Unassociated Document
 
As filed with the U.S. Securities and Exchange Commission on November 10, 2011
                                                                                                                                                Registration No. 333-
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

IZEA HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
 
Nevada
 
7310
 
37-1530765
(State or other jurisdiction of incorporation or organization)
 
(Primary Standard Industrial Classification Code Number)
 
(I.R.S. Employer Identification No.)

150 N. Orange Avenue
Suite 412
Orlando, FL 32801
(407) 674-6911
 (Address, including zip code, and telephone number, including area code, of principal executive offices)

Edward H. (Ted) Murphy
President and Chief Executive Officer
IZEA Holdings, Inc.
150 N. Orange Avenue
Suite 412
Orlando, FL 32801
(407) 674-6911
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:
 
Harvey J. Kesner, Esq.
Gary M. Emmanuel, Esq.
Sichenzia Ross Friedman Ference LLP
61 Broadway, 32nd Floor
New York, NY 10006
(212) 930-9700
 
Spencer G. Feldman, Esq.
Greenberg Traurig, LLP
MetLife Building
200 Park Avenue, 15th Floor
New York, NY 10166
(212) 801-9200 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
¨
Large accelerated filer
¨
   Accelerated filer
¨
Non-accelerated filer (Do not check if a smaller reporting
company)
x
   Smaller reporting company
 
 
1

 
 
CALCULATION OF REGISTRATION FEE
 
   
Proposed Maximum
     
Title of Each Class
 
Aggregate
   
Amount of
of Securities to be Registered
 
Offering Price (1)
   
Registration Fee (2)
Common Stock, par value $0.0001 per share (2)(3)
  $ 28,750,000     $ 3,294.75
Underwriter Warrants to purchase Common Stock
  $ 0     $ 0(4)
Common Stock underlying Underwriters’ Warrants (2)
  $ 1,562,500     $ 179.06
Total Registration Fee
  $ 30,312,500     $ 3,473.81
________________________
(1) 
Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act.
(2) 
Pursuant to Rule 416, the securities being registered hereunder include such indeterminate number of additional shares of common stock as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions.
(3) 
Includes             shares the underwriter has the option to purchase to cover over-allotments, if any.
(4) 
No registration fee required pursuant to Rule 457(g) under the Securities Act.
 
 
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 
 
2

 
 
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
 
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION
NOVEMBER 10, 2011
 
              Shares
Common Stock
 
 
 

 
This is a firm commitment public offering of            shares of common stock of IZEA Holdings, Inc.
 
Our common stock is quoted on the OTC Bulletin Board under the symbol “IZEA”.  We intend to apply for the listing of our common stock on the Nasdaq Capital Market under the symbol “IZEA”.  Prior to the effectiveness of the registration statement of which this prospectus is a part, we anticipate that we will effect a reverse stock split of our outstanding shares within a range of one for every two to ten shares of our common stock. On November 9, 2011, the closing price for our common stock was $1.30 per share.
 
Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page       of this prospectus for a discussion of information that you should consider before investing in our common stock.
 

 
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
 
 
Per Share
 
Total
       
Public offering price
$
 
$
       
Underwriting discounts and commissions
$
 
$
       
Proceeds, before expenses, to us
$
 
$
 
See “Underwriting” for a description of compensation payable to the underwriters.
 
We have granted a 45-day option to Aegis Capital Corp., the representative of the underwriters, to purchase up to               additional shares of common stock from us solely to cover over-allotments, if any.
 
The underwriters expect to deliver the shares to purchasers in this offering on or about         , 2011.
 
Aegis Capital Corp
 
The date of this prospectus is              , 2011. 
 
 
3
 


 
 
 
 
4

 
 
 
 
5

 
 
IZEA HOLDINGS, INC.
 
TABLE OF CONTENTS
 
 
Page
   
Prospectus Summary
7
Risk Factors
16
Cautionary Note Regarding Forward-Looking Statements
27
Use of Proceeds
27
Capitalization
28
Price Range of Common Stock
28
Dilution
29
Management's Discussion and Analysis of Financial Condition and Results of Operations
30
Business
37
Management
45
Principal Stockholders
51
Certain Transactions
52
Description of Securities
53
Shares Eligible for Future Sale
55
Underwriting
57
Commission Position on Indemnification for Securities Act Liabilities
61
Legal Matters
62
Experts
62
Where You Can Find Additional Information
62
Index to Consolidated Financial Statements
F-1
 
 
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any jurisdiction where the offer or sale of these securities is not permitted. You should assume that the information contained in this prospectus is accurate as of the date on the front of this prospectus only. Our business, prospects, financial condition and results of operations may have changed since that date.  This prospectus will be updated as required by law.
 
 
6

 
 
PROSPECTUS SUMMARY
 
This summary highlights information contained elsewhere in this prospectus.  You should read the entire prospectus carefully.  All references to “we,” “us,” the “company” and “IZEA” mean IZEA Holdings, Inc., including subsidiaries and predecessors, except where it is clear that the term refers only to IZEA Holdings, Inc.  Unless otherwise indicated, all information contained in this prospectus assumes that the underwriters will not exercise their over-allotment option or their underwriters' warrants, and that no outstanding stock options, warrants or convertible preferred stock will be exercised or converted.  This prospectus contains forward-looking statements, which involve risks and uncertainties.  Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.
 
Our Mission
 
Our mission is to empower everyone to value and exchange content, creativity and influence.
 
Our Company
 
We believe we are a world leader in social media sponsorship, operating multiple marketplaces that include our premier platforms WeReward, SponsoredTweets and SocialSpark, as well as our legacy platforms PayPerPost and InPostLinks. We generate our revenue through the sale of Social Media Sponsorships (SMS) to our customers.  A Social Media Sponsorship is when a company compensates a social media publisher to share sponsored content within their social network.
 
Our platforms take the concepts of product placement and endorsements commonly found in movies, television and radio and apply them to the social web. We democratize the brand sponsorship process, allowing everyone from college students and stay at home moms to celebrities an opportunity to monetize their content, creativity and influence in social media.
 
We believe that we pioneered the concept of a marketplace for SMS in 2006 and have focused on the scalable monetization of social media ever since. We compensate bloggers, tweeters and mobile promoters (our publisher-partners) to share information about companies, products, websites and events within their social media content streams. Advertisers benefit from buzz, traffic, awareness and sales; publishers earn cash, points and product samples.
 
Each platform we operate is designed to facilitate SMS transactions in a way that is natural to its specific media format. Advertisers can utilize a single platform to fill a specific need or combine platforms with each other to execute an integrated social media campaign. All of our platforms can be used in a self-serve fashion or with the assistance of our account management team.
 
 
7

 
 
Our core platforms are described below:
 
 
SocialSpark
SponsoredTweets
WeReward
Media Format
Blog Posts
Status Updates
Actions / Check-Ins
Content
Long form text/video content
Short form text content
Short form text & photo content
Best used for
• In-depth reviews
• Buzz
• Long term traffic generation
• E-commerce "Deals"
• Short term traffic generation
• Buzz
• Awareness
• Driving purchases
• Customer data
• Short term traffic generation
Payment Model
• Cost per blog post
• Cost per purchase
• Cost per tweet
• Cost per click
• Cost per action
Targeting
• Blog traffic
• Blog category / keywords
• Blogger country
• Tweeter followers
• Tweeter category / keywords
• Tweeter country
• Mobile user current location
• Mobile user age / sex
Metrics Gathered
• Impressions / CPM
• Clicks / CPC
• CTR
• Cost per action / sale
• Followers / CPMF
• Clicks / CPC
• Engagement
• Cost per action / sale
• Cost per action / sale
• Revenue generated / ROI
• Loyalty
Effective Media Lifespan
Years
1-2 Days
1-2 Days (media)
Years (data)
Works best for
• Complex products
• Distribution of embeds
• Evergreen products/brands
• E-commerce "Deals"
• Time sensitive product launches
• Celebrity engagement
• Viral content
• Driving specific actions
• Customer data gathering
• Building loyalty
 
 
We streamline the process of completing SMS through our proprietary technology, creating efficiencies and economies of scale for both advertisers and publishers. We utilize a common design methodology in each platform, which we have honed over our five years of operation. Each platform provides advertisers with access to a large network of publishers, workflow management, content control, payment processing, performance tracking and legal compliance. This methodology enables us to offer greater monetization opportunities to our publishers through a marketplace that is safe, reliable and easy to use.
 
 
8

 
 
 
The value proposition we offer to both advertisers and publishers strengthens our position as a trusted partner and allows us to derive revenue from both customer bases. As more brand advertisers utilize our marketplaces, we increase the breadth and depth of monetization opportunities for publishers, attracting more publishers and further enhancing the value of our service advertisers.
 
We have more than 50,000 registered advertisers in 157 different countries including top brands such as Coca-Cola, at&t, Microsoft, Kraft, HP, LG, Audi, Volvo, Hilton, Walgreens, Hershey and Sony. We have over 600,000 registered social media publishers in 179 different countries including high-profile celebrities. Our publishers currently publish sponsored content to blogs, Twitter, Facebook and Foursquare and reach other existing platforms such as Tumblr, LinkedIn, Google and Bing through syndication of that content.
 
 
9

 
 
 
To date, our company has completed over 2.7 million social media sponsorships for customers ranging from small local businesses to Fortune 50 organizations.
 
We earn our revenue by facilitating a paid social media sponsorship between an advertiser and publisher. Each time an advertiser successfully sponsors a publisher we make a percentage on the transaction, which is generally 50% of the total cost. In addition to straight transaction fees, we also earn revenue for additional services and fees to both advertisers and publishers.
 
 
10

 
 
Our Industry
 
The social media advertising space reached $1.7 billion in 2010 and is projected by eMarketer, an independent digital intelligence firm, to reach $3.1 billion by 2014. Despite the inherently conversational nature of social media, the majority of brand budgets are currently allocated towards display advertising (banner ads and text links) on social sites. While most advertisers understand the value of word of mouth marketing, peer recommendations and product reviews, few understand how to efficiently engage social media users for these purposes. Those who effectively attempt an approach are quickly limited by the amount of effort required to effectively manage and measure a truly integrated campaign.
 
The SMS space has been limited primarily by the current inefficiencies of the market. The social media publisher and advertiser universe is large and highly fragmented among topic, quality and platform. Despite the size of this market, most advertisers and social media publishers lack an efficient way to identify and engage each other. Instead, we believe brands have been forced to utilize a variety of highly inefficient sources and processes to navigate the complicated landscape of social media sponsorship, often resulting in low returns on their time investment or worse-yet, questionable results.
 
At the same time, social media publishers that would like to monetize their community are faced with significant challenges in finding quality advertisers who are motivated to sponsor them and making them aware of their blog, twitter or Facebook profile. In addition, smaller publishers simply lack the individual influence and audience needed to warrant the processing of a micro-transaction. In many cases it costs an advertiser more money to cut a check to a small publisher than the value of the sponsorship payment itself.
 
Further complicating the SMS process for both parties are FTC regulations around social media endorsements, IRS tax implications of both cash and non-cash payments, and the associated campaign tracking required to provide compliance. While many advertisers would prefer to be “part of the conversation,” the complexity and cost of individual social media sponsorship often deters them from doing so.
 
We believe that the current state of SMS represents a significant corporate opportunity for us. We address these common problems with targeted, scalable marketplaces that aggregate social media publishers and advertisers. We offer an efficient, innovative way for publishers and advertisers of all sizes to find each other and complete a sponsorship transaction.
 
 
11

 
 
Our Strengths
 
Since our inception in 2006, we have worked diligently to establish and leverage key strengths in our business model, including:
 
•           A culture of innovation and creativity. We believe the only way to survive and thrive in our rapidly changing world is to change ahead of it. We are in a state of constant evolution and reinvention, this is "The IZEA Way". We have created a culture committed to innovation and creativity that challenges convention and breaks new ground. IZEA team members are protective and proud of our culture by applying its “humble, yet hungry” attitude to all facets of our business. Our people and their innovations ultimately provide us with our largest competitive advantage.
 
           First-mover advantage with a highly disruptive business model. We believe that by pioneering the SMS space and investing heavily in world-class innovation and marketing, we were first to develop positive rapport among publishers and brand marketers alike. This loyalty has resulted in consistent growth of underlying revenue as well as increased participation levels across the business.
 
•           Powerful network effect. As more brand marketers contribute opportunities into our marketplaces, we believe we will increase the breadth and depth of monetization value offered to our publisher-partners, attracting more publishers and therefore enhancing the value of our platforms to future brand clients. Our premium platforms have referral programs designed to further enhance the network effect for each publisher we sign up. Directly trackable publisher referrals represent approximately 34% of all traffic to SponsoredTweets.com and 59% of new Twitter publisher signups in 2011. The referral program in SocialSpark.com has accounted for 44% of all new blog publisher sign-ups since its release in February 2011. These programs amplify our marketing spending and decrease the investment required to attract new publishers.
 
•           Social network platform agnostic. Our business model does not rely on the rise or fall of one particular social media platform or trend. Instead, we integrate into multiple platforms, allowing our publishers freedom of choice and enabling us to diversify our offering to advertisers. As new trends and platforms emerge, we believe we are positioned to quickly and cost effectively adapt our marketplace model to capitalize on the shift.
 
•           Scalable and leverageable operations. Our unique, hybrid business model allows revenue to be derived in a variety of ways, all of which rely on our marketplace approach as a hub. We have replicated this business model across multiple new product offerings without substantially increasing our operations and support expense. Moving forward, our goal is to maintain scalable growth through new offerings in the burgeoning social-mobile category.
 
Our Growth Strategy
 
After five years of development, we believe our core platforms are market-tested and poised for significant revenue growth. Our development efforts have included assembling an industry-experienced senior management team, launching and optimizing our online marketplaces, developing a cross-platform sales force and refining our message to the market.  Key elements of our strategy to accelerate revenue growth and continue product development include:
 
•           Bolster our sales force and locations. We expect growth of our client development team to be the primary driver of near term revenues. We intend to add additional quota-carrying sales personnel to more effectively target and service clients throughout the U.S. and the world. Experienced, senior team members are expected to cultivate deep relationships with agencies and brands in our recently opened New York, Los Angeles and Chicago offices as well as smaller satellite locations in key markets. We intend to add inside sales personnel to our Orlando headquarters to service smaller clients over the telephone and Internet. In addition to our expanded presence in the U.S., we intend to open offices in Asia, Latin America and Europe by the end of 2013. Our goal is to employ over 30 quota-carrying client development personnel by the end of 2013, with an aggregate sales quota of $50 million leading into 2014.
 
•           Develop strategic partnerships. Establishing strategic partnerships with companies that can provide additional growth in our base of publishers and brand advertisers. In August 2011, we announced an exclusive alliance with India's UTV to create new monetization opportunities for the estimated 12 million Twitter users in India. UTV's exclusive roster of Indian celebrities including Lara Dutta, Mahesh Bhupati, Anurag Kashyap, Rohan Bopanna and Neetu Chandra, among others, are expected to join the site and soon be available for potential Twitter sponsorship opportunities.
 
 
12

 
 
•           Continue emphasis on product innovation. Recruiting additional engineering and product development team members to enhance our various marketplaces while developing new technology platforms that complement our mission as a company.
 
•           Seek complementary acquisitions. Identifying and acquiring companies, technologies and assets add to our portfolio of software services and drive additional near and long-term revenue. In July 2011, we acquired Germany's Magpie Twitter advertising network that included over 12,000 advertisers and 16,000 Twitter publishers in 124 countries.
 
•           Expand WeReward marketing. Investing in consumer and channel marketing for WeReward is expect to result in an increase in our user base to meet growing demand for mobile and local campaigns.
 
Corporate Background and Information
 
 IZEA Holdings, Inc. was incorporated as a Nevada corporation on March 22, 2010.  On May 12, 2011, we completed a share exchange pursuant to which we acquired all of the capital stock of IZEA, Inc., a privately held Delaware corporation (“IZEA”), which became our wholly owned subsidiary.  In connection with the share exchange, we discontinued our former business and succeeded to the business of IZEA as our sole line of business.  IZEA was incorporated in the state of Florida in February 2006 and reincorporated in the state of Delaware in September 2006.
 
Our executive offices are located at 150 N. Orange Avenue, Suite 412, Orlando, FL 32801 and our telephone number is (407) 674-6911.  We maintain a corporate website at http://www.izea.com/.  The contents on our website and the downloadable files found there are not incorporated by reference into this prospectus and should not be considered to be a part of this prospectus.
 
 
13

 
 
The Offering
 
     
Common stock offered
 
                  shares of common stock (             shares if the underwriters exercise their over-allotment option).
Common stock outstanding prior to this offering
 
38,645,095 shares.
Common stock to be outstanding after to this offering
 
                shares.
Use of proceeds
 
 
We expect to use the net proceeds received from this offering for sales, marketing and promotion, technology and platform engineering, establishment of strategic partnerships, potential acquisitions and working capital and general corporate purposes. For a more complete description of our anticipated use of proceeds from this offering, see “Use of Proceeds.”
OTC Bulletin Board symbol
 
 
IZEA.  We are applying for listing our common stock on The Nasdaq Capital Market under the symbol “IZEA”; no assurance can be given that our application will be approved.
 
Risk Factors
 
 
See “Risk Factors” beginning on page         and the other information included in this prospectus for a discussion of factors you should carefully consider before investing in our common stock.
 
The number of shares of our common stock to be outstanding after this offering is based on TBD3 shares of common stock outstanding as of November 9, 2011, and excludes as of that date:
 
 
230 shares of series A preferred stock convertible into an aggregate of 6,969,690 shares of common stock;
 
 
warrants to purchase an aggregate of 6,167,930 shares of common stock;
 
 
stock options to purchase an aggregate 4,602,727 shares of common stock; and
 
 
an aggregate of 2,497,273 additional shares of common stock reserved for future issuance under our May 2011 Equity Incentive Plan and an aggregate of 3,500,000 shares of common stock reserved for future issuance under our August 2011 Equity Incentive Plan.
 
The share and per share information in this prospectus does not reflect, or where appropriate, restate for, a proposed up to 1-for-10 reverse stock split of our outstanding shares of common stock to occur before the closing of this offering.
 
 
14

 
 
Summary Consolidated Financial Data
 
The following table summarizes our financial data. We have derived the following summary of our consolidated statements of operations data for the nine months ended September 30, 2011 and September 30, 2010 and the summary of our consolidated balance sheet data as of September 30, 2011 from our unaudited consolidated financial statements appearing elsewhere in this prospectus. We have derived the following summary of our consolidated statements of operations data for the years ended December 31, 2010 and December 31, 2009 from our audited financial statements appearing elsewhere in this prospectus. The following summary of our financial data set forth below should be read together with our consolidated financial statements and the related notes to those statements, as well as the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” appearing elsewhere in this prospectus.
 
 
Nine Months Ended
September 30,
(Unaudited)
 
Years Ended
December 31,
 
Consolidated Statement of Operations Data:
2011
 
2010
 
2010
 
2009
               
Revenue
$
2,821,354
   
$
2,249,891
   
$
3,821,538
   
$
2,834,359
 
Cost of sales
1,306,463
   
1,192,043
   
1,819,031
   
1,343,159
 
Total operating expenses
4,409,999
   
2,974,873
   
4,085,647
   
4,061,114
 
Total other income (expense)
56,511
   
(60,930
)
 
(74,619
)
 
(83,858
)
Net loss
$
(2,838,597
)
 
$
(1,977,955
)
 
$
(2,157,759
)
 
$
(2,653,772
)
 
 
   
September 30, 2011
Consolidated Balance Sheet Data:
 
Actual
 
As Adjusted for
This Offering (1)
Cash and cash equivalents
 
$
1,095,103
       
Working capital (deficit)
 
109,935
   
$
 
Total assets
 
1,205,038
       
Total liabilities
 
3,653,989
       
Stockholders' equity (deficit)
 
(725,456
)
     
 
(1)  Reflects our sale of         shares of common stock offered by this prospectus at the public offering price of $        per share, after deducting underwriting discounts and commissions and the estimated offering expenses that we will pay.
 
 
15

 
 
RISK FACTORS
 
There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals.  If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected.  In such case, the trading price of our common stock could decline and investors could lose all or part of their investment.
 
Risks Related to our Business
 
We have a history of losses, expect future losses and cannot assure you that we will achieve profitability.
 
We have incurred significant net losses and negative cash flow from operations since our inception. We incurred net losses of $2,653,772 , $2,157,759 and $2,838,597 for the years ended December 31, 2009, December 31, 2010 and the nine months ended September 30, 2011, respectively. We had an accumulated deficit of $14,152,192 and $16,990,789 as of December 31, 2010 and September 30, 2011, respectively. Although our revenue has increased since inception, we have not achieved profitability and cannot be certain that we will be able to sustain these growth rates or realize sufficient revenue to achieve profitability. We expect to derive substantially all of our revenue for the foreseeable future from our core social media marketing platforms, SocialSpark, SponsoredTweets and WeReward and related services. Moreover, we also expect to continue to incur significantly greater sales and marketing, product development, and general and administrative expenses. As a result of all of the foregoing, we expect to incur losses through at least 2012 and will need to generate significantly higher revenue in order to achieve profitability. If we achieve profitability, we may not be able to sustain it.
 
We have a limited operating history and are subject to the risks encountered by early-stage companies.
 
Our operating subsidiary incorporated in the state of Florida in February 2006 as PayPerPost, Inc., reincorporated in the state of Delaware in September 2006 and changed its corporate name to IZEA, Inc. in November 2007. Because we have a limited operating history, you should consider and evaluate our operating prospects in light of the risks and uncertainties frequently encountered by early-stage companies in rapidly evolving markets. For us, these risks include:
 
 
risks associated with our dependence on our core platforms, SocialSpark,, SponsoredTweets, WeReward and related services, for substantially all of our revenues for the foreseeable future;
 
 
risks that our growth strategy may not be successful; and
 
 
risks that fluctuations in our operating results will be significant relative to our revenues.
 
These risks are described in more detail below. Our future growth will depend substantially on our ability to address these and the other risks described in this section. If we do not successfully address these risks, our business would be significantly harmed.
 
We have experienced rapid growth over a short period in our social media sponsorship platforms and we do not know whether this will continue to develop or whether it can be maintained. If we are unable to successfully respond to changes in the market, our business could be harmed.
 
Our business has grown rapidly as advertisers and publishers have increasingly used our social media sponsorship platforms. However, the social media sponsorship industry is relatively new. Given the limited history, it is difficult to predict whether our platforms will continue to grow or whether it can be maintained. We expect that the platforms will evolve in ways which may be difficult to predict. It is possible that advertisers and publishers could broadly determine that they no longer believe in the value of our current platforms. In the event of these or any other changes to the market, our continued success will depend on our ability to successfully adjust our strategy to meet the changing market dynamics. If we are unable to do so, our business, prospects, results of operation and financial condition could be materially harmed.
 
 
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The social media sponsorship landscape is subject to numerous changes that could cause our revenue to decline.
 
Our business model may not continue to be effective in the future for a number of reasons, including the following:
 
 
social media sponsorships are, by their nature, limited in content relative to other media;
 
 
companies may be reluctant or slow to adopt social media sponsorship that replaces, limits or competes with their existing direct marketing efforts;
 
 
companies may prefer other forms of advertising we do not offer, including certain forms of search engine placements;
 
 
companies, such as Facebook and Twitter, may no longer grant us access to their websites in connection with our social media sponsorship platforms;
 
 
companies may not utilize social media sponsorship due to concerns of “click-fraud,” particularly related to search engine placements; and
 
 
regulatory actions may negatively impact certain business practices that we currently rely on to generate a portion of our revenue and profitability.
 
If the number of companies that purchase social media sponsorship from us does not grow, we may experience difficulty in attracting publishers, and our revenue could decline which would have a material adverse effect on our business, prospects, results of operations and financial condition.
 
If we fail to retain our existing publishers, our revenue and business will be harmed.
 
            We must continue to retain and acquire publishers that publish sponsorships through our core platforms in order to increase revenue and achieve profitability. If publishers do not perceive our products and services to be of high value and quality or if we fail to introduce new and more relevant products and services, we may not be able to acquire or retain publishers. If we are unable to acquire new publishers in numbers sufficient to grow our business, or if publishers cease using our products and services, the revenue we generate may decrease and our operating results will be adversely affected. We believe that many of our new publishers originate from word-of-mouth and other referrals from existing publishers, and therefore we must ensure that our existing publishers remain loyal to our service in order to continue receiving those referrals. If our efforts to satisfy our existing publishers are not successful, we may not be able to acquire new publishers in sufficient numbers to continue to grow our business or we may be required to incur significantly higher marketing expenses in order to acquire new publishers
 
If we fail to retain existing advertisers or add new advertisers, our revenue and business will be harmed.
 
            We depend on our ability to attract and retain advertisers that are prepared to offer products or services on compelling terms through our platforms. We must continue to attract and retain advertisers in order to increase revenue and achieve profitability. If new advertisers do not find our marketing and promotional services effective, or if existing advertisers do not believe that utilizing our platforms provides them with a long-term increase in customers, revenue or profit, they may stop advertising through our platforms. In addition, we may experience attrition in our advertisers in the ordinary course of business resulting from several factors, including losses to competitors and closures or bankruptcies. If we are unable to attract new advertisers in numbers sufficient to grow our business, or if too many advertisers are unwilling to offer products or services with compelling terms through our platforms or offer favorable payment terms to us, our operating results will be adversely affected.  
 
A decline in the demand for our core social media marketing platforms or related services would seriously harm our revenue and margins.
 
Our social media marketing platforms, SocialSpark, SponsoredTweets, WeReward, PayPerPost and InPostLinks, and related services accounted for substantially all of our revenue for the years ended December 31, 2010 and 2009 and the nine months ended September 30, 2011.  We anticipate that revenue from these core platforms and related services will continue to constitute substantially all of our revenue for the foreseeable future. Consequently, a decline in demand for these platforms or their failure to achieve broad market acceptance would seriously harm our business.
 
Intense competition in our target market could impair our ability to grow and to achieve profitability.
 
The market for social media sponsorships is highly competitive. We expect this competition to continue to increase, in part because there are no significant barriers to entry to our industry. Increased competition may result in price reductions for advertising space, reduced margins and loss of market share. Our principal competitors include other companies that provide advertisers with Internet advertising solutions and companies that offer pay per click search services.
 
 
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Competition for advertising placements among current and future suppliers of Internet navigational and informational services, high-traffic websites and social media sponsorship providers, as well as competition with other media for advertising placements, could result in significant price competition, declining margins and reductions in advertising revenue. In addition, as we continue our efforts to expand the scope of our services, we may compete with a greater number of other media companies across an increasing range of different services, including in vertical markets where competitors may have advantages in expertise, brand recognition and other areas. If existing or future competitors develop or offer products or services that provide significant performance, price, creative or other advantages over those offered by us, our business, prospects, results of operations and financial condition could be negatively affected. We also compete with traditional advertising media, such as direct mail, television, radio, cable and print for a share of advertisers’ total advertising budgets. Many current and potential competitors enjoy competitive advantages over us, such as longer operating histories, greater name recognition, larger customer bases, greater access to advertising space on high-traffic websites, and significantly greater financial, technical, sales and marketing resources. As a result, we may not be able to compete successfully. If we fail to compete successfully, we could lose customers or advertising inventory and our revenue and results of operations could decline.
 
Our business depends on a strong brand, and if we are not able to maintain and enhance our brand, or if we receive unfavorable media coverage, our ability to expand our base of publishers and advertisers will be impaired and our business and operating results will be harmed.
 
We believe that the brand identity that we have developed has significantly contributed to the success of our business. We also believe that maintaining and enhancing the "IZEA" brand is critical to expanding our base of publishers and advertisers. Maintaining and enhancing our brand may require us to make substantial investments and these investments may not be successful. If we fail to promote and maintain the "IZEA" brand, or if we incur excessive expenses in this effort, our business, prospects, operating results and financial condition will be materially and adversely affected. We anticipate that, as our market becomes increasingly competitive, maintaining and enhancing our brand may become increasingly difficult and expensive. Unfavorable publicity or consumer perception of our platforms, applications, practices or service offerings, or the offerings of our advertisers, could adversely affect our reputation, resulting in difficulties in recruiting, decreased revenue and a negative impact on the number of advertisers and the size of our publisher base, the loyalty of our publishers and the number and variety of sponsorships we offer each day. As a result, our business, prospects, results of operation and financial condition could be materially and adversely affected.
 
Our total number of publishers may be higher than the number of our actual individual publishers and may not be representative of the number of persons who are active potential customers.
 
Our total number of publishers may be higher than the number of our actual individual publishers because some publishers have multiple registrations, other publishers have died or become incapacitated and others may have registered under fictitious names. Given the challenges inherent in identifying these publishers, we do not have a reliable system to accurately identify the number of actual individual publishers, and thus we rely on the number of total publishers as our measure of the size of our publisher base. In addition, the number of publishers includes the total number of individuals that have completed registration through a specific date, less individuals who have unsubscribed, and should not be considered as representative of the number of persons who continue to actively publish the sponsorships we offer through our platforms.
 
We may become subject to government regulation and legal uncertainties that could reduce demand for our products and services or increase the cost of doing business, thereby adversely affecting our financial results.
 
We are not currently subject to direct regulation by any domestic or foreign governmental agency, other than regulations applicable to businesses generally and laws or regulations directly applicable to Internet commerce. However, due to the increasing popularity and use of the social media, it is possible that a number of laws and regulations may become applicable to us or may be adopted in the future with respect to the Internet covering issues such as:
 
 
user privacy;
 
 
taxation;
 
 
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right to access personal data;
 
 
copyrights;
 
 
distribution; and
 
 
characteristics and quality of services.
 
The applicability of existing laws governing issues such as property ownership, copyrights and other intellectual property issues, encryption, taxation, libel, export or import matters and personal privacy to social media platforms is uncertain. The vast majority of these laws were adopted prior to the broad commercial use of social media platforms and related technologies. As a result, they do not contemplate or address the unique issues of social media and related technologies. Changes to these laws intended to address these issues, including some recently proposed changes, could create uncertainty in the social media marketplace. Such uncertainty could reduce demand for our services or increase the cost of doing business due to increased costs of litigation or increased service delivery costs. 
 
Our social media sponsorship business is subject to the risks associated with word-of-mouth advertising and blog endorsements, such as violations of the “truth-in-advertising” and other similar regulatory requirements and, more generally, loss of consumer confidence.
 
Our social media sponsorship business relies, in part, on payments to bloggers and other social media users to endorse specific products. If consumers are not aware that we are paying such bloggers and other social media users to provide the endorsements that they are relying on, then we could be subject to penalties under “truth-in-advertising” and similar regulations. More generally, if there is negative consumer perception of the practice of undisclosed compensation of bloggers and other social media users to endorse specific products, then our business could be adversely impacted.
 
New tax treatment of companies engaged in internet commerce may adversely affect the commercial use of our services and our financial results.
 
Due to the global nature of social media, it is possible that various states or foreign countries might attempt to regulate our transmissions or levy sales, income or other taxes relating to our activities. Tax authorities at the international, federal, state and local levels are currently reviewing the appropriate treatment of companies engaged in internet commerce. New or revised international, federal, state or local tax regulations may subject us or our publishers to additional sales, income and other taxes. We cannot predict the effect of current attempts to impose sales, income or other taxes on commerce over social media. New or revised taxes and, in particular, sales taxes, VAT and similar taxes would likely increase the cost of doing business online and decrease the attractiveness of advertising and selling goods and services over social media. New taxes could also create significant increases in internal costs necessary to capture data, and collect and remit taxes. Any of these events could have an adverse effect on our business and results of operations.
 
Failure to comply with federal, state and international privacy laws and regulations, or the expansion of current or the enactment of new privacy laws or regulations, could adversely affect our business.
 
A variety of federal, state and international laws and regulations govern the collection, use, retention, sharing and security of consumer data. The existing privacy-related laws and regulations are evolving and subject to potentially differing interpretations. In addition, various federal, state and foreign legislative and regulatory bodies may expand current or enact new laws regarding privacy matters. For example, recently there have been Congressional hearings and increased attention to the capture and use of location-based information relating to users of smartphones and other mobile devices. We have posted privacy policies and practices concerning the collection, use and disclosure of publisher data on our websites and platforms. Several internet companies have incurred penalties for failing to abide by the representations made in their privacy policies and practices. In addition, several states have adopted legislation that requires businesses to implement and maintain reasonable security procedures and practices to protect sensitive personal information and to provide notice to consumers in the event of a security breach. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any data-related consent orders, Federal Trade Commission requirements or orders or other federal, state or international privacy or consumer protection-related laws, regulations or industry self-regulatory principles could result in claims, proceedings or actions against us by governmental entities or others or other liabilities, which could adversely affect our business. In addition, a failure or perceived failure to comply with industry standards or with our own privacy policies and practices could result in a loss of publishers or advertisers and adversely affect our business. Federal, state and international governmental authorities continue to evaluate the privacy implications inherent in the use of third-party web "cookies" for behavioral advertising. The regulation of these cookies and other current online advertising practices could adversely affect our business.
 
 
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Our business depends on our ability to maintain and scale the network infrastructure necessary to operate our platforms applications, and any significant disruption in service on our platforms and applications could result in a loss of publishers or advertisers.
 
Publishers and advertisers access our services through our platforms and applications. Our reputation and ability to acquire, retain and serve our publishers and advertisers are dependent upon the reliable performance of our platforms and applications and the underlying network infrastructure. As our publisher base continues to grow, we will need an increasing amount of network capacity and computing power. We have spent and expect to continue to spend substantial amounts on data centers and equipment and related network infrastructure to handle the traffic on our platforms and applications. The operation of these systems is expensive and complex and could result in operational failures. In the event that our publisher base or the amount of traffic on our platforms and applications grows more quickly than anticipated, we may be required to incur significant additional costs. Interruptions in these systems, whether due to system failures, computer viruses or physical or electronic break-ins, could affect the security or availability of our platforms and applications, and prevent our publishers and advertisers from accessing our services. A substantial portion of our network infrastructure is hosted by third-party providers. Any disruption in these services or any failure of these providers to handle existing or increased traffic could significantly harm our business. Any financial or other difficulties these providers face may adversely affect our business, and we exercise little control over these providers, which increases our vulnerability to problems with the services they provide. If we do not maintain or expand our network infrastructure successfully or if we experience operational failures, we could lose current and potential publishers and advertisers, which could harm our operating results and financial condition.
 
Delays in releasing enhanced versions of our products and services could adversely affect our competitive position.
 
As part of our strategy, we expect to periodically release enhanced versions of our core platforms and related services. Even if our new versions contain the features and functionality our customers want, in the event we are unable to timely introduce these new product releases, our competitive position may be harmed. We cannot assure you that we will be able to successfully complete the development of currently planned or future products in a timely and efficient manner. Due to the complexity of these products, internal quality assurance testing and customer testing of pre-commercial releases may reveal product performance issues or desirable feature enhancements that could lead us to postpone the release of these new versions. In addition, the reallocation of resources associated with any postponement would likely cause delays in the development and release of other future products or enhancements to our currently available products. Any delay in releasing other future products or enhancements of our products could cause our financial results to be adversely impacted.
 
If our technology platforms contain defects, we may need to suspend their availability and our business and reputation would be harmed.
 
Platforms as complex as ours often contain unknown and undetected errors or performance problems. Many serious defects are frequently found during the period immediately following introduction and initial release of new platforms or enhancements to existing platforms. Although we attempt to resolve all errors that we believe would be considered serious by our customers before making our platforms available to them, our products are not error-free. These errors or performance problems could result in lost revenues or delays in customer acceptance and would be detrimental to our business and reputation. We may not be able to detect and correct errors before releasing our product commercially. We cannot assure you that undetected errors or performance problems in our existing or future products will not be discovered in the future or that known errors, considered minor by us, will not be considered serious by our customers, resulting in a decrease in our revenues.
 
We may be subject to lawsuits for information by our advertisers and social media publishers, which may affect our business.
 
Laws relating to the liability of providers of online services for activities of their advertisers or of social media publishers (such as bloggers, mobile users and tweeters) and for the content of their advertisers’ listings are currently unsettled. It is unclear whether we could be subjected to claims for defamation, negligence, copyright or trademark infringement or claims based on other theories relating to the information we publish on our websites or the information that is published across our core platforms. These types of claims have been brought, sometimes successfully, against online services, as well as print publications in the past. We may not successfully avoid civil or criminal liability for unlawful activities carried out by our advertisers or social media publishers. Our potential liability for unlawful activities of our advertisers or social media publishers or for the content of our advertisers’ listings could require us to implement measures to reduce our exposure to such liability, which may require us, among other things, to spend substantial resources or to discontinue certain service offerings. Our insurance may not adequately protect us against these types of claims and the defense of such claims may divert the attention of our management from our operations. If we are subjected to such lawsuits, it may adversely affect our business.
 
 
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If we fail to detect click-through fraud, we could lose the confidence of our advertisers and advertising partners, thereby causing our business to suffer.
 
We are exposed to the risk of fraudulent or illegitimate clicks on our sponsored listings. If fraudulent clicks are not detected, the affected advertisers may experience a reduced return on their investment in our advertising programs because the fraudulent clicks will not lead to revenue for the advertisers. As a result, our advertisers and advertising partners may become dissatisfied with our advertising programs, which could lead to loss of advertisers, advertising partners and revenue. In addition, anyone who is able to circumvent our security measures could misappropriate proprietary and confidential information or could cause interruptions in our operations. We may be required to expend significant capital and other resources to protect against such security breaches or to address problems caused by such breaches. Concerns over the security of the Internet and other online transactions and the privacy of users may also deter people from using the Internet to conduct transactions that involve transmitting confidential information.
 
If third parties claim that we infringe their intellectual property rights, it may result in costly litigation.
 
We cannot assure you that third parties will not claim our current or future products or services infringe their intellectual property rights. Any such claims, with or without merit, could cause costly litigation that could consume significant management time. As the number of product and services offerings in our market increases and functionalities increasingly overlap, companies such as ours may become increasingly subject to infringement claims. Such claims also might require us to enter into royalty or license agreements. If required, we may not be able to obtain such royalty or license agreements, or obtain them on terms acceptable to us.
 
We may not be able to adequately protect our proprietary technology, and our competitors may be able to offer similar products and services which would harm our competitive position.
 
Our success depends upon our proprietary technology. We rely primarily on service mark and trade secret laws, confidentiality procedures and contractual provisions to establish and protect our proprietary rights. As part of our confidentiality procedures, we enter into non-disclosure agreements with our employees and consultants. Despite these precautions, third parties could copy or otherwise obtain and use our technology without authorization, or develop similar technology independently. We do not have any patents on our technology or applications. In addition, effective protection of intellectual property rights is unavailable or limited in certain foreign countries. We cannot assure you that the protection of our proprietary rights will be adequate or that our competitors will not independently develop similar technology, duplicate our products and services or design around any intellectual property rights we hold.
 
Our market is subject to rapid technological change and, to compete, we must continually enhance our products and services.
 
We must continue to enhance and improve the performance, functionality and reliability of our products and services. The social media sponsorship industries are characterized by rapid technological change, changes in user requirements and preferences, frequent new product and services introductions embodying new technologies and the emergence of new industry standards and practices that could render our products and services obsolete. In the past, we have discovered that some of our customers desire additional performance and functionality not currently offered by our products. Our success will depend, in part, on our ability to develop new products and services that address the increasingly sophisticated and varied needs of our customers, and respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. The development of our technology and other proprietary technology involves significant technical and business risks. We may fail to use new technologies effectively or to adapt our proprietary technology and systems to customer requirements or emerging industry standards. If we are unable to adapt to changing market conditions, customer requirements or emerging industry standards, we may not be able to increase our revenue and expand our business.
 
 
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Difficulties we may encounter managing our growth could adversely affect our results of operations.
 
We have experienced a period of growth that has placed, and if such growth continues, will continue to place, a strain on our administrative infrastructure. As our business needs expand, we intend to hire a significant number of employees. This expansion is placing a significant strain on our managerial and financial resources. To manage the expected growth of our operations and personnel, we will be required to:
 
 
improve existing, and implement new, operational, financial and management controls, reporting systems and procedures;
 
 
install enhanced management information systems; and
 
 
train, motivate and manage our employees.
 
We may not be able to install adequate management information and control systems in an efficient and timely manner, and our current or planned personnel, systems, procedures and controls may not be adequate to support our future operations. If we are unable to manage growth effectively, our business would be seriously harmed.
 
If we lose key personnel or are unable to attract and retain additional qualified personnel we may not be able to successfully manage our business and achieve our objectives.
 
We believe our future success will depend upon our ability to retain our key management, including Edward H. (Ted) Murphy, our President and Chief Executive Officer, Donna L. Mackenzie, our Chief Financial Officer, and Ryan Schram, our Chief Marketing Officer. We maintain key-man life insurance for our benefit on the life of Mr. Murphy in the amount of $1.5 million. We may not be successful in attracting, assimilating and retaining our employees in the future.
 
Our future success and our ability to expand our operations will also depend in large part on our ability to attract and retain additional qualified graphic designers, computer scientists, sales and marketing and senior management personnel. Competition for these types of employees is intense due to the limited number of qualified professionals and the high demand for them, particularly in the Orlando, Florida area, where our headquarters is located. We have in the past experienced difficulty in recruiting qualified personnel. Failure to attract, assimilate and retain personnel, particularly tech and sales and marketing personnel, would have a material adverse effect on our business and potential growth.
 
Our management team has limited experience managing a public company, and regulatory compliance may divert its attention from the day-to-day management of our business.
 
The individuals who now constitute our management team have limited experience managing a publicly-traded company and limited experience complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company that will be subject to significant regulatory oversight and reporting obligations under the federal securities laws. In particular, these new obligations will require substantial attention from our senior management and could divert their attention away from the day-to-day management of our business, which could materially and adversely impact our business operations.
 
Risks Relating to our Common Stock and this Offering
 
Our management will be able to exert control over us to the detriment of minority stockholders.
 
Our executive officers and directors beneficially own approximately 58% of our outstanding common stock. These stockholders, if they act together, will be able to control our management and affairs and all matters requiring stockholder approval, including significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing our change in control and might affect the market price of our common stock.
 
 
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The restatement of our financial statements may result in litigation or government enforcement actions. Any such action would likely harm our business, prospects, financial condition and results of operations.
 
As noted in our financial statements for the quarter ended June 30, 2011 filed with the SEC on August 22, 2011, our independent registered public accounting firm had not completed their SAS 100 review of the quarter ended June 30, 2011 since we were in the process of determining the accounting impact related to the issuance of common stock, series A preferred stock and warrants in a private placement that commenced in May 2011 (the “May 2011 Offering”). On September 8, 2011, our management completed its analysis of the financing arrangement and concluded its unaudited financial statements included in those financial statements could not be relied upon. We determined the warrants issued in connection with the May 2011 Offering require a classification in liabilities as derivative warrants. In addition, we determined the units sold to our Chief Executive Officer in connection with the May 2011 offering resulted in compensation expense. Consequently, we restated our financial statements for the quarter ended June 30, 2011 and filed with the SEC restated financial statements on September 9, 2011. The restatement of our financial statements may expose us to risks associated with litigation, regulatory proceedings and government enforcement actions. In addition, securities class action litigation has often been brought against companies which have been unable to provide current public information or which have restated previously filed financial statements. Any of these actions could result in substantial costs, divert management’s attention and resources, and harm our business, prospects, results of operation and financial condition.
 
 
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Exercise of options, warrants and other convertible securities will dilute your percentage of ownership.
 
We may issue stock options to purchase up to 7,100,000 shares of common stock under our 2011 Equity Incentive Plan and up to 3,500,000 shares of common stock under our 2011 B Equity Incentive Plan. In the future, we may grant additional stock options, warrants and convertible securities. The exercise, conversion or exchange of stock options, warrants or convertible securities will dilute the percentage ownership of our other stockholders. The dilutive effect of the exercise or conversion of these securities may adversely affect our ability to obtain additional capital. The holders of these securities may be expected to exercise, convert or exchange them when we would be able to obtain additional equity capital on terms more favorable than these securities.
 
Our earnings are subject to substantial quarterly and annual fluctuations and to market downturns.
 
Our revenues and earnings may fluctuate significantly in the future.  General economic or other political conditions may cause a downturn in the market for our products or services.  Despite the recent improvements in market conditions, a future downturn in the market for our products or services could adversely affect our operating results and increase the risk of substantial quarterly and annual fluctuations in our earnings. Our future operating results may be affected by many factors, including, but not limited to: our ability to retain existing or secure anticipated advertisers and publishers; our ability to develop, introduce and market new products and services on a timely basis; changes in the mix of products developed, produced and sold; and disputes with our advertisers and publishers.  These factors affecting our future earnings are difficult to forecast and could harm our quarterly and/or annual operating results.
 
Public company compliance may make it more difficult to attract and retain officers and directors.
 
The Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies.  As a public company, we expect these new rules and regulations to increase our compliance costs in 2011 and beyond and to make certain activities more time consuming and costly.  As a public company, we also expect that these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.  As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.
 
Our stock price may be volatile.
 
The stock market in general, and the stock prices of technology-based companies in particular, have experienced volatility that often has been unrelated to the operating performance of any specific public company.  The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:
 
 
changes in our industry;
 
competitive pricing pressures;
 
our ability to obtain working capital financing;
 
additions or departures of key personnel;
 
limited "public float" in the hands of a small number of persons who sales or lack of sales could result in positive or negative pricing pressure on the market prices of our common stock;
 
expiration of any Rule 144 holding periods or registration of unregistered securities issued by us;
 
sales of our common stock;
 
our ability to execute our business plan;
 
operating results that fall below expectations;
 
loss of any strategic relationship;
 
regulatory developments; and
 
economic and other external factors.
 
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
 
 
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We have not paid dividends in the past and do not expect to pay dividends in the future.  Any return on investment may be limited to the value of our common stock.
 
We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future.  The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant.  If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.
 
There may be a limited public market for our securities; we presently fail to qualify for listing on any national securities exchanges.
 
Our common stock currently does not meet all of the requirements for initial listing on a registered stock exchange. Specifically, the bid price of our common stock is less than the minimum bid price required to obtain a listing, which is why, in part, we intend to effect a reverse stock split prior to the closing of this offering. Trading in our common stock continues to be conducted on the electronic bulletin board in the over-the-counter market. As a result, an investor may find it difficult to dispose of or to obtain accurate quotations as to the market value of our common stock, and our common stock may be less attractive for margin loans, for investment by financial institutions, as consideration in future capital raising transactions or other purposes. In connection with this offering, we intend to apply for the listing of our common stock on the Nasdaq Capital Market. No assurance can be given that our application will be approved.
 
Our common stock is currently deemed a “penny stock,” which makes it more difficult for our investors to sell their shares.
 
Our common stock is subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act.  The penny stock rules generally apply to companies whose common stock is not listed on the Nasdaq Stock Market or other national securities exchange and trades at less than $4.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years).  These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances.  Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited.  If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities.  If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.
 
Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
 
If our stockholders sell substantial amounts of our common stock in the public market upon the expiration of any statutory holding period, under Rule 144, or issued upon the exercise of outstanding options or warrants or conversion of preferred stock or other convertible securities, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall.  The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
 
Investor relations activities, nominal “float” and supply and demand factors may affect the price of our common stock.
 
Following this offering, we expect to utilize various techniques such as non-deal road shows and investor relations campaigns in order to create investor awareness for our business.  These campaigns may include personal, video and telephone conferences with investors and prospective investors in which our business practices are described.  We may provide compensation to investor relations firms and pay for newsletters, websites, mailings and email campaigns that are produced by third-parties based upon publicly-available information concerning us.  We will not be responsible for the content of analyst reports and other writings and communications by investor relations firms not authored by us or from publicly available information.  We do not intend to review or approve the content of such analysts’ reports or other materials based upon analysts’ own research or methods.  Investor relations firms should generally disclose when they are compensated for their efforts, but whether such disclosure is made or complete is not under our control.  Our investors may be willing, from time to time, to encourage investor awareness through similar activities.  Investor awareness activities may also be suspended or discontinued which may impact the trading market of our common stock.
 
 
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The SEC and FINRA enforce various statutes and regulations intended to prevent manipulative or deceptive devices in connection with the purchase or sale of any security and carefully scrutinize trading patterns and company news and other communications for false or misleading information, particularly in cases where the hallmarks of “pump and dump” activities may exist, such as rapid share price increases or decreases.  We and our shareholders may be subjected to enhanced regulatory scrutiny due to the small number of holders who initially will own the registered shares of our common stock publicly available for resale, and the limited trading markets in which such shares may be offered or sold which have often been associated with improper activities concerning penny-stocks, such as the OTC Bulletin Board or the OTCQB Marketplace (Pink OTC) or pink sheets.  Until such time as the common stock sold in this offering is registered and until such time as our restricted shares are registered or available for resale under Rule 144, there will continue to be a small percentage of shares held by a small number of investors, many of whom acquired such shares in privately negotiated purchase and sale transactions, that will constitute the entire available trading market.  The Supreme Court has stated that manipulative action is a term of art connoting intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities.  Often times, manipulation is associated by regulators with forces that upset the supply and demand factors that would normally determine trading prices.  A small percentage of our outstanding common stock is available for trading, held by a small number of individuals or entities.  Accordingly, the supply of common stock for sale will be extremely limited for an indeterminate amount of time, which could result in higher bids, asks or sales prices than would otherwise exist.  Securities regulators have often cited thinly-traded markets, small numbers of holders, and awareness campaigns as components of their claims of price manipulation and other violations of law when combined with manipulative trading, such as wash sales, matched orders or other manipulative trading timed to coincide with false or touting press releases.  There can be no assurance that our or third-parties’ activities, or the small number of potential sellers or small percentage of stock in the “float,” or determinations by purchasers or holders as to when or under what circumstances or at what prices they may be willing to buy or sell stock, will not artificially impact (or would be claimed by regulators to have affected) the normal supply and demand factors that determine the price of stock.
 
Our management team will have immediate and broad discretion over the use of the net proceeds from this offering and we may use the net proceeds in ways with which you disagree.
 
There is no minimum offering amount required as a condition to closing this offering and therefore net proceeds from this offering will be immediately available to our management to use at their discretion. We currently intend to use the net proceeds from this offering for sales, marketing and promotion, technology and platform engineering, establishment of strategic partnerships, potential acquisitions and working capital and general corporate purposes. See “Use of Proceeds.” You will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that the net proceeds will be invested in a way that does not yield a favorable, or any, return for us or our stockholders. The failure of our management to use such funds effectively could have a material adverse effect on our business, prospects, financial condition, and results of operation.
 
If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected.
 
Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations. In addition, management's assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management's assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock. During the quarter ended June 30, 2011, a material weakness existed in our internal controls over financial reporting with respect to the incompletion of our assessment of the accounting impact of the issuance of complex and non-standard debt and equity instruments in May 2011.  As a result of this material weakness, we were required to restate our financial statements for the quarter ended June 30, 2011. This material weakness was subsequently remediated as of September 30, 2011.
 
 
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You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future.
 
You will incur immediate and substantial dilution as a result of this offering. After giving effect to the sale by us of             shares offered in this offering at an assumed public offering price of $         per share, and after deducting the underwriters’ discounts and commissions and estimated offering expenses payable by us, investors in this offering can expect an immediate dilution of $          per share, or         % at the assumed public offering price. In addition, in the past, we issued convertible preferred stock, options and warrants to acquire shares of common stock. To the extent these options are ultimately exercised, you will sustain future dilution. We may also acquire other technologies or finance strategic alliances by issuing equity, which may result in additional dilution to our stockholders.
 
CAUTIONARY NOTE REGARDING FORWARD -LOOKING STATEMENTS
 
Statements in this prospectus may be “forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed in this prospectus, including the risks described under “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus and in other documents which we file with the Securities and Exchange Commission.  Factors that might cause such a difference include, but are not limited to, our ability to raise additional funding, our ability to maintain and grow our business, variability of operating results, our ability to maintain and enhance our brand, our expansion and development of new products and services, marketing and other business development initiatives, competition in the industry, general government regulation, economic conditions, 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 clients, our ability to protect our intellectual property, the potential liability with respect to actions taken by our existing and past employees, risks associated with international sales, and other risks described herein and in our other filings with the Securities and Exchange Commission. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this prospectus, except as may be required under applicable securities laws.
 
USE OF PROCEEDS
 
Based on an assumed public offering price of $           per share, we estimate that the net proceeds to us from the sale of the shares that we are offering, assuming gross proceeds of $25,000,000 will be approximately $22,818,526, after deducting underwriting discounts and commissions and estimated offering expenses.
 
We intend to utilize the net proceeds of the offering as follows:
 
Purpose
 
Approximate Dollar Amount
   
Approximate Percentage of Net Proceeds
 
Sales, marketing and promotion
  $ 5,000,000       20 %
Technology and platform engineering
    2,500,000       10 %
Establishment of strategic partnerships
    2,000,000       8 %
Potential acquisitions
    3,000,000       12 %
Working capital and general corporate purposes
    10,318,526       50 %
 
The expected use of net proceeds of this offering represents our intention based on our current plans and business conditions.  The amount and timing of our actual expenditures will depend on numerous factors, including increases in development costs and expenses and any unforeseen cash needs.  As a result, we will retain broad discretion in the allocation and use of the net proceeds of this offering.  We have no current plans, agreements or commitments for any material acquisitions of any technologies, products or businesses.
 
 
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If we determine to accelerate our business plan or if our plans otherwise change or our assumptions prove inaccurate, we may need to seek financing sooner than currently anticipated, incur additional financing or reduce or curtail our operations. We cannot assure you that financing will become available as and when needed.
 
If the underwriters exercise their over-allotment option in full, we will realize additional net proceeds of approximately $     , which will be added to our working capital.
 
We will invest proceeds not immediately required for the purposes described above principally in United States government securities, short-term certificates of deposit, money market funds or other short-term interest-bearing investments.
 
We believe that our cash on hand, together with the net proceeds from this offering (without exercise of the underwriters’ over-allotment option) would be adequate to fund operations through            20     .
 
CAPITALIZATION
 
The following table sets forth our capitalization, as of September 30, 2011:
 
 
on an actual basis; and
 
 
on an as adjusted basis to give effect to the issuance and sale of the shares offered by this prospectus.
 
You should consider this table in conjunction with our financial statements and the notes to those financial statements included elsewhere in this prospectus.
 
   
As of September 30, 2011
 
   
Actual
   
As
Adjusted for this offering (1)
 
 
Warrant liability
  $ 1,011,399        
Stockholders’ equity (deficit):
             
Series A convertible preferred stock; $.0001 par value; 240 shares authorized; 230 shares issued and outstanding
           
Common stock, par value $0.0001 per share; 500,000,000 shares authorized;              38,645,095 issued and outstanding as of September 30, 2011
    3,864        
Additional paid in capital
    16,261,469        
Accumulated deficit
    (16,990,789 )      
Total stockholders’ equity (deficit)
    (725,456 )     0  
                 
Total capitalization
  $ 285,943     $    

 
(1)
Reflects the estimated net proceeds that we will receive from the sale of shares of common stock in this offering, after deducting underwriting discounts and commissions and estimated offering expenses.
 
PRICE RANGE OF COMMON STOCK
 
Since June 2011, our common stock has been quoted on the OTC Bulletin Board under the symbol "IZEA."  Prior to that there was no trading of our common stock.  The following table sets forth, for the calendar periods indicated the range of the high and low last bid prices reported of our common stock, as reported by the OTC Bulletin Board.  The quotations represent inter-dealer prices without retail mark-ups, mark-downs or commissions, and may not necessarily represent actual transactions.  The quotations may be rounded for presentation. As of November 9, 2011, the closing price of our common stock was $1.30 per share.
 
 
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Fiscal year ending December 31, 2011
 
High
   
Low
 
Second quarter
  $ 5.00     $ 0.007  
Third quarter
  $ 3.25     $ 1.15  
Fourth quarter (through November 9, 2011)
  $ 1.41     $ 1.10 *
 
As of November 9, 2011, we had approximately 48 shareholders of record of our common stock.  This number does not include beneficial owners whose shares are held in the names of various securities brokers, dealers and registered clearing agencies.
 
Dividend Policy
 
We have never declared or paid cash dividends on our common stock, and we do not intend to pay any cash dividends on our common stock in the foreseeable future. Rather, we expect to retain future earnings (if any) to fund the operation and expansion of our business and for general corporate purposes.
 
DILUTION
 
Our pro forma net tangible book value as of September 30, 2011 was $(725,456) or $(0.02) per share of common stock, based upon 38,645,095 shares outstanding as of that date. Net tangible book value per share is determined by dividing such number of outstanding shares of common stock, giving effect to an estimated 1-for-       reverse split, into our net tangible book value, which is our total tangible assets less total liabilities. After giving effect to the sale of the shares in this offering at the assumed public offering price of $        per share, at September 30, 2011, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us, our pro forma as adjusted net tangible book value at September 30, 2011 would have been approximately           , or $            per share. This represents an immediate increase in net tangible book value of approximately $         per share to our existing stockholders, and an immediate dilution of $           per share to investors purchasing shares in the offering.
 
The following table illustrates the per share dilution to investors purchasing shares in the offering:
 
Assumed public offering price per share
  $    
Pro forma net tangible book value per share as of September 30, 2011
  $    
Increase per share attributable to sale of shares to investors
  $    
Pro forma as adjusted net tangible book value per share after the offering
  $    
Dilution per share to investors
  $    
 
The foregoing illustration does not reflect potential dilution from the conversion of our outstanding convertible preferred stock or the exercise of outstanding stock options or warrants to purchase an aggregate of 17,740,347 shares of our common stock. The foregoing illustration also does not reflect the dilution that would result from the exercise of the underwriters' warrants.
 
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
General
 
The following discussion and analysis is provided to increase the understanding of, and should be read in conjunction with, our unaudited consolidated financial statements and related notes included elsewhere in this prospectus.  Historical results and percentage relationships among any amounts in these financial statements are not necessarily indicative of trends in operating results for any future period. This prospectus contains “forward-looking statements”.  The statements, which are not historical facts contained in this prospectus, including this Management’s Discussion and Analysis of Financial Condition and Results of Operation, and notes to our unaudited consolidated financial statements, particularly those that utilize terminology such as “may” “will,” “should,” “expects,” “anticipates,” “estimates,” “believes,” or “plans” or comparable terminology are forward-looking statements. Such statements are based on currently available operating, financial and competitive information, and are subject to various risks and uncertainties. Future events and our actual results may differ materially from the results reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, our ability to raise additional funding, our ability to maintain and grow our business, variability of operating results, our ability to maintain and enhance our brand, our expansion and development of new products and services, marketing and other business development initiatives, competition in the industry, general government regulation, economic conditions, 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 clients, our ability to protect our intellectual property, the potential liability with respect to actions taken by our existing and past employees, risks associated with international sales, and other risks described herein and in our other filings with the Securities and Exchange Commission.
 
The safe harbor for forward-looking statements provided by Section 21E of the Securities Exchange Act of 1934 excludes issuers of “penny stock” (as defined under Rule 3a51-1 of the Securities Exchange Act of 1934). Our common stock currently falls within that definition.
 
All forward-looking statements in this document are based on information currently available to us as of the date of this prospectus, and we assume no obligation to update any forward-looking statements.  Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.
 
Company History
 
IZEA Holdings, Inc. (the “Company” “we” or “us”) was incorporated as a Nevada corporation on March 22, 2010 for the purpose of entering the business of making loans which are fully secured by a first lien on a customer’s automobile.  On May 11, 2011, we filed an amendment to our Articles of Incorporation in order to change our name from “Rapid Holdings, Inc.” to “IZEA Holdings, Inc.” On May 11, 2011, our board of directors declared a dividend of an additional 14.28117 shares of common stock on each share of our common stock outstanding on May 11, 2011 with a payment date of May 23, 2011.
 
On May 12, 2011, we entered into a Share Exchange Agreement (the “Exchange Agreement”) with IZEA, Inc., a privately held Delaware corporation (“IZEA”) and the shareholders of IZEA. Upon closing of the transaction contemplated under the Exchange Agreement, on May 12, 2011, the shareholders of IZEA transferred all of the issued and outstanding capital stock of IZEA to us in exchange for shares of our common stock. Such exchange caused IZEA to become our wholly-owned subsidiary. Immediately following the closing of the exchange, under an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations, the Company transferred all of its pre-exchange assets and liabilities to a wholly-owned subsidiary, RTL Holdings, Inc. (“SplitCo”) and thereafter, pursuant to a stock purchase agreement, transferred all of the outstanding capital stock of SplitCo to Anthony Barron, our former officer and director, in exchange for the cancellation of shares of our common stock he owned. Upon closing of the exchange, the business of IZEA became our business.
 
IZEA, Inc. was incorporated in the state of Florida in February 2006 and reincorporated in the state of Delaware in September 2006.
 
Company Overview
 
We are a leader in social media sponsorships ("SMS"), a rapidly growing segment within social media that connects social media publishers with advertisers. We accomplish this through our five online marketplaces: WeReward, SponsoredTweets, SocialSpark, PayPerPost and InPostLinks. Our customers include a wide range of small and large businesses, including Fortune 500 companies, as well as advertising agencies. We generate our revenue through the sale of social media sponsorships to our customers.  We fulfill these sponsorships through our marketplace platforms connecting social media publishers such as bloggers, tweeters and mobile application users.
 
 
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Results of Operations for Nine Months Ended September 30, 2011 Compared to September 30, 2010
 
   
Nine Months Ended September 30,
     
   
2011
   
2010
   
$ Change
   
% Change
 
Revenue
  $ 2,821,354     $ 2,249,891     $ 571,463       25.4 %
Cost of sales
    1,306,463       1,192,043       114,420       9.6 %
Gross profit
    1,514,891       1,057,848       457,043       43.2 %
Operating expenses:
                               
General and administrative
    3,883,887       2,570,601       1,313,286       51.1 %
Sales and marketing
    526,112       404,272       121,840       30.1 %
Total operating expenses
    4,409,999       2,974,873       1,435,126       48.2 %
Loss from operations
    (2,895,108 )     (1,917,025 )     (978,083 )     51.0 %
Other income (expense):
                               
Interest expense, net
    (17,060 )     (60,654 )     43,594       (71.9 )%
Change in fair value of warrant liability
    73,571             73,571       %
Other income (expense), net
          (276 )     276       (100.0 )%
Total other income (expense)
    56,511       (60,930 )     117,441       (192.7 )%
Net loss
  $ (2,838,597 )   $ (1,977,955 )   $ (860,642 )     43.5 %
 
Revenues
 
Revenues for the nine months ended September 30, 2011 increased by $571,463, or 25.4%, compared to the same period in 2010.   The increase was primarily attributable to growth of our customer base through our expanded sales force and through budget increases among existing customers in all of our product lines.
 
 Cost of Sales and Gross Profit
 
Cost of sales for the nine months ended September 30, 2011 increased by $114,420, or 9.6%, compared to the same period in 2010.   The increase was primarily attributable to the growth in advertising campaigns requiring the purchase of appropriate levels of sponsorships from publishers. Cost of sales is comprised primarily of the amounts we pay to social media publishers in the IZEA online network.  Cost of sales represented 46% of revenues for the nine months ended September 30, 2011 compared to 53% of revenues for the same period in 2010.
 
Gross profit for the nine months ended September 30, 2011 increased by $457,043, or 43.2%, compared to the same period in 2010.  Our gross margin increased to 54% for the nine months ended September 30, 2011 as compared to 47% for the same period in 2010.   The gross margin increase was primarily attributable to increase in fees charged to manage advertising campaigns and inactivity fees, resulting in revenue for the nine months ended September 30, 2011 of approximately $218,000.
 
Operating Expenses
 
Operating expenses consist of general and administrative, and sales and marketing expenses.  Total operating expenses for the nine months ended September 30, 2011 increased by $1,435,126, or 48.2%, compared to the same period in 2010.  The increase was primarily attributable to increased payroll and operating expenses, costs of being a public company and increases in sales and marketing expenses.
 
 
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General and administrative expenses consist primarily of payroll, general operating costs, public company costs, facilities costs, insurance, depreciation, professional fees,  and investor relations fees. General and administrative expenses for the nine months ended September 30, 2011 increased by $1,313,286 or 51.1%, compared to the same period in 2010. The increase was primarily attributable to increased payroll, costs of being a public company, investor relations costs and operating expenses due to increased activity in our platforms.  We paid $1,190,000 and issued 500,000 shares of common stock valued at $165,000 in August 2011 for investor relation services of which $677,500 was expensed in September 2011 and the remaining $677,500 will be expensed in the fourth quarter of  2011.
 
Sales and marketing expenses consist primarily of compensation for sales and marketing and related support resources, sales commissions and trade show expenses. Sales and marketing expenses for the nine months ended September 30, 2011 increased by $121,840 or 30.1%, compared to the same period in 2010.   The increase was also attributable to marketing of our increased focus on our SocialSpark, SponsoredTweets and WeReward platforms.
 
Other Income (Expense)
 
Other income (expense) consists primarily of interest expense and the change in the fair value of warrant liability.
 
Interest expense during the nine months ended September 30, 2011 decreased by $43,594 compared to the same period in 2010 as a result of the conversion of $1,444,800 of related party notes payable in May 2010 and principal payments made on our note payable to the bank.
 
We recognized other income for a change in fair value of our warrant liability of $73,571 during the nine months ended September 30, 2011 related to warrants issued in connection with a financing arrangement as further discussed below.
 
Net Loss
 
Net loss for the nine months ended September 30, 2011was $2,838,597 which increased from the net loss of $1,977,955 for the same period in 2010,   As discussed above, although gross profit increased over the prior quarter due to increased revenue and interest expense declined as a result of the conversion of debt in 2010, this was exceeded by an increase in operating expenses attributable to increased headcount, public company and investor relations costs, and other sales and marketing expenses.
 
Results of Operations for Twelve Months Ended December 31, 2010 Compared to December 31, 2009
 
   
Twelve Months Ended December 31,
     
   
2010
   
2009
   
$ Change
   
% Change
 
Revenue
  $ 3,821,538     $ 2,834,359     $ 987,179       34.8 %
Cost of sales
    1,819,031       1,343,159       475,872       35.4 %
Gross profit
    2,002,507       1,491,200       511,307       34.3 %
Operating expenses:
                               
General and administrative
    3,318,701       3,383,636       (64,935 )     (1.9 )%
Sales and marketing
    766,946       577,529       189,417       32.8 %
Loss on impairment of intangible assets
          99,949       (99,949 )     (100.0 )%
Total operating expenses
    4,085,647       4,061,114       24,533       0.6 %
Loss from operations
    (2,083,140 )     (2,569,914 )     486,774       (18.9 )%
Other income (expense):
                               
Interest expense, net
    (74,511 )     (85,779 )     11,268       13.1 %
Other income (expense), net
    (108 )     1,921       (2,029 )     (105.6 )%
Total other income (expense)
    (74,619 )     (83,858 )     9,239       (11.0 )%
Net loss
  $ (2,157,759 )   $ (2,653,772     $ 496,013       (18.7 )%
 
 
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Revenues
 
Revenues for the year ended December 31, 2010 increased to $3,821,538 from $2,834,359 for the year ended December 31, 2009, an increase of 34.8%.  The increase is primarily attributable to growth of our customer base through our expanded sales force and through budget increases among existing customers. The primary drivers of this growth were an overall increase in customer base and product launches of SocialSpark and SponsoredTweets in 2008 and 2009 respectively.  These products accounted for 51% of our revenue in 2010, an increase from 26% in 2009.
 
Given the continued overall growth in online advertising, coupled with other strategic initiatives undertaken by IZEA, including the continued enhancement of our technology platform and our continued ability to acquire bloggers, tweeters and other consumer content creators, we expect to continue to increase our advertising customer base and revenues on a year-over-year basis.
 
Cost of Revenues and Gross Profit
 
Cost of revenues for the year ended December 31, 2010 increased to $1,819,031 from $1,343,159 for the year ended December 31, 2009, an increase of 35.4%.  The increase is primarily attributable to the growth in advertising campaigns requiring the purchase of appropriate levels of sponsorships from publishers. Cost of revenues is comprised primarily of the amounts we pay to social media publishers in IZEA’s online network.  Cost of revenues represented 47.6% of revenues for the year ended December 31, 2010 compared to 47.4% of revenues for the year ended December 31, 2009.
 
Gross profit for the year ended December 31, 2010 increased to $2,002,507 from $1,491,200 for the year ended December 31, 2009, an increase of 34.3%.  Our gross margin remained steady at  52.4% for the year ended December 31, 2010 compared to 52.6% for the year ended December 31, 2009.
 
Operating Expenses
 
Operating expenses consist of general and administrative, sales and marketing and licenses and subscriptions related to technology support.  Total operating expenses for the year ended December 31, 2010 increased to $4,085,647 from $4,016,114 for the year ended December 31, 2009, an increase of 0.2%.  The increase was primarily attributable to headcount expansion from 26 employees at December 31, 2009 to 34 employees at December 31, 2010 which was partially offset by a loss on impairment of intangible asset during 2009.  We expect to hire up to 20 new employees in 2011 to support the growth of our business and the ongoing innovation, development and marketing of our platforms.
 
General and administrative expenses consist primarily of executive, administrative, operations and product development and support compensation (including non-cash stock based compensation), facilities costs, insurance, depreciation, professional fees, investor relations fees and bad debt expense.  General and administrative expenses for the year ended December 31, 2010 decreased to $3,318,701from $3,383,636 for the year ended December 31, 2009, a decrease of 1.9%.
 
Sales and Marketing
 
Sales and marketing expenses consist primarily of compensation  for sales and marketing and related support resources, sales commissions and trade show expenses. Sales and marketing expenses for the year ended December 31, 2010 increased to $766,946 from $577,529 for the year ended December 31, 2009, an increase of 32.8%.  The increase was primarily attributable to our increased sales-force expansion focusing primarily on SocialSpark and SponsoredTweets.
 
Loss on Impairment
 
Loss on impairment was $0 for the year ended December 31, 2010 and $99,949 for the year ended December 31, 2009.  The impairment resulted from the discontinued use in January 2009 of certain intellectual property and a software license purchased in February 2007.
 
Net Loss
 
Net loss for the year ended December 31, 2010 was $2,157,759 compared to a net loss of $2,653,772 for the year ended December 31, 2009.  The reduction in our net loss was attributable to strong revenue growth, reduced operating expenses which grew at a slower pace than revenue and the loss from impairment of intangible assets during fiscal 2009 which did not reoccur in fiscal 2010.
 
 
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Liquidity and Capital Resources
 
Our cash position was $1,095,103 as of September 30, 2011 as compared to $1,503,105 as of December 31, 2010, a decrease of $408,002.  Significant losses from operations have been incurred since inception and there is an accumulated deficit of $16,990,789 as of September 30, 2011.
 
To date, we have financed our operations through internally generated revenue from operations, the sale of our equity and the issuance of notes and loans from shareholders. From May until August 2011, we raised an aggregate of $3,330,000 through the sale of 333 units consisting of either (i) 30,303 shares of our common stock, or (ii) one share of our recently designated Series A Preferred Stock, which is convertible into 30,303 shares of common stock, plus a five-year warrant to purchase 18,182 shares of common stock for $9,091 or $0.50 per linked common share (the “May 2011 Offering”). Of the gross proceeds received, (i) $500,000 was received under a promissory note that was contractually exchangeable into 50 units under the May 2011 Offering, and (ii) $50,000 was received for the purchase of 5 units from our Chief Executive Officer. As a result of the offering, investors who purchased 230 units elected to receive preferred stock and investors who purchased 103 Units elected to receive common stock. Accordingly, we issued (i) 3,121,210 shares of common stock, (ii) 230 shares of Series A Preferred Stock, which are linked by conversion to 6,969,690 shares of common stock, and (iii) 333 Warrant Contracts that are linked by exercise to an aggregate of 6,054,606 shares of common stock Direct expenses associated with the offering amounted to $290,127 and included (i) placement agent, legal and other fees for cash of $272,527, and (ii) a warrant to the placement agent to purchase 100,000 shares of common stock under the same terms and conditions as the warrants. Accordingly, net cash proceeds from the May 2011 Offering amounted to $3,057,473.
 
We entered into registration rights agreements (the “Registration Rights Agreement”) with the investors in the May 2011 Offering (the "Investors"), pursuant to which we agreed to file a “resale” registration statement with the SEC covering the shares of common stock issuable upon conversion of Series A Preferred Stock and the shares of common stock underlying the Warrants within six (6) months after the final closing date of the May 2011 Offering (i.e. February 15, 2012) (the “Filing Date”). We agreed to use our reasonable best efforts to have the registration statement declared effective within nine (9) months after the final closing date of the May 2011 Offering (i.e. May 15, 2012) (the “Effectiveness Deadline”) and to maintain the effectiveness of the registration statement from the effective date until all securities have been sold or are otherwise able to be sold pursuant to Rule 144 without restriction or limitation.  Pursuant to the Registration Rights Agreement, we are obligated to pay to Investors a fee of 1% per month of the Investors’ investment, payable in cash, for every thirty (30) day period up to a maximum of 6%, (i) following the required Filing Date that the registration statement has not been filed and (ii) following the required Effectiveness Deadline that the registration statement has not been declared effective; provided, however, that we shall not be obligated to pay any such liquidated damages if we are unable to fulfill our registration obligations as a result of rules, regulations, positions or releases issued or actions taken by the SEC pursuant to its authority with respect to “Rule 415”, provided we register at such time the maximum number of shares of common stock permissible upon consultation with the staff of the SEC and provided further that we will not be obligated to pay liquidated damages at any time following the one year anniversary of the Final Closing Date (as defined in the Registration Rights Agreements) of the May 2011 Offering.
 
On May 24, 2011, we entered into an investor relations agreement with a consulting company to provide investor relations services for two months beginning September 1, 2011 (as amended).  We paid $1,190,000 in cash with proceeds from the May 2011 Offering and issued 500,000 shares of our common stock valued at $165,000 based on $0.33 per common share in August 2011.
 
On July 15, 2008, we entered into a $1,000,000 Loan and Security Agreement (“Note Payable”) with Silicon Valley Bank, with an interest rate of 8% per annum, payable monthly.  Interest only was payable through December 31, 2008.  Repayment of principal is due in thirty-six consecutive equal monthly installments beginning in January 2009, or approximately $333,333 per year through December 31, 2011. The Note Payable is secured by all assets of IZEA. The principal balance outstanding on the note payable was $83,333 at September 30, 2011 and is required to be repaid in full during fiscal 2011.
 
 
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Although our net revenues and proceeds from the May 2011 Offering are currently sufficient to fund our operating expenses until September 30, 2012, we are seeking to raise additional funds particularly if we are unable to generate positive cash flow as a result of our operations or require additional capital to expand our operations. Therefore, our future operations may be dependent on our ability to secure additional financing.  Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we may have to curtail our marketing and development plans and possibly cease our operations.
 
Our ability to continue as a going concern is dependent upon attaining profitable operations through achieving revenue growth targets while lowering other expense levels.
 
Cash used for operating activities was $3,163,169 during the nine months ended September 30, 2011 and was primarily a result of our net loss during the period of $2,838,597.  Cash provided by financing activities was $2,790,916 during the nine months ended September 30, 2011 primarily as a result of net proceeds of $3,057,473 received from the issuance of common and preferred stock and warrants and exchange of promissory notes in a financing arrangement as further discussed above offset by principal payments of $268,156 on our bank note payable and capital leases.
 
Off Balance Sheet Arrangements
 
We do not engage in any activities involving variable interest entities or off-balance sheet arrangements.
 
Critical Accounting Policies and Use of Estimates
 
The preparation of the accompanying financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in the accompanying financial statements and the accompanying notes.  The preparation of these financial statements requires managements to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.  When making these estimates and assumptions, we consider our historical experience, our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances.  Actual results could differ from these estimates.  The following critical accounting policies are significantly affected by judgments, assumptions and estimates used in the preparation of the financial statements.
 
Accounts receivable are customer obligations due under normal trade terms and are typically considered collectible since most customers are not bound by contract and are required to fund us for all the costs of an “opportunity”, defined as an order created by an advertiser for a blogger to write about the advertiser’s product. If a portion of the account balance is deemed uncollectible, we will either write-off the amount owed or provide a reserve based on 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. We have not recorded a reserve for doubtful accounts at December 31, 2010 and September 30, 2011.
 
Revenue consists of content creator fees, service fees to establish and maintain advertiser accounts, and listing fees associated with advertiser “opportunities”. Revenue is recognized when opportunities are posted on our websites and when related payments are made to the content creators after their content has been listed for the requisite period. Customers prepay for the Company’s services, which are recorded as unearned revenue. We recognize revenue in accordance with Accounting Standards Codification on Principal Agent Considerations. We record revenue on the gross amount earned since  we generally are the primary obligor in the arrangement, establish the pricing and determine the service specifications.
 
Stock based compensation is measured at grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite service period.  We estimate the fair value of each stock option as of the date of grant using the Black-Scholes-Merton pricing model.  Options vest ratably over four years with one-fourth of options vesting one year from the date of grant and the remaining options  vesting monthly, in equal increments over the remaining three-year period  and generally have ten-year contract lives.  We estimate the volatility of our common stock at the date of grant based on the volatility of comparable peer companies which are publicly traded. We determine the expected life based on historical experience with similar awards, giving consideration to the contractual terms, vesting schedules and post-vesting forfeitures. We use 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. We have never paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. In addition, we separate the grants into homogeneous groups and analyzes the assumptions for each group.
 
We account for derivative instruments in accordance with FASB ASC 815, Derivatives and Hedging, which requires additional disclosures about the our objectives and strategies for using derivative instruments, how the derivative instruments and related hedged items are accounted for, and how the derivative instruments and related hedging items affect the financial statements. We do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms of convertible debt and equity instruments are reviewed to determine whether or not they contain embedded derivative instruments that are required under ASC 815 to be accounted for separately from the host contract, and recorded on the balance sheet at fair value. The fair value of derivative liabilities, if any, is required to be revalued at each reporting date, with corresponding changes in fair value recorded in current period operating results. Pursuant to ASC 815, an evaluation of specifically identified conditions is made to determine whether the fair value of warrants issued is required to be classified as equity or as a derivative liability.
 
 
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We record a beneficial conversion feature (“BCF”) related to the issuance of convertible debt and equity instruments that have conversion features at fixed rates that are in-the-money when issued, and the fair value of warrants issued in connection with those instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to warrants, based on their relative fair value, and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion feature. The discounts recorded in connection with the BCF and warrant valuation are recognized a) for convertible debt as interest expense over the term of the debt, using the effective interest method or b) for preferred stock as dividends at the time the stock first becomes convertible.
 
Recent Accounting Pronouncements
 
There are several new accounting pronouncements issued by the Financial Accounting Standards Board ("FASB") which are not yet effective.  We do not believe any of these accounting pronouncements will be applicable and therefore will not have a material impact on our financial position or operating results.
 
 
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BUSINESS
 
Overview
 
We believe we are a world leader in social media sponsorship, operating multiple marketplaces that include our premier platforms WeReward, SponsoredTweets and SocialSpark, as well as our legacy platforms PayPerPost and InPostLinks. We generate our revenue through the sale of Social Media Sponsorships (SMS) to our customers.  A Social Media Sponsorship is when a company compensates a social media publisher to share sponsored content with their social network.
 
Our platforms take the concepts of product placement and endorsements commonly found in movies, television and radio and apply them to the social web. We democratize the brand sponsorship process, allowing everyone from college students and stay at home moms to celebrities an opportunity to monetize their content, creativity and influence in social media.
 
We believe we pioneered the concept of a marketplace for SMS in 2006 and have focused on the scalable monetization of social media ever since. We compensate bloggers, tweeters and mobile promoters (our publisher-partners) to share information about companies, products, websites and events within their social media content streams. Advertisers benefit from buzz, traffic, awareness and sales; publishers earn cash, points and product samples.
 
Each platform we operate is designed to facilitate SMS transactions in a way that is natural to its specific media format. Advertisers can utilize a single platform to fill a specific need or combine platforms with each other to execute an integrated social media campaign. All of our platforms can be used in a self-serve fashion or with the assistance of our account management team.
 
We streamline the process of completing SMS through our proprietary technology, creating efficiencies and economies of scale for both advertisers and publishers. We utilize a common design methodology in each platform, which we have honed over our five years of operation. Each platform provides advertisers with access to a large network of publishers, workflow management, content control, payment processing, performance tracking and legal compliance. This methodology enables us to offer the most monetization opportunities to our publishers through a marketplace that is safe, reliable and easy to use.
 
We believe the value proposition we offer to both advertisers and publishers strengthens our position as a trusted partner and allows us to derive revenue from both customer bases. As more brand advertisers utilize our marketplaces, we thereby increase the breadth and depth of monetization opportunities for publishers, attracting more publishers and further enhancing the value of our service advertisers.
 
 
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Our core platforms are described below:
 
 
SocialSpark
SponsoredTweets
WeReward
Media Format
Blog Posts
Status Updates
Actions / Check-Ins
Content
Long form text/video content
Short form text content
Short form text & photo content
Best used for
• In-depth reviews
• Buzz
• Long term traffic generation
• E-commerce "Deals"
• Short term traffic generation
• Buzz
• Awareness
• Driving purchases
• Customer data
• Short term traffic generation
Payment Model
• Cost per blog post
• Cost per purchase
• Cost per tweet
• Cost per click
• Cost per action
Targeting
• Blog traffic
• Blog category / keywords
• Blogger country
• Tweeter followers
• Tweeter category / keywords
• Tweeter country
• Mobile user current location
• Mobile user age / sex
Metrics Gathered
• Impressions / CPM
• Clicks / CPC
• CTR
• Cost per action / sale
• Followers / CPMF
• Clicks / CPC
• Engagement
• Cost per action / sale
• Cost per action / sale
• Revenue generated / ROI
• Loyalty
Effective Media Lifespan
Years
1-2 Days
1-2 Days (media)
Years (data)
Works best for
• Complex products
• Distribution of embeds
• Evergreen products/brands
• E-commerce "Deals"
• Time sensitive product launches
• Celebrity engagement
• Viral content
• Driving specific actions
• Customer data gathering
• Building loyalty
 
We have more than 50,000 registered advertisers in 157 different countries including top brands such as Coca-Cola, at&t, Microsoft, Kraft, HP, LG, Audi, Volvo, Hilton, Walgreens, Hershey and Sony. We have over 600,000 registered social media publishers in 179 different countries including high-profile celebrities such as Kim Kardashian, Diddy, Rainn Wilson, Mario Lopez, Tyrese, Michael Ian Black and Bow Wow. Our publishers currently publish sponsored content to blogs, Twitter, Facebook and Foursquare and reach other existing platforms such as Tumblr, LinkedIn, Google and Bing through syndication of that content.
 
To date, we completed over 2.7 million social media sponsorships for customers ranging from small local businesses to Fortune 50 organizations.
 
We earn our revenue by facilitating a paid social media sponsorship between an advertiser and publisher. Each time an advertiser successfully sponsors a publisher we make a percentage on the transaction, which is generally 50% of the total cost.  In addition to straight transaction fees, our company also earns revenue for additional services and fees to both advertisers and publishers.
 
Industry Background and Trends
 
The social media advertising space reached $1.7 billion in 2010 and is projected by eMarketer, an independent digital intelligence firm, to reach $3.1 billion by 2014. Despite the inherently conversational nature of social media, the majority of brand budgets are currently allocated towards display advertising (banner ads and text links) on social sites. While most advertisers understand the value of word of mouth marketing, peer recommendations and product reviews, few understand how to efficiently engage social media users for these purposes. Those who effectively attempt an approach are quickly limited by the amount of effort required to effectively manage and measure a truly integrated campaign.
 
The SMS space has been limited primarily by the current inefficiencies of the market. The social media publisher and advertiser universe is large and highly fragmented among topic, quality and platform. Despite the size of this market, most advertisers and social media publishers lack an efficient way to identify and engage each other. Instead, we believe brands have been forced to utilize a variety of highly inefficient sources and processes to navigate the complicated landscape of social media sponsorship, often resulting in low returns on their time investment or worse-yet, questionable results.
 
 
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At the same time, social media publishers that would like to monetize their community are faced with significant challenges in finding quality advertisers who are motivated to sponsor them and making them aware of their blog, twitter or Facebook profile. In addition, smaller publishers simply lack the individual influence and audience needed to warrant the processing of a micro-transaction. In many cases it costs an advertiser more money to cut a check to a small publisher than the value of the sponsorship payment itself.
 
Further complicating the SMS process for both parties are FTC regulations around social media endorsements, IRS tax implications of both cash and non-cash payments, and the associated campaign tracking required to provide compliance. While many advertisers would prefer to be “part of the conversation,” the complexity and cost of individual social media sponsorship often deters them from doing so.
 
We believe that the current state of SMS represents a significant corporate opportunity for us. We address these common problems with targeted, scalable marketplaces that aggregate social media publishers and advertisers. We offer an efficient, innovative way for publishers and advertisers of all sizes to find each other and complete a sponsorship transaction.
 
We operate primarily within two media segments – social media advertising and mobile advertising. We believe that we have the platforms and technology to meet advertiser’s needs in both of these segments:
 
•           The social media advertising space reached $1.7 billion in 2010 and is projected by eMarketer, an independent digital intelligence firm, to reach $3.1 billion by 2014. Our SocialSpark and SponsoredTweets platforms are expected to be the primary drivers of our growth in this segment.
 
•           Nearly one-third of U.S. mobile phone users currently own a smart phone and mobile spending is projected by The Nielsen Company, an independent global information and measurement company, to reach $2.5 billion by 2014. We believe that WeReward, our mobile incentive platform, is uniquely positioned to capitalize on the convergence of local and mobile advertising and the growth within this market segment.
 
Our Platforms
 
Below is an overview of our platforms:
 
•           SocialSpark is our premier blog marketing platform. Through SocialSpark we provide robust targeting and detailed analytics to advertisers. The site allows advertisers to develop large lists of high-quality blogs based on various criteria, such as relevancy, traffic and demographic data. The platform also enables advertisers to create targeted, large-scale social media campaigns with the click of a button and to observe campaign results in real time. SocialSpark is also used by larger brands interested in engaging in conversations with their consumer bases. This platform is an automated, scalable version of other blogger outreach services conducted by public relations agencies such as Porter Novelli, Edelman and Ketchum.
 
•           SponsoredTweets is an online marketplace that allows consumers to connect directly with advertisers to engage in sponsored conversations through Twitter. Marketers pay for Twitter advertising campaigns on either a cost per tweet (CPT) or cost per click (CPC) basis. SponsoredTweets allows advertisers to hand pick individual tweeters, including celebrities, to participate in Twitter advertising campaigns. This platform is similar to Adly's celebrity endorsements.
 
•            WeReward is a social-mobile incentive platform that allows brands to drive purchases, reward loyalty and better understand their customers. WeReward promotes businesses, consumer products and mobile applications through our proprietary application, which can be downloaded on iPhone and Android devices. Consumers are currently able to earn WeReward points at more than 15 million businesses in the United States. WeReward points act as a cash rebate via PayPal to create tangible value for users. This platform is similar to CheckPoints.
 
•           PayPerPost and InPostLinks are online marketplaces designed to facilitate search engine optimization efforts and allow advertisers to connect directly with bloggers to develop relevant blog post content and place text link advertising within blog posts. Both systems allow advertisers to compensate bloggers with cash in exchange for content and links back to websites. These platforms are similar to eBay for content generation and text link advertising.
 
•           IZEAMedia (in Pilot) allows advertisers to place display advertising next to sponsored blog content.
 
 
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•           Staree (in Development) is an online platform designed to help celebrities better monetize multimedia content through SMS.
 
SocialSpark and SponsoredTweets, our premier social media platforms released in 2008 and 2009, respectively, together represented 26%, 51% and 63% of our total revenue in the years ended December 31, 2009 and 2010 and the nine months ended September 30, 2011, respectively. Large brand advertisers use a combination of these platforms to fulfill advertising campaigns depending on their advertising goals. WeReward, our mobile incentive platform, was launched at the end of May 2010 and generated $10,853 in revenue in 2010 and $82,186 in revenue in the nine months ended September 30, 2011.
 
Our first product launch in 2006, PayPerPost, and complementary product InPostLinks, are legacy platforms. These products together represented 69%, 48%, and 34% of our total revenue in the years ended December 31, 2009 and 2010 and the nine months ended September 30, 2011, respectively. Revenue from these legacy products is expected to decline as a percentage of our total revenue and is not the focus of our business moving forward.
 
Our Growth Strategy
 
After five years of development, we believe our core platforms are market-tested and poised for significant revenue growth. Our development efforts have included assembling an industry-experienced senior management team, launching and optimizing our online marketplaces, developing a cross-platform sales force and refining our message to the market.  Key elements of our strategy to accelerate revenue growth and continue product development include:
 
•           Bolster our sales force and locations. We expect growth of our client development team to be the primary driver of near term revenues. We intend to add additional quota-carrying sales personnel to more effectively target and service clients throughout the U.S. and the world. Experienced, senior team members are expected to cultivate deep relationships with agencies and brands in our recently opened New York, Los Angeles and Chicago offices as well as smaller satellite locations in key markets. We intend to add inside sales personnel to our Orlando headquarters to service smaller clients over the telephone and Internet. In addition to our expanded presence in the U.S., we intend to open offices in Asia, Latin America and Europe by the end of 2013. Our goal is to employ over 30 quota-carrying client development personnel by the end of 2013, with an aggregate sales quota of $50 million leading into 2014.
 
•           Develop strategic partnerships. Establishing strategic partnerships with companies that can provide additional growth in our base of publishers and brand advertisers. In August 2011, we announced an exclusive alliance with India's UTV to create new monetization opportunities for the estimated 12 million Twitter users in India. UTV's exclusive roster of Indian celebrities including Lara Dutta, Mahesh Bhupati, Anurag Kashyap, Rohan Bopanna and Neetu Chandra, among others, are expected to join the site and soon be available for potential Twitter sponsorship opportunities.
 
•           Continue emphasis on product innovation. Recruiting additional engineering and product development team members to enhance our various marketplaces while developing new technology platforms that complement our mission as a company.
 
•           Seek complementary acquisitions. Identifying and acquiring companies, technologies and assets add to our portfolio of software services and drive additional near and long-term revenue. In July 2011, we acquired Germany's Magpie Twitter advertising network that included over 12,000 advertisers and 16,000 Twitter publishers in 124 countries.
 
•           Expand WeReward marketing. Investing in consumer and channel marketing for WeReward is expect to result in an increase in our user base to meet growing demand for mobile and local campaigns.
 
 
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Customers
 
We currently have more than 50,000 registered advertisers across our platforms, of which approximately 23,279
 
 advertisers have completed an SMS transaction to date. We typically enter into a master agreement, which incorporates the online terms of service of the specified IZEA website, with each of our advertiser customers. Under the master agreement, the advertiser may submit one or more insertion orders pursuant to which such advertiser provides advertising submissions relating to its website, product or service for posting through the specified IZEA website or service. The master agreement is terminable by us or our customers upon 30 days’ prior written notice or immediately if a material breach has occurred and is not promptly cured. Each party indemnifies the other with regard to various representations made by such party, including the advertiser’s representations that its content does not violate any law, or infringe any intellectual property right of another, is not false or deceptive, or defamatory or libelous, and is free of viruses and other computer programming that could damage any system data or personal information, and that it is not engaging in spamming. Fees under the master agreement are payable within 30 days after the date of our invoice in accordance with the terms agreed to in the applicable insertion order. The master agreement additionally provides for standard service disclaimers and limitations of liability for our benefit, as well as a reciprocal confidentiality provision. We also enter into browsewrap and clickwrap agreements with “self service customers” that agree to the terms of service available on the applicable IZEA website but do not separately enter into a master agreement with us.
 
We provide services to customers in multiple industry segments, including consumer products, retail/eTail, technology and travel. Our customers are predominantly located in the United States followed by the United Kingdom, Canada, Europe, Russia and 50 other countries. None of our customers accounted for more than 10% of our revenue in the years ended December 31, 2009 and 2010 and the nine months ended September 30, 2011.
 
Our business services advertising and public relations agencies as well as brands and businesses directly. Below are our top customers in each category based on 2011 booked business:
 
Agencies Representing Brands
Brands Direct
Alcone Marketing Group
Deal Fun
m80
Dollar General Store
MindShare
H.J. Heinz Co
Rivet
Meridian Auto Parts
Rosetta Marketing Group
Microsoft
Starcom Worldwide SMG
Pier 1
The Food Group
Sunbelt Software
The Stockwire Group
Symantec
VML
The Neilsen Company
Ziptech Media
Tivo
 
In many cases, social media marketing dollars flow through the advertising or public relations agency, even when we are have a direct relationship with the brand. In addition to the agencies listed above, we have done business with these agencies in 2011:
 
 
·
1080 Communications, Acquirgy, Bernstein-Rein, Bolin Marketing & Advertising, Chemistry Group, Cole & Weber United, Digitaria, Digitas, Edleman, Engauge Digital, Euro RSCG Edge, EVOK Advertising, FKM, FRWD, Garden City Group Communications, Geary Interactive, Geile Leon Marketing Communications, GMLV, Golin Harris, Ignited LLC, Jacobson Rost, JB Chicago, MindSmack, Momentum, Moroch Partners, Moxie Interactive, Neo@Ogilvy, Night Agency, PBM , PHD, Reputation Managers. Rhino Marketing Inc, Run Communications, Inc., SEOinc, Sitelab, The Mcmilker Group, Triad Retail Media, Vision Creative Group, Inc., Watauga Group, Web.com Search Agency, Wyse Advertising, Zimmerman and others.
 
Sales and Marketing
 
We primarily sell social media sponsorships through our self-service platforms, directly through our sales team and, to a lesser extent, by utilizing distribution relationships such as resellers, affiliates and white label partners. We target local, national and global brands and advertising agencies in the following ways:
 
 
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•           Self-Service Platforms. Each of our platforms has been developed as a self-service platform to enable advertisers and agencies of all sizes to independently access the IZEA network of social media publishers and implement their own social media sponsorships. Self-service customers extend our global reach.
 
•           Client Development Team. We have developed a Client Development organization of team members who are each assigned a geographic region or specific brands, primarily within the United States. This team is responsible for identifying and managing sales opportunities in their respective target areas.
 
•           Resellers and Distribution Partners. We have developed a group of independent resellers and distribution partners which are responsible for selling one or more of our platforms under an independent contractor relationship. We maintain two types of reseller relationships -local resellers and distribution partners. Local resellers focus their efforts on distributing our WeReward platform to small businesses in local communities throughout the United States. Our distribution partners are complementary relationships that may involve cross-selling activities.
 
•           Affiliates. Three of our platforms, SocialSparkSponsoredTweet and WeReward contain self-service affiliate programs designed to compensate social media publishers for referring other publishers to join these platforms. These programs provide ongoing compensation of 10% of the referee’s earnings to the referrer for a two year period. To date, this has proven to be an efficient method of attracting new social media publishers into our publisher network.
 
•           White Label Partners. The SocialSpark and SponsoredTweets platforms have also been developed to support white label partners. These partners can operate their own co-branded version of either of these platforms, enabling them to develop their own sales efforts, implement SMS initiatives and tap into our publisher network on a revenue-sharing basis. Currently, Valassis is operating a white label version of SponsoredTweets under its Red Plum Tweets brand.
 
We focus our corporate marketing efforts on increasing brand awareness, communicating each of our platform advantages, generating qualified leads for our sales team and growing our social media publisher network. Our corporate marketing plan is designed to continually elevate awareness of our brand and generate demand for social media sponsorships. We rely on a number of channels in this area, including tradeshows, third party social media platforms (e.g., Facebook and Twitter), IZEA hosted community events, paid search, public relations and our website.
 
Revenue Model
 
The marketplace model of our platforms generates revenue in a manner similar to other online business transaction “matchmaking” services such as Google AdWords and eBay. Typically, for each dollar a marketer or advertiser spends with us, a portion goes to social media publishers and a portion stays with us for connecting the participants, managing the campaign and providing performance metrics.
 
We were able to achieve gross margins on all our products of approximately 52% for the year ended December 31, 2010 and 54% for the nine months ended September 30, 2011. We are constantly reviewing methods to further increase margins through technology advancements, rebalancing our revenue mix to focus on newer releases, such as WeReward, and entering new high-margin social media markets.
 
Technology
 
Our solutions span from blogs to status updates to mobile applications. We aggregate social media publishers into online marketplaces creating scale and targeting. We provide the ability to target publishers based on software rules. We provide self-service platforms that service all business types and sizes. Advertisers can choose the model that best fits their marketing objective: cost per post (CPP) for buzz, cost per click (CPC) for traffic, or cost per action (CPA) for sales. Unlike traditional public relations, advertisers only pay for completed posts, clicks or individual actions as determined by the advertiser. We provide trackable results by automatically embedding tracking links and pixels, as well as support, for third-party tracking (such as DART). We also provide dashboards for real-time reporting, providing immediate feedback. We have the ability to seed thousands of conversations overnight, with room to grow.
 
 
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Product Development
 
Our product development team is responsible for platform and infrastructure development, application development, user interface and application design, enterprise connectivity, Internet applications and design, quality assurance, documentation and release management. A core strength of our company is our knowledge and experience launching and operating scalable social media marketplaces. Our product development expenses were $813,591, $870,030 and $574,809, consisting primarily of salaries paid to development personnel and included in general and administrative expenses, for the years ended December 31, 2009 and 2010 and the nine months ended September 30, 2011, respectively.
 
Competition
 
We face competition from multiple companies in the SMS industry. Direct and indirect competitors in the SMS space include Facebook, Glam Media, Federated Media, BlogHer, Ad.ly, Mom Central, Foursquare and Groupon. In addition, there are a number of agencies, public relations firms and niche consultancies that provide social media programs and conduct blogger outreach programs.
 
Competition for advertising placements among current and future suppliers of Internet navigational and informational services, hightraffic websites and social media sponsorship providers, as well as competition with other media for advertising placements, could result in significant price competition, declining margins and reductions in advertising revenue. In addition, as we continue our efforts to expand the scope of our services, we may compete with a greater number of other media companies across an increasing range of different services, including in vertical markets where competitors may have advantages in expertise, brand recognition and other areas. If existing or future competitors develop or offer products or services that provide significant performance, price, creative or other advantages over those offered by us, our business, prospects, results of operations and financial condition could be negatively affected. We also compete with traditional advertising media, such as direct mail, television, radio, cable and print for a share of advertisers’ total advertising budgets. Many current and potential competitors enjoy competitive advantages over us, such as longer operating histories, greater name recognition, larger customer bases, greater access to advertising space on high-traffic websites, and significantly greater financial, technical, sales and marketing resources. As a result, we may not be able to compete successfully. If we fail to compete successfully, we could lose customers or advertising inventory and our revenue and results of operations could decline.
 
Proprietary Rights
 
Proprietary rights are important to our success and our competitive position. To protect our proprietary rights, we rely on service marks and trade secret laws, confidentiality procedures and contractual provisions.
 
We do not have patents on any of our technology or applications. We have registered eight service marks to date, including “IZEA,” “SocialSpark,” "We Reward", "PayPerPost", "InPostLinks", “Blogger’s Choice Awards,” “Get Everyone Talking” and “Postie,” and have applied for several other registrations including "Staree", “Blogroll” and “SponsoredPics,” in the United States and intend to seek to register additional service marks as appropriate.  There can be no assurance that we will be successful in obtaining the service marks for which we have applied. Even if these applications are approved, the marks may be successfully challenged by others or invalidated. If the applications are not approved because third parties own the service marks, the use of the marks will be restricted unless we enter into arrangements with the third parties which may be unavailable on commercially reasonable terms. We also own more than 700 domain names.
 
We cannot assure you that any of our proprietary rights with respect to our products or services will be viable or of value in the future since the validity, enforceability and type of protection of proprietary rights in Internet-related industries are uncertain and still evolving.
 
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult, and while we are unable to determine the extent to which piracy of our software products exists, software piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect proprietary rights to as great an extent as do the laws of the United States, and effective copyright, trademark and trade secret protection may not be available in those jurisdictions. Our means of protecting our proprietary rights may not be adequate to protect us from the infringement or misappropriation of such rights by others.
 
In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights, particularly in the software and Internet-related industries. We could become subject to intellectual property infringement claims as the number of our competitors grows and our products and services overlap with competitive offerings. These claims, even if not meritorious, could be expensive to defend and could divert management’s attention from operating our company. If we become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial award of damages and to develop non-infringing technology, obtain a license or cease selling the products that contain the infringing intellectual property. We may be unable to develop non-infringing technology or obtain a license on commercially reasonable terms, if at all.
 
Government Regulation
 
We are subject to a number of foreign and domestic laws and regulations that affect companies conducting business on the Internet, many of which are still evolving and could be interpreted in ways that could harm our business. In the United States and abroad, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims. These regulations and laws may involve taxation, tariffs, publisher privacy, data protection, content, copyrights, distribution, electronic contracts and other communications, consumer protection, the provision of online payment services and the characteristics and quality of services. It is not clear how existing laws governing issues such as property ownership, sales and other taxes, libel and personal privacy apply to the internet as the vast majority of these laws were adopted prior to the advent of the internet and do not contemplate or address the unique issues raised by the internet or e-commerce. In addition, it is possible that governments of one or more countries may seek to censor content available on our platforms or may even attempt to completely block access to our platforms. Accordingly, adverse legal or regulatory developments could substantially harm our business.
 
 
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Many states have passed laws requiring notification to subscribers when there is a security breach of personal data. There are also a number of legislative proposals pending before the U.S. Congress, various state legislative bodies and foreign governments concerning data protection. In addition, data protection laws in Europe and other jurisdictions outside the United States may be more restrictive, and the interpretation and application of these laws are still uncertain and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data practices. If so, in addition to the possibility of fines, this could result in an order requiring that we change our data practices, which could have an adverse effect on our business. Furthermore, the Digital Millennium Copyright Act has provisions that limit, but do not necessarily eliminate, our liability for linking to third-party websites that include materials that infringe copyrights or other rights, so long as we comply with the statutory requirements of this act. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.
 
The advertisers that use our platforms are subject to Federal Trade Commission and state rules on advertising and marketing on the Internet, including truth-in advertising rules, online advertising disclosures and the CAN-SPAM Act (Controlling the Assault of Non-Solicited Pornography and Marketing Act) of 2003. To date, we have not been materially impacted by these rules because our platforms are designed to ensure that proper disclosures are made in connection with every publication. We cannot predict the impact of future regulations on either us or advertisers that use our platforms.
 
Employees
 
As of November 9, 2011, we had a total of 38 full-time employees, including 12 in product development, 21 in sales and marketing, 2 in services and 3 in administration and finance. None of our employees is represented by a collective bargaining agreement, nor have we experienced any work stoppage. We consider our relations with our employees to be good. Our future success depends on our continuing ability to attract and retain highly qualified engineers, graphic designers, computer scientists, sales and marketing and senior management personnel.
 
Property
 
Our principal executive offices occupy approximately 8,000 square feet in Orlando, Florida under a lease that expires in December 2012. Total rent payments for 2010 at this location were approximately $226,000 and are anticipated to be approximately $235,000 in 2011 and $244,000 in 2012. We believe that our facilities are adequate to meet our needs for the foreseeable future.
 
We also maintain sales offices in New York City, Chicago and Los Angeles. We expect total rent expense to be approximately $12,000 under these office leases for 2011.
 
Legal Proceedings
 
We are not a party to any pending or threatened legal proceeding.
 
 
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MANAGEMENT
 
The names and ages of our executive officers, directors and key employees, and their positions with us, are as follows:
 
Name
Age
Position
Edward H. (Ted) Murphy
35
President, Chief Executive Officer and Director
Donna L. Mackenzie
51
Chief Financial Officer, Secretary, Treasurer and Director
Ryan Schram
31
Chief Marketing Officer
Dean Proctor
27
Vice President of Engineering
Jerry Biuso
47
Vice President of Sales
 
 
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The principal occupations for the past five years (and, in some instances, for prior years) of each of our executive officers, directors and key employees are as follows:
 
Edward H. (Ted) Murphy, Founder, President, Chief Executive Officer and Director, founded IZEA in February 2006 as part of MindComet Corp., an interactive advertising agency that he started in 1999 and served as Chief Executive Officer. IZEA was later spun out of MindComet in September 2006. Mr. Murphy is a serial entrepreneur who is recognized as a pioneer in paid blogging and a catalyst behind the social media sponsorship industry. As the Founder, President and Chief Executive Officer, Mr. Murphy leads our company, both with his day-to-day operational leadership and with his strategic vision for the company and its products. His efforts have received recognition from media outlets including The Wall Street Journal, CNBC, Wired, USA Today, Forbes, The New York Times, Business Week, PC World, CNN Money, Fortune, Fortune Small Business and Business 2.0. In addition to media coverage, Mr. Murphy has spoken and keynoted panels at a variety of events including Blog World Expo, Always On, Florida Venture Forum, SMX and Dow Jones Venture One Summit. Mr. Murphy attended Florida State University before starting MindComet and several other earlier Internet-related businesses. Mr. Murphy was appointed as a director based on his extensive SMS industry knowledge and a deep background in social media, mobile technology and e-commerce, as well as significant experience in financing technology growth companies.
 
Donna L. Mackenzie, Chief Financial Officer, Secretary, Director and Vice President of Operations, joined us in September 2007, as a senior executive leading our financial, operational and customer service areas. Ms. Mackenzie was previously the Senior Vice President and Chief Financial Officer of Channel Intelligence, Inc. from 2003 to June 2007. Ms. Mackenzie currently serves as the President of the Central Florida Chapter of Financial Executives Institute (FEI), and also serves on the CFO Conference Committee and the Operational Finance and Accounting advisory group of the American Institute of Certified Public Accountants (AICPA) and past service on the AICPA Business and Industry Executive Committee. She is a licensed Certified Public Accountant in the State of Florida. Ms. Mackenzie holds a B.B.A. degree in accounting from the University of Alaska, Anchorage.  Ms. Mackenzie was appointed as a director based on her extensive knowledge of financial, accounting and operational issues highly relevant to our business.  She also brings transactional expertise in mergers and acquisitions, equity offerings and bank financings.
 
Key Employees
 
Ryan S. Schram, Chief Marketing Officer, and Board Observer, joined us in September 2011 as a senior executive leading our client development, account management, brand marketing, public relations, and publisher alliance organizations. Prior to joining us, from 2005 to 2011, Mr. Schram served in various leadership roles, most recently as Group Vice President, at ePrize, the industry leader in integrated engagement marketing, Prior to that Mr. Schram held roles of increasing responsibility at CBS/Westwood One and Clear Channel Interactive.  Mr. Schram holds a B.A. degree in management from the Eli Broad College of Business at Michigan State University.
 
Dean Proctor, Vice President of Engineering, joined us in July 2011 as an executive leading our software engineering, quality assurance and systems engineering groups. Prior to joining us, from December 2010 to July 2011 Mr. Proctor served as Information Security Officer at Acquia, Inc., which provides commercial support and hosting services for the Drupal Web Content Management System. Between Prior to that from 2006 until 2010, Mr. Proctor served as Director of Information Systems position at interactive marketing agency MindComet Corporation.  Prior to that Mr. Proctor led the network, systems, and support teams for Vortech, Inc. Mr. Proctor holds a B.S. degree in computer science from the University of Central Florida.
 
Jerry Biuso, Vice President of Sales, joined us in September 2010. Mr. Biuso is a seasoned sales strategist and marketing manager with 25 years of experience driving sales growth and business development for leading U.S. companies.  Before joining us from May 2010 to September 2010, he was a Sales Consultant and Professional Coach serving businesses in the Orlando area.  Prior to that from 2000 to 2010 he worked for Banco Popular as a Regional Manager for Central Florida and was the head of Sales and Marketing Management for their U.S. operations out of Chicago.  Mr. Biuso holds a B.A. degree in economics from St. Lawrence University, and is a Certified Coach, given by the Institute for Professional Empowerment Coaching.
 
           All directors hold office until the next annual meeting of stockholders and the election and qualification of their successors.  Officers are elected annually by the board of directors and serve at the discretion of the board.
 
 
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Family Relationships
 
There are no family relationships among our directors and executive officers.
 
Involvement in Certain Legal Proceedings
 
Except as set forth in the director and officer backgrounds above, to our knowledge, during the past ten years, none of our directors, executive officers, promoters, control persons or nominees has been:
 
 
the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
 
 
convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
 
 
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
 
 
found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law.
 
Code of Ethics
 
We intend to adopt a Code of Ethics prior to the completion of this offering.
 
Corporate Governance
 
We currently do not maintain any committees of the board of directors. Given our size and the development of our business to date, our entire board has performed all of the duties and responsibilities which might be contemplated by a committee.   Our board of directors intends to authorize the creation of an audit committee, compensation committee and nominations and governance committee prior to the closing of this offering in compliance with Nasdaq's listing rules.
 
Audit Committee. We intend to establish an audit committee of the board of directors, composed of three directors and to be chaired by a director who is considered an independent director with the financial sophistication to hold such position.  The audit committee's duties will be to recommend to the board of directors the engagement of independent auditors to audit our financial statements and to review our accounting and auditing principles.  The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent public accountants, including their recommendations to improve the system of accounting and internal controls.  The audit committee will at all times to be composed exclusively of directors who are, in the opinion of the board of directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.
 
Compensation Committee. We intend to establish a compensation committee of the board of directors of at least one independent director.  The compensation committee will review and approve our salary and benefits policies, including compensation of executive officers.  The compensation committee will also administer our stock option plans, and recommend and approve grants of stock options under that plan.
 
Nominations and Governance Committee.  We intend to establish a nominations and governance committee of the board of directors of at least one independent director.  The purpose of the nominations and governance committee will be to select, or recommend for our entire board's selection, the individuals to stand for election as directors at the annual meeting of stockholders and to oversee the selection and composition of committees of our board.  The nominations and governance committee's duties will also include considering the adequacy of our corporate governance and overseeing and approving management continuity planning processes.
 
We do not currently have specified procedures in place pursuant to which security holders may recommend nominees to the board of directors.
 
 
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Summary Executive Compensation Table
 
The table below sets forth, for the last two fiscal years, the compensation earned by our Chief Executive Officer and Chief Financial Officer.  No other executive officer had annual compensation in excess of $100,000 during the last fiscal year.
 
Name and Principal Position
Year
Salary
($)
Bonus
($)
Stock Awards ($)
Option Awards ($)
Non-Equity Incentive Plan Compensation
Nonqualified Deferred Compensation Earnings ($)
All Other Compensation
($)
Total
($)
Edward H. Murphy
President and Chief Executive Officer
2009
160,000
0
0
0
0
0
0
160,000
 
2010
160,000
0
0
0
0
0
0
160,000
Donna Mackenzie
Chief Financial Officer and Secretary/Treasurer
2009
180,000
0
0
0
0
0
0
180,000
 
2010
180,000
0
0
0
0
0
0
180,000
Daniel R. Rua, Executive Chairman (1)
2009
0
0
0
0
0
0
0
0
 
2010
30,000
0
0
0
0
0
0
30,000
Daniel Brandt Former Chief Executive Officer (2)
2009
0
0
0
0
0
0
0
0
 
2010
0
0
0
0
0
0
0
0
Anthony Barron, Former Chief Executive Officer and Treasurer (2)
2009
0
0
0
0
0
0
0
0
 
2010
1,000
0
0
0
0
0
0
1,000
 
(1)    Served as Executive Chairman of IZEA, Inc. from August 2010 to May 12, 2011.
(2)    Appointed in May 2008 and resigned from all positions on April 23, 2010.
(3)    Appointed on April 23, 2010 and resigned from all positions on May 12, 2011.
 
 
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Outstanding Equity Awards at Fiscal Year End
 
We did not have an equity incentive plan in place as of December 31, 2010. Listed below is information with respect to unexercised options, stock that has not vested and equity incentive awards for each named executive officer as of December 31, 2010 pursuant to the incentive stock plan of IZEA, Inc.:
 
Name
 
Number of Securities Underlying Unexercised Options: (#) Exercisable
 
Number of Securities Underlying Unexercised Options: (#) Unexercisable
 
Option Exercise Price  ($)
 
Option Expiration Date
 
Number of Shares or Units of Stock that Have Not Vested (#)
                     
Edward Murphy  (1)
 
1,795
 
1,795
 
$1.1
 
4/3/2013
 
561
                     
Donna Mackenzie (2)
 
40,000
 
40,000
 
$1.1
 
9/16/2012
 
6,667
 
(1) 
Options originally issued under IZEA, Inc’s Stock Plan.  In connection with the share exchange, such options were cancelled and subsequently issued by us pursuant to our 2011 Equity Incentive Plan resulting in the issuance of options to acquire 1,795 shares of common stock at an exercise price of $0.05 per share expiring May 12, 2016. Mr. Murphy was additionally issued options to acquire 2,504,870 shares of common stock at an exercise price of $0.50 per share expiring May 12, 2016.
 
(2) 
Options originally issued under IZEA, Inc.’s Stock Plan.  In connection with the share exchange, such options were cancelled and subsequently issued by us pursuant to our 2011 Equity Incentive Plan resulting in the issuance of options to acquire 40,000 shares of common stock at an exercise price of $0.05 expiring May 12, 2016. Ms. Mackenzie was additionally issued options to acquire 255,000 shares of common stock at an exercise price of $0.50 per share expiring May 12, 2016.
 
Employment Agreements
 
On May 14, 2011, we entered into an employment agreement with Edward Murphy pursuant to which Mr. Murphy will serve as our President and Chief Executive Officer, and with Donna Mackenzie pursuant to which Ms. Mackenzie will serve as our Chief Financial Officer.
 
Pursuant to the employment agreement with Mr. Murphy, Mr. Murphy will serve as our President and Chief Executive Officer until December 31, 2014 in consideration for an annual salary of $195,000 and, at the discretion of our board, a cash bonus in an amount to be determined by the board of up to 50% of his annual base salary and an options bonus of up to 200% of his annual base salary, based on Mr. Murphy meeting and exceeding mutually agreed upon annual performance goals. The bonus will be issued no later than March 1 of the following year.
 
Pursuant to the employment agreement with Ms. Mackenzie, Ms. Mackenzie will serve as our Chief Financial Officer until December 31, 2014 in consideration for an annual salary of $195,000 and, at the discretion of our board, a cash bonus in an amount to be determined by the board of up to 50% of her annual base salary and an options bonus of up to 200% of her annual base salary, based on Ms. Mackenzie meeting and exceeding mutually agreed upon annual performance goals. The bonus will be issued no later than March 1 of the following year.
 
Both employment agreements are subject to early termination for any reason upon written notice to the executive and in the case of death, disability and cause. If terminated, for any reason other than death, disability or cause, the executive will be entitled to a severance of six months current salary and in the case of termination in the case of the executive’s disability, severance of current salary until such time (but no more than 120 days after such disability) that disability insurance plan payments commence. If there is a change of control (as defined in the employment agreements) and the executive’s employment terminates within six months following the change of control for reasons other than for cause, then the executive will be entitled to such amount equal to the executive’s then current compensation and the time remaining between the change of control and the six month anniversary of the change of control subject to reduction by compensation received by the executive from any other permitted employment.
 
 
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On July 30, 2011, we entered into an employment agreement with Ryan Schram pursuant to which Mr. Schram will serve as our Chief Marketing Officer.  Pursuant to the employment agreement with Mr. Schram, Mr. Schram will serve as our Chief Marketing Officer until December 31, 2014 subject to renewal in consideration for an annual salary of $230,000. Mr. Schram also received a signing bonus of $12,000 and will be eligible for a bonus and override bonus based on meeting certain performance indicators set forth in the employment agreement.
 
The employment agreement also provides that Mr. Schram may be an observer of our board of directors and that under certain conditions he may either be appointed or nominated to the board of directors.
 
We also issued Mr. Schram an option to purchase 500,000 shares of common stock at an exercise price of $0.50 per share, which will vest in equal monthly installments over a period of four years beginning one year from the date of issuance. Mr. Schram will also be eligible for to receive, at the discretion of the board, option grants to purchase up to 500,000 shares of common stock, vesting in equal monthly installments, each year starting December 31, 2012, based on meeting the performance indicators set forth in the employment agreement. If terminated for any reason other than death, disability or cause, of if Mr. Schram resigns for good reason (as defined in the employment agreement), Mr. Schram shall be entitled to a severance of 6 months current salary and bonus and override bonus as in effect on the date of termination. A change of control, under which Mr. Schram fails to retain his title and responsibilities, will be deemed good reason under the employment agreement.
 
Director Compensation
 
For the fiscal year ended December 31, 2010 and nine months ended September 30, 2011, we did not compensate our directors for their services.  In the future, we expect to compensate our non-employee directors through stock option grants.
 
Equity Compensation Plan Information
 
In February 2007,  the board of  directors  of our predecessor entity, IZEA, Inc., adopted the 2007 Equity Incentive Plan (the “2007 Plan”). The 2007 Plan allowed us to provide options as an incentive for employees and consultants.  On May 11, 2011, the 2007 Plan was amended to increase the number available for issuance under the 2007 Plan from 2,313,317  shares to 4,889,829 shares of IZEA, Inc.'s series A common stock. In connection with  our reverse merger on May 12, 2011, all of the outstanding stock options under the 2007 Plan  were cancelled, effectively  terminating the 2007 Plan.
 
We simultaneously issued new options to the same employees under a new 2011 Equity Incentive Plan of IZEA Holdings, Inc. adopted on May 12, 2011 (the  “May 2011 Plan”).   We reserved for issuance an aggregate of 7,100,000 shares of common stock under the May 2011 Plan. The cancellation and replacement of the stock options under the 2007 Plan were accounted for as a modification of the terms of the canceled awards. There was no incremental difference required to be recorded in the financial statements since the fair value of the canceled options exceeded the fair value of the options replaced at the date of cancellation and replacement. As of November 9, 2011, options to acquire an aggregate of 4,602,727 shares of common stock have been granted to our directors, officers, consultants, advisors or employees under the 2011 Equity Incentive Plan.
 
On August 22, 2011, we adopted the 2011 B Equity Incentive Plan of IZEA Holdings, Inc. (the “August 2011 Plan”) reserving for issuance an aggregate of 3,500,000 shares of common stock under the August 2011 Plan. As of November 9, 2011, no grants have been made under the August 2011 Plan.
 
 
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Under both the May 2011 Plan and the August 2011 Plan, our board of  directors determines the exercise price to be paid for the shares, the period within which each option may be exercised, and the terms and conditions of each option. The exercise price of the incentive stock options  will be equal to 100% of the fair market value per share of  our common stock on the grant date. If an individual owns stock representing more than 10% of the outstanding shares, the price of each share of an incentive stock option  will be 110% of fair market value. The exercise price for nonqualified stock options may be less than fair market value of the stock, as determined by  our board of  directors.
 
PRINCIPAL STOCKHOLDERS
 
The following table sets forth certain information as of November 9, 2011 regarding the beneficial ownership of our common stock by (i) each person or entity who, to our knowledge, owns more than 5% of our common stock; (ii) our executive officers; (iii) each director; and (iv) all of our executive officers and directors as a group. Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power and that person’s address is c/o IZEA, Inc., 150 N. Orange Avenue, Suite 412, Orlando, FL 32801.  Shares of common stock subject to options, warrants, or other rights currently exercisable or exercisable within 60 days of November 9, 2011, are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the stockholder holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other stockholder.
 
Name of Beneficial Owner
 
Number of Shares Beneficially Owned (1)
   
Percentage
Beneficially Owned Before this Offering (1)(2)
   
Percentage
Beneficially Owned After this Offereing(1)(3)
Edward H. Murphy (4)
    12,868,491       31.8 %    
Donna Mackenzie (5)
    10,338,693       26.6 %    
Sandor Capital Master Fund LP (6)
    3,522,737       8.2 %    
GRQ Consultants Inc. 401K (7)
    2,068,187       5.1 %    
Frost Gamma Investments Trust (8)
    2,624,250       6.4 %    
Michael and Betsy Brauser TBE (9)
    2,068,187       5.1 %    
All executive officers and directors as a group (2 persons)
    23,151,314       58.3 %    
_____________
 
(1)
We are prohibited from effecting the conversion of the series A preferred stock or exercise of the warrants to the extent that, as a result of the conversion or exercise, the holder of such shares beneficially owns more than 4.99% (or, if this limitation is waived by the holder upon no less than 61 days prior notice to us, 9.99%) in the aggregate of the issued and outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of common stock upon such conversion or exercise.  The ownership limitation, however, does not prevent a stockholder from selling some of its holdings and then receiving additional shares.  In this way, a stockholder could sell more than the ownership limitation while never holding more than this limit. The number of shares and the percentage, as the case may be, in this column does not reflect the ownership limitation.
 
 
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(2)
Based on 38,645,095 shares of common stock outstanding as of November 9, 2011.
 
(3)
Percentage ownership calculations for beneficial ownership after this offering are based on shares outstanding after this offering, assuming no exercise of the underwriters’ option to purchase additional shares and no purchase of shares in the offering by any existing stockholders.
 
(4)
Mr. Murphy is our President and Chief Executive Officer.  Includes (a) options to purchase 1,575,574 shares of common stock under our 2011 Equity Incentive Plan, (b) 60,606 shares of common stock issuable upon the conversion of two shares of series A preferred stock, (c) 36,364 shares of common stock issuable upon exercise of Warrants, and (d) 694,533 shares of common stock beneficially owned by MindComet Corp over which Mr. Murphy holds voting and dispositive power.
 
(5)
Ms. Mackenzie is our Chief Financial Officer.  Includes options to purchase 200,229 shares of common stock under our 2011 Equity Incentive Plan.
 
(6)
Includes (a) 2,045,452 shares of common stock issuable upon the conversion of 67.5 shares of series A preferred stock, and (b) 1,227,285 shares of common stock issuable upon exercise of warrants. John S. Lemak has the voting and dispositive power over the securities held for the account of the referenced person.
 
(7)
Includes (a) 1,136,362 shares of common stock issuable upon the conversion of 37.5 shares of series A preferred stock, and (b) 681,825 shares of common stock issuable upon exercise of warrants. Barry Honig has the voting and dispositive power over the securities held for the account of the referenced person.
 
(8)
Includes (a) 1,515,150 shares of common stock issuable upon the conversion of 50 shares of  series A preferred stock, and (b) 909,100 shares of common stock issuable upon exercise of warrants. Phillip Frost has the voting and dispositive power over the securities held for the account of the referenced person.
 
(9)
Includes (a) 1,136,363 shares of common stock issuable upon the conversion of 37.5 shares of  series A preferred stock, and (b) 681,825 shares of common stock issuable upon exercise of warrants. Also includes 250,000 shares of common stock held by Michael Brauser.
 
CERTAIN TRANSACTIONS
 
Except as described below, during the past three years, there have been no transactions, whether directly or indirectly, between us and any of their respective officers, directors or their family members, that exceeded $120,000.
 
In 2006, we entered into a General Services Agreement (“GSA”) with an entity owning 100% of IZEA’s then outstanding Series B common stock. The GSA consisted of the purchase of certain marketing deliverables and equipment, as well as marketing consulting services. Cash paid to this related party during the nine months ended September 30, 2010 and 2011 was $15,545 and $8,757 respectively. Cash paid to this related party during the years ended December 31, 2010 and 2009 was approximately $33,000 and $40,000, respectively. Expenses associated with the GSA were $15,545 and $14,885 for the nine months ended September 30, 2010 and 2011, respectively, and are included in sales and marketing expenses in the accompanying statements of operations. Expenses associated with the GSA were approximately $36,000 and $33,000 for the years ended December 31, 2010 and 2009, respectively, and are included in sales and marketing expenses in the accompanying statements of operations. The contract is on a month-to-month basis until terminated by either party.
 
The amount due to this related party was $3,358 and $6,128 at December 31, 2010 and September 30, 2011, respectively. The amount due to this related party was $3,358 and $5,793  at December 31, 2010 and 2009, respectively.
 
On March 22, 2010, we issued Daniel Brandt 1,000,000 shares of common stock in consideration for founder services provided.  On March 22, 2010, we issued Mr. Brandt an additional 1,000,000 shares of common stock in connection with a stock purchase agreement and share exchange with Rapid Title Loans, Inc.  On April 23, 2010, Mr. Brandt sold his 2,000,000 shares of common stock to Anthony Barron in consideration for $1,500.
 
 
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As part of the May 2011 Offering, we sold an aggregate of $50,000 worth of units to our Chief Executive Officer and an entity under the control of the Chief Executive Officer, at the same terms as the other issuances.
 
Director Independence
 
We currently have two directors serving on our board of directors, Mr. Murphy and Ms. Mackenzie.  We are not currently listed issuer and, as such, are not subject to any director independence standards.  Using the definition of independence set forth in the Nasdaq Marketplace Rules, neither Mr. Murphy nor Ms. Mackenzie would be considered an independent director of the Company.
 
DESCRIPTION OF SECURITIES
 
Authorized Capital Stock
 
               We have 510,000,000 authorized shares of capital stock, par value $0.0001 per share, of which 500,000,000 shares are common stock and 10,000,000 shares are “blank-check” preferred stock.
 
Capital Stock Issued and Outstanding
 
We have issued and outstanding securities:
 
 
38,645,095 shares of common stock;
 
 
230 shares of series A preferred stock convertible into an aggregate of 6,969,690 shares of common stock;
 
 
warrants to purchase an aggregate of 6,167,930 shares of common stock; and
 
 
stock options to purchase an aggregate of 4,602,727 shares of common stock.
 
Common Stock
 
The holders of our common stock have equal ratable rights to dividends from funds legally available if and when declared by our board of directors and are entitled to share ratably in all of our assets available for distribution to holders of common stock upon liquidation, dissolution or winding up of our affairs. Our common stock does not provide the right to a preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights. Our common stockholders are entitled to one non-cumulative vote per share on all matters on which shareholders may vote, meaning that shareholders may not give more than one vote per share to any single nominee for election to our board of directors.
 
We refer you to our Articles of Incorporation, Bylaws and the applicable statutes of the state of Nevada for a more complete description of the rights and liabilities of holders of our securities.
 
Preferred Stock
 
Our articles of incorporation authorize the issuance of up to 10,000,000 shares of “blank check” preferred stock with designations, rights and preferences as may be determined from time to time by our board of directors.
 
We are authorized to issue up to 240 shares of series A preferred stock.
 
Each share of series A preferred stock has a stated value of $0.0001 per share and upon liquidation, dissolution or winding up of our business, each holder of series A preferred stock is entitled to receive for each share of series A preferred stock an amount equal to the stated value prior to the holders of common stock  nd any other class or series of capital stock whose terms provide that series A preferred stock should receive preferential payment.
 
 
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Each share of our series A preferred stock is convertible at the option of the holder into 30,303 shares of our common stock  (subject to adjustment for stock splits, combinations and other similar events).  We are prohibited from effecting the conversion of the series A preferred stock to the extent that, as a result of the conversion, the holder of such shares beneficially owns more than 4.99% (or, if this limitation is waived by the holder upon no less than 61 days prior notice to us, 9.99%) in the aggregate of the outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of common stock upon conversion of the series A preferred stock.
 
Holders of series A preferred stock are entitled to vote their shares on an as-converted to common stock basis, and shall vote together with the holders of the common stock, and not as a separate class.  Holders of series A preferred stock shall also have any voting rights to which they are entitled by law.
 
Registration Rights
 
We entered into registration rights agreements (the “Registration Rights Agreements”) with the investors in the May 2011 Offering, pursuant to which we agreed to file a “resale” registration statement with the SEC covering the Shares, the shares of Common Stock issuable upon the conversion of Series A Preferred Stock and shares of Common Stock underlying the Warrants within 6 months of the final closing date of the May 2011 Offering (i.e. February 15, 2012) (the “Filing Date”).  We agreed to use our reasonable best efforts to have the registration statement declared effective within 9 months of the final closing date of the May 2011 Offering (i.e. May 15, 2012) (the “Effectiveness Deadline”) and to maintain the effectiveness of the registration statement from the effective date until all securities have been sold or are otherwise able to be sold pursuant to Rule 144 without restriction or limitation.
 
Pursuant to the Registration Rights Agreements, we are obligated to pay to the investors in the May 2011 Offering a fee of 1% per month of the investors’ investment, payable in cash, for every 30 day period up to a maximum of 6%, (i) following the Filing Date that the registration statement has not been filed and (ii) following the Effectiveness Deadline that the registration statement has not been declared effective; provided, however, that we shall not be obligated to pay any such liquidated damages if we are unable to fulfill our registration obligations as a result of rules, regulations, positions or releases issued or actions taken by the SEC pursuant to its authority with respect to “Rule 415”, provided we register at such time the maximum number of shares of common stock permissible upon consultation with the staff of the SEC and provided further that we shall not be obligated to pay liquidated damages at any time following the one year anniversary of the final closing date (i.e. August 15, 2012).
 
Transfer Agent
 
The transfer agent and registrar for our common stock is Island Stock Transfer, St. Petersburg, Florida.
 
Anti-Takeover Provisions
 
The provisions of Nevada law and our bylaws may have the effect of delaying, deferring or preventing another party from acquiring control of the company. These provisions, summarized below, may discourage and prevent coercive takeover practices and inadequate takeover bids.
 
Nevada Law
 
           Nevada law contains a provision governing “acquisition of controlling interest.” This law provides generally that any person or entity that acquires 20% or more of the outstanding voting shares of a publicly-held Nevada corporation in the secondary public or private market may be denied voting rights with respect to the acquired shares, unless a majority of the disinterested shareholders of the corporation elects to restore such voting rights in whole or in part. The control share acquisition act provides that a person or entity acquires “control shares” whenever it acquires shares that, but for the operation of the control share acquisition act, would bring its voting power within any of the following three ranges: 20 to 33-1/3%; 33-1/3 to 50%; or more than 50%.
 
A “control share acquisition” is generally defined as the direct or indirect acquisition of either ownership or voting power associated with issued and outstanding control shares. The shareholders or board of directors of a corporation may elect to exempt the stock of the corporation from the provisions of the control share acquisition act through adoption of a provision to that effect in the articles of incorporation or bylaws of the corporation. Our articles of incorporation and bylaws do not exempt our common stock from the control share acquisition act.
 
 
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The control share acquisition act is applicable only to shares of “Issuing Corporations” as defined by the Nevada law. An Issuing Corporation is a Nevada corporation which (i) has 200 or more shareholders, with at least 100 of such shareholders being both shareholders of record and residents of Nevada, and (ii) does business in Nevada directly or through an affiliated corporation.
 
At this time, we do not believe we have 100 shareholders of record resident of Nevada and we do not conduct business in Nevada directly. Therefore, the provisions of the control share acquisition act are believed not to apply to acquisitions of our shares and will not until such time as these requirements have been met. At such time as they may apply, the provisions of the control share acquisition act may discourage companies or persons interested in acquiring a significant interest in or control of us, regardless of whether such acquisition may be in the interest of our shareholders.
 
The Nevada “Combination with Interested Stockholders Statute” may also have an effect of delaying or making it more difficult to effect a change in control of us. This statute prevents an “interested stockholder” and a resident domestic Nevada corporation from entering into a “combination,” unless certain conditions are met. The statute defines “combination” to include any merger or consolidation with an “interested stockholder,” or any sale, lease, exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions with an “interested stockholder” having (i) an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation, (ii) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation, or (iii) representing 10% or more of the earning power or net income of the corporation.
 
An “interested stockholder” means the beneficial owner of 10% or more of the voting shares of a resident domestic corporation, or an affiliate or associate thereof. A corporation affected by the statute may not engage in a “combination” within three years after the interested stockholder acquires its shares unless the combination or purchase is approved by the board of directors before the interested stockholder acquired such shares. If approval is not obtained, then after the expiration of the three-year period, the business combination may be consummated with the approval of the board of directors or a majority of the voting power held by disinterested stockholders, or if the consideration to be paid by the interested stockholder is at least equal to the highest of (i) the highest price per share paid by the interested stockholder within the three years immediately preceding the date of the announcement of the combination or in the transaction in which he became an interested stockholder, whichever is higher, (ii) the market value per common share on the date of announcement of the combination or the date the interested stockholder acquired the shares, whichever is higher, or (iii) if higher for the holders of preferred stock, the highest liquidation value of the preferred stock.
 
Articles of Incorporation and Bylaws
 
Our articles of incorporation are silent as to cumulative voting rights in the election of our directors. Nevada law requires the existence of cumulative voting rights to be provided for by a corporation's articles of incorporation.  As such, the combination of the present ownership by a few stockholders of a significant portion of our issued and outstanding common stock and lack of cumulative voting makes it more difficult for other stockholders to replace our board of directors or for a third party to obtain control of us by replacing our board of directors. Our articles of incorporation and bylaws do not contain any explicit provisions that would have an effect of delaying, deferring or preventing a change in control of us.
 
SHARES ELIGIBLE FOR FUTURE SALE
 
Upon completion of this offering, there will be approximately            shares of common stock issued and outstanding. Of these shares, we believe that approximately                  would be freely transferable immediately. Our executive officers and directors beneficially own 23,207,184 shares, which would be eligible for resale subject to the volume and manner of sale limitations of Rule 144 of the Securities Act. An additional                 shares are “restricted securities,” as that term is defined in Rule 144, and are eligible for sale under the provisions of Rule 144.
 
Series A preferred stock convertible into an aggregate of 6,969,690 shares of common stock were outstanding as of November 9, 2011. Stock options to purchase an aggregate of 4,602,727 shares of common stock were outstanding under our 2011 Stock Incentive Plan as of November 9, 2011. Warrants to purchase an aggregate of 6,167,930 shares of common stock were outstanding as of November 9, 2011.
 
 
55

 
 
In general, under Rule 144 as currently in effect, a person (or persons whose shares are required to be aggregated), including a person who may be deemed an “affiliate” of the company, who has beneficially owned restricted securities for at least six months may sell, within any three-month period, a number of shares that does not exceed the greater of: (1) 1% of the then outstanding shares of common stock, or (2) the average weekly trading volume of the common stock during the four calendar weeks preceding the date on which notice of such sale was filed under Rule 144. Sales of shares held by our affiliates that are not “restricted” are subject to such volume limitations, but are not subject to the holding period requirement. Sales under Rule 144 are also subject to certain requirements as to the manner of sale, notice and availability of current public information about our company. A person who is not deemed to have been an affiliate of our company at any time during the 90 days preceding a sale by such person, and who has beneficially owned the restricted shares for at least one-year, is entitled to sell such shares under Rule 144 without regard to any of the restrictions described above.
 
Holders of                    shares of our common stock, on an as-converted basis, and holders of options and warrants exercisable for an aggregate of                 shares of our common stock are subject to lock-up agreements under which they have agreed, subject to certain exceptions, not to transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock, for a period of 90 days after the date of this prospectus other than sales of shares of common stock in this offering.
 
For a description of the lock-up agreements with the underwriters that restrict us, our directors, our executive officers and certain of our other stockholders, see "Underwriting.”
 
For a description of registration rights with respect to our common stock, see "Description of capital stock-Registration rights."
 
Following this offering, we cannot predict the effect, if any, that the availability for sale of shares held by our current stockholders will have on the market price from time to time. Nevertheless, sales by our current stockholders of a substantial number of shares of common stock in the public market could materially and adversely affect the market price for our common stock. In addition, the availability for sale of a substantial number of shares of our common stock acquired through the exercise of outstanding stock options or warrants or conversion of convertible debentures could materially adversely affect the market price of our common stock.
 
 
56

 
 
UNDERWRITING
 
Subject to the terms and conditions of an underwriting agreement, dated                                 , 2011, we have agreed to sell to each of the underwriters named below, and each of the underwriters, for which Aegis Capital Corp. is acting as representative, have severally, and not jointly, agreed to purchase on a firm commitment basis the number of shares offered in this offering set forth opposite their respective names below, at the public offering price, less the underwriting discounts and commissions set forth on the cover page of this prospectus.  We expect additional underwriters to be named in an amendment to this registration statement
 
Name
 
Number of
Shares
 
Aegis Capital Corp.
     
   
__________
 
     Total
       
         
 
Nature of Underwriting Commitment
 
The underwriting agreement provides that the underwriters are committed to purchase on a several but not joint basis all shares of common stock offered in this offering, other than those covered by the over-allotment option described below, if the underwriters purchase any of these shares.  The underwriting agreement provides that the obligations of the underwriters to purchase the shares offered hereby are conditional and may be terminated at their discretion based on their assessment of the state of the financial markets.  The obligations of the underwriters may also be terminated upon the occurrence of other events specified in the underwriting agreement.  Furthermore, pursuant to the underwriting agreement, the underwriters' obligations are subject to the authorization and the validity of the shares being accepted for listing on the Nasdaq Capital Market and to various other customary conditions, representations and warranties contained in the underwriting agreement, such as receipt by the underwriters of officers' certificates and legal opinions of our counsel.
 
 
57

 
 
Pricing of Securities
 
The underwriters have advised us that they propose to offer the shares of common stock directly to the public at the public offering price set forth on the cover page of this prospectus, and to certain dealers that are members of the Financial Industry Regulatory Authority (FINRA), at such price less a concession not in excess of $        per share.  The underwriters may allow, and the selected dealers may reallow, a concession not in excess of $         per share to certain brokers and dealers. After this offering, the offering price and concessions and discounts to brokers and dealers and other selling terms may from time to time be changed by the underwriters.  These prices should not be considered an indication of the actual value of our shares and are subject to change as a result of market conditions and other factors.  No variation in those terms will change the amount of proceeds to be received by us as set forth on the cover page of this prospectus.
 
The public offering price for the shares was determined by negotiation between us and the representative. The principal factors considered in determining the public offering price of the shares included the demand for our common stock, as well as the market price of such shares, the level of trading volume in our common stock, the general market for social media companies and market conditions in general.
 
We cannot be sure that the public offering price will correspond to the price at which our shares will trade in the public market after this offering or that an active trading market for our shares will develop and continue after this offering.
 
Commissions and Discounts
 
The following table summarizes the compensation to be paid to the underwriters by us and the proceeds, before expenses, payable to us, at the public offering price of $           per share.  The information assumes either no exercise or full exercise by the underwriters of the over-allotment option.
 
         
Total
 
   
Per
Share
   
Without
Over-Allotment
   
With
Over-Allotment
 
Public offering price
 
$
     
$
     
$
   
Underwriting discount (1)
 
$
     
$
     
$
   
Non-accountable expense allowance (2)
 
$
     
$
     
$
   
Proceeds, before expenses, to us (3)
 
$
     
$
     
$
   
__________
(1) 
Underwriting discount is $      per share (7% of the price of the shares sold in this offering).
 
(2) 
The non-accountable expense allowance of 1% is not payable with respect to the shares sold upon exercise of the underwriters' over-allotment option.
 
(3) 
We estimate that the total expenses of this offering, excluding the underwriting discount and the non-accountable expense allowance, are approximately  $          .
 
Over-allotment Option
 
We will grant a 45-day option to the representative of the underwriters to purchase additional shares of common stock up to an additional 15% of common stock sold in this offering (additional shares) solely to cover over-allotments, if any, at the same price as the initial shares offered. If the underwriters fully exercise the over-allotment option, the total public offering price, underwriting discounts and commissions, and net proceeds (before expenses) to us will be $       , $       , and $        , respectively.
 
 
58

 
 
Lock-ups
 
 All of our directors, executive officers and principal stockholders will enter into lock-up agreements that prevent them from selling any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock, subject to certain exceptions, for a period of not less than 90 days after the date of this prospectus without the prior written consent of Aegis Capital Corp., as representative of the underwriters.  The representative may in its sole discretion and at any time without notice release some or all of the shares subject to lock-up agreements prior to the expiration of the lock-up period.  When determining whether or not to release shares from the lock-up agreements, the representative will consider, among other factors, the stockholder's reasons for requesting the release, the number of shares for which the release is being requested and market conditions at the time.
 
Underwriters’ Warrants
 
 We have agreed to sell Aegis Capital Corp. for $100 warrants to purchase up to a total of              shares of common stock (5% of the shares sold in this offering). The shares issuable upon exercise of these warrants are identical to those offered by this prospectus.  The warrants are exercisable at $     per share (125% of the price of the shares sold in this offering), commencing on a date which is one year after the effective date of the registration statement and expiring five years after the effective date of the registration statement.  The warrants may also be exercised on a cashless basis.  The warrants and the   shares of common stock underlying the warrants have been deemed compensation by FINRA and are, therefore, subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. Aegis Capital Corp. (or permitted assignees under the Rule) will not sell, transfer, assign, pledge or hypothecate these warrants or the securities underlying these warrants, nor will it engage in any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of these warrants or the underlying securities for a period of 180 days after the date of this prospectus.  Additionally, the warrants may not be sold transferred, assigned, pledged or hypothecated for a one-year period (including the foregoing 180-day period) following the effective date of the registration statement except to any underwriter and selected dealer participating in this offering and their bona fide officers or partners.  The warrants grant holders one demand and unlimited “piggy back” registration rights for periods of four and six years, respectively, from the first anniversary of the date of this prospectus. These rights apply to all of the securities directly and indirectly issuable upon exercise of the warrants.  We will bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants, other than underwriting commissions incurred and payable by the holders.  The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation.  However, the warrant exercise price or underlying shares will not be adjusted for issuances of common stock at a price below the warrant exercise price.
 
Right of First Refusal
 
If at least $10,000,000 in shares of common stock are sold in this offering, then for a period of 12 months after the closing of this offering, the representative shall have a right of first refusal to purchase for its account or to sell for our account, or any subsidiary or successor, any securities of our company or any such subsidiary or successor which we or any subsidiary or successor may seek to sell in public or private equity and public debt offerings during such 12-month period.
 
We may, however, in lieu of granting a right of first refusal, designate the representative as lead underwriter or co-manager of any underwriting group or co-placement agent of any proposed financing, and the representative shall be entitled to receive as its compensation 50% of the compensation payable to the underwriting or placement agent group when serving as co-manager or co-placement agent, and 33% of  the compensation payable to the underwriting or placement agent group when serving as co-manager or co-placement agent with respect to a proposed financing in which there are three co-managing or lead underwriters or co-placement agents.
 
Other Terms
 
In connection with this offering, the underwriters or certain of the securities dealers may distribute prospectuses electronically. No forms of prospectus other than printed prospectuses and electronically distributed prospectuses that are printable in Adobe .pdf format will be used in connection with this offering.
 
In connection with this offering, we are applying to have our common stock approved for listing on the Nasdaq Capital Market under the symbol “IZEA.”
 
 
59

 
 
The representative has informed us that it does not expect to confirm sales of shares offered by this prospectus to accounts over which it exercises discretionary authority without obtaining the specific approval of the account holder.
 
Stabilization
 
Until the distribution of the shares of common stock offered by this prospectus is completed, rules of the SEC may limit the ability of the underwriters to bid for and to purchase our securities.  As an exception to these rules, the underwriters may engage in transactions effected in accordance with Regulation M under the Securities Exchange Act of 1934 that are intended to stabilize, maintain or otherwise affect the price of our common stock.  The underwriters may engage in over-allotment sales, syndicate covering transactions, stabilizing transactions and penalty bids in accordance with Regulation M.
 
·           Stabilizing transactions permit bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock, so long as stabilizing bids do not exceed a specified maximum.
 
·           Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option or purchasing shares in the open market.
 
·           Covering transactions involve the purchase of securities in the open market after the distribution has been completed in order to cover short positions. In determining the source of securities to close out the short position, the underwriters will consider, among other things, the price of securities available for purchase in the open market as compared to the price at which they may purchase securities through the over-allotment option. If the underwriters sell more shares of common stock than could be covered by the over-allotment option, creating a naked short position, the position can only be closed out by buying securities in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the securities in the open market after pricing that could adversely affect investors who purchase in this offering.
 
·           Penalty bids permit the underwriters to reclaim a selling concession from a selected dealer when the shares of common stock originally sold by the selected dealer are purchased in a stabilizing or syndicate covering transaction.
 
These stabilizing transactions, covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market.
 
Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our shares.  These transactions may occur on the Nasdaq Capital Market or on any other trading market.  If any of these transactions are commenced, they may be discontinued without notice at any time.
 
Offer Restrictions Outside the United States
 
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the shares of common stock offered by this prospectus in any jurisdiction where action for that purpose is required. The shares offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such shares be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any shares offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
 
 
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Indemnification
 
The underwriting agreement provides for indemnification between us and the underwriters against specified liabilities, including liabilities under the Securities Act, and for contribution by us and the underwriters to payments that may be required to be made with respect to those liabilities. We have been advised that, in the opinion of the SEC, indemnification for liabilities under the Securities Act is against public policy as expressed in the Securities Act, and is therefore, unenforceable.
 
The foregoing does not purport to be a complete statement of the terms and conditions of the underwriting agreement.  Reference is made to a copy of the underwriting agreement, which is on file as an exhibit to the registration statement or an amendment to the registration statement, of which this prospectus forms a part.
 
COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
 
Neither our articles of incorporation nor bylaws prevent us from indemnifying our officers, directors and agents to the extent permitted under the Nevada Revised Statute ("NRS"). NRS Section 78.7502, provides that a corporation may indemnify any director, officer, employee or agent of a corporation against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with any defense to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to Section 78.7502(1) or 78.7502(2), or in defense of any claim, issue or matter therein.
 
NRS 78.7502(1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.
 
NRS Section 78.7502(2) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys' fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.
 
NRS Section 78.747 provides that except as otherwise provided by specific statute, no director or officer of a corporation is individually liable for a debt or liability of the corporation, unless the director or officer acts as the alter ego of the corporation. The court as a matter of law must determine the question of whether a director or officer acts as the alter ego of a corporation.
 
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed hereby in the Securities Act and we will be governed by the final adjudication of such issue.
 
 
61

 
 
LEGAL MATTERS
 
The validity of the shares offered hereby will be passed upon for us by Sichenzia Ross Friedman Ference LLP, New York, New York. In addition, certain legal matters in connection with this offering will be passed upon by Greenberg Traurig LLP, New York, New York.
 
EXPERTS
 
Our audited financial statements for the year ended December 31, 2010 and 2009 have been included in this prospectus in reliance on the report of Cross, Fernandez & Riley, LLP, an independent registered public accounting firm given on the authority of said firm as experts in auditing and accounting.
 
WHERE YOU CAN FIND ADDITIONAL INFORMATION
 
We have filed with the SEC a registration statement on Form S-1 under the Securities Act, with respect to the common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. Some items are omitted in accordance with the rules and regulations of the SEC. For further information with respect to us and the common shares offered hereby, we refer you to the registration statement and the exhibits and schedules filed therewith. Statements contained in this prospectus as to the contents of any contract, agreement or any other document referred to are summaries of the material terms of the respective contract, agreement or other document. With respect to each of these contracts, agreements or other documents filed as an exhibit to the registration statement, reference is made to the exhibits for a more complete description of the matter involved. A copy of the registration statement, and the exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Copies of these materials may be obtained by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. The SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the SEC’s website is http://www.sec.gov.
 
We file periodic reports and other information with the SEC. Such periodic reports and other information are available for inspection and copying at the public reference room and website of the SEC referred to above. We maintain a website at http://www.izea.com/. You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information and other content contained on our website are not part of the prospectus.
 
 
62

 
 
FINANCIAL INFORMATION INDEX
 
Unaudited Consolidated Financial Statements as of September 30, 2011 and September 30, 2010
F-2
Notes to the Unaudited Consolidated Financial Statements
F-7
Report of Independent Registered Public Accounting Firm
F-21
Audited Consolidated Financial Statements as of December 31, 2009 and 2010
F-22
Notes to the Consolidated Financial Statements as of December 31, 2009 and 2010
F-27
 
 
F-1

 
 
IZEA Holdings, Inc.
Consolidated Balance Sheets
 
 
September 30,
2011
 
December 31,
2010
 
(unaudited)
   
Assets
     
       
Current:
     
Cash and cash equivalents
$
1,095,103
   
$
1,503,105
 
Accounts receivable
883,004
   
391,114
 
Prepaid expenses and other current assets
742,672
   
63,673
 
       
Total current assets
2,720,779
   
1,957,892
 
       
Property and equipment, net
164,733
   
140,918
 
       
Other assets:
     
Intangible assets, net
21,983
   
3,795
 
Security deposits
21,038
   
8,340
 
       
Total assets
$
2,928,533
   
$
2,110,945
 
 
See accompanying notes to financial statements.
 
 
F-2

 
 
IZEA Holdings, Inc.
Consolidated Balance Sheets
 
 
September 30,
2011
 
December 31,
2010
 
(unaudited)
   
Liabilities and Stockholders’ Deficit
     
       
Current liabilities:
     
Accounts payable
$
886,127
   
$
636,864
 
Accrued payroll
140,251
   
81,014
 
Unearned revenue
1,471,852
   
1,097,466
 
Current portion of notes payable
112,614
   
351,568
 
       
Total current liabilities
2,610,844
   
2,166,912
 
       
Notes payable, less current portion
31,746
   
10,569
 
Deferred rent
   
9,220
 
Warrant liability
1,011,399
   
 
       
Total liabilities
3,653,989
   
2,186,701
 
       
Stockholders’ deficit:
     
Series A convertible preferred stock; $.0001 par value; 2,958,786 shares authorized; 0 and 762,907 shares issued and outstanding (liquidation preference at December 31, 2010, $1,070,473)
   
76
 
Series A-1 convertible preferred stock; $.0001 par value; 3,609,326 shares authorized; 0 and 778,307 shares issued and outstanding (liquidation preference at December 31, 2010, $2,221,992)
   
78
 
Series A-2 convertible preferred stock; $.0001 par value; 13,099,885 shares authorized; 0 and 12,259,334 shares issued and outstanding (liquidation preference at December 31, 2010, $10,674,017)
   
1,226
 
Series A common stock; $.0001 par value; 24,832,003 shares authorized; 0 and 504,270 shares issued and outstanding
   
50
 
Series B nonvoting common stock; $.0001 par value; 500,000 shares authorized, 0 and 500,000 issued and outstanding
   
50
 
Series A convertible preferred stock; $.0001 par value; 240 shares authorized; 230 and 0 shares issued and outstanding
   
 
Common stock, $.0001 par value; 500,000,000 shares authorized; 38,645,095 and 0 issued and outstanding
3,864
   
 
Additional paid-in capital
16,261,469
   
14,074,956
 
Accumulated deficit
(16,990,789
)
 
(14,152,192
)
       
Total stockholders’ deficit
(725,456
)
 
(75,756
)
       
Total liabilities and stockholders’ deficit
$
2,928,533
   
$
2,110,945
 
 
See accompanying notes to financial statements.
 
 
F-3

 
 
IZEA Holdings, Inc.
Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2011 and 2010
(unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2011
 
2010
 
2011
 
2010
               
Revenue
$
1,052,675
   
$
823,030
   
$
2,821,354
   
$
2,249,891
 
Cost of sales
483,729
   
442,832
   
1,306,463
   
1,192,043
 
               
Gross profit
568,946
   
380,198
   
1,514,891
   
1,057,848
 
               
Operating expenses:
             
General and administrative
1,950,248
   
884,692
   
3,883,887
   
2,570,601
 
Sales and marketing
249,888
   
180,586
   
526,112
   
404,272
 
               
Total operating expenses
2,200,136
   
1,065,278
   
4,409,999
   
2,974,873
 
               
Loss from operations
(1,631,190
)
 
(685,080
)
 
(2,895,108
)
 
(1,917,025
)
               
Other income (expense):
             
Interest income (expense), net
(3,964
)
 
(9,058
)
 
(17,060
)
 
(60,654
)
Change in fair value of warrant liability
43,780
   
   
73,571
   
 
Other income (expense), net
   
   
   
(276
)
               
Total other income (expense)
39,816
   
(9,058
)
 
56,511
   
(60,930
)
               
Net loss
$
(1,591,374
)
 
$
(694,138
)
 
$
(2,838,597
)
 
$
(1,977,955
)
               
Weighted average common shares outstanding – basic and diluted
38,378,808
   
645,602
   
19,748,591
   
645,602
 
               
Loss per common share – basic and diluted
$
(0.04
)
 
$
(1.08
)
 
$
(0.14
)
 
$
(3.06
)
 
See accompanying notes to financial statements.
 
 
F-4

 
 
IZEA Holdings, Inc.
Consolidated Statement of Stockholders’ Deficit
For the Nine Months Ended September 30, 2011
(unaudited)
 
IZEA, Inc.
 
 
Series A
Convertible
Preferred Stock
 
Series A-1
Convertible
Preferred Stock
 
Series A-2
Convertible
Preferred Stock
 
Series A
Common Stock
 
Series B
Nonvoting
Common Stock
 
Shares
 
Amt
 
Shares
 
Amt
 
Shares
 
Amt
 
Shares
 
Amt
 
Shares
 
Amt
                                       
Balance, December 31, 2010
762,907
   
$
76
   
778,307
   
$
78
   
12,259,334
   
$
1,226
   
504,270
   
$
50
   
500,000
   
$
50
 
Exercise of stock options
   
   
   
   
   
   
14,822
   
   
   
 
Reverse merger and recapitalization
(762,907
)
 
(76
)
 
(778,307
)
 
(78
)
 
(12,259,334
)
 
(1,226
)
 
(519,092
)
 
(50
)
 
(500,000
)
 
(50
)
                                       
Balance, September 30, 2011
   
   
   
   
   
   
   
   
   
 

 
IZEA Holdings, Inc.
 
 
Series A
Convertible
Preferred Stock
 
Common Stock
 
Additional
Paid-In
 
Accumulated
 
Total
Stockholders’ Equity
 
Shares
 
Amt
 
Shares
 
Amt
 
Capital
 
Deficit
 
(Deficit)
                           
Balance, December 31, 2010
   
$
   
   
$
   
$
14,074,956
   
$
(14,152,192
)
 
$
(75,756
)
                           
Reverse merger and recapitalization
   
   
35,000,000
   
3,500
   
(2,020
)
 
   
 
Sale of common and preferred stock and warrants and exchange of promissory note, net of offering costs and beneficial conversion feature
230
   
   
3,121,210
   
312
   
3,057,161
   
   
3,057,473
 
Fair value of warrants issued in offering
   
   
   
   
(1,083,210
)
 
   
(1,083,210
)
Exercise of stock options
   
   
23,885
   
2
   
1,597
   
   
1,599
 
Stock-based compensation shares issued in exchange for services
   
   
500,000
   
50
   
164,950
   
   
165,000
 
Stock-based compensation expense
   
   
   
   
48,035
   
   
48,035
 
Net loss
   
   
   
   
   
(2,838,597
)
 
(2,838,597
)
                           
Balance, September 30, 2011
230
   
$
   
38,645,095
   
$
3,864
   
16,261,469
   
$
(16,990,789
)
 
$
(725,456
)
 
See accompanying notes to financial statements.
 
 
F-5