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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
 
FORM 10-Q
 (Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from _________________ to _________________
 
Commission File No.: 001-37703
 
IZEA WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
Nevada 37-1530765
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
501 N. Orlando Avenue, Suite 313, PMB 247
Winter Park, FL
 32789
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code:   (407) 674-6911

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareIZEA
The Nasdaq Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes     No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No  
As of August 10, 2020, there were 48,414,560 shares of our common stock outstanding. 


Table of Contents


Quarterly Report on Form 10-Q for the period ended June 30, 2020

Table of Contents
 
 Page
PART I. FINANCIAL INFORMATION
PART II. OTHER INFORMATION


i

Table of Contents
PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

IZEA Worldwide, Inc.
Unaudited Consolidated Balance Sheets
June 30,
2020
December 31,
2019
Assets
Current assets:  
Cash and cash equivalents$20,820,273  $5,884,629  
Accounts receivable, net3,053,135  5,596,719  
Prepaid expenses368,697  400,181  
Other current assets130,656  153,031  
Total current assets24,372,761  12,034,560  
Property and equipment, net 282,082  309,780  
Goodwill4,016,722  8,316,722  
Intangible assets, net1,006,536  1,611,516  
Software development costs, net 1,413,920  1,519,980  
Security deposits40,382  151,803  
Total assets$31,132,403  $23,944,361  
Liabilities and Stockholders’ Equity  
Current liabilities:  
Accounts payable$1,022,960  $2,252,536  
Accrued expenses1,287,652  1,377,556  
Contract liabilities5,841,264  6,466,766  
Current portion of notes payable837,865    
Right-of-use liability  83,807  
Total current liabilities8,989,741  10,180,665  
Finance obligation, less current portion65,609  45,673  
Notes payable, less current portion1,096,722    
Total liabilities10,152,072  10,226,338  
Commitments and Contingencies (Note 7)    
Stockholders’ equity:  
Preferred stock; $.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding    
Common stock; $.0001 par value; 200,000,000 shares authorized; 41,784,601 and 34,634,172, respectively, issued and outstanding4,178  3,464  
Additional paid-in capital89,315,525  74,099,328  
Accumulated deficit(68,339,372) (60,384,769) 
Total stockholders’ equity20,980,331  13,718,023  
Total liabilities and stockholders’ equity$31,132,403  $23,944,361  





See accompanying notes to the unaudited consolidated financial statements.
1

Table of Contents
IZEA Worldwide, Inc.
Unaudited Consolidated Statements of Operations
 
 Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Revenue$3,135,039  $3,923,864  $7,898,707  $8,717,620  
Costs and expenses:  
Cost of revenue (exclusive of amortization) 1,414,249  1,817,659  3,554,766  3,916,950  
Sales and marketing1,228,691  1,362,242  2,751,834  2,719,909  
General and administrative1,920,492  2,232,305  4,338,330  4,844,359  
Impairment of goodwill    4,300,000    
Depreciation and amortization377,107  448,105  878,376  884,329  
Total costs and expenses4,940,539  5,860,311  15,823,306  12,365,547  
Loss from operations(1,805,500) (1,936,447) (7,924,599) (3,647,927) 
Other income (expense):  
Interest expense(19,476) (86,737) (26,094) (215,201) 
Other income (expense), net33,834  30,798  (3,910) 40,162  
Total other income (expense), net14,358  (55,939) (30,004) (175,039) 
Net loss$(1,791,142) $(1,992,386) $(7,954,603) $(3,822,966) 
Weighted average common shares outstanding – basic and diluted36,108,073  22,277,677  35,394,639  17,466,784  
Basic and diluted loss per common share$(0.05) $(0.09) $(0.22) $(0.22) 
 

























See accompanying notes to the unaudited consolidated financial statements.
2

Table of Contents
IZEA Worldwide, Inc.
Unaudited Consolidated Statements of Stockholders’ Equity
Three Months Ended June 30, 2020 and 2019

 Common StockAdditional
Paid-In
AccumulatedTotal
Stockholders’
 SharesAmountCapitalDeficitEquity
Balance, March 31, 202034,773,051  $3,477  $74,257,810  $(66,548,230) $7,713,057  
Sale of securities6,856,241  685  15,361,168  —  15,361,853  
Stock purchase plan & option exercise issuances10,034  1  2,312  —  2,313  
Stock issued for payment of services97,655  9  31,240  —  31,249  
Stock issuance costs—  —  (455,706) —  (455,706) 
Stock-based compensation47,620  6  118,701  —  118,707  
Net loss—  —  —  (1,791,142) (1,791,142) 
Balance, June 30, 202041,784,601  $4,178  $89,315,525  $(68,339,372) $20,980,331  



 Common StockAdditional
Paid-In
AccumulatedTotal
Stockholders’
 SharesAmountCapitalDeficitEquity
Balance, March 31, 201912,812,108  $1,281  $61,534,711  $(54,925,229) $6,610,763  
Sale of securities14,285,714  1,429  9,998,571  —  10,000,000  
Stock issued for payment of acquisition liability—  —  —  —  —  
Stock purchase plan issuances7,099  1  3,095  —  3,096  
Stock issued for payment of services22,191  2  37,495  —  37,497  
Stock issuance costs—  —  (772,367) —  (772,367) 
Stock-based compensation(38,899) (4) 46,981  —  46,977  
Net loss—  —  —  (1,992,386) (1,992,386) 
Balance, June 30, 201927,088,213  $2,709  $70,848,486  $(56,917,615) $13,933,580  



















See accompanying notes to the unaudited consolidated financial statements.
3

Table of Contents
IZEA Worldwide, Inc.
Unaudited Consolidated Statements of Stockholders’ Equity
Six Months Ended June 30, 2020 and 2019

 Common StockAdditional
Paid-In
AccumulatedTotal
Stockholders’
 SharesAmountCapitalDeficitEquity
Balance, December 31, 201934,634,172  $3,464  $74,099,328  $(60,384,769) $13,718,023  
Sale of securities6,856,241  685  15,361,168  —  15,361,853  
Stock purchase plan & option exercise issuances10,034  1  2,312  —  2,313  
Stock issued for payment of services195,310  19  62,480  —  62,499  
Stock issuance costs—  —  (458,032) —  (458,032) 
Stock-based compensation88,844  9  248,269  —  248,278  
Net loss—  —  —  (7,954,603) (7,954,603) 
Balance, June 30, 202041,784,601  $4,178  $89,315,525  $(68,339,372) $20,980,331  



 Common StockAdditional
Paid-In
AccumulatedTotal
Stockholders’
 SharesAmountCapitalDeficitEquity
Balance, December 31, 201812,075,708  $1,208  $60,311,756  $(53,094,649) $7,218,315  
Sale of securities14,285,714  1,429  9,998,571  —  10,000,000  
Stock issued for payment of acquisition liability660,136  66  1,075,956  —  1,076,022  
Stock purchase plan issuances7,099  1  3,095  —  3,096  
Stock issued for payment of services44,379  4  74,991  —  74,995  
Stock issuance costs—  —  (774,557) —  (774,557) 
Stock-based compensation15,177  1  158,674  —  158,675  
Net loss—  —  —  (3,822,966) (3,822,966) 
Balance, June 30, 201927,088,213  $2,709  $70,848,486  $(56,917,615) $13,933,580  




















See accompanying notes to the unaudited consolidated financial statements.

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Table of Contents
IZEA Worldwide, Inc.
Unaudited Consolidated Statements of Cash Flows
Six Months Ended June 30,
20202019
Cash flows from operating activities:  
Net loss$(7,954,603) $(3,822,966) 
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:  
Depreciation and amortization70,207  74,422  
Amortization of software development costs and other intangible assets808,169  809,907  
Impairment of intangible assets4,300,000    
Gain on disposal of equipment(23,706) (515) 
Provision for (recovery of) losses on accounts receivable107,315  (29,940) 
Stock-based compensation, net248,278  318,205  
Fair value of stock issued for payment of services62,499  74,995  
Loss on settlement of acquisition costs payable  191,439  
Changes in operating assets and liabilities:  
Accounts receivable2,436,269  2,916,339  
Prepaid expenses and other current assets(53,972) (279,352) 
Accounts payable(1,229,576) (879,507) 
Accrued expenses(101,561) (367,733) 
Contract liabilities(625,502) 876,408  
Right-of-use asset24,024  (25,428) 
Deferred rent  (17,420) 
Net cash used for operating activities(1,932,159) (161,146) 
Cash flows from investing activities:
Purchase of equipment, net24,200  (15,535) 
Software development costs(97,129) (451,619) 
Security deposits111,421  2,893  
Net cash provided by (used for) investing activities38,492  (464,261) 
Cash flows from financing activities:  
Proceeds from sale of securities15,361,853  10,000,000  
Proceeds from stock purchase plan and option exercise issuances2,313  3,096  
Net repayments on line of credit  (1,246,343) 
Proceeds from notes payable1,934,587    
Payments on finance obligation(11,410)   
Stock issuance costs(458,032) (774,557) 
Net cash provided by financing activities16,829,311  7,982,196  
Net increase in cash and cash equivalents14,935,644  7,356,789  
Cash and cash equivalents, beginning of period5,884,629  1,968,403  
Cash and cash equivalents, end of period$20,820,273  $9,325,192  
Supplemental cash flow information:  
Interest paid$36,594  $223,757  
Non-cash financing and investing activities:  
Equipment acquired with financing arrangement$43,003  $  
Common stock issued for payment of acquisition liability$  $1,076,022  
Fair value of common stock issued for future services, net$125,000  $192,550  



See accompanying notes to the unaudited consolidated financial statements.
5

IZEA Worldwide, Inc.
Notes to the Unaudited Consolidated Financial Statements


NOTE 1. COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Nature of Business
IZEA Worldwide, Inc. (together with its wholly-owned subsidiaries, “we,” “us,” “our,” “IZEA” or the “Company”) is a public company incorporated in the state of Nevada. In January 2015, IZEA purchased all of the outstanding shares of capital stock of Ebyline, Inc. (“Ebyline”). In July 2016, IZEA purchased all the outstanding shares of capital stock of ZenContent, Inc. (“ZenContent”). The legal entity of ZenContent was dissolved in December 2017 and the legal entity of Ebyline was dissolved in December 2019 after all assets and transactions were transferred to IZEA. 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. On July 26, 2018, a subsidiary of the Company merged with TapInfluence, Inc. (“TapInfluence”) pursuant to the terms of an Agreement and Plan of Merger dated as of July 11, 2018, as amended (the “Merger Agreement”).
The Company creates and operates online marketplaces that connect marketers with content creators. The creators are compensated by the Company 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 personal websites, blogs, and social media channels. Marketers receive influential consumer content and engaging, shareable stories that drive awareness.
The Company’s primary technology platform, the IZEA Exchange (“IZEAx”), enables transactions to be completed at scale through the management of custom content workflow, creator search and targeting, bidding, analytics, and payment processing. IZEAx is designed to provide a unified ecosystem that enables the creation and publication of multiple types of custom content through a creator’s personal websites, blogs, or social media channels including Twitter, Facebook, Instagram, and YouTube, among others. Until December 2019 when it was merged into IZEAx, the Company operated the Ebyline technology platform, which was originally designed as a self-service content marketplace to replace in-house editorial newsrooms in news agencies with a “virtual newsroom” to source and handle their content workflow with outside creators. In July 2016, the Company acquired the ZenContent technology platform to use as an in-house workflow tool that enables the Company to produce highly scalable, multi-part production of content for both e-commerce entities and brand customers. The TapInfluence technology platform, acquired in 2018, performed in a similar manner to IZEAx and was being utilized by the majority of the TapInfluence customers as a self-service platform via a licensing arrangement, allowing access to the platform and its creators for self-managed marketing campaigns. After the migration of the last customers to IZEAx from the Ebyline platform in December 2019 and from the TapInfluence platform in February 2020, all marketplace revenue is solely generated from the IZEAx platform.

Impact of COVID-19
        On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (COVID-19) as a global pandemic and recommended containment and mitigation measures worldwide. As the spread continued throughout the United States, the Company directed all of its staff to work from home effective March 16, 2020. All of the Company’s business operations and ability to support its customers is fully functional while its employees are working from remote locations. However, the Company has begun to see impacts on its operations due to changes in advertising decisions, timing and spending priorities from customers, which will result in a negative impact to Company bookings and future revenue. While the disruption is currently expected to be temporary, there is uncertainty around the duration and the total economic impact. Therefore, while the Company expects this matter to negatively impact its business, such events are generally outside of the Company’s control and could have a material adverse impact on the Company’s business, results of operations, and financial position in future periods. As a result, the Company leveraged its balance sheet by drawing on its secured credit facility and obtaining a loan under the Paycheck Protection Program (“PPP”) administered by the U.S. Small Business Administration (“SBA”) to increase the Company’s cash position and help preserve its financial flexibility. The secured credit facility was paid down by June 30, 2020 after the Company was able to secure additional capital as described in Note 8.

        In light of the adverse economic conditions caused by the COVID-19 pandemic, the Company implemented temporary salary and wage reductions averaging 20%, including a 21% reduction in base salary for the Company’s Chief Executive Officer and Chief Operating Officer. These salary reductions were effective as of April 6, 2020 until the earlier of December 31, 2020 or the Company’s restoring normal payroll rates to the majority of its employees. Members of the Company’s Board of Directors also agreed to a similar temporary reduction to their fees. In addition to the salary reductions, the Company also temporarily reduced certain employee benefits and implemented a new employee hiring freeze, during the three months ended June 30, 2020. The employee salary reductions and hiring restrictions were removed effective July 1, 2020 after the Company was able to secure additional capital as described in Note 8.

The Company did not renew leases for its headquarters and temporary office spaces as additional means to reduce fixed costs and the Company intends to have all employees work from home for the foreseeable future to protect the health and
6

IZEA Worldwide, Inc.
Notes to the Unaudited Consolidated Financial Statements

safety of its workers. There can be no assurance that the Company will return to a typical office environment in the future, nor can the Company say what that office environment may look like. The Company also reduced and shifted marketing expenses in the second quarter and eliminated travel for the near-term future. These measures may not be sustainable and could prove detrimental long term. Therefore, management will be reviewing these initial actions and other options in conjunction with the changing internal and external economic conditions on an ongoing basis.

Liquidity and Going Concern
        The Company’s consolidated financial statements are prepared using GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred significant net losses and negative cash flow from operations for most periods since its inception, which has resulted in a total accumulated deficit of $68,339,372 as of June 30, 2020. For the six months ended June 30, 2020, the Company had a net loss of $7,954,603
        Given the Company’s small market cap, extreme volatility and uncertainty in the financial markets, along with a line of credit that is only available on eligible accounts receivable invoices, coupled with expected reductions in future orders and receivables upon which to access funding, the Company applied for and on April 23, 2020 received a loan from Western Alliance Bank in the principal amount of $1,905,100 under the PPP (the “PPP Loan”), which was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), in order to retain its employees during this time of uncertainty.

Subsequently, the Company filed a shelf registration statement on Form S-3 and raised gross proceeds of $15,361,853 in June 2020. The Company's cash balance as of June 30, 2020 was $20,820,273. With the cash on hand as of June 30, 2020, in addition to the PPP Loan (see Note 6), the Company expects to have sufficient cash reserves and financing sources available to cover expenses at least one year from the issuance of this Quarterly Report based on our current estimates of revenue and expenses for the next twelve months of operations.

Basis of Presentation
        The accompanying consolidated balance sheet as of June 30, 2020, the consolidated statements of operations for the three and six months ended June 30, 2020 and 2019, the consolidated statements of stockholders' equity for the three and six months ended June 30, 2020 and 2019, and the consolidated statements of cash flows for the six months ended June 30, 2020 and 2019 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, 2019 has been derived from the audited consolidated financial statements at that date but, in accordance with the rules and regulations of the SEC, does not include all of the information and notes required by GAAP for complete financial statements. Operating results for the three and six months ended June 30, 2020 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, 2019 included in the Company's Annual Report on Form 10-K filed with the SEC on March 30, 2020.

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.
The consolidated financial statements were prepared using the acquisition method of accounting with IZEA considered the accounting acquirer of Ebyline, ZenContent and TapInfluence. Under the acquisition method of accounting, the purchase price is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair market values with any excess purchase price allocated to goodwill.

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.

7

IZEA Worldwide, Inc.
Notes to the Unaudited Consolidated Financial Statements

The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to: the magnitude and duration of COVID-19, the extent to which it will impact worldwide macroeconomic conditions, the speed of the anticipated recovery, access to capital markets, and governmental and business reactions to the pandemic. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of June 30, 2020 and through the date of the filing of this Quarterly Report on Form 10-Q. The accounting matters assessed included, but were not limited to estimates related to revenue, the accounting for potential liabilities and accrued expenses, the assumptions utilized in valuing stock-based compensation issued for services, the realization of deferred tax assets, and assessments of impairment related to long-lived assets and intangibles. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in additional material impacts to the Company’s consolidated financial statements in future reporting periods.

Despite the Company’s efforts, the ultimate impact of COVID-19 depends on factors beyond the Company’s knowledge or control, including the duration and severity of the outbreak, as well as third-party actions taken to contain its spread and mitigate its public health effects. As a result, the Company is unable to estimate the full extent to which COVID-19 will negatively impact its financial results or liquidity. However, in consideration of the effect of COVID-19 on the assumptions and estimates used in the preparation of the June 30, 2020 financial statements, the Company identified the goodwill impairment disclosed in Note 3 as a material adverse effect on its results of operations and financial position that was caused by COVID-19’s effect on economic conditions.
 
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.
 
Accounts Receivable and Concentration of Credit Risk
        The Company’s accounts receivable balance consists of net trade receivables and unbilled receivables. Trade receivables are customer obligations due under normal trade terms. Unbilled receivables represent amounts owed for work that has been performed, but not yet billed. The Company had trade receivables of $3,013,967 and unbilled receivables of $39,168 at June 30, 2020. The Company had trade receivables of $5,106,314 and unbilled receivables of $490,405 at December 31, 2019. Management considers an account to be delinquent when the customer has not paid an amount due by its associated due date. Uncollectibility of accounts receivable is not significant since most customers are bound by contract and are required to fund the Company for all the costs of an “opportunity,” defined as an order created by a marketer for a creator to develop or share content on behalf of a marketer. 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. Management determines the collectibility of accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions. The Company had a reserve for doubtful accounts of $175,000 and $145,000 as of June 30, 2020 and December 31, 2019, respectively. Management believes that this estimate is reasonable, but there can be no assurance that the estimate will not change as a result of a change in economic conditions or business conditions within the industry, the individual customers or the Company. Any adjustments to this account are reflected in the consolidated statements of operations as a general and administrative expense. Bad debt expense was approximately 1% of revenue or less for the six months ended June 30, 2020 and 2019.
 
        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. However, with the Company’s acquisition of TapInfluence, it has increased credit exposure on certain customers who carry significant credit balances related to their marketplace spend. 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 one customer that accounted for 10% of total accounts receivable at June 30, 2020 and no customers that accounted for an aggregate of more than 10% of total accounts receivable at December 31, 2019. The Company had one customer that accounted for 10% of its revenue during the three months ended June 30, 2020 and no customer that accounted for more than 10% of its revenue during the three months ended June 30, 2019. The Company had no customers that accounted for more than 10% of its revenue during the six months ended June 30, 2020 or 2019.

Property and Equipment
        Property and equipment are recorded at cost, or if acquired in a business combination, at the acquisition date fair value.
Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets as follows:
8

IZEA Worldwide, Inc.
Notes to the Unaudited Consolidated Financial Statements

Computer Equipment3 years
Office Equipment3 - 10 years
Furniture and Fixtures5 - 10 years

        Leasehold improvements are amortized over the shorter of the term of the lease or the estimated useful lives of the improvements. Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for betterments and major improvements are capitalized and depreciated over the remaining useful lives of the assets. 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. There were no material impairment charges associated with the Company’s long-lived tangible assets during the three and six months ended June 30, 2020 and 2019.

Goodwill
Goodwill represents the excess of the purchase consideration of an acquired business over the fair value of the underlying net tangible and intangible assets. The Company has goodwill in connection with its acquisitions of Ebyline, ZenContent and TapInfluence. Goodwill is not amortized but instead it is 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 for the amount of impairment during the fiscal quarter in which the determination is made.

        The Company performs its annual impairment tests of goodwill as of October 1 of each year, or more frequently, if certain indicators are present. For instance, in March 2020, the Company identified triggering events, including the reduction in its projected revenue due to adverse economic conditions caused by the COVID-19 pandemic, the continuation of a market capitalization below the Company’s carrying value, and uncertainty for recovery given the volatility of the capital markets surrounding COVID-19. Therefore, the Company performed an interim assessment of goodwill, as described in Note 3. 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. Net assets and goodwill of acquired businesses are allocated to the reporting unit associated with the acquired business based on the anticipated organizational structure of the combined entities. If two or more components are deemed economically similar, those components are aggregated into one reporting unit when performing the annual goodwill impairment review. The Company has one reporting unit as of June 30, 2020.

        In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). To address concerns over the cost and complexity of the two-step goodwill impairment test, the new standard removes the requirement for the second step of the goodwill impairment test for certain entities. An entity may apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company adopted this method in the third quarter of 2019 and there were no changes to its financial statements at the time of the adoption.

Intangible Assets
        The Company acquired the majority of its intangible assets through its acquisitions of Ebyline, ZenContent and TapInfluence. The Company is amortizing the identifiable intangible assets over periods of 12 to 60 months. See Note 3 for further details.

        Management reviews long-lived assets, including property and equipment, 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, which is calculated as the difference between the fair value of the asset 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.



9

IZEA Worldwide, Inc.
Notes to the Unaudited Consolidated Financial Statements

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 infrastructure development stage, including significant enhancements and upgrades, are capitalized. These costs include personnel and related employee benefits expenses for employees or consultants who are directly associated with and who devote time to software projects, and external direct costs of materials obtained in developing the software. These software development and acquired technology costs are amortized on a straight-line basis over the estimated useful life of five years upon initial release of the software or additional features. See Note 4 for further details.

Leases
On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which 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 historically generated revenue from five 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 IZEAx and TapInfluence platforms (“Marketplace Spend Fees”); (3) revenue from fees charged to access the IZEAx, Ebyline, and TapInfluence platforms (“License Fees”) (4) revenue from transactions generated by the self-service use of the Company's Ebyline platform for professional custom content workflow (“Legacy Workflow Fees”); and (5) revenue derived from other fees such as inactivity fees, early cash-out fees, and plan fees charged to users of the Company's platforms (“Other”). After the migration of the last customers from the Ebyline platform to IZEAx in December 2019, there is no longer any revenue generated from Legacy Workflow Fees and all such revenue is reported as Marketplace Spend Fees under the IZEAx platform.

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 the principal or the 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 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 completion of services. Billings in advance of
10

IZEA Worldwide, Inc.
Notes to the Unaudited Consolidated Financial Statements

completed services are recorded as a contract liability until earned. The Company assesses collectibility based on a number of factors, including the creditworthiness of the customer and payment and transaction history. The allocation of the transaction price to the performance obligations in the contract is based on a cost-plus methodology.
        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 article, informational material or videos. Marketers typically purchase influencer marketing services for the purpose of providing public awareness or advertising buzz regarding the marketer’s brand and they purchase custom content for internal and external use. The Company may provide one type or a combination of all types of these performance obligations on a statement of work for a lump sum fee. The Company allocates revenue to each performance obligation in the contract at inception based on its relative standalone selling price. These performance obligations are to be provided over a stated period that generally ranges from one day to one year. Revenue is accounted for when the performance obligation has been satisfied depending on the type of service provided. 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. 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 delivery of custom content represents a distinct performance obligation that is satisfied over time as the Company has no alternative for the custom content and the Company has an enforceable right to payment for performance completed to date under the contracts. The Company considers custom content to be a series of distinct services that are substantially the same and that have the same pattern of transfer to the customer, and revenue is recognized over time using an output method based on when each individual 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 and Legacy Workflow Fees Revenue
For Marketplace Spend Fees and Legacy Workflow Fees Revenue, the self-service customer instructs 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 solely arranging for the third-party creator or influencer to provide the services directly to the self-service customer through the platform or by posting the requested content.
License Fees Revenue
License Fees Revenue is generated through the granting of limited, non-exclusive, non-transferable licenses to customers for the use of the IZEAx and, until February 2020, the TapInfluence technology platforms for an agreed-upon subscription period. Customers license the platforms to manage their own 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, inactivity fees, and early cash-out fees. Plan fees are recognized within the month they relate to, inactivity fees are recognized at a point in time when the account is deemed inactive, and early cash-out fees are recognized when a cash-out is either below certain minimum thresholds or when accelerated payout timing is requested.
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.

Advertising Costs
        Advertising costs are charged to expense as they are incurred, including payments to content creators to promote the Company. Advertising costs charged to operations for the three months ended June 30, 2020 and 2019 were approximately $79,000 and $149,000, respectively. Advertising costs charged to operations for the six months ended June 30, 2020 and 2019
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IZEA Worldwide, Inc.
Notes to the Unaudited Consolidated Financial Statements

were approximately $246,000 and $227,000, respectively. Advertising costs are included in sales and marketing expense in the accompanying consolidated statements of operations.

Income Taxes
        The Company has not recorded federal income tax expense due to its history of net operating losses. 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 minimal state franchise tax in four states, which is included in general and administrative expense in the consolidated statements of operations.
 
        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 by the Internal Revenue Service are 2016 through 2019.

        On March 27, 2020, President Trump signed into law the CARES Act. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. It also appropriated funds for the PPP loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. The Company has not yet deferred any payroll taxes or claimed any other tax benefits provided by the CARES Act, but it is currently examining any changes in final regulations to determine if there will be any impact on its business and tax positions.

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. The Company does not have any Level 1 or 2 financial assets or liabilities. The Company’s Level 3 financial liabilities measured at fair value included its right-of-use liability as of December 31, 2019. The respective carrying values of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include cash and cash equivalents, accounts receivable, accounts payable, contract liabilities, and accrued expenses. Unless otherwise disclosed, the fair values of the Company’s long-term debt obligations approximate their carrying value based upon current rates available to the Company.

Stock-Based Compensation
        Stock-based compensation cost related to stock options granted under the 2011 Equity Incentive Plan and the 2011 B Equity Incentive Plan (together, the “2011 Equity Incentive Plans”) (see Note 8) 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 closing stock price of its common stock on the date of the grant as the associated fair value of its common stock. For issuances after June 2019, the Company estimates the volatility of its common stock at the date of grant based on the volatility of its stock during the period. For issuances prior to June 30, 2019,
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IZEA Worldwide, Inc.
Notes to the Unaudited Consolidated Financial Statements

the Company estimated the volatility of its common stock at the date of grant based on the volatility of comparable peer companies that were publicly traded and had a longer trading history than itself. The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms, vesting schedules and post-vesting forfeitures. The Company uses the risk-free interest rate on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term approximately equal to the expected life of the award. 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 used the following assumptions for stock options granted under the 2011 Equity Incentive Plans during the three and six months ended June 30, 2020 and 2019:
Three Months EndedSix Months Ended
2011 Equity Incentive Plans AssumptionsJune 30,
2020
June 30,
2019
June 30,
2020
June 30,
2019
Expected term6 years6 years6 years6 years
Weighted average volatility101.38%61.85%101.40%62.01%
Weighted average risk-free interest rate0.44%2.38%0.49%2.39%
Expected dividends
Weighted average expected forfeiture rate8.21%5.92%8.50%6.12%
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 which 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 8 for additional information related to these shares.

Recently Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements
Fair Value Measurements: In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The new guidance amends the disclosure requirements for recurring and nonrecurring fair value measurements by removing, modifying, and adding certain disclosures on fair value measurements in ASC 820. The amendments on changes to the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company fair valued its right-of-use liability outstanding at December 31, 2019 as a Level 3. The adoption of ASU 2018-13 on January 1, 2020 was not material to the Company’s consolidated financial statements.

Collaborative Arrangements: In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the interaction between Topic 808 and Topic 606 (“ASU 2018-18”). The guidance makes targeted improvements to GAAP for collaborative arrangements including: (i) clarifying that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account, (ii) adding unit-of-account guidance in ASC 808 to align with the guidance in ASC 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of ASC 606, and (iii) requiring that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under ASC 606 is precluded if the collaborative arrangement participant is not a customer. The amendments in this update are effective for public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments should be applied retrospectively to the date of initial application of ASC 606. An entity may elect to apply the practical expedient for contract modifications that is permitted for entities using the modified retrospective transition method in ASC 606. The Company adopted ASU 2018-18 on January 1, 2020 and applied the amendments only to contracts that were not completed as of such date. The adoption of ASU 2018-18 was not material to the Company’s consolidated financial statements.

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IZEA Worldwide, Inc.
Notes to the Unaudited Consolidated Financial Statements

Recently Issued Accounting Pronouncements Not Yet Adopted
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 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 the ASU 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. The Company is currently evaluating the expected impact of adopting ASU 2016-13 on its consolidated financial statements and disclosures.

        Income Taxes: In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact on its consolidated financial statements and related disclosures.

        Investments - Equity Securities: In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, 323 and Topic 815 (“ASU 2020-01”) to clarify the scope and interaction between these standards for equity securities, equity method and certain derivatives. ASU 2020-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact on its consolidated financial statements and related disclosures.

        Reference Rate Reform: In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. It also provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. ASU 2020-04 is effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company believes this guidance will not have a material impact on its financial statements.


NOTE 2.  PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
June 30, 2020December 31, 2019
Furniture and fixtures$226,577  $298,205  
Office equipment64,891  86,884  
Computer equipment501,299  455,008  
Leasehold improvements  338,018  
Total792,767  1,178,115  
Less accumulated depreciation and amortization(510,685) (868,335) 
Property and equipment, net$282,082  $309,780  

Depreciation and amortization expense on property and equipment recorded in depreciation and amortization expense in the consolidated statements of operations was $34,578 and $35,946 for the three months ended June 30, 2020 and 2019, respectively, and was $70,207 and $74,422 for the six months ended June 30, 2020 and 2019, respectively.


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IZEA Worldwide, Inc.
Notes to the Unaudited Consolidated Financial Statements

NOTE 3.  INTANGIBLE ASSETS
The identifiable intangible assets, other than Goodwill, consists of the following assets: 
June 30, 2020December 31, 2019Useful Life (in years)
BalanceAccumulated AmortizationBalanceAccumulated Amortization
Content provider networks$160,000  $160,000  $160,000  $160,000  2
Trade names87,000  87,000  87,000  87,000  1
Developed technology820,000  770,167  820,000  622,167  5
Self-service content customers2,810,000  1,871,111  2,810,000  1,437,778  3
Managed content customers2,140,000  2,140,000  2,140,000  2,140,000  3
Domains166,469  149,822  166,469  133,175  5
Embedded non-compete provision28,000  26,833  28,000  19,833  2
Total$6,211,469  $5,204,933  $6,211,469  $4,599,953  

Total identifiable intangible assets from the Company’s acquisitions and other acquired assets net of accumulated amortization thereon consists of the following:
June 30, 2020December 31, 2019
Ebyline Intangible Assets$2,370,000  $2,370,000  
ZenContent Intangible Assets722,000