Orlando tech firm Izea’s
stock caves after it reveals a possible multi-million dollar error in its financial reporting.
Izea, an Orlando area advertising technology company that has been considered a success story, saw its stock on NASDAQ plummet for two days in a row after acknowledging a potential multimillion-dollar error in its financial reporting.
The company share price, which has sunk steadily for the past two years, suddenly dropped 18 percent Monday and 19.3 percent Tuesday, finishing the day at $2.42. It had closed Friday at $3.60.
Two law firms also announced Tuesday they would be investigating Izea’s error for possible shareholder lawsuits.
The company (NASDAQ: IZEA) announced Monday that it had been reporting millions of dollars in gross profit for one of its business segments, but those numbers actually represented total revenue. That means Izea may have to explain to investors why it will now be cutting its profit numbers by millions, but the end result is not clear until the company files its restatements. Company executives declined several requests for additional comment.
On Tuesday, Izea filed a notice with the Securities and Exchange Commission, saying the errors likely will require restating its past 11 quarterly earnings reports over three years, and two annual reports, as filed with the SEC.
“Previously, Content Workflow revenue was reported as gross billings of approximately $6.9 million and $6.5 million in 2015 and 2016, respectively. Content Workflow revenue on a net transaction basis is expected to be restated as approximately $500,000 and $500,000 in 2015 and 2016, respectively,” according to Izea’s SEC filing.
Izea provides online platforms to connect content creators — writers, bloggers, Facebook or Twitter superstars and photographers — with work opportunities. It specializes in “influencer marketing,” which is sponsored social media advertising.
It has employed more than 100 people in the past.
Izea didn’t say when it would have new numbers, saying only “as soon as practicable.” Izea’s founder and chairman/CEO, Ted Murphy, said he could not discuss the error Monday and referred a reporter to the announcement.
Murphy has dealt with adversity before; he’s even been a featured speaker on overcoming failure at SXSW in Austin, Texas, where he spoke about “7 Ways to Fail Magnificently” and at a local Digital Orlando event.
Law firm investigations are focused on whether Izea issued false or misleading statements, or failed to disclose information pertinent to investors, according to news releases from two law firms that specialize in securities law.
The two firms announcing investigations were The Schall Law Firm of Los Angeles and the Rosen Law Firm of New York.
Even before the error was revealed, Izea acknowledged significant net losses and negative cash flow from operations for most of its history, resulting in a total accumulated deficit of $46.5 million.
The error was in the content workflow business segment, which includes Izea’s 2015 acquisition of Los Angeles-based creative marketplace Ebyline, where journalists can be hired to write content for blogs and newsletters.
Izea achieved listing on NASDAQ in 2016, after boosting its share price through a reverse split — consolidating every 20 shares into one share. That boosted the stock price from 38 cents to $7.50. But the stock dropped steadily after the listing, losing half its value over a year and a half.