IZEA WORLDWIDE, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)
Cautionary Note Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q (this "Quarterly Report") contains "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. The statements, which are not historical facts contained in this report, including those contained in Management's Discussion and Analysis of Financial Condition and Results of Operations, and the notes to our consolidated financial statements, particularly those that utilize terminology such as "may," "will," "would," "could," "should," "expects," "anticipates," "estimates," "believes," "thinks," "intends," "likely," "projects," "plans," "pursue," "strategy" or "future," or the negative of these words or other words or expressions of similar meaning, are forward-looking statements. Such statements are based on currently available operating, financial and competitive information, and are subject to inherent risks, uncertainties, and changes in circumstances that are difficult to predict and many of which are outside of our control. Future events and our actual results and financial condition may differ materially from those reflected in these forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause these differences include, but are not limited to, the following: •risks related to the restatement of the Company's previously issued interim financial statements for the quarterly periods ended
March 31, 2020, June 30, 2020, and September 30, 2020(the "Restatement") included in our Annual Report for the year ended December 31, 2021, including, without limitation, potential inquiries from the SECand/or the Nasdaq Capital Markets, the potential adverse effect on the price of our common stock, and possible claims by our stockholders or otherwise;
•the impact of the COVID-19 pandemic on our operations, financial condition, and
the worldwide economy;
•the impact of the
•any erroneous or inaccurate estimates or judgments relating to our critical
•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 disclosure controls and procedures and
internal control over financial reporting;
•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
•competition in the industry;
•variability of operating results;
•our ability to maintain and enhance our brand;
•accuracy of tracking the number of user accounts;
•any security breaches or other disruptions compromising our proprietary
information and exposing us to liability;
•our development and introduction of new products and services;
•the successful integration of acquired companies, technologies, and assets into
our portfolio of software and services;
•marketing and other business development initiatives;
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•general government regulation;
•economic conditions, including as a result of health and safety concerns;
•dependence on key personnel;
•the ability to attract, hire, and retain personnel who possess the technical
skills and experience necessary to meet the service requirements of our
•the potential liability concerning actions taken by our existing and past
•any losses or issues we may encounter as a consequence of accepting or holding
•risks associated with doing business internationally; and
•the other risks and uncertainties described in the Risk Factors section of our Annual Report for the year ended
December 31, 2021, filed with the SECon March 31, 2022. All forward-looking statements in this document are based on current expectations, intentions, and beliefs using information available to us as of the date of this Quarterly Report; we assume no obligation to update any forward-looking statements, except as required by law. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results to differ materially from any future results, performance, or achievements expressed or implied by such forward-looking statements.
IZEA Worldwide, Inc.("IZEA", "we", "us" or "our") creates and operates online marketplaces that connect marketers, including brands, agencies, and publishers, with content creators such as Instagram influencers, TikTokinfluencers, YouTube stars, designers, photographers, and writers ("creators"). Marketers also engage us to gain access to our industry expertise, data, and analytics. Our primary technology platform, the IZEA Exchange ("IZEAx"), is designed to provide a unified ecosystem that enables the creation and publication of multiple types of content to be completed at scale. We provide value through managing custom content workflow, creator search and targeting, bidding, analytics, and payment processing. While the majority of the marketers engage us to perform these services (the "Managed Services") on their behalf, they may also use our marketplaces to engage creators for influencer marketing campaigns or to produce custom content on a self-service basis by licensing our technology. Influencer Marketing. We work with marketers to enable influencer marketing campaigns at scale. A subset of influencer marketing known as "Sponsored Social" is when a company compensates creators to share sponsored content with the creators' social network followings. This sponsored content is within the body of the content stream. We believe that we pioneered the concept of a marketplace for sponsorships on the social web in 2006 with the launch of our first platform, PayPerPost. We have focused on scaling our product and service offerings ever since, including by acquiring TapInfluencein July 2018and launching Shake and BrandGraph in 2020. Custom Content. We also work with marketers to augment or replace their content development efforts. Our network of creators produces editorial and marketing content that can be published both online and offline. Our network of creators includes professional journalists, subject matter experts, bloggers, and everyday content creators, allowing our customers to produce content ranging from complex white papers to simple product descriptions. Many of our content customers use this service to create a steady stream of posts for their corporate blogs. We first began offering custom content services in 2015 after acquiring Ebyline, a leading marketplace in the editorial content space, and continued to expand this offering with our acquisition of ZenContent in July 2016, a company that predominantly focused on e-commerce-related asset creation.
IZEAx. The platform is designed to provide a unified ecosystem that enables the creation and publication of multiple types of custom content through our creators' websites, blogs, and social media channels, including, among others, Twitter, Facebook, YouTube, Twitch, and Instagram. We extensively use this platform to manage influencer marketing campaigns on behalf of our marketers. This platform is also available directly to our marketers as a self-service tool and a licensed white label product. IZEAx was engineered from the ground up to replace all of our previous platforms with an integrated offering that is improved and more efficient. BrandGraph. In
March 2020, we launched BrandGraph, a social media intelligence platform. BrandGraph is heavily integrated with IZEAx, and both platforms rely heavily on data from each other, but it is also available as a stand-alone platform. BrandGraph offers marketers an analysis of share-of-voice, engagement benchmarking, category spending estimates, influencer identification, and sentiment analysis. The platform maps and classifies the complex hierarchy of corporation-to-brand relationships by category and associates social content with brands through a proprietary content analysis engine. It 22
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aggregates and analyzes content data to provide insights for marketers across
their competitive landscapes that are particularly useful to influencer
marketing professionals, including our managed services team.
buyers can quickly and easily hire creators of all types for influencer
marketing, photography, design, and other digital services. The Shake platform
is aimed at digital creators seeking freelance “gig” work. Creator’s list
available “Shakes” on their accounts on the platform. Marketers select and
purchase creative packages from them through a streamlined chat experience,
assisted by ShakeBot – a proprietary, artificial intelligence assistant.
Impact of COVID-19 on our Business
The COVID-19 pandemic impacted our operations, sales, and finances beginning in 2020. To protect the health and safety of our employees, we took precautionary action and directed all staff to work from home effective
March 16, 2020. We allowed the leases for our company headquarters and temporary office spaces to expire at the end of their terms throughout 2020. We have not experienced any major declines in operating efficiency in our remote working environment and have decided to continue our work-from-home policy indefinitely as a virtual-first employer. We will continue to actively monitor the COVID-19 situation and may take further actions altering the business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, employees, and prospects, or on our future financial results.
Key Components of Results of Operations
Overall consolidated results of operations are evaluated based on Revenue, Cost of Revenue, Sales and Marketing expenses, General and Administrative expenses, Depreciation and Amortization, and Other Income (Expense), net.
We generate revenue from four primary sources: (1) revenue from our managed services when a marketer (typically a brand, agency, or partner) pays us to provide custom content, influencer marketing, amplification, or other campaign management services ("Managed Services"); (2) revenue from fees charged to software customers on their marketplace spend within our IZEAx and Shake platforms ("Marketplace Spend Fees"); (3) revenue from license and subscription fees charged to access the IZEAx and BrandGraph platforms ("License Fees"); and (4) revenue derived from other fees such as inactivity fees, early cash-out fees, and other miscellaneous fees charged to users of our platforms ("Other Fees"). As discussed in more detail within "Critical Accounting Policies and Use of Estimates" under "Note 1. Company and Summary of Significant Accounting Policies," under Part I, Item 1 herein, revenue from Marketplace Spend Fees are reported on a net basis, and revenue from all other sources, including Managed Services, License Fees, and Other Fees are reported on a gross basis. We further categorize these sources into two primary groups: (1) Managed Services and (2) SaaS Services, which includes revenue from Marketplace Spend Fees, License Fees, and Other Fees. Cost of Revenue Our cost of revenue consists of direct costs paid to our third-party creators who provide the custom content, influencer marketing, or amplification services for our Managed Service customers, where we report revenue on a gross basis. It also includes internal costs related to our campaign fulfillment and SaaS support departments. These costs include salaries, bonuses, commissions, stock-based compensation, employee benefit costs, and miscellaneous departmental costs related to the personnel responsible for providing support to our customers and ultimately fulfilling our obligations under our contracts with customers. Where appropriate, we capitalize costs incurred with software developed or acquired for our revenue-supporting platforms and amortize these costs over the estimated useful lives of those platforms. This amortization is separately stated under depreciation and amortization in our consolidated statements of operations and comprehensive loss.
Sales and Marketing
Our sales and marketing expenses consist primarily of salaries, bonuses,
commissions, stock-based compensation, employee benefit costs, travel and
miscellaneous departmental costs for our marketing, sales, and sales support
personnel, as well as marketing expenses such as brand marketing, public
relations events, trade shows, and marketing materials, and travel expenses.
General and Administrative
Our general and administrative ("G&A") expense consists primarily of salaries, bonuses, commissions, stock-based compensation, employee benefit costs, and miscellaneous departmental costs related to our executive, finance, legal, human resources, and other administrative personnel. It also includes travel, public company, investor relations expenses, accounting, 23
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legal professional services fees, leasehold facilities, and other corporate-related expenses. G&A expense also includes our technology and development costs consisting primarily of our payroll costs for our internal engineers and contractors responsible for developing, maintaining, and improving our technology, as well as hosting and software subscription costs. These costs are expensed as incurred, except to the extent that they are associated with internal-use software that qualifies for capitalization, which is then recorded as software development costs in the consolidated balance sheet. We also capitalize costs that are related to our acquired intangible assets. Depreciation and amortization related to these costs are separately stated under depreciation and amortization in our consolidated statements of operations and comprehensive loss. G&A expense also includes current period gains and losses on our acquisition costs payable and gains and losses from the sale of fixed assets. Impairments on fixed assets, intangible assets, and goodwill are included as part of general and administrative expense when they are not material and broken out separately in our consolidated statements of operations and comprehensive loss when they are material.
Depreciation and Amortization
Depreciation and amortization expense consists primarily of amortization of our internal-use software and acquired intangible assets from our business acquisitions. To a lesser extent, we also have depreciation and amortization on equipment and leasehold improvements used by our personnel. Costs are amortized or depreciated over the estimated useful lives of the associated assets.
Other Income (Expense)
Interest Expense. Interest expense is prior years has primarily been related to the imputed interest on our secured credit facility, accrued interest for the PPP loan, and interest on the financing of computers. The Company is only recognizing interest expense on the financing of computers in the current year. Other Income. Other income consists primarily of interest income for interest earned on investments, or changes in the value of our foreign assets and liabilities and foreign currency exchange gains and losses on foreign currency transactions, primarily related to the Canadian Dollar. 24 -------------------------------------------------------------------------------- Table of Contents Results of Operations for the Three Months Ended
March 31, 2022and 2021
The following table sets forth a summary of our consolidated statements of
operations and the change between the periods:
Three Months Ended March 31, 2022 2021 $ Change % Change Revenue
$ 8,890,336 $ 5,528,166 $ 3,362,17061 % Costs and expenses: Cost of revenue 5,179,724 2,457,785 2,721,939 111 % Sales and marketing 2,520,343 2,078,323 442,020 21 % General and administrative 3,502,435 2,535,147 967,288 38 % Depreciation and amortization 138,829 365,529 (226,700) (62) % Total costs and expenses 11,341,331 7,436,784 3,904,547 53 % Loss from operations (2,450,995) (1,908,618) (542,377) 28 % Other income (expense): Interest expense (965) (13,793) 12,828 (93) % Other income, net (24,283) 29,474 (53,757) (182) % Total other income (expense), net (25,248) 15,681 (40,929) (261) % Net Loss $ (2,476,243) $ (1,892,937) $ (583,306)31 % 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 March 31, 2022 2021 $ Change % Change Managed Services Revenue
$ 8,372,45694 % $ 5,034,99391 % $ 3,337,46366 % Marketplace Spend Fees 54,100 1 % 98,371 2 % (44,271) (45) % License Fees 374,441 4 % 383,041 7 % (8,600) (2) % Other Fees 89,339 1 % 11,761 - % 77,578 660 % SaaS Services Revenue 517,880 6 % 493,173 9 % 24,707 5 % Total Revenue $ 8,890,336100 % $ 5,528,166100 % $ 3,362,17061 % Historically, we have invested the majority of our time and resources in our Managed Services business, which provides the majority of our revenue. Our acquisitions of Ebyline and ZenContent allowed us to expand our product offerings to provide custom content in addition to and in combination with our influencer marketing campaigns to expand our Managed Services. Our July 2018merger with TapInfluenceexpanded our SaaS Services to derive revenue from Marketplace Spend Fees and License Fees. Managed Services revenue is generated when a marketer (typically a brand, agency, or partner) pays us to provide custom content, influencer marketing, amplification, or other campaign management services. Managed Services revenue during the three months ended March 31, 2022, increased by $3.3 millionor 66% to $8.4 millioncompared to $5.0 millionfor the same period in 2021; nearly half of the increase comes from one large customer contract dating to early in the second quarter of 2021, with the balance of the increase due to growth in orders from new and existing customers expanding their marketing efforts through sponsored social marketing as compared to the prior-year period. SaaS Services revenue is generated by the self-service use of our technology platforms by marketers to manage their own content workflow and influencer marketing campaigns. It consists of fees earned on the marketer's spend within the IZEAx, TapInfluenceand Ebyline platforms, along with the license and support fees to access the platform services. 25
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•Marketplace Spend Fees decreased by
$44,271to $54,100for the three months ended March 31, 2022compared to $98,371for the same period in 2021. The fee decrease was due to lower spend levels from our marketers and lower average fees assessed on those spends as a result of competitive pricing efforts in IZEAx. Revenue from Marketplace Spend Fees represents our net margins received on this business. •License Fees revenue decreased during the three months ended March 31, 2022to $374,441compared to $383,041in the same period of 2021. The decrease in IZEAx license fees was offset by an increase in subscriptions for BrandGraph and IZEAx Discovery services. •Other Fees revenue increased by $77,578during the three months ended March 31, 2022compared to the same period in 2021 due to the recognition of a large forfeited customer deposit offset by lower plan fees accessed on customer accounts. Nonrefundable deposits are collected from certain customers due to defined minimum spend per the contract or prepayment required for any identified credit issues. Customers do not typically forfeit deposits held on account.
Cost of Revenue
Cost of revenue for the three months ended
March 31, 2022totaled $5.2 million, or 58.3% of revenue, compared to $2.5 million, or 44.5% of revenue for the same period in 2021. The increase in the cost of revenue is primarily due to higher cost deliveries on one large customer contract dating to early in the second quarter of 2021, which made up approximately 14% of current quarter revenues, as well as by the overall increase in revenue from other new and existing customers. Aside from the large customer contract, the cost of revenue was in range with recent historical averages.
Sales and Marketing
Sales and marketing expense for the three months ended
March 31, 2022increased by $442,020, or approximately 21%, compared to the same period in 2021. The increase over prior year is primarily driven by additional headcount and the associated payroll costs. General and Administrative General and administrative expense for the three months ended March 31, 2022increased by $967,288, or approximately 38%, compared to the same period in 2021. General and administrative expense for the three months ended March 31, 2022increased $467,000due to higher payroll and personnel related expenses as a result of an increase in headcount as well as increased salaries and higher bonus expense due to the improved company performance. Contractor expenses increased $220,000as we are increasing the number of internal and external engineers working on our technology offerings. Software & licenses increased $190,000due to increased hosting and software subscription costs. Professional services, including legal and accounting contractors, increased $90,000over the prior year. This was due in part to the implementation of a new ERP system and audit fees related to the Restatement.
Depreciation and Amortization
Depreciation and amortization expense for the three months ended
Depreciation and amortization expense on property and equipment was
$32,932and $32,486for the three months ended March 31, 2022and 2021, respectively. Depreciation expense has increased slightly due to the purchase of new equipment in the first quarter of 2022. Amortization expense was $105,896and $333,043for the three months ended March 31, 2022and 2021, respectively. Amortization expense related to intangible assets acquired in the Ebyline, ZenContent, and TapInfluenceacquisitions was $216,667for the three months ended March 31, 2021. There was no amortization expense related to intangible acquired assets for the three months ended March 31, 2022, as they were fully amortized during fiscal year 2021. Amortization expense related to internal use software development costs was $105,896and $116,376for the three months ended March 31, 2022and 2021, respectively. Amortization on our intangible acquisition assets decreased in the three months ended March 31, 2022due to completion of amortization on certain intangible assets acquired in prior years.
Other Income (Expense)
Interest expense decreased by
amounts owed on our acquisition costs payable and the PPP loan.
$53,757decrease in other income during the three months ended March 31, 2022when compared to the same period in 2021 resulted primarily due to reduced interest income received on cash balances due to lower interest rates and the write down of digital assets. 26
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March 31, 2022was $2,476,243, a $583,306increase compared to the net loss of $1,892,937for the same period in 2021. The increase in net loss was a result of the changes discussed above.
We review the information provided by our key financial metrics, Managed Services Bookings, and gross billings, to assess the progress of our business and make decisions on where to allocate our resources. As our business evolves, we may change the key financial metrics in future periods.
Managed Services Bookings
Managed Services Bookings is a measure of all sales orders received during a time period less any cancellations received, or refunds given during the same time period. Sales order contracts vary in complexity with each customer and range from custom content delivery to integrated marketing services; our contracts generally run from several months for smaller contracts up to twelve months for larger contracts. We recognize revenue from our Managed Services contracts on a percentage of completion basis as we deliver the content or services over time, which can vary greatly. Historically, bookings have converted to revenues over a 6-month period on average. However, since late 2020, we have been receiving increasingly larger and more complex sales orders which, in turn, has lengthened the average revenue period to approximately 9-months, with the largest contracts taking longer to complete. For this reason, Managed Services Bookings, while an overall indicator of the health of our business, may not be used to predict quarterly revenues, and could be subject to future adjustment. Managed Services Bookings is useful information as it reflects the amount of orders received in one period, even though revenue from those orders may be reflected over varying amounts of time. Management uses the Managed Services Bookings metric to plan its operating staff, to identify key customer group trends to enlighten go-to-market activities, and to inform its product development efforts. Managed Services Bookings for the three months ended
March 31, 2022and 2021 was $12.1 millionand $6.4 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 the amounts of our reported revenue plus the cost of payments we made to third-party creators providing the content or sponsorship services, which are netted against revenue for generally accepted accounting principles in
the United States("GAAP") reporting purposes. Managed Services gross billings include the total dollar value of the amounts billed to our customers for the services we perform. Gross billings for Managed Services are the same as Managed Services Revenue reported for those services in our consolidated statements of operations and comprehensive loss in accordance with GAAP. SaaS Service gross billings include license and other fees together with the total amounts billed to our SaaS customers for their self-service purchase of goods and services on our platforms, termed 'Marketplace Spend Fees.' Our SaaS customers' marketplace spend is billed on a cost-plus basis. SaaS Services Revenue includes the total of License and Other Fees gross billings, plus the Marketplace Spend Fees gross billings (which includes our third-party creator costs on those billings that are netted against revenue for GAAP reporting purposes). We consider gross billings to be an important indicator of our potential performance as it measures the total dollar volume of transactions generated through our marketplaces. Tracking gross billings allows us to monitor the percentage of gross billings that we retain after payments to our creators. Additionally, tracking gross billings is critical as it pertains to our credit risk and cash flows. We invoice our customers based on our services performed or based on their self-service transactions plus our fee. Then we remit the agreed-upon transaction price to the creators. If we do not collect the money from our customers prior to paying our creators, we could experience large swings in our cash flows. Additionally, we incur the credit risk to collect amounts owed from our customers for all services performed by us or by the creators. Finally, gross billings allow us to evaluate our transaction totals on an equal basis to see our contribution margins by revenue stream so that we can better understand where we should be allocating our resources.
The following tables set forth our gross billings by revenue type, the
percentage of total gross billings by type, and the change between the periods:
Table of Contents Three Months Ended March 31, 2022 2021 $ Change % Change Managed Services Gross Billings
$ 8,372,45687% $ 5,034,99376% $ 3,337,46366% Marketplace Spend Fees 747,244 8% 1,226,208 18% (478,964) (39)% License Fees 374,441 4% 383,041 6% (8,600) (2)% Other Fees 89,339 1% 11,761 1% 77,578 660% SaaS Services Gross Billings 1,211,024 13% 1,621,010 24% (409,986) (25)% Total Gross Billings $ 9,583,480100% $ 6,656,003100% $ 2,927,47744% Non-GAAP Financial Measure Adjusted EBITDA Adjusted EBITDA is a "non-GAAP financial measure" under the rules of the Securities and Exchange Commission(the "SEC"). We define Adjusted EBITDA as earnings or loss before interest, taxes, depreciation and amortization, non-cash stock-based compensation, gain or loss on asset disposals or impairment, and certain other unusual or non-cash income and expense items such as gains or losses on settlement of liabilities and exchanges, and changes in the fair value of derivatives, if applicable. We use Adjusted EBITDA as a measure of operating performance, for planning purposes, to allocate resources to enhance the financial performance of our business and in communications with our Board of Directors regarding our financial performance. We believe that Adjusted EBITDA also provides valuable information to investors as it excludes non-cash transactions, and it provides consistency to facilitate period-to-period comparisons. You should not consider Adjusted EBITDA in isolation or as a substitute for an analysis of our results of operations as under GAAP. All companies do not calculate Adjusted EBITDA in the same manner, limiting its usefulness as a comparative measure. Moreover, Adjusted EBITDA has limitations as an analytical tool, including that Adjusted EBITDA: •does not include stock-based compensation expense, which is a non-cash expense, but has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an essential part of our compensation strategy; •does not include stock issued for payment of services, which is a non-cash expense, but has been, and is expected to be for the foreseeable future, an important means for us to compensate our directors, vendors, and other parties who provide us with services; •does not include depreciation and intangible assets amortization expense, impairment charges and gains or losses on disposal of equipment, which is not always a current period cash expense, but the assets being depreciated and amortized may have to be replaced in the future; and
•does not include interest expense and other gains, losses, and expenses that we
believe are not indicative of our ongoing core operating results, but these
items may represent a reduction or increase in cash available to us.
Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the operation and growth of our business or as a measure of cash that will be available to us to meet our obligations. You should compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP financial measures as supplements. In evaluating this non-GAAP financial measure, you should be aware that in the future, we may incur expenses similar to those for which adjustments are made in calculating Adjusted EBITDA. Our presentation of this non-GAAP financial measure should also not be construed to infer that our future results will be unaffected by unusual or non-recurring items. 28
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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 months ended
March 31, 2022, and 2021: Three Months Ended March 31, 2022 2021 Net loss $ (2,476,243) $ (1,892,937)Write down of digital assets 62,976 - Non-cash stock-based compensation 117,192 197,986 Non-cash stock issued for payment of services 31,223 34,696 Interest expense 965 13,793 Depreciation and amortization 138,829 365,529 Other non-cash items (663) (7,914) Adjusted EBITDA $ (2,125,721) $ (1,288,847)Revenue $ 8,890,336 $ 5,528,166Adjusted EBITDA as a % of Revenue (24) % (23) %
Liquidity and Capital Resources
Near-Term Liquidity and Capital Resources
The Company's primary cash needs have historically been funding the development and integration of IZEAx and other technology platforms used in its business, marketing expenses, and general and administrative ("G&A") expenses including salaries, bonuses, commissions and stock-based compensation. We have also engaged in acquisitions from time to time in the past, most recently of
TapInfluencein July 2018. 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 $72.5 millionas of March 31, 2022. We have not achieved profitability and, therefore, may need to raise capital through new financings.
We had cash and cash equivalents of
primarily due to operating losses.
March 31, 2022 December 31, 2021 Net cash (used for) provided by: Operating activities
$ (2,726,806)$ (829,707) Investing activities (127,913) (13,217) Financing activities (19,730) 33,263,287
Net (decrease) increase in cash and cash equivalents
Cash used for operating activities was
$2.7 millionduring the three months ended March 31, 2022and is primarily the result of continued use of cash to cover operating losses and changes in working capital. Net cash used for investing activities was $127,913during the three months ended March 31, 2022, primarily due to the purchase of digital assets. Net cash used for financing activities during the three months ended March 31, 2022, was $19,730, which consisted primarily of payments on shares withheld for taxes. In June 2020and January 2021, we entered into ATM Sales Agreements with National Securities Corporation, as sales agent (" National Securities"), pursuant to which we could offer and sell up to $40 millionand $35 million, respectively, of common stock (the "ATM Offerings"). From June 4, 2020through April 15, 2021, we sold a total of 26,005,824 shares at an average price of $2.88per share for total gross proceeds of $75.0 millionin the ATM Offerings . On June 21, 2021, we entered into a third ATM Sales Agreement with National Securities, as sales agent, pursuant to which we can offer and sell shares of our common stock, from time to time for aggregate purchase prices up to $100 millionby any method deemed to be an "at the market offering" as defined in Rule 415 under the Securities Act under our shelf registration statement on Form S-3 (File No. 333-256078). No sales had been made under this agreement as of March 31, 2022. 29
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We anticipate that our operating expenses will increase in the foreseeable future as we continue to pursue expansion of our business. We currently expect that we have adequate cash resources to fund our business growth, however, should additional capital become necessary, we expect these funds would be financed predominately through proceeds from future equity, equity-based, or debt offerings by us, unless and until our operations are profitable and sustain our ongoing capital needs. As a result, our business success could depend, to a significant extent, upon our ability to obtain the funding necessary to support our operations. Financial Condition Our business operations and results have been impacted by COVID-19, which in the first half of 2020 had a material effect on our customers, their advertising commitments, bookings cancellations, revenues, and cash flows. Since late 2020, while the economy continues to feel the impacts of supply-chain, labor disruption, and business closures, the Company has seen a material increase in the overall social media marketing spend by large and small customers, which has benefited our bookings and revenue growth rates, cash flows and future prospects. We are still feeling some effects of the pandemic in our daily operations, despite the growth we are experiencing. While the disruption caused by COVID-19 is currently expected to be temporary, it is generally outside of our control, and there is uncertainty around the duration and the total economic impact. Therefore, this matter could have a further material adverse impact on our business, results of operations, and financial position in future periods.
Critical Accounting Policies and Use of Estimates
There have been no material changes to our critical accounting policies as set forth in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Annual Report on Form 10-K for the year ended
December 31, 2021. For a summary of our significant accounting policies, please refer to Note 1 - Company and Summary of Significant Accounting Policies included in Item 1 of this Quarterly Report.
Recent Accounting Pronouncements
See “Note 1. Company and Summary of Significant Accounting Policies,” of this
Quarterly Report for information on additional recent pronouncements.
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