Izea says its accounting error did not affect its bottom line
Winter Park ad-tech company Izea reported Wednesday that an error in its financial reports for the past three years will have no impact on the company’s financial bottom line.
The announcement popped the stock up by as much as 70 percent Wednesday morning, and it closed about 44 percent up for the day.
Izea’s outside accounting firm, BDO USA, reportedly found that the error only meant reporting certain expenses in a different line item, Izea announced. Izea is an advertising company that sells social-media endorsements by YouTube or Twitter stars, as well as services of writers, artists and videographers to companies.
In its SEC filings Wednesday, the company said it had simply been reporting revenue for its Content Workflow business as if Izea were a principal in the transactions, but now it has determined that it is just an agent in those transactions. That meant a lower revenue line, but also a lower cost for that revenue, the company said.
“The effects of this restatement consist of a reclassification of expenses within our previously reported consolidated statements of operations and disclosures regarding revenue, gross profit and operating expenses,” the company said in a new release filed with the Securities and Exchange Commission. “The errors had no impact on our previously reported loss from operations, net loss, loss per share, or on any of the Company's consolidated balance sheets, statements of cash flows, and statements of stockholders' equity.”
In fact, the company said its total revenue was up 15 percent to $24.4 million in 2017, compared with $21.2 million the prior year.
Company CEO Ted Murphy said only that the “restatements speak for themselves” when asked for more comment.
Murphy and CFO Leann Hitchcock also concluded, according to the news release, that there was a “material weakness in the company’s internal control over financial reporting,” and they are reviewing the matter.
Izea’s stock on NASDAQ had deflated April 2 and 3, after it acknowledged an error in its financial reporting, with a possible multimillion-dollar impact. The company share price dropped 18 percent the day it disclosed the error and 19.3 percent the second day, finishing at $2.42. It had closed the previous week at $3.60.
Those dramatic drops cost the largest individual stockholder, director Brian W. Brady, about $1 million, while CEO, founder and Chairman Ted Murphy lost about $31,000. They gained most of that loss back Tuesday as the stock closed at $3.17 per share.
As happens often when companies restate their financial reports, Izea has been targeted by several law firms, and at least one lawsuit, with investigations or allegations. The first lawsuit, filed in Los Angeles federal court, accuses Izea of operating as “a fraud or deceit” and seeks class-action status on behalf of all stockholders who acquired stock between May 25, 2015, and April 3, 2018.
“We deny the allegations in the lawsuit and intend to vigorously defend ourselves and the corporation in the lawsuit,” Murphy said previously.
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 in a year and a half.