BUSINESS COMBINATIONS

TAPINFLUENCE, INC.

On July 26, 2018, IZEA completed its merger with TapInfluence, Inc., pursuant to the terms of the Agreement and Plan of Merger, dated as of July 11, 2018, by and among IZEA, IZEA Merger Sub, Inc., TapInfluence, certain stockholders of TapInfluence and the stockholders’ representative, as amended by Amendment No. 1 thereto, dated as of July 20, 2018 (the “Merger Agreement”). The merger was consummated, in part, to further consolidate the influencer marketing industry for IZEA, and for IZEA to obtain benefits from the acquisition of the TapInfluence technology platform and existing customer base, particularly from TapInfluence’s self-service customers.

The following table summarizes the purchase price and acquisition costs payable associated with this acquisition:



	Estimated Gross Purchase Consideration			Estimated Initial Present and Fair Value			Estimated Present and Fair Value of Acquisition Costs Payable			Estimated Remaining Fair Value of Acquisition Costs Payable
	July 26, 2018			July 26, 2018			December 31, 2018			December 31, 2019
Cash paid at closing ^(a)	$	1,500,000		$	1,500,000		$	—		$	—
Stock paid at closing ^(a)	1,759,500			1,759,500			—			—
Purchase price adjustment ^(b)	(439,610		)	(555,026		)	(115,416		)	—
First deferred purchase price installment ^(c)	1,000,000			970,576			995,097			—
Second deferred purchase price installment ^(c)	3,500,000			3,271,028			3,366,433			—
Total	$	7,319,890		$	6,946,078		$	4,246,114		$	—


^(a)	The aggregate consideration paid at closing for the acquisition of TapInfluence consisted of a cash payment of $1,500,000 and the issuance of 1,150,000 shares of IZEA common stock valued at $1,759,500, or $1.53 per share.

^(b)

Per the terms of the Merger Agreement, the initial cash payment due at closing of $1,500,000 was to be adjusted as follows: reduced for seller transaction expenses and closing date indebtedness, increased by closing date cash and cash equivalents of TapInfluence, and reduced or increased by an estimated working capital amount. These adjustments resulted in a net reduction in the purchase price of $439,610, which included a negative estimated working capital adjustment of $181,633.

^(c)

Aggregate post-acquisition date consideration consists of additional payments totaling $4,500,000, less any remaining adjustment related to the final working capital adjustment calculation. The payments were to be made in the form of cash, common stock or a combination thereof, at IZEA’s option. The first of these installments was paid in January 2019, and the second of the two installments was paid in July 2019. Following the closing, IZEA calculated the final working capital as of the closing date as a negative $297,049, which was $115,416 lower than the original estimate of negative $181,633. Therefore, the purchase price was reduced by an additional $115,416, which was deducted from the six-month installment payment paid in January 2019. On January 26, 2019, the Company issued 660,136 shares of its common stock valued at $884,583, or $1.34 per share, using a thirty (30) trading day volume-weighted average closing price (the “30-day VWAP”) as reported by the Nasdaq Capital Market prior to the issuance date. The Company recorded a $191,439 loss on the settlement of this acquisition cost payable as a result of the difference between the actual closing market price of the common stock of $1.63 on the settlement date and the 30-day average price of the common stock of $1.34 required by the Merger Agreement.

On July 26, 2019, pursuant to the terms of the Merger Agreement, the Company issued to the former shareholders of TapInfluence 6,908,251 shares of its common stock valued at $3,500,000, or $0.50664 per share, using the 30-day VWAP as reported by the Nasdaq Capital Market prior to the issuance date. The Company recognized a gain of $752,589 on the settlement of this acquisition cost payable as a result of the difference between the actual closing market price of the common stock of $0.3977 on the settlement date and the 30-day VWAP.

The Company’s consolidated revenue associated with TapInfluence operations for the twelve months ended December 31, 2019 and December 31, 2018, was $2,052,985 and $1,991,548, respectively. The Company is unable to determine net loss specifically related to TapInfluence operations as the majority of operational resources have been fully integrated within IZEA, and the Company has nearly completed the migration of the TapInfluence customers and creators into the IZEAx platform.

The following unaudited pro forma summary presents consolidated information of the Company as if the business combination with TapInfluence had occurred on January 1, 2017:



	Pro Forma
	Twelve Months Ended December 31, 2018
Pro forma revenue	$	22,645,356
Pro forma cost of revenue	9,418,297
Pro forma gross profit	$	13,227,059

Pro forma net loss prior to adjustments	$	(7,070,224	)
Pro forma adjustment to net loss:
Difference in amortization of acquired identifiable intangible assets	(569,139		)
Difference in amortization of acquired property and equipment	8,835
Acquisition-related expenses	158,795
Pro forma net loss combined	$	(7,471,733	)

The business combination was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations.

ZENCONTENT, INC.

On July 31, 2016, the Company purchased all of the outstanding shares of capital stock of ZenContent pursuant to the terms of a Stock Purchase Agreement, by and among IZEA, ZenContent and the stockholders of ZenContent (the “ZenContent Stock Purchase Agreement”) for a maximum purchase price to be paid over three years of $4,500,000. Upon closing, the Company paid a cash payment of $400,000 and issued 86,207 shares of the Company’s common stock valued at $600,000. The ZenContent Stock Purchase Agreement also required (i) three equal annual installment payments totaling $1,000,000, subject to a working capital adjustment, commencing 12 months following the closing and (ii) contingent performance payments of up to an aggregate of $2,500,000 over the three consecutive 12-month periods following the closing, based upon ZenContent achieving certain minimum revenue thresholds. Of these payments, 33% of each such annual installment or contingent performance payment were to be in the form of cash and the remainder of such payment was to be in the form of either cash or additional shares of the Company’s common stock (determined at the Company’s option). In July 2018, pursuant to an amendment to the ZenContent Stock Purchase Agreement, the parties agreed to fix the amount payable for any further contingent performance payments at $90,000, of which $45,000 was paid in cash on November 1, 2018, and $45,000 was paid in cash on November 1, 2019.

The following table summarizes the purchase price and acquisition costs payable associated with this acquisition:



	Estimated Gross Purchase Consideration		Estimated Initial Present and Fair Value		Estimated Present and Fair Value of Acquisition Costs Payable		Estimated Remaining Fair Value of Acquisition Costs Payable
	July 31, 2016		July 31, 2016		December 31, 2018		December 31, 2019
Cash paid at closing ^(a)	$	400,000	$	400,000	$	—	$	—
Stock paid at closing ^(a)	600,000		600,000		—		—
Guaranteed purchase price ^(b)	933,565		566,547		321,740		—
Contingent performance payments ^(c)	2,500,000		230,000		43,639		—
Total	$	4,433,565	$	1,796,547	$	365,379	$	—


^(a)	The aggregate consideration paid at closing for the acquisition of ZenContent consisted of a cash payment of $400,000 and the issuance of 86,207 shares of IZEA common stock valued at $600,000.

^(b)

Aggregate post-acquisition date consideration consists of (i) three equal annual installment payments totaling $1,000,000, commencing 12 months following the closing, less a reduction of $66,435 due to a customary closing date working capital adjustment (“guaranteed purchase price”), and (ii) contingent performance payments up to an aggregate of $2,500,000 over the three consecutive 12-month periods following the closing. These payments were also subject to a downward adjustment up to 30% if ZenContent’s co-founder was terminated by IZEA for cause or if she terminated her employment without good reason. As a result, the Company initially reduced its acquisition cost liability by $300,000 to be accrued as compensation expense over the three-year term rather than allocated to the initial purchase price in accordance with ASC 805-10-55-25. The initial guaranteed purchase price consideration was discounted to present value using the Company’s borrowing rate of prime plus 2% (5.5% on July 31, 2016). On July 31, 2017, the Company paid $266,898 in cash for the first annual installment of $333,333 less $66,435 in working capital adjustments. On July 31, 2018, the Company paid the second annual installment, comprised of $111,112 in cash and $222,221 in stock using 98,765 shares of its common stock valued at $2.25 per share, using the 30-day VWAP as reported by the Nasdaq Capital Market prior to the issuance date. On July 31, 2019, the Company made the third and final annual installment payment under the ZenContent Stock Purchase Agreement, comprised of $111,111 in cash and 447,489 shares of its common stock valued at $222,223 or $0.4966 per share, using the 30-day VWAP as reported by the Nasdaq Capital Market prior to the issuance date. The Company recognized a gain of $41,258 on the settlement of this acquisition cost payable as a result of the difference between the actual closing price of the common stock of $0.4044 on the settlement date and the 30-day VWAP.

^(c)

The contingent performance payments were subject to ZenContent achieving certain minimum revenue thresholds over 36 months. On July 31, 2016, the Company initially determined the fair value of the $2,500,000 contingent payments to be $230,000. The fair value of the contingent performance payments was required to be revalued each quarter and was calculated using a Monte-Carlo simulation to simulate revenue over the future periods. Since the contingent consideration has an option like structure, a risk-neutral framework was considered appropriate for the valuation. The Company started with a risk-adjusted measure of forecasted revenue (using a risk-adjusted discount rate of 17%) and assumed it would follow geometric Brownian motion to simulate the revenue at future dates. Once the initial revenue was estimated based off of projections, payout was calculated for each year and present valued to incorporate the credit risk associated with these payments. The Company’s fair value conclusion was based on the average payment from 250,000 simulation trials. The volatility used for the simulation was 45%. The interest rate used for the simulation was the Company’s current borrowing rate of prime plus 2% at the time of valuation. The Company revised its estimate of the contingent performance payments based on the fixed payments agreed upon in the July 2018 amendment to the ZenContent Stock Purchase Agreement.