UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549





FORM
10-K





[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
fiscal year ended December 31, 2008




or




[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934




For the
transition period from ___________ to _________.




Commission
File Number 000-52635




ACCELERIZE
      NEW MEDIA, INC.(Exact
      Name of Registrant as Specified in Its
Charter)





Delaware
              
              20-3858769(State
      of Incorporation)
              
              (IRS
      Employer Identification No.)




12121
      Wilshire Blvd. , Suite 322,
                Los Angeles, CA 90025(Address
      of Principal Executive Offices) (Zip Code)




Registrant's telephone
Number, Including Area Code: (310) 903
4001








Securities
registered pursuant to Section 12(b) of the Act: None




Securities
registered pursuant to Section 12(g) of the Act: Common Stock, par value
$0.001




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes [  ]  No
[X]




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes
[  ]  No [X]




Indicate
by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No
[   ]




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]







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 definition 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
[   ]                                                                      Smaller
reporting company [X]


(Do not
check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes [  ]  No [
X]




The
aggregate market value of the common equity voting shares of the registrant held
by non-affiliates on June 30, 2008 was $9,481,778. For purposes of this
calculation, an aggregate of 11,500,000 shares of common stock were held by the
directors and officers of the registrant on June 30, 2008 and have been included
in the number of shares of common stock held by affiliates.





The
number of the registrant’s shares of common stock outstanding as of March 31,
2009: 27,286,683.




In this Annual Report on Form 10-K, the terms the “Company,”
“Accelerize”, “we”, “us” or “our” refers to Accelerize New Media, Inc., unless
the context indicates otherwise.







WARNING CONCERNING FORWARD
LOOKING STATEMENTS




THIS
ANNUAL REPORT CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD LOOKING STATEMENTS
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND
OTHER FEDERAL SECURITIES LAWS. ALSO, WHENEVER WE USE WORDS SUCH AS “BELIEVE”,
“EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE” OR SIMILAR EXPRESSIONS, WE
ARE MAKING FORWARD LOOKING STATEMENTS. FOR EXAMPLE, WHEN WE DISCUSS THE INTERNET
MARKET TRENDS, AND SPECIFICALLY, THE GROWTH IN ON-LINE ADVERTISING, LEAD
GENERATION AND PERFORMANCE BASED MARKETING, AND OUR EXPECTATIONS BASED ON SUCH
TRENDS, WE ARE USING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING
STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT
FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. 
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR
FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS.





IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN OUR
FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS, GENERAL MARKET CONDITIONS,
INCLUDING THE RECENT DOWNTURN IN ECONOMY AND THE GROWTH IN CONSUMER DEBT,
REGULATORY DEVELOPMENTS AND OTHER CONDITIONS WHICH ARE NOT WITHIN OUR
CONTROL.





OTHER
RISKS MAY ADVERSELY IMPACT US, AS DESCRIBED MORE FULLY IN THIS ANNUAL REPORT
UNDER “ITEM 1A. RISK FACTORS.”





YOU
SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.





EXCEPT AS
REQUIRED BY LAW, WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD
LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR
OTHERWISE.








1





ACCELERIZE
      NEW MEDIA, INC.
                2008
      ANNUAL REPORT ON FORM 10-KTable
      of ContentsPART
      IPageItem
      1.
              Business
              3Item
      1A.
              Risk
      Factors
              8Item
      1B.
              Unresolved
      Staff Comments
              15Item
      2.
              Properties
              15Item
      3.
              Legal
      Proceedings
              15Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              16PART
      IIItem
      5.
              Market
      For Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities`
              16Item
      6.
              Selected
      Financial Data
              17Item
      7.
              Management
      ’s Discussion and Analysis of Financial Condition and Results of
      Operations
              17Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk
              25Item
      8.
              Financial
      Statements and Supplementary Data
              25Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              25Item
      9A(T).
              Controls
      and Procedures
              25Item
      9B.
              Other
      Information
              26PART
      IIIItem
      10.
              Directors,
      Executive Officers and Corporate Governance
              26Item
      11.
              Executive
      Compensation
              29Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              32Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              33Item
      14.
              Principal
      Accountant Fees and Services
              33PART
      IVItem
      15.
              Exhibits
      and Financial Statement Schedules
              34








2


PART I




Item
1.  Business




Overview





We offer
a comprehensive online media solution for clients to reach their target audience
on the Internet. We provide lead generation and performance based customer
acquisition solutions via our network of financial, news, and business
networking portals, blogs, targeted e-mail, banners, search engine optimization,
and co-registration opportunities. We primarily make money from the following
two lines of business: (1) Online advertising - Our financial content
network is available over the Internet, and our revenues are generated
through the sale of display advertisings, list management, targeted lead
generation, and web consulting services, and (2) Lead generation/Performance
based marketing - Utilizing our internally designed and developed lead
generation platform, we deliver buyers to sellers by providing vendors with
opportunities to contact qualified and interested potential customers, and
essentially crafting high-quality new-business leads for such vendors, and in
return we receive fees. Our current lead generation focus surrounds, but is not
limited to, the industry of debt settlement, credit repair/reports, and tax
settlements. As of the end of 2008 we closed our debt settlement referrals unit,
however, we still receive fees for sales and marketing support we provided in
connection with debt settlement solutions prior to closing this unit. We expect
that these payments will gradually decrease during 2009.




We own
and operate an extensive portfolio of more than 6,000 domain names (commonly
referred to as URLs). Our URL portfolio is currently used to build
consumer-based financial portals, microsites, blogs, and landing pages used for
lead generation initiatives.  This media strategy drives new
membership, which results in recurring user traffic to our websites and allows
us to generate highly relevant responses and leads for our online advertising
and lead generation customers.





Our
principal offices are located at: 12121 Wilshire Blvd., Suite 322, Los Angeles,
CA 90025, and  our telephone number there is: (310) 903 4001. Our
corporate website is: www.accelerizenewmedia.com.





Our
History





We were
incorporated on November 22, 2005 under the laws of the State of Delaware. Prior
to our incorporation we operated as a sole proprietorship owned by one of the
members of our current management team, which was doing business as Accelerize
New Media.





In January 2007, we acquired
substantially all of the assets and assumed some, but not all, of the
liabilities of the Debt Reduction Group, or TDRG, an Internet marketing business
focused at identifying debt and mortgage leads from forms hosted on TDRG’s
network of websites, and selling such leads to third parties or processing the
leads within TDRG in connection with TDRG’s debt settlement referral
business.





In
December 2006, we filed a registration statement on Form SB-2 with the
Securities and Exchange Commission, or the SEC, which registration statement
became effective on May 9, 2007. At the same time we became a reporting company
under the Securities Exchange Act of 1934. On January 9, 2008, our Common Stock
commenced trading on the Over-The-Counter Bulletin Board, or the OTC.BB, under
the symbol ACLZ.OB.





How
we market our services





We
market our financial portal and domain name strategy through:





●
            organic
      search listings, which are results based on factors such as keyword
      relevancy within a web page. These are the listings generally found on the
      left hand side in search engines, and are not influenced by direct
      financial payments, only by effective search engine
      optimization;





●
            paid
      search marketing, which consists of placing ads for products or services
      on search engines and on content sites across the Internet. These ads are
      typically small snippets of text linked to merchandise pages. Payment is
      made when users click through to the site from the
  ad;





3


●
            our
      blogs and microsites, which complement our financial portals, deliver
      up-to-date news and analysis, which then refer the user to our portals for
      more detailed information. Using blogs allows us to benefit from the
      real-time nature of blog search listings, so that current information in
      our blogs can appear in a wide variety of sites and blog aggregation
      search engines, often within minutes of the initial posting;
      and





●
            our
      financial portals, which generate sales leads and targeted traffic for
      advertisers. We market our services within our portfolio of websites via
      banner ad inventory, targeted newsletters, and filing
    alerts.





We
market our Lead Generation/Performance Based Marketing Services
through:





●
            marketing
      methods, which include organic search engine optimization, paid search
      engine marketing, e-mail marketing, media buys, and display advertising;
      and





●
            marketing
      affiliates and publishers, who drive qualified traffic from one website to
      another.





How
we support our services





Web
development, server and database development/maintenance, financial data
process, and lead generation development/maintenance are carried out in-house
and via a number of partners. In order to remain competitive, we renegotiated or
eliminated certain vendor partnerships during 2008 and the first quarter of
2009.





On March
16, 2009, we entered into a services agreement with Edgar Online Inc. to provide
financial data and content to our www.secfilings.com financial portal. This
strategic partnership has resulted in significant cost savings as it reduced our
dependence on in-house technical resources, hosting services, and data service
providers.





Partners
who support our services:





●
            Edgar Online, Inc.
      provides financial content and engages in the creation and distribution of
      fundamental financial data and public filings for equities, mutual funds,
      and other publicly traded assets principally in the United States. It
      produces data that assists in the analysis of the financial, business, and
      ownership conditions of an investment. The company delivers its
      information products via the Internet in the form of end-user
      subscriptions and data feeds; and





●
            Maximum
      ASPhosts our servers andprovides comprehensive network protection,
      automated server patching, and advanced server monitoring, with a strong
      focus on hosting solutions that combine advanced monitoring and management
      tools.





Advertising
Partners





●
            Zacks Investment Research
      Inc. markets segments of our ad inventory. Zacks is a Chicago based
      firm with 25 years of experience in providing institutional and individual
      investors with the analytical tools and financial information necessary to
      the success of their investment
process;




●
            Opt-Intelligence Inc.,
      in partnership with Zacks, assists us with real-time consumer opt-in
      advertising (commonly called Co-registration). Opt-Intelligence clients
      include TheStreet.com, Match.com and StarMagazine.com. Their advertiser
      list includes Circuit City, eBay, Wal-Mart, The Home Depot, NASCAR, Nokia
      and Procter & Gamble. Co-registration is the practice of one
      organization, on its own subscription and membership registration
      forms, offering subscriptions, memberships, or leads to another
      organization; and




●
            Lake Group Media, whose
      services include list brokerage, list management and interactive
      programs.





4





In order
to remain competitive and reduce our costs, during 2008 and the first quarter of
2009 we terminated our relationships with the following providers:





●
            Try Catch Consulting
      Inc., which supported our portals and web-based solutions, our
      financial/customer/alert data and our technical
      infrastructure;




●
            Verio Inc., which
      hosted our servers;





●
            Hemscott Inc., which
      provided us with detailed numerical, statistical and general business
      information; and




●
            Global Securities Information,
      Inc., which provided us with SEC filing
  services.




Web
Properties




We own
and operate an extensive portfolio of more than 6,000 domain names (commonly
referred to as URLs). Our URL portfolio is currently used to build
consumer-based financial portals, microsites, blogs, and landing pages used for
lead generation initiatives.  This media strategy drives new
membership, which results in recurring user traffic to our websites and allows
us to generate highly relevant responses and leads for our online advertising
and lead generation customers.





Our financial data portals
include:




·
            www.secfilings.com, a
      financial business networking portal delivering free, accurate SEC data
      and user-generated content. Users can retrieve historical filings,
      subscribe to free email alerts and RSS feeds, and can track SEC filings by
      company, industry or person;




·
            www.executivedisclosure.com,
      a financial and business networking blog offering news and information
      about salaries, bonuses, option grants, and stock award data provided by
      all publicly-held companies;




·
            www.investerms.com,
      which provides investors with real-time news and education, syndicated
      across a wide network of distribution partners. Content is aimed to help
      readers fully understand the news by presenting it in an
      easy-to-understand manner;




·
            www.otcroadshow.com,
      which generates investor awareness for public and private companies. Our
      team creates company reports, marketing materials and supplementary
      materials that are then put in front of a targeted audience to garner
      company awareness, business leads, and real time feedback on
      products/services; and





·
            www.takingthestreet.com,
      a financial blog containing investment opinions that are syndicated across
      a wide network of distribution partners. Our focus is on helping readers
      to identify new investment opportunities through in-depth
      analysis.





Our
lead generation and performance based marketing include:





·
            Combining
      management’s direct marketing practices and industry experience we have
      developed a technology platform to generate, validate, and deliver lead
      generation programs. Utilizing this  platform  we are
      able to deliver buyers to sellers, in return for the lead fees we receive
      as our compensation;





·
            We
      also promote our Lead Generation offers through our website:
      http://www.accelerizenewmedia.com/offers/index.aspx





Micro-sites




A
micro-site is an individual web page or cluster of pages which is meant to
function as an auxiliary supplement to a primary website. The micro-site's main
landing page most likely has its own URL. www.form10-k.com is an example of one
of our "micro-site" properties, offering to customers and users select
functionality from our main portals including the ability to search, download
documents and login to their portal accounts.





5


Discontinued
Products




During 2008 we decided to cease the
provision of our debt settlement referral solutions effective January 1, 2009.
We expect to continue to receive commissions for debt settlement solutions
provided to past clients, on a diminishing scale during the foreseeable future,
but will not be adding additional clients or have any further financial
obligations with respect to our Debt Settlement Referral Division.




Industry/Market
Trends





We
believe that our business depends upon the continuing consumer and business use
of the Internet as a primary tool to facilitate research, communications, and
transactions, especially in the following segments:




●
            Online
      Advertising; and




●
            Lead
      Generation/Performance Based
Marketing.




Online
Advertising




The
growth of online advertising dramatically slowed in 2008 with the start of the
economic recession. After several years of healthy growth, U.S. spending for
online advertising dropped from 25% growth in 2007 to only 12% growth in
2008.




Analysts
forecast that Internet advertising spending will rise by only 10% in 2009.
eMarketer estimates that total U.S. online spending for 2008 was $23.6 billion
and this year will reach $25.7 billion. IDC's latest Internet Advertising
Quarterly report also suggests that the growth has faltered. In the third
quarter of 2008, the report says that total U.S. advertising spending increased
by 9.4% to $6.67 billion from $6.09 billion in the third quarter of
2007.




Lead
Generation and Performance Based Marketing




According
to a January 2009 report by JP Morgan, over the last five years,
performance-based advertising has gained market share over the Click-Per-Mille,
or CPM, based model. This trend is more clearly seen in the U.K., where the
online advertising market is considered more mature than in the U.S. (about 15%
of total advertising budgets in the U.K. are spent online, compared with only 8%
in the U.S.).




According
to JP Morgan, in the U.K. market, roughly 85% of total online advertising
budgets are spent on the performance-based model. They believe that this trend
will not only continue but also accelerate in this recessionary environment,
because advertisers place higher value on clear return-on-investment, or ROI
models. As such, they believe the shift to performance-based models is only
going to accelerate in 2009, while the display advertising market will become
very competitive faced with declining CPMs.




Given the
challenges facing advertisers, we believe that revenue from on-line social
networks will need to come from sources other than display advertising. There
are several alternatives, among them, more performance-based advertising models,
such as Cost-Per-Action, or CPA advertising and lead generation, not all of
which can apply to our business.





Intellectual
Property




Our
employees are required to execute confidentiality and non-use agreements that
transfer any rights they may have in copyrightable works or patentable
technologies to us. In addition, prior to entering into discussions with
potential business partners or customers regarding our business and
technologies, we generally require that such parties enter into nondisclosure
agreements with us. If these discussions result in a license or other business
relationship, we also generally require that the agreement setting forth the
parties’ respective rights and obligations include provisions for the protection
of our intellectual property rights. For example, the standard language in our
agreements provides that we retain ownership of all patents and copyrights in
our technologies and requires our customers to display our copyright and
trademark notices. We do not currently have any registered or pending patents or
trademarks, except the trademark “Knockout Debt” (USPTO Reg. No.
2,810,014).





6


Competition





Our
primary competitors include:




Edgar Online, Inc., which
engages in the creation and distribution of fundamental financial data and
public filings for equities, mutual funds, and other publicly traded assets
principally in the United States. It produces data that assists in the analysis
of the financial, business, and ownership conditions of an investment. The
company delivers its information products via the Internet in the form of
end-user subscriptions and data feeds. Edgar Online, Inc., is also one of our
business partners providing us with SEC filings and other data.




TheStreet.com, Inc., which
together with its wholly-owned subsidiaries, operates as a financial media
company. Its flagship site, TheStreet.com, provides financial commentary,
analysis, and news with financial coverage to individual investors.
TheStreet.com also offers investigative journalism, commentary on market trends,
specific stock and mutual fund analysis, and personal finance and lifestyle
sections.





ValueClick, Inc., which
provides online advertising campaigns and programs for advertisers and
advertising agency customers in the United States and internationally. It
operates in four segments: Media, Affiliate Marketing, Comparison Shopping, and
Technology. ValueClick Inc. customers include advertisers, advertising agencies,
and traffic distribution partners.





Other
large competitors in the business information industry are Reuters, Standard & Poor’sandThomson
Financial. Competition for information focused on financial data or
credit risk comes from companies such as S&P’s Capital IQ, Dun & Bradstreet and
Factset. Competition
for legal information comes from companies such as Thompson’s Global Securities
Information. Other competitors include companies such as 10-K Wizard Technology, which
focus on simple SEC data offerings, and MSN Money and Yahoo! Finance, which are
more focused on serving individual investors.





The
principal competitive factors relating to attracting and retaining users include
the quality and relevance of our search results, and the usefulness,
accessibility, integration and personalization of the online services that we
offer.  In the case of attracting advertisers, the principal competitive
factors are reach, effectiveness and efficiency of our marketing
services.





Our
competitors have significantly greater capital, technology, resources, and brand
recognition than we do.   However, we believe that based
upon past performance and our unique blend of web assets we will remain highly
competitive in our industry.




Government
Regulation




Although
there are currently relatively few laws and regulations directly applicable to
the Internet, it is possible that new laws and regulations will be adopted in
the United States and elsewhere. The adoption of restrictive laws or regulations
could slow or otherwise affect Internet growth. The adoption of laws or
regulations restricting or limiting debt settlement could affect our lead
generation business. The application of existing laws and regulations governing
Internet issues such as property ownership, libel and personal privacy is also
subject to substantial uncertainty. There can be no assurance that current or
new government laws and regulations, or the application of existing laws and
regulations (including laws and regulations governing issues such as property
ownership, taxation, defamation and personal injury), will not expose us to
significant liabilities, slow Internet growth or otherwise hurt us
financially.




Employees




As of
December 31, 2008, we had 11 full-time employees, and 4 consultants, including
all of our executive officers. None of our employees are covered by collective
bargaining agreements, and we believe our relationships with our employees to be
good.




7





Item
1A. Risk Factors




If
we are unable to obtain financing necessary to support our operations, we may be
unable to continue as a going concern.




We have generated revenues since
inception but they were not an adequate source of cash to fund future
operations. Historically we have relied on private placement issuances of equity
and debt. We will need to raise additional working capital to fund our ongoing
operations and growth. The amount of our future capital requirements depends
primarily on the rate at which we increase our revenues and correspondingly
decrease our use of cash to fund operations. Cash used for operations will be
affected by numerous known and unknown risks and uncertainties including, but
not limited to, our ability to successfully market our products and services and
the degree to which competitive products and services are introduced to the
market. As long as our cash flow from operations remains insufficient to
completely fund operations, we will continue depleting our financial resources
and seeking additional capital through equity and/or debt financing. If we raise
additional capital through the issuance of debt, this will result in increased
interest expense. If we raise additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of our company held by
existing stockholders will be reduced and those stockholders may experience
significant dilution. In addition, new securities may contain rights,
preferences or privileges that are senior to those of our common stock. There
can be no assurance that acceptable financing to fund our ongoing operations can
be obtained on suitable terms, if at all. If we are unable to obtain the
financing necessary to support our operations, we may be unable to continue as a
going concern. In that event, we may be forced to cease operations and our
stockholders could lose their entire investment in our Company. Our audited
financial statements included in this annual report for the period ended
December 31, 2008 contain additional note disclosures describing the
circumstances that lead to this disclosure by our independent
auditors.





We
have a limited operating history and, therefore, predicting our future
performance is difficult.





We were incorporated and have began
operations in November 2005. Our limited operating history makes it difficult to
evaluate our business and prospects. We have encountered, and expect to continue
to encounter, many of the difficulties and uncertainties often faced by early
stage companies. You should consider our business and prospects in light of the
risks, uncertainties and difficulties frequently encountered by early stage
companies, including limited capital, delays in product development, marketing
and sales obstacles and delays, inability to gain customer acceptance of our
products and services, inability to attract and retain high-quality and talented
executives and other personnel and significant competition. We cannot be certain
that we will successfully address these risks. If we are unable to address these
risks, our business may not grow, our stock price may suffer and/or we may be
unable to stay in business.





We
have a history of losses, and we expect to continue to operate at a loss and to
have negative cash flow from operations for the foreseeable future.





We have a history of continuing losses
and negative cash flow from operations. At December 31, 2007 and December 31,
2008, we had cumulative net losses of approximately $3.3 million and $5.4
million, respectively. Our operations have been financed primarily through
proceeds from the issuance of equity and borrowings under promissory notes. On
December 31, 2007 and December 31, 2008, we had approximately $951,000 and
$253,000 in cash, respectively. We expect that our expenses will increase
substantially as we continue to develop and market our products and services. As
a result, we expect to continue to incur losses for the foreseeable
future.




Because we expect to continue to
incur net losses, we may not be able to implement our business strategy and the
price of our stock may decline.




While we are hopeful of becoming
profitable by the end of 2009, we hoped to be profitable in 2008, and there is
no assurance that this objective can be attained. Accordingly, our ability to
operate our business and implement our business strategy may be hampered by
negative cash flows in the future, and the value of our stock may decline as a
result. Our capital requirements may vary materially from those currently
planned if, for example, we incur unforeseen capital expenditures, unforeseen
operating expenses or make investments to maintain our competitive position. If
this is the case, we may have to delay or abandon some or all of our development
plans or otherwise forego market opportunities. We will need to generate
significant additional revenues to be profitable in the future, and we may not
generate sufficient revenues to be profitable on either a quarterly or annual
basis in the future.




8


Our
quarterly financial results will fluctuate, making it difficult to forecast our
results of operation.





Our
revenues and operating results may vary significantly from quarter to quarter
due to a number of factors, many of which are beyond our control,
including:




●
            Variability
      in demand and usage for our products and
  services;




●
            Market
      acceptance of new and existing services offered by us, our competitors and
      potential competitors;




●
            Governmental
      regulations affecting the use of the Internet, including regulations
      concerning intellectual property rights and security features;
      and





●
            The
      recent downturn in the economy which led to a large increase in home
      foreclosures, business failures, unemployment and substantial growth in
      consumer debt.





Our
limited operating history and unproven business model further contribute to the
difficulty of making meaningful quarterly comparisons. Our current and future
levels of expenditures are based primarily on our growth plans and estimates of
expected future revenues. If our operating results fall below the expectation of
investors, our stock price will likely decline significantly.




We
face risks related to the current credit crisis.




Current uncertainty in the global
economic conditions resulting from the recent disruption in credit markets poses
a risk to the overall economy and has adversely affected the online advertising
market, which is now highly competitive. These economic conditions could impact
consumer and customer demand for our products, as well as our ability to borrow
money to finance our operations, to maintain our key employees, and to manage
normal commercial relationships with our customers, suppliers and creditors. For
example, customers are likely to spend less on on-line advertising and other
services, and may extend the payment periods for our lead generation services.
If the current situation continues to deteriorate, our business and results of
operations will continue to be negatively impacted.





We
face intense competition from other providers of business and financial
information.





We compete with many providers of
business and financial information, including other Internet companies, for
consumers' and advertisers' attention and spending. Our primary competitors are
Edgar Online, Inc. and The Street.com, Inc., both of which provide services
similar to ours and each of which has a well-established market presence. These
and other competitors have substantially greater capital, longer operating
histories, greater brand recognition, larger customer bases and significantly
greater financial, technical and marketing resources than we do. These
competitors may also engage in more extensive development of their technologies,
adopt more comprehensive marketing and advertising campaigns than we can. Our
competitors may develop products and service offerings that we do not offer or
that are more sophisticated or more cost effective than our own. For these and
other reasons, our competitors' products and services may achieve greater
acceptance in the marketplace than our own, limiting our ability to gain market
share and customer loyalty and to generate sufficient revenues to achieve a
profitable level of operations. Our failure to adequately address any of the
above factors could harm our business and operating results.





9


In
addition, as the barriers to entry in our market segment are not substantial, an
unlimited number of new competitors could emerge, thereby making our goal of
establishing a market presence even more difficult. Because our management
expects competition in our market segment to continue to intensify, there can be
no assurances we will ever establish a competitive position in our market
segment.




We
may not be successful in increasing our brand awareness.




Our
future success will depend, in part, on our ability to increase brand awareness
of our websites. In order to build brand awareness, we must succeed in our
marketing efforts, provide high quality services and increase traffic to our
websites. There is no assurance that we will be able to achieve these
goals.




We
may not be successful in improving our existing products or in developing new
products.




We have
not yet completed development and testing of certain proposed new products and
proposed enhancements to our systems, some of which are still in the planning
stage or in relatively early stages of development. Our success will depend in
part upon our ability to timely introduce new products into the marketplace. We
must commit considerable time, effort and resources to complete development of
our proposed products, service tools and product enhancements. Our product
development efforts are subject to all of the risks inherent in the development
of new products and technology, including unanticipated delays, expenses and
difficulties, as well as the possible insufficiency of funding to complete
development.




Our
product development efforts may not be successfully completed. In addition,
proposed products may not satisfactorily perform the functions for which they
are designed, they may not meet applicable price or performance objectives and
unanticipated technical or other problems may occur which result in increased
costs or material delays in development. Despite testing by Accelerize and
potential end users, problems may be found in new products, tools and services
after the commencement of commercial delivery, resulting in loss of, or delay
in, market acceptance and other potential damages.




We
may not be successful in developing new and enhanced services and features for
our websites.




Our
market is characterized by rapidly changing technologies, evolving industry
standards, frequent new product and service introductions and changing customer
demands. To be successful, we must adapt to the rapidly changing market by
continually enhancing our existing services and adding new services to address
customers' changing demands. We could incur substantial costs if we need to
modify our services or infrastructure to adapt to these changes. Our business
could be adversely affected if we were to incur significant costs without
generating related revenues or if we cannot adapt rapidly to these changes. Our
business could also be adversely affected if we experience difficulties in
introducing new or enhanced services or if these services are not favorably
received by users. We may experience technical or other difficulties that could
delay or prevent us from introducing new or enhanced services.




Our
operations depend on third parties and our systems are susceptible to delays,
failures and errors, which could adversely impact our operations and financial
results.




Our
operations depend on receipt of timely feeds from our content providers, and any
failure or delay in the transmission or receipt of such feeds could disrupt our
operations. We also depend on Web browsers, ISPs and online service providers to
provide access over the Internet to our product and service offerings. Many of
these providers have experienced significant outages or interruptions in the
past, and could experience outages, delays and other difficulties due to system
failures unrelated to our systems. These types of interruptions could continue
or increase in the future.




Our
digital distribution activities are managed by sophisticated software and
computer systems. We must continually develop and update these systems over time
as our business and business needs grow and change, and these systems may not
adequately reflect the current needs of our business. We may encounter delays in
developing these systems, and the systems may contain undetected errors that
could cause system failures. Any system error or failure that causes
interruption in availability of products or content or an increase in response
time could result in a loss of potential or existing business services
customers, users, advertisers or content providers. If we suffer sustained or
repeated interruptions, our products, services and Web sites could be less
attractive to such entities or individuals and our business could be
harmed.




10


Our servers are currently hosted with
Maximum ASP, Inc. in Louisville, Kentucky. Maximum ASP, Inc. handles the
failover process we have put in place. We intend to notify them immediately
of any outage and upon such notice they are assigned to immediately implement
our failover strategy. We may not have adequate business interruption insurance
to compensate us for losses that may occur from a system outage. Despite our
efforts, our network infrastructure and systems could be subject to service
interruptions or damage and any resulting interruption of services could harm
our business, operating results and reputation.





Our
future performance and success depend on our ability to retain our key
personnel.





Our future performance and success is
heavily dependent upon the continued active participation of our current senior
management team, including, our President and Chief Executive Officer, Brian
Ross, our General Counsel, Damon Stein and our Head of Lead Generation, Jeff
McCollum. The loss of any of their services could have a material adverse effect
on our business development and our ability to execute our growth strategy,
resulting in loss of sales and a slower rate of growth. We do not maintain any
"key person" life insurance for any of our employees.




We
may be subject to infringement claims on proprietary rights of third parties for
software and other content that we distribute or make available to our
customers.




We may be
liable or alleged to be liable to third parties for software and other content
that we distribute or make available to our customers:




●
            If
      the content or the performance of our services violates third party
      copyright, trademark, or other intellectual property rights;
      or




●
            If
      our customers violate the intellectual property rights of others by
      providing content through our
services.




Any
alleged liability could harm our business by damaging our reputation, requiring
us to incur legal expenses in defense, exposing us to awards of damages and
costs including treble damages for willful infringement and diverting
management's attention which could have an adverse effect on our business,
results of operations and financial condition.




We cannot
assure you that third parties will not claim infringement by us with respect to
past, current, or future technologies. Participants in our markets may be
increasingly subject to infringement claims as the number of services and
competitors in our industry segment grows. In addition, these risks are
difficult to quantify in light of the continuously evolving nature of laws and
regulations governing the Internet. Any claim relating to proprietary rights,
whether meritorious or not, could be time-consuming, result in costly
litigation, cause service upgrade delays or require us to enter into royalty or
licensing agreements, and we cannot assure you that we will have adequate
insurance coverage or that royalty or licensing agreements will be available on
terms acceptable to us or at all. Further, we plan to offer our services and
applications to customers worldwide including customers in foreign countries
that may offer less protection for our intellectual property than the United
States. Our failure to protect against misappropriation of our intellectual
property, or claims that we are infringing the intellectual property of third
parties could have a negative effect on our business, revenues, financial
condition and results of operations.




Dilutive
securities may adversely impact our stock price.





As of
March 31, 2009, the following securities issuable, convertible or exercisable
into shares of our Common Stock were outstanding:




●
            5,400,000
      shares of Common Stock issuable upon the possible conversion of
      outstanding 10% Series A Convertible Preferred
  Stock;





●
            11,887,500
      shares of Common Stock issuable upon the possible conversion of
      outstanding 8% Series B Convertible Preferred
  Stock;




11


●
            1,224,470
      shares of Common Stock issuable in payment of PIK dividends by our 10%
      Series A Convertible Preferred Stock holders, or the Series A PIK
      Dividends;




●
            1,005,386
      shares of Common Stock issuable in payment of PIK dividends by our 8%
      Series B Convertible Preferred Stock holders, or the Series B PIK
      Dividends;




●
            Warrants
      to purchase up to a total of 1,800,000 shares of our Common Stock at a
      price of $0.15 per share, or the Series A
  Warrants;




●
            Warrants
      to purchase up to a total of 3,199,375 shares of our Common Stock at a
      price of $0.35 per share, or the Series B
  Warrants;





●
            Warrants
      to purchase up to a total of 2,350,000 shares of our Common Stock at a
      price of $0.35 per share with a cashless exercise feature, issued to
      holders of Series B Preferred Stock, who exercised their Series B
      Warrants;





●
            Convertible
      Promissory Notes in a total principal amount of $530,000, which may be
      converted at the note holders' option at conversion prices ranging between
      $0.35 - $0.75 per share;





●
            Convertible
      Promissory Notes in a total principal amount of $617,000, which may be
      converted at the note holders' option at conversion prices ranging between
      $0.35 - $0.55 per share;





●
            Warrants
      to purchase up to a total of 573,500 shares of our Common Stock at prices
      ranging between $0.55 - $0.75 per share, issued in connection with
      convertible promissory notes;





●
            Warrants
      to purchase up to a total of 2,808,333 shares of our Common Stock at
      prices ranging between $0.50 - $0.55 per share, issued to various service
      providers; and




●
            up
      to 10,000,000 shares of Common Stock issuable under our stock option
      plan.





These
securities represent as of March 31, 2009, approximately 62% of our Common Stock
on a fully diluted, as converted basis. The exercise of these options or
warrants and the conversion of the preferred stock, both of which have fixed
prices, may materially adversely affect the market price of our Common Stock and
will have a dilutive effect on our existing stockholders.





Acquisitions
of businesses and our failure to successfully integrate these businesses can
disrupt our business, dilute your holdings in us and harm our financial
condition and operating results.




In
January 2007 we acquired substantially all of the assets of TDRG. We intend to
pursue future strategic acquisitions of complementary companies, products or
technologies using our available cash and stock. Such acquisitions could disrupt
our business. In addition, your holdings in our company would be diluted if we
issue equity securities in connection with any acquisition as we did with the
TDRG acquisition when we issued approximately 18% of our then outstanding shares
of Common Stock. Acquisitions involve numerous other risks,
including:




●
            problems
      combining the acquired operations, technologies or
    products;




●
            unanticipated
      costs or liabilities;




●
            diversion
      of management’s attention;




●
            adverse
      effects on existing business relationships with suppliers and
      customers;





●
            risks
      associated with entering markets in which we have no or limited prior
      experience; and




●
            potential
      loss of key employees, particularly those of the acquired
      organizations.




12


Further,
products that we acquire from third parties often require significant
expenditures of time and resources to upgrade and integrate with our existing
product suite. If we fail to integrate acquired applications into our product
offering in a timely manner, we may be unable to fully realize the expected
benefits of the acquisition. We may not be able to successfully integrate any
business, technologies or personnel that we have acquired or that we might
acquire in the future, and this could harm our financial condition and operating
results. For example, in January 2007, we acquired substantially all of the
assets of TDRG, which provided debt-referral solutions and as of the end of 2008
we have discontinued this line of business.





Our
internal control over financial reporting was not considered effective as of
December 31, 2008 and may continue to be ineffective in the future, which could
result in our financial statements being unreliable, government investigation or
loss of investor confidence in our financial reports.





Pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, we are required to furnish an annual report by our
management assessing the effectiveness of our internal control over financial
reporting. This assessment must include disclosure of any material weaknesses in
our internal control over financial reporting identified by management.
Management's report as of the end of 2008 identified several material weaknesses
and concluded that we did not have effective internal control over financial
reporting. Ineffective internal controls can result in errors or other problems
in our financial statements. Even if material weaknesses identified do not cause
our financial statements to be unreliable, if we continue to be unable to assert
that our internal controls are effective, our investors could still lose
confidence in the accuracy and completeness of our financial reports, which in
turn could cause our stock price to decline. Failure to maintain effective
internal control over financial reporting could also result in investigation or
sanctions by regulatory authorities.




In the
event that our independent registered public accounting firm is unable to rely
on our internal controls in connection with their audit of our financial
statements, and in the further event that they are unable to devise alternative
procedures in order to satisfy themselves as to the material accuracy of our
financial statements and related disclosures, it is possible that we would
receive a qualified or an adverse audit opinion on those financial statements
which could also adversely affect the market price of our Common Stock and our
ability to secure additional financing as needed.




13


We
have not voluntarily implemented various corporate governance measures, in the
absence of which, stockholders may have more limited protections against
interested director transactions, conflicts of interest and similar
matters.




Federal
legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the
adoption of various corporate governance measures designed to promote the
integrity of the corporate management and the securities markets. Some of these
measures have been adopted in response to legal requirements. Others have been
adopted by companies in response to the requirements of national securities
exchanges, such as the New York Stock Exchange or the Nasdaq Stock Market, on
which their securities are listed. Among the corporate governance measures that
are required under the rules of national securities exchanges are those that
address board of directors' independence, audit committee oversight, and the
adoption of a code of ethics. We have not yet adopted some of these corporate
governance measures and, since our securities are not listed on a national
securities exchange, we are not required to do so. We have not adopted corporate
governance measures such as an audit or other independent committees of our
board of directors. We intend to expand our board membership to include
additional independent directors and we may then seek to establish an audit and
other committees of our board of directors. It is possible that if we were to
adopt some or all of these corporate governance measures, stockholders would
benefit from somewhat greater assurances that internal corporate decisions were
being made by disinterested directors and that policies had been implemented to
define responsible conduct. For example, in the absence of audit, nominating and
compensation committees comprised of at least a majority of independent
directors, decisions concerning matters such as compensation packages to our
senior officers and recommendations for director nominees may be made by a
majority of directors who have an interest in the outcome of the matters being
decided. Prospective investors should bear in mind our current lack of corporate
governance measures in formulating their investment decisions.




Government
regulation could adversely affect our business prospects.




We do not
know with certainty how existing laws governing issues such as property
ownership, debt-settlement, copyright and other intellectual property issues,
taxation, illegal or obscene content, retransmission of media, personal privacy
and data protection will apply to the Internet or to the distribution of
multimedia and other proprietary content over the Internet. Most of these laws
were adopted before the advent of the Internet and related technologies and
therefore do not address the unique issues associated with the Internet and
related technologies. Depending on how these laws developed and are interpreted
by the judicial system, they could have the effect of:




●
            Limiting
      the growth of the Internet;




●
            Creating
      uncertainty in the marketplace that could reduce demand for our products
      and services;




●
            Increasing
      our cost of doing business;




●
            Exposing
      us to significant liabilities associated with content distributed or
      accessed through our products or services;
or




●
            Leading
      to increased product and applications development costs, or otherwise harm
      our business.




Because
of this rapidly evolving and uncertain regulatory environment, both domestically
and internationally, we cannot predict how existing or proposed laws and
regulations might affect our business.





The
limited market for our Common Stock will make our stock price more
volatile.  Therefore, you may have difficulty selling your
shares.





The market for our Common Stock is
limited and we cannot assure you that a larger market will ever be developed or
maintained. Currently, our Common Stock is traded on the
OTCBB.  Securities traded on the OTCBB typically have low trading
volumes.  Market fluctuations and volatility, as well as general
economic, market and political conditions, could reduce our market
price.  As a result, this may make it difficult or impossible for our
shareholders to sell our Common Stock.





There
are no restrictions on the sale of our outstanding Common
Stock.  Sales by existing shareholders may depress the share price of
our Common Stock and may impair our ability to raise additional capital through
the sale of equity securities when needed.





As of March 31, 2009 we had 27,286,683
shares of Common Stock issued and outstanding, of which  26,811,627
shares were freely tradable under Rule 144 under the Securities Act, or
registered for re-sale. The possibility that substantial amounts of outstanding
Common Stock may be sold in the public market may adversely affect prevailing
market prices for our Common Stock.  This could negatively affect the
market price of our Common Stock and could impair our ability to raise
additional capital through the sale of equity securities.





14


Our Common Stock is subject to the “penny stock” rules of the SEC,
and the trading market in our Common Stock is limited.  This makes
transactions in our Common Stock cumbersome and may reduce the value of your
shares.





The SEC has adopted Rule 3a51-1 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions.  For any transaction involving a penny stock, unless
exempt, Rule 15g-9 requires:





·
            that
      a broker or dealer approve a person's account for transactions in penny
      stocks; and·
            the
      broker or dealer receive from the investor a written agreement to the
      transaction, setting forth the identity and quantity of the penny stock to
      be purchased.





In order to approve a person's account
for transactions in penny stocks, the broker or dealer must:





·
            obtain
      financial information and investment experience objectives of the person;
      and·
            make
      a reasonable determination that the transactions in penny stocks are
      suitable for that person and the person has sufficient knowledge and
      experience in financial matters to be capable of evaluating the risks of
      transactions in penny stocks.





The broker or dealer must also deliver,
prior to any transaction in a penny stock, a disclosure schedule prescribed by
the SEC relating to the penny stock market, which, in highlight
form:





·
            sets
      forth the basis on which the broker or dealer made the suitability
      determination; and·
            that
      the broker or dealer received a signed, written statement from the
      investor prior to the transaction.





Generally, brokers may be less willing
to execute transactions in securities subject to the "penny stock" rules. This
may make it more difficult for investors to dispose of our common stock and
cause a decline in its market value.





Disclosure also has to be made about
the risks of investing in penny stocks in both public offerings and in secondary
trading and about the commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities and the rights
and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.





Item
1.B. Unresolved Staff Comments.





None.





Item
2. Properties.





We
currently lease real property in Los Angeles, CA, Huntington Beach, CA and
Whitefish, MT.  Most of our activity is carried out from our Los
Angeles office, which is on a three year lease that commenced on July 1, 2007
and expires on June 30, 2010.  Our Huntington Beach office is home to
our lead generation division, and it is on a month-to-month sublease that
commenced on February 1, 2009.  A portion of our sales and marketing
activity is carried out from our Whitefish office, which is on a month-to-month
lease that commenced on November 15, 2008. Some of our operations are carried
out from the employees’ and consultants’ respective homes and offices. We also
sublet the majority of the Los Angeles office. We believe that our offices are
sufficient for our current needs.





Item
3. Legal Proceedings.




We are
currently not a party to any material pending litigation, government
investigation or any other legal proceedings.





15


Item
4. Submission of Matters to a Vote of Security Holders.





None





PART
II





Item
5.  Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities





Our Common Stock began quotation on the
Over-the-Counter Bulletin Board on January 9, 2008, and is quoted under the
symbol "ACLZ.OB". Prior to such date our common stock was not traded on any
established public trading market, nor was it quoted on any automated quotation
system. The following sets forth the high and low bid quotations for the common
stock as reported on the Over-the-Counter Bulletin Board for each quarter during
that fiscal year. These quotations reflect prices between dealers, do not
include retail mark-ups, markdowns, and commissions and may not necessarily
represent actual transactions.





Fiscal Year Ended December 31,
      2008
              High
              LowFirst
      Quarter Ended March 31, 2008
              $0.80
              $0.50Second
      Quarter Ended June 30, 2008
              $0.78
              $0.72Third
      Quarter Ended September 30, 2008
              $0.75
              $0.45Fourth
      Quarter Ended December 31, 2008
              $0.50
              $0.25




Stockholders





As of March 31, 2009, there were 102
stockholders of record of our Common Stock.





Dividend
Policy





We have not declared or paid any cash
dividends on our Common Stock since inception and we do not intend to pay any
cash dividends in the foreseeable future. We intend to retain any future
earnings for use in the operation and expansion of our business. Any future
decision to pay dividends on Common Stock will be at the discretion of our Board
of Directors and will be dependent upon our fiscal condition, results of
operations, capital requirements and other factors our Board of Directors may
deem relevant.




The
holders of our 10% Series A Preferred Stock are entitled to receive a cumulative
preferential dividend of 10% per annum on the stated value of the 10% Series A
Preferred Stock owned by them. The dividend is payable at the Company’s option
in cash or shares of Common Stock valued at $0.15 per share. The Company does
not intend to pay any cash dividend in the near future. Dividends are payable on
a quarterly basis on each of September 1, December 1, March 1, and June 1, and
commenced September 1, 2006.





The
holders of our 8% Series B Preferred Stock are entitled to receive a cumulative
preferential dividend of 8% per annum on the stated value of the 8% Series A
Preferred Stock owned by them. The dividend is payable at the Company’s option
in cash or shares of Common Stock valued at $0.35 per share. The Company does
not intend to pay any cash dividend in the near future. Dividends are payable on
a quarterly basis on each of September 1, December 1, March 1, and June 1, and
commenced December 1, 2007.





Unregistered
issuance of Securities




On December 1, 2008 we issued a total
of 136,110 shares of Common Stock as PIK Dividends to the holders of our Series
A Preferred and 237,717 shares of Common Stock as PIK Dividends to the holders
of our Series B Preferred.





16


Item
6. Selected Financial Data.





Not Applicable.





Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.





The following information should be
read in conjunction with our consolidated financial statements and accompanying
notes included in this Annual Report on Form 10-K.





Overview





We offer
a comprehensive online media solution for clients to reach their target audience
on the Internet. We provide lead generation and performance based customer
acquisition solutions via our network of financial, news, and business
networking portals, blogs, targeted e-mail, banners, search engine optimization,
and co-registration opportunities. We primarily make money from the following
two lines of business: (1) Online advertising - Our financial content
network is available to users for free, and our revenue are generated
through the sale of display, list management, targeted lead generation, and web
consulting services, and (2) Lead generation/Performance based marketing -
Utilizing our internally designed and developed lead generation platform, we
deliver buyers to sellers by providing vendors with opportunities to contact
qualified and interested potential customers, and essentially crafting
high-quality new-business leads for such vendors, and in return we receive fees.
Our current lead generation focus surrounds, but is not limited to, the industry
of debt settlement, credit repair/reports, and tax settlements. As of the end of
2008 we closed our debt settlement referrals unit, in order to remain
competitive and save costs. However, we still receive fees for sales and
marketing support we provided in connection with debt settlement solutions prior
to closing this unit. We expect that these payments will gradually decrease
during 2009.




We own
and operate an extensive portfolio of more than 6,000 domain names (commonly
referred to as URLs). Our URL portfolio is currently used to build
consumer-based financial portals, microsites, blogs, and landing pages used for
lead generation initiatives.  This media strategy drives new
membership, which results in recurring user traffic to our websites and allows
us to generate highly relevant responses and leads for our online advertising
and lead generation customers.





Our
principal offices are located at: 12121 Wilshire Blvd., Suite 322, Los Angeles,
CA 90025, and  our telephone number there is: (310) 903 4001. Our
corporate website is: www.accelerizenewmedia.com.





On January 2, 2007, we acquired
substantially all of the assets and assumed some, but not all, of the
liabilities of the Debt Reduction Group, or TDRG, an Internet marketing business
focused on identifying debt and mortgage leads from forms hosted on TDRG’s
network of websites, and selling such leads to third parties or processing the
leads within TDRG in connection with TDRG’s debt settlement referral
business.





On
December 22, 2006, we filed a registration statement on Form SB-2 with the
Securities and Exchange Commission, or the SEC, which registration statement
became effective on May 9, 2007. At the same time we became a reporting company
under the Securities Exchange Act of 1934. On January 9, 2008, our Common Stock
commenced trading on the Over-The-Counter Bulletin Board, or the OTC.BB, under
the symbol ACLZ.OB.





17


Results
of Operations





ACCELERIZE
      NEW MEDIA, INC.RESULTS
      OF OPERATIONS  Year
      ended
                  
                  
                  Increase/
                  
                  
                  Increase/December
      31,
                  
                  
                  (Decrease)
                  
                  
                  (Decrease)2008
                  
                  
                  2007
                  
                  
                  in
      $ 2008
                  
                  
                  in
      % 2007vs
      2007
                  
                  
                  vs
      2006Revenue:Debt
      solution revenues
                  
                  $
                  1,190,966
                  
                  
                  $
                  540,386
                  
                  
                  $
                  650,580
                  
                  
                  
                  120.4
                  %Lead
      generation revenues
                  
                  
                  2,216,302
                  
                  
                  
                  359,911
                  
                  
                  
                  1,856,391
                  
                  
                  
                  515.8
                  %Advertising
      and other revenues
                  
                  
                  388,095
                  
                  
                  
                  130,212
                  
                  
                  
                  257,883
                  
                  
                  
                  198.0
                  %Total
      revenues:
                  
                  
                  3,795,363
                  
                  
                  
                  1,030,509
                  
                  
                  
                  2,764,854
                  
                  
                  
                  268.3
                  %Operating
      expenses:Selling,
      general and administrative
                  
                  
                  8,754,657
                  
                  
                  
                  4,047,516
                  
                  
                  
                  4,707,141
                  
                  
                  
                  116.3
                  %Total
      operating expenses
                  
                  
                  8,754,657
                  
                  
                  
                  4,047,516
                  
                  
                  
                  4,707,141
                  
                  
                  
                  116.3
                  %Operating
      loss
                  
                  
                  (4,959,294
                  )
                  
                  
                  (3,017,007
                  )
                  
                  
                  (1,942,287
                  )
                  
                  
                  54.4
                  %Other
      income (expense):Interest
      income (expense)
                  
                  
                  (32,302
                  )
                  
                  
                  18,253
                  
                  
                  
                  (50,555
                  )
                  
                  
                  -277.0
                  %(32,302
                  )
                  
                  
                  18,253
                  
                  
                  
                  (50,555
                  )
                  
                  
                  -277.0
                  %Net
      loss
                  
                  
                  (4,991,596
                  )
                  
                  
                  (2,998,754
                  )
                  
                  
                  (1,992,842
                  )
                  
                  
                  66.5
                  %Less
      dividends issued for series A and B preferred stock
                  
                  
                  415,206
                  
                  
                  
                  296,977
                  
                  
                  $
                  118,229
                  
                  
                  
                  39.8
                  %Net
      loss attributable to common stock
                  
                  $
                  (5,406,802
                  )
                  
                  $
                  (3,295,731
                  )
                  
                  $
                  (2,111,071
                  )
                  
                  
                  64.1
                  %




Revenues





Revenues
primarily consist of fees generated from lead generation, sales and marketing of
debt settlement referrals, and, to a lesser extent, from advertising and other
revenues generated from our portfolio of web sites.





Our
increase in lead generation revenues during the year ended December 31, 2008,
when compared to the prior year is due primarily to an increase in the number of
leads we sold to our marketing partners from our portfolio of web
sites.





Our
increase in debt settlement referrals revenues during the year ended December
31, 2008, when compared to the prior year is primarily due to the increased
number of consumers who use the services offered by the debt settlement
agencies. We expect that the amount of our debt settlement referrals revenues
will decrease in 2009.





Our
increase in advertising and other services revenues during year ended December
31, 2008 when compared to the prior year is due to the increased number of
customers using our advertising and other services.





Selling,
General, and Administrative Expenses





Selling,
general, and administrative expenses primarily consist of consultant fees
related to the marketing and enhancement of our websites, advertising, as well
as other general and administrative expenses, such as payroll expenses,
necessary to support our existing and anticipated growth in our revenues and
legal and professional fees.





18


The
increase in selling, general and administrative expenses during the year ending
December 31, 2008 when compared with the prior year is primarily due to the
following:





·
            an
      increase in lead acquisition costs and  sales acquisition costs
      of approximately $2,193,000; This increase is primarily due to a
      concentrated effort by management to increase lead generation
      revenues;·
            an
      increase in advertising expenses of approximately $31,000; This increase
      is primarily due to a concentrated effort by management to increase
      revenues;·
            an
      increase in payroll expenses of approximately $608,000; This increase is
      primarily due to the need for more help to handle the increase in
      sales;·
            an
      increase in option expense of approximately $129,000; This increase is
      primarily due to the increase in stock issuance to new employees;
      and·
            an
      increase in warrant expense of approximately $1,413,624 for the valuation
      of the cashless warrants issued to Series B Preferred Stock holders and
      valuation of warrants issued pursuant to the TDRG
    acquisition.




Interest





Interest
expense consists of interest charges associated with notes payable issued in
2008.  The increase in interest expense during the year ended December
31, 2008 is primarily due to the increase in the accrued interest associated
with the notes payable.





Liquidity
and Capital Resources





At
December 31, 2008, our cash amounted to approximately $253,000 and our working
deficit amounted to approximately $542,000. During the year ended December 31,
2008, cash decreased due to cash used in operating and investing activities,
offset by cash provided by financing activities.





During
the year ended December 31, 2008, we used cash in our operating activities
amounting to approximately $1,961,000. Our cash used in operating activities was
comprised of our net loss of approximately $4,992,000 adjusted for the
following:





·
            Fair
      value of options granted to employees of approximately
      $223,000;·
            Amortization
      of capitalized web development and discount on notes payable, and
      depreciation of fixed assets of approximately $341,000;·
            Amortization
      of deferred compensation of approximately $71,000;·
            Fair
      value warrants issued of approximately $1,239,000;·
            Fair
      value warrants issued pursuant to the TDRG acquisition of approximately
      $174,000; and·
            Fair
      value of warrants issued for services of
  $910,000.




Additionally,
      the following variations in operating assets and liabilities impacted our
      cash used in operating activity:·
              Increase
      in accounts receivable of approximately $127,000, resulting from increased
      lead generation revenues;·
              Increase
      in accounts payable and accrued expenses of approximately $228,000,
      resulting from increased marketing programs expenditures associated with
      increased acquisition of leads; and·
              Increase
      in domain name rights of $25,000, resulting from the renewal of domain
      name rights.





During
the year ended December 31, 2008, we incurred website development costs of
approximately $51,000 in connection with development and enhancement of our
websites and capital expenditures of approximately $10,000.





During
the year ended December 31, 2008, we generated cash from financing activities of
approximately $1,324,000, which primarily consisted of the proceeds from notes
payable of $530,000 and proceeds from the exercise of warrants of approximately
$822,000, offset by the payment to former member of approximately
$29,000.





During
the year ended December 31, 2007, we used cash in our operating activities
amounting to approximately $2.8 million. Our cash used in operating activities
was comprised of our net loss of approximately $3.0 million adjusted for the
following:





·
              Fair
      value of options granted to employees of approximately $94,000;
      and·
              Amortization
      of capitalized web development and depreciation of fixed assets of
      approximately $199,000.
  19
  Additionally,
the following variations in operating assets and liabilities impacted our cash
used in operating activity:
  ·
              Increase
      in accounts receivable of approximately $27,000, primarily due to an
      increase in our revenues;·
              Increase
      in domain name rights of  $200,000, primarily from the
      acquisition of a domain name registration in October
  2007;·
              Decrease
      in accounts payable and accrued expenses of approximately $72,000,
      primarily from paying our obligations in a more timely manner in 2007;
      and·
              Increase
      in deferred revenue of approximately $223,000, resulting from the
      assumption of the operations of
TDRG.




During
the year ended December 31, 2007, we incurred website development costs of
approximately $295,000 in connection with the development and enhancement of our
websites.





During
year ended December 31, 2007, we generated cash from financing activities of
approximately $3,615,000, which primarily consisted of the proceeds from
issuance of shares of Series B Preferred Stock of approximately $3,761,000 and
the proceeds from notes payable of approximately $400,000, offset by the payment
of financing fees of approximately $516,000 related to the issuance of shares of
Series B Preferred Stock and the payment to former member of approximately
$29,000.





Capital
Raising Transactions




We have
undertaken the following transactions to provide working capital for our
Company:





Common
Stock





On and before January 1, 2006 we issued
15,500,000 shares of Common Stock, $0.001 par value per share, to founders
and consultants for services rendered, which included, among other things,
programming, graphic design, sales, marketing, business development and
introductions and administrative services.





Between January 1, 2006 and January 31,
2006 we issued an additional 3,500,000 shares of Common Stock for $0.10 per
share, resulting in gross proceeds to us of $350,000.





On each of January 1, 2007 and January
2, 2008 we issued an aggregate of 1,750,000 shares of Common Stock (for a total
of 3,500,000 shares) to Damon Stein and Dan Goldberg in connection with our
acquisition of TDRG, which was closed on January 1, 2007.





Between September 1, 2006 and March 31,
2009 we issued an aggregate of 1,359,098 shares of our Common Stock as PIK
Dividends to our Series A Preferred Stock holders.





Between December 1, 2007 and March 31,
2009 we issued an aggregate of 1,242,722 shares of our Common Stock as PIK
Dividends to our Series B Preferred Stock holders.





10%
Series A Convertible Preferred Stock




Between August 2006 and October, 2006
we issued an aggregate of 54,000 shares of 10% Series A Convertible Preferred
Stock resulting in gross proceeds to us of $810,000. In addition, we issued to
the holders of the Series A Preferred Stock seven-year Warrants to purchase an
aggregate of up to 810,000 shares of our Common Stock at an exercise price of
$0.15 per share.





8%
Series B Convertible Preferred Stock





On August
31, 2007 we completed an offering consisting of 40 Units, or the Units, offered
at a price of $105,000 per Unit. Each Unit was comprised of 3,000 shares of 8%
Series B Convertible Preferred Stock, and Warrants to purchase up to 105,000
shares of our Common Stock for a period of seven years with an exercise price of
$0.35 per share. The Units were sold to certain accredited investors for
aggregate gross proceeds of $4,160,625, of which $416,062.50 were paid as
commission to the placement agent, Skyebanc, Inc., and an additional $100,000
was paid to Skyebanc, Inc. as reimbursement for their expenses; Skyebanc also
received warrants to purchase 1,188,750 shares of our Common Stock, with an
exercise price of $0.35 per share. In addition, we issued 4 Units to certain of
our existing shareholders in consideration of forgiveness of a $400,000 debt
which was owed by us to such shareholders and additional $20,000 paid in cash by
such shareholders.





20


Warrants





During January 2007, we issued warrants
to purchase 450,000 shares of Common Stock to the previous owners of TDRG.The warrants vested on
July 1, 2008, but became fully exercisable only on October 14, 2008 upon meeting
certain special vesting provisions provided in the warrants. The warrants
are exercisable at a price of $0.15 per share. The warrants expire in January
2012 and March 2013. The fair value of the warrants amounted to
$174,420 were expensed as compensation during the year ending December 31,
2008.





In connection with the issuance of the
Series A Preferred Stock, we issued warrants to purchase up to 810,000 shares of
Common Stock exercisable at a price of $0.15 per share to the
investors.  The warrants will expire in October 2013.




In
connection with the issuance of the Series B Preferred Stock, we issued warrants
to purchase up to 4,160,625 shares of Common Stock exercisable at a price of
$0.35 per share to the investors.  The warrants will expire in June
2014. Skyebanc, the placement agent for the offering also received seven year
warrants to purchase up to 1,188,750 shares of Common Stock at an exercisable
price of $0.35 per share.  The warrants will expire in June
2014.





The line of credit lenders described
below also received seven year warrants to purchase up to 200,000 shares of
Common Stock at an exercisable price of $0.35 per share.




The First Convertible Promissory Note
holders described below also received warrants to purchase an aggregate of
265,000 shares of our Common Stock. The warrants are exercisable for 5 years and
expire on 2013, with an exercise price of $0.75 per share. The exercise price of
the warrants and the number of shares issuable upon the exercise of the warrants
is subject to adjustment in the event of stock splits, stock dividends and
reorganizations, or in the event we issue shares of Common Stock or securities
convertible or exchange for shares of Common Stock at an effective price less
than the then exercise price of the warrants in which event the exercise price
would be adjusted downward. We have the right to call the warrants, at a
redemption price of $.001 per warrant share, commencing on the first trading day
after the common stock of the Company has traded for ten consecutive days on the
OTC.BB at an average closing price at or exceeding $1.25 per share.





During July and August, 2008, twenty
four of our stockholders exercised their warrants associated with their Series B
Preferred Stock at an exercise price of $0.35 per share, resulting in gross
proceeds to us of $822,500. In connection with the exercise of these warrants we
issued to the exercising stockholders a total of 2,350,000 shares of Common
Stock, as well as warrants to purchase an additional 2,350,000 shares of Common
Stock. The new warrants have the same terms and conditions as the warrants
exercised by the stockholders, except that they contain cashless exercise and
forced conversion features.





On September 30, 2008, in consideration
for services, we issued to Marketing Experiments, LLC warrants to purchase up to
5,000,000 shares of our Common Stock, exercisable at $0.55 per share. Of the
5,000,000 warrant shares, 2,500,000 shares were vested on the issue date, and
the other 2,500,000 warrant shares were set to vest in 12 equal increments of
208,333.33 shares each, at the end of every 3-month period after the issue date,
with the last vesting increment taking place on the 3rd anniversary after the
issue date. The warrants expire in September 2013. Subsequently, on February 4,
2009, we agreed with Marketing Experiments to terminate the agreement and to
cancel all warrants which have not vested until the termination
date.





The Second Convertible Promissory Note
holders described below also received warrants to purchase an aggregate of
308,500 shares of our Common Stock. The warrants are exercisable for 5 years and
expire on 2014, with an exercise price of $0.55 per share. The exercise price of
the warrants and the number of shares issuable upon the exercise of the warrants
is subject to adjustment in the event of stock splits, stock dividends and
reorganizations, or in the event we issue shares of Common Stock or securities
convertible or exchange for shares of Common Stock at an effective price less
than the then exercise price of the warrants in which event the exercise price
would be adjusted downward. We have the right to call the warrants, at a
redemption price of $.001 per warrant share, commencing on the first trading day
after the Common Stock of the Company has traded for ten consecutive days on the
OTC.BB at an average closing price at or exceeding $1.25 per share.





21


During the year ended December 31,
2008, in consideration for services, we issued to various service providers
warrants to purchase up to 2,808,333 shares of our Common Stock, exercisable at
prices ranging between  $0.35 and $0.50 per share.





$500,000
Line of Credit.





During
April 2007, we entered into a line of credit with five existing stockholders of
the Company, each of which agreed to lend us up to $100,000 for a total line of
credit of $500,000. Draws on the line of credit accrue interest at the rate of
10% per annum (computed on the basis of a 360-day year) and are payable in
monthly installments. The principal and any remaining interest are payable at
maturity. Draws on the line of credit were evidenced by promissory notes signed
and delivered by us in connection with each respective draw. Under the
promissory notes, an Event of Default occurs if we breach, fail to perform, or
fail to observe any material covenant, term or provision under the note, in case
of bankruptcy, reorganization, insolvency or liquidation, or if we fail to pay
interest or principal when due and fail to make such payment within 45 days
after receipt of a written notice to such extent. The principal and interest may
be prepaid in whole or in part without penalty. During the year ended December
31, 2007 we drew an aggregate of $400,000 from three different lenders, which
funds were used for working capital purposes.  During June, 2007, the
total outstanding amounts due under the line of credit were converted into
11,429 shares of our Series B Preferred Stock.  The actual stock
certificates were issued to the creditors with the closing of the Series B
Preferred Stock at August 31, 2007. This line of credit is no longer
active.





First
Convertible Promissory Note.




During the six-month period ended June
30, 2008, we issued convertible promissory notes aggregating $530,000 to seven
different stockholders. The notes bear interest at a rate of 10% per annum and
mature in March 2011. Interest is payable commencing June 1, 2008 and every
quarter thereafter, until the obligations under the notes are satisfied.
Principal and interest are payable either in cash or shares of our Common Stock,
at the noteholder’s option. At maturity, the principal is payable in cash or
shares of our Common Stock. If the principal is paid in shares, the number of
shares is determined by dividing the principal amount outstanding on the
maturity date by the average closing price of our Common Stock on the OTC.BB
during the last five trading days prior to the maturity date. The notes are
convertible at any time after July 30, 2008 but prior to the maturity date, to
shares of our Common Stock, at the noteholder’s option. The notes are
convertible at the lower of the following rate: (i) $0.75 per share; (ii) the
average of the closing price, as quoted on the OTC.BB for the last five trading
days prior to conversion, but in no event less than $0.50 per share; or (iii) at
the fair value of any Common Stock shares issued by the Company prior to the
maturity date in connection with a new transaction, except for shares issued
pursuant to the Company’s stock option plan.




We may prepay the notes at any time on
or after July 30, 2008 but prior to the maturity date without any premium or
penalty. In such case, the noteholder has the option to have the principal and
accrued interest paid in cash or shares of our Common Stock. If the notes are
paid in shares, the notes are convertible using the same rate as described
above.




In addition, we issued to the lenders
Common Stock purchase warrants to purchase an aggregate of 265,000 shares as
described more fully above.




The interest and amortization expense
associated with the notes payable amounted to $25,237 during the year ended
December 31, 2008.





22


Second
Convertible Promissory Note.




During the three-month period ended
March 31, 2009, we issued convertible promissory notes aggregating $617,000 to
various persons. The notes bear interest at a rate of 12% per annum and mature
in March 2012. Interest is payable commencing June 1, 2009 and every quarter
thereafter, until the obligations under the notes are satisfied. Principal and
interest are payable either in cash or shares of our Common Stock, at the
noteholder’s option. At maturity, the principal is payable in cash or shares of
our Common Stock. If the principal is paid in shares, the number of shares is
determined by dividing the principal amount outstanding on the maturity date by
the average closing price of our common stock on the OTC.BB during the last five
trading days prior to the maturity date. The notes are convertible at anytime
after July 1, 2009 but prior to the maturity date, to shares of our common
stock, at the noteholder’s option. The notes are convertible at the lower of the
following rate: (i) $0.50 per share; (ii) at the fair value of any Common Stock
shares issued by the Company prior to the maturity date in connection with a new
transaction, except for shares issued pursuant to the Company’s stock option
plan.




We may prepay the notes at any time. If
the prepayment is prior to June 30, 2009, it will carry a premium equal to the
sum of 0.5% for each full month remaining between the prepayment date and the
maturity date multiplied by the principal amount then payable. In such case,
principal and accrued interest are payable solely in cash. We may prepay the
notes at any time on or after July 30, 2009 but prior to the maturity date
without any premium or penalty. In such case, the noteholder has the option to
have the principal and accrued interest paid in cash or shares of our common
stock. If the notes are paid in shares, the notes are convertible using the same
rate as described above.




In
addition, we issued to the lenders common stock purchase warrants to purchase an
aggregate of 308,500 shares, as described more fully above.




We used
the cash proceeds from the offerings, the promissory notes and the line of
credit advances to finance our on going operations, including, development,
sales, marketing and support services.





Stock
Options





During year ended December 31, 2008, we
granted to certain of our employees options to purchase 173,500 shares of Common
Stock under the Accelerize New Media Stock Option Plan.





Off-Balance
Sheet Arrangements





We have no off-balance sheet
arrangements.





Critical
Accounting Policies





Revenue
Recognition





The Company recognizes revenue on
arrangements in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 104 “Revenue Recognition.” Revenue is recognized only
when the price is fixed or determinable, persuasive evidence of an arrangement
exists, the service is performed, and collectability of the resulting receivable
is reasonably assured.





The Company’s traffic revenues are
generated from the pay-per-click, cost-per-action listings, and banner ad sales
of its portfolio of web sites. When an online user navigates to one of the
Company’s owned and operated Web sites and clicks and or visits on a particular
listing/web page or completes the specified action, the Company receives a
fee.




The Company’s lead generation network
revenues are primarily generated using third-party distribution networks to
deliver the merchant advertisers’ listings. The distribution network includes
search engines, shopping engines, directories, destination sites, Internet
domains or Web sites, and other targeted Web-based content. The Company
generates revenue upon delivery of a qualified lead to the Company’s merchant
advertisers or partner. Other revenues include the Company’s lead generation web
services, paid search optimization, landing page development services, and
creative design.





23


Since January 1, 2007, the Company
generates a substantial portion of its revenues from fees earned from the sale
and marketing of debt reduction solutions offered to consumers by debt
settlement agencies. The consumers generally enter in a debt solution program
with a debt settlement agency which provides for monthly payments by the
consumers over a period of up to 3 years. The commission earned by the Company
will vary between 7.5% and 8.9% of the total debt of the consumer to be
negotiated by the respective debt settlement agency. For consumers enrolled
prior to March 1, 2007 the Company receives its fees from debt settlement
agencies upon payment by consumers to the debt settlement agencies within the
first 8 months of the debt solution program, assuming that all consumers make
all their payments. This payment was subject to a partial refund by the Company
to the debt settlement agencies if: 1) the debt settlement agency does not
receive all scheduled monthly payments for the duration of the contract during
the first 15 months of such contract, or 2) the debt settlement agencies issue a
refund to the consumer over the term of the respective contract. For consumers
enrolled since March 1, 2007, the Company receives its fee from debt settlement
agencies upon payment by consumers to the debt settlement agencies within the
first 18 months of the debt solution program, assuming that all consumers make
all their payments.  Accordingly, the fee earned by the Company is
recognized over the terms of the underlying contract between the debt settlement
agencies and the consumer, which is generally 3 years. Consequently, the Company
defers the fees received from the debt settlement agency in excess of the
revenues recognized over the term of the underlying contract between the debt
settlement agencies and the consumer. Such excess amounted to approximately
$667,000 and $641,000 at December 31, 2008 and 2007, respectively, and is
recorded as deferred revenue on the balance sheet.





Since September 2007, the payment to
the Company is subject to a partial refund only if a debt settlement agency
issues a refund to the consumer over the term of the respective
contract.




During June 2005, DRG outsourced the
debt solution administration of its existing clients to a debt settlement
agency. This administration includes implementation, customer service, and the
actual debt negotiation. Pursuant to the outsourcing arrangement, the debt
settlement agency paid DRG (and after January 1, 2007 to the Company) 45% of the
fees collected from the consumers and retains 5% of such fees as a reserve
for possible cancellations, returns, and legal fees. Funds available under the
reserve were paid as follows: 50% in June 2006, and 25% to the Company, in
January 2007 and June 2007, respectively. The Company recognizes fees pursuant
to this arrangement as revenues when it receives the funds from the debt
settlement agency.





During 2008, the Company ceased
allocating reserves to the marketing of debt settlement referral offered by debt
settlement agencies.





The Company also generates revenues, to
a lesser extent, by selling leads it generates to synergistic companies
operating in the debt consumer market segment and from ads appearing on its
network of web sites.





Website
Development Costs





The Company has capitalized certain
internal use software and website development costs amounting to approximately
$346,000 and $437,000 as of December 31, 2008 and 2007,
respectively.  The estimated useful life of costs capitalized is
evaluated for each specific project and ranges from one to three
years.





Share-Based
Payment





In December 2004, the Financial
Accounting Standards Board, or FASB, issued SFAS No. 123(R), "Share-Based
Payment," or SFAS No. 123(R), which replaced SFAS No. 123 and superseded
Accounting Principles Board, or  APB Opinion No. 25. Under SFAS No.
123(R), companies are required to measure the compensation costs of share-based
compensation arrangements based on the grant-date fair value and recognize the
costs in the financial statements over the period during which employees are
required to provide services. Share-based compensation arrangements include
stock options, restricted share plans, performance-based awards, share
appreciation rights and employee share purchase plans. In March 2005 the
Securities and Exchange Commission, or the SEC, issued Staff Accounting Bulletin
No. 107, “Disclosures about Fair Value of Financial Instruments,” or SAB 107.
SAB 107 expresses views of the staff regarding the interaction between SFAS No.
123(R) and certain SEC rules and regulations and provides the staff's views
regarding the valuation of share-based payment arrangements for public
companies. SFAS No. 123(R) permits public companies to adopt its requirements
using one of two methods. Companies may elect to apply this statement either
prospectively, or on a modified version of retrospective application under which
financial statements for prior periods are adjusted on a basis consistent with
the pro forma disclosures required for those periods under SFAS
123.  Effective with its fiscal 2006, the Company has adopted the
provisions of SFAS No. 123 (R) and related interpretations as provided by SAB
107 prospectively. As such, compensation cost is measured on the date of grant
as its fair value.Such compensation
amounts, if any, are amortized over the respective vesting periods or period of
service of the option grant.





24


Going
Concern





We have generated revenues since
inception but they were not an adequate source of cash to fund future
operations. Historically we have relied on private placement issuances of equity
and promissory notes.





It is likely that we will need to raise
additional working capital to fund our ongoing operations and growth. The amount
of our future capital requirements depends primarily on the rate at which we
increase our revenues and correspondingly decrease our use of cash to fund
operations. Cash used for operations will be affected by numerous known and
unknown risks and uncertainties including, but not limited to, our ability to
successfully market our products and services and the degree to which
competitive products and services are introduced to the market. As long as our
cash flow from operations remains insufficient to completely fund operations, we
will continue depleting our financial resources and seeking additional capital
through equity and/or debt financing. If we raise additional capital through the
issuance of debt, this will result in increased interest expense. If we raise
additional funds through the issuance of equity or convertible debt securities,
the percentage ownership of our company held by existing stockholders will be
reduced and those stockholders may experience significant dilution. In addition,
new securities may contain rights, preferences or privileges that are senior to
those of our common stock.





There can be no assurance that
acceptable financing to fund our ongoing operations can be obtained on suitable
terms, if at all. If we are unable to obtain the financing necessary to support
our operations, we may be unable to continue as a going concern. In that event,
we may be forced to cease operations and our stockholders could lose their
entire investment in our company.





Item
7A.  Quantitative and Qualitative Disclosures About Market
Risk





Not applicable.





Item
8.  Financial Statements and Supplementary Data





The information required by this item
is included in Item 15 of this Annual Report on Form 10-K.





Item
9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure





None.





Item
9A(T).  Controls and Procedures





Evaluation
of Disclosure Controls and Procedures





Our management, with the participation
of our Chief Executive Officer and our Chief Financial Officer, has evaluated
our disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended).
Based upon the evaluation conducted by management in connection with the audit
of the Company's financial statements for the year ended December 31, 2008, we
identified material weaknesses in our internal control over financial reporting
as described below. As a result of this material weakness, our Chief Executive
Officer and our Chief Financial Officer concluded that our disclosure controls
and procedures were not effective as of December 31, 2008, to ensure that
information required to be disclosed in our SEC reports is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to our
management as approproate to allow timely decisions regarding required
disclosures.




A material weakness is "a significant
deficiency, or a combination of significant deficiencies, that result in more
than a remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected by us in a timely
manner." A significant deficiency, is a deficiency or a combination of
deficiencies, in internal control over financial reporting that is less severe
than a material weakness, yet important enough to merit attention by those
responsible for oversight of the registrant’s financial reporting.




25





Management
Report on Internal Control over Financial Reporting





Our management is responsible for
establishing and maintaining adequate internal control over financial reporting
as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934 as
amended.  Our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2008.  In making
this assessment, our management used criteria issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control
Over Financial Reporting – Guidance for Smaller Public Companies.




During
our assessment of the design and the effectiveness of internal control over
financial reporting as of December 31, 2008, management identified the following
material weaknesses:





·
            There
      is no documentation that the board of directors monitored or provided
      oversight responsibility related to financial reporting and related
      internal controls and considered its
  effectiveness;





·
            While
      the Company has processes in place, there are no formal written policies
      and procedures related to certain financial reporting
      processes;





·
            There
      is no formal documentation in which management specified financial
      reporting objectives to enable the identification of risks, including
      fraud risks;





·
            The
      Company lacked the resources and personnel to implement proper segregation
      of duties or other risk mitigation
system.





The Company intends to gradually
improve its internal control over financial reporting to the extent that it can
allocate resources to such improvements.  It intends to prioritize the
design of its internal control over financial reporting starting with its
control environment and risk assessments and ending with control activities,
information and communication activities, and monitoring
activities.   Although we believe the time to adapt in the next
year will help position us to provide improved internal control functions into
the future, in the interim, these changes caused control deficiencies, which in
the aggregate resulted in a material weakness.  Due to the existence of
these material weaknesses, our management concluded that our internal control
over financial reporting was not effective as of December 31, 2008.





Auditor
Attestation





This annual report does not include an
attestation report of our registered public accounting firm regarding internal
control over financial reporting.  Our management's report was not
subject to attestation by our registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit us to
provide only management's report in this annual report.





Changes
in Internal Control over Financial Reporting





There was no change in our internal
control over financial reporting during the fiscal quarter ended December 31,
2008, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.





Item
9B.  Other Information





None.





PART
III





Item
10.  Directors, Executive Officers and Corporate
Governance





The
following table sets forth the names, ages and principal position of our
executive officers and directors as of March 31, 2009:




26


Name
                      Age
                      PositionBrian
      Ross
                      34
                      President,
      Chief Executive Officer, Treasurer, DirectorChris
      Meredith
                      38
                      Chief
      Technology Officer, Assistant Treasurer, Assistant Secretary,
      DirectorDaniel
      Minton
                      33
                      Head
      of Financial PortalsDamon
      Stein
                      33
                      General
      Counsel and SecretaryJeff
      McCollum
                      37
                      Head
      of Lead Generation
Division




Brian Ross. Mr. Ross has
served as our President, Chief Executive Officer and director since November
2005. He served as Senior Vice President of Business Development for iMall, Inc.
from 1994 and became Director of Investor Relations in June 1997. iMall, Inc.
was acquired by Excite@Home in October 1999. Mr. Ross then served as a Business
Development Manager in Excite@Home’s E-Business Services Group until December
1999. After the sale of iMall, Mr. Ross was a founding investor of GreatDomains
Inc. which was sold in October 2000 to Verisign. From March 2000, he was
Director of Business Development for Prime Ventures Inc., a leading Venture
Partner firm focusing on early stage companies in Southern California. In July
2004, Mr. Ross became a founding investor in E-force Media, a diversified online
marketing company where he acted as interim Director of Business Development.
Mr. Ross attended the University of Santa Barbara.




Chris Meredith. Mr. Meredith
founded Accelerize’s predecessors in 2001 to provide cutting-edge Internet
development services. Mr. Meredith served as our Chief Technology Officer since
November 2005, and as a director since December 2006. Mr. Meredith brings over
ten years of Internet technology and product development in the financial,
competitive intelligence, marketing and telecommunications industries. He was
instrumental in creating Accelerize’s core consumer product EDGAR Index, an
RSS-based SEC filing alert service. Prior to his work at Accelerize, Mr.
Meredith led product development at Intelligence Data, a division of Thompson
Financial. Mr. Meredith also led product development at mBLAST marketing portal
and Senior Technical Lead at TNCI, a leading telecommunications provider. Mr.
Meredith attended the University of Massachusetts, Amherst and Massachusetts
College of Art, and received a Diploma in Professional Photography from New
England School of Photography.




Daniel Minton. Mr. Minton
manages our website, Accelerize.com, since our inception. Mr. Minton started in
the world of new media in the late 1990s as lead programmer for Watershed
Consulting, and developing core solutions for Accelerize. In 2002 Watershed
Consulting was hired by The Coleman Company to develop an Outdoor Recreation
Community on the Internet. He was instrumental in designing the National
Recreation Database which was published as the Coleman Outernet. From 2004 until
he joined our company, Mr. Minton served as Vice President of Seed Advertising
where he was responsible for all lead generation initiatives, sales, and
interactive marketing. Mr. Minton attended Washington State University, where he
studied English and Philosophy. Mr. Minton’s responsibility at Accelerize
include all lead generation initiatives, as well as on line advertising and
media purchasing.





Damon Stein. Mr. Stein has
served as our General Counsel since January 2007. He worked as Director of
Marketing/Player Affairs at Beach Sports Group, LLC, a successful sports agency,
from 1997 through 2001. After working as a sports agent, Mr. Stein served as a
Contract Lawyer for Alschuler, Grossman, Stein & Kahan before joining TDRG
in 2002. Mr. Stein was a founder and partner, and served as General
Counsel/President for TDRG until it was acquired by us. Mr. Stein was integrally
responsible for growing TDRG from a startup company to a prominent debt
negotiation and Internet marketing firm. While at TDRG, Mr. Stein was
responsible for legal and financial affairs, while also aiding in many marketing
initiatives. Mr. Stein received his BA from the University of California at
Berkeley. He was then awarded a partial academic scholarship to Pepperdine
University where he received his JD/MBA. Mr. Stein is licensed to practice law
in California.




Jeff McCollum. Mr. McCollum
has served as our Head of Lead Generation since March 2007. He worked at
Netscape Communications from 1995 through 1998. He was Director of Business
Development at NBCi where he identified, negotiated and closed deals and managed
relationships with NBC broadcasting and studio operations from 1999 through
2001. He was co-founder of Ecological Technologies where he also served as Vice
President of Business Development and Sales from 2001 through 2004. He was Vice
President of Sales for eForce Media, where he was responsible for creating a
market, understanding the technology, and generating demand for sales leads
within several industries from 2004 through 2007. Mr. McCollum attended
University of Southern California.





27




Section
16(a) Beneficial Ownership Reporting Compliance





Section 16(a) of the Securities
Exchange Act of 1934 requires that our executive officers, directors and persons
who own more than ten percent of a registered class of our equity securities
file reports of ownership on Form 3 and changes in ownership on From 4 or 5 with
the SEC. Such executive officers, directors and ten percent stockholders are
also required by the SEC rules to furnish to us copies of all Section 16(a)
reports that they file. Based solely on its review of the copies of such forms
received by us, or written representations from certain reporting persons that
they were not required to file a Form 5, we believe that during the fiscal year
ended December 31, 2008, our executive officers, directors and ten percent
stockholders complied with all Section 16(a) filing requirements applicable to
such persons.





Committees
of the Board of Directors




Our Board
of Directors has not yet established any committees, including an Audit
Committee, a Compensation Committee or a Nominating Committee. We plan to expand
our board in the future and we will seek to establish an Audit Committee and a
Compensation Committee, but this will depend on our ability to attract and
retain new directors. The typical functions of such committees are currently
being undertaken by the entire board as a whole.





Audit
Committee Financial Expert





Currently
no member of our board is an audit committee financial expert. We do not
currently have the resources to recruit a board member who would also be a
financial expert. We may start our recruiting process for such board member
during 2009 if our financial position improves.




Code
of Ethics





We have adopted a Code of Business
Conduct Ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. We will provide a copy of our Code of
Ethics, free of charge, upon request.





Employment
Agreements





We have written employment agreement
with most of our employees. The main terms of the executive employment or
consulting agreements of Brian Ross, our President, Chief Executive Officer,
Treasurer, and Director, Chris Meredith, our Chief Technology Officer and
Director, Damon Stein, our General Counsel and Secretary, and Jeff McCollum, our
Head of Lead Generation Division, are summarized below.




Mr.
Ross’s employment agreement is effective as of January 1, 2007 and continues
until the earlier of January 1, 2010 or its earlier termination or expiration.
The agreement is renewable for additional periods thereafter. Under the
agreement Mr. Ross is entitled to an annual base salary of $90,000. If the
company does not make monthly salary payments during the term of his employment,
such salary will accrue without interest. Mr. Ross is entitled to other
benefits, including, reimbursement for reasonable business expenses and health
insurance premiums. In addition, Mr. Ross will be entitled to receive
non-qualified stock options to purchase up to 2,000,000 shares of the company.
The agreement may be terminated by either party without cause upon a 30-day
prior written notice. If the company elects to terminate Mr. Ross’s employment
without cause during the term, he shall be entitled to severance payment of the
greater of the remaining payments due on the term of the agreement or an annual
base salary of one year. The company may also terminate the agreement and Mr.
Ross’s employment upon his illness or disability for a continuous period of more
than 45 days, his death or for cause. The agreement contains customary
non-solicitation, non-competition, no recruiting, confidentiality and assignment
of work product provisions.




28


Mr.
Meredith’s employment agreement is effective as of January 1, 2007 and continues
until the earlier of January 1, 2010 or its earlier termination or expiration.
The agreement is renewable for additional periods thereafter. Under the
agreement Mr. Meredith is entitled to an annual base salary of $150,000. Mr.
Meredith is entitled to other benefits, including, reimbursement for reasonable
business expenses and health insurance premiums. In addition, Mr. Meredith will
be entitled to receive non-qualified stock options to purchase up to 200,000
shares of the company. The agreement may be terminated by either party without
cause upon a 30-day prior written notice. If the company elects to terminate Mr.
Meredith’s employment without cause during the term, he shall be entitled to
severance payment of the greater of the remaining payments due on the term of
the agreement or an annual base salary of one year. The company may also
terminate the agreement and Mr. Meredith’s employment upon his illness or
disability for a continuous period of more than 45 days, his death or for cause.
The agreement contains customary non-solicitation, non-competition, no
recruiting, confidentiality and assignment of work product
provisions





Mr. Stein’s employment agreement is
effective as of January 1, 2007 and continues until the earlier of January 1,
2010 or its earlier termination or expiration, with an option to renew for
additional 2 years upon 60-day prior notice. The agreement is renewable for
additional periods thereafter. Under the agreement Mr. Stein is entitled to an
annual base salary of $120,000, which shall be increased to $140,000 if the
consultant Dan Goldberg goes to “Part-Time” status as this term is defined in
the consulting agreement between the company and Facility Consulting, LLC. Mr.
Stein is entitled to other benefits, including, reimbursement for reasonable
business expenses and health insurance premiums. In addition, Mr. Stein will be
entitled to receive non-qualified stock options to purchase up to 400,000 shares
of the company. The agreement may be terminated by either party without cause
upon a 30-day prior written notice. If the company elects to terminate Mr.
Stein’s employment without cause during the term, he shall be entitled to
severance payment of the greater of the remaining payments due on the term of
the agreement or an annual base salary of one year as well as any unvested
options or bonuses. The company may also terminate the agreement and Mr. Stein’s
employment immediately upon receipt of a written notice from Mr. Stein that he
intends to terminate his employment, and upon his illness or disability for a
continuous period of more than 45 days, his death or for cause. The agreement
contains customary non-solicitation, non-competition, no recruiting,
confidentiality and assignment of work product provisions.





Mr. McCollum's employment agreement is
effective as of March 15, 2007 and continues until termination.  Mr.
McCollum’s employment is “at will”, meaning that both parties shall have the
right to terminate the agreement at any time without cause by giving notice of
such termination to the other party. Under the agreement Mr. McCollum is
entitled to an annual base salary of $150,000.  Mr. McCollum is entitled to
other benefits, including, reimbursement for reasonable business expenses and
health insurance premiums. In addition, Mr. McCollum will be entitled to receive
non-qualified stock options to purchase up to 3,500,000 shares of the Company.
The agreement contains customary non-solicitation, non-competition, no
recruiting, confidentiality and assignment of work product
provisions.





Item
11. Executive Compensation





The
following table sets forth, for the last two completed fiscal years, all
compensation paid, distributed or accrued, including salary and bonus amounts,
for services rendered to us by (i)  all individuals serving as our
principal executive officer, or PEO, or acting in a similar capacity during the
last completed fiscal year, regardless of compensation level; (ii) all individuals serving as our principal financial officer, or PFO,
or acting in a similar capacity during the last completed fiscal year,
regardless of compensation level; (iii)our two most highly
compensated executive officers other than the PEO and PFO who were serving as
executive officers at the end of the last completed fiscal year; and (iv)one additional individual for whom disclosure would have been
provided pursuant to paragraph (iii) above but for the fact that the individual
was not serving as our executive officer at the end of the last completed fiscal
year, and whose total compensation for 2007 and/or 2008 exceeded $100,000:







29


Summary
Compensation Table





Name
      and Principal Position
              Year
              
              Salary
                ($)
              
              Bonus
                ($)
              
              Stock
      Awards
                ($)
              
              Option
      Awards
                ($)(1)
              
              
              Total
      ($)(10)Brian
      Ross, President, Chief
                Executive
      Officer, and Treasurer (2)
              2007
              
              
              90,000
              
              
              
              
              
              
              
              
              300,000
              (3)
              
              
              390,0002008
              
              
              93,000
              
              
              
              
              
              
              
              
              -
              
              
              
              93,000Chris
      Meredith, Chief Technology Officer, Assistant Treasurer and Assistant
      Secretary (4)
              2007
              
              
              137,500
              
              
              
              
              
              
              
              
              30,000
              (5)
              
              
              167,5002008
              
              
              150,625
              
              
              
              
              
              
              
              
              -
              
              
              
              150,625Damon
      Stein, General Counsel, Head of the Debt Division and Secretary
      (6)
              2007
              
              
              135,833
              
              
              
              
              
              
              
              
              60,000
              (7)
              
              
              195,8332008
              
              
              152,950
              
              
              
              
              
              
              
              
              -
              
              
              
              152,950Jeff
      McCollum
                Head
      of Lead Generation Division (8)
              2007
              
              
              118,750
              
              
              
              
              
              
              
              
              525,000
              (9)
              
              
              643,7502008
              
              
              154,000
              
              
              
              
              
              
              
              
              
              
              
              
              154,000





(1)           The
dollar value recognized for the stock option awards was determined in accordance
with SFAS123(R). For a disclosure of the assumptions made in the valuation
please refer to footnote 6 in our financial statements filed under Item 8 of
this Annual Report on Form 10-K.





(2)           During
the fiscal year ended December 31 2008, the company paid to Mr. Ross only
$78,375 in monthly salary payments. In accordance with the terms of his
employment agreement, his unpaid salary for this year is accruing without
interest. Mr. Ross’s employment agreement is effective as of January 1, 2007 and
continues until the earlier of January 1, 2010 or its earlier termination or
expiration. See “Management Employment Agreements.”





(3)           Options
to purchase 2,000,000 shares of our Common Stock at an exercise price of $0.15
per share, vesting on a quarterly basis over a period of 24 months (250,000
options every quarter) commencing April 1, 2007.





(4)           Mr.
Meredith’s employment agreement is effective as of January 1, 2007 and continues
until the earlier of January 1, 2010 or its earlier termination or expiration.
See “Management Employment Agreements.”





(5)           Options
to purchase 200,000 shares of our Common Stock at an exercise price of $0.15 per
share, vesting on a quarterly basis over a period of 24 months (25,000 options
every quarter) commencing April 1, 2007.





(6)           During
the fiscal year ended December 31 2008, the company paid to Mr. Stein only
$132,325 in monthly salary payments. In accordance with the terms of his
employment agreement, his unpaid salary for this year is accruing without
interest. Mr. Stein’s employment agreement is effective as of January 1, 2007
and continues until the earlier of January 1, 2010 or its earlier termination or
expiration. See “Management Employment Agreements.”





(7)           Options
to purchase 400,000 shares of our Common Stock at an exercise price of $0.15 per
share, vesting on a quarterly basis over a period of 24 months (50,000 options
every quarter) commencing April 1, 2007.





(8)           Mr.
McCollum’s employment agreement is effective as of March 15, 2007 and may be
terminated at will for any reason. See “Management Employment
Agreements.”





(9)          
Options to purchase 3,500,000 shares of our Common Stock at an exercise price of
$0.15per share, vesting on a quarterly basis over a period of 36 months
commencing January 1, 2008, as follows: (i) 1/1/08 – 25%, (ii) 4/1/08 – 33%,
(iii) 7/1/08 - 42%, (iv) 10/1/08 – 50%, (v) 1/1/09 – 58%, (vi) 4/1/09 – 67%,
(vii) 7/1/09 – 75%, (viii) 10/1/09 – 83%, (ix) 1/1/10 – 92%, and (x) 4/1/10 -
100%.





(10)          Except
as described above, we paid no other compensation to the executive officers
listed in the table above for services rendered during each of the years ended
December 31, 2007 and December 31, 2008.





30


We have no plans or arrangements with
respect of remuneration received or that may be received by our executive
officers to compensate such officers in the event of termination of employment
(as a result of resignation, retirement or change of control) or a change of
responsibilities following a change of control, except for the following: (i) if
the company elects to terminate Mr. Ross’s employment without cause during the
term, he shall be entitled to severance payment of the greater of the remaining
payments due on the term of the agreement or an annual base salary of one year,
(ii) if the company elects to terminate Mr. Meredith’s employment without cause
during the term, he shall be entitled to severance payment of the greater of the
remaining payments due on the term of the agreement or an annual base salary of
one year, and (iii) if the company elects to terminate Mr. Stein’s employment
without cause during the term, he shall be entitled to severance payment of the
greater of the remaining payments due on the term of the agreement or an annual
base salary of one year as well as any unvested options and
bonuses.





Pension,
Retirement or Similar Benefit Plans





There are no arrangements or plans in
which we provide pension, retirement or similar benefits for directors or
executive officers. Our directors and executive officers may receive stock
options at the discretion of our Board in the future.





Outstanding
Equity Awards at Fiscal Year-End





The
following table presents the outstanding equity awards held as of December 31,
2008 by our Executive Officers and Directors.





OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-ENDOPTION
      AWARDSName
              Number
      of Securities Underlying Unexercised Options
                (#)
                Exercisable
              Number
      of Securities Underlying Unexercised Options
                (#)
                Unexercisable
              Option
      Exercise Price
                ($)
              Option
      Expiration DateBrian
      Ross
              2,000,000
              -0-
              $0.15
              1/1/2017Chris
      Meredith
              200,000
              -0-
              $0.15
              1/1/2017Damon
      Stein
              400,000
              -0-
              $0.15
              1/1/2017Jeff
      McCollum
              2,041,666
      (1)
              1,458,334
      (1)
              $0.15
              4/1/2017




(1) Options to purchase
3,500,000 shares of Common Stock, vesting on a quarterly basis over a period of
36 months commencing January 1, 2008.




Director
Compensation





The two
members of our Board of Directors, Mr. Brian Ross and Mr. Chris Meredith are
also executive officers of Accelerize. They do not receive any additional
compensation for their services as directors, except reimbursement for their
reasonable expenses for attending board and board committee meetings. Their
entire compensation is fully reflected in the Summary Compensation Table
above.





Limitation
on Liability




Under our
certificate of incorporation, the personal liability of our directors for
monetary damages for breach of fiduciary duty is eliminated to the fullest
extent permissible under Delaware law.




In
addition, our bylaws provide that we have the power to indemnify to the fullest
extent permitted by law any person made or threatened to be made a party to any
action, suit or preceding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director,
officer, or employee of the company, or served at the request of the company as
a director, officer, employee or agent of another enterprise.




31


Insofar
as the limitation of, or indemnification for, liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, or persons
controlling us pursuant to the foregoing, or otherwise, we have been advised
that, in the opinion of the SEC, such limitation or indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.





Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholders Matters.





As of
March 31, 2009 we had 27,286,683 shares of our Common Stock issued and
outstanding. The following table sets forth information regarding the beneficial
ownership of our Common Stock as of March 31, 2009 by:




·
            each
      person known by us to be the beneficial owner of more than 5% of our
      Common Stock;




·
            each
      of our directors;




·
            each
      of our executive officers named in the compensation tables in Item 11;
      and




·
            All
      of our executive officers and directors as a
  group.




AMOUNT
      AND NATURE OF BENEFICIAL OWNERSHIP (2)COMMON
      STOCK
              SERIES
      A PREFERRED
                STOCK
              SERIES
      B PREDERRED
                STOCKNAME
      (1)
              #
      OF
                SHARES
              %
      OF
                CLASS
              #
      OF
                SHARES
              %
      OF
                CLASS
              #
      OF
                SHARES
              %
      OF
                CLASS
              %
      OF VOTEBrian
      Ross (3)
              8,100,000
              
              27.7%
              
              -0-
              
              n/a
              
              -0-
              
              n/a
              
              17.4%Jeff
      McCollum (4)
              2,041,666
              
              7.0%
              
              -0-
              
              n/a
              
              -0-
              
              n/a
              
              4.4%Chris
      Meredith (5)
              3,250,000
              
              11.8%
              
              -0-
              
              n/a
              
              -0-
              
              n/a
              
              7.3%Daniel
      Minton (6)
              825,000
              
              3.0%
              
              -0-
              
              n/a
              
              -0-
              
              n/a
              
              1.8%Damon
      Stein (7)
              2,375,000
              
              8.6%
              
              -0-
              
              n/a
              
              -0-
              
              n/a
              
              5.3%All
      officers and directors as a group (five persons) (8)
              16,574,999
              
              58.1%
              
              -0-
              
              n/a
              
              -0-
              
              n/a
              
              36.2%Dan
      Goldberg (9)
              2,375,000
              
              8.6%
              
              -0-
              
              n/a
              
              -0-
              
              n/a
              
              5.3%Sharon
      Standowski (10)
              1,742,500
              
              6.4%
              
              -0-
              
              n/a
              
              -0-
              
              n/a
              
              3.9%Camien
      Advisors LLC (11)
              1,545,500
              
              5.7%
              
              -0-
              
              n/a
              
              -0-
              
              n/a
              
              3.5%




(1)
            Unless
      otherwise indicated, the business address of each person listed is in care
      of Accelerize New Media, Inc., 12121 Wilshire Blvd. , Suite 322, Los
      Angeles, CA 90025.(2)
            The
      percentages in the table have been calculated on the basis of treating as
      outstanding for a particular person, all shares of our common stock
      outstanding on that date and all shares of our common stock issuable to
      that holder in the event of exercise of outstanding options, warrants,
      rights or conversion privileges owned by that person at that date which
      are exercisable within 60 days of that date. Except as otherwise
      indicated, the persons listed have sole voting and investment power with
      respect to all shares of our common stock owned by them, except to the
      extent that power may be shared with a spouse. To our knowledge, none of
      the shares included are pledged as
security.


(3)
            Includes
      2,000,000 options, exercisable at $.15 per share.(4)
            Includes
      2,041,666 options, exercisable at $.15 per share.(5)
            Includes
      200,000 options, exercisable at $.15 per
share.





32


(6)
            Includes
      225,000 options, exercisable at $.15 per share.(7)
            Includes
      400,000 options, exercisable at $.15 per
share.


(8)
                Includes
      4,799,999 options, exercisable at $.15 per share.(9)
                Includes
      400,000 options, exercisable at $.15 per
share.


(10)
            Ms.
      Standowski’s address is 307 Wildflower Court Jackson, New Jersey
      08527.(11)
            Camien
      Advisors LLC is a New York limited liability company. Mr. Leonard Dietz is
      the CEO of Camien Advisors LLC, and has sole voting and investment powers
      with regard to the shares of Camien Advisors
  LLC.





Securities
authorized for issuance under equity compensation plans.





The table
below provides information regarding all compensation plans as of the end of the
most recently completed fiscal year (including individual compensation
arrangements) under which equity securities of the registrant are authorized for
issuance:





Equity
      Compensation Plan InformationPlan
      category
              Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
                
                (a)
              Weighted-average
      exercise price of outstanding options, warrants and rights
                
                (b)
              Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))
                
                (c)Equity
      compensation plans approved by security holders
              n/a
              n/a
              n/aEquity
      compensation plans not approved by security holders
              7,151,000
              $0.16
              2,849,000Total
              7,151,000
              $0.16
              2,849,000




Item
13. Certain Relationship and Related Party Transactions.





There
were no relationships during 2008 or more currently, between us and any
director, executive officer or 5% shareholder, other than the employment and
consulting agreements, stock ownership and the TDRG
acquisition.





Item
14. Principal Accountant Fees and Services





The
following table summarizes the fees of Sherb & Co. LLC, our independent
registered public accounting firm, billed for each of the last two fiscal years
for audit services and other services:





Fee Category
                  
                  2007
                  
                  
                  2008Audit
      Fees (1)
                  
                  $
                  56,000
                  
                  
                  $
                  76,000Audit
      Related Fees
                  
                  
                  -
                  
                  
                  
                  -Tax
      Fees (2)
                  
                  
                  -
                  
                  
                  
                  5,000All
      Other Fees(3)
                  
                  
                  6,000
                  
                  
                  
                  2,125Total
      Fees
                  
                  $
                  62,000
                  
                  
                  $
                  83,125





(1)  Consists
of fees for professional services rendered in connection with the review of our
three quarterly reports on Form 10-Q and the financial statements included in
our annual report on Form 10-K


(2)  Consists
of fees relating to our tax compliance and tax planning.


(3)  Consists
of fees relating to review of our registration statement on form S-1, which was
withdrawn.





We do not
have an Audit Committee. Our Board of Directors pre-approves all auditing
services and permissible non-audit services provided to us by our independent
registered public accounting firm.





33





PART
IV





Item
15.  Exhibits and Financial Statement Schedules





a.
            Index
      to Financial Statements and Financial Statement
  Schedules





PageReport
      of Independent Registered Public Accounting Firm
                F-2Balance
      Sheet as of December 31, 2008 and 2007
                F-3Statement
      of Operations for each of the two years in the period ended December 31,
      2008,
                F-4Statement
      of Shareholders’ Equity for each of the two years in the period ended
      December 31, 2008
                F-5Statement
      of Cash Flows for each of the two years in the period ended December 31,
      2008,
                F-6Notes
      to Consolidated Financial Statements
                F-8
      – F-20




b.
            All
      other schedules for which provision is made in the applicable accounting
      regulations of the SEC are not required under the related instructions, or
      are inapplicable, and therefore have been
  omitted.





c.
              Exhibits





EXHIBIT
      NO.
            DESCRIPTION3.1
            Certificate
      of Incorporation dated November 22, 2005, as amended by Certificate of
      Designation dated August 8, 2006 (incorporated by reference to the
      Company’s Registration Statement on Form SB-2  (file no.
      333-139586)  filed on December 22, 2006.)3.2
            Certificate
      of Designation of 10% Series A Convertible Preferred Stock (incorporated
      by reference to Exhibit 3.1 to the Company’s Registration Statement on
      Form SB-2 (file no. 333-139586)  filed on December 22,
      2006.)3.3
            Certificate
      of Designation of 8% Series B Convertible Preferred Stock (incorporated by
      reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-QSB
      for the quarter ended June 30, 2007.)3.4
            By-laws
      of the Company (incorporated by reference to the Company’s Registration
      Statement on Form SB-2 (file no. 333-139586) filed on December 22,
      2006.)4.1
            Form
      of Common Stock Certificate (incorporated by reference to the Company’s
      Registration Statement on Form SB-2 (file no. 333-139586) filed on
      December 22, 2006.)4.2
            Form
      of Preferred Stock Certificate (incorporated by reference to the Company’s
      Registration Statement on Form SB-2 (file no. 333-139586) filed on
      December 22, 2006.)4.3
            Form
      of Subscription Agreement of 10% Series A Convertible Preferred Stock
      (incorporated by reference to the Company’s Registration Statement on Form
      SB-2 (file no. 333-139586) filed on December 22,
  2006.)  34
 4.4
            Form
      of Common Stock Purchase Warrant for 10% Series A Convertible Preferred
      Stock (incorporated by reference to the Company’s Registration Statement
      on Form SB-2 (file no. 333-139586) filed on December 22,
      2006.)4.5
            Form
      of Subscription Agreement of 8% Series B Convertible Preferred Stock
      (incorporated by reference to the Company’s Quarterly Report on Form
      10-QSB filed on August 13, 2007.)4.6
            Form
      of Common Stock Purchase Warrant for 8% Series B Convertible Preferred
      Stock (incorporated by reference to the Company’s Quarterly Report on Form
      10QSB filed on August 13, 2007.)10.1
            Form
      of Promissory Note (incorporated by reference to Amendment No.3 of the
      Company’s Registration Statement on Form SB-2 (file no. 333-139586) filed
      on April 30, 2007.)10.2
            Form
      of Note Conversion Agreement (incorporated by reference to the Company’s
      Current Report on Form 8-K furnished on September 7,
  2007.)10.3
            Form
      of Stock Option Agreement (incorporated by reference to the Company’s
      Registration Statement on Form SB-2 (file no. 333-139586) filed on
      December 22, 2006.)10.4
            Employment
      Agreement of Brian Ross (incorporated by reference to the Company’s
      Registration Statement on Form SB-2  (file no.
      333-139586)  filed on December 22, 2006.)10.5
            Employment
      Agreement of Chris Meredith (incorporated by reference to the
      Company’s Registration Statement on Form SB-2  (file no.
      333-139586)  filed on December 22, 2006.)10.6
            Employment
      Agreement of Damon Stein (incorporated by reference to Amendment No.1 to
      the Company’s Registration Statement on Form SB-2  (file no.
      333-139586)  filed on January 31, 2007.)10.7
            Employment
      Agreement of Dan Goldberg (incorporated by reference to Amendment No.1 to
      the Company’s Registration Statement on Form SB-2  (file no.
      333-139586)  filed on January 31, 2007.)10.8
            Employment
      Agreement of Jeff McCollum (incorporated by reference to the Company
      Current Report on Form 8-K (file no. 000-52635)  filed on March
      19, 2009.)10.9
            Form
      of First Convertible Promissory Note (incorporated by reference to the
      Company’s Annual Report on Form 10-K for the year ended December 31, 2007
      (file no. 000-52635) filed on March 31, 2008.)10.10
            Form
      of Warrant issued to First Convertible Promissory Note holders
      (incorporated by reference to the Company Current Report on Form 8-K (file
      no. 000-52635) filed on May 5, 2008.)10.11
            Accelerize
      New Media, Inc. Stock Option Plan (incorporated by reference to the
      Company’s Registration Statement on Form SB-2 (file no. 333-139586) filed
      on December 22, 2006.)10.12
            Form
      of Second Convertible Promissory Note (incorporated by reference to the
      Company’s Current Report on Form 8-K (file no. 000-52635) filed on March
      26, 2009.)10.13
            Form
      of Warrant issued to Second Convertible Promissory Note holders
      (incorporated by reference to the Company’s Current Report on Form 8-K
      (file no. 000-52635) filed on March 26,
2009.)  35
 23.1
            Consent
      of Sherb & Co., LLP. (filed herewith)31.1
            Rule
      13a-14(a) Certification.  (filed herewith)31.2
            Rule
      13a-14(a) Certification.  (filed herewith)32.1
            Certification
      pursuant to 18 U.S.C. Section 1350. (furnished
herewith)





36


SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





ACCELERIZE
NEW MEDIA, INC.





By:              /S/ Brian
Ross


Brian
Ross


President,
Chief Executive Officer and Treasurer





Date:
March 31, 2009





In
accordance with the Exchange Act, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.





SIGNATURE
                  TITLE
                  DATEBy:
      /S/ Brian
      Ross
                  President,
      Chief Executive Officer, Treasurer and Director
                    (Principal
      executive and accounting officer)
                  March
      31, 2009By:
      /S/
      Chris Meredith
                  Chief
      Technology Officer, Assistant Treasurer, Assistant
                    Secretary
      and Director
                  March
      31, 2009











37





ACCELERIZE
NEW MEDIA, INC.





FINANCIAL
STATEMENTS





AS
OF DECEMBER 31, 2008








Index to Financial
Statements and Financial Statement Schedules





The
      following consolidated financial statements and financial statement
      schedules are included on the pages indicated:PageReport
      of Independent Registered Public Accounting Firm
              F-2Balance
      Sheets as of December 31, 2008 and 2007
              F-3Statements
      of Operations for each of the two years in the periods ended December 31,
      2008 and 2007
              F-4Statements
      of Stockholders’ Equity (Deficit) for each of the two years in the periods
      ended December 31, 2008 and 2007
              F-5Statements
      of Cash Flows for each of the two years in the periods ended December 31,
      2008 and 2007
              F-6Notes
      to Financial Statements
              F-8
      – F-20





All other
schedules for which provision is made in the applicable accounting regulations
of the SEC are not required under the related instructions, or are inapplicable,
and therefore have been omitted.








Report of Independent
Registered Public Accounting Firm








To the
Board of Directors


Accelerize
New Media, Inc.


Los
Angeles, CA





We have
audited the accompanying balance sheets of Accelerize New Media, Inc. as of
December 31, 2008 and 2007 and the related statements of operations,
stockholders' deficit and cash flows for the years ended December 31, 2008 and
2007.  These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company has determined that it
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Accelerize New Media, Inc. as of
December 31, 2008 and 2007 and the results of their operations and their cash
flows for the years ended December 31, 2008 and 2007, in conformity with
accounting principles generally accepted in the United States of
America.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  The Company has incurred
significant losses as more fully described in Note 1. These issues raise
substantial doubt about the Company's ability to continue as a going
concern.  Management's  plans
in  regard  to  these  matters  are  also  described  in
Note 1.  The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.








/s/ Sherb & Co.,
LLP


Certified
Public Accountants





New York,
New York


March 30,
2009





F-2





ACCELERIZE
      NEW MEDIA, INC.BALANCE
      SHEETSASSETSDecember
      31,
                  
                  
                  December
      31,2008
                  
                  
                  2007Current
      Assets:Cash
                  
                  $
                  252,921
                  
                  
                  $
                  951,317Accounts
      receivable, net of allowance for bad debt of $6,857and
      $3,037 at December 31, 2008 and 2007, respectively
                  
                  
                  177,752
                  
                  
                  
                  50,499Prepaid
      expenses and other assets
                  
                  
                  30,224
                  
                  
                  
                  5,487Domain
      name rights
                  
                  
                  20,411
                  
                  
                  
                  162,740Deferred
      tax asset
                  
                  
                  56,030
                  
                  
                  
                  80,026Total
      current assets
                  
                  
                  537,338
                  
                  
                  
                  1,250,069Website
      development costs, net of accumulated amortization of
    $206,410and
      $210,411 at December 31, 2008 and 2007, respectively
                  
                  
                  140,075
                  
                  
                  
                  226,483Fixed
      assets, net of accumulated depreciation of $24,436 and$10,689
      at  December 31, 2008 and 2007, respectively
                  
                  
                  17,527
                  
                  
                  
                  21,380Goodwill
                  
                  
                  685,547
                  
                  
                  
                  580,547Total
      assets
                  
                  $
                  1,380,487
                  
                  
                  $
                  2,078,479LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      Liabilities:Accounts
      payable and accrued expenses
                  
                  $
                  442,565
                  
                  
                  $
                  214,578Payable
      to former member
                  
                  
                  -
                  
                  
                  
                  36,315Deferred
      revenues- short-term
                  
                  
                  580,920
                  
                  
                  
                  550,992Deferred
      tax liability
                  
                  
                  56,030
                  
                  
                  
                  80,026Total
      current liabilities
                  
                  
                  1,079,515
                  
                  
                  
                  881,911Convertible
      notes payable and accrued interest, net of debt discount of
      $156,852
                  
                  
                  375,787
                  
                  
                  
                  -Deferred
      revenue- long-term
                  
                  
                  86,110
                  
                  
                  
                  90,307Total
      liabilities
                  
                  
                  1,541,412
                  
                  
                  
                  972,218Stockholders'
      Equity (Deficit):Preferred
      stock, $0.001 par value, 2,000,000 shares authorized:Series
      A,  54,000 issued and outstanding at December 31, 2008 and
      2007,
                    respectively
                  
                  
                  728,567
                  
                  
                  
                  728,567Series
      B, 118,875 issued and outstanding at December 31, 2008 and
      2007,
                    respectively
                  
                  
                  3,644,563
                  
                  
                  
                  3,644,563Common
      stock; $.001 par value; 100,000,000 shares authorized;27,184,854
      and 21,779,294 shares issued and outstandingat
      December 31, 2008 and 2007, respectively
                  
                  
                  27,185
                  
                  
                  
                  21,779Additional
      paid-in capital
                  
                  
                  6,552,272
                  
                  
                  
                  2,418,062Accumulated
      deficit
                  
                  
                  (11,113,512
                  )
                  
                  
                  (5,706,710
                  )Total
      stockholders’ equity (deficit)
                  
                  
                  (160,925
                  )
                  
                  
                  1,106,261Total
      liabilities and stockholders’ equity (deficit)
                  
                  $
                  1,380,487
                  
                  
                  $
                  2,078,479
  See
      Notes to Financial
Statements.





F-3




ACCELERIZE
      NEW MEDIA, INC.STATEMENTS
      OF OPERATIONSYear
      endedDecember
      31,2008
                  
                  
                  2007Revenue:Debt
      solution revenues
                  
                  $
                  1,190,966
                  
                  
                  $
                  540,386Lead
      generation revenues
                  
                  
                  2,216,302
                  
                  
                  
                  359,911Advertising
      and other revenues
                  
                  
                  388,095
                  
                  
                  
                  130,212Total
      revenues:
                  
                  
                  3,795,363
                  
                  
                  
                  1,030,509Operating
      expenses:Selling,
      general and administrative
                  
                  
                  8,754,657
                  
                  
                  
                  4,047,516Total
      operating expenses
                  
                  
                  8,754,657
                  
                  
                  
                  4,047,516Operating
      loss
                  
                  
                  (4,959,294
                  )
                  
                  
                  (3,017,007
                  )Other
      income (expense):Interest
      income (expense)
                  
                  
                  (32,302
                  )
                  
                  
                  18,253(32,302
                  )
                  
                  
                  18,253Net
      loss
                  
                  
                  (4,991,596
                  )
                  
                  
                  (2,998,754
                  )Less
      dividends issued for series A and B preferred stock
                  
                  
                  415,206
                  
                  
                  
                  296,977Net
      loss attributable to common stock
                  
                  $
                  (5,406,802
                  )
                  
                  $
                  (3,295,731
                  )Basic
      and diluted loss per common share
                  
                  $
                  (0.21
                  )
                  
                  $
                  (0.16
                  )Basic
      and diluted weighted average commonshares
      outstanding
                  
                  
                  25,220,571
                  
                  
                  
                  21,124,349See
      Notes to Financial Statements.





F-4


Statement of Changes in
Stockholders’ Equity (Deficit)


From January 1, 2007 to
December 31, 2008




TotalAdditional
                        
                        
                        
                        
                        
                        Stockholders'Series
      A Preferred Stock
                        
                        
                        Series
      B Preferred Stock
                        
                        
                        Common
      Stock
                        
                        
                        Paid-in
                        
                        
                        Accumulated
                        
                        
                        EquityShares
                        
                        
                        $
                        
                        
                        Shares
                        
                        
                        $
                        
                        
                        Shares
                        
                        
                        $
                        
                        
                        Capital
                        
                        
                        Deficit
                        
                        
                        (Deficit)Balance,
      January 1, 2007
                        
                        
                        54,000
                        
                        
                        $
                        728,567
                        
                        
                        
                        -
                        
                        
                        $
                        -
                        
                        
                        
                        19,140,027
                        
                        
                        $
                        19,140
                        
                        
                        $
                        1,925,220
                        
                        
                        $
                        (2,410,978
                        )
                        
                        $
                        261,949Stock
      issued for TDRG acquisition
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,750,000
                        
                        
                        
                        1,750
                        
                        
                        
                        103,250
                        
                        
                        
                        -
                        
                        
                        
                        105,000Fair
      value of warrants issued
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        94,030
                        
                        
                        
                        (94,030
                        )
                        
                        
                        -Fair
      value of options granted
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        93,503
                        
                        
                        
                        -
                        
                        
                        
                        93,503Shares
      issued pursuant to private placement
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        118,875
                        
                        
                        
                        3,644,563
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        3,644,563Preferred
      stock dividends
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        889,267
                        
                        
                        
                        889
                        
                        
                        
                        202,059
                        
                        
                        
                        (202,948
                        )
                        
                        
                        -Net
      loss
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (2,998,754
                        )
                        
                        
                        (2,998,754
                        )Ending
      balance, December 31, 2007
                        
                        
                        54,000
                        
                        
                        
                        728,567
                        
                        
                        
                        118,875
                        
                        
                        
                        3,644,563
                        
                        
                        
                        21,779,294
                        
                        
                        
                        21,779
                        
                        
                        
                        2,418,062
                        
                        
                        
                        (5,706,710
                        )
                        
                        
                        1,106,261Stock
      issued for TDRG acquisition
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,750,000
                        
                        
                        
                        1,750
                        
                        
                        
                        103,250
                        
                        
                        
                        -
                        
                        
                        
                        105,000Fair
      value of warrants issued
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,239,204
                        
                        
                        
                        -
                        
                        
                        
                        1,239,204Fair
      value of warrants issued pursuant to TDRG acquisition
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        174,420
                        
                        
                        
                        -
                        
                        
                        
                        174,420Beneficial
      conversion features of Convertible notes
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        179,450
                        
                        
                        
                        -
                        
                        
                        
                        179,450Fair
      value of warrants issued for services
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        909,908
                        
                        
                        
                        -
                        
                        
                        
                        909,908Fair
      value of options granted
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        222,528
                        
                        
                        
                        -
                        
                        
                        
                        222,528Exercise
      of warrants
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        2,350,000
                        
                        
                        
                        2,350
                        
                        
                        
                        820,150
                        
                        
                        
                        -
                        
                        
                        
                        822,500Deferred
      compensation
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        105,000
                        
                        
                        
                        105
                        
                        
                        
                        71,295
                        
                        
                        
                        -
                        
                        
                        
                        71,400Preferred
      stock dividends
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,200,560
                        
                        
                        
                        1,201
                        
                        
                        
                        414,005
                        
                        
                        
                        (415,206
                        )
                        
                        
                        -Net
      loss
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (4,991,596
                        )
                        
                        
                        (4,991,596
                        )Ending
      balance, December 31, 2008
                        
                        
                        54,000
                        
                        
                        $
                        728,567
                        
                        
                        
                        118,875
                        
                        
                        $
                        3,644,563
                        
                        
                        
                        27,184,854
                        
                        
                        $
                        27,185
                        
                        
                        $
                        6,552,272
                        
                        
                        $
                        (11,113,512
                        )
                        
                        $
                        (160,925
                        )See
      Notes to Financial Statements





F-5




ACCELERIZE
      NEW MEDIA, INC.STATEMENTS
      OF CASH FLOWSYear
      endedDecember
      31,2008
                
                
                2007Cash
      flows from operating activities:Net
      loss
                
                $
                (4,991,596
                )
                
                $
                (2,998,754
                )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Depreciation
      and amortization
                
                
                341,219
                
                
                
                199,395Amortization
      of deferred compensation
                
                
                71,400
                
                
                
                -Fair
      value of warrants issued for services
                
                
                909,908
                
                
                
                -Fair
      value of warrants issued for TDRG acquisition
                
                
                174,420
                
                
                
                -Fair
      value of warrants issued
                
                
                1,239,204
                
                
                
                -Fair
      value of options granted
                
                
                222,528
                
                
                
                93,503Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                (127,253
                )
                
                
                (26,840
                )Prepaid
      expenses
                
                
                (24,437
                )
                
                
                (2,912
                )Domain
      name rights
                
                
                (25,000
                )
                
                
                (200,000
                )Deferred
      tax asset
                
                
                23,996
                
                
                
                (80,026
                )Other
      assets
                
                
                (300
                )
                
                
                -Accrued
      interest
                
                
                (4,693
                )
                
                
                1,067Accounts
      payable and accrued expenses
                
                
                227,987
                
                
                
                (71,907
                )Deferred
      tax liability
                
                
                (23,996
                )
                
                
                80,026Deferred
      revenues
                
                
                25,731
                
                
                
                223,384Net
      cash used in operating activities
                
                
                (1,960,882
                )
                
                
                (2,783,064
                )Cash
      flows used in investing activities:Capital
      expenditures
                
                
                (9,894
                )
                
                
                -Website
      development costs
                
                
                (51,137
                )
                
                
                (295,018
                )Net
      cash used in investing activities
                
                
                (61,031
                )
                
                
                (295,018
                )Cash
      flows from financing activities:Proceeds
      from notes payable
                
                
                530,000
                
                
                
                400,000Payment
      to former member
                
                
                (28,983
                )
                
                
                (29,434
                )Payment
      of financing fees
                
                
                -
                
                
                
                (516,062
                )Proceeds
      from exercise of warrants
                
                
                822,500
                
                
                
                -Proceeds
      from issuance of shares of Preferred Stock B
                
                
                -
                
                
                
                3,760,625Net
      cash provided by financing activities
                
                
                1,323,517
                
                
                
                3,615,129Net
      increase (decrease) in cash
                
                
                (698,396
                )
                
                
                537,047Cash,
      beginning of year
                
                
                951,317
                
                
                
                414,270Cash,
      end of year
                
                $
                252,921
                
                
                $
                951,317
  F-6
 Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                  
                  $
                  38,055
                  
                  
                  $
                  4,194Cash
      paid for income taxes
                  
                  $
                  -
                  
                  
                  $
                  -Non-cash
      investing and financing activities:Beneficial
      conversion feature associated withconvertible
      notes payable
                  
                  $
                  179,450
                  
                  
                  $
                  -Fair
      value of warrants issued associated with notespayable
                  
                  $
                  -
                  
                  
                  $
                  94,030Preferred
      stock dividends
                  
                  $
                  415,206
                  
                  
                  $
                  202,948Conversion
      of notes payable into shares of PreferredStock
      B
                  
                  $
                  -
                  
                  
                  $
                  400,000Goodwill
      resulting from acquisition andcorresponding increase
      in:
                  
                  $
                  105,000
                  
                  
                  $
                  580,547Assets
                  
                  $
                  -
                  
                  
                  $
                  44,105Liabilities
                  
                  $
                  -
                  
                  
                  $
                  519,652Common
      stock and additional paid-in capital
                  
                  $
                  105,000
                  
                  
                  $
                  105,000See
      Notes to Financial Statements.





F-7


ACCELERIZE
NEW MEDIA, INC.


NOTES
TO FINANCIAL STATEMENTS





NOTE
1: ORGANIZATION, DESCRIPTION OF BUSINESS AND GOING CONCERN:





Accelerize
New Media, Inc., orthe Company, a Delaware
Corporation, incorporated on November 22, 2005, is an online based media and
customer acquisition solutions provider.





The
Company markets and provides Internet development services and turnkey customer
acquisition solutions to financial institutions and vendors marketing their
goods and services to consumers.  In addition, the Company provides
sales and marketing support in connection with debt settlement solutions offered
by debt settlement agencies to consumers across the United States.





The accompanying financial statements
have been prepared on a going concern basis. The Company has used net cash in
its operating activities of approximately $2 million during the year ended
December 31, 2008. The Company's ability to continue as a going concern is
dependent upon its ability to obtain the necessary financing to meet its
obligations and repay its liabilities arising from normal business operations
when they come due, to fund possible future acquisitions, and to generate
profitable operations in the future. Management plans to continue to provide for
its capital requirements by issuing additional equity securities and debt. The
outcome of these matters cannot be predicted at this time and there are no
assurances that if achieved, the Company will have sufficient funds to execute
its business plan or generate positive operating results.





During
December 2006, the Company entered into an Asset Purchase Agreement to acquire a
substantial portion of the operating assets of The Debt Reduction Group, LLC, or
TDRG. Pursuant to the Asset Purchase Agreement entered into by the Company in
January 2007, the accounts receivable and substantially all intangible assets of
DRG in consideration of issuing 3,500,000 shares of its common stock to the
managing members of TDRG, as well as granting up to 500,000 warrants to certain
of TDRG’s employees which may be earned based upon certain milestones related to
target revenues and operating margins covering 18 months after closing. During
October 2008, the Company determined that such TDRG employees met certain
performance targets and issued to them warrants to purchase 450,000 shares of
common stock.





The
acquisition of the operations of TDRG was accounted for pursuant to the
Statement of Financial Accounting Standards, or SFAS No. 141, Business
Combinations, which provides that the assets and liabilities acquired and the
equity interest issued are initially recognized at the date of acquisition and
measured at the fair value of the net assets acquired and consideration
exchanged. Additionally, SFAS No. 141 provides that the results of operations of
the acquired entity after the effective date of acquisition be consolidated in
the results of operations of the acquirer.





The total
aggregate purchase price of TDRG amounted to $729,652, which consisted of (i)
3,500,000 shares of common stock issued in 2007 and 2008, and valued at an
aggregate of $210,000, and (i) assumption of $519,652 of liabilities. The
purchase price has been allocated as follows:




AmountAccounts
      receivable
                
                $
                12,036Property
      and equipment
                
                
                32,069Goodwill
                
                
                685,547Total
      Purchase Price
                
                $
                729,652





The fair
value of the shares issued in 2007 pursuant to this transaction was based on a
valuation of the Company’s shares prepared by an independent valuation
specialist, using the discounted cash flow approach.





The fair
value of the shares issued in 2008 pursuant to this transaction was based on the
fair value of the shares as quoted on the over-the-counter bulletin board on the
Company’s first day of trading.




F-8


NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Use of
Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reporting amounts of revenues and expenses
during the reported period. Actual results will differ from those
estimates.





Cash and Cash
Equivalents





The
Company considers all highly liquid temporary cash investments with an original
maturity of three months or less when purchased, to be cash
equivalents.





Concentration of Credit
Risks





The
Company is subject to concentrations of credit risk primarily from cash and cash
equivalents and accounts receivable.





The
Company’s cash and cash equivalents accounts are held at financial institutions
and are insured by the Federal Deposit Insurance Corporation, or the FDIC, up to
$250,000. During the year ended December 31, 2008, the Company has reached bank
balances exceeding the FDIC insurance limit. To reduce its risk associated with
the failure of such financial institutions, the Company periodically evaluates
the credit quality of the financial institutions in which it holds
deposits.





The
Company's accounts receivable are due from a few customers, all located in the
United States. Three of the Company’s customers accounted for 24%, 15% and 11%
of its accounts receivables at December 31, 2008.  Three of the
customers accounted for 38%, 12%, and 12% of its accounts receivables at
December 31, 2007.  The Company recorded an allowance for doubtful
accounts of $6,857 and $3,037 at December 31, 2008 and 2007,
respectively.





Property and
Equipment





Property
and equipment are recorded at cost and are depreciated on a straight-line basis
over their estimated useful lives of three years. Maintenance and repairs are
charged to expense as incurred. Significant renewals and betterments are
capitalized.




Property
and equipment consist of the following as:





December
      31,
                        2008
                      
                      
                      December
      31,
                        2007Computer
      equipment and software
                      
                      $
                      11,358
                      
                      
                      $
                      1,464Phone
      equipment
                      
                      
                      19,155
                      
                      
                      
                      19,155Office
      furniture and equipment
                      
                      
                      11,450
                      
                      
                      
                      11,45041,963
                      
                      
                      
                      32,069Accumulated
      depreciation
                      
                      
                      (24,436
                      )
                      
                      
                      (10,689
                      )$
                      17,527
                      
                      
                      $
                      21,380





Depreciation
expense amounted to approximately $13,747 and $10,689 during the years ending
December 31, 2008 and 2007, respectively.





Revenue
Recognition





The
Company recognizes revenue on arrangements in accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 104 “Revenue Recognition.”
Revenue is recognized only when the price is fixed or determinable, persuasive
evidence of an arrangement exists, the service is performed, and collectability
of the resulting receivable is reasonably assured.





F-9


The
Company’s traffic revenues are generated from the pay-per-click, cost-per-action
listings, and banner ad sales of its portfolio of web sites. When an online user
navigates to one of the Company’s owned and operated Web sites and clicks and or
visits on a particular listing/web page or completes the specified action, the
Company receives a fee.




The
Company’s lead generation network revenues are primarily generated using
third-party distribution networks to deliver the merchant advertisers’ listings.
The distribution network includes search engines, shopping engines, directories,
destination sites, Internet domains or Web sites, and other targeted Web-based
content. The Company generates revenue upon delivery of a qualified lead to the
Company’s merchant advertisers or partner. Other revenues include the Company’s
lead generation web services, paid search optimization, landing page development
services, and creative design.





Since
January 1, 2007, the Company generates a substantial portion of its revenues
from fees earned from the sale and marketing of debt reduction solutions offered
to consumers by debt settlement agencies. The consumers generally enter in a
debt solution program with a debt settlement agency which provides for monthly
payments by the consumers over a period of up to 3 years. The commission earned
by the Company will vary between 7.5% and 8.9% of the total debt of the consumer
to be negotiated by the respective debt settlement agency. For consumers
enrolled prior to March 1, 2007 the Company receives its fees from debt
settlement agencies upon payment by consumers to the debt settlement agencies
within the first 8 months of the debt solution program, assuming that all
consumers make all their payments. This payment was subject to a partial refund
by the Company to the debt settlement agencies if: 1) the debt settlement agency
does not receive all scheduled monthly payments for the duration of the contract
during the first 15 months of such contract, or 2) the debt settlement agencies
issue a refund to the consumer over the term of the respective contract. For
consumers enrolled since March 1, 2007, the Company receives its fee from debt
settlement agencies upon payment by consumers to the debt settlement agencies
within the first 18 months of the debt solution program, assuming that all
consumers make all their payments.  Accordingly, the fee earned by the
Company is recognized over the terms of the underlying contract between the debt
settlement agencies and the consumer, which is generally 3 years. Consequently,
the Company defers the fees received from the debt settlement agency in excess
of the revenues recognized over the term of the underlying contract between the
debt settlement agencies and the consumer. Such excess amounted to approximately
$667,000 and $641,000 at December 31, 2008 and 2007, respectively, and is
recorded as deferred revenue on the balance sheet.





Since
September 2007, the payment to the Company is subject to a partial refund only
if a debt settlement agency issues a refund to the consumer over the term of the
respective contract.




During
June 2005, TDRG outsourced the debt solution administration of its existing
clients to a debt settlement agency. This administration includes
implementation, customer service, and the actual debt negotiation. Pursuant to
the outsourcing arrangement, the debt settlement agency paid TDRG (and after
January 1, 2007 to the Company) 45% of the fees collected from the consumers and
retains 5% of such fees as a reserve for possible cancellations, returns,
and legal fees. Funds available under the reserve were paid as follows: 50% in
June 2006, and 25% to the Company, in January 2007 and June 2007, respectively.
The Company recognizes fees pursuant to this arrangement as revenues when it
receives the funds from the debt settlement agency.





The
Company also generates revenues, to a lesser extent, by selling leads it
generates to synergistic companies operating in the debt consumer market segment
and from ads appearing on its network of web sites.





Customer
Concentration





Three of
the Company's customers accounted for approximately 20%, 13%, and 12% of its
revenues during the year ended December 31, 2008. Three of the Company’s
customers accounted for 29%, 22%, and 11% of the Company’s revenue during the
year ended December 31, 2007.





F-10


Product
Concentration





The
Company generates revenues from three sources as follows: 1) online sales and
marketing services in connection with marketing of debt settlement referrals
offered to consumers by a debt settlement agency, 2) generating leads using
contracted publisher networks to deliver the merchant advertisers’ listings, and
3) pay-per-click, cost-per-action listings, and banner ad sales of its portfolio
of web sites. When an online user navigates to one of the Company’s owned and
operated Web sites and clicks and or visits on a particular listing/web page or
completes the specified action, the Company receives a fee.





Fair Value of Financial
Instruments





The
carrying value of cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses and the payable to former member approximate their
fair value based on the short-term maturity of these instruments.





Advertising





The
Company expenses advertising costs as incurred. Advertising expense amounted to
$1,037,145 and $1,255,793 during the years ended December 31, 2008 and 2007,
respectively.





Website Development
Costs





The
Company has capitalized certain internal use software and website development
costs amounting to approximately $51,000 and $437,000 as of December 31, 2008
and 2007, respectively.  The estimated useful life of costs
capitalized is evaluated for each specific project and ranges from one to three
years.





Income
Taxes





Income
taxes are accounted for in accordance with the provisions of Statement of
Financial Accounting Standards, or SFAS No. 109, “Accounting for Income Taxes.”
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amounts expected to be
realized, but no less than quarterly.





Share-Based
Payment





In
December 2004, the Financial Accounting Standards Board, or FASB, issued SFAS
No. 123(R), "Share-Based Payment," or SFAS No. 123(R) which replaced SFAS No.
123 and superseded Accounting Principles Board, or  APB Opinion No.
25. Under SFAS No. 123(R), companies are required to measure the compensation
costs of share-based compensation arrangements based on the grant-date fair
value and recognize the costs in the financial statements over the period during
which employees are required to provide services. Share-based compensation
arrangements include stock options, restricted share plans, performance-based
awards, share appreciation rights and employee share purchase plans. In March
2005 the Securities and Exchange Commission, or the SEC, issued Staff Accounting
Bulletin No. 107, “Disclosures about Fair Value of Financial Instruments,” or
SAB 107. SAB 107 expresses views of the staff regarding the interaction between
SFAS No. 123(R) and certain SEC rules and regulations and provides the staff's
views regarding the valuation of share-based payment arrangements for public
companies. SFAS No. 123(R) permits public companies to adopt its requirements
using one of two methods. Companies may elect to apply this statement either
prospectively, or on a modified version of retrospective application under which
financial statements for prior periods are adjusted on a basis consistent with
the pro forma disclosures required for those periods under SFAS
123.  Effective with its fiscal 2006, the Company has adopted the
provisions of SFAS No. 123 (R) and related interpretations as provided by SAB
107 prospectively. As such, compensation cost is measured on the date of grant
as its fair value.Such compensation
amounts, if any, are amortized over the respective vesting periods or period of
service of the option grant.





F-11


Segment
Reporting





The
Company generates revenues from three sources as follows: 1) online sales and
marketing services in connection with marketing of debt settlement referrals
offered to consumers by a debt settlement agency, 2) generating leads using
contracted publisher networks to deliver the merchant advertisers’ listings, and
3) pay-per-click, cost-per-action listings, and banner ad sales of its portfolio
of web sites. When an online user navigates to one of the Company’s owned and
operated Web sites and clicks and or visits on a particular listing/web page or
completes the specified action, the Company receives a fee.





Recent Accounting
Pronouncements





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No. 133,which requires
additional disclosures about the objectives of the derivative instruments and
hedging activities, the method of accounting for such instruments under SFAS
No. 133 and its related interpretations, and a tabular disclosure of the
effects of such instruments and related hedged items on our financial position,
financial performance, and cash flows. SFAS No. 161 is effective for the
Company beginning January 1, 2009. Management believes that, for the
foreseeable future, this Statement will have no impact on the financial
statements of the Company once adopted.




In
December 2007, the FASB issued SFAS No. 141R, Business Combinations, which
replaces SFAS No. 141. The statement retains the purchase method of
accounting for acquisitions, but requires a number of changes, including changes
in the way assets and liabilities are recognized in the purchase accounting. It
also changes the recognition of assets acquired and liabilities assumed arising
from contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related
costs as incurred. SFAS No. 141R is effective for the Company beginning
January 1, 2009 and will apply prospectively to business combinations completed
on or after that date. Management believes that, for the foreseeable future,
this Statement will have no impact on the financial statements of the Company
once adopted.




In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB
No. 51, which changes the accounting and reporting for minority
interests. Minority interests will be recharacterized as noncontrolling
interests and will be reported as a component of equity separate from the
parent’s equity, and purchases or sales of equity interests that do not result
in a change in control will be accounted for as equity transactions. In
addition, net income attributable to the noncontrolling interest will be
included in consolidated net income on the face of the income statement and,
upon a loss of control, the interest sold, as well as any interest retained,
will be recorded at fair value with any gain or loss recognized in earnings.
SFAS No. 160 is effective for the Company effective January 1, 2009 and
will apply prospectively, except for the presentation and disclosure
requirements, which will apply retrospectively. Management believes that, for
the foreseeable future, this Statement will have no impact on the financial
statements of the Company once adopted.





In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. The new standard is intended to improve
financial reporting by identifying a consistent framework, or hierarchy, for
selecting accounting principles to be used in preparing financial statements
that are presented in conformity with U.S. generally accepted accounting
principles, or GAAP, for non-governmental entities. The Company is currently
evaluating the effects, if any, that SFAS No. 162 may have on our financial
reporting.





Basic and Diluted Earnings
Per Share





Basic
earnings per share are calculated by dividing income available to stockholders
by the weighted-average number of common shares outstanding during each period.
Diluted earnings per share are computed using the weighted average number of
common and dilutive common share equivalents outstanding during the period.
Dilutive common share equivalents consist of shares issuable upon the exercise
of stock options and warrants (calculated using the modified-treasury stock
method). The outstanding options and warrants amounted to 17,573,708 at December
31, 2008, and have been excluded from the earnings per share computation due to
their anti-dilutive effect.





The
following sets forth the computation of basic and diluted earnings per share for
the years ended December 31, 2008 and 2007:





F-12


For
      the years endedDecember
      31,2008
                    
                    
                    2007Numerator:Net
      loss attributable to common stock
                    
                    $
                    (5,406,802
                    )
                    
                    $
                    (3,295,731
                    )Denominator:Denominator
      for basic earnings per share-Weighted
      average shares outstanding
                    
                    
                    25,220,571
                    
                    
                    
                    21,124,349Denominator
      for diluted earnings per share-Weighted
      average shares outstanding
                    
                    
                    25,220,571
                    
                    
                    
                    21,124,349Basic
      earnings per share
                    
                    $
                    (0.21
                    )
                    
                    $
                    (0.16
                    )Diluted
      earnings per share
                    
                    $
                    (0.21
                    )
                    
                    $
                    (0.16
                    )





NOTE
3: PREPAID EXPENSES





At
December 31, 2008, the prepaid expenses consisted primarily of insurance
expense.





NOTE
4: DOMAIN NAME RIGHTS





During
2007, the Company purchased domain name rights for $200,000 that have a useful
life of one year from the date of purchase, which is fully amortized as of
December 31, 2008.  In October 2008, the Company paid $25,000 to renew
its agreement for an additional year.  The Company recognized
amortization expense of approximately $167,329 in connection with the domain
name rights during the year ended December 31, 2008.





NOTE
5: WEBSITE DEVELOPMENT COSTS





Website
development costs, net of accumulated amortization are as follows:





December
      31,
                    
                    
                    December
      31,2008
                    
                    
                    2007Website
      development costs
                    
                    $
                    346,485
                    
                    
                    $
                    436,564Less:
      accumulated amortization
                    
                    
                    (206,410
                    )
                    
                    
                    (210,081
                    )Website
      development costs, net
                    
                    $
                    140,075
                    
                    
                    $
                    226,483





During
2008, the Company wrote off fully amortized capitalized web development
amounting to $141,546.  Amortization expense of the website
development costs amounted to $138,545 and $151,446 during the years ended
December 31, 2008 and 2007, respectively.





The
website development costs, net, as of December 31, 2008 will be amortized over
the future periods as follows:




2009
                      
                      $
                      84,7002010
                      
                      
                      53,8262011
                      
                      
                      1,549$
                      140,075




NOTE
6: CONVERTIBLE NOTES PAYABLE





During
the year ended December 31, 2008, the Company issued convertible promissory
notes aggregating $530,000 to certain stockholders.  The notes bear
interest at 10% per annum.  Accrued interest may be payable, at the
noteholder’s option, in cash or in shares of common stock. If the accrued
interest is paid in shares of common stock, the number of shares issuable to
satisfy the accrued interest is primarily based on the closing price, as quoted
on the Over-the-Counter Bulletin Board of the trading day immediately prior to
the interest payment date.  The interest is payable commencing June 1,
2008 and every quarter thereafter, until the obligations under the convertible
promissory notes are satisfied.  The convertible promissory notes are
due ranging from March 15, 2011 to March 31, 2011.  The Company may
prepay the convertible promissory notes as follows: if prior to July 30, 2008,
at a premium amounting to sum of 0.5% for each full month remaining between the
prepayment date and the maturity date; if after July 30, 2008, without
premium.  Each noteholder may convert, at his option, the outstanding
principal of the convertible promissory note, after July 30, 2008 and prior to
maturity at the lesser of: 1)  $0.75 or 2) the average closing price
of the Company’s common stock, but in no event less than $0.50, or 3) the
effective price per share of a subsequent financing of the Company occurring
prior to March 2011.





F-13


In
accordance with EITF Issue No.00-27, "Application of Issue No. 98-5, Accounting
for convertible securities with beneficial conversion features of contingently
adjustable conversion ratios, to certain convertible instruments", the Company
recorded a beneficial conversion feature related to the Convertible promissory
notes. Under the terms of these notes, the intrinsic value of the beneficial
conversion feature was calculated assuming that the conversion date was the same
as the issue date. During the year ended December 31, 2008, the beneficial
conversion feature amounted to approximately $179,450. This beneficial
conversion feature is reflected in the accompanying financial statements as
additional paid-in capital and corresponding debt discount.





The
interest and amortization expense associated with the notes payable amounted to
$25,237 during the year ended December 31, 2008. The unamortized debt discount
amounted to $156,852 at December 31, 2008.





NOTE
7: STOCKHOLDERS’ EQUITY





Common
Stock




During
the year ended December 31, 2007, the Company paid dividends on its preferred
stock amounting to 889,267 shares of common stock, which were valued at
$202,948.





On
January 1, 2008, the Company issued 1,750,000 shares of common stock valued at
$105,000, pursuant to its acquisition of TDRG.





During
the year ended December 31, 2008, the Company entered into a six-month contract
for banking and financial services.  Pursuant to the contract, the
Company issued 105,000 shares of common stock valued at $71,400.  At
December 31, 2008, the Company had fully expensed the $71,400.





During
the year ended December 31, 2008, the Company paid dividends on its preferred
stock amounting to 1,200,560 shares of common stock, which were valued at
$415,206.





During
the year ended December 31, 2008, certain stockholders exercised their warrants
associated with Series B Preferred Stock at an exercise price per share of
$0.35.  As a result, the Company issued 2,350,000 shares of common
stock, aggregating $822,500.





Preferred Stock- Series
A





Between
August 2006 and October 2006 the Company issued 54,000 shares of 10% Series A
Convertible Preferred Stock, or Series A Preferred Stock, with a par value of
$0.001 per share, resulting in gross proceeds of $728,567 to the Company after
financing fees of $81,433.





The
holders of the Series A Preferred Stock are entitled to cumulative preferential
dividends at the rate of 10% per annum, payable quarterly in arrears on each of
September 1, December 1, March 1, and June 1, commencing on the first quarter
after the issuance date beginning September 1, 2006 in cash or shares of the
Company’s Common Stock. If the Company elects to pay any dividend in shares of
Common Stock, the number of shares of Common Stock to be issued to each holder
shall be an amount equal to the quotient of (i) the dividend payment divided by
(ii) $0.15 per share.





F-14


The
shares of Series A Preferred Stock include a liquidation preference
corresponding to the amount invested. All issued or accrued but unpaid dividends
may also be converted at the election of the holder, and converted at $0.15 per
share. The shares of Series A Preferred Stock are convertible into shares of
common stock, at any time, at the option of the holder and a conversion price of
$0.15 per share, at an initial rate of conversion of 100 shares of common stock
for each one share of Series A Preferred Stock, subject to anti-dilution
provisions in the case of stock splits, dividends or if the Company issues
shares of common stock or other securities convertible into shares of common
stock at an effective price less than $0.15 per share. In the event a public
market is established for the Company’s common stock, the 10% Series A Preferred
Stock is subject to mandatory conversion by the Company upon a 30 day notice if
the average closing price of its common stock is $0.40 or more per share for 10
consecutive trading days and the average daily volume is at least 100,000
shares.





The
Company granted the Series A Preferred Stockholders piggyback registration
rights covering the common shares underlying the Series A Preferred Stock and
common stock underlying warrants. Resalesof such underlying
shares were registered on a registration statement on Form SB-2 declared
effective by the SEC on May 9, 2007.





Preferred Stock- Series
B





Between
June 2007 and September 2007, the Company issued 118,875 shares of 8% Series B
Convertible Preferred Stock, or Series B Preferred Stock, with a par value of
$0.001 per share, which generated net proceeds of $3,244,563 to the Company,
after financing fees of $516,063 and conversion of notes payable of
$400,000.





The
holders of the Series B Preferred Stock are entitled to cumulative preferential
dividends at the rate of 8% per annum, payable quarterly in arrears on each of
September 1, December 1, March 1, and June 1, commencing on December 1, 2007. If
the Company elects to pay any dividend in shares of Common Stock, the number of
shares of Common Stock to be issued to each holder shall be an amount equal to
the higher of (i) the average of the closing bid prices for the common stock
over the five trading days immediately prior to the dividend date or (ii)
$0.35.





The
shares of Series B Preferred Stock include a liquidation preference
corresponding to the amount invested. All issued or accrued but unpaid dividends
may also be converted at the election of the Holder, and converted at $0.35 per
share. The shares of Series B Preferred Stock are convertible into shares of
common stock, at any time, at the option of the holder and a conversion price of
$0.35 per share, at an initial rate of conversion of 100 shares of common stock
for each one share of Series B Preferred Stock, subject to anti-dilution
provisions in the case of stock splits, dividends or if the Company issues
shares of common stock or other securities convertible into shares of common
stock at an effective price less than $0.35 per share.  In the event a
public market is established for the Company’s common stock, the Series B
Preferred Stock is subject to mandatory conversion by the Company upon a 30 day
notice if the average closing price of its common stock is $1.00 or more per
share for 10 consecutive trading days.





The
rights of the holders of the Series B Preferred Stock are subordinate to the
rights of the holders of Series A Preferred Stock.




Warrants





In
connection with the acquisition of TDRG in January 2007, the Company granted to
certain TDRG employees warrants to purchase up to 500,000 shares of common
stock, which may be earned based upon certain milestones related to target
revenues and operating margins covering 18 months after closing. The warrants
are exercisable at a price of $0.15 per share. The warrants expire between
January 2012 and March 2013. The fair value of the warrants amounted to
$172,420 were expensed as compensation during the year ending December 31,
2008.





In
connection with the issuance of notes payable, the Company issued warrants to
purchase 265,000 shares of common stock exercisable at a price of $0.75 per
share at December 31, 2008. The warrants expire in March 2013.





The fair
value of the warrants issued in connection with the issuance of the notes
payable amounted to $179,450.  The fair value is based on the
following assumptions, using Black Scholes Model: term:5 years; exercise price:
$0.75; risk-free interest rate: 2.46% to 3.34%; expected volatility: 63.12% to
66.28%; market value: $0.72 to $0.75.





F-15


The
expected volatility of the warrants issued in connection with the notes payable
was based on the average historical volatility of comparable publicly-traded
companies.





The fair
value of the warrants was recorded as a debt discount and as an increase to
additional paid-in capital.





During
2008, in consideration for services, the Company issued to a marketing firm
warrants to purchase 5,000,000 shares of common stock exercisable at a price of
$0.55 per share.  2,708,333 warrants were vested at December 31,
2008.  The remaining warrants will vest at a rate of 4.17% every three
months there after. The warrants expire in September 2013.





The fair
value of the vested warrants issued in consideration for services amounted to
$880,708.  The fair value is based on the following assumptions, using
Black Scholes Model: term: 5 years; exercise price: $0.55; risk-free interest
rate: 1.05% to 2.45%; expected volatility: 68.04% to 68.54%; market value: $0.35
to $0.55.





The
expected volatility of the warrants issued in consideration for services was
based on the average historical volatility of comparable publicly-traded
companies.





The fair
value of the warrants was recorded as a selling, general, and administrative
expense and as an increase to additional paid-in capital.





During
October 2008, in consideration for services, the Company issued to an investor
relations firm warrants to purchase 100,000 shares of common stock exercisable
at a price of $0.50 per share.  The warrants expire in October
2013.





The fair
value of the warrants issued in consideration for services amounted to
$29,200.  The fair value is based on the following assumptions, using
Black Scholes Model: term:5 years; exercise price: $0.50; risk-free interest
rate: 2.57%; expected volatility: 68.04%; market value: $0.50.





The
expected volatility of the warrants issued in consideration for services was
based on the average historical volatility of comparable publicly-traded
companies.





The fair
value of the warrants was recorded as a selling, general, and administrative
expense and as an increase to additional paid-in capital.





In
connection with the exercise of warrants associated with Series B Preferred
Stock, the Company issued warrants to purchase 2,350,000 share of common stock
to the exercising stockholders. The new warrants have the same terms and
conditions as the warrants exercised by the stockholders, except that they
contain a cashless exercise and a forced conversion feature.





The fair
value of the warrants issued in connection with the exercise of warrants
associated with Series B Preferred Stock amounted to $1,239,204.  The
fair value is based on the following assumptions, using Black Scholes Model:
term: 7 years; exercise price: $0.35; risk-free interest rate: 3.40% to 3.73%;
expected volatility: 68.54% market value: $0.60 to $0.75.





The
expected volatility of the warrants issued in association with Series B
Preferred Stock was based on the average historical volatility of comparable
publicly-traded companies.





The fair
value of the warrants was recorded as an expense and as an increase to
additional paid-in capital.





F-16


Stock Option
Plan





On
December 15, 2006, the Company's Board of Directors and stockholders approved
the Accelerize New Media, Inc. Stock Option Plan, or the Plan. The total number
of shares of capital stock of the Company that may be subject to options under
the Plan was initially 4,300,000 shares of common stock, and on May 16, 2007 was
increased to 10,000,000 shares of common stock, $.001 par value per share, from
either authorized but unissued shares or treasury shares. The individuals who
are eligible to receive option grants under the Plan are employees, directors
and other individuals who render services to the management, operation or
development of the Company or its subsidiaries and who have contributed or may
be expected to contribute to the success of the Company or a subsidiary. Every
option granted under the Plan shall be evidenced by a written stock option
agreement in such form as the Board shall approve from time to time, specifying
the number of shares of common stock that may be purchased pursuant to the
option, the time or times at which the option shall become exercisable in whole
or in part, whether the option is intended to be an incentive stock option or a
non-incentive stock option, and such other terms and conditions as the Board
shall approve.





During
the year ended December 31, 2008, the Company granted 173,500 options to certain
of its employees.





At
December 31, 2008, options to purchase 7,151,000 shares of Common Stock were
outstanding. The
outstanding options are exercisable at a weighted average price per share of
$0.16 per share. The options outstanding vest over periods ranging from two to
three years.





During
the years ended December 31, 2008 and 2007, the Company recorded a share-based
payment expense amounting to approximately $222,500 and $94,000,
respectively, in
connection with all options granted at the respective measurement
dates.





The
share-based payment is based on the fair value of the outstanding options
amortized over the requisite period of service for option holders, which is
generally the vesting period of the options. The fair value of the options
granted during the year ended December 31, 2008 is based on the Black Scholes
Model using the following assumptions:





2008
                2007Exercise
      price:
                $
      0.47 to 0.72
                $
      0.15 to 0.35Market
      price at date of grant:
                $
      0.50 to 0.72
                $
      0.06 to 0.75Expected
      volatility:
                68
      to 69%
                69%Expected
      dividend rate:
                0%
                0%Risk-free
      interest rate:
                2.55
      to 3.41%
                3.41
      to 4.54%





The
expected volatility is based on the historical volatility of publicly-traded
companies comparable to the Company.





The
weighted-average grant-date fair value of options granted during the year ended
December 31, 2008 amounted to $0.39.








F-17




The
following table summarizes information concerning currently outstanding and
exercisable options as of December 31, 2008:





Options
              
              
              Weighted
      Average
                Exercise
      Price
              
              
              Weighted
      Average
                Contractual
      Terms
              
              
              Aggregate
                Intrinsic
      ValueOutstanding
      at January 1, 2007
              
              
              -
              
              
              $
              -
              
              
              
              -
              
              
              $
              -Granted
              
              
              7,542,000
              
              
              
              0.16
              
              
              
              
              
              
              
              104,000Exercised
              
              
              -
              
              
              
              -Expired
              
              
              10,000
              
              
              
              0.15Outstanding
      at December 31, 2007
              
              
              7,532,500
              
              
              
              0.16
              
              
              
              9.38
              
              
              
              4,459,500Granted
              
              
              173,500
              
              
              
              0.68Exercised
              
              
              -
              
              
              
              -Expired
              
              
              555,000
              
              
              
              0.32Outstanding
      at December 31, 2008
              
              
              7,151,000
              
              
              $
              0.16
              
              
              
              4.40
              
              
              $
              1,397,500Exercisable
      and vested at December 31, 2008
              
              
              5,196,666
              
              
              $
              0.15
              
              
              
              6.94
              
              
              $
              1,036,833




The total
compensation cost related to non-vested awards not yet recognized amounted to
approximately $77,000 and $269,000 at December 31, 2008 and 2007, respectively
and the Company expects that it will be recognized over the following
weighted-average period of 36 months.





If any
options granted under the Plan expire or terminate without having been exercised
or cease to be exercisable, such options will be available again under the Plan.
All employees of the Company and its subsidiaries are eligible to receive
non-qualified stock options. Non-employee directors and outside consultants who
provided bona-fide services not in connection with the offer or sale of
securities in a capital raising transaction are eligible to receive
non-qualified stock options. Incentive stock options may not be granted below
their fair market value at the time of grant or, if to an individual who
beneficially owns more than 10% of the total combined voting power of all stock
classes of the Company or a subsidiary, the option price may not be less than
110% of the fair value of the common stock at the time of grant. The expiration
date of an incentive stock option may not be longer than ten years from the date
of grant. Option holders, or their representatives, may exercise their vested
options up to three months after their employment termination or one year after
their death or permanent and total disability. The Plan provides for adjustments
upon changes in capitalization.





The
Company’s policy is to issue shares pursuant to the exercise of stock options
from its available authorized but unissued shares of common stock. It does not
issue shares pursuant to the exercise of stock options from its treasury
shares.





NOTE
8: INCOME TAXES





A
reconciliation of the Company’s effective tax rate to the statutory federal rate
is as follows:





2008
                  2007Tax
      at US statutory rate
                  35.0%
                  35.0%State
      tax rate, net of federal benefits
                  5.0
                  5.7Permanent
      differences - principally beneficial conversion
      feature
                  (28.4)
                  (0.0)Change
      in valuation allowance
                  (11.6)
                  (40.7)Effective
      tax rate
                  0.0%
                  0.0%





F-18





Management
believes it is more likely than not that it will be able to offset its deferred
tax liability against its net operating losses.





The
components of the deferred tax assets and liabilities are as
follows:





2008
                          
                          
                          2007Deferred
      tax assets:Net
      operating losses
                          
                          $
                          2,646,000
                          
                          
                          $
                          1,730,000Depreciation
                          
                          
                          112,000
                          
                          
                          
                          61,000Options
      issued for services
                          
                          
                          492,000
                          
                          
                          
                          39,000Other
                          
                          
                          68,000
                          
                          
                          
                          37,0003,318,000
                          
                          
                          
                          1,867,000Less:
      valuation allowance
                          
                          
                          (3,262,000
                          )
                          
                          
                          (1,787,000
                          )Net
      deferred tax assets
                          
                          
                          56,000
                          
                          
                          
                          80,000Deferred
      tax liability:Software
      development costs
                          
                          $
                          56,000
                          
                          
                          $
                          80,000




The
components of the deferred tax liability are as follows:





Website
      development costs
                      
                      $
                      56,030Total
      deferred tax liability-current
                      
                      $
                      56,030





At
December 31, 2008 the Company had estimated tax net operating loss carryforwards
of approximately $6.6 million, which expire through its tax year ending in
2028.





NOTE
9: COMMITMENTS





On
January 27, 2004, the Company entered into a 3-year lease for a 2,769 square
foot office facility in Los Angeles, California, which commences on March 15,
2004. Under the terms of the lease, the Company is required to pay initial
monthly base rent of $6,092. The base rent will be increased annually by 3%. On
March 12, 2007, the lease was amended, extending the lease for another 3
years.  Under the new terms of the lease, the Company is required to
pay initial monthly base rent of $7,337, increasing annually by 4%.





At
December 31, 2008, the Company subleases the office facility in Los Angeles to
two subtenants.  The subleases require payments aggregating to $7,337
through June 2010.





At
December 31, 2008, the Company leases certain office space in Santa Ana,
California.  The Company terminated the lease agreement in February
2009. Under the terms of the lease, the Company pays monthly base rent of
$4,800. The lease is renewable every month. During February 2009, the Company
terminated their lease agreement.





During
January 2009, the Company entered into a lease for certain office space in
Newport Beach, California, effective on February 1, 2009.  Under the
terms of the lease, the Company pays monthly base rent of $4,100.  The
lease is renewable every month.





Future
annual minimum payments, net of sublease income, required under operating lease
obligations at December 31, 2008 are as follows:





Future
      Minimum
                  Lease
      Payments
                Sublease
      Income
                Net
      Minimum
                  Lease
      Payments2009
                101,176
                (45,236)
                55,9402010
                45,788
                (45,788)
                -





F-19


As of
December 31, 2008, the Company has 3-year employment agreements with three of
its officers. The agreements are renewable for an additional two-year period at
the option of the applicable employee or consultant. The aggregate compensation
to be paid under such agreements amounts to $360,000 per year. If the employment
or consulting arrangement is terminated without cause by the Company, the
Company is under the obligation, subject to certain restrictions, to pay the
equivalent of one-year compensation, which ranges from $90,000 to $150,000, to
the respective employee or consultant. If the employment or consulting
arrangement is terminated with cause, the Company has no liability for further
payments.





The
commitments under such agreements over the next year is as follows:





Year
              Commitments2009
              $        360,000




NOTE
10: SUBSEQUENT EVENTS (Unaudited)




During
March 2009, the Company raised an aggregate amount of $617,000 in convertible
loan from 16 different lenders. In connection with the loan, the Company issued
to each of the lenders a convertible promissory note and a common stock purchase
warrant. The notes accrue interest at the rate of 12% per annum and mature in
March 2012. Interest may be paid, at the lenders’ option, in cash or in shares
of common stock of the Company. The lenders may convert, at their option, the
outstanding principal of the notes into Company common stock, after June 30,
2009 and prior to maturity date, at the lesser of: (1) $0.50 per share of common
stock; or (2) the effective price per share of a subsequent financing of the
Company occurring prior to the respective maturity date. In addition, the
Company issued to the lenders common stock purchase warrants to purchase an
aggregate of 308,500 shares. The warrants are exercisable for 5 years and expire
on 2014, with an exercise price of $0.55 per share. The Company has the right to
call the warrants, at a redemption price of $.001 per warrant share, commencing
on the first trading day after the common stock of the Company has traded for
ten consecutive days at an average closing price at or exceeding $1.25 per
share.




During
March 2009, the Company issued to a service provider 250,000 shares of Common
Stock and issued a warrant to purchase up to 1,200,000 shares of Common Stock of
the Company. The Warrant is exercisable for a period of five years at a price of
$0.35 per share.




During
February 2009, the Company issued 89,100 shares of common stock to a warrant
holder pursuant to a cashless exercise of a warrant issued to them in connection
with the Company’s Series A Preferred financing.




During
February 2009, in connection with execution of a Termination and Mutual Release
Agreement, the Company issued an Amended Common Stock Purchase Warrant for the
purchase of up to 2,708,333 shares of Common Stock, exercisable at a price of
$0.55 per share, instead of the warrant to purchase up to 5,000,000 shares of
Common Stock issued to the service provider with the original
agreement.










F-20