IZEA(IZEA) - 2021 Q4 - Annual Report

Explanatory Note and Restatement Financial Restatement The company restated 2020 interim financial statements due to an error in recognizing Managed Services liabilities, costs, and revenues, impacting full-year revenue by less than 2% - The Audit Committee concluded that interim financial statements for Q1, Q2, and Q3 of 2020 should be restated and no longer be relied upon[12] - The restatement is due to an incorrect historical practice of recognizing liabilities, costs, and revenues for Sponsored Content at the end of a 45-day posting period, rather than accruing them proportionally from the initial posting date[14][15] Impact of Restatement on 2020 Quarterly Revenue | Quarter Ended | Revenue Impact ($) | Revenue Impact (%) | | :--- | :--- | :--- | | March 31, 2020 | ($439,193) | -9% | | June 30, 2020 | ($85,222) | -3% | | September 30, 2020 | $171,434 | +4% | | Full Year 2020 | ($362,348) | -1.98% | PART I Item 1. Business IZEA operates online marketplaces connecting marketers with content creators, primarily generating revenue from Managed Services (94% in 2021) - IZEA's core business is operating online marketplaces (like IZEAx, BrandGraph, and Shake) that connect marketers with content creators for influencer marketing and custom content production[29][33][34][35] - The company's growth strategy focuses on a hybrid "Software + Service" model, continued product development, and leveraging its large network of over 996,500 user accounts[50][51][52] Revenue Breakdown by Service Type (2021 vs. 2020) | Service Type | 2021 Revenue % | 2020 Revenue % | | :--- | :--- | :--- | | Managed Services | 94% | 87% | | SaaS Services | 6% | 13% | - The company faces competition from social media platforms like Facebook and TikTok, creator economy platforms like Fiverr and Upwork, and traditional advertising agencies[70] Item 1A. Risk Factors The company faces significant risks including historical net losses, an accumulated deficit of $73.6 million, operational challenges, and a material weakness in internal controls - The company has a history of significant net losses, with a total accumulated deficit of $73.6 million as of December 31, 2021, and a net loss of $3.1 million for the year[96] - A material weakness in internal control over financial reporting was identified related to an error in the presentation of revenues and classification of expenses, which could impair the ability to report accurate financial information[114] - The business is highly dependent on third-party social media platforms like Facebook, Instagram, and YouTube. Any changes to their terms, costs, or availability could adversely affect IZEA's operations[130] - The company's common stock has experienced extreme price volatility, with a closing price ranging from a low of $1.23 to a high of $7.45 during 2021[163] Item 1B. Unresolved Staff Comments The company reports that it has no unresolved staff comments - None[169] Item 2. Properties IZEA operates as a virtual-first company with all employees working remotely, maintaining only a corporate mailing address - The company has adopted a work-from-home policy indefinitely and does not have any current physical locations[170] Item 3. Legal Proceedings The company is not currently aware of any legal proceedings that would have a material adverse effect on its business - As of March 22, 2022, the company is not aware of any legal proceedings or claims that would have a material adverse effect on its operations[171] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[172] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq, and it has never paid dividends nor anticipates doing so in the foreseeable future - Common stock is traded on the Nasdaq Capital Market under the ticker symbol IZEA[175] - The company has never paid dividends and does not plan to in the foreseeable future[176] Item 6. Selected Financial Data This item is not applicable as the company is a smaller reporting company - Not applicable for smaller reporting companies[179] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2021, IZEA's total revenue grew 67% to $30.0 million, driven by Managed Services, while net loss decreased to $3.1 million, and liquidity significantly improved to $75.4 million cash Results of Operations Total revenue increased 67% to $30.0 million in 2021, primarily from an 80% rise in Managed Services revenue, leading to a reduced net loss of $3.1 million Consolidated Statement of Operations Summary (2021 vs. 2020) | Metric | 2021 ($) | 2020 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $30,022,377 | $17,967,207 | $12,055,170 | 67% | | Cost of Revenue | $14,461,702 | $7,896,078 | $6,565,624 | 83% | | Loss from Operations | ($5,357,727) | ($10,492,091) | $5,134,364 | (49)% | | Net Loss | ($3,140,621) | ($10,508,395) | $7,367,774 | (70)% | Revenue by Type (2021 vs. 2020) | Revenue Type | 2021 ($) | 2020 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Managed Services | $28,203,556 | $15,625,273 | $12,578,283 | 80% | | SaaS Services | $1,818,821 | $2,341,934 | ($523,113) | (22)% | | Total Revenue | $30,022,377 | $17,967,207 | $12,055,170 | 67% | - The decrease in net loss was significantly impacted by a $2.2 million increase in 'Other income, net', primarily from a $1.9 million gain on the forgiveness of a PPP loan and a $0.19 million gain on the sale of digital assets[211][212] Key Metrics and Non-GAAP Measures Managed Services Bookings more than doubled to $39.5 million in 2021, and total Gross Billings increased 41%, while Adjusted EBITDA improved to a loss of $3.1 million - Managed Services Bookings, a measure of sales orders less cancellations, increased by 128% from $17.3 million in 2020 to $39.5 million in 2021[215] Total Gross Billings (2021 vs. 2020) | Billing Type | 2021 ($) | 2020 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Managed Services | $28,203,556 | $15,625,273 | $12,578,283 | 80% | | SaaS Services | $5,469,710 | $8,327,823 | ($2,858,113) | (34)% | | Total Gross Billings | $33,673,266 | $23,953,096 | $9,720,170 | 41% | Adjusted EBITDA Reconciliation (Non-GAAP) | Metric | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Net Loss (GAAP) | ($3,140,621) | ($10,508,395) | | Adjustments | $6,252 | $6,595,533 | | Adjusted EBITDA | ($3,135,252) | ($3,912,862) | Liquidity and Capital Resources Cash and cash equivalents increased by $42.4 million to $75.4 million at year-end 2021, primarily from $45.0 million in financing activities, including ATM equity offerings Cash and Cash Equivalents | Date | Cash and Cash Equivalents ($) | | :--- | :--- | | Dec 31, 2021 | $75.4 million | | Dec 31, 2020 | $33.0 million | - Net cash provided by financing activities was $45.0 million in 2021, mainly from the sale of common stock in its ATM offering program, which generated gross proceeds of $46.5 million[227][228] - In June 2021, the company's $1.9 million Paycheck Protection Program (PPP) loan, including accrued interest, was fully forgiven by the Small Business Administration[230] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable as the company is a smaller reporting company - Not applicable to smaller reporting companies[261] Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements, with the auditor identifying revenue recognition for Managed Services as a Critical Audit Matter - The independent auditor, BDO USA, LLP, issued an unqualified opinion, stating the financial statements are fairly presented in conformity with U.S. GAAP[265] - The auditor identified "Revenue Recognition - Estimated Costs to Complete for Managed Services Revenue" as a Critical Audit Matter, highlighting the subjective judgment required by management to estimate costs, which significantly impacts revenue recognized each period[270][273] Consolidated Balance Sheet Summary | Metric | Dec 31, 2021 ($) | Dec 31, 2020 ($) | | :--- | :--- | :--- | | Total Current Assets | $85,390,302 | $38,553,456 | | Total Assets | $90,795,072 | $44,779,336 | | Total Current Liabilities | $15,927,869 | $12,347,956 | | Total Liabilities | $15,969,937 | $12,851,147 | | Total Stockholders' Equity | $74,825,135 | $31,928,189 | Consolidated Cash Flow Summary | Cash Flow Activity | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Net Cash Used for Operating Activities | ($2,566,999) | ($2,095,651) | | Net Cash Used for Investing Activities | ($26,169) | ($354,407) | | Net Cash Provided by Financing Activities | $44,981,238 | $29,610,654 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[531] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were ineffective due to a material weakness in cost recognition, leading to a restatement - Management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2021[534] - A material weakness was identified in internal control over financial reporting related to the timing of cost recognition for Managed Services, which resulted in the restatement of prior period financial statements[538][540] - The company is working to remediate the material weakness by identifying additional controls and possibly engaging a third-party technical accounting expert[542] PART III Item 10. Directors, Executive Officers, and Corporate Governance This section provides biographical information for executive officers and directors, detailing board composition, committee structure, and the combined Chairman and CEO roles Executive Officers and Directors | Name | Position | | :--- | :--- | | Edward H. (Ted) Murphy | Founder, Chairman of the Board and CEO | | Ryan S. Schram | President, COO and Director | | Peter J. Biere | Chief Financial Officer | | Brian W. Brady | Director, Nominating Committee Chair | | John H. Caron | Director | | Lindsay A. Gardner | Director | | Daniel R. Rua | Director, Compensation Committee Chair | | Patrick J. Venetucci | Director, Audit Committee Chair | - The Board has three standing committees: Audit, Compensation, and Nominations and Corporate Governance. All committee members are independent directors[561] - The company's leadership structure combines the roles of Chairman and CEO, held by founder Edward H. Murphy, to provide unified leadership[569] Item 11. Executive Compensation This section details 2021 compensation for Named Executive Officers and non-employee directors, including salaries, incentives, and stock awards 2021 Summary Compensation for Named Executive Officers | Name | Position | Total Compensation ($) | | :--- | :--- | :--- | | Edward H. (Ted) Murphy | CEO | $1,157,632 | | Ryan S. Schram | President, COO | $652,539 | | Peter J. Biere | CFO | $339,500 | - Employment agreements for executive officers include base salary, annual stock option/RSU grants, and eligibility for cash and equity bonuses based on performance goals[584][587][589] - Non-employee director compensation includes an annual board retainer of $25,000 in restricted stock, a cash retainer of $20,000, and meeting fees[597][603] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 22, 2022, executive officers and directors collectively owned 6.4% of common stock, with no beneficial owners holding more than 5% Security Ownership of Officers and Directors (as of March 22, 2022) | Name of Beneficial Owner | Percentage of Common Stock Beneficially Owned | | :--- | :--- | | Edward H. (Ted) Murphy | 2.7% | | Brian W. Brady | 2.5% | | All executive officers and directors as a group (8 persons) | 6.4% | - The company is not aware of any 5% holders of its common stock as of the reporting date[600] Item 13. Certain Relationships and Related Transactions, and Director Independence The company reported no material related party transactions and confirmed five directors are independent per Nasdaq listing rules - There were no related party transactions where the amount involved exceeded the lesser of $120,000 or 1% of average total assets for the last two fiscal years[607] - The Board has determined that five directors are independent: Brian W. Brady, John H. Caron, Lindsay A. Gardner, Daniel R. Rua, and Patrick J. Venetucci[608] Item 14. Principal Accountant Fees and Services The Audit Committee pre-approves all auditor services, with audit and review fees totaling $269,941 for 2021 and $294,803 for 2020 Principal Accountant Fees (Audit & Review) | Year Ended December 31, | Fees Billed ($) | | :--- | :--- | | 2021 | $269,941 | | 2020 | $294,803 | PART IV Item 15. Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits included in the Annual Report on Form 10-K Item 16. Form 10-K Summary The company has not provided a summary for Form 10-K - None[619]