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Ebyline Acquisition (Notes)
 12 Months Ended
Dec. 31, 2015
Business Combinations [Abstract]  
Business Combination Disclosure [Text Block]
The following unaudited pro forma summary presents consolidated information of IZEA, Inc. as if the business combination with Ebyline had occurred on January 1, 2014:
 
Pro Forma Year Ended
Pro Forma Year Ended
 
12/31/2015
12/31/2014
 
(Unaudited)
(Unaudited)
Pro-Forma Revenue
$
21,178,040

$
16,225,703

Pro-Forma Cost of Sales
12,887,062

9,972,253

Pro-Forma Gross Profit
8,290,978

6,253,450

Pro-Forma Net Income (Loss)
(11,398,336
)
1,320,882

EBYLINE ACQUISITION

Purchase Price
On January 30, 2015, the Company purchased all of the outstanding shares of capital stock of Ebyline, pursuant to the terms of a Stock Purchase Agreement, dated as of January 27, 2015, by and among IZEA, Ebyline and the stockholders of Ebyline for a maximum purchase price to be paid over the next three years of $8,850,000. The total consideration is made up of four components:
(a)    a cash payment of $1,200,000 paid at closing;
(b)    an issuance of IZEA Common Stock valued at $250,000 paid on July 30, 2015;
(c)    a cash or stock payment of up to an additional $1,900,000 (subject to proportional reduction in the event Ebyline’s final 2014 revenue was below $8,000,000). Ebyline's final gross revenue for 2014 was $7,903,429. As such, the total amount owed is $1,877,064 to be paid in two equal installments of $938,532 on January 30, 2016 and January 30, 2017; and
(d)    total contingent performance payments up to $5,500,000 based on Ebyline meeting certain revenue targets. The performance payments are to be made only if Ebyline achieves at least 90% of Content Revenue targets of $17,000,000 in 2015, $27,000,000 in 2016 and $32,000,000 in 2017. If Ebyline achieves at least 90%, but less than 100% of the Content Revenue targets, the performance payments owed of $1,800,000, $1,800,000 and $1,900,000 for each of the three years ending December 31, 2015, 2016 and 2017, respectively, will be subject to adjustment. Anything below 90% of the Content Revenue targets will not be eligible for any performance payment. The performance payments are also subject to a 17% reduction in the event that either of the two executive employees retained during the acquisition were no longer employed at the end of the measurement year. Performance payments are due no later than 90 days after the measuring period and may be paid in cash or common stock, at the Company's option.
Consideration Payable
The fair value of the total estimated future consideration to be paid is as follows:
 
Estimated Gross Purchase Consideration
Initial Present and Fair Value
Remaining Present and Fair Value
 
1/30/2015
1/30/2015
12/31/2015
Cash paid at closing
$
1,200,000

$
1,200,000

$
—

Guaranteed purchase price (a)
2,127,064

1,982,639

1,823,711

Contingent performance payments (b)
2,210,000

1,834,300

—

Acquisition costs to be paid by Ebyline shareholders (c)
—

—

(89,700
)
Total estimated consideration
$
5,537,064

$
5,016,939

$
1,734,011

 
 
 
 
Current portion of acquisition costs payable
 
 
844,931

Long term portion of acquisition costs payable
 
 
889,080

Total acquisition costs payable
 
 
$
1,734,011



(a)
The guaranteed purchase price consideration, as detailed above, was discounted to present value using our current borrowing rate of prime plus 2% (5.25%). Interest expense imputed on the acquisition costs payable in the accompanying consolidated statements of operations was $91,072 for the twelve months ended December 31, 2015. Per the Stock Purchase Agreement, the Company issued 31,821 shares of its common stock valued at $250,000 to satisfy a portion of the guaranteed purchase price payment obligation on July 30, 2015.

(b)
The fair value of the $5,500,000 of contingent performance payments described above was calculated using a Monte-Carlo simulation to simulate revenue over the next three years. Since the contingent consideration has an option like structure, a risk-neutral framework is considered appropriate for the valuation. The Company started with a risk-adjusted measure of forecasted revenue (using a risk-adjusted discount rate of 8.5%) and assumed it will follow geometric brownian motion to simulate the revenue at future dates. Once the initial revenue was estimated based off of projections made during the acquisition, payout was calculated for each year and present valued to incorporate the credit risk associated with these payments. The Company's initial value conclusion was based on the average payment from 100,000 simulation trials. The volatility used for the simulation was 35%. The Monte Carlo simulation resulted in a calculated fair value of contingent performance payments of $2,210,000 on January 30, 2015. Because the contingent performance payments are subject to a 17% reduction related to the continued employment of certain key employees, ASC 805-10-55-25 indicates that a portion of these payments be treated as potential compensation to be accrued over the term rather than allocated to the purchase price. Therefore, the Company reduced its overall purchase price consideration by $357,700 and recorded the initial present value of the contingent performance payments at $1,834,300. Based on actual results for 2015 and current projections for Content Revenue for 2016-2017, the Content Revenue for every year is expected to be below 90% of the required Content Revenues targets. Therefore, the Company estimated the fair value of contingent performance payments at $0 as of December 31, 2015. The gain as a result of the decrease in the estimated fair value of contingent performance payments of $1,834,300 is recorded as a reduction of general and administrative expense in the Company's statements of operations during the twelve months ended December 31, 2015.

(c)
According to the stock purchase agreement, certain acquisition costs paid by Ebyline during the acquisition process are to be paid by the selling shareholders. These costs will be deducted from the guaranteed payment on January 30, 2016.

Purchase Price Allocation
The final allocation of the purchase price as of January 30, 2015 is summarized as follows:
 
Final Purchase Price Allocation
Current assets
$
738,279

Property and equipment
27,194

Identifiable intangible assets
2,370,000

Goodwill
2,468,289

Security deposits
18,553

Current liabilities
(605,376
)
Total estimated consideration
$
5,016,939



The Company has recorded $2,468,289 in goodwill from the Ebyline acquisition as of December 31, 2015. This amount represents the excess of the purchase consideration of an acquired business over the fair value of the underlying net tangible and intangible assets. See Note 5 for further discussion regarding the identifiable intangible assets and goodwill.

There are many synergies between the business operations of Ebyline and IZEA including a database of creators that can provide content and advertising and synergies between our online marketplaces that appeal to customers on both sides. The Ebyline operations are included in the consolidated financial statements beginning on the date of acquisition of January 30, 2015. The Ebyline operations contributed revenue of $8,001,882 and gross profit of $942,089 in the consolidated statements of operations for eleven months from January 31, 2015 through December 31, 2015.

The following unaudited pro forma summary presents consolidated information of IZEA, Inc. as if the business combination with Ebyline had occurred on January 1, 2014:
 
Pro Forma Year Ended
Pro Forma Year Ended
 
12/31/2015
12/31/2014
 
(Unaudited)
(Unaudited)
Pro-Forma Revenue
$
21,178,040

$
16,225,703

Pro-Forma Cost of Sales
12,887,062

9,972,253

Pro-Forma Gross Profit
8,290,978

6,253,450

Pro-Forma Net Income (Loss)
(11,398,336
)
1,320,882



IZEA did not have any material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The pro forma revenue and earnings calculations have been calculated after applying the Company's accounting policies on revenue recognition and adjusting the results to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property and equipment and intangible assets had been applied from January 1, 2014.

The Company incurred $87,906 in acquisition-related costs which are included in general and administrative expense on the Company's income statement for the twelve months ended December 31, 2015. These costs are reflected in pro forma earnings for the twelve months ended December 31, 2014.