, or amplification services for our Managed Service customers, where we report revenue on a gross basis. It also includes internal costs related to our campaign fulfillment and SaaS support departments. These costs include salaries, bonuses, commissions, stock-based compensation, employee benefit costs, and miscellaneous departmental costs related to the personnel responsible for supporting our customers and ultimately fulfilling our obligations under our contracts with customers.
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. They also include marketing expenses such as brand marketing, public relations events, trade shows, marketing materials and travel expenses.
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General and Administrative
Our general and administrative (“G&A”) expense consists primarily of salaries, bonuses, commissions, stock-based compensation, employee benefit costs and miscellaneous departmental costs related to our executive, finance, legal, human resources and other administrative personnel. It also includes travel, public company, investor relations expenses, accounting, legal professional services fees, leasehold facilities and other corporate-related expenses.
Within G&A, we incorporate technology and development costs, consisting primarily of our payroll costs for our internal engineers and contractors responsible for developing, maintaining, and improving our technology, as well as hosting and software subscription costs. These costs are expensed as incurred, except to the extent that they are associated with internal-use software that qualifies for capitalization, which is then recorded as software development costs in the consolidated balance sheet. When major software components are developed, we capitalize these as intangible assets. Depreciation and amortization related to these costs are separately stated under depreciation and amortization in our consolidated statements of operations and comprehensive loss.
G&A expense also includes current period gains and losses on our acquisition costs payable and gains and losses from the sale of fixed assets. When impairments occur on fixed assets, intangible assets, and goodwill, they are included as part of G&A expense presented separately in our consolidated statements of operations and comprehensive loss when deemed 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 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 primarily related to the payment plans for the purchase of computer equipment.
Other Income. Other income consists primarily of interest income for interest earned on investments.
Results of Operations for the Three Months Ended September 30, 2024 and 2023
The following table sets forth a summary of our consolidated statements of operations and the change between the periods:
Three Months Ended September 30,
2024
2023
$ Change
% Change
Revenue
$
8,831,794
$
7,894,901
$
936,893
12
%
Costs and expenses:
Cost of revenue
5,210,104
4,685,437
524,667
11
%
Sales and marketing
2,879,320
2,700,301
179,019
7
%
General and administrative
5,840,027
3,032,759
2,807,268
93
%
Impairment of goodwill
4,016,722
—
4,016,722
100
%
Depreciation and amortization
239,849
117,544
122,305
104
%
Total costs and expenses
18,186,022
10,536,041
7,649,981
73
%
Loss from operations
(9,354,228)
(2,641,140)
(6,713,088)
254
%
Other income (expense):
Change in the fair value of digital assets
(51,702)
—
(51,702)
100
%
Interest Expense
(1,654)
(1,654)
—
—
%
Other income (expense), net
605,644
659,856
(54,212)
(8)
%
Total other income (expense), net
$
552,288
$
658,202
$
(105,914)
(16)
%
Net loss before income taxes
$
(8,801,940)
$
(1,982,938)
$
(6,819,002)
344
%
Tax benefit
33,621
—
33,621
100
%
Net loss
$
(8,768,319)
$
(1,982,938)
$
(6,785,381)
342
%
32
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,
2024
2023
$ Change
% Change
Managed Services Revenue
$
8,625,924
98
%
$
7,837,725
99
%
$
788,199
10
%
SaaS Services Revenue
205,870
2
%
57,176
1
%
148,694
260
%
Total Revenue
$
8,831,794
100
%
$
7,894,901
100
%
$
936,893
12
%
Managed Services revenue during the three months ended September 30, 2024 increased by $0.8 million, or 10% from the same period in 2023. During the three months ended September 30, 2023, approximately $0.9 million of Managed Services revenue was generated from one large customer (the “non-recurring customer”) with whom we ended our relationship with in 2023. For the quarter ending September 30, 2024, Managed Services revenue from our recurring customer base was $8.6 million, reflecting a $1.7 million, or 25%, increase compared to the same period in 2023, excluding revenues from the non-recurring customer.
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. SaaS Service revenue increased to $205,870 during the three months ended September 30, 2024, compared to $57,176 in the same period of 2023. The increase is mainly attributable to a higher number of licensees, partly offset by a lower price per license in the current period.
Cost of Revenue
The cost of revenue for the three months ended September 30, 2024 increased by $0.5 million, or approximately 11%, compared to the same period in 2023. The increase is primarily driven by higher costs associated with increased revenues from our recurring customer base this quarter.
Sales and Marketing
Sales and marketing expense for the three months ended September 30, 2024 increased by $179,019, or approximately 7%, compared to the same period in 2023. This increase is related to overall compensation costs, partially offset by lower spend on marketing programs.
General and Administrative
General and administrative expense for the three months ended September 30, 2024 increased by $2.8 million, or approximately 93%, compared to the same period in 2023. General and administrative expense for the three months ended September 30, 2024. The increase in expenses during the quarter was primarily driven by higher human capital costs associated with accrued severance costs related to the departure of two company executives. These costs included accruals for severance payments, accelerated vesting of equity awards, and other severance-related benefits. Additionally, the company incurred increased professional fees related to the Cooperation Agreement and transition, as well as contractor expenses.
Impairment of Goodwill
In September 2024, we identified a triggering event related to the changes in executive management and Board level changes, including the Cooperation Agreement. We performed an interim assessment of goodwill using the income approach of the discounted cash flow method and the market approach of the guideline transaction method and determined that the carrying value of the Company’s IZEA reporting segment as of September 30, 2024, exceeded the fair value. As a result of the valuation, the Company recorded a $4.0 million impairment of goodwill related to our prior IZEA acquisitions in the three months ended September 30, 2024. The Company also performed a qualitative assessment of the carrying value of its Hoozu reporting unit, which did not indicate impairment as of September 30, 2024.
Depreciation and Amortization
Depreciation and amortization expense for the three months ended September 30, 2024 increased by $122,305, or approximately 104%, compared to the same period in 2023.
Depreciation expense on property and equipment was $26,821 and $26,583 for the three months ended September 30, 2024 and 2023, respectively.
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Amortization expense was $213,028 and $90,961 for the three months ended September 30, 2024 and 2023, respectively. Amortization expense related to internal use software developments costs was $133,290 and $90,961 for the three months ended September 30, 2024, and 2023, respectively, due to the launch of additional capitalized software projects with higher associated costs. Amortization expense related to intangible assets acquired in the Zuberance and Hoozu acquisitions was $79,738 and $0 for the three months ended September 30, 2024 and 2023, respectively.
Other Income (Expense)
Other income, net, totaled $605,644 during the three months ended September 30, 2024, a decrease of $54,212 compared to the same period in 2023, primarily from investment portfolio interest income.
Net Loss
Net loss for the three months ended September 30, 2024 was $8.8 million, compared to the net loss of $2.0 million for the same period in 2023. The increase in net loss was a result of the changes discussed above.
Results of Operations for the Nine Months Ended September 30, 2024 and 2023
The following table sets forth a summary of our consolidated statements of operations and the change between the periods:
Nine Months Ended September 30,
2024
2023
$ Change
% Change
Revenue
$
24,878,493
$
27,321,682
$
(2,443,189)
(9)
%
Costs and expenses:
Cost of revenue
14,355,679
16,900,116
(2,544,437)
(15)
%
Sales and marketing
9,142,590
7,936,801
1,205,789
15
%
General and administrative
12,995,910
9,604,308
3,391,602
35
%
Impairment of goodwill
4,016,722
—
4,016,722
100
%
Depreciation and amortization
669,783
574,238
95,545
17
%
Total costs and expenses
41,180,684
35,015,463
6,165,221
18
%
Loss from operations
(16,302,191)
(7,693,781)
(8,608,410)
112
%
Other income (expense):
Change in the fair value of digital assets
28,414
—
28,414
100
%
Interest Expense
(5,654)
(6,373)
719
(11)
%
Other income (expense), net
1,909,735
1,877,451
32,284
2
%
Total other income (expense), net
1,932,495
1,871,078
61,417
3
%
Net loss before income taxes
$
(14,369,696)
$
(5,822,703)
$
(8,546,993)
147
%
Tax benefit
$
140,699
$
—
$
140,699
100
%
Net Loss
$
(14,228,997)
$
(5,822,703)
$
(8,406,294)
144
%
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,
2024
2023
$ Change
% Change
Managed Services Revenue
$
24,172,929
97
%
$
26,958,860
99
%
$
(2,785,931)
(10)
%
SaaS Services Revenue
705,564
3
%
362,822
1
%
342,742
94
%
Total Revenue
$
24,878,493
100
%
$
27,321,682
100
%
$
(2,443,189)
(9)
%
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Managed Services revenue during the nine months ended September 30, 2024, decreased by $2.8 million, or 10% from the same period in 2023. Approximately $7.7 million of the Managed Services revenue during the nine months ended September 30, 2023 came from the non-recurring customer. Managed Services revenue from our ongoing customer base, which totaled $24.2 million during the nine months ended September 30, 2024, increased on the strength of improving demand by 25.8%, or $5.0 million, from the same period in 2023.
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. SaaS Service revenue increased to $705,564 during the nine months ended September 30, 2024, compared to $362,822 in the same period of 2023. The increase is primarily due to a growing number of licensees but at a lower cost per license.
Cost of Revenue
Cost of revenue for the nine months ended September 30, 2024 decreased by $2.5 million, or approximately 15%, compared to the same period in 2023. The decrease is mainly attributable to the elimination of $6.0 million in costs related to our non-recurring customer for the nine months ended September 30, 2023. This reduction was partially offset by increased costs linked to higher revenues from our recurring customer base.
Sales and Marketing
Sales and marketing expense for the nine months ended September 30, 2024, increased by $1.2 million, or approximately 15%, compared to the same period in 2023. Advertising expenses increased compared to the previous year, driven by ongoing efforts to enhance customer acquisition, satisfaction, retention, and brand awareness.
General and Administrative
General and administrative expense for the nine months ended September 30, 2024, increased by $3.4 million, or approximately 35%, compared to the same period in 2023. The rise in general and administrative expenses was largely attributed to accrued severance costs related to the departure of two company executives. These costs included accruals for severance payments, accelerated vesting of equity awards, and other severance-related benefits. Additionally, the company experienced increased spending on professional services related to advisory support for both the executive transition and acquisition initiatives.
Impairment of Goodwill
In September 2024, we identified a triggering event related to the changes in executive management and Board level changes, including the Cooperation Agreement. We performed an interim assessment of goodwill using the income approach of the discounted cash flow method and the market approach of the guideline transaction method and determined that the carrying value of the Company’s IZEA reporting segment as of September 30, 2024, exceeded the fair value. As a result of the valuation, the Company recorded a $4 million impairment of goodwill related to prior IZEA acquisitions in the nine months ended September 30, 2024. The Company also performed a qualitative assessment of the carrying value of its Hoozu reporting unit, which did not indicate impairment as of September 30, 2024.
Depreciation and Amortization
Depreciation and amortization expense for the nine months ended September 30, 2024, increased by $95,545, or approximately 17%, compared to the same period in 2023.
Depreciation expense on property and equipment was approximately $80,079 and $72,529 for the nine months ended September 30, 2024, and 2023. Depreciation expense increased slightly due to the purchase of additional equipment.
Amortization expense was approximately $589,704 and $501,709 for the nine months ended September 30, 2024 and 2023, respectively. Amortization expense related to internal-use software development costs was $385,976 and $501,709 for the nine months ended September 30, 2024 and 2023, respectively. Amortization expense related to acquired intangible assets was $203,728 and $0 for the nine months ended September 30, 2024 and 2023, respectively.
Other Income (Expense)
Interest expense totaled $5,654 during the nine months ended September 30, 2024, related to fewer acquisitions of laptop computers in 2024, compared to $6,373 in the prior year period.
Other income, net totaled $1.9 million in investment portfolio interest income for the nine months ended September 30, 2024, compared to $1.9 million in the prior year period, reflecting interest earned on portfolio investments that began in May 2022.
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Net Loss from Operations
Net loss from operations for the nine months ended September 30, 2024 was $14.2 million, a $8.4 million increase from the net loss of $5.8 million for the same period in 2023. The increase in net loss was the result of lower revenues and increased operating costs in the current year period.
Key Metrics
We review the information provided by our key financial metrics, Managed Services Bookings, and gross billings, to assess the progress of our business and make decisions on where to allocate our resources. As our business evolves, we may change the key financial metrics in future periods.
Managed Services Bookings
Managed Services Bookings is a measure of all sales orders received during a time period, less any cancellations received, or refunds given during the same time period. Sales order contracts vary in complexity with each customer and range from custom content delivery to integrated marketing services; our contracts generally run from several months for smaller contracts up to twelve months for larger contracts. We recognize revenue from our Managed Services contracts on a percentage of completion basis as we deliver the content or services over time, which can vary greatly. Historically, bookings have converted to revenues over a 6-month period on average. However, since late 2020, we have received increasingly larger and more complex sales orders, which, in turn, has lengthened the average revenue period to approximately 9-months, with the largest contracts taking longer to complete. During the latter half of 2023, the time between bookings and revenue improved to an average of 7.5 months. 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 adjustments. Managed Services Bookings is useful information as it reflects the number of orders received in one period, even though revenue from those orders may be reflected over varying amounts of time. We use the Managed Services Bookings metric to plan operational staffing, to identify key customer group trends to enlighten go-to-market activities, and to inform its product development efforts. Managed Services Bookings for the three months ended September 30, 2024 and 2023 was $7.9 million and $7.1 million, respectively. Managed Services Bookings for the nine months ended September 30, 2024 and 2023 was $19.6 million and $20.5 million, respectively.
Gross Billings by Revenue Type
Company management evaluates our operations and makes strategic decisions based, in part, on our key metric of gross billings from our two primary types of revenue, Managed Services, and SaaS Services. We define gross billings as the total dollar value of the amounts charged to our customers for the services we perform, and the amounts billed to our SaaS customers for their self-service purchase of goods and services on our platforms. The amounts billed to our SaaS customers are on a cost-plus basis. Gross billings are therefore the amounts of our reported revenue plus the cost of payments we made to third-party creators providing the content or sponsorship services, which are netted against revenue for generally accepted accounting principles in the U.S. (“GAAP”) reporting purposes.
Managed Services gross billings include the total dollar value of the amounts billed to our customers for the services we perform. Gross billings for Managed Services are the same as Managed Services Revenue reported for those services in our consolidated statements of operations and comprehensive loss in accordance with GAAP.
SaaS Service gross billings include license and other fees together with the total amounts billed to our SaaS customers for their self-service purchase of goods and services on our platforms, termed ‘Marketplace Spend Fees.’ Our SaaS customers’ marketplace spend is billed on a cost-plus basis. SaaS Services Revenue includes the total of License and Other Fees gross billings, plus the Marketplace Spend Fees gross billings (which includes our third-party creator costs on those billings that are netted against revenue for GAAP reporting purposes).
We consider gross billings to be an important indicator of our potential performance as it measures the total dollar volume of transactions generated through our marketplaces. Tracking gross billings allows us to monitor the percentage of gross billings that we retain after payments to our creators. Additionally, tracking gross billings is critical as it pertains to our credit risk and cash flows. We invoice our customers based on our services performed or based on their self-service transactions plus our fee. Then we remit the agreed-upon transaction price to the creators. If we do not collect the money from our customers prior to paying our creators, we could experience large swings in our cash flows. Additionally, we incur the credit risk to collect amounts owed from our customers for all services performed by us or by the creators. Finally, gross billings allow us to evaluate our transaction totals on an equal basis to see our contribution margins by revenue stream so that we can better understand where we should be allocating our resources.
The following tables set forth our gross billings by revenue type, the percentage of total gross billings by type, and the change between the periods:
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Three Months Ended September 30,
2024
2023
$ Change
% Change
Managed Services Gross Billings
$
8,625,924
93%
$
7,837,725
97%
$
788,199
10%
Marketplace Spend Fees
453,155
5%
217,534
3%
235,621
108%
License Fees
151,449
2%
55,331
1%
96,118
174%
Other Fees
45,650
—%
(540)
—%
46,190
(8,554)%
SaaS Services Gross Billings
650,254
7%
272,325
3%
377,929
139%
Total Gross Billings
$
9,276,178
100%
$
8,110,050
100%
$
1,166,128
14%
Nine Months Ended September 30,
2024
2023
$ Change
% Change
Managed Services Gross Billings
$
24,172,929
93%
$
26,958,860
94%
$
(2,785,931)
(10)%
Marketplace Spend Fees
1,242,088
5%
1,476,982
5%
(234,894)
(16)%
License Fees
564,138
2%
304,938
1%
259,200
85%
Other Fees
114,768
—%
17,711
—%
97,057
548%
SaaS Services Gross Billings
1,920,994
7%
1,799,631
6%
121,363
7%
Total Gross Billings
$
26,093,923
100%
$
28,758,491
100%
$
(2,664,568)
(9)%
Non-GAAP Financial Measure
Adjusted EBITDA
Adjusted EBITDA is a “non-GAAP financial measure” under the rules of the SEC. We define Adjusted EBITDA as earnings or loss before interest, taxes, depreciation and amortization, non-cash stock-based compensation, gain or loss on asset disposals or impairment, and certain other unusual or non-cash income and expense items such as gains or losses on settlement of liabilities and exchanges, and changes in the fair value of derivatives, if applicable.
We use Adjusted EBITDA as a measure of operating performance, for planning purposes, to allocate resources to enhance the financial performance of our business and in communications with our Board of Directors regarding our financial performance. We believe that Adjusted EBITDA also provides valuable information to investors as it excludes non-cash transactions, and it provides consistency to facilitate period-to-period comparisons.
You should not consider Adjusted EBITDA in isolation or as a substitute for an analysis of our results of operations as under GAAP. All companies do not calculate Adjusted EBITDA in the same manner, limiting its usefulness as a comparative measure. Moreover, Adjusted EBITDA has limitations as an analytical tool, including that Adjusted EBITDA:
•does not include stock-based compensation expense, which is a non-cash expense, but has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an essential part of our compensation strategy;
•does not include stock issued for payment of services, which is a non-cash expense, but has been, and is expected to be for the foreseeable future, an important means for us to compensate our directors, vendors, and other parties who provide us with services;
•does not include depreciation and intangible assets amortization expense, impairment charges and gains or losses on disposal of equipment, which is not always a current period cash expense, but the assets being depreciated and amortized may have to be replaced in the future; and
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•does not include interest expense and other gains, losses, and expenses that we believe are not indicative of our ongoing core operating results, but these items may represent a reduction or increase in cash available to us.
Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the operation and growth of our business or as a measure of cash that will be available to us to meet our obligations. You should compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP financial measures as supplements. In evaluating this non-GAAP financial measure, you should be aware that in the future, we may incur expenses similar to those for which adjustments are made in calculating Adjusted EBITDA. Our presentation of this non-GAAP financial measure should also not be construed to infer that our future results will be unaffected by unusual or non-recurring items.
The following table sets forth a reconciliation from the GAAP measurement of net loss to our non-GAAP financial measure of Adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Net loss
$
(8,768,319)
$
(1,982,938)
$
(14,228,997)
$
(5,822,703)
Impairment of goodwill and intangible assets
4,016,722
—
4,016,722
—
Net increase to fair market value of digital assets
51,702
—
(28,414)
—
Non-cash stock-based compensation
1,579,236
239,353
2,328,356
642,752
Non-cash stock issued for payment of services
79,057
75,003
229,063
225,012
Interest expense
1,654
1,654
5,654
6,373
Depreciation and amortization
239,849
117,544
669,783
574,238
Other non-cash items
—
304
—
304
Tax benefit
$
(33,621)
$
—
$
(140,699)
$
—
Adjusted EBITDA
$
(2,833,720)
$
(1,549,080)
$
(7,148,532)
$
(4,374,024)
Revenue
$
8,831,794
$
7,894,901
$
24,878,493
$
27,321,682
Adjusted EBITDA as a % of Revenue
(32)
%
(20)
%
(29)
%
(16)
%
Liquidity and Capital Resources
Near-Term and Long-Term Liquidity; Capital Resources
The Company’s primary cash needs have historically been funding the development and integration of our technology platforms used in its business, marketing expenses, and G&A expenses including salaries, bonuses, and commissions. The Company has incurred losses and negative cash flow from operations for most periods since inception, primarily the result of costs associated with third-party creators, salaries, bonuses and stock-based compensation, and other G&A expenses, including technology and development costs, which has resulted in a total accumulated deficit of $99.7 million as of September 30, 2024. While we have not achieved profitability, we believe we have sufficient resources to fund operations and planned investments for at least the next twelve months.
We had cash and cash equivalents of $46.0 million as of September 30, 2024, as compared to $37.4 million as of December 31, 2023. This increase of $8.5 million is the result of the maturing of certain investments, offset by cash used to fund operating activities.
Nine Months Ended September 30,
2024
2023
Net cash (used for)/provided by:
Operating activities
$
(8,657,588)
$
(5,679,905)
Investing activities
17,633,590
17,385,627
Financing activities
(482,085)
(1,110,484)
Net increase in cash and cash equivalents
$
8,493,917
$
10,595,238
Net cash used for operating activities was $8.7 million during the nine months ended September 30, 2024, primarily due to the continued use to cover operating losses. Net cash provided by investing activities was $17.6 million during the nine
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months ended September 30, 2024, primarily due to the maturity of marketable securities and acquisitions. Net cash used for financing activities during the nine months ended September 30, 2024 was $482,085, which consisted of payments on shares withheld for taxes.
We anticipate that our operating expenses will increase in the foreseeable future as we continue to pursue the expansion of our business. We currently believe that we have adequate cash and long-term investments to fund our business growth for the next twelve months; however, should additional capital become necessary, we expect these funds would be financed predominately through proceeds from future equity, equity-based, or debt offerings, unless and until our operations are profitable and sustain our ongoing capital needs. As a result, our business success could depend, to a significant extent, upon our ability to obtain the funding necessary to support our operations.
Financial Condition and Outlook
The Company has a strong Balance Sheet, including $54.4 million in cash, short-term investments, and no debt. Our capital expenditures represent the cost of developing new features for our internal-use technology and licensed products. Operating cash flows reflect our continued investment in the growth of our product licensing and managed services businesses.
Our managed services revenue is down year-to-date, impacted by the loss of a significant customer in 2023 and slower overall growth. While bookings were strong in the first half of 2024, growing 46% compared to the same period in 2023, growth slowed to 11% in the third quarter, including contributions from Hoozu. Managed services revenue in the current quarter increased by 10%, through growth was flat when excluding Hoozu. Our net loss for the third quarter rose by $2.6 million compared to the third quarter of 2023, mainly due to accrued severance costs associated with the departure of our CEO and President in September 2024.
The Company has recorded operational losses to date. Alongside recent management and Board changes, we are conducting a comprehensive analysis of our business and exploring strategic alternatives. The Board of Directors established a Strategic and Capital Allocation Committee to, among other assignments, collaborate with management to review business strategies and formulate a plan to achieve sustainable and consistent profitability. This review is in process, with no final decisions reached as of November 14, 2024. While our core business remains solid, recent declines in managed service bookings have presented challenges. Collectively, these factors may adversely impact our future business performance, operational results, and financial position.
Off-Balance Sheet Arrangements
The Company did not engage in any “off-balance sheet arrangements” (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of September 30, 2024.
Critical Accounting Policies and Use of Estimates
There have been no material changes to our critical accounting policies as set forth in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the year ended December 31, 2023. For a summary of our significant accounting policies, please refer to “Note 1 Company and Summary of Significant Accounting Policies” included in Item 1 of this Quarterly Report.
Recent Accounting Pronouncements
See “Note 1. Company and Summary of Significant Accounting Policies,” under Part I, Item 1 of this Quarterly Report for information on additional recent pronouncements.
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 the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that the Company files under the Exchange Act is accumulated and
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communicated to management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures.
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Furthermore, controls and procedures could be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the control. Misstatements due to error or fraud may occur and not be detected on a timely basis.
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this Quarterly Report on Form 10-Q for the period ended September 30, 2024, an
evaluation was performed under the supervision and with the participation of our management including our principal executive
officer and principal financial officer to determine the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2024. Based on this evaluation, our management concluded that, as of September 30, 2024, our disclosure controls and procedures were effective as designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by our Board of Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Company’s transactions;
(ii) provide reasonable assurance that transactions are recorded as necessary for the preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are made only in accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of any unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect financial statement misstatements. Also, projections of any evaluation of internal control effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the fiscal quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
ITEM 1 – LEGAL PROCEEDINGS
From time to time, we may become involved in lawsuits and various other legal proceedings that arise in the ordinary course of our business. Litigation is subject to inherent uncertainties and an adverse result in any such litigation that may arise from time to time that may harm our business. As of November 8, 2024, we are not party to any legal proceedings or claims that we believe would or could have, individually or in the aggregate, a material adverse effect on us.
ITEM 1A – RISK FACTORS
You should carefully consider the factors discussed under Item 1A of Part I to our Annual Report on Form 10-K for the year ended December 31, 2023 regarding the numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks occur, our business, financial condition, or results of operation may be materially and adversely affected. In such a 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. There have been no material changes to the risk factors described under “Risk Factors,” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following materials from IZEA Worldwide, Inc.'s Quarterly Report for the period ended March 31, 2024 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 (v) the Notes to the Unaudited Consolidated Financial Statements.
104
*
Cover Page Interactive File (formatted as inline XBRL and contained within Exhibit 101).
* Filed or furnished herewith.
(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.
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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.
IZEA Worldwide, Inc. a Nevada corporation
November 14, 2024
By:
/s/ Patrick J. Venetucci
Patrick J. Venetucci Chief Executive Officer (Principal Executive Officer)
