IZEA WORLDWIDE, INC. 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," "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: •the impact of the COVID-19 pandemic on our operations, financial condition, and the worldwide economy; •customer cancellations; •our ability to raise 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; •our ability to maintain and grow our business; •results of any future litigation; •competition in the industry; •variability of operating results; •our ability to maintain and enhance our brand; •accuracy of tracking the number of user accounts; •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; •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 customers; •the potential liability with respect to actions taken by our existing and past employees; •risks associated with international sales; and •the other risks and uncertainties described in the Risk Factors sections of this Quarterly Report and our Annual Report on Form 10-K for the year endedDecember 31, 2020 . All forward-looking statements in this document are based on our current expectations, intentions, and beliefs using information currently available to us as of the date of this Quarterly Report, and we assume no obligation to update any forward-looking statements, except as required by law. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. 24
-------------------------------------------------------------------------------- Table of Contents Company OverviewIZEA 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 bloggers and tweeters ("creators"). Our technology brings the marketers and creators together, enabling their transactions to be completed at scale through the management of custom content workflow, creator search and targeting, bidding, analytics, and payment processing. We help power the creator economy, allowing everyone from college students and stay-at-home individuals to celebrities and accredited journalists the opportunity to monetize their content, creativity and influence through our marketers. These creators are compensated by IZEA 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 engage us to gain access to our industry expertise, technology, data, analytics, and network of creators. The majority of the marketers engage us to perform these services on their behalf, but they also have the ability to use our marketplaces on a self-service basis by licensing our technology. Our technology is used for two primary purposes: the engagement of creators for influencer marketing campaigns, or the engagement of creators to create stand-alone custom content for the marketers' own use and distribution. Marketers receive influential consumer content and engaging, shareable stories that drive awareness. Our 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. In 2020, we launched two new platforms, BrandGraph and Shake. BrandGraph is a social media intelligence platform that is heavily integrated with IZEAx and both platforms rely heavily on data from each other, but it is also available as a stand-alone platform. The platform maps and classifies the complex hierarchy of corporation-to-brand relationships by category and associates social content with brands through a proprietary content analysis engine. Shake is a new online marketplace where buyers can quickly and easily hire creators of all types for influencer marketing, photography, design, and other digital services. The Shake platform is aimed at digital creatives seeking freelance "gig" work. Creators list available "Shakes" on their accounts in the platform and marketers select and purchase creative packages from them through a streamlined chat experience, assisted by ShakeBot - a proprietary, artificial intelligence assistant. Impact of COVID-19 on our Business Our operations, sales, and finances were impacted by the COVID-19 pandemic during the three months endedMarch 31, 2020 . In an effort to protect the health and safety of our employees, we took precautionary action and directed all staff to work from home effectiveMarch 16, 2020 and we allowed the leases for our company headquarters and temporary office spaces to expire at the end of their terms throughout 2020. We have not experienced any major declines in operating efficiency in our remote working environment and have made the decision to continue our work from home policy indefinitely as a virtual first employer. While we are able to maintain full operations remotely, the economic conditions caused by COVID-19 have negatively impacted the business activity of our customers. We observed changes in advertising decisions, timing, and spending priorities from brand and agency customers, which resulted in a negative impact to our revenue in 2020. When COVID-19 is demonstrably contained, we anticipate a rebound in economic activity, depending on the rate, pace, and effectiveness of the containment efforts deployed by various national, state, and local governments; however, the timing and extent of any such rebound is uncertain. In the fourth quarter of 2020 and the first quarter of 2021, we saw a year over year increase in Managed Services bookings, our net orders from customers. That growth in bookings led to a 13% growth in overall revenue in the three months endedMarch 31, 2021 . While we have seen an increase in Managed Services bookings, there is still risk that bookings will not be recognized as revenue if customers cancel prior to the performance of service. We will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, employees, and prospects, or on our future financial results. 25
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Key Components of Results of Operations Overall consolidated results of operations are evaluated based on Revenue, Cost of Revenue, Sales and Marketing expenses, General and Administrative expenses, Depreciation and Amortization, and Other Income (Expense), net.
Revenue
We generate revenue from four primary sources: (1) revenue from our managed
services when a marketer (typically a brand, agency or partner) pays us to
provide custom content, influencer marketing, amplification or other campaign
management services ("Managed Services"); (2) revenue from fees charged to
software customers on their marketplace spend within our IZEAx and Shake
platforms ("Marketplace Spend Fees"); (3) revenue from license and subscription
fees charged to access the IZEAx and BrandGraph platforms ("License Fees"); and
(4) revenue derived from other fees such as inactivity fees, early cash-out
fees, and other miscellaneous fees charged to users of our platforms ("Other
Fees").
As discussed in more detail within "Critical Accounting Policies and Use of
Estimates" under "Note 1. Company and Summary of Significant Accounting
Policies," under Part I, Item 1 herein, revenue from Marketplace Spend Fees is
reported on a net basis and revenue from all other sources, including Managed
Services, License Fees, and Other Fees are reported on a gross basis. We further
categorize these sources into two primary groups: (1) Managed Services and (2)
SaaS Services, which includes revenue from Marketplace Spend Fees, License Fees,
and Other Fees.
Cost of Revenue
Our cost of revenue consists of direct costs paid to our third-party creators
who provide the custom content, influencer marketing or amplification services
for our Managed Service customers where we report revenue on a gross basis. It
also includes internal costs related to our campaign fulfillment and SaaS
support departments. These costs include salaries, bonuses, commissions,
stock-based compensation, employee benefit costs, and miscellaneous departmental
costs related to the personnel who are primarily responsible for providing
support to our customers and ultimately fulfillment of our obligations under our
contracts with customers. Where appropriate, we capitalize costs that were
incurred with software that is developed or acquired for our revenue supporting
platforms and amortize these costs over the estimated useful lives of those
platforms. This amortization is separately stated under depreciation and
amortization in our consolidated statements of operations and comprehensive
loss.
Sales and Marketing Our sales and marketing expenses consist primarily of salaries, bonuses, commissions, stock-based compensation, employee benefit costs, travel and miscellaneous departmental costs for our marketing, sales and sales support personnel, as well as marketing expenses such as brand marketing, public relation events, trade shows and marketing materials, and travel expenses.
General and Administrative
Our general and administrative expense consists primarily of salaries, bonuses,
commissions, stock-based compensation, employee benefit costs, and miscellaneous
departmental costs related to our executive, finance, legal, human resources,
and other administrative personnel. It also includes travel, public company and
investor relations expenses, as well as accounting and legal professional
services fees, leasehold facilities, and other corporate-related expenses.
General and administrative expense also includes our technology and development
costs consisting primarily of our payroll costs for our internal engineers and
contractors responsible for developing, maintaining, and improving our
technology, as well as hosting and software subscription costs. These costs are
expensed as incurred, except to the extent that they are associated with
internal use software that qualifies for capitalization, which are then recorded
as software development costs in the consolidated balance sheet. We also
capitalize costs that are related to our acquired intangible assets.
Depreciation and amortization related to these costs are separately stated under
depreciation and amortization in our consolidated statements of operations and
comprehensive loss. General and administrative expense also includes current
period gains and losses on our acquisition costs payable, as well as gains and
losses from the sale of fixed assets. Impairments on fixed assets, intangible
assets and goodwill, are included as part of general and administrative expense
when they are not material and broken out separately in our consolidated
statements of operations and comprehensive loss when they are material.
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Depreciation and Amortization
Depreciation and amortization expense consists primarily of amortization of our
internal use software and acquired intangible assets from our business
acquisitions. To a lesser extent, we also have depreciation and amortization on
equipment and leasehold improvements used by our personnel. Costs are amortized
or depreciated over the estimated useful lives of the associated assets.
Other Income (Expense)
Interest Expense. Interest expense is mainly related to the imputed interest on
our acquisition costs payable and interest when we use our secured credit
facility.
Other Income (Expense). Other income (expense) consists primarily of interest
income for interest earned or changes in the value of our foreign assets and
liabilities and foreign currency exchange gains and losses on foreign currency
transactions, primarily related to the Canadian Dollar.
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Results of Operations for the Three Months Ended
Three Months Ended March 31,
2021 2020 $ Change % Change
Revenue $ 5,375,632 $ 4,763,668 $ 611,964 13 %
Costs and expenses:
Cost of revenue (exclusive of amortization) 2,404,752 2,140,517 264,235 12 %
Sales and marketing 2,078,323 1,523,143 555,180 36 %
General and administrative 2,535,147 2,417,838 117,309 5 %
Impairment of goodwill - 4,300,000 (4,300,000) (100) %
Depreciation and amortization 365,529 501,269 (135,740) (27) %
Total costs and expenses 7,383,751 10,882,767 (3,499,016) (32) %
Loss from operations (2,008,119) (6,119,099) 4,110,980 (67) %
Other income (expense):
Interest expense (13,793) (6,618) (7,175) 108 %
Other income (expense), net 29,474 (37,744) 67,218 (178) %
Total other income (expense), net 15,681 (44,362) 60,043 (135) %
Net loss $ (1,992,438) $ (6,163,461) $ 4,171,023 (68) %
RevenueThe 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,
2021 2020 $ Change % Change
Managed Services Revenue $ 4,872,034 91 % $ 4,125,061 87 % $ 746,973 18 %
Marketplace Spend Fees 108,797 2 % 166,293 3 % (57,496) (35) %
License Fees 383,041 7 % 451,548 10 % (68,507) (15) %
Other Fees 11,760 - % 20,766 - % (9,006) (43) %
SaaS Services Revenue 503,598 9 % 638,607 13 % (135,009) (21) %
Total Revenue $ 5,375,632 100 % $ 4,763,668 100 % $ 611,964 13 %
Managed Services revenue during the three months ended March 31, 2021 , increased
18% from the same period in 2020, primarily due to increased orders from new and
existing customers returning to and expanding their marketing efforts through
sponsored social marketing as compared to the prior year period when customers
began to curtail marketing efforts in light of the COVID-19 uncertainties.
SaaS Services revenue is generated by the self-service use of our technology
platforms by marketers to manage their own content workflow and influencer
marketing campaigns. It consists of fees earned on the marketer's spend within
the IZEAx, BrandGraph, and Shake platforms, along with the license and support
fees to access the platform services.
•Marketplace Spend Fees decreased by $57,496 for the three months ended
March 31, 2021 when compared with the same period in 2020, primarily as a result
of lower spend levels from our marketers and lower average fees assessed on
those spends as a result of competitive pricing efforts in IZEAx. Revenue from
Marketplace Spend Fees represents our net margins received on this business.
•License Fees revenue decreased during the three months ended March 31, 2021 to
$383,041 compared to $451,548 in the same period of 2020. The decrease was a
result of the implementation of a competitive standardized pricing system for
all new and renewing IZEAx license fee customers in 2020 that was at a lower
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price point than the former licensing contracts put in place prior to 2020. The
decrease in IZEAx license fees was offset by an increase in subscriptions for
BrandGraph and IZEAx Discovery services. Prior to 2021, the subscription fees
for BrandGraph and IZEAx Discovery were classified under Other Fees, but these
amounts from 2020 have been reclassified under License Fees to conform with
their 2021 classification.
•Other Fees revenue decreased (43)% for the three months ended March 31, 2021
compared to the same period in 2020 due to a decrease in the amount of
inactivity fees assessed on user accounts.
Cost of Revenue
Cost of revenue for the three months ended March 31, 2021 increased by $264,235 ,
or approximately 12%, compared to the same period in 2020 primarily as a result
of the increase in Managed Services revenue. Cost of revenue as a percentage of
revenue remained consistent at 45% in 2020 and 45% in 2021.
Sales and Marketing
Sales and marketing expense for the three months ended March 31, 2021 increased
by $555,180 , or approximately 36%, compared to the same period in 2020.
Advertising and marketing expenses increased $328,000 as a result of increased
spends to increase brand awareness and improve customer acquisition,
satisfaction and retention. Our payroll and personnel related expenses and stock
compensation for sales and marketing personnel increased $208,000 as a result of
increased commission and bonus expense due to the increase in customer bookings
in the first quarter of 2021.
General and Administrative
General and administrative expense for the three months ended March 31, 2021
increased by $117,309 , or approximately 5%, compared to the same period in 2020.
General and administrative expense for the three months ended March 31, 2021
increased due to a $166,000 increase in payroll and personnel related expenses
primarily as a result of an increase in annual salaries, and higher bonus and
stock compensation expense due to the improved company performance in the first
quarter of 2021. Contractor expenses increased $209,000 as we are increasing the
number of internal and external engineers working on our technology offerings.
These increases were partially offset by decreases in (i) rent expense of
$142,000 due to the non-renewal of expiring office facility leases, (ii)
software and AWS hosting costs of $77,000 due to continued efforts to reduce
software subscriptions in 2020 and improve efficiencies in our data storage,
(iii) non-renewal of investor relations contracts, and (iv) the elimination of
travel costs of $19,000 due to limited travel after the outbreak of COVID-19.
Impairment of Goodwill
In March 2020 , we identified triggering events due to the reduction in our
projected revenue due to adverse economic conditions caused by the COVID-19
pandemic, the continuation of a market capitalization below our carrying value,
and uncertainty for recovery given the volatility of the capital markets
surrounding COVID-19. We performed an interim assessment of goodwill, using the
discounted cash flow method under the income approach and the guideline
transaction method under the market approach, and determined that the carrying
value of our Company's reporting unit as of March 31, 2020 exceeded the fair
value. As a result of the valuation, we recorded a $4.3 million impairment of
goodwill resulting in an expense for the three months ended March 31, 2020 .
Depreciation and Amortization
Depreciation and amortization expense for the three months ended March 31, 2021
decreased by $135,740 , or approximately 27%, compared to the same period in
2020.
Depreciation and amortization expense on property and equipment was $32,486 and
$35,629 for the three months ended March 31, 2021 and 2020, respectively.
Depreciation expense has increased slightly due to the purchase of new equipment
in recent periods.
Amortization expense was $333,043 and $465,640 for the three months ended
March 31, 2021 and 2020, respectively. Amortization expense related to
intangible assets acquired in the Ebyline, ZenContent, and TapInfluence
acquisitions was $216,667 and $364,990 for the three months ended March 31, 2021
and 2020, respectively, while amortization expense related to internal use
software development costs was $116,376 and $100,650 for the three months ended
March 31, 2021 and 2020, respectively. Amortization on our intangible
acquisition assets decreased in 2021 as several of these assets were fully
amortized during 2020. Amortization on our internal use software increased due
to the release of BrandGraph and Shake in 2020.
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Other Income (Expense) Interest expense increased by$7,175 to$13,793 during the three months endedMarch 31, 2021 compared to the same period in 2020 due primarily to increase in our financing arrangements, such as the PPP Loan, and the interest imputed thereon during the three months endedMarch 31, 2021 compared to the same period in 2020. The$67,218 increase in other income during the three months endedMarch 31, 2021 when compared to the same period in 2020 resulted primarily from increased interest income received on the substantial increase in cash balances, as well as, currency exchange gains on our Canadian transactions in 2021 compared with losses in 2020. Net Loss Net loss for the three months endedMarch 31, 2021 was$1,992,438 , a$4,171,023 decrease in the net loss of$6,163,461 for the same period in 2020. The decrease in net loss was primarily the result of the impairment of goodwill discussed above partially offset by the increase in sales and marketing and general and administrative expenses in 2021. Key Metric We review information provided by our key financial metric, gross billings, to assess the progress of our business and make decisions on where to allocate our resources. As our business evolves, we may make changes to the key financial metrics that we consider to measure our business in future periods. 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 earned from our customers for the services we perform or 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 inthe 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 the license and other fees together with the total amounts billed to our SaaS customers for their self-service purchase of goods and services on our platforms, termed 'Marketplace Spend Fees'. Our SaaS customers' marketplace spend is billed on a cost-plus basis. SaaS Services Revenue includes the total of License and Other Fees gross billings, plus the Marketplace Spend Fees gross billings netted by our third-party creator costs on those billings in accordance with GAAP. We consider gross billings to be an important indicator of our potential performance as it measures the total dollar volume of transactions generated through our marketplaces. Tracking gross billings allows us to monitor the percentage of gross billings that we are able to retain after payments to our creators. Additionally, tracking gross billings is critical as it pertains to our credit risk and cash flows. We invoice our customers based on total services performed or 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 the time of payment to 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 in order for us to see our contribution margins by revenue stream so that we can better understand where we should be allocating our resources. 30
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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:
Three Months Ended March 31,
2021 2020 $ Change % Change
Managed Services Gross Billings $ 4,872,034 74% $ 4,125,061 68% $ 746,973 18%
Marketplace Spend Fees 1,351,592 20% 1,499,774 25% (148,182) (10)%
License Fees 383,041 6% 451,548 7% (68,507) (15)%
Other Fees 11,760 -% 20,766 -% (9,006) (43)%
SaaS Services Gross Billings 1,746,393 26% 1,972,088 32% (225,695) (11)%
Total Gross Billings $ 6,618,427 100% $ 6,097,149 100% $ 521,278 9%
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 useful information to investors as it primarily excludes non-cash transactions, and it provides consistency to facilitate period-to-period comparisons.
All companies do not calculate Adjusted EBITDA in the same manner, and Adjusted EBITDA as presented by us may not be comparable to Adjusted EBITDA presented by other companies, which limits its usefulness as a comparative measure. Moreover, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for an analysis of our results of operations as under GAAP. These limitations are described further in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . 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 endedMarch 31, 2021 and 2020: Three Months Ended March 31, 2021 2020 Net loss$ (1,992,438) $ (6,163,461) Non-cash stock-based compensation 197,986 129,571 Non-cash stock issued for payment of services 34,696 31,250 Interest expense 13,793 6,618 Depreciation and amortization 365,529 501,269 Impairment of goodwill - 4,300,000 Other non-cash items (7,914) - Adjusted EBITDA$ (1,388,348) $ (1,194,753) Revenue$ 5,375,632 $ 4,763,668 Adjusted EBITDA as a % of Revenue (26) % (25) % 31
-------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources We had cash and cash equivalents of$65,465,588 as ofMarch 31, 2021 as compared to$33,045,225 as ofDecember 31, 2020 , an increase of$32,420,363 , primarily due to net proceeds received from the sale of our common stock, partly offset by operating losses. We have incurred significant net losses and negative cash flow from operations for most periods since our inception in 2006, which has resulted in a total accumulated deficit of$72,627,214 as ofMarch 31, 2021 . To date, we have financed our operations through revenue from operations, the sale of our equity securities, proceeds from the PPP Loan, and borrowings under our secured credit facility. Cash used for operating activities was$829,707 during the three months endedMarch 31, 2021 and is primarily the result of operating losses during the period. Net cash used for investing activities was$13,217 during the three months endedMarch 31, 2021 due to purchases and sales of our fixed assets. Net cash provided by financing activities during the three months endedMarch 31, 2021 was$33,263,287 , which consisted primarily of net proceeds of approximately$33.6 million from the sale of our common stock. At the Market (ATM) Offering OnJune 4, 2020 andJanuary 25, 2021 , we entered into ATM Sales Agreements withNational Securities Corporation , as sales agent ("National Securities "), pursuant to which we could offer and sell shares of our common stock through National Securities, by any method deemed to be an "at the market offering" as defined in Rule 415 under the Securities Act of 1933, as amended, for aggregate purchase prices of up to$40,000,000 and$35,000,000 , respectively (the "ATM Offerings"). During the three months endedMarch 31, 2021 , we sold 8,701,691 shares at an average price of$3.95 per share for total gross proceeds of$34,358,012 . FromJune 4, 2020 throughApril 15, 2021 , we sold a total of 26,005,824 shares at an average price of$2.88 per share for gross proceeds of$74,999,785 in the ATM Offerings under our shelf registration statement on Form S-3 (File No. 333-238619). PPP Loan OnApril 23, 2020 , we received a loan fromWestern Alliance Bank (the "Lender") in the principal amount of$1,905,100 (the "PPP Loan") under the Paycheck Protection Program ("PPP"), which was established under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") administered by theU.S. Small Business Administration (the "SBA"). The term of the promissory note (the "Note") issued in respect of the loan is two years, though it may be payable sooner in connection with an event of default under the Note. The PPP Loan carries a fixed interest rate of one percent per year. Certain amounts received under the PPP Loan may be forgiven if the loan proceeds are used for eligible purposes, including payroll costs and certain rent or utility costs, and we meet other requirements regarding, among other things, the maintenance of employment and compensation levels. Loan payments on the PPP Loan may be deferred to either (1) the date that the SBA remits our loan forgiveness amount to the Lender or (2) ten months after the end of our loan forgiveness covered period, if we do not apply for loan forgiveness. We submitted our forgiveness application for the entire amount of the loan inDecember 2020 and, as of the date of this Quarterly Report, are awaiting approval from the SBA. The forgiveness of the PPP Loan is based on our adherence to the forgiveness criteria under the CARES Act, and no assurance is provided that we will obtain forgiveness of the PPP Loan in whole or in part. Financial Condition We have seen impacts on our operations due to changes in advertising decisions, timing and spending priorities from our customers as a result of COVID-19, which has had and may continue to have a negative impact to our expected future sales and valuation estimates. With our cash on hand as ofMarch 31, 2021 , we expect 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. 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. Off-Balance Sheet Arrangements We did not engage in any activities involving variable interest entities or "off-balance sheet arrangements" (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as ofMarch 31, 2021 . 32
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Table of Contents 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 endedDecember 31, 2020 . For a summary of our significant accounting policies, please refer to Note 1 - Company and Summary of Significant Accounting Policies included in Item 1 of this Quarterly Report. Recent Accounting Pronouncements See "Note 1. Company and Summary of Significant Accounting Policies," under Part I, Item 1 of this Quarterly Report for information on additional recent pronouncements.
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